Indications that significant divisions on the financial firepower the EU should use to tackle the coronavirus pandemic ahead of this afternoon's video conference of leaders...
2/ There are two frontrunners in terms of EU instruments for a big fiscal response: using the ESM for emergency credit lines (Enhanced Conditions Credit Lines), and a Pan European Guarantee Scheme, using the triple A rating of the European Investment Bank
3/ The ESM option is more attractive for most member states. On Tuesday there was "broad agreement" to use the ESM at the eurogroup meeting, but not unanimity. The ESM has 410m EUR capacity to allow member states borrow up to 2pc of their GDP at low interest rates
4/ This would be similar to the outright monetary transactions launched by Mario Draghi during the euro crisis, his "whatever it takes" moment; but back then there was a stigma attached to availing of emergency credit lines for bailout countries (Greece, Ireland, Spain et al)...
5/ as a request for a credit line might further spook the markets. This time around all member states could avail off the ESM, thus diminishing the stigma factor
6/ Italy has been pushing the Pan European Guarantee Scheme using the EIB. This seems to be the vehicle for coronabonds. However, too much opposition to this from Germany and the Netherlands (DE because it might be too early in the crisis, NL because of "moral hazard")
7/ So it won't make the cut during today's videoconference (the ESM might not make the cut either - Eu finance ministers will probably be tasked with doing more work on the project, as it might require legal changes and political finessing)
8/ There will be other financial instruments discussed, including using the EU's banking supervisory authorities to see what flexibilities are in the system for banks, in terms of things like forbearance...)
9/ Leaders are working around @eucopresident Charles Michels' five themes of stopping the spread of the virus, dealing with the socio-economic fall out, research, getting EU citizens back from third countries etc
10/ Whereas the Commission has been pushing the Green Deal and Digital Europe agendas to boost the European economy after the crisis, expect a strong warning that recovery has to be across the board - including in the agriculture and industrial sectors...
11/ There will be a push for more Joint Procurement to increase Europe's supplies of vital medical equipment, ventilators etc, and to screen foreign investment in healthcare, infrastructure etc - this follows Trump's alleged attempt to lure German vaccine co. CureVac to the US
12/ Correction: to clarify the point back at 6/, the Pan European Guarantee Scheme using the EIB's triple A rating is not the coronabonds vehicle: it wd be a fund to trickle lending down esp to SMEs hit by the crisi
13/ The coronabond would probably be an ECB bond with the fiduciary support of the EU as a whole. Sources suggest the German position ahead of the videoconference was that it would not get passed the Bundestag
14/ A number of member states at Coreper were in favour, and insisted there was no moral hazard associated with the coronabond issue.
15/ Overall it looks like the European Council will launch something in steps - some countries, notably the Italians and to a lesser extent the Spanish, want fewer steps than others. But strong sense that this is unprecedented (it literally won't be used as a precedent in future)
