EU Commission proposes €750 billion recovery fund in wake of Covid-19 crisis

European Commission President Ursula von der Leyen is pictured in this file photo. On Wednesday, May 27, von der Leyen unveiled details of a proposed €750 billion recovery fund to strengthen European economies hit by Covid-19.
European Commission President Ursula von der Leyen is pictured in this file photo. On Wednesday, May 27, von der Leyen unveiled details of a proposed €750 billion recovery fund to strengthen European economies hit by Covid-19. © Olivier Hoslet, AFP

The European Commission is proposing a €750 billion recovery fund to reboot economies hit hard by the coronavirus outbreak, EU officials said on Wednesday.

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Speaking ahead of the plan's formal presentation, officials said southern countries worst hit by Covid-19 would get the lion's share of the proposed fund, which includes €500 billion in grants and the rest in loans.

The Commission will propose that Italy and Spain – the countries most affected by the epidemic – be awarded €173 billion and €140 billion respectively through a mix of grants and loans, the officials said.

Paolo Gentiloni, the EU economic affairs commissioner, hailed the proposal as a "European breakthrough", tweeting that the fund would help "tackle an unprecedented crisis".

European Commission President Ursula von der Leyen argued that this stimulus package would prevent the need for more costly damage-control measures later on: "Tomorrow the cost of inaction in this crisis will be far more expensive for us. The point here is to lay the foundations for our future together," she said. "Let us put aside the old prejudices!"

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The aim is to protect the European Union's 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 this year.

The plan's advocates say its is necessary because countries such as Italy, Spain, Greece, France and Portugal, burdened with high debt and heavily reliant on tourism, will find it more difficult than more frugal northern nations to restart their economies through borrowing. 

Thanks to the euro, it is impossible for these countries to boost their competitiveness by devaluing their currencies, as was often the case during economic troubles in the post-war era.

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Franco-German push

The €500 billion in grants is in line with the wishes of the EU's two biggest economies – France and Germany – though some nations would rather see the recovery package comprise only loans.

The package would also provide 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. Many voices in these northern European countries say that – after years of opting for budgetary prudence – it would be unfair for them to foot the bill for heavily indebted southern nations.

The Commission is expected to propose new revenue streams. They are most likely to come from a tax on plastics, some money from the CO2 emissions trading scheme, a digital services tax, national corporate taxes and an import levy on goods produced in countries with lower CO2 emissions standards than the EU.

The Euro Stoxx 50, a benchmark comprising many of Europe’s largest publicly traded companies, was up by 1.7 percent since trading opened Wednesday morning. Experts say this was driven by the European Commission’s declaration. "The announcement gave European shares another lift earlier with the number being proposed larger than what Germany and France previously agreed," Craig Erlam, an analyst at foreign exchange firm OANDA, told AFP.

(FRANCE 24 with REUTERS and AFP)

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