EU to unveil massive stimulus plan for recovery

The European Commission will on Wednesday unveil a plan to help the EU economy recover from its coronavirus slump with a mix of grants, loans and guarantees exceeding 1 trillion euros ($1.1 trillion) that raised controversy even before it was announced.

The aim is to help countries and sectors worst hit by the 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 in 2020.

It is needed because countries like Italy, Greece, France,

Portugal and 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, 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. But it is the grants, financed through joint borrowing, that worry the Netherlands, Sweden, Austria and 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.

Garnering no support for its ideas in 2018, the Commission 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 acquire 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.

The eurozone economy is likely to shrink in 2020.