Brussels eyes 1.5-trillion-euro virus recovery fund

BERLIN, Germany – European Commission Vice-President Valdis Dombrovskis said on Tuesday, April 14, the European Union (EU) may need a 1.5-trillion-euro ($1.6-trillion) economic recovery fund following the coronavirus pandemic, but the financing of such joint spending remains murky.

“I could imagine that kind of level of financing,” Dombrovskis told German business daily Handelsblatt when asked about the 1.5-trillion figure, although “so far nothing is decided.”

Finance ministers from the 19 euro single currency nations last week agreed a package worth over 500 billion euros to cushion the immediate impact of the virus.

The toolbox includes loans from the financial-crisis-era European Stability Mechanism (ESM), but without the tough economic and fiscal reform conditions normally involved.

The ESM is flanked by guarantees for business lending from the European Investment Bank and a eurozone unemployment reinsurance scheme.

But after a war of words lasting several weeks, the finance chiefs could not agree on so-called coronabonds, joint debt instruments to finance recovery from the crisis urged by EU members such as badly hit Italy.

While the focus so far has been on footing the health bill for the virus pandemic and shielding businesses and workers from the financial fallout, politicians are already eyeing the day after the crisis.

EU leaders will hold a videoconference on April 23 “to lay the ground for a robust economic recovery,” European Council President Charles Michel said last week.

The idea of a coronavirus recovery fund has been brought up by many leading EU figures, with French Finance Minister Bruno Le Maire proposing 500 billion euros.

Meanwhile, Internal Market Commissioner Thierry Breton on Sunday, April 12, suggested 10% of EU output would be needed, calling for one trillion euros on top of the 500 billion already agreed, the same amount urged by Italy’s Finance Minister Roberto Gualtieri.

Asked about joint bonds to finance reconstruction, Dombrovskis told Handelsblatt that “we expect the question to be on the table” at the April 23 heads of government meeting.

The commission is “working on new financing instruments” beyond national contributions that usually flow into the EU’s 7-year budgets, Dombrovskis told Handelsblatt.

“We could finance the reconstruction fund with bonds backed by a guarantee from the member states.”

‘Unprecedented crisis’

More heavily indebted southern countries, like Italy and Spain, see such coronabonds or “eurobonds” as a way to borrow the money needed at more reasonable interest rates than they could get if they went direct to the markets themselves.

But northern countries like Germany and the Netherlands fear ending up on the hook for bills run up by neighbors they see as lax with their money and budgets.

“We must be clear with ourselves that we are in an unprecedented crisis,” Dombrovskis said on Tuesday.

“It’s becoming necessary to break out of old patterns of thought.”

Italy wants coronabonds so it does not have to resort to the ESM, a politically unpopular choice which the center-left coalition government fears will fuel the far-right.

Deputy economy minister Antonio Misiani said on Monday, April 13, Rome “will not use the ESM,” but would avail itself of the bloc’s unemployment scheme, the European Investment Bank’s guarantee fund, and other measures. – Rappler.com