The blueprint received an initial positive reaction from Paris, Berlin, Rome, and Madrid, as well as the European Parliament, and the chairman of EU leaders said they should aim to finalize an agreement before the summer break.
Under the proposal, which could still be blocked by more frugal northern nations, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans to cushion the unprecedented slump expected this year due to lockdowns.
Much of the money would go to Italy and Spain, the EU nations worst affected by the pandemic.
“We either all go it alone, leaving countries, regions, and people behind and accepting a union of haves and have-nots, or we walk that road together,” said Commission head, Ursula von der Leyen.
EU leaders agree that, if they fail to rescue economies now in freefall, they risk something worse than their debt crisis of a decade ago, which threatened to pull the eurozone apart.
But fiscally conservative northern countries have resisted pressure from a “Club Med” group to take on mutual debt to protect the EU’s single market of 450 million people from being splintered by divergent economic growth and wealth levels.
The grants are needed because Italy, Spain, Greece, France, and Portugal already have high debt and rely heavily on tourism, hit hard by the pandemic.
The euro rose as von der Leyen detailed the plan—“Europe’s Moment: Repair and Prepare for the Next Generation.”
The plan aims to fulfill the Commission’s pledge to slash EU carbon emissions to “net zero” in 2050, beef up EU health and defense capability, and prop up firms facing solvency problems.
The recovery fund comes in addition to the EU’s long-term budget for 2021-27, which the Commission proposed to set at 1.1 trillion euros ($1.21 trillion). While some stimulus spending could start as soon as this autumn, most would come from 2021.
The plan needs unanimous backing of the 27 EU states and the European Parliament. EU leaders’ chairman Charles Michel said they would first discuss it on June 19.
“It is clear there are difficult talks ahead,” German Chancellor Angela Merkel said. Her finance minister saw “very high” chances for a deal.
Horse-Trading
The 500 billion euros ($548 billion) in grants reflects the wishes of the two biggest EU economies, France and Germany, which came up with a grants-only proposal last week.“We must move quickly and adopt an ambitious agreement with all our European partners,” said French President Emmanuel Macron.
The more frugal nations would rather see the recovery package comprise only loans, and the Netherlands responded cautiously to the proposals.
“The positions are far apart... So negotiations will take time,” said a Dutch diplomat.
The poorer eastern countries want to ensure their generous development and farm subsidies are not cut.
Despite their fights on how to respond to the crisis, EU countries have already agreed on 500 billion euros of immediate rescue aid and the plan worth 1.85 trillion euros ($2.03 trillion) unveiled on Wednesday would come on top of that.
The Commission plans to repay the borrowing with new taxes on sectors such as plastics, digital trade, and large corporates.
ING said the proposal was like an expensive bottle of wine on a supermarket shelf: “Very often it is only there to make the lower-priced ones look reasonable.”
