March 26, 2020 / 3:18 PM / 10 days ago

EU leaders agree on more time to decide coronavirus economic rescue

BRUSSELS (Reuters) - European Union leaders failed to agree on Thursday on the scale of support for their economies battered by the coronavirus, but gave themselves two more weeks to work out details in a dispute between the ailing south and the fiscally conservative north.

EU Council President Charles Michel holds a news conference after a videoconference with EU heads of state to discuss coronavirus disease (COVID-19) measures, in Brussels, Belgium March 26, 2020. REUTERS/Francois Walschaerts/Pool

Highlighting how the pandemic is testing the bloc’s cohesion, Germany and the Netherlands blocked a call from Italy, Spain and France to issue joint debt to help finance a recovery.

All 27 national EU leaders wrangled during a six-hour videoconference over setting up a credit line worth some 2% of their economic output from the European Stability Mechanism bailout fund of the 19-member single-currency zone.

In the end, they tasked their finance ministers to work out the details in the next two weeks.

“Some member states ... suggested those corona bonds,” German Chancellor Angela Merkel said after the discussion ended. “We said that this is not the point of view of all member states. And that’s why the ESM is the preferred instrument for me.”

Her ally Dutch Prime Minister Mark Rutte said the ESM would be the “last resort”, would still need to come with conditions and that The Hague would not back joint debt.

The ESM said the standby credit to euro-zone governments could be available for up to two years and would have to be repaid within an average period of five to 10 years.

Italy, the European country that is hardest hit by the coronavirus, led the push for virtually unlimited support for its ravaged economy.

“We need to react with innovative financial instruments,” Italian Prime Minister Giuseppe Conte’s office said in a statement.

Since the respiratory disease arrived in Europe after originating in China late last year, the EU has struggled to present a united front on economic stimulus, the sharing of medical equipment and safeguarding of essential supplies after countries across the continent tightened or closed their normally open borders to try to curb the spread of the outbreak.

European Council President Charles Michel, who chaired the summit, has called for a new “Marshall Plan” - named after the U.S. aid package that kick-started Western Europe’s recovery after World War Two.

But the 27 national capitals were divided, with Germany and the Netherlands saying the crisis could last into May and that the EU needed to keep some tools to step in later if needed.

“We cannot repeat the mistakes of the 2008 financial crisis, which sowed the seeds of disaffection and division with the European project and provoked the rise of populism. We need to learn this lesson,” said Spanish Prime Minister Pedro Sanchez.

EU UNITY TESTED

The bloc has already suspended state aid rules and limits on public borrowing to allow member states to spend freely to cushion the economic hit. The European Parliament on Thursday approved 37 billion euros ($40.5 billion) worth of emergency funds and measures to help airlines.

Berlin and its allies say all EU states can still finance themselves on the debt market, and the European Central Bank has announced emergency bond purchases to put 750 billion euros into circulation.

The ECB has also ditched a cap on how many bonds it can buy from any single euro-zone country, which some EU states welcomed as lowering the pressure on governments to act now.

The divisions further strained the bloc’s unity and solidarity, already damaged by the 2008-2012 euro-zone crisis, the 2015-2016 wave of immigration from the Middle East and Africa, and the UK’s departure from the bloc earlier this year.

EU leaders agreed, however, to shield their strategic healthcare and infrastructure firms from foreign hostile takeovers amid the pandemic. But they sparred over medical equipment shortages and emergency border curbs that have caused traffic backups in what normally is Europe’s zone of free travel.

Slideshow (2 Images)

Europe marked the 25th anniversary of the open-border Schengen agreement on Thursday with its internal frontiers shut or subject to emergency checks, slowing deliveries of goods.

Italy has reported more than 80,000 infections and 8,160 deaths from the coronavirus. After the bloc initially left the country to fend for itself in the outbreak, Rome secured protective equipment from China and Russia, the EU’s geostrategic rivals, rather than its peers.

“What’s at stake is the survival of the European project,” French President Emmanuel Macron told his EU counterparts.

Reporting by Francesco Guarascio, Philip Blenkinsop, Marine Strauss, Michal Nienaber, Andreas Rinke, Michel Rose, Giuseppe Fonte, Kate Abnett, Isla Binnie, Gabriela Baczynska, Jan Strupczewski, Writing by Gabriela Baczynska, Editing by Timothy Heritage, Leslie Adler and Peter Cooney

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