EU stalemate after 16-hour meeting on economic aid

Europe's economies now face the deepest recession since the Second World War, and ministers had hoped to agree on a €500bn programme to cushion the economic shock.

Southern states, spearheaded by Italy, which has been hardest hit so far by the pandemic, advocated for sharing the costs of the recovery and also loosening austerity conditions on loans.

Northern, fiscally-conservative countries, led by the Netherlands but supported by Germany and Austria, had been reluctant.

They fear that sharing the burden and weakening conditions would lead to a less-disciplined economic policy for highly-indebted southern EU countries.

Those same dynamics a decade ago made handling the debt crisis painfully difficult, bringing the eurozone area close to the brink of collapse.

Ministers will get together again on Thursday, but positions are unlikely to change significantly.

The dispute between the Netherlands and Italy over the conditions attached to the potential use of part of the EU bailout fund, the European Stability Mechanism (ESM) could not be bridged.

The ESM was to offer credit lines worth up to two percent of output of the EU members, or €240bn in total.

Normally ESM loans come with stringent austerity conditions. Italy wants to see them redesigned for the corona crisis.

"Because of the current crisis we have to make an exception and the ESM can be used unconditionally to cover medical costs," Dutch finance minister Wopke Hoekstra tweeted after the meeting.

"For the long term economic support we think it's sensible to combine the use of the ESM with certain economic conditions," he however added.

Disagreements over the exact wording on the future recovery plan, and a possible future joint debt mechanism to underpin it, also stymied any agreement.

The French government put forward a plan that would create a temporary reserve worth three percent of EU GDP for 10 years and would be funded by the joint issuance of debt.

The French plan resembles so-called 'coronabonds', backed by Italy and Spain, to jointly finance the economic fallout of the crisis.

"The Netherlands was and remains against the idea of Eurobonds, we think this will create more problems than solutions for the EU," Hoekstra said, referring to such joint debt.

"We would have to guarantee debts of other countries which isn't reasonable. The majority of the Eurogroup shares this view and does not support Eurobonds," he added.

Another measure ministers discussed was the creation of a guarantee fund, managed by the European Investment Bank (EIB), mobilising €200bn for companies.

The EU Commission also proposed to raise €100bn for an unemployment scheme.

Meanwhile, the commission has also suspended state aid limits and allowed countries to increase their debt and spend more on the economy.

'Like a team'

Ministers had been tasked with hammering out proposals on how to offset the economic impact of the pandemic, without giving political guidance on the matter.

The French and Germany ministers, Bruno Le Maire and Olaf Scholz called on all EU members "to rise to the exceptional challenges to reach an ambitious agreement" in a statement on Wednesday.

Italy's prime minister Giuseppe Conte meanwhile on Wednesday urged the EU to "think like a team".

The ball might be passed back to EU leaders to unblock disagreements over the ESM conditionality and the future recovery plan.

In the background, political populists are pressuring governments to harden their position.

In Italy, far-right opposition leader Matteo Salvini has targeted the ESM, tweeting that he doesn't trust loans coming from the EU and he does not want Italy to ask Berlin or Brussels for more money.

Italy wants to cast the debate as an issue of EU solidarity, and does not want to be seen as giving in to tough conditions demanded by Germany and the Netherlands.