€240 billion in low-cost credit for eurozone states

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Eurozone ministers have formally approved €240 billion in credit lines to help European countries meet the crippling costs of fighting the coronavirus outbreak.

The plan will be run by the eurozone’s rescue fund, the European Stability Mechanism, and is a first big step for the EU’s joint effort to lift an economy projected to contract by 7.7 percent this year.

The ESM handled the rescue of countries such as Ireland from national bankruptcy during the financial crisis.

Its aid programmes are usually linked to tough conditions for budget belt-tightening, overseen by outside monitors.

But, under the agreement announced in a joint statement, the EU executive will waive the usual tight supervision as long as the spending remains linked to fighting the pandemic.

The agreement now has to be approved by some member states’ parliaments, including the Bundestag in Germany.

Under the deal, every country in the 19-member single currency union can take advantage of low-interest loans of up to two percent of its economic output. 

In the case of Italy and Spain, which were particularly hard hit by the coronavirus pandemic, this would be €36bn and €25bn respectively.

Minister for Finance, Public Expenditure and Reform Paschal Donohoe said last month that he hoped Ireland would not need to use the fund from the European Stability Mechanism but may need “limited access” to an EU rescue package to help fund the wage subsidy scheme and help support companies.

Ministers have been struggling to agree on the more long-term rescue fund that would relaunch the economy and spread public spending more fairly throughout the continent.

The issue has caused bitterness between the EU’s richer north and the more indebted south, with northerners led by the Netherlands accusing partners such as Italy or Spain of chronic overspending.

Eurogroup chief Mario Centeno insisted on Friday that an ambitious plan was crucial to ensure that economic recovery was felt equally across the continent.

“Not all countries have the same firepower, and we need to secure a level playing field,” said Centeno, who is also Portuguese finance minister.

France has submitted its own proposal for the fund that would involve joint borrowing by EU nations, but this will be firmly rejected by the so-called “frugal” northerners, including powerful Germany.

Dutch Finance Minister Wopke Hoekstra insisted that the EU should take its time in coming up with a plan, and that finding out what was actually needed was the priority.

How the plan will be funded was  “secondary”, he told reporters after the talks. “The most important thing here is to have a thorough discussion on on what is needed, and how to structure it.”

The European Commission – the EU’s Brussels-based executive – was originally slated to come up with a plan linked to the bloc’s budget on 6 May, but this has been delayed for a few weeks at least.