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Eurozone agrees €540bn rescue package to finance healthcare and economies

 

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Talks: Finance Minister Paschal Donohoe wants more aid from Brussels. Photo: Douglas O'Connor

Talks: Finance Minister Paschal Donohoe wants more aid from Brussels. Photo: Douglas O'Connor

Talks: Finance Minister Paschal Donohoe wants more aid from Brussels. Photo: Douglas O'Connor

After 19 hours of talks by video conference, eurozone finance ministers have finally agreed a series of financing deals for a package worth a total of €540bn to help pay for some of the health and economic costs of the Covid-19 pandemic.

As a result, the State will be able to access €6.78bn in funding from the European Stability Mechanism (ESM) should it need it.

With the Government spending €300m-€350m a week on wage supports for those who have lost their jobs, that money could of course be spent.

The State, however, will not need to access those funds as it can borrow easily on financial markets at extremely low rates, as it showed this week when the National Treasury Management Agency raised €6bn in one fell swoop.

"The ESM and use of the ESM is something that would only happen [when] countries are finding it very, very difficult to fund what they need to do through the financial markets," Finance Minister Paschal Donohoe told a press conference yesterday.

"We were in a position to sell that debt at a rate of interest that is a dramatic improvement (on) even where we were a few years ago, not to mention a decade ago."

Surplus

Since the financial crisis a decade ago, the State's budget has moved from a hefty deficit into surplus, and although debts remain high at around €200bn, they are easily financed thanks to rapid economic growth, surging tax receipts and low interest rates in the eurozone.

The agreement will benefit countries like Spain and Italy, who might have problems raising finance from markets, and it took finance ministers such a long time to reach agreement because countries like the Netherlands and Germany were so strongly opposed to the idea that the eurozone would issue its bonds to pay for the economic reconstruction.

Under the terms of the deal, Italy will be entitled to up to €38bn in loans for virus-related emergency health spending.

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The argument over this had become so serious that it was threatening to derail the entire European Union.

Many countries had been arguing for a much larger package, a 'Covid-19 Marshall Plan' that would have been worth around €1trn.

What emerged instead was a compromise.

The European Commission will provide up to €100bn to boost national support for workers and those who are self-employed, while the European Investment Bank will provide loan guarantees worth €200bn for lending to small and medium-sized companies.

The most important and contentious element was the 'Pandemic Crisis Support', which is worth 2pc of the bloc's gross domestic product, or close to €240bn.

The marathon talks had themselves been preceded by an earlier round this week, itself 14 hours.

Those talks had found the Netherlands and Italy battling over the terms of the emergency lending by the ESM as the Dutch tried to press for strict conditionality on the loans that would have included a commitment to budget consolidation by those in receipt of them.

In the end, the only conditions attached were that countries commit to using these funds to support domestic financing of direct and indirect healthcare, and cure- and prevention-related costs due to Covid-19.

"While the agreement announced was largely as expected in the end, it reflects a political failure for the many governments which argued for a much larger, joint fiscal response," said Andrew Kenningham of consultancy Capital Economics.

Mr Donohoe appeared to share some of that disappointment.

"At the risk of stating the obvious, there are differing interpretations of what has been agreed," he said.

The minister also signalled he had not given up on the idea of coronabonds and a new battle now looms over the EU Recovery Fund.

It has yet to be agreed and will be needed once the immediate healthcare crisis is over to help reconstruct the bloc's shattered economies.

The talks stated only that the Recovery Fund should use "innovative financial instruments, consistent with EU treaties".

"It is fair to say that the idea of coronabonds has now moved into the concept of how the Recovery Fund would be paid for," Mr Donohoe said.

"I think what is going to be on the agenda is how the Recovery Fund is paid for and it is going to be the case that there will be further discussion on that in the coming weeks.

"That discussion will of course heighten if the economic costs of Covid-19 heighten as well," he added.

Visit our Covid-19 vaccine dashboard for updates on the roll out of the vaccination program and the rate of Coronavirus cases Ireland


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