Europe is just beginning to emerge from strict lockdowns enforced by several countries to control the spread of the deadly coronavirus, which has taken a huge bite out of several national economies.
To this end, European Union member states and the bloc’s executive are perfecting plans to mobilize a sum of about 3 trillion Euros to minimize the effects of the coronavirus pandemic on the economy of Europe.
France24 reports that Emmanuel Macron of France and German Chancellor, Angela Merkel presented a joint proposal to speed up EU’s recovery from coronavirus crisis on Monday, after weeks of argument over how to deploy funds required to tackle the looming recession.
In a joint video conference, the two leaders called for the creation of a $543 billion recovery fund to offer grants to countries hardest hit by the coronavirus crisis.
Macron and Merkel also said they were proposing to approve the European Commission to borrow money from financial markets in the European Union’s name and spend it as a top-up to the 2021-2027 EU budgets that is already almost 1 trillion Euros.
Macron said this is the first time France and Germany are agreeing to let the EU raise debt jointly. He referred to it as a major step forward and insisted the recovery fund would be made available in the form of grants, and not loans.
According to the Franco-German proposal, grants from the proposed recovery fund would have strings attached. They would be based on a clear commitment from member states to follow sound economic policies and an ambitious reform agenda.
But divisions among EU members on how to devise an overall response have hampered comprehensive action so far.
Macron said on Monday that the Franco-German initiative was the result of extensive talks with other EU member states such as Italy and the Netherlands, which have been at loggerheads lately.
The recovery debate has again exposed the bloc’s divide between northern countries leery of exploding budget deficits, and hard-hit southern countries like Italy and Spain that are desperate for more spending.
Holistically, the eurozone economy is predicted to crunch by about 7.7 percent this year, but the devastation could be more in Greece, which could see the economy fall by about 10 percent, causing bankruptcies and unemployment.
The European Commission is expected to create its own initiative for a recovery fund in conformity with the EU’s long-term budget on May 27 and said it appreciated the initiative from Berlin and Paris.
The European Parliament has sued for a resolution for countries to adopt, dedicated revenue streams to the EU budget so that it can repay the facility the Commission would secure to pay for the grants.
Among identified sources of revenue generation for the EU budget, the parliament listed a charge on goods imported into EU from countries with a lower carbon dioxide emissions laws, plastics tax, digital tax and financial transactions tax.
The European Central Bank has also promised to take necessary steps to help overcome the difficulty, including a 750 billion Euro initiative to acquire government bonds for bankrupt countries.
The financial institution’s head, Christine Lagarde loved the idea proposed by Macron and Merkel on Monday, saying it would provide succour to the ailing economies within Europe.
The proposals pave the way for long-term European Commission loan and above all allow meaningful direct budgetary support to the member states badly hit by the pandemic.
Also, The Irish Times report that the idea of the €500 billion recovery fund was welcomed by Italy and other countries which are in favour of an increased fiscal integration in the bloc to eliminate economic imbalances between weaker and stronger economies that have imperiled the euro zone.
Instead of offering as loans to seemingly bankrupt countries, the loan the European Commission is seeking would be expended under the EU budget based on need, and repayment would be through member states’ contributions in the long term.
CNN News reports that France and Germany unmasked the initiative planned to rescue the EU from the toughest crisis since its inception and bridge the deep national divisions that have delayed progress on a pandemic recovery fund.
Merkel opine the crisis threatened the European Union’s unity. The proposition by Europe’s top two economies is targeted at helping to achieve a consensus with European Union member states.
Disagreement among member nations have delayed progress on the recovery fund the European Commission expects could generate at least €1 trillion ($1.1 trillion) to restructure the economy of the entire region.
The NY Times reports that Angela Merkel agreed to a $545 billion pandemic recovery fund backed by borrowing by the entire bloc would be a major step toward a greater European unity.
Observers assert the division represents some advancement after weeks of division that have threatened stoking anti-EU sentiment in such countries as Italy whose economy have been seriously devastated by coronavirus. By offering grants instead of long term low interest loans, some of that political problem could be taken care of.