The European Commission is floating a 2 trillion-euro ($2.2 trillion) plan for economic recovery ahead of leaders’ talks on Thursday as it seeks a way past the divisions of recent weeks.
The European Union’s 27 heads of government will hold a videoconference to discuss the next steps in tackling the coronavirus pandemic after stringent lockdowns shuttered factories and halted travel, pitching the world’s largest trading bloc into the worst recession in living memory. The EU expects output to contract by as much as 10% this year, according to an official.
Amid the contentious debate over financing a euro-area rescue package, the European Central Bank also took steps, saying it would accept some junk-rated debt as collateral for loans to banks. This is a move that will affect Italy, which is in the eye of the storm, and whose credit rating is under review.
As the losses mount, the richer northern EU members have been resisting pressure for new financing structures to help reconstruction in the southern countries hardest hit by the virus. The compromise proposal, set out in an internal commission document seen by Bloomberg News, would partially use the EU’s existing seven-year budget and also establish a new financing mechanism.
Under the draft plan, the EU would integrate a 300 billion-euro recovery fund into the 2021-2027 budget and borrow 320 billion euros on the capital markets. The document doesn’t say how the commission reached its 2 trillion-euro total.
The draft hasn’t been seen by the commission president, Ursula von der Leyen, or her cabinet, spokesman Eric Mamer said on Twitter. “She will present the main lines of her proposal on a way forward to recovery tomorrow during the videoconference of leaders,” he said.
With more than 100,000 fatalities in the region, Europe has been hard hit by Covid-19 and the fallout from the crisis is tearing at the fabric that holds the disparate group of nations together.
France, Spain and Italy have called for the EU to introduce joint debt sales but governments such as Germany and the Netherlands have rejected so-called coronabonds over fear that they’d be stuck with the bill. The pressure to act is increasing as the costs of halting large swathes of the economy become clearer.
Resources for the recovery fund should come from long maturity or perpetual debt, Italian Finance Minister Roberto Gualtieri told the Financial Times in an interview, according to a ministry spokesman. Italy will insist that funds be given to member states with grants, he said. He also said there is no plan to mutualize existing debts but to find a way to fight against a common challenge.
Germany’s public-sector deficit will widen to more than 7% of GDP this year due to extra spending to tackle the crisis, according to the government’s latest fiscal report for the EU. Public debt will also increase after several years of declines, rising to around 75% of output with almost a third of the companies requesting wage-support aid.
Italy’s deficit could be more than 10% of national output, pushing its debt-to-GDP ratio to more than 150%, according to officials familiar with the government’s latest projections. Prime Minister Giuseppe Conte’s cabinet is expected to seek parliamentary approval to broaden the deficit by about 55 billion euros, the officials said.
Spain is also considering additional pledges -- to help companies pay their suppliers on time and stave off the collapse of smaller firms. The government already vowed to guarantee as much as 100 billion euros in bank loans to help companies tackle cash-flow problems but there are concerns it won’t be enough with Prime Minister Pedro Sanchez looking to prolong a state of emergency through May 9.
The “roadmap” EU Council President Charles Michel distributed to national delegations ahead of the video conference contained no details on the amount, the specific objectives, the time frame or the nature of the investment needed to get the bloc back on track. Leaders aren’t expected to reach a decision this week and a final package may not be ready for at least six months, according to a French official.
Under the commission’s proposal, half of the funding would be given out as loans to countries while the rest would remain in the EU’s budget to cover the annual interest of about 500 million euros.
Other components of the proposal include:
a temporary 300 billion-euro recovery fund in the bloc’s long-term budgeta 200 billion-euro recovery and resilience facility, retooled from an old convergence instrument50 billion euros in cohesion funds will be repurposed and front-loaded in 2021 and 2022two 200 billion-euro funds to protect the EU’s internal markets
(Crosswalks ECB latest from headline to third graph)
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