Stocks drop as eurozone fails to agree new coronavirus stimulus

European stock markets traded lower on Wednesday after eurozone finance ministers failed to reach a deal on additional stimulus to weather the economic impact of the Covid-19 pandemic.

The pan-European STOXX 600 index fell by more than one percent after Mario Centeno, who chairs the 19-member grouping, said that discussions would resume on Thursday.

“After 16h of discussions we came close to a deal but we are not there yet,” Centeno wrote in a tweet.

London’s FTSE 100 declined 1.6 percent, while Germany’s DAX slid 1.1 percent. France’s CAC 40 has dropped almost two percent.

The euro-area group had been working on a new credit line to be provided by the European Stability Mechanism, an emergency fund that was set up in the wake of the sovereign debt crisis. Some countries, in particular the Netherlands, were pushing for some conditionality attached to the loans. However, others, like Italy and Spain, did not want any fiscal targets in exchange for new funding.

The EU leaders are also divided over developing a new debt instrument. Italy, France, Spain, Ireland and Luxembourg were pushing for a written commitment to work towards joint debt issuance. However, the idea has been blocked so far.

“The meeting was supposed to be about arriving at a roadmap for an exit strategy from coronavirus later today, which would include how to unlock the power of the European Stability Mechanism, the EU’s bailout fund to help those most affected by the pandemic,” Michael Hewson, the chief market analyst at CMC Markets UK, told Yahoo Finance.

He added that “France, Spain and Italy want to make progress on plans for a joint debt instrument. However, the more fiscally conservative countries like Germany are more skeptical, and reluctant to sign blank cheques.”

European ministers will meet again on Thursday as they seek to overcome the disagreements.

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