France and Italy’s leaders stepped up their demands that the European Union offer a powerful financial response to the coronavirus, setting up a confrontation with Germany and other northern countries reminiscent of the sovereign debt crisis.
“We won’t overcome this crisis without strong European solidarity, both on the health front and on the budget front,” French President Emmanuel Macron said in an interview with three Italian newspapers. “If Europe isn’t capable of rising to the challenge, the whole European project risks losing legitimacy in the eyes of our citizens,” Italian Prime Minister Giuseppe Conte said in a separate interview with Il Sole 24 Ore.
The two spoke after EU leaders failed to reach an agreement on a joint response during a Thursday videoconference. Germany and other countries rejected calls to issue joint European debt. Instead, finance chiefs were asked to generate proposals within two weeks.
The European Central Bank’s commitment to buy more than 1 trillion euros ($1.1 tillion) in debt by the end of the year helped calm market turmoil, leaving room for old differences between Europe’s core and periphery countries to reemerge.
The debate is focusing on the immediate aftermath of the crisis, when countries will have to reconstruct their economies while coping with higher public debt. Nine member states including France, Italy and Spain are calling for joint debt issuance. They could soon be joined by another five including Baltic nations, according to la Repubblica. Germany is resisting the call, with Chancellor Angela Merkel becoming “more categorical” in her rebuttal of the idea this week.
On Thursday, EU leaders had an “open and frank debate,” Conte said in the interview. Macron said that some countries, including Germany, expressed doubts about deploying a more robust European response.
“We can’t give up on this battle,” the French president said in the interview. “I prefer a Europe that accepts diverging opinions and debate to a lack of action under the facade of unity.”
Conte reaffirmed his opposition to deploying the resources of the European Stability Mechanism, the union’s bailout fund, which was designed to assist individual countries with difficulties in exchange for stringent reform commitments. Instead he elaborated on his idea of a joint European debt issuance designed solely to fund the emergency response, suggesting they could be called European Recovery Bonds.
Macron, on the other hand, was more flexible on the means, saying that financial firepower could be generated not just with an EU debt facility but also by expanding the EU’s own budget.
“The amount is secondary,” Macron said. “It’s the signal that matters, be it via joint debt or a common budget.”
©2020 Bloomberg L.P.