The Fear of the Crash

Tensions between northern and southern Eurozone countries are mounting in the dispute over corona bonds ahead of today's EU summit.

BERLIN/ROME (Own report) - In the run-up to today's video conference between the EU heads of states and governments, tensions are mounting between the Eurozone's northern center and southern periphery. Italy's Prime Minister Giuseppe Conte continues to insist on common bonds ("Corona bonds") - still rejected by Germany - while opposing ESM loans, despite reassuring statements from Brussels. "We have not forgotten," he said "that the Greeks [in the euro crises] were forced to make unacceptable sacrifices in order to receive loans." Whereas some of the top officials are willing to make certain concessions on the Corona bonds, to secure the Eurozone's survival, the first fissures are appearing among southern Europe's proponents of common bonds, because of a "fear of upsetting the Germans too much." US observers expect Berlin to assert itself once again, thus further consolidating its economic and political preponderance within the EU.

Escalating Tensions

Today's EU summit is overshadowed by growing tensions between the Eurozone's northern center and its southern periphery. According to reports, nervousness has increased in the run-up to the EU's heads of state and government's video conference.[1] The relationship between Italy and Germany is particularly strained. Prior to the conference, Italian Prime Minster Giuseppe Conte had in fact directly attacked the German government for stonewalling joint EU crisis efforts. In an interview published Monday, he called once again for the issuance of common EU bonds, so-called Corona bonds, vehemently rejected by Berlin.[2] Europe is ”experiencing the biggest shock since World War II, and Europe has to come up with an answer,” Conte declared. This is why the EU should begin to issue common bonds. They should be understood only as a temporary instrument focused on combating the crisis and they should not ”collectivize past or future debts.” Germany and the Netherlands "must end" their opposition on this issue, Conte demands. He also criticized Berlin's prioritized financing of crisis measures for Southern Europe with around €240 billion from the European Stability Mechanism (ESM).

Unacceptable Victims

Granting ESM crisis loans is tied to neoliberal structural adjustment programs, which have been vehemently rejected in southern Europe since the devastating experiences during the euro crisis. ”We have not forgotten that the Greeks were forced to make unacceptable sacrifices in order to receive loans,” Conte recalled, who is not convinced that Brussels and Berlin would impose less stringent conditions this time around - as the EU claims. In the meantime, Rome has rejected loans worth 39 billion euros, that were to be issued under the ESM program.[3] There is growing resentment in Italy over Germany's stonewalling and Berlin's attempts to use the ESM to undermine the country's national sovereignty. South of the Alps, there is once again talk of the "ugly Germans," German media reported.[4] In large sectors of the population the sentiment is growing that Germany would like to "expropriate Italy."[5] The fact that Berlin was preventing Corona bonds "to ease Italian hardship" is causing irritations and incomprehension.

Two Factions

On Monday, Chancellor Angela Merkel confirmed the German government's position to the presidium of the CDU, in an obvious reaction to Contes' statements, that joint bonds are the "wrong way" to confront the current crisis.[6] In addition, the Corona means of assistance within Germany must be evaluated also from the standpoint of their pan-EU impact and concentration should be on "central aspects of the economy." If, for example "tax money is used to also save artists," this would lead to undesirable conclusions in Italy and Spain, that Germany "evidently has enough money" at its disposal. Once again, voices within Germany's public opinion are being raised that embellish Berlins strict refusal of joint EU bonds with chauvinist attacks against Southern Europe or Italy's top officials, by accusing them of preferring to eliminate freshly printed money "garnished with a stick of dynamite."[7] However, this time, there are also voices expecting a certain amount of concessions, to avoid the demise of the eurozone. For example, economic commentators are proposing that a significant increase in the EU budget could be a compromise solution,[8] while liberal journals are occasionally taking a stand against the habitual German bias toward the Southern European countries.[9] Among Germany's top officials, there is - unlike previously - a significant faction that is prepared to grant a certain number of compromises on the issue of Corona bonds. ( reported.[10])

"Fear of Upsetting the Germans"

At the same time, Berlin may, in any case, not have to concede much, if anything at all, to the countries of the Southern European periphery, given the fact that the first fissures are beginning to appear in the ranks of their front.[11] Whereas Italy's Prime Minister Conte wages a frontal attack against the German government, his Southern European colleagues are striking a "more conciliatory tone," also out of "fear of upsetting the Germans too much," it is said. In fact, Spain's Prime Minister Pedro Sánchez, for example, has presented a position paper that largely conciliates the German government, by completely dropping the contentious issue of joint European bonds. Sánchez would rather have a "voluminous redevelopment fund" of around €1.5 trillion for the European economy. Thereby, according to observers, Madrid is orienting itself on an idea that "will not be rejected out of hand, by the German government," while Italy is becoming even more isolated with its consistent attitude. According to proposals, supported also by the EU's French Internal Market Commissioner, Thierry Breton, the EU Commission could absorb debts by way of bonds that would be hedged by guarantees of the member countries, allowing the EU budget to be "levered" and ultimately mobilize up to €1.6 trillion.[12] Last week, France's President Macron resolutely declared that a form of “financial transfers and solidarity” are necessary if Europe is going to “hold on” through the crisis.[13] However, he too implicitly let the joint bonds proposal slip under the table.

"Not to the Hilt"

At today's EU summit, the dispute will more likely be over the amount of possible alternative assistance measures for the Southern European periphery, rather than a serious debate on Corona bonds. Of course, even here, Berlin will be seeking to keep its concessions to a minimum. The German government will also continue to play for time, to lower the pressure, for having to make concessions, in light of Southern Europe's dramatic situation. In the run-up to the summit, Germany's Finance Minister Olaf Scholz, for example, has declared that he sees no obligation to reach a rapid accord on the issue of an EU redevelopment fund. We still have a long ways to go. The first thing is to fight the pandemic, then we can concentrate on relaunching the phase of growth.[14] According to diplomatic circles, prior to the summit, a concrete solution to the problem is not expected.[15] US news agencies are spreading the assessment that Berlin sees itself clearly with the winning hand in the current EU dispute.[16] France and Spain have made concrete proposals for financing the crisis, yet, it remains unlikely that these countries will take confrontation with Berlin "to the hilt." France's President Macron likes to use grandiloquent rhetoric, but does not follow up with action. This constellation leaves Italy in a difficult situation, since Conte has exposed himself with his attacks on Berlin. Should Rome, on the other hand, consider using its veto against a Berlin-formulated crisis strategy, Italy will become the main victim of the subsequent crisis. Berlin could therefore exploit the fear of the crash. The "German economic preponderance" will therefore continue to grow during the Corona crisis - leading inevitably to greater power for Berlin within the EU.


[1] Martin Greive, Jan Hildebrand: Debatte um Wiederaufbaufonds: Nervosität vor dem großen EU-Gipfel. 21.04.2020.

[2] Conte doubles down on demand for coronabonds. 20.04.2020. See also Who Makes the Rules.

[3] Hans-Jürgen Moritz: Warum Italien trotz "fürchterlicher Corona-Situation" die EU-Hilfsgelder zurückweist. 19.04.2020.

[4] Ulrich Ladurner, Constanze Reuscher, Michael Thumann: In Rom ist der hässliche Deutsche wieder da. 01.04.2020.

[5] Frank Hornig: "Die lassen uns verbluten". 06.04.2020.

[6] Merkel lehnt Eurobonds ab. 20.04.2020.

[7] Gabor Steingart: Italienischer Patient vor dem Kollaps - Deutschland darf keine Blankoschecks ausstellen. 18.04.2020.

[8] Henrik Müller: Europa braucht den XXL-Geldtopf. 19.04.2020.

[9] Mark Schieritz: Von wegen Dolce Vita. 20.04.2020.

[10] See also Germany First (III).

[11] Martin Greive, Jan Hildebrand: Debatte um Wiederaufbaufonds: Nervosität vor dem großen EU-Gipfel. 21.04.2020.

[12] EU-Industriekommissar will 1,6-Billion-Euro-Wiederaufbaufonds. 21.04.2020.

[13] Ben Sills, Ania Nussbaum: Macron Says Fiscal Transfers Needed If the EU Is to 'Hold On'. 16.04.2020.

[14] Scholz sieht keinen Zeitdruck bei EU-Wiederaufbaufonds. 21.04.2020.

[15] Diplomaten - Keine Entscheidung über Wiederaufbaufonds auf EU-Gipfel. 21.04.2020.

[16] Ferdinando Giugliano: Germany Has a Winning Hand Again in Europe. 22.04.2020.