March 26, 2020 / 3:47 PM / 12 days ago

UPDATE 1-Germany's Scholz: Eurobonds not the right tool to fight coronavirus

(Adds Scholz quotes, background)

BERLIN, March 26 (Reuters) - German Finance Minister Olaf Scholz said on Thursday that jointly issued debt by euro zone members was not the right way to counter the coronavirus economic impact, adding that the bloc was looking into other ways to show European solidarity.

Italian Prime Minister Giuseppe Conte has called for special “coronavirus bonds”, or a European guarantee fund, to help EU states finance health spending and economic rescue programmes. Italy has lost more lives in the pandemic than any other country, including China where the outbreak began.

European Central Bank chief Christine Lagarde asked euro zone finance ministers during a videoconference on Tuesday to seriously consider a one-off joint debt issue of “coronabonds” to help fight the pandemic, four officials said.

Asked during an interview by Youtuber Tilo Jung whether he supported the creation of such eurobonds or coronabonds, Scholz said: “I don’t think that is an appropriate tool because we simply don’t have a unified state (in Europe) in which this would work properly.”

Eurobonds at this stage of European integration could not work because there was no joint liability at euro zone level in contrast for example to the United States, Scholz said.

The rebuff from Germany shows how the 19-country currency bloc is still divided on sharing the burden of the crisis.

However, euro zone finance ministers broadly backed on Tuesday an idea that governments might apply for a precautionary credit line worth some 2% of their GDP from the European bailout fund to help them fight the economic impact of the coronavirus epidemic.

“We need forms of European solidarity, I’ve supported this and I think those will come now step by step,” Scholz said, pointing to the proposals by the euro zone finance ministers.

The final decision on the use of money from the European Stabilisation Fund (ESM), which has 410 billion euros ($451.49 billion) of unused lending capacity, is to be taken by EU leaders at their tele-summit later on Thursday.

Scholz also suggested that the European Investment Bank (EIB) could step up its efforts to give struggling companies loan guarantees and that Germany’s programme together with the state-owned KfW bank could be a blueprint for this. ($1 = 0.9081 euros) (Reporting by Michael Nienaber Editing by Paul Carrel Editing by Paul Carrel)

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