Corona bond

Deliberations on the €540-billion emergency rescue package that Eurozone Finance Ministers agreed on Thursday underscore the difficult road ahead to chart the economic recovery from the coronavirus crisis. They also decided to open an emergency credit line in a fortnight, raise the lending capacity of the European Investment Bank and back the European Commission’s €100- billion unemployment insurance scheme. Separately, the European Central Bank in March decided to expand its asset purchase programme by €750-billion over the next nine months, even as its President, Christine Lagarde, pledged to do whatever it took to save the single currency. Thursday’s steps have been hailed as swift and substantial. But the current formula has stoked controversy, like during the economic meltdown, over burden-sharing between the richer members in the north and the poorer states in the south. The Netherlands initially opposed demands from Italy, the country worst affected by the virus outbreak, that the pandemic credit to be issued by the European Stability Mechanism be stripped of any conditionalities. Rome’s reasoning that the public health emergency was universal and symmetrical may have influenced the final deal, which allows governments borrowing from the bailout fund to spend up to 2% of GDP on direct and indirect costs of the pandemic without strings attached. All the same, the emergency package has drawn furious opposition from the populist Five Star Movement in Italy’s ruling coalition as also the far-right and Eurosceptic Northern League, linked to apprehensions about intrusive EU inspections. But a key concern is the frustration among Rome’s pro-European elites with what they regard as reluctance by Brussels to extend meaningful support.

France, Italy and Spain, the bloc’s three largest economies, with six other members in the euro area wrote in late March to the European Council President, renewing calls for joint issuance of Eurobonds, now dubbed corona bonds. Ms. Lagarde has backed such a move. The idea of mutual issuance of debt has drawn only a lukewarm response from Berlin, Amsterdam and the bloc’s other members. Significantly, cracks have appeared in the Netherlands’ ruling coalition over the government’s orthodox fiscal stance, where the opposition Labour and Green parties already advocate Eurobonds. With the Eurozone’s three largest economies after Germany throwing their weight behind the new financial instrument, it may not be long before the bloc’s fiscal hawks rethink their stance. The economic and political consequences of failure on this count would hamper the post-pandemic recovery, and could affect European solidarity. European leaders would do well to address this fact when they formulate an economic recovery after the crisis.

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