EU nears deal on coronavirus package as Germany puts its foot down

BRUSSELS (Reuters) – Prospects for a European Union deal on a package to support its coronavirus-battered economies brightened on Thursday as Germany put its foot down to end opposition from the Netherlands and to reassure Italy that the EU would show it solidarity.

Earlier, Italian Prime Minister Giuseppe Conte said the EU’s existence would be under threat if it could not come together to combat the pandemic, as objections from the Netherlands blocked a deal that all other countries were ready to back.

For weeks, the 27 EU member states have failed miserably to show the bloc’s supposed solidarity in the face of perhaps its greatest challenge, squabbling not only over money but also go-it-alone border restrictions and bans on medical exports.”It looks like an agreement is possible,” German Finance Minister Olaf Scholz said, signalling that the Netherlands had softened its stance of demanding tough conditions for countries such as Italy and Spain to draw on aid funds.

Italian benchmark 10-year bond yields fell on the news to 1.599% from 1.614%.

“We’re trying to do the maximum to help to bring the negotiations to a successful conclusion,” Dutch Prime Minister Mark Rutte told reporters in The Hague, shortly before European finance ministers were due to meet by video conference.

German Chancellor Angela Merkel had earlier held phone calls with Rutte and Conte.

“NEED FOR SOLIDARITY”

She said she and Conte had agreed on the “urgent need for solidarity in Europe, which is going through one of its most difficult hours, if not the most difficult”.

“And Germany is ready for this solidarity and committed to it. Germany’s wellbeing depends on Europe being well,” she said.

She made clear Berlin would not agree to jointly issued debt, something Italy, France and Spain were pushing for but a taboo for northern EU members, but said other financial avenues were available.

Officials said Merkel also asked Rutte to stop blocking the deal, intended to provide a safety net for governments, companies and individuals against the deep recession the pandemic is expected to cause this year.

“The feeling in Germany is that everyone has done enough posturing for their domestic audiences by now. It’s time to come together,” one senior EU official in Brussels said.

Discussions have so far been fraught between the more fiscally conservative north and the indebted south, which has been hit hardest by the pandemic.

Having already talked for 16 hours, the ministers were to resume discussions at 7 p.m. (1700 GMT) on Thursday.

Dutch Finance Minister Wopke Hoekstra said some of the more contentious technical issues would still have to be passed upstairs to national leaders.

But the senior official said Merkel was set against this:

“She wants the finance ministers to really agree on a package, not just patch things up and throw it back to the leaders’ table. If the ministers fail again today or tomorrow morning, they will just have to meet again.”

THREE TRILLION EUROS

The package under discussion would bring the EU’s total fiscal response to the epidemic to 3.2 trillion euros ($3.5 trillion), the biggest in the world. But some of its elements have exposed deep divisions on sharing the financial burden of crises, evoking the bitter disputes and mistrust of the sovereign debt crisis of 2010-2012.

The problem is agreeing conditions under which euro zone governments could access cheap credit from the euro zone bailout fund, the European Stability Mechanism (ESM).

Italy, and most other countries, are ready to accept very light conditions, but the Netherlands wants stricter rules including country-specific economic criteria, which are politically unacceptable for Rome.

The package also includes more guarantees to help the European Investment Bank back up companies, and a scheme to subsidise wages so that firms can cut working hours, not jobs.

A separate plan to finance the recovery, after the epidemic, raises more questions. France and the southerners want the money – possibly up to 3% of EU GDP, or more than 400 billion euros – to be borrowed jointly by all EU states.

This is a red line for Germany, the Netherlands, Finland and Austria, which strongly oppose joint debt issuance, even in such an emergency.