Head of Macroeconomic Research
Summary: After 16 hours of unsuccessful negotiations, the Eurogroup is suspended. Italy and the Netherlands are still at loggerheads. The discussion between finance ministers should resume on Thursday again. The press conference that was initially scheduled at 10 AM (Brussels Time) is canceled.
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:
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.
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