ECB wants eurozone to consider ‘coronabonds’
European Central Bank (ECB) chief Christine Lagarde asked eurozone finance ministers during a video conference on Tuesday night to consider seriously a one-off, joint debt issue of “coronabonds” to help fight the coronavirus pandemic, four officials said.
“She said that we should seriously think about it, next to the use of the European stability Mechanism (ESM) bailout fund instruments. The eurogroup did not discuss debt mutualisation at this stage,” said one official involved in the meeting.
A second official confirmed that Lagarde put forward the idea, but said it ran into opposition from Germany, the Netherlands and other northern European countries that have long been against any joint debt issuance.
“She clearly said it should be a ‘one-off’ issua nce,” said the second official involved in the meeting.
“There was opposition from the usual corners, but also a lot of support beyond Club Med,” the official said, referring to southern European countries.
The rebuff from northern countries shows how the 19country currency bloc is still divided on sharing the burden of the Covid-19 crisis.
Officials said Lagarde did not go into details of the suggested one-off joint debt issue such as an amount, or the legal way in which such borrowing could be set up. The ministers instead expressed broad support for the possibility that the eurozone’s ESM bailout fund would extend precautionary credit lines, worth some 2% of a country’s GDP, to member states that would like such a safety cushion.
A decision on whether to go ahead with that option is to be taken by EU leaders on Thursday. The ESM credit line, kept in reserve, would allow governments to keep financing themselves in the markets at low rates and pave the way for unlimited ECB bond buying under the outright monetary transactions (OMT) programme, if it is needed. Officials said that Lagarde considered the idea of a blanket ESM programme to be a good insurance policy, a phrase that was also used by the chair of eurozone finance ministers Mário Centeno after the video conference.
But officials said that Lagarde considered the bank’s own pandemic emergency bond purchases with €750bn as a more flexible instrument to calm markets, given it is not linked to conditions as OMT purchases are.
However, it was clear the OMT option — a tool announced at the height of the bloc’s debt crisis in 2012 and as yet unused — is very much in the arsenal and can be deployed as and when needed, officials said.