(Bloomberg) -- German Chancellor Angela Merkel said she’s ready to consider joint debt issuance to help contain the impact of the coronavirus, an opening that could transform the finances of the European Union.
The idea was raised by Italian Prime Minister Giuseppe Conte on a video conference between the 27 EU leaders on Tuesday, according to a person familiar with the matter. Merkel said she was happy for her finance chief, Olaf Scholz, to explore the proposal with other ministers.
Joint EU debt issuance remained a taboo for Germany even at the height of the financial crisis after 2008, so the fact that Merkel is prepared to engage in the discussion is a sign of how concerned leaders are at the recession they are facing and the havoc it may wreak on the finances of some of the weaker members.
“We expect the finance ministers to discuss further on this level,” Merkel said. “I’ll talk to Olaf Scholz so that the German side can take part in this. But there are no conclusions.”
As EU governments unleash unprecedented amounts of fiscal stimulus to keep their companies alive through the lockdown, leaders are trying to work out how they can finance the sudden burst of spending without reviving the market turbulence that threatened to tear their currency union apart less than a decade ago.
At the epicenter of the virus outbreak is Italy, which for many policy makers was already the bloc’s riskiest member: it has a bigger debt load than any country but Greece, growth has been moribund since it joined the euro and the size of its economy makes the prospect of a bailout daunting. Conte has already announced a 25 billion-euro ($27 billion) stimulus package that will see Italy breach EU deficit limits this year.
The country is facing a brutal recession and remains in lockdown as the number of confirmed cases continue to spiral. More than 2,500 people have died.
Dutch Prime Minister Mark Rutte, another longstanding opponent of pooled liabilities, was more cautious on joint debt.
“Some risk sharing is necessary,” Rutte told reporters after the video conference. He added that the EU already has tools in place that could serve that function and he hasn’t seen “a serious and real proposal for a coronavirus bond.”
Conte said that the EU must ensure that citizens receive the care they need and that their economic and social conditions are protected, according to the person familiar with the call. He said a European guarantee fund could be an alternative way to ensure the financing of relief measures.
The leaders discussed “issuing corona bonds that the European Central Bank would be prepared to buy on the secondary market to boost money supply and to mitigate the economic downturn that most of the leaders deem rather big,” the president of Lithuania Gitanas Nauseda said after the call.
France backed Italy’s request and wants the the European Investment Bank to issue the bonds, possibly with guarantee by the European Stability Mechanism, an official familiar with the matter said.
In his intervention during the video-conference with fellow-leaders, Conte reiterated that EU governments must do “whatever it takes” to deal with the crisis, adding that no country can hope to shield itself from its impact. Delaying a joint response, he added, would be lethal and irresponsible.
(Updates with Merkel comments)
©2020 Bloomberg L.P.