May 6, 2020 / 4:52 PM / 25 days ago

Euro zone to put finishing touches to credit line for pandemic-hit governments

BRUSSELS, May 6 (Reuters) - Euro zone finance ministers hope to agree on Friday on the final details of credit lines from the ESM bailout fund for governments in need of cheap cash to deal with the coronavirus pandemic, so that the money can be available from June.

The pandemic support tool is the main topic on the agenda of the videoconference of ministers from the 19 countries sharing the euro, which will also discuss European Commission economic forecasts and briefings from previous G7 teleconferences.

“I am optimistic the Eurogroup will be in a position to endorse the relevant documents on Friday, and European Stability Mechanism (ESM) governing bodies will convene next week to adopt them formally, so that the instrument is ready for use from June 1,” a senior euro zone official said.

There is already agreement that the ESM should offer credit lines, with almost no strings attached, of around 2% of the requesting country’s GDP at the very attractive borrowing costs enjoyed by the ESM.

The ministers have to agree on the maturity of such loans and exact pricing, and formalise the conditions attached — that the money is to be spent directly or indirectly on dealing with the health crisis that has put most EU countries in lockdowns.

They also have to agree how long the standby credit line will be open for requests. Some officials said it depended on the likely length of the pandemic, and could be two to three years, with an option to extend.

“No-one wants to be left in a situation where the facility expires if there is an objective need for it,” the senior official said.

European Economics Commissioner Paolo Gentiloni said he would present the ministers with assessments of all euro zone countries’ eligibility for the credit line. It would include the Commission’s view on whether a country’s debt levels were an obstacle to its borrowing more.

“We will send to member states ... a package from the Commission with all that is needed for the eligibility,” he told a news conference on Wednesday.

“The debt assessment will be positive for all countries,” he said, pre-empting concerns by highly indebted members such as Greece, Italy, Portugal or Spain that they could be excluded from the programme.

To respect the political sensitivity in Italy or Greece of having to sign a formal Memorandum of Understanding for the credit line, applicants will essentially simply have to provide a list of coronavirus-related items on which they plan to spend the money.

“One of the documents for Friday is going to be a template response plan, which will include a list of different kinds of expenditure that would qualify,” the senior official said.

“If a country applies for ESM support, it would need to fill in that template - its structure of expenditures - and this will be the ‘MoU’. It will list the costs it has and expects to incur when dealing with the COVID crisis,” the official said. (Reporting by Jan Strupczewski; Editing by Kevin Liffey)

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