Wednesday, August 5, 2020

EU government leaders agree on billions in aid

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It should therefore be clear that aid will be available to the states that are particularly hard hit by the pandemic, even if the heads of government have not yet agreed on the details.

It was the fourth video conference of the bosses since the pandemic broke out in Europe. And one gets the impression that after a phase of irritation and aggression, the 27 EU countries are now slowly realizing that they have to approach each other. “It was a very good atmosphere, supported by the awareness that we have to decide unanimously,” said Chancellor Angela Merkel after the conference. It was a “very, very friendly conversation”.

The feared clash between Northern and Southern Europe, between the Netherlands and Italy did not occur at this meeting. The new peacefulness may have to do with the seriousness of the situation.

At worst, the European economy will collapse by 15 percent this year, warned ECB chief Christine Lagarde, who also participated in the video switch. The EU can only avoid the worst if it pulls together. This finding has evidently become established in government headquarters.

The Chancellor made a significant contribution to this by pledging to help the Southern Europeans – and not just with alms. “Everyone agreed that it is now not about 50 billion,” said Merkel. And she assured that Germany was ready to make higher contributions to the EU budget. Merkel continues to categorically reject only one thing: euro bonds. “It is not possible to communitize debts.”

However, this does not mean that European bonds are generally excluded. On the one hand, such bonds already exist: the ESM euro bailout fund is issuing them, and the EU Commission has already received approval to do so in the future. For the European short-time work allowance “Sure”, it can raise up to 100 billion euros on the capital market.

EU summit

Video link of the European heads of state and government.

(Photo: AP)

It will not stop there. The Commission also intends to finance the planned reconstruction plan with European bonds. A Commission working paper speaks of a volume of EUR 323 billion.

The EU Commission is expected to present its draft reconstruction plan in May. It will be embedded in the next Multiannual Financial Framework (MFF) for 2021-2027. The Commission had already presented a draft for this MFF in 2018.

Now she wants to present a significantly increased “MFR Plus”. The Member States should pay higher contributions to this “MFF Plus” than previously planned. Added to this is the money raised on the capital market – at least 300 billion euros. In total, the MFF could swell to 1.5 trillion or even two trillion euros, is speculated in Brussels. For comparison: the MFF still running for the years 2014 to 2020 comprised a volume of almost one trillion euros.

The new figures are huge and the EU Commission has to give them good reasons. The authority must determine the needs precisely, said EU Council President Charles Michel. The “order of magnitude” must “be underpinned why this is so,” said Merkel.

Who is liable in the end?

The direction is clear: there will be a reconstruction program within the EU budget. But there will probably still be hard arguments about the essential building blocks. For example, the question of how the money is used is controversial.

Should the recipient countries receive grants or only repayable loans? The Northern Europeans are for the first, the Southern Europeans for the second. And Germany sits between all the chairs. The Federal Government can clearly imagine that at least part of the reconstruction fund will be passed on as transfers to the countries that have been particularly hard hit by the crisis.

It is also questionable which economic sectors will receive money from the reconstruction plan. The Commission should also make proposals for this. Finally, it is unclear who is liable for the debts incurred for the reconstruction.

The EU Commission wants to use the European budget as a guarantee – and therefore increase the so-called own funds ceiling – currently 1.2 percent of the EU’s gross domestic product – at least temporarily to 1.7 percent of GDP. This means that Member States’ liability for the European budget increases accordingly. Especially in the group of the so-called “economical four” – the Netherlands, Finland, Austria and Sweden – this should not necessarily meet with love.

The summit decisions at a glance:

  • An aid package for short-time workers, companies and indebted countries that has already been negotiated by the finance ministers has now been approved by the heads of state and government.
  • Merkel and her colleagues welcomed the exit strategy from the corona restrictions, which was presented last week and is intended to ensure joint action by the 27 states. The paper specifies three essential prerequisites for easing: a noticeable slowdown in the spread of the virus, enough hospital and intensive care beds and the possibility of effectively monitoring the spread of the virus.
  • EU Council leader Charles Michel’s “roadmap for recovery” was also adopted. The Belgian calls for reforms for a stronger and more powerful EU after the corona crisis.
  • Work on a development fund to cope with the Corona economic crisis has not yet been completed. The EU summit commissioned the EU Commission to develop a detailed plan.

More: These are the ideas for financing the EU reconstruction fund

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