The European Commission has proposed giving hundreds of billions of euros to EU countries that have seen their economies devastated by the coronavirus pandemic, an unprecedented relief effort designed to ensure parts of the bloc aren’t left behind when the recovery comes.
The executive arm of the European Union on Wednesday unveiled a plan that would see it raise €750 billion ($825 billion) on financial markets through its 2021-27 budget. Two-thirds of the money would be distributed to countries via grants, while the remainder would be offered as loans.
“We all understand the crisis is so huge we have to take unusual steps to overcome the crisis and to get out stronger,” European Commission President Ursula von der Leyen said at a press conference.
The pitch was welcomed by southern European countries but could still run into opposition from more fiscally conservative northern countries, which only want to offer loans. All 27 member states must sign off on the proposal, and analysts warn that a delay could inflame political tensions that could pull the bloc apart.
“Now the question is how serious and how strict the opposition [is],” said Carsten Brzeski, chief eurozone economist at the Dutch bank ING. The Commission proposal, he cautioned, is “just the start.”
Getting it through
Germany and France, the two largest economies in Europe, said last week that they supported the extensive use of grants that do not require repayment, an acknowledgment of the economic trauma caused by the pandemic. The Commission has forecast that GDP in the 19 countries that use the euro will contract by 7.75% this year, a record.
European Central Bank President Christine Lagarde said Wednesday the damage could be even greater, predicting a loss of between 8% and 12% of GDP.
The Franco-German plan served as the foundation for the Commission’s proposal, which includes €500 billion ($550 billion) in grants and €250 billion ($275 billion) in loans. The Commission wants to finance the borrowing with new taxes on polluters, non-recyclable plastics, and digital services firms.
“This would allow member states to contribute to the next European budget at the same level they currently do,” von der Leyen said.
Supporters of the package called for further negotiations to move fast so relief won’t be delayed.
“Essential day for Europe,” French President Emmanuel Macron tweeted. “The Franco-German agreement has enabled this progress to be made. We must move quickly and adopt an ambitious agreement with all our European partners.”
But deep divisions remain. Over the weekend, a group of nations known as the “Frugal Four” — Austria, the Netherlands, Sweden and Denmark — rejected the Franco-German compromise and said they favor only loans.
“Negotiations will take time,” a Dutch diplomat told CNN. “It’s difficult to imagine this proposal will be the end state of those negotiations.”
The relief package would come on top of €540 billion ($592 billion) in existing EU stimulus efforts. Countries have also launched their own aid programs, though some governments have announced more generous spending than others. Germany’s measures are worth more than 10% of its annual GDP, while programs in Italy and Spain come in at roughly 3%, according to Berenberg Bank.