European Union finance ministers have agreed on a massive emergency package so member states hit hard by the coronavirus pandemic will have the necessary resources to rebuild their economies.
After a week of intensive diplomatic haggling, ministers agreed on a rescue package that could ultimately be worth around €500 billion (S$773 billion) of credits to help national economies meet the current health emergency.
"These are bold and ambitious proposals," said Mr Mario Centeno, Portugal's finance minister who chairs the Eurogroup. "We can all remember the response to the financial crisis of the last decade, when Europe did too little too late. This time around is different."
But the package still skirts around the biggest question: whether EU member states are ready to guarantee one another's debt liabilities.
Under EU rules, countries using the euro must adhere to strict conditions over the size of their national debt and budget deficit.
Certain states - such as Italy, France and Spain - have always struggled to meet these conditions, while Greece faced bankruptcy a decade ago because it was no longer able to service its national debt.
In order to avoid similar crises, the EU established the European Stability Mechanism (ESM), which acts as a permanent "firewall" by providing readily-available cash to stave off national bankruptcies.
The snag is that ESM money is available only with strict conditions that force a state borrower to undertake painful austerity measures in order to bring its finances back in line with EU obligations.
And that is something which is virtually impossible for countries such as Italy, which already has a national debt equivalent to 134 per cent of its gross domestic product (GDP) - double what is permitted under European rules - and may end this year with a total debt of 180 per cent of GDP because of spending on the pandemic.
As a result, a group led by Italy and France wants the EU to consider issuing joint debt - dubbed Coronabonds - which would be guaranteed by all member states, including Germany.
Unsurprisingly, Germany, the Netherlands and a few other rich northern European states have rejected this request, pointing out that mutual debts are explicitly banned under existing treaties.
The new deal is a compromise.
Any euro zone country can now borrow from the ESM without any political conditions, but only in order to cover immediate medical expenses and provided such "unrestricted" funds do not amount to more than 2 per cent of its GDP.
A separate €100 billion unemployment insurance scheme is to be set up to help countries cope with the aftermath of the health crisis.
And a further €200 billion of borrowing will be made available to countries whose economies are affected by the coronavirus.
But much of the rescue package represents a classic European exercise in political cosmetics. The money allocated to medical expenses is tiny and will make no difference to needy states.
And half of the rescue package is essentially just a repackaging of the same old cash that was always available through the ESM.
And since tapping ESM cash entails accepting painful austerity conditions, the fear is that the countries that need this cash the most - Italy or France, for example - will also be those that will not dare to borrow.
