The European Central Bank (ECB) announced, on March 12, 2020, a modest program that underwhelmed the markets: €120 billion in bond purchases and generous funding for banks to support their lending. The benchmark eurozone interest rate was kept on hold at minus 0.5%.  According to the ECB, this meager monetary support sufficed because the response to the crisis ‘should be fiscal first and foremost.’ It was not the ECB’s job to close the spreads between the increasingly high yields of the periphery (the southern states) and the dropping yields of the core (the northern, rich states). As a result, Italian bond yields soared.
As criticism against the ECB’s tepid action mounted, the bank responded by adopting the €750 billion Pandemic Emergency Purchase Program (PEPP) through which it bought the debt of eurozone states and highly-rated corporate debt. Because of the lack of a central fiscal authority in the eurozone, comparable to the Treasury in the United States or the Finance Ministry in Japan, the ECB had to purchase the debt issued by all 19 eurozone governments proportionate to the size of their economies and their population. The bank further announced that it was ‘ready to do everything necessary within its mandate’ to help states deal with the pandemic. This included increasing its bond purchases, and the composition of such purchases, ‘as necessary and for as long as needed’ in order ‘to support the economy through this shock.’  The ECB’s no-limits approach to the crisis was put in motion while Italy was in the throes of the pandemic and its bond market was under tremendous stress. Italy’s 10-year bond had risen above 3%. The Greek equivalent traded above 4.1% compared with less than 1% just a few weeks before.
On March 24, 2020, it became clear that the ECB had freed itself from previously self-imposed ceilings on how much of the debt of each eurozone state it was ready purchase. This was an extraordinary decision. Unlike prior bond buying, the PEPP, while still allocated proportionately to states’ economic size and population, was to be implemented in a ‘flexible manner’ allowing for ‘fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.’ The ECB could, therefore, purchase more of the bonds of countries that were under stress due the pandemic.
Furthermore, the ECB acted preemptively to address fears that the Italian government debt may be downgraded by the Credit Rating Agencies (CRAs).  It announced that securities that were eligible as collateral before April 7, 2020 could continue to be used as collateral even if downgraded. This announcement was a vote of confidence for the Italian debt given that the S&P and Moody’s had placed Italian government bonds just two levels above junk status.
With the PEPP program firmly in place, Italy was able to raise €16 billion and Spain €15 billion in debt in the bond markets in late April 2020. The ECB has been credited for being able to lower significantly the cost of debt for these states. The bank, by taking decisive action at the outset of the pandemic, convinced the markets that it was ready to address the monetary fragmentation in the eurozone. The ECB accomplished this not only through negative interest rates, that were already in place, but also through extensive purchases of debt on the basis of needs of states. The ECB signaled that it was ready to absorb most of the new debt issued by eurozone states to address the fallout from COVID-19.
As if the pandemic was not enough, the ECB was dealing with the after-shocks of the 2009 eurocrisis, the toxic debts that burdened the balance sheets of many private European banks. The EBC wanted to establish a ‘bad bank’ to remove the billions in euros in non-performing loans from private banks’ balance sheets. These non-performing loans were crippling banks’ lending ability, an ability they sorely needed to provide credit to the economy during the pandemic. In 2020, non-performing loans constituted 7% of total loans granted in Italy, 10% in Portugal, 3% in Spain compared with 1% in Germany. Banks were reluctant to provide loans even in cases when governments provided guarantees for lending. Ironically, while politicians were urging banks to provide credit as ‘an act of love,’ banks reminded governments that banks’ job was not to give out money; it was to provide credit.
In the midst of the pandemic, eurozone states continued to fight over whether it made sense to mutualize their debt. Many core states, Denmark, the Netherlands and Austria, were against the mutualization of eurozone debt, debt issued and guaranteed by all eurozone states. Peripheral states, Italy and Spain, were adamant, on the other hand, that the issuance of common debt, the so-called corona bonds, was the way to raise funds for the massive reconstruction that had to happen after the pandemic. Peripheral states feared that if they had to borrow all the money they needed, on their own, they would risk falling into a sovereign-debt crisis, similar to the one that upended Greece between 2009 and 2018. Issuing common debt was a way to prevent the emergence of a divided European economy after the crisis: a stagnating south burdened by debt and a growing north with ample fiscal space.
Another option for the peripheral states was to seek loans from the European Stability Mechanism (ESM). States, though, view the ESM, much like the International Monetary Fund (IMF), as a political poison. This is because of the draconian conditions the ESM imposes for providing loans, as demonstrated by the Greek bailout case. If the ESM were to be used, peripheral states wanted to keep the conditions on its lending as light as possible. They argued that the eurozone was hit by an external symmetric shock and that no country should be treated as a pariah because none had mismanaged its finances. Italy, before the pandemic, had amassed €2.5 trillion in debt; its 2019 debt-to-GDP ratio was 136%. Spain’s debt-to-GDP ratio was 97%. Because of these high debt-to-GDP ratios, some core states urged the European Commission to investigate why some countries were lacking the fiscal space to pay for the costs of the post-pandemic reconstruction on their own. Overall, the high debt-to-GDP ratios of peripheral states restricted their fiscal space, the fiscal stimulus they could provide to revive their economies during the pandemic. For instance, while the fiscal boost provided by Spain was 1.2% of its GDP, Germany’s fiscal stimulus was 4.4% .
Eventually EU states decided, on April 11, 2020, to create the Pandemic Crisis Support by using ESM’s Enhanced Conditions Credit Line (ECCL). The only requirement for accessing that credit line was for states to pledge that they would use it to support domestic financing of healthcare, and COVID-19 cure and prevention costs. The ECCL was to remain open until the crisis was over. Afterwards, states that had obtained ECCL financing were expected to remain committed to strengthening their economic and financial fundamentals.
The EU also created a fund, the temporary Support to mitigate Unemployment Risks in an Emergency (SURE), that provided loans to EU states to help them address the high unemployment caused by the pandemic. By March 2020, the average rate of unemployment in the EU was 7.4% but job losses were much higher in the European periphery. Spain’s unemployment rate, for example, was 14.5% while Germany’s was only 3.5% .
The European Commission was able to muster an additional €2.7 billion from the EU budget to reactivate the Emergency Support Instrument that was used to strengthen the national healthcare systems of European states. Another initiative of the Commission was to gather unspent funds from the EU cohesion programs to establish the €37 billion Coronavirus Response Investment Initiative (CRII) that was further amended as CRII Plus. The distribution of CRII Plus funds followed the blueprint that governed the traditional distribution of EU structural funds, a large portion of which is devoted to supporting growth in Eastern European countries. As a result, under CRII Plus, Italy received €2.3 billion while Hungary received €5.6 billion. This distribution was obviously grossly inequitable. Hungary had a sixth of the population of Italy and did not suffer as much as Italy from the pandemic.
The European Union Solidarity Fund (EUSF) provided additional financial aid up to €800 million. This assistance could be accessed by any country as long as the country’s emergency expenditures in the first months of the crisis were over €1.5 billion or more than 0.3% of its GNI.
The European Investment Bank created a pan-European fund of €25 billion. This fund could be leveraged to generate financing up to €200 billion for small- and medium-size companies hit particularly hard by the lockdowns imposed by governments. In the same spirit, the European Commission relaxed its rules against the state-aid of companies so that governments could help out ailing enterprises by injecting cash in exchange for stakes in them. In addition, the EU provided flexibility with regard to the ironclad budget deficit and debt rules. States that were experiencing a severe economic downturn, due to the pandemic, were given the freedom to run higher deficits and debts than those expected in normal circumstances.
The European Union 7-year budget is the so-called Multiannual Financial Framework (MFF). The MFF stood at 1.2% of EU states’ total Gross National Income (GNI) and was to expire in December 2020. Discussions on the adoption of a new 7-year budget were acrimonious because of the divisions between the core states, the net payers to the budget, and the biggest recipients, the peripheral states. Core states, including Austria, Denmark, the Netherlands, and Sweden, were fierce defenders of a small budget capped at 1% of the EU’s GNI. Peripheral countries including Italy, Portugal, and the Czech Republic, wanted a bigger budget, at 2% of the EU states’ GNI. Spain proposed that a massive €1.5 trillion Recovery Fund should be included in the budget. The purpose of such a fund was to provide grants to countries ravaged by the pandemic. Core states were against the provision of grants. They insisted that any assistance to the periphery should be provided through traditional loans, not grants.
The EU measures adopted during the pandemic seemed much more generous and were launched much more swiftly than those adopted during the 2009 eurocrisis. However, even the pandemic was not enough to detract from eurozone’s malaise, the recurrent recriminations between core and perhipheral states. Most pandemic assistance was provided in the form of loans rather than grants.  The programs were often adopted after acrimonious negotiations during which core states consistently pointed fingers to the ‘reckless periphery,’ states which had failed to save enough to stave off the economic mayhem launched by the pandemic. Italy with over 18 000 coronavirus deaths was furious that Germany and other EU nations balked at offering medical help and supplies. Italians were appalled by Germany’s and the Netherlands’ reluctance to help them financially. In fact, 70% of the Italian population were convinced that Germany was out to ‘strangle’ their country. China, on the other hand, looked like a benefactor. China sent PPE and doctors to Italy to assist it with pandemic.
Will Europe See its Hamiltonian Moment?
 ECB, Monetary policy decisions, Press Release, Mar. 12, 2020, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.htmlf.
 ECB, Christine Lagarde and Luis de Guindos, Press Conference, Mar. 12, 2020, https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312~f857a21b6c.en.html.
 ECB, ECB announces €750 billion Pandemic Emergency Purchase Programme (PEPP), Press Release, Mar. 18, 2020, [hereinafter PEPP program] https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html.
 Christine Lagarde, Our response to the coronavirus emergency, ECB Blog, Mar. 19, 2020, https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200319~11f421e25e.en.html.
 Tom Fairless, ECB to Buy Bonds to Combat Economic Slowdown From Coronavirus, WSJ, Mar. 18, 2020, https://www.wsj.com/articles/ecb-seeks-to-mend-rifts-as-economic-clouds-gather-11584523534.
 Preamble (5), Art. 5, Decision 2020/440 of the European Central Ban.k of 24 March 2020 on a temporary pandemic emergency purchase programme (ECB/2020/17), OJ L 91/1, 25.3.2020, https://www.ecb.europa.eu/ecb/legal/pdf/celex_32020d0440_en_txt.pdf.
 Elli Louka, The Global Economic Order: The International Law and Politics of the Financial and Monetary System 158-59 (2020).
 PEPP program, supra note 4.
 On the CRAs and their power to move the markets, see Louka, supra note 8, at 279-81.
 ECB, ECB takes steps to mitigate impact of possible rating downgrades on collateral availability, Press Release, Apr. 22, 2020, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200422_1~95e0f62a2b.en.html.
 Anna Hirtenstein and Anna Isaac, Italian Bonds Rally after Country Avoids S&P Downgrade, WSJ, Apr. 27, 2020, https://www.wsj.com/articles/italian-bonds-rally-after-country-avoids-rating-downgrade-11587997076.
 Anna Hirtenstein, Investors Bet on ECB While Lapping Up Risky Government Bonds, May 18, 2020, https://www.wsj.com/articles/investors-bet-on-ecb-while-lapping-up-risky-government-bonds-11589801068.
 S&P Global, Germany’s Constitutional Court Complicates the ECB’s Crisis Response, May 19,2020, https://www.spglobal.com/ratings/en/research/articles/200519-germany-s-constitutional-court-complicates-the-ecb-s-crisis-response-11498117.
 Patricia Kowsmann et al., The Bank Backstop: Can Europe’s Lenders Weather the Coronavirus Crisis?, Apr. 14, 2020, https://www.wsj.com/articles/the-bank-backstop-can-europes-lenders-weather-the-coronavirus-crisis-11586823073
 Louka, supra note 8, at 348-71
 On the establishment and role of the ESM, see Louka, supra note 8, at 165-66.
 On the austerity imposed by the IMF as a pre-condition for lending to countries in trouble, see Louka, supra note 8, at 239-50.
 See supra note 16.
 Mehreen Khan, Straining the Ties that Bind the Eurozone, FT, Mar. 26, 2020.
 How Deep will Downturns in Rich Countries Be? Picking off the Weak, Economist, Apr. 16. 2020.
 European Council, Report on the comprehensive economic policy response to the COVID-19 pandemic, Apr. 9, 2020, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-economic-policy-response-to-the-covid-19-pandemic/.
 Proposal for a Council Regulation on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak, COM/2020/139 final.
 Eurostat, Euro area unemployment at 7.4%, Apr. 30, 2020, https://ec.europa.eu/eurostat/documents/2995521/10294732/3-30042020-CP-EN.pdf/05df809c-7eb8-10c7-efcf-35325c84f56e.
 Proposal for a Council Regulation activating the emergency support under Council Regulation (EU) 2016/369 of 15 March 2016 and amending its provisions in respect of the COVID-19 outbreak, COM(2020) 175, Apr. 2, 2020.
 Coronavirus Response Investment Initiative, https://ec.europa.eu/regional_policy/en/newsroom/coronavirus-response/.
 Coronavirus Response Investment Initiative Plus: New actions to mobilise essential investments and resources, Apr. 2, 2020, https://ec.europa.eu/regional_policy/en/newsroom/news/2020/04/04-02-2020-coronavirus-response-investment-initiative-plus-new-actions-to-mobilise-essential-investments-and-resources.
 The Wizard, the Virus and a Pot of Gold: Viktor Orban and the Future of European Solidarity, European Stability Initiative Report, Apr. 18, 2020, https://www.esiweb.org/sites/default/files/reports/pdf/ESI%20-%20Orban%20the%20EU%20and%20the%20pot%20of%20gold%20-%2018%20April%202020.pdf.
 European Commission, EU Solidarity Fund: application guidelines for Covid-19 assistance, Press Release, Apr. 2, 2020, https://ec.europa.eu/regional_policy/en/newsroom/news/2020/04/04-02-2020-eu-solidarity-fund-application-guidelines-for-covid-19-assistance
 EU Solidarity Fund for COVID-19, https://ec.europa.eu/regional_policy/en/funding/solidarity-fund/covid-19.
 European Investment Bank (EIB) Coronavirus outbreak: EIB Group’s response, Press Release, Apr. 18, 2020, https://www.eib.org/en/about/initiatives/covid-19-response/index.htm
 See Louka, supra note 8, at 166-170. European Council, Report on the comprehensive economic policy response to the COVID-19 pandemic, Apr. 9, 2020, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-economic-policy-response-to-the-covid-19-pandemic/.
 See Louka, supra note 8, at 170.
 European Commission, Reflection Paper on the Future of EU Finances Facts & Figures, 2018, https://ec.europa.eu/commission/sites/beta-political/files/future-eu-finances-facts-and-figures-factsheet_en.pdf.
 LuigiZingales, The EU Must be Forged in this Crisis or It Will Die, FT, Apr. 5, 2020.
 Yaroslav Trofimov and Bojan Pancevski, Coronavirus Crisis Threatens to Split an Already Fractured EU, WSJ, Apr. 10, 2020, https://www.wsj.com/articles/coronavirus-crisis-threatens-to-split-an-already-fractured-eu-11586525523.