‘If the EU fails in this hour of need, it can pack up’ - Edward Scicluna

Eurogroup finance ministers have rallied behind a call for compromise by Malta, after failing to reach an agreement over the bloc’s fiscal response to the Covid-19 emergency, following a 16-hour long teleconference.

The Eurogroup meeting, which kicked-off one hour later than planned, had to take several breaks before calling it a day yesterday morning. The all-night talks focused on the ways to use EU’s bailout fund, namely the European Stability Mechanism (ESM) and on whether or not to include the Coronabonds scenario.

Finance Minister Edward Scicluna told BusinessToday that the major disagreements registered were between Nordic countries and southern member states – excluding Malta.

Italy and the Netherlands were found clashing on the conditions for eurozone credit for governments fighting the pandemic, with the latter insisting on “phase” conditionality in case of using ESM’s credit lines and Rome demanding that no conditions be attached. According to reports, Italy’s Finance Minister Roberto Gualtieri said his government wouldn’t accept a final report sent to EU leaders unless it explicitly mentioned debt mutualisation as a tool for the economic recovery.

“We Maltese, by our very nature, are somewhere in between these two extremities,” Scicluna said.

“In general we are for solidarity. We have shown it in the past with regards to countries needing a bail-out but we also want our liabilities known, apportioned and capped.”

He said that Malta was for using the ESM like the International Monetary Fund and remove its existing stigma to be used for this crises or any other one in the future.

“However on Tuesday night (or was it this morning?) we as Maltese made a plea to our colleagues to accept the compromise text since the health and economic problems out there are much, much bigger than the technical issues and problems we were discussing in the meeting,” Scicluna told BusinessToday. “If the EU fails in this hour of need it can pack up.”

He said there were many members states who supported his plea.

“I have no doubt that today we will see an agreement but not before some showmanship and some cliffhanger negotiations,” Scicluna said. “I know. I am longest serving finance minister in the meeting.”

What’s on the table

Scicluna explained that, going into the Eurogroup meeting, the EU presidency had already taken into consideration the various red lines between the members, the areas of agreement and above all what the Commission and other EU institutions were proposing. In short, the Eurogroup had before it a compromise text.

“Essentially it contained a package recognising the flexibility given to individual governments by the Commission so far regarding state aid and basing its added boost through four pillars which are meant to assist the countries face the enormous physical and economic health challenges and leading to the much sought economic recovery,” Scicluna said.

The first two pillars dealt with how member states should  make use of their European financial institutions – the European Investment Bank and the ESM.

The European Investment Bank was offering a €25 billion guarantee fund to member states, which translates into €200 billion of financing for EU enterprises, mostly SMEs.

The offer of the ESM which was set up to bail out countries and which still carries a stigma was the biggest bone of contention.

“There were those who expected to behave like a bank and issue a Eurobond, referred to as Coronabond,” Scicluna said.

“The bottom line is to help weaker countries who would be able to issue debt and expect mutualisation of a guarantee, for which all EU countries would be jointly and severally liable. Failing that it could issue credit lines to Eurozone countries and balance of payments facility to non-Eurozone ones.”

Wopke Hoekstra, the Dutch Finance Minister maintained his hardline stance against issuing a common debt with other EU nations to share the burden of the Covid-19 pandemic. “NL was and remains against the idea of Eurobonds, we think this will create more problems than solutions for the EU. We would have to guarantee debts of other countries which isn’t reasonable. The majority of the Eurogroup shares this view and does not support Eurobonds,” he wrote on Twitter.

The third instrument - SURE - is also a loan-based instrument to provide financial assistance related to wage and jobs support.

The fourth instrument is the creation of a recovery fund to invest in the EU in the aftermath of the crises.