Eurozone Rescue Fund Can Provide Up to 320 Trillion Won for COVID-19 Support

[Image source=EPA Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] M?rio Centeno, Chairman of the Eurogroup, stated that up to 240 billion euros (approximately 320.3 trillion won) could be provided to help Eurozone member countries hit by the novel coronavirus disease (COVID-19).

According to AFP and other sources on the 4th (local time), Centeno, who is also Portugal's Finance Minister and chairman of the Eurogroup, the Eurozone finance ministers' council, said in interviews with several European daily newspapers that the fund could be secured through the European Stability Mechanism (ESM).

The ESM is an international financial institution established in 2012 during the Eurozone debt crisis to support Eurozone countries facing severe financial difficulties. It provides emergency loans to member countries, which must implement reform programs.

The 27 heads of state of the European Union (EU) discussed joint responses to the economic shock caused by COVID-19, including the ESM and Eurozone joint bonds, on the 26th of last month but failed to reach an agreement due to significant differences in positions. Subsequently, Eurozone finance ministers were tasked with further discussions to come up with measures.

Chairman Centeno said, "A credit line limit must be designed for support, and the situations of countries in need of assistance should not be worsened."

This refers to the ESM regulations, which come with harsh austerity conditions attached to loans.

In the French daily Le Figaro, Centeno said, "It is not appropriate to link the global pandemic to privatization or labor market reform programs," and that any loan "should not exacerbate economic and social suffering."

He also added that although there will be some loan conditions, the ESM is prepared to separate the credit line limit from the logic used during national debt crises.

In the Italian daily La Repubblica, Centeno stated, "Eurozone finance ministers should have an open discussion about the so-called 'corona bonds.'"

The plan to issue Eurozone joint bonds, called 'corona bonds,' is similar to the 'Eurobond' concept proposed during the 2010 Eurozone fiscal crisis.

Eurobonds are bonds jointly issued by member countries instead of individual government bonds issued separately by each member, sharing fiscal risks among members. Various proposals, including joint guarantees by member countries, were made, but progress was hindered due to significant differences among member states.

Recently, southern member countries with high debt ratios such as France, Italy, and Spain have publicly called for the issuance of joint bonds as a response to COVID-19. However, northern member countries with more fiscal leeway, such as Germany and the Netherlands, oppose this, causing internal conflicts.

Meanwhile, Centeno's remarks came ahead of the Eurogroup video conference scheduled for the 7th. Non-Eurozone EU member countries will also participate in this meeting to discuss an EU-level strategy to respond to the economic damage caused by COVID-19.