Thoughts on the EUCO videoconference

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  After six hours of intensive talks yesterday evening, the EU leaders were unable to find common ground for a coordinated fiscal response to tackle the health and economic crisis resulting from the COVID-19 outbreak. They ended up asking the Eurogroup to come up with new proposals in the next two weeks. It was laughable, a complete waste of time.


The European Council has released a “joint statement” and not conclusions because Spain and Italy refused to endorse them (see here). EU observers know well that a “joint statement” usually reveals deep divisions between members states on the policy to conduct.

EUCO final joint statement: “We take note of the progress made by the Eurogroup. At this stage, we invite the Eurogroup to present proposals to us within two weeks. These proposals should take into account the unprecedented nature of the COVID-19 shock”.

Mark Rutte, Prime Minister of the Netherlands, after the EUCO videoconference: “I cannot foresee any circumstances in which the Netherlands will accept eurobonds. This is against the design of the EMU”.

Summit results:

  • The EU leaders did not find common ground for a fiscal coordinated response (ESM credit line, coronabonds etc.) and asked the Eurogroup to come up with more proposals in two weeks.
  • According to various media reports, the Netherlands blocked any reference to the ESM treaty in the final statement as the Dutch finance minister considers it is still too early to activate this instrument.
  • Italy was firmly against the activation of an emergency credit line due to the (light) conditionality and the potential stigma attached to the ESM financial assistance.
  • Finland joined the group of opponents to coronabonds which already gathers Germany, the Netherlands and Austria (see the below map, courtesy of our graphic designer Julie).

Comment

Yesterday’s EUCO videoconference was a useless meeting, disgrace to the EU. EU leaders failed to show solidarity to other member states when they need it the most. We had low expectations but we, at least, believed there would be some progress regarding the ESM credit line. It also seems that coronabonds, which would not require major institutional changes, and still constitute one of the best hopes for countries in distress, were barely part of discussions.

We still expect some kind of unambitious fiscal coordinated response at one point, but in a period of crisis, no one cannot afford to wait for two weeks, or probably longer, to address the current tension. Europe is wasting precious time in buzzword bingo between EU leaders. We are afraid that the next Eurogroup meeting, which is tasked to come up with new solutions, will be inconclusive. Finance ministers do not have a clear mandate from the EUCO and, learning from the past, without mandate, the Eurogroup usually goes nowhere.

This crisis highlights the failure of EU solidarity and may have long-term consequences for the future of Europe. We are not saying that Europe is at risk of disappearing but Europe, which is first and foremost a political project, is no longer an attractive feature for neighboring countries. What has been the most shocking for me is that Serbia, a country that I know well, and its pro-European Prime Minister have turned to China and not the EU to request help in the fight against the COVID-19. In the last two weeks of the crisis, many other states have realized the hard way they cannot count on Europe. Thus, EU leaders should not be surprised that other countries, such as China and Russia, step in in order to fill the political vacuum.

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