Germany backs EU bailout fund without ‘senseless conditions’ in virus fight

German Finance Minister Olaf Scholz said Friday the European Union should activate the European Stability Mechanism (ESM) bailout fund “with no senseless conditions” to support states whose economies are hit the hardest by the coronavirus crisis.

“There won’t be any senseless conditions as there were sometimes in the past. No troika will come into the country to tell the government how to do politics. This is about support in the crisis,” Scholz told the Funke newspaper group.

The step is aimed at soothing Italian fears that an ESM loan would burden it with onerous requirements to reform its economy and slash public spending, as well as stigmatise it for investors on debt markets.

Instead, “my suggestion is to use existing instruments quickly and effectively” with a three-pronged plan based on the ESM, European Investment Bank (EIB) and unemployment reinsurance at the EU level, Scholz said.

But the centre-left politician maintained his opposition to “coronabonds” or jointly-issued debt.

Euro area finance ministers are slated for talks Tuesday to chart the bloc’s next steps in battling the economic fallout from the coronavirus.

Germany and other “frugal” northern member states like the Netherlands, Austria and Finland are under fire from southerners like Italy, France and Spain for a perceived lack of solidarity.

Italy in particular has kept up the pressure for coronabonds, with Prime Minister Giuseppe Conte giving interviews to German media this week demanding the measure.

On Friday he wrote to Italian newspaper La Repubblica that joint debt could “finance the extraordinary efforts that Europe will have to put in place” and “are in no way aimed at sharing the debt that each of our countries has inherited from the past”.

But Scholz retorted Friday that “what’s important to me is a solution, not headlines and buzzwords.”

– 39 bn for Italy –

His scheme would see the financial crisis-era ESM unleash its firepower in the hundreds of billions, lending each EU nation up to two percent of their annual output.

“For Italy, that would be about 39 billion euros,” Scholz calculated.

On top of that, the European Investment Bank (EIB) would be empowered to lend 50 billion euros ($54 billion) to businesses.

And the centre-left politician threw his weight behind proposals from European Commission chief Ursula von der Leyen for a pan-EU unemployment reinsurance programme to backstop national social safety nets.

“If we deploy these three instruments, it would be a very strong signal of solidarity in Europe in the battle against the coronavirus,” Scholz told Funke.

Asked if the euro single currency would survive the virus pandemic, Scholz responded simply “yes”.

“We learned from the financial crisis and the sovereign debt crisis, and made the right decisions to make the euro stronger,” he insisted.