European Central Bank chief Christine Lagarde asked euro zone finance ministers during a videoconference on Tuesday evening to seriously consider a one-off joint debt issue of “coronabonds” to help fight the coronavirus pandemic, four officials said.
“She said that we should seriously think about it, next to the use of the ESM (bailout fund) instruments. The Eurogroup did not discuss debt mutualisation at this stage,” one official involved in the meeting said.
A second official confirmed that Lagarde put forward the idea, but said it ran into opposition from Germany, the Netherlands and other northern European countries that have long been against any joint debt issuance.
“She clearly said it should be a ‘one-off’ issuance,” the second official involved in the meeting said.
“There was opposition from the usual corners, but also a lot of support beyond Club Med,” the official said, referring to southern European countries.
The rebuff from northern countries shows how the 19-country currency bloc is still divided on sharing the burden of the crisis.
Officials said Lagarde did not go into details of the suggested one-off joint debt issue such as an amount, or the legal way in which such borrowing could be set up.
The ministers instead expressed broad support for the possibility that the euro zone’s ESM bailout fund would extend precautionary credit lines, worth some 2% of a country’s GDP, to member states that would like such a safety cushion.
A decision on whether to go ahead with that option will be taken by European Union leaders on Thursday.
The ESM credit line, kept in reserve, would allow governments to keep financing themselves in the markets at low rates and pave the way for unlimited ECB bond buying under the Outright Monetary Transactions (OMT) programme, if it is needed.
Officials said Lagarde considered the idea of a blanket ESM programme as good insurance policy — a phrase also used by the chairman of euro zone finance ministers Mario Centeno after the videoconference.
But officials noted Lagarde considered the bank’s own pandemic emergency bond purchases with 750 billion euros as a more flexible instrument to calm markets, given it was not linked to any conditions like OMT purchases were.
But it was clear the OMT option — a tool announced at the height of the bloc’s debt crisis in 2012 and as yet unused — was very much in the arsenal and could be deployed as and when needed, officials said.