EU leaders have tasked the European Commission with designing the recovery plan for the deep economic crisis that the coronavirus COVID-19 will cause in Europe.
The mandate came after a four-hour teleconference on Thursday (23 April), in which recent tensions over how to finance the recovery, in particular between The Netherlands and Italy, were absent.
“Tensions, if they were there at all, are not there any longer,” Dutch prime minister Mark Rutte said after the videocall.
Part of the reason is that leaders did not go into the details of the economic response, and only held one round of interventions.
A consensus is starting to emerge on the overall framework to overcome what is likely to be the deepest recession that the bloc has suffered in its history.
During the videocall, European Central Bank President Christine Lagarde told the EU leaders that the eurozone’s GDP could fall by 15% under the most severe scenario, while the central scenario would be a 9% drop, sources confirmed to EURACTIV.com
Following the video-summit, European Council president, Charles Michel, said that the leaders had backed an “unprecedented investment effort” as part of the recovery plan.
However, differences continue to be significant on each of the main points of the plan, such as the size and the type of instruments to channel the funds (grants or loans), which further complicates the rapid adoption every government hopes to achieve.
The rescue fund proposal will come as part of the updated draft of the multi-year budget for the next period (2021-2027), expected to be put forward within the next couple of weeks.
It will come on top of the €540 billion in liquidity for countries, companies and workers already agreed by the Eurogroup, and rubber-stamped by the leaders on Thursday.
The President of the European Commission, Ursula von der Leyen, said after the teleconference that, to finance the recovery, she will propose increasing the ceiling of the EU’s own resources from 1.2% of the EU’s GNI to 2%. In this way, she hopes to raise money in the markets and generate additional investment in the magnitude of €1 trillion, although she did not specify the amount.
If Europe fails to deliver forceful response to cushion the economic damage, von der Leyen warned that the path out of the crisis would be uneven, given that some countries have less margin to support their ailing companies and citizens.
“This whole endeavour is about protecting the integrity of our single market and our Union, and If we succeed, then the investments would have been worth every cent we pay for them now,” she said.
A Commission’s internal document prepared ahead of the summit, and seen by EURACTIV, suggested that the stimulus needed should reach around €2 trillion, almost double the size of the current MFF.
The Commission’s issuance of debt is seen as a bridge to overcome the differences between the group of nine countries that have called for the mutualisation of debt (the so-called ‘coronabonds’), including Spain, Italy and France, and the half a dozen governments that have always opposed Eurobonds, with Germany and The Netherlands in the lead.
But member states are now split over whether the recovery fund should channel the resources via loans or grants, as Spain included in a proposal circulated this week, to avoid a massive increase of debt levels.
Italian prime minister, Giuseppe Conte, backed Madrid during the conference call. “Grants are essential to preserve the single market, a level playing field, and to ensure a symmetric response to a symmetric shock”, he told the leaders.
Rutte, however, said that the recovery fund should be rather a loan-based system, while fiscal transfers should only be part of the MFF, which is already a grants-based system.
Rutte warned that “it will take time” to finalise the details of the recovery fund and to agree on the MFF, on which negotiations failed to make any breakthrough in February.
He added that it would be “highly beneficial if we can meet in person” to reach an agreement, even if that could only happen in June or later.
Michel said there had been a “very rational debate” and that leaders have a “real sense of urgency.” He was “optimistic because even if it is difficult, I feel there is a strong political will to act together.”
French President, Emmanuel Macron, noted the existing disagreements. “Some countries have made efforts, others are under domestic political constraints,” he explained.
He stressed the need for a “strong and united response” across the eurozone, pointing out that the responses so far have been “asymmetric”.
Meanwhile, German Chancellor, Angela Merkel, reaffirmed her readiness to increase her contributions to the MFF to cope with the pandemic.
Merkel explained that there would be “real budgetary transfers, not just loans” to the most affected regions and sectors.
But she said that Europe needs to asses first the actual financial needs, and added that she would be “pleased if we could not just mention magnitudes, but rather base them on solid calculations”.
[With additional reporting by Beatriz Ríos, Claire Stam, Philipp Grüll and Gerardo Fortuna]
[Edited by Benjamin Fox]