EU haggling over Covid-19 deal revives bad memories of crash response

‘Memorandum of understanding’ mentioned by Dutch minister is a toxic term in Greece

The negotiations over how to dig the European Union out of the coronavirus downturn have been weighed down by the baggage of the bloc's last major crisis.

The position of the Dutch that easy money cannot be granted without conditions to indebted states because it would remove the incentives to keep the public finances in order – the so-called "moral hazard" argument – was familiar from the tortured bailout talks of the 2010s.

During the negotiations, Dutch finance minister Wopke Hoekstra reportedly used the forbidden words "memorandum of understanding". This is a toxic term in Greece, as it was the term used for the agreement that tied the country into savage cuts and tax hikes in exchange for rescue loans.

And another toxic term makes the agreement extremely difficult for Italy to sell domestically: "European Stability Mechanism", the bailout fund set up during the debt crisis, is known in Italy by its acronym as 'the Mes'.


The Mes is synonymous with the cuts Italy had to impose in its bailout, and has deeply negative associations of the surrender of financial sovereignty – akin to the word "troika" in Ireland.

The deal struck on Thursday allows countries to take loans from the Mes without having to balance the books, as long as the money is used for healthcare spending related to the pandemic.

But this subtlety is of little use to the Italian government as it tries to sell the deal domestically. The fact that the deal involves the Mes alone allows the far-right Eurosceptic League party to pillory the government for having surrendered – especially the coalition Five Star Movement, which has itself attacked the Mes for years.

But doomsayers beware. Before declaring that Italy is going to leave the bloc or the euro, be aware that, as much as Italian parties of various stripes like to use the idea of the EU as a political antagonist, they usually shy away from advocating leaving altogether. They and their voters know it’s a fantasy to think an Italexit would be an easy fix.