The International Monetary Fund is forecasting that the eurozone will experience a drop in real GDP of more than 7 percent this year and only partly recover in 2021. Meanwhile, the EU has been largely missing in action during the continent’s most serious crisis in decades. Member states have not only engaged in a row to secure medical supplies, but have also made little progress regarding the EU’s contribution to the economic and financial costs of the coronavirus crisis.
On the surface, the main dispute concerns whether the EU should issue mutualised “coronabonds” to finance health-care spending and other crisis-related expenditure in the hardest-hit countries
In Italy, coronabonds are viewed as the natural expression of European solidarity.
Rome argues that the COVID-19 crisis could not have been expected and that Italy therefore deserves help from other European nations.
Germany and the Netherlands, on the other hand, regard coronabonds as a danger, as they would open the door to the dreaded Eurobonds – meaning German and Dutch taxpayers could become liable for Italian debt.
The Dutch finance minister, Wopke Hoekstra, even suggested that the countries worst hit by the pandemic deserved little solidarity as they had failed to build up the financial position to combat the crisis over the past years.
In an exclusive interview with Express.co.uk, Jonathan Portes, Professor of Economics and Public Policy at King’s College, London, analysed this approach, as he argued that mutualised debt is the only way forward for the bloc.
He said: “Common financing is necessary. That was proven before this crisis.
“Given the political difficulty, what is needed in the short term is for the European Central Bank (ECB) to support the Italian government borrowing, in the same way the Bank of England is ready to support UK government borrowing.
“They should issue coronabonds.
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“For the Netherlands and Germany, it is complicated as there is a long history there.
“Their argument is about whether they should subsidise other countries.
“Their argument is about moral hazard.
“It is about democratic control, the extent to which… you know, if you have some sort of common fiscal policy in Europe, you also need to have common democratic control.
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“They expect conditionality and what conditions should be attached.
“However, I think the Netherlands are on the wrong side of the argument and the Italians on the right.”
Mr Portes added: “However, it is not a simple black and white issue because the eurozone and the EU are very complicated structures without much of a precedent.
“It is not so easy or obvious.”
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