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Law360, London (April 8, 2020, 10:27 AM BST ) Finance ministers from countries using the euro currency remain divided over a common response to the economic shock created by the coronavirus outbreak, but agreed to resume meeting on Thursday to bridge differences over the issuance of mutualized debt in the form of eurobonds.
Two Italian euro coins, center and left, are shown next to a German euro coin. (AP)
The eurobond proposal is part of a package that would counter the financial hit to national budgets as governments roll out emergency funding for businesses crippled by lockdowns and travel restrictions. Among the most contentious is the plan to pool debt issuance, which supporters say would reduce pressure on governments to refinance with later tax increases.
The Netherlands remains the most outspoken opponent. It argues that eurobonds, also called coronabonds, would expose richer eurozone countries to the fiscally weaker southern states burdened with higher credit costs.
"We would have to guarantee debts of other countries, which isn't reasonable," the Dutch finance minister, Wopke Hoekstra, announced shortly after the meeting, carried out by video conference, concluded. "The majority of the Eurogroup shares this view and does not support eurobonds."
The European Union official in charge of taxation, Paolo Gentiloni, posted on Twitter just as the meeting ended that the ministers had failed to come to an agreement. But he said that the European Commission, the EU's executive branch, will continue to push for a sense of common responsibility to meet the crisis.
"Tomorrow is another day," Gentiloni added.
Before the meeting, the European Union's leadership asked the eurozone finance ministers to come up with a comprehensive financing plan.
Both the French finance minister, Bruno Le Maire, and the German finance minister, Olaf Scholz, pledged to work together to find a solution to the impasse.
Scholz said that he stood with his French colleague ready to forge an agreement — something Le Maire echoed in a press conference held in Paris on Wednesday. France is notable as a signatory of a letter in March asking for eurobonds, and Germany's support would be significant if it materializes as it is historically a European budget hawk.
"The meeting of the Eurogroup was long and difficult," Le Maire said. "Our responsibility is to reach agreement on Thursday on the response to the economic consequences of the health crisis."
Eurozone governments, President of the European Council Charles Michel, the presidents of the European Commission, the European Central Bank and the Eurogroup issued a statement on Monday urging the ministers to look at all possible solutions.
"We have to exploit these tools fully and remain open to doing more," they said. "A strong package is in the making. Our goal is clear: we will protect European citizens and businesses from the economic impact of the pandemic."
Leaders in Belgium, France, Italy, Luxembourg, Spain, Portugal, Greece, Slovenia and Ireland have signed a letter proposing the plan for so-called coronabonds. Ultimately, some experts say, the rising fiscal emergency caused by the fast-spreading pandemic is likely to see the program go ahead amid forecasts that locked-down eurozone economies could shrink by 25% or more this year.
The European Union's search for a common fiscal front to combat the economic impact of the crisis has displayed some of the same ideological divisions in Europe that were apparent during the continent's sovereign debt crisis that followed the 2008 global financial crash.
Eurozone leaders had then argued about bailing out other members states before agreeing to extend emergency loans to the governments of Greece, Spain, Portugal, Ireland and Cyprus to stave off default risk.
Today the EU has more tools at its disposal than it did in the European government debt crisis, including a bailout fund, known as the European Stability Mechanism. The European Commission has recently proposed a fund to help countries pay for temporary unemployment schemes.
The European Commission has temporarily relaxed the bloc's strict anti-state aid measures and allowed EU countries to offer selective tax breaks and subsidies to struggling businesses. The bloc has also said it will allow the suspension of taxes such as corporation tax and value added tax during the crisis. Many EU countries are already taking advantage of this.
The European Investment Bank proposed a €200 billion ($217 billion) fund in late March to aid struggling economies.
Scholz said on Wednesday that European countries should band together to get behind the package.
"I therefore call on all euro countries not to refuse to resolve these difficult financial issues & to facilitate a good compromise - for all citizens," he said on Twitter.
--Additional reporting by Todd Buell and Joseph Boris. Editing by Ed Harris.
Update: This story has been updated to include comments from Le Maire and Scholz.
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