Saturday, July 11, 2020

Euro countries agree on the design of Corona aid

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Mario Centeno

“Reflecting the extraordinary nature of the crisis, we agreed on favorable and appropriate financial conditions,” said the head of the Euro Group.

(Photo: AP)

Brussels The billion-dollar Corona crisis relief funds from the ESM euro rescue fund should be ready by the end of next week. The Eurogroup agreed on the conditions for the credit lines of up to 240 billion euros on Friday. But next week the Bundestag still has to agree. The final step would then be a formal decision by the ESM on May 15, as Eurogroup leader Mario Centeno said.

“Today, the euro countries have sent a strong and solidary signal that they want to fight the corona crisis together,” said Federal Finance Minister Olaf Scholz after the meeting. Now the prerequisite has been created to “arm” the reserve quickly.

Due to the dramatic economic consequences of the pandemic, finance ministers agreed in early April on a rescue package for jobs, companies and indebted countries worth more than 500 billion euros. These include the special ESM credit lines, which are to be open to all euro countries. They are intended for the direct and indirect health costs of the corona pandemic and can make up up to two percent of the gross domestic product.

However, the countries particularly affected in the pandemic, for which this aid is intended, have so far been very reserved, including Italy and Spain. They fear strict conditions, such as austerity programs, which were common for ESM loans in the euro crisis. After the agreement of the finance ministers, Eurogroup leader Centeno made it clear that the use of money for health costs was the only condition for the loans. “There are no other hooks and eyes for using this facility,” said Centeno.

The EU Commission had already made this clear in an open letter prior to the Eurogroup video conference. There should be no savings or reform requirements with this unique and dedicated program. Controls would focus on whether the ESM funds were actually used for “direct and indirect costs” for health care, healing and preventive care related to Covid-19.

French government launches its own concept

Scholz said that hopefully the help for short-time workers in the “Sure” program and the SME loans from the European Investment Bank – the other two elements of the 500 billion package – will start soon. “With the early end of the lockdown in most countries, work on the European fund for economic reconstruction is now pending,” added the SPD politician.

The EU countries have already agreed on this fund for economic recovery. But details are controversial. EU Commission chief Ursula von der Leyen is to work out a model capable of reaching a consensus, probably in the next two weeks. It works around the clock, said EU currency commissioner Paolo Gentiloni.

The French government launched its own concept on Friday. According to this, the reconstruction fund will be equipped with 150 to 300 billion euros per year over the next three years. The EU Commission could issue bonds that are guaranteed by the 27 member states. The funds raised in this way should at least for the most part go to grants to crisis countries in the EU. The debt is to be repaid from the EU budget by around 2060. Several points are likely to meet criticism, including the payment of the money as a grant.

The Eurogroup also dealt with the Federal Constitutional Court’s ruling on bond purchases by the European Central Bank. Centeno emphasized two principles: EU law was above national law and the ECB was independent. “This is very important,” he said. Gentiloni left open whether the EU Commission could open infringement proceedings against Germany because of the judgment. First, the verdict will be examined closely, he said. The Karlsruhe judges raised objections to certain ECB bond purchases this week, overriding a European Court ruling.

More: The ECJ sees the EU legal system endangered by the Karlsruhe ruling.

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