The European Union proposed Wednesday a 750 billion-euro ($825 billion) recovery fund to help countries weather a painful recession triggered by the coronavirus and bridge divisions over the conditions that should be attached for access to the money.
The fund, to be mostly made up of grants and tied to the 27 member nations' common budget, comes as the world’s biggest trading bloc enters its deepest-ever recession, weighed down by the impact of the coronavirus. Virtually every country has broken the EU’s deficit limit as they’ve spent to keep health care systems, businesses and jobs alive.
While citizens across Europe are slowly returning to work and students move gradually offline and head back to classrooms, hardest-hit countries like Italy and Spain remain in desperate needs of funds and want to avoid any long-term wrangling. Barely off the press, the proposal received mixed reviews, with Dutch officials notably cool on it.
“Our unique model built over 70 years is being challenged like never before in our history,” European Commission President Ursula von der Leyen told EU lawmakers as she unveiled the plan. “This is Europe’s moment. Our willingness to act must live up to the challenges we are all facing.”
Von der Leyen said that the fund, which is dubbed Next Generation EU and must be endorsed by every country, is “providing an ambitious answer,” and she urged European nations to set aside their divisions.
“We either all go alone, leaving countries, regions and people behind, and accepting a Union of haves and have nots. Or we take that road together, we take that leap forward. For me, the choice is simple, I want us to take a new bold step together,” von der Leyen said.
The European aid, which would come on top of another half-trillion package and trillions of aid from individual EU countries, is part of a slew of programs that countries around the world are deploying to blunt the recession. The U.S. government has put up over $2 trillion in support for companies and workers, while Japan on Wednesday approved a supplementary budget that brings its fiscal support to over 230 trillion yen ($2.1 trillion).
To fund its move, the EU commission is proposing to borrow money on financial markets. The EU’s executive arm has a triple A credit rating, which would give it favorable loan terms. Repayments would not begin before 2028, with the full amount due after 30 years.
The money raised will go into the EU’s next long-term budget, which starts on Jan. 1 and runs until Dec. 31, 2027. It will then be channeled into a series of programs beneficial to the member states’ economies.
Two thirds of the fund - a half trillion euros - would take the form of grants, while the rest would be made up of more conditions-based loans that countries could apply for. Italy and Spain would each be eligible for around 80 billion euros in grants. France and Poland would each have access to 38 billion euros, while Germany could get 28 billion euros.
The grants will not just be handed over. Countries would have to apply, setting out their aims for the money and what reforms they plan to undertake to ensure their economies are more resilient in the future. The applications would have to be endorsed by the EU partners.
Italy, Spain and Poland would also be eligible for tens of billions of euros in loans, but the conditions are more onerous.
The proposal appears largely in line with a plan unveiled this month by Germany and France, historically the main powers in the EU. They agreed on a one-time 500 billion-euro fund, which was seen as a major political breakthrough due to Berlin's acceptance of shared debt between member countries.
But Austria, Denmark, the Netherlands and Sweden — a group of countries dubbed the “Frugal Four” — are reluctant to give money away without strings attached, and their opposition to grants could hold up the project.
A Dutch diplomat, who spoke on conditions of anonymity because the proposal had not yet been fully analyzed, said “the positions are far apart and this is a unanimity file; so negotiations will take time. It’s difficult to imagine this proposal will be the end-state of those negotiations.”
Conservative Dutch EU lawmaker Esther de Lange insisted that the Frugal Four's concerns should be taken into account.
“We’re all in the same boat and ... we need to work together. But if you propose making this a matter of 23 against four, we won’t succeed. You will push those four countries into the arms of the extreme right,” de Lange said. “We will have to do it together.”
Other reviews were more favorable. Greece cheered it as a “bold proposal.” Spain said it “evaluates positively” the plan, and Germany seems favorable, as much of it matches Berlin’s own thinking.
Ultimately though, the EU simply does not have much time. The new budget period begins on Jan 1, and a row over that spending package has already dragged on for two years. For the budget and recovery package to come into force, an agreement must be found before September.
German Chancellor Angela said it's unlikely to be agreed on at the next EU leaders' summit in coming weeks, but warned that "the goal must be that we find enough time in the fall for national parliaments and for the European Parliament to debate the matter in such a way that everything can come into force on Jan. 1, 2021.”
It's not the only EU effort to tackle the virus fallout. The fund comes on top of a 540 billion-euro package agreed among EU finance ministers, which includes loans from the eurozone bailout fund that would have to be repaid. The European Central Bank also recently announced 750 billion euros in new bond purchases to help the economy.