The European Commission will on Wednesday (27 May) unveil a plan to help the EU economy recover from its coronavirus slump with a mix of grants, loans and guarantees exceeding €1 trillion but will have to win over sceptical member states.
The global coronavirus outbreak has thrust the EU into its deepest ever recession, and the Commission proposal will set out to help the worst affected countries.
The European Commission, the EU’s executive arm, has won the crucial backing of Germany and France to raise €500 billion on financial markets to begin to fix the problem.
German Chancellor Angela Merkel dropped a bombshell last week by approving an idea that partly reverses Berlin’s staunch opposition to joint borrowing by EU members.
The aim is to help countries and sectors worst hit by he COVID-19 pandemic recover quickly and protect the EU single market of 450 million people from being splintered by divergent economic growth and wealth levels as the 27-nation bloc emerges from its deepest ever recession expected this year.
It is needed because countries like Italy, Greece, France, Portugal or Spain, burdened with high debt and deeply reliant on tourism, will find it more difficult than more frugal countries in the north to restart their economies through borrowing.
The disputed novelty of the plan is for the Commission to borrow cheaply on the market against the security of the EU budget and then give some of the borrowed money, rather than lend it on, to those who need it most.
The package would also provide loans, repaid by governments who take them, and guarantees that could draw in many times more in private cash by reducing the risk of various investments.
Grants vs loans
The grants versus loans debate is no small matter, with Italy, Greece and Spain already crippled by mountains of debt, despite embarking on painful reforms since the 2008 financial crisis.
But it is the grants, financed through joint borrowing, that worry the Netherlands, Sweden, Austria or Denmark. The borrowing will have to be repaid, meaning higher national contributions to the EU budget in the future or new taxes assigned to the EU.
The Commission is to propose such new taxes, following up on its proposal from 2018 when it asked EU governments to give it EU revenues from a tax on plastics and some money from the CO2 emissions trading scheme and national corporate taxes.
The Commission, which garnered no support for its ideas two years ago, also proposed to phase out all the rebates various countries enjoy on their national contributions to the EU budget, halve the amount of customs duties governments keep and to get a bigger share of the Value Added Tax paid to the EU.
The recovery money is to be spent by governments on making the transition to an economy that is climate neutral – emitting no more CO2 than it absorbs – by 2050 and more adapted to the digital age – both EU priorities.