May 8, 2020 / 2:11 PM / 18 days ago

EU aiming to agree first part of coronavirus economic rescue, but work unfinished

BRUSSELS, May 8 (Reuters) - Euro zone governments are working to give their final approval, later on Friday, of the first part of a 500 billion-euro rescue plan for states hit hard by the coronavirus pandemic, but key elements of response are still missing.

Finance ministers of the 19-nation region are hoping to complete the details of cheap, long-term credit lines that will be made available by the European Stability Mechanism (ESM), the bloc’s rescue fund, to countries that need cash to cover extraordinary health costs caused by the outbreak.

“Today the Eurogroup is set to agree on all the features and details of the pandemic crisis support tool, our ESM-based backstop for sovereigns,” the chair of the meeting, Mario Centeno, said on Friday before ministers began their videoconference.

However, it’s unclear whether the money will be used by Italy, the country that most needs the loans, because of its high debt-servicing costs and the severity of the outbreak there, which killed more people than in any other European state but Britain.

Despite repeated guarantees that money would flow with no strings attached, many in the 5-Star, the largest party in Italy’s ruling coalition, remain opposed to using ESM loans, fearing austerity measures may be imposed on the country .

The ESM, which played a key role in the rescue of Greece, Cyprus, Ireland, Spain and Portugal during last decade’s euro zone debt crisis, is expected to offer from June credit lines worth 2% of the requesting country’s gross domestic product at the attractive borrowing costs enjoyed by the ESM.

Details on the maturity of the loans, the actual interest rates and the scope of spending on direct and indirect health costs are set to be sorted out on Friday.

The ESM is only one of the tools EU governments have considered to tackle the economic crisis caused by the pandemic, which is forecast to cause euro zone GDP to shrink by a record 7.7% this year.

Countries have agreed in principle but still need to finalise the other two legs of the rescue package: a temporary employment-support scheme and a guarantee fund that would provide liquidity to companies hit by the crisis.

Even more difficult appears to be the establishment of a recovery fund which could be worth 1 trillion euros and could provide grants and loans to help states revive their economies after the crisis.

“We are really at a crossroads. Either we are able to have a strong common response, but we are not there yet, or the entire project is at stake,” EU economics commissioner Paolo Gentiloni said on Friday, calling for the establishment in autumn of the recovery fund. ($1 = 0.9235 euros) (Reporting by Francesco Guarascio @fraguarascio)

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