Spain takes coronabonds campaign to Germany with support at ECB
April 05 2020 11:53 PM
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Paramedics wheel a patient from an ambulance into the emergency department of the 12 de Octubre hospital in Madrid.

Bloomberg/Madrid

Spanish Prime Minister Pedro Sanchez took his appeal for European solidarity to Germany yesterday and found some encouragement at the top of the European Central Bank.
In a piece in Germany’s Frankfurter Allgemeine Zeitung, Sanchez urged the European Union to show “rigorous solidarity” in the fight against the coronavirus outbreak with a new Marshall Plan of public spending to drive the economic recovery. He said the program should be funded by jointly issued debt.
That has so far been a red line for Germany, but the country’s representative on the ECB Executive Board, Isabel Schnabel, told Greek newspaper. To Vima that it’s clear the countries worst hit by the virus will need financial support from the European Union level and that so called coronabonds would be one possibility. ECB President Christine Lagarde has been one of the most strident advocates of joint debt issuance as the EU tries to mitigate the economic damage from the virus.
The fury of the pandemic may be starting to abate in Spain and Italy where the death toll has slowed in recent days but European leaders have seen their economies collapse due to the severe restrictions imposed on movement. A gauge of services and manufacturing activity released Friday pointed to an annualised contraction of about 10% with worse still to come.
The European Commission estimates that each month of lockdown will cut gross domestic product by about 3% and on Saturday Sanchez extended Spain’s state of emergency by another two weeks through April 25. Across the continent, leaders are still more focused on enforcing the lockdown than easing it. UK Health Secretary Matt Hancock told the BBC on Sunday morning it’s too early to start deciding how and when the restrictions can be lifted.
In Austria, where Chancellor Sebastian Kurz has vowed to chart a step-by-step path out of the lockdown on Monday, the number of active coronavirus patients dropped for the first time this weekend, as recoveries outnumbered new positive tests on Saturday and Sunday. The number of intensive care units required by coronavirus patients also fell. Fatalities are still growing by around 10% per day. Bordering on the northern Italian virus hotspot, Austria closed schools and most stores on March 16 and added more measures like mandatory face masks in recent days.
National governments are also pushing their own financial aid policies while they pursue negotiations at the EU level. Italy is finalising new measures to provide liquidity for companies, Finance Minister Roberto Gualtieri the country’s state broadcaster. The government will guarantee loans of up to €800,000 at 100%, and will boost guarantees to 90% on another €200bn in loans.
The UK, which left the EU earlier this year, is working on plans to invest in strategically important companies facing collapse due to the impact of the coronavirus outbreak, the Sunday Telegraph reported, without citing anyone.
European finance ministers meanwhile are due to hold a conference call tomorrow as they try to agree on a framework for delivering financial support to the countries worst hit by the pandemic, and EU leaders could hold their own call later in the week to sign off on the plan if there is progress.
There’s already a broad consensus that the European Stability Mechanism should be mobilized to offer credit lines worth up to 2% of euro-area GDP and ministers are approaching a deal on minimising the conditionality attached. There’s much more dispute over how to finance the reconstruction of the European economy once the virus has passed.
Nine countries lead by France, Italy and Spain are calling for jointly issued coronabonds to spread the financial stress of the rebuilding but Germany, Europe’s fiscal powerhouse, has so far opposed the idea.
“When the virus doesn’t stop at borders, then the financing mechanisms must not do that either,” Sanchez said.
German Finance Minister Olaf Scholz plans to reject the creation of corona bonds at a meeting of euro-area finance ministers on Tuesday, Spiegel reported on Friday.
Behind the debate about how to deal with the virus crisis is a long-running concern about the future of Italy and how far the currency bloc should integrate its finances. The EU’s third-largest economy already had the weakest outlook and the most perilous public finances before the pandemic and is now dependent on support from the ECB to contain its borrowing costs.
Austria too is determined not to be left on the hook for the financial problems of other euro-area states.
“It’s not legitimate” to use the coronavirus crisis “to warm up ideas from five, 10 or 20 years ago, which weren’t implemented back then for good reasons,” Austria’s Finance Minister Gernot Bluemel said in an interview with German newspaper Welt am Sonntag.
“There are no factual reasons for corona bonds” and talks should instead focus on existing instruments like ESM credit lines, he said.

Last updated: April 05 2020 11:53 PM


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