Covid-19 recovery plan for the European Union

On April 17, the European Parliament rejected a text on economic aid to be put in place against the coronavirus epidemic and which called for the use of eurobonds or in any case “debt mutualisation” systems. On the other hand, it approved a text that represents the maximum possible compromise. Indeed, the European Parliament has approved a joint resolution on the measures needed to counter the consequences of the Covid-19 pandemic. The adopted resolution provides for full flexibility in the use of structural funds to deal with the coronavirus emergency thanks to the introduction of a € 1,000 billion recovery fund. The resolution also urges Member States to use the ESM.

In point 23 of the resolution, the European Parliament claims that the ESM must be activated with its firepower of 410 billion euros for all countries that request it to respond to immediate needs compared to Covid-19, with repayment times very long, competitive prices and with conditions that depend on the recovery of economies. “The only requirement to access the ESM credit line will be that the States undertake to use it to support the financing of direct or indirect healthcare costs, care and costs of prevention connected to Covid-19”: this is what is stated in the conclusions of the Eurogroup. The credit line will be available until the end of the emergency. After that, states remain committed to strengthening economic fundamentals, consistent with the European fiscal surveillance framework, including flexibility.

The Eurogroup agrees to work on a Recovery Fund to support the recovery. The fund will be temporary and commensurate with the extraordinary costs of the crisis and will help to spread them over time through adequate financing. Subject to leadership, the discussions on the fund’s practical and legal aspects, its source of funding, and innovative funding tools, consistent with the Treaties, will pave the way for a decision.

Among the innovative financial instruments with which to feed the Recovery plan there could also be a common debt, but this does not mean mutualisation of the debt. This is what French Finance Minister Bruno Le Maire kept to clarify during the press conference following the Eurogroup meeting.

In short, this text represents a compromise basis in which everyone can find something right now. Insufficient to respond to the drama that we are experiencing in the medium term, certainly. Point of departure and not of arrival. But it is useful to start approaching positions that are far away for now and also to demonstrate that working in a common and public institutional framework, agreements are easier and more constructive than behind closed doors and secret reconciliations of naval battles between national governments.

By: Domenico Greco