European Union agrees how to bail out Italy and Spain. Well, sort of.

Despite the EU appearing to edge closer to some grandiose rescue plan for eurozone countries hit hardest by the coronavirus, a video conference of EU leaders has raised more questions than answers about whether it can pull it off.

EU apaches in Brussels are now starting to really worry that a growing Eurosceptic movement in Italy is about to receive a shot in the arm if EU leaders don't rescue this country and its collapsed businesses.

On Thursday, April 23, EU leaders were supposed to sign off a 540 billion euro ($581 million) rescue plan for Eurozone countries hit hard by the virus, namely Spain and Italy. But those leaders cannot decide on the formula and, ever conscious that if they get it wrong, the impact could be cataclysmic.

On the day, they put their weight behind the plan and reached a "political agreement" – which in euro-talk "we back it in principle but reserve the right to pull out of it at any time."

But in reality, they have just passed the buck to their national parliaments who have to back it anytime from now until June 1, when the EU commission hopes to roll it out.

The crux of the debate in Brussels and among EU leaders is whether countries like Italy should be given a hand-out (a grant) or a loan. 

When EU leaders met via video link this week, the package on the table was mainly in loans which would have been enough to have provoked Italy into being the EU's number one enemy.

Yet EU leaders recognised the political implications and moved quickly to propose a much bigger recovery package of close to 2 trillion dollars which will form part of the EU's seven-year budget - which might stifle anti-EU rhetoric from Rome, for the moment.

But the debate over the 2 trillion euro ($2.1 trillion) rescue package has merely been used as a distraction to hide disagreements over how this money should be handed over – whether the heated exchange is over the former 540 billion "rescue" or a much bigger one later in the year. No matter.

Like the 540 billion euro package, the same disagreement is going on for the larger package. Even though the bigger one is part of the EU budget, should either one be given to countries like Italy or loaned? The smaller 'bailout' is mainly in soft loans which are surely going to come with some payback later on from Italy.

As for the 2 trillion hoped to be part of a new EU budget, later on, the EU itself will borrow this money from international markets and have to pay it back. For countries like Italy, there are three options. Pay back as a conventional loan; pay back on "never-never" terms over decades like a Marshall Plan or not pay back at all and take the cash as a grant.

A new EU budget could take months to iron out, though.

Old wounds

And will Old Europe wait? As thousands die each day across the 27-nation bloc, those who have buried loved ones will not be very receptive towards the project when elections come round again in 2024.

That is, if the EU, as we know it, is still around by then.

As each day passes a growing crisis of confidence resonates across societies of all countries, even those who were staunchly pro-EU. 

The EU itself can't keep pretending to be a superpower and not even put together a rescue plan to bail out its citizens – and then expect when it's all over to continue the charade of pining for more power, having its army and fighting wars around the world.

The corona crisis is an EU crisis. And if it borrows 2 trillion, then the crisis itself becomes the basis for Brussels to take more power from member states, simply due to its role as a loan broker.

As the Schengen agreement appears to be in tatters and EU member states all act alone in grasping their own crises (from border management to internal lockdowns right through to medical equipment procurement from non-EU countries) we are witnessing a pandemic of politics in Brussels, which like the coronavirus, is growing at an alarming rate.

Where is the unity? EU leaders are bitterly divided on who gets to put their hands in their pockets to save Italian businesses because there is a dire lack of unification from across Europe – which always raises its ugly head when a crisis is in the midst. Remember the newspaper articles in the Greek press depicting Nazi officers when the eurozone crisis hit Greece?

What we see now is France, Spain and Italy wanting a softer option on how this new rescue plan [read debt] will be paid back by Italy and Spain – so the Greek story doesn't repeat itself. 

Apart from France, most northern countries feel that southern states should take more of the debt themselves as they are reluctant to help Italy rescue its ailing industries – and some argue, want to pick up bargains among the carcasses of empty factories who were killed off by corona. 

The Dutch are, in particular, paying hardball on this which leaves the EU – as an entity – in hot water. The Dutch PM recently said that he wanted "rescue funds" to come from the existing EU budget, taken from other portfolios which indicate the gap between the two divides. Germany, the Netherlands and Finland don't want to give Italy grants, while those countries – along with France – arguing strongly for them.

The EU itself in Brussels, as well as EU leaders, know that the European Union needs to act fast if it is to salvage some political credibility.

If it does nothing, confidence will collapse entirely. If it gets it wrong and makes Italy the new Greece (which lost much of its industry to neighbouring countries like Turkey) when the crisis hit, then the political fallout in Italy will be paramount.

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Crisis of credibility

In the two weeks which passed between EU finance ministers signing off the first loan package, EU leaders have realised that it was "too little, too late" as the New York Times put it.

And so dithering and penny-pinching became the order of the day which delays the big decision – on the 2 trillion euro bailout - until mid-June when it is believed that EU leaders can meet in person. This is important as in reality when EU leaders meet in Brussels to discuss such contentious subjects, there is usually much 'horse-trading' whereby one leader will agree to back another's plan, in return for supporting another unrelated draft EU directive stuck in the Brussels mill.

Of course, such haggling cannot happen via video cam.

The crisis also feeds into the foibles of the EU executive itself which is patently unable to prioritise and tends to place its own worries above bigger ones across the EU. 

Concurrent to the corona crisis, the EU itself is weathering a storm of its credibility and confidence with both member states and citizens. Before corona became the calamity that it is, much energy was devoted to rescuing the EU by giving it both more money and power.

And so it comes as no surprise that as part of this nascent deliberation continues to dog EU officials, the European Commission does what it always does: ask for more money.

And this yet another battle where the EU will fall on its sword. If EU leaders are protecting their own countries by Machiavellian meddling in Italy's finances and refuses to rescue Italians, then how does Brussels expect to extract even more money from EU governments when they can't even bail out entirely their own economies? 

In the coming weeks, the failure to agree on the 590 billion euro 'loan' or whatever EU leaders wish to call it, will be very telling if all 27 national parliaments don't back it.

If all 27 member states' parliaments back it, then this will determine the formula of the larger Marshall Plan which follows.

Making the EU a debt-ridden body whose leaders will have the justification now to increase its annual budget from member states coffers will also be a rod for its own back, as it campaigns vociferously for a bigger EU budget and more power. 

All roads lead to Rome.