Corona bond: On Eurozone COVID-19 rescue package

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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.

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