The coronavirus does not recognise borders. But as the EU struggles with the Covid-19 catastrophe, the ideological borders of the euro crisis are back: north-south, creditor-debtor.
This time the stakes are higher.
The problem during the financial crisis was the stability of banks, and the doom-loop created by banks being saddled with ever riskier sovereign debt which in turn threatened to push banks under.
The crisis was eventually alleviated by the ECB's pledge to do "whatever it takes" through bond-buying.
This time around the pandemic is not just hitting banks. It is devastating economic activity across the board. Whereas back in 2010, creditor countries could, with varying degrees of justification, blame bailout countries for their plight, this time the pandemic is no-one’s fault.
But that hasn’t stopped the fiscal hawks from dusting down the shibboleths of moral hazard.
"It is the classic standoff," says one EU diplomat, "between the Calvinist approach of some of the northern Europeans - not all of them - in relation to mutualisation of risk and debt, and southern member states. But this is a symmetric shock affecting all member states equally. When one talks about moral hazard there’s an implication that there’s a sinner. But there are no sinners in this."
Writing in the Financial Times, the author of the "whatever it takes" strategy in 2012, Mario Draghi, argued that this time it really is different.
"Faced with unforeseen circumstances," he argued, "a change of mindset is as necessary in this crisis as it would be in times of war. The shock we are facing is not cyclical. The loss of income is not the fault of any of those who suffer from it. The cost of hesitation may be irreversible."
"The shock we are facing is not cyclical. The loss of income is not the fault of any of those who suffer from it. The cost of hesitation may be irreversible." Mario Draghi
Yet when EU leaders held a five and a half hour video conference on Thursday, hesitation was what they opted for.
Yes, they agreed a range of measures that would speed up the flow of goods around the single market, accelerate funding for vaccine research, start the process of stockpiling vital medical supplies, prevent the hostile foreign takeover of European companies whose share prices were tumbling, ensure the EU exits the crisis in a coordinated manner and help EU citizens stranded around the world get home.
But on the central question of throwing fiscal firepower at the crisis, the divisions of the euro crisis were exhumed.
Italy and Spain were at loggerheads with Germany and the Netherlands over the morality and legality of the EU as a whole shouldering the fiscal burden. As a result, the best leaders could manage was to order eurozone finance ministers back to the drawing board and a 14-day deadline to come up with workable proposals (Italy wanted a 10-day deadline).
Those proposals have been kicking around for a number of weeks.
Eurozone finance ministers had largely agreed in principle last Tuesday that the European Stability Mechanism (ESM), the EU’s bailout fund, could be re-tooled to provide emergency credit lines to member states.
The ESM has a lending capacity of €410 billion. Member states would be able to avail of up to 2% of their GDP (or more, depending on how critical the situation was) on low-interest terms.
The European Investment Bank (EIB) is also offering a Pan-European Guarantee scheme worth €40 billion, underwritten by its Triple A rating, to help small and medium size businesses.
"The EIB is extraordinarily well capitalised," says one EU diplomat. "It has a triple A rating, but it shouldn’t just be kept in a glass case."
The third and most controversial option is the so-called coronabond. This would involve the pooling of member states’ debt via an ECB bond issue. It harks back to the days of the euro debt crisis when "eurobonds" were hailed as the bazooka the crisis needed.
Ahead of Thursday’s video conference nine leaders, including the Taoiseach Leo Varadkar, called for such a weapon.
In a letter to European Council president Charles Michel, the worst affected countries - France, Spain and Italy - argued that "this common debt instrument should have sufficient size and long maturity to be fully efficient and avoid roll-over risks now as in the future. The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system."
Christine Lagarde, the ECB president, is thought to be in favour of the idea. "We will explore all options and all contingencies to support the economy through this shock," she wrote in the Financial Times.
However, opposition was swift and from predictable quarters. Germany, the Netherlands and Austria, the most implacable foes of eurobonds during the financial crisis, signalled their opposition.
The Dutch economy minister Wopke Hoestra suggested Brussels should "investigate" countries like Spain for not having a budgetary margin to fight the pandemic, despite the growth in the euro area during the past seven years.
His remarks prompted a vicious rebuke from the Portuguese prime minister António Costa who described them as "repulsive" and "senseless", warning that such "recurring pettiness threatens the future of the EU".
The mood going into Thursday’s leaders’ video conference was, therefore, not good. Charles Michel had hoped that a text could be agreed by EU ambassadors meeting that morning to avoid leaders having to hammer out details via video link.
However, ambassadors’ meeting was described as "tense" and "aggressive" by one source present. Italy and Spain were rattled by the northern pushback. The German delegation warned that coronabonds would never get passed the Bundestag, or the German constitutional court.
The Dutch were dead set against coronabonds and even regarded the ESM credit lines option as a "last resort", one which would still require conditions to be attached, as mandated by the ESM treaty.
The Dutch prime minister Mark Rutte recalled that the ESM, and its predecessor the European Stability Facility Mechansim (ESFM), had obliged Ireland and Portugal to implement necessary and, he said, successful economic reforms.
The same caveats would have to be attached this time around. "You need to have a very informed and intelligent debate on how to apply those treaty obligations if a country needs access to an ESM treaty instrument," he said after the video conference.
The "logic" of the ESM is that the conditions attached would make a country more "resilient," he insisted.
However, the notion that Italy would have to abide by conditions following the death of thousands of its citizens meant the Italian prime minister Giuseppe Conte could not support any approach that had punitive strings attached.
During the euro crisis, Italy and Spain came close to seeking an ESM rescue as their borrowing costs soared. However, Mario Draghi’s "whatever it takes" speech calmed the markets sufficiently to spare both member states the humiliation.
But memories of how close it came are still raw.
"For Italy," says one EU official, "the ESM is associated with a macroeconomic structural adjustment programme with strong conditionality, basically forcing the country to do all sorts of reforms, austerity measures. They believe it could also imply an analysis of the sustainability of Italy’s debt, which would have a negative impact on the market."
As a result, both the coronabonds and ESM options effectively cancelled each other out. The relevant paragraph in the final communiqué issued by leaders was bereft of any firepower reference. Instead, eurozone finance ministers would have to get back to work.
"We invite the Eurogroup to present proposals to us within two weeks," said Paragraph 14. "These proposals should take into account the unprecedented nature of the Cvoid-19 shock affecting all our countries and our response will be stepped up, as necessary, with further action in an inclusive way, in light of developments, in order to deliver a comprehensive response."
As a result, both the coronabonds and ESM options effectively cancelled each other out. The relevant paragraph in the final communiqué issued by leaders was bereft of any firepower reference.
Those same eurozone finance ministers were unable to agree unanimously on a fiscal response at their meeting on Tuesday, so, in the time-honoured EU fashion, the difficult decision had been passed up to the leaders for their Thursday video conference.
So, for EU leaders to have passed the chalice back down to the Eurogroup via an obscurely-worded paragraph has caused much head-scratching.
"Paragraph 14 is so absurd," says one EU official. "Anything can fit in there. The beginning of the sentence opens the door to several options, but then the end of the sentence seems to close those options off."
Nevertheless, eurozone finance ministers will have to knock heads together via numerous meetings over the next two weeks, including bilateral meetings.
For the moment, coronabonds are simply too toxic for Germany and the Netherlands. "I can tell you, for the Netherlands," Dutch prime minister Mark Rutte told reporters after the video conference, "we are against coronabonds or eurobonds."
That suggests that for now the ESM option is what finance ministers will have to grapple with.
The idea would be for emergency low interest, low cost credit lines, called Enhanced Conditions Credit Lines (ECCLs), to be made available to all member states. It would amount to €248 billion of the ESM’s overall lending capacity of €410 billion.
Any agreement at Eurogroup level will have to be backed by EU leaders at another video conference around 9 April.
Participants in the scheme would have to agree a Memorandum of Understanding (MoU) with the ESM and eurozone capitals which would set out the conditions.
The loans would have to target pandemic-related spending in the short term, and in the long term member states would have to commit to restoring public finances to a "stable condition", as per the constraints of the Stability and Growth Pact, and the so-called Country-Specific Recommendations, another euro crisis-era obligation.
The problem is that the Dutch and Italians remain poles apart.
At his news conference on Thursday night, Mark Rutte downplayed the divisions: "[The video conference] was not, as some predicted, the Netherlands against the south. Not at all. There is a lot of understanding of the very difficult position Italy and Spain and others are in."
However, behind the scenes the divisions were described in graphic terms. "To get a deal," says one EU official, "something will have to give. These two countries are at very different positions. What one says, the other says the exact opposite."
It’s understood, however, that the Eurogroup is trying to limit the conditionality of the ESM, compared to how it was originally intended at the height of the euro crisis.
"It would be a credit line that would be available to all countries," says one source familiar with the discussions, "that would be extremely favourable, the maturity would be long, the conditionality would, in the short term, only focus on expenditure related to the coronavirus, and in the long term only basically bringing the deficit back into the fold."
The source insists that, despite Mr Rutte’s protestations about the rigidity of the ESM treaty, member states would only have to tweak the ESM’s guidelines in order to create less onerous supports for any country that wanted to avail of them.
Have coronabonds been consigned to oblivion?
Opinion is divided. "I don’t think there’s scope for a discussion on coronabonds in the next two weeks", says one official.
It’s understood that German officials have raised the question of how you could mount a huge eurobond-style stimulus package if people were confined to their homes (ie, not out spending and boosting the economy).
However, one diplomat believes that the statement on Thursday night implicitly provides scope for a more ambitious response.
The ESM option is there to ensure there is a sense of urgency, says the diplomat, and that credit lines can be opened up.
A coronabond would come into play later, when the crisis is over.
"The issue is there," says the diplomat, "it’s firmly on the agenda and we’re going to come back to it. The response will be stepped up as necessary, with further action. The Dutch can’t simply block these measures. They can be stepped up as necessary.
"So the arguments around the coronabonds have been deferred for two weeks. There is an awareness there that there is a need for a roadmap, a strategy for when the virus is under control. It’s at that stage that coronabonds will be so important, as a massive stimulus to save economies and create Keynsian demand."
In the meantime, member states are having to rely on measures already announced by the European Commission.
These include relaxing the rules on state aid, so that capitals can pour money into stricken companies (so far the Commission has approved 16 aid schemes related to the pandemic), and the activation of the so-called "general escape clause" within the Stability and Growth Pact, the rulebook that is supposed to keep member states to a budget deficit of 3% of GDP and debt levels of 60%.
The Commission has also proposed a Coronavirus Response Investment Initiative that would allow member states to benefit from targeted assistance (in Ireland’s case this would mean around €33 million), and to change the EU’s Solidarity Fund so that €800 million could be released for the health crisis.
Brussels has also proposed bringing forward the idea of an EU wide unemployment insurance scheme. This would involve using untapped EU funds to leverage a financial backstop designed to support unemployment insurance schemes in member states, which are suddenly coming under unbearable pressure.
But such measures risk being lost in the welter of panic and recrimination. As such the parallels with the eurozone crisis are coming thick and fast.
"If we do not propose now a unified, powerful and effective response to this economic crisis, not only will the impact be harder, but its effects will last longer and we will be jeopardising the entire European project," Pedro Sanchez, the Spanish prime minister, said this week.
"The same mistakes of the 2008 financial crisis, which sowed seeds of disaffection and division with the European project and caused the rise of populism, cannot be made. We must learn that lesson."