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Merkel and Macron call for a €500 billion EU recovery fund

Angela Merkel and Emmanuel Macron agreed that the European Commission, on behalf of the EU, ought to be able to issue joint debt on a large scale to fight a problem they think is bigger than any single country can cope with alone

By: N. Peter Kramer - Posted: Tuesday, May 19, 2020

The essence of the German-France proposal is: the Commission would borrow money from financial markets to fill a €500 billion pot and distribute it to governments through the EU budget.
The essence of the German-France proposal is: the Commission would borrow money from financial markets to fill a €500 billion pot and distribute it to governments through the EU budget.

by N. Peter Kramer

Angela Merkel and Emmanuel Macron agreed that the European Commission, on behalf of the EU, ought to be able to issue joint debt on a large scale to fight a problem they think is bigger than any single country can cope with alone. The announcement came on Monday with a written joint proposal and two distant but synchronic press conferences in Berlin and Paris. The German chancellor and French president called for a €500 billion recovery fund that would give money to EU member states impacted by the economic fallout of the coronavirus crisis. Their joint position for the fund aims to help kick-start all EU economies and avoid distortions in the EU’s single market. It is clear the two top leaders in the EU want the answer to the Corona crisis to include grants and not just loans.

Reading an interview in today’s Financial Times, European Commission President Ursula von der Leyen was not really involved in the details of the Merkel-Macron plan. Strange, because the European Commission is expected, commissioned by the European Council, to present this month an EU Recovery Plan. Is this another prove that at the moment the water is deep between the two German ladies. Council President Charles Michel couldn’t say more than the agreement between Macron and Merkel is fine but unanimity in the Council is warranted. Characteristic for the situation in the EU is also, that the prime ministers of Italy and Spain said immediately they are on board. It remains to be seen how palatable the idea of grants will be, for instance to the so called ‘frugal four’ member states - The Netherlands, Denmark, Sweden and Austria- who have so far opposed grants. Austrian Chancellor Sebastian Kurz immediately tweeted, that he had held talks with his three counterparts and that ‘our position remains unchanged’, adding that ‘we are ready to help most affected countries with loans’. Also eastern member states reliant on EU development programmes, do not look happy with the proposal. They fear that money for the troubled south will go to the detriment of them.

The essence of the German-France proposal is: the Commission would borrow money from financial markets to fill a €500 billion pot and distribute it to governments through the EU budget. The fund would provide “EU budgetary expenditure for the most affected sectors and regions on the basis of EU budget programmes and in line with European priorities,” the statement by Merkel and Macron says, pointing to areas like the digital and green transitions and strengthening the competitiveness of the EU’s economy. The recovery money would be borrowed by doubling the EU’s “own resources” ceiling — the maximum amount that can be called upon from EU countries — to about 2 percent of the gross national incomes of the EU 27 combined. This arrangement would be given a fixed expiration date and money would be paid back over many years. “We want to set up a temporary fund of €500 billion to provide EU budgetary expenditure — not loans but budgetary expenditure — for the regions and sectors most affected,” Merkel said.

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