Thoughts on the Eurogroup videoconference

Mario Centeno, president of the Eurogroup: “After 16h of discussions, we came close to a deal but we are not there yet. I suspended the Eurogroup and we will continue tomorrow, on Thursday”.

Olaf Scholz, German finance minister urged countries not to “refuse compromise”.

Wopke Hoekstra, Dutch finance minister: “It is too early to agree on a comprehensive package”.

Videoconference result:

• Surprisingly, the Eurogroup did not kick coronabonds down the road, so the instrument might still be debated as part of the toolkit in further negotiations.
• On Twitter, the German Finance minister, Olaf Scholz, confirmed that they were close to a draft compromise last night supported by France, Germany and Spain but that was turned down by the Netherlands and Italy.
• Italy asked for explicit mention to coronabonds instead of “innovative financial instrument” in the draft agreement and demanded no conditionality on ESM loans.
• The Netherlands insisted on “phased” conditionality to ESM and ditched any discussion about a post-crisis package to deal with the reconstruction phase.
• The Frugal four (Austria, Finland, Germany and the Netherlands) want assurances the European unemployment scheme (SURE) is temporary.
• The French fund for joint investments and Spain’s Special Purpose Vehicle have apparently not been lengthy discussed and will be left for EU leaders to debate.

Comment

The endless game of pandemic ping-pong between Italy and the Netherlands led to a new inconclusive meeting between the finance ministers. As was the case two weeks ago, the sticking points are how to refer to the ESM and a post-pandemic recovery plan. The suspension of the Eurogroup until tomorrow is rather positive as it will allow Germany and France to increase pressure on the Netherlands and Italy in the interim.

We are optimistic about the possibility of a watered-down agreement tomorrow that could include a revised EU multiannual financial framework, higher EIB guarantees (€200bn according to preliminary discussions) and potentially a one-off transfer to countries in need whose amount could be higher than that initially suggested by the Netherlands (between €10-20bn). It is also likely that the European Commission will give the assurance that SURE, based on a loan mechanism, will be temporary. By contrast, the ESM and attached conditionality might remain a stumbling stock.

Regarding the post-pandemic comprehensive, it will certainly be up to EU leaders to discuss it further in the coming weeks or months, depending on the evolution of the health crisis. At some extend, the Netherlands are right to indicate this discussion is a bit premature given that most European countries have not even defined an exit strategy, apart from Austria and Denmark. We still believe that the discussion over coronabonds will comeback when it will be time to talk about the economic reconstruction phase, at the earliest in the summer.