France hints at EU coalition of willing to issue joint debt

 France is not ruling out the idea of issuing debt with other European countries and could set up a coalition of motivated countries in the event of a German veto, an Elysian source told Reuters agency. The idea of a coalition initially floated by Pascal Lamy could yet make its way.

While the Eurogroup is divided over the management of the health crisis, France supports the need to back Europe’s economies hardest hit by the coronavirus crisis such as Spain and Italy, which are also among the most indebted countries in Europe.

Germany’s internal recovery plan risks accentuating inequalities between European countries, and will not serve much purpose since a large part of the German economy’s output is bought by the rest of Europe. “It’s strange that Germans cannot understand that they can’t cope if the rest of Europe collapses. In fact, they don’t take responsibility politically,” says one economist.

Former Greek PM Alexis Tsipras recently said the ESM could be the ideal mechanism to issue a grand coronabond considering its creditworthiness to borrow on exceptional terms.

“A eurobond without Germany and the Netherlands would certainly not be as strong, but let’s not forget that the other member states together represent over 2/3 of EU GDP. They just need to have the will to move forward. This may also be the only way for Europe to move forward,” he said.

The Netherlands and Italy are still at odds over the conditionality attached to ESM bailouts. Although it agrees with low conditionality during the coronavirus crisis, The Hague insists that after the crisis is over the countries need to carry out reforms as part of a normal ESM bailout. On the other hand, Rome aims for zero conditionality.

In an interview with Greek MEGA TV channel yesterday, European Commission Vice-President Margaritas Schinas said “few doubt that at the end of this process there will be no conditionality as we knew it in the bailout times”.

He said Europe faces today a “symmetric exposure to risk and the answer should also be symmetric”.

“We definitely need a safety net, a fund, we will find the term to describe it, but basically what the finance ministers are now discussing is how to build a sufficient economic dimension through the European Stability Mechanism,” he added.

France has proposed the creation of a Corona Fund but it’s still undecided how it’s going to be financed. The wording of such a proposal is crucial, considering that it may imply issuing common debt. Sources suggest that the issue will be handed over to EU heads of states.

[EURACTIV.FR, Sarantis Michalopoulos | EURACTIV.com]

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