EU warns ‘European project’ at risk over corona pandemic

31 March, 2020 12:00 AM printer

ROME: The European Union warned Monday that economic policy disagreements among member states in reaction to the coronavirus pandemic risked splitting and dooming the European project, reports AFP.

EU Economics Commissioner Paolo Gentiloni, a former prime minister of Italy, also told Italy’s Radio Capital that mutualised debt would never be agreed upon by eurozone members, but that it was essential for Germany to come to an agreement with its southern neighbours currently hardest hit by the pandemic.

“The European project is in danger of dying out,” Gentiloni told Radio Capital.

“It is clear that if the economic differences between European countries, rather than shrinking in the face of a crisis like this, instead increase... it will be very difficult to keep the European project together,” he warned.

Without Germany, he added, “we cannot find a compromise”.

On Thursday, Germany and other northern EU states rejected a proposal backed by nine countries, including Italy, Spain and France, for so-called “coronabonds”.

These would be issued in the name of the eurozone as a whole and in effect result in pooled debt among member states of the single currency zone—a long established red line in Berlin.

Gentiloni said he had expected that reaction by Germany, calling it a “long-standing vision that we know by heart”.

Germany has repeatedly dismissed the idea of mutualised European debt as an attempt by over-spending southerners to take advantage of the cheap borrowing rates enjoyed by states with balanced budgets, without being subject to fiscal austerity measures.

European member states should “start with the common objectives” in order to break the standstill, Gentiloni said, adding that he recognised that pooled borrowing would never be agreed upon.

“We need a new unemployment guarantee instrument, a business support plan and we need the “Green Deal” development model to not be forgotten,” he said, adding that one possible way to finance such objectives was to issue bonds.

“One is to issue bonds, but not generically to mutualise the debt, which will never be accepted,” he conceded.

Gentiloni also said he was “not very optimistic” about continued discussions over the possible use of the European Stability Mechanism, which normally attaches strict fiscal conditions to its emergency borrowing.

Some say that mechanism, set up in 2012 during the European sovereign debt crisis, would in the current coronavirus crisis unfairly punish already highly indebted countries such as Italy, imposing new and unattainable conditions for fixing its public finances.

Comparisons with past crises were unhelpful in confronting the challenge posed by the coronavirus pandemic, Gentiloni suggested, a view also voiced by Italy’s minister for European affairs.

“It’s a new crisis, it’s not comparable to the crisis of 2008, there is no guidebook, there are no clues that leaders recognise from the past,” European Affairs Minister Vincenzo Amendola told journalists on Monday.

“When we think about the sacrifices of the people, it’s a huge, extraordinary novelty with dramatic consequences, and leaders must respond to the challenge.”