The surprising proposal started a lively debate in Brussels and many European capitals: Chancellor Angela Merkel and French President Emmanuel Macron want to finance the reconstruction of the EU economy after the corona crisis with common EU debts and pay that money to certain regions and sectors as a grant. The two made the announcement Monday night.
And the discussion that followed was also a good thing, said EU Commissioner for Economic Affairs Valdis Dombrovskis after a video conference with 27 EU finance ministers: "The joint Franco-German initiative is a positive signal that will help us find a consensus."
The EU Commission wants more money for reconstruction
Next week, the European Commission plans to present its draft budget for the next seven years, which will include a reconstruction fund outlined by Germany and France. However, according to Commissioner Dombrovskis, the 500 billion euros predicted by Berlin and Paris is too little.
"We want to propose a trillion (1.000 billion)," announced Dombrovskis and clarified that this amount should include grants and loans to member countries.
Chancellor Angela Merkel and Finance Minister Olaf Scholz initially opposed the bailout, but are now following earlier French proposals.
Approval from the south, criticism from the north
Countries such as France, Italy and Spain, which, according to the first estimates, are the most affected by the crisis due to the corona, strongly advocated for a grant that would be financed through joint EU bonds - so-called euro-bonds or corona-bonds.
Those bonds would be taken over indirectly, through the common budget of the EU, distributed under certain conditions and should be repaid in the next 20 years.
On the other hand, Austria, the Netherlands, Denmark and Sweden are also fiercely opposed to grant aid to the southern states from the reconstruction fund. Immediately after the Franco-German proposal became known, Austrian Chancellor Sebastian Kurz said: "Our position has not changed."
Chairman of the Budget Committee of the European Parliament, Belgian MP Johan Van Overtvelt, said in Brussels that the attitude of these four "thrifty" countries must be taken very seriously, although Germany has apparently changed its attitude. In the end there has to be a compromise. "Let's not waste time now," he said.
Many steps to the fund
All 27 EU countries must unanimously adopt the budget and the reconstruction fund, and they must also be approved by the European Parliament. In last Sunday's resolution, MPs asked for 2.000 billion euros for reconstruction - four times more than Germany and France proposed.
EU finance ministers considered the proposal on Tuesday. The chairman of that meeting, the Croatian Zdravko Marić, did not want to comment on the result of the certainly controversial discussions: "We are waiting for the draft budget of the European Commission next week and then we will publicly comment on it". The finance ministers of Germany and France stood for their proposal at that video conference. Bruno Le Mare called it a "historic" step for the EU.
The EU treaties actually contain a ban on borrowing - which should be circumvented in the next Union budget with a filigree construction: EU states would not issue joint bonds directly, but would give guarantees to the EU Commission, which should use them to take out loans on private financial markets. Those loans would be repaid over 20 years, which is significantly longer than the seven-year EU financial framework.
"Suspicious Funding"
Markus Ferber, representative of the German Christian Democrats in the European Parliament in charge of financial issues, is skeptical of this construction: "It is reasonable that the reconstruction plan is targeted and limited in time, but the financing is not serious at all."
If the loans are to be repaid over a longer period of time, EU members would have to make it clear that they also want to increase their annual contribution to the EU budget, Ferber said and emphasized: "It must also be clear that taking on new debt through the EU budget is a one-time thing.”
Bonus video:
