MNI SOURCES: EU Covid Loans Snub A Headache For ECB

The decision by some eurozone countries to snub European Covid emergency loans in favour of their own borrowing backed up by the European Central Bank's pandemic emergency purchase programme could put unwelcome pressure on the ECB to extend monetary easing, eurosystem and Brussels sources told MNI.

Moves by Italy, Spain and Portugal to hold off from tapping EUR360 billion in loans made available by the EU's Recovery and Resilience Fund, which will also provide EUR 390 billion in grants, are stoking tensions between hawks and doves on the ECB's Governing Council, sources said. Some officials in Brussels said the PEPP might have to be extended until the end of next year.

One national central bank source called the unwillingness of some countries to take advantage of cheap EU funding "appalling."

"The problem is that those sources of funding are much easier to be linked to structural and productivity improvements, and this is what we need," the official added. "Many countries whose economies are in need of support have not been using these resources."

"Well, come on, people. If your economy is doing so badly, use the money that you are given."

Another source noted that countries were more open to accepting the grant component of the RRF.

"If I was the Commission I wouldn't allow them to just access the grants and avoid loans because of the conditionality – but obviously that's up to the Commission," the source said.

PEPP TALK

But other national central bank officials were more sanguine, noting that the PEPP had been designed to lower borrowing costs. One said the loan element of the European Union was "never convincing".

The success of the Commission's bond issue for its SURE unemployment aid programme on Tuesday might yet change states' calculation on the loans, with Budget Commissioner Johannes Hahn saying Wednesday that he has had indications that some member states might be shifting on the topic.