Coronavirus has struck a large number of human lives, this is the reason why the majority of the countries have decided to start a period of lockdown.
The quarantine, in Italy, has obliged the majority of firms to stop their activities, as they are not considered essential goods makers. This situation is clearly leading the global economy to a crisis that, perhaps, we have never seen before.
Meanwhile, politicians are discussing which are the tools that can help the different countries to overcome this hard situation.
Of course, this is creating a lot of tensions and disagreements between politicians of different countries.
Certainly, finding the solution in such uncertain period is a great challenge and, as we don’t know the development of the overall situation, the answer may have both positive and negative consequences.
Let’s have a look at the two main possible solutions that politicians are constantly discussing in this hard time: Eurobonds and the European Stability Mechanism.
The European Stability Mechanism (ESM) is a fund, born in 2012, to help countries in need. Each European country takes part in this fund by giving a proportional amount of money based on the dimension of his economy. When a state needs resources that cannot raise by issuing sovereign bonds, it can borrow the needed amount from this fund. Of course, this debt is subject to strict conditions that, if not complied, can lead to severe sanctions. Indeed, the country that uses this tool can be obliged to put in place structural reforms that are normally subject to the single countries autonomy.
This kind of solution has triggered a lot of discussions and disagreements between European leaders, which are divided in their opinions. In particular, the Italian government thinks that it is not an adequate tool for this kind of crisis because of the strict rules that it implies. On the other hand, other countries, like Germany, think that it would be the best way to face the upcoming period of economic downturn.
But how would the EMS be used in this specific case? It would consist in activating a credit line from which each country could borrow an amount of money up to 2% of the national GDP, without incurring in the strict conditions mentioned above. These funds would be subject to standard conditions for all the countries that require to use this instrument.
So far, the only certain condition is that the money must be used in about two weeks to face the expenses generated by Covid-19 crisis.
A lot of details are still missing; indeed, it is not clear for how long this credit line would be activated and also which could be the interest rate. What seems to be true is that taking part to the EMS does not mean to activate it.
The other hypothetical solution could be the emission of “Eurobonds”. The Eurobond is a financial instrument which wouldn’t be issued by a single country, but by all the EU countries.
This implies a common debt issued at supranational level, with the purpose of providing funds for the expenses of the global health crisis, such as giving financial aids to the hospitals, to researchers, and so on., without any mutualisation of the countries existing debt. This peculiar instrument could be issued by the European Investment Bank.
In addition to that, some countries (in particular those of the south) are pushing for using Eurobonds not only for supporting the National health systems to bear the Coronavirus impact, but also as an instrument issued to raise common funds to overcome the economic crisis that is going to bring several countries on their knees.
These instruments have been widely discussed, but the use of the ESM seems to be the most agreed by the majority of the countries in the UE.
The die is cast, the Italian government remains against the use of EMS, and Giuseppe Conte is still working to find a common solution to the crisis.