Euro zone bailout fund's COVID-19 load costs fall below zero

Credit: REUTERS/ALBERT GEA

Euro zone governments borrowing from their bailout fund to deal with the COVID-19 pandemic would now have to pay back less than they received, and the most affected southern countries would benefit the most, the bailout fund said in a blog entry.

BRUSSELS, July 29 (Reuters) - Euro zone governments borrowing from their bailout fund to deal with the COVID-19 pandemic would now have to pay back less than they received, and the most affected southern countries would benefit the most, the bailout fund said in a blog entry.

Under a deal struck by euro zone ministers in May, the European Stability Mechanism (ESM) has 240 billion euros available for loans to the 19 governments sharing the euro to support direct and indirect healthcare, cure and prevention- related costs arising from the COVID-19 crisis.

The interest rate for countries borrowing from the ESM for 10 years in June was zero and has now fallen to -0.12%. The benefit is even bigger if a country borrows for seven years -- the negative rate is 0.26%, even with all the ESM fees and costs.

Such costs are less attractive for many of the northern countries, which can borrow even more cheaply on their own. But the negative rate would mean larges savings for some of the most pandemic-affected countries, such as Italy, which borrows for 10 years at a positive 1.0%, or Spain, which has to pay 0.35%.

So far, no country has applied for the ESM credit line, because EU leaders were working on an agreement for 390 billion euros of grants and 360 billion of cheap loans to finance the economic recovery of EU countries after the COVID-19 pandemic.

(Reporting by Jan Strupczewski)

((jan.strupczewski@thomsonreuters.com; +32 2 287 68 37; Reuters Messaging: jan.strupczewski.reuters.com@reuters.net))

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