France proposes a fund of EU’s 3% GDP against virus 

Bruno Le Maire, Minister of Economy and Finance of France addresses a panel session during the 50th annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, 23 January 2020. [EPA-EFE/ALESSANDRO DELLA VALLE]

The EU should have a fund capable of issuing debt totalling up to 3% of EU’s GDP (gross national income), or around €420 billion, to support the most affected countries, which would be repaid in proportion to each member state’s GNI, according to a French proposal seen by

EU finance ministers will discuss a package of measures on Tuesday (7 April) that could mobilise a total of half a trillion euros. It would include instruments and guarantees from the European Stability Mechanism, the European Commission and the European Investment Bank.

But EU institutions and member states agreed that Europe faces a severe recession and more needs to be done once the pandemic passes to kick start economic recovery.

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While the Commission puts the multi-annual financial-framework at the heart of the reconstruction plan, at least nine member states, including France, want more ambitious ideas such as issuing joint debt.

To that end, a document drafted by France’s Finance ministry proposed a new instrument (a special purpose vehicle), similar to the EFSF  (European Financial Stability Fund) created in the early days of the previous crisis, to issue joint debt. The new mechanism would not imply the mutualisation of past or future debt taken on by member states.

“This instrument should show the unity and the solidarity of the EU by primarily benefiting to the most affected countries or regions from the European Union,” the document reads.

The document adds the details to the proposal made by Paris last week for this instrument and corrects important elements.

The instrument will be backed by guarantees issued by EU member states and one of the possibilities will be a joint guarantee. 

Paris now suggests that the fund should be around 2%-3% of the EU’s GDP over five years (or around €420 billion), although this will be decided by the leaders and could be reviewed.

In addition, France has amended the repayment formula proposed last week. While the initial draft proposed an exceptional “solidarity tax”, it now says that the “central scenario” should be contributions from member states according to their GNI.

Still, the document contemplates the possibility of an “exceptional and temporary European dedicated resource” assigned to the vehicle while is active.

There could be some redistribution factors as the resources would not be allocated in relation to the national GNI but according to the damage suffered by countries and regions from an economic and social standpoint. In this regard, resources could flow to Italy and Spain above what should correspond to their economic weight.

As for the objectives, France insists on financing priorities related to the Green Deal and the industrial strategy, in particular, to relocate strategic value chains in Europe.

It also says that it should focus on programmes “designed to mitigate the effects of an external symmetric crisis and to respond to financing needs better addressed at European level”.

France also proposes a longer period to repay the debt compared with the credit conditions of the European Stability Mechanism’s loans with conditionality under discussion.

While the ESM would offer maturities of up to 10 years, Paris suggests a period of up to 20 years, that could be even longer to ease the burden on the national economies. 

The Socialist group in the European Parliament also supported a dedicated vehicle along the same lines of the French proposal.

S&D spokesperson in the Parliament’s Economic Affairs Committee, Jonás Fernández, told reporters on in a videoconference on Monday that “we will need more taxes” to repay the joint debt issued by this new mechanism, and that could include new corporate taxes and the digital tax.

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