What we know of the EU’s post-virus recovery plan as tough decisions loom

AHUGE stimulus package to kickstart the EU economy once the coronavirus pandemic ends is likely to feature a mix of loans and grants, and be underpinned by private sector investment. The package, which could be worth several trillion euro and is linked to the EU budget, is being drafted by the European Commission for review by the bloc’s leaders by around mid-May.

Below is a rough outline of the blueprint, compiled from public remarks by commission head Ursula von der Leyen and budget commissioner Johannes Hahn, and an internal commission note seen by Reuters.

HOW MUCH?

Von Der Leyen said the plan would produce at least €1 trillion of support. She also said the scheme could last up to three years, suggesting the sum may be significantly higher.

WHERE WOULD IT COME FROM?

Some would be cash, but most would be leveraged, along the lines of a flagship EU investment scheme used over the last five years. The EU would use a small amount of its own money to finance the riskiest part of an investment.

WHEN WOULD IT START?

The recovery plan would start when the next long-term EU budget starts, on January 1, 2021, providing there is agreement on the fiscal plan by then.

SOMETHING FOR RIGHT NOW?

Some leaders asked the commission for ideas on how some recovery money could be made available now and the

EU executive is considering “bridging solutions”.

HOW WOULD GOVERNMENTS GET THE MONEY?

The package is to be a mix of loans and grants, whose proportions are still subject to negotiations between northern EU nations, which want mostly loans, and southern states insisting on grants to avoid an unsustainable debt build-up.

THE LOAN PART

The commission plans to borrow around €320bn on the market, according to the internal note, using its triple-A rating to do so cheaply.

It would then lend on around half of that to governments, producing €1.5-1.6 trillion of investment on the assumption that it is leveraged 10 times. The loans would be long-term.

GUARANTEES

The commission wants to borrow the €320bn against increased government guarantees in the EU budget, which gets its money from customs duties on imports, a cut of national VAT and national contributions. The EU budget cannot run a deficit, so the amount that governments undertake to pay into it is always slightly higher than the payments it disburses.

The ceiling for commitments is currently set at 1.2pc of EU economic output, with payments around 1.1pc. To be able to borrow the €320bn, the commission wants to raise the commitments ceiling to 2pc for two to three years.

This increase of 0.8pc would in essence be theoretical, to be drawn on only if needed. But it would produce some €110bn of “fiscal space” every year that could be used as a repayment guarantee for investors.

Over three years, that headroom would give the commission leeway to borrow more than €300bn on the market.

GRANTS

The other half of the money borrowed by the commission on the market would go to the longterm budget, which deals with grants, not loans.

Since the money was initially borrowed, however, it would still have to be repaid. The internal note proposed that this be done after 2027 over a long time or through new sources of revenue for the EU budget. Other proposed sources of grants in the commission note included a Recovery and Resilience Facility of €200bn in the EU budget and two other funds — to help sound companies rebuild their capital quickly and build strategic autonomy in vital supply chains. Each of those would also have €200bn at their disposal.

The budget would also repurpose €50bn of cohesion funds — used to equalise standards of living between EU countries — to be spent in 2021 and 2022 on restoring labour markets, health systems and helping SMEs.