European governments are scrambling to put together hundreds of billions of euros to save lives, companies, and families from going bankrupt as countries hit hardest by the virus are also those that can least afford the costs, like Italy and Spain.
European governments remained at loggerheads on Wednesday over measures to help the economy weather the coronavirus outbreak, breaking off a meeting of finance officials who clashed over aid conditions and a proposal to borrow together to pay for the health crisis.
Finance ministers from the 19 countries that use the euro haggled into the night for 16 hours by videoconference starting on Tuesday. The meeting ended without a deal and will resume on Thursday.
European governments are scrambling to put together hundreds of billions of euros to save lives as well as companies and families from going bankrupt.
Many countries hit hardest by the virus are also those that can least afford the costs, like Italy and Spain.
But they are divided over how best to tackle the challenge.
Italy and Spain, backed by France, want to throw all the EU’s economic might into fighting the virus and damage from the disruption it has caused as soon as possible.
The deadlock recalls the divisions from the eurozone debt crisis of 2010-2015.
On the table is a three-part package amounting to around $550 billion.
It consists of up to $260 billion in emergency loans from the eurozone's standing bailout fund, credit guarantees from the European Investment Bank to keep companies afloat, and support for short-work schemes that help companies avoid layoffs during what is hoped are temporary business interruptions.
Italy rejects bailout fund
Italy has rejected using the bailout fund, the European Stability Mechanism. One reason is that the money is supposed to come with conditions to carry out economic reforms, based on the fund's original purpose as a bailout refuge for troubled countries.
Italy argues that makes the ESM the wrong tool since the virus is no country's fault.
Prime Minister Giuseppe Conte has dismissed the bailout fund as “totally inadequate.” Germany has proposed waiving most conditions on the money, but the Netherlands has pushed for requiring reform promises.
The issue of conditions raises the spectre of the harsh austerity imposed on Greece after its three bailouts during the debt crisis, with deep cuts in spending and salaries, official visits by an enforcement committee and the perception of a loss of national sovereignty.
German Finance Minister Olaf Scholz said he and his peers were close to a deal on the bailout loans, company support, and short-work schemes.
“We are mostly in agreement but not quite all the way,” he said, citing the need for unanimity over conditions for the ESM loans and that he expected agreement before the end of the week.
He said the position of Germany and other countries was that loans should come with minimal conditions and “should not mean that, as happened 10 years ago, commissars or troika travel to the countries and develop a programme for the long-term.”
Italy, backed by France, Spain and six other countries, had pushed to go even farther than using the ESM and rely on a shared bond issue backed by all countries to raise money at low-interest rates and favourable conditions such as long repayment.
Germany and the Netherlands have resisted common borrowing. Scholz said there had been discussions about a longer-term recovery program that could be discussed separately from the three aid programs under discussion but did not provide details.
French Finance Minister Bruno Le Maire tweeted that he and Scholz “call on all European states to rise to the exceptional challenges to reach an ambitious agreement.”