Germany, France tout EU recovery fund
BERLIN – Leaders of Germany and France agreed Monday on a one-off $543 billion fund to help the European Union recover from the coronavirus pandemic, a proposal that would add further cash to an arsenal of financial measures the bloc is readying to cope with the outbreak’s economic fallout.
Following a video call, German Chancellor Angela Merkel and French President Emmanuel Macron said the plan would involve the European Union borrowing money in financial markets to help sectors and regions that are particularly affected by the pandemic.
Crucially, the money would be disbursed in the form of grants rather than loans, with repayments made from the EU budget, an unprecedented proposal that overcomes long-standing objections in Berlin to the notion of collective borrowing.
“Because of the unusual nature of the crisis, we are choosing an unusual path,” Merkel told reporters following the joint announcement.
Macron said the proposal was a way “to make Europe move forward.”
“We must draw all lessons from this pandemic,” he said, insisting on the need for “solidarity” among EU member states.
Macron acknowledged that a FrenchGerman deal alone “doesn’t mean an agreement from the 27.” The EU’s executive commission would make its own proposal to EU member states, and “we hope that the French-German deal will help,” he said.
European Commission President Ursula von der Leyen welcomed the proposal. “It acknowledges the scope and the size of the economic challenge that Europe faces and rightly puts the emphasis on the need to work on a solution with the European budget at its core,” she said.
There has been concern in European capitals that the pandemic and the bloc’s initial uncoordinated response to it could boost anti-EU sentiment in member states.
Merkel said it was important to ensure that all EU countries could respond to the economic challenge, “and that requires this unusual, one-off effort that Germany and France are now prepared to take.”
National parliaments will have their say on the proposal, which is also likely to run into strong resistance from fiscal hawks in the bloc, such as Austria and the Netherlands.
Merkel expressed cautious optimism, however, that the agreement between Berlin and Paris would win widespread support.
“I believe that if Germany and France send a signal, that’s something which encourages the quest for consensus in Europe,” she said.
So far, EU countries engage in only limited common borrowing, for instance through the European Investment Bank and the union’s bailout fund for crisis-hit governments, the European Stability Mechanism, but require eventual repayment by member states.
By using the financial clout of the whole bloc, bondholders get a high degree of certainty they will be paid back, meaning the EU can borrow on more favorable terms than individual member states, though at the price of collective liability.