EU leaders approve virus recovery fund
EUROPEAN leaders have taken a historic step towards sharing financial burdens among the EU’s 27 countries by agreeing to borrow and spend together to pull the economy out of the deep recession caused by coronavirus.
Pushed by Germany’s Angela Merkel and France’s Emmanuel Macron, leaders agreed to borrow jointly by selling bonds, using the European Union’s collective strong credit rating that keeps interest costs low.
The money will fill a €750 billion (£676 billion) recovery fund to boost the hoped-for economic rebound next year and restore the growth and jobs lost in this year’s plunge.
Two decisions – shared borrowing, and simply handing out much of the money as grants – broke through longstanding opposition from some of the financially stronger countries to exposing their finances and taxpayers to troubles in southern Europe, where bureaucracy and red tape continue to slow growth. Germany, which had long resisted shared borrowing, played a decisive role by changing its approach in the face of the crisis as Ms Merkel pressed for a deal.
The EU’s executive commission predicts the bloc’s economy will shrink by 8.7% this year and rebound by 6.1% next year. The goal of the spending is to support that upswing.
By turning to shared debt and spending, the EU is taking a different approach to solidarity than during the 2010/15 debt crisis that pushed Greece and four other members of the 19-country eurozone into international bailouts.
Greece was rescued with loans that have to be repaid, increasing its debt load. That help came with tough conditions to rein in government spending that reduced growth, spread hardship and fuelled resentment.
The four-day summit put the bloc’s deep-seated fault lines on display.
To overcome resistance from five European countries led by the Netherlands, they trimmed the amounts to be dispensed as grants and increased the amount offered as loans that have to be paid back.
The money will not kick in until next year and the fund is a one-off, meaning that while it sets an important precedent it does not necessarily lead to ongoing mutual support that could be counted on in any future crisis.
The grant provision is important because it will enable countries like Italy and Spain to spend more on their economies without adding to their national debt piles.