Congratulations, it’s a fudge: EU crisis deal leaves much unresolved

BRUSSELS (Reuters) – EU finance ministers gave themselves a round of applause as they wrapped up talks on Thursday night with agreement on a package of measures worth half a trillion euros to cushion the blow of the coronavirus pandemic.

Their deal was a classic European Union fudge, however, and it left unresolved the most contentious question of how to share the financial burden that has so bitterly divided them.

French Finance Minister Bruno Le Maire said that after 16 hours of “brutal” inconclusive negotiations earlier in the week, the ministers realised they were “standing at the edge of the abyss and what is at stake is quite simply the construction of Europe”.

While Paris and Rome said the agreement paved the way for issuing common EU debt to kickstart economic growth on the continent headed for a steep recession, The Hague and Berlin said no “coronabonds” will happen.

The art of the EU deal lies in ambiguous language that leaves the matter open to further arm-wrestling between the divided member states, whose national leaders will meet via videoconference on April 23.

“Way too early to celebrate the Eurogroup’s deal,” Mujtaba Rahman, Eurasia Group’s managing director for Europe, said in a research note that predicted a flare-up over the undecided details when it comes to implementing the package of measures.

The agreement includes almost unconditional use of the euro zone’s European Stability Mechanism (ESM) bailout fund for loans to governments, a scheme to subsidise wages so that firms can cut working hours rather than jobs, and a plan for the European Investment Bank to step up lending to companies.

INTO LONG GRASS

However, the ministers kicked into the long grass the question of how to pay for a temporary recovery fund for Europe because it goes to the heart of a disagreement over jointly issued debt.

This has been the stumbling block all along, pitting a camp of financially ailing southern states led by Italy against the Netherlands as the bulwark of the fiscally conservative north.

“Don’t expect this thing to fly any time soon,” ING said in a research note forecasting more arguments over debt mutualisation or other funding sources.

Still, the agreement was a moment of relief for the EU after weeks of rows that had exposed the bloc’s disunity in the face of the coronavirus crisis.

The EU has already relaxed limits on state aid and public spending to help its 27 member states combat the slump and restart growth, and the European Central Bank has approved a 750 billion euro bond purchases programme to keep credit cheap.

German Chancellor Angela Merkel and French President Emmanuel Macron both called Dutch Prime Minister Mark Rutte ahead of Thursday’s meeting to persuade him to give enough ground to clinch a deal on more aid.

With the wording of their agreement left ambiguous enough, all sides could claim a victory.

“We can breathe a bit more easily,” Nadia Calviño, Spain’s economy minister, told Cadena Ser radio.

The problem is that the bloc’s leaders will now have to agree on what is meant by “innovative financial instruments” when they come to thrash out the scope and sources of funding for the recovery fund.

Some diplomats and officials suggested it could be raised against the bloc’s joint coffers but the EU’s next long-term budget for 2021-27 is another area of serious disagreement between member states struggling for a compromise by year-end.

And without any agreement on debt sharing, Thursday’s deal does not solve the longer-term question of debt sustainability in countries such as Italy, which have been most affected by the crisis.

“While unconditional use of the ESM was unthinkable just a few months ago, more unthinkable steps would need to happen for individual country risk to disappear,” the ING note said.