The recovery fund would see European Union budget expenditure used to offer grants to the European countries and sectors hardest hit by the crisis.
In a joint statement, French president Emmanuel Macron and German chancellor Angela Merkel said they were proposing to authorise the European Commission to borrow money on financial markets in the European Union’s name. All 27 EU members would have to approve the fund.
However, they added, the short term plan remains the development of a Covid-19 vaccine. They also called for an increase in the European budget over the first few years of the plan.
Mr Macron, who called the Franco-German initiative “a major step forward”, said for the first time the two countries had proposed for the EU to raise debt jointly.
Ms Merkel said they were in favour of reforming the EU’s merger and competition rules so the bloc can create stronger European champions after the crisis.
She said EU member states and the bloc’s executive would mobilise a combined sum of €3 trillion to ease the economic impact of the pandemic.
The two leaders said they would seek a “swift agreement” on the EU budget and the proposed recovery fund.
Ms Merkel said they were “choosing an unnatural path” because of “the unusual nature of the crisis”.
The president of the European Commission, Ursula von der Leyen, said she 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."