Minimal conditions for coronavirus bailout loans would be appropriate: EU lawyers

FILE PHOTO: Spread of the coronavirus disease (COVID-19) in Boortmeerbeek

BRUSSELS (Reuters) - The euro zone bailout fund would be permitted to demand only minimal conditions from governments drawing on loans to help them the new coronavirus pandemic, European Council lawyers said in an opinion issued on Tuesday.

The bailout fund, called the European Stability Mechanism (ESM), can extend cheap standby loans to euro zone governments who want it of up to 2% of their GDP to deal with the economic fallout of the virus that will cause a deep recession in Europe.

In the past, credit from the ESM has come with significant conditions attached. During the sovereign debt crisis of 2010-2012, these included promises of deep macroeconomic reforms.

This means that countries such as Italy and Spain, the hardest hit by the new coronavirus outbreak, are uneasy about using the standby credit as a tool to fight the epidemic-induced economic slump, wary of the stigma of needing help and of the EU dictating their reforms.

However, under the circumstances, a credit line with conditions linked only to financing of health care and economic costs incurred as a result of responding to the coronavirus pandemic would be appropriate, the legal services of the European Council -- the EU institution grouping EU governments -- said.

"Such a conditionality would ... be compatible with the Treaties," the opinion, seen by Reuters, said.

(Reporting by Jan Strupczewski; Editing by Raissa Kasolowsky)