Angela Merkel has told fellow EU leaders Germany is prepared to make a substantial financial contribution to help relaunch the region’s economies after the coronavirus pandemic as member states asked the European Commission to create a “recovery fund”.
In a relatively brief leaders’ videoconference summit on Thursday, the German chancellor said the EU needed to prevent an asymmetric economic recovery once lockdowns ease. Her country was ready, she said, to join in a huge common effort worth around €1tn. Leaders agreed to ask the commission to establish a recovery fund, although they failed to find common ground on its size and, crucially, on whether it should hand out grants or loans.
The leaders joined their fourth videoconference summit of this crisis with the aim of signing off a €540bn package of emergency measures and opening the door to an overhaul of draft plans for the EU’s upcoming multiannual financial framework (MFF). The commission will now accelerate its work on rewriting the MFF.
Asked after the meeting about the size of the fund, Ursula von der Leyen, commission president, said “we are not talking about billion, we are talking about trillion”. She warned there were huge differences between member states’ abilities to boost their economies and industries, given their varying fiscal situations, and said the EU would need to “counterbalance” that.
Agreeing a reconfiguration of the MFF that includes the recovery fund will be difficult given the significant political differences among member states. There were particularly acute divisions during the summit over the form any aid emerging from the fund should take.
France, Italy and Spain led demands for grants to stricken economies, whereas Ms Merkel insisted that any funding borrowed on the markets must ultimately be paid back. There were “limits” on what kind of aid could be offered, she told leaders, adding that grants “do not belong in the category of what I can agree”.
However, Emmanuel Macron, the French president, told reporters that there needed to be “real budgetary transfers”, adding that if regions were allowed to fall the whole of Europe would fall as well.
Italian prime minister Giuseppe Conte, who is under pressure domestically to gain much-needed financial aid from Brussels, said the situation was a “political emergency”, according to diplomats present in the discussion. Mr Conte called for the recovery fund to be up and running and delivering grants by the “second half of the year”.
Speaking to reporters after the videoconference, Ms Von der Leyen said the EU would find a “sound balance” between grants and loans. She confirmed the commission would amass the required firepower in the recovery fund by boosting the so-called headroom in the budget, which will allow the commission to raise extra funds by borrowing on the capital markets.
Ms von der Leyen did not specify how much the commission will aim to borrow, saying this would follow a more detailed agreement on the MFF. Leaders failed to reach an accord in a summit on the MFF in February amid serious divisions over the size of the budget and its spending priorities, and they have a difficult task ahead converging on a deal.
This will involve settling a longstanding dispute over the size of the basic budget, leaving aside the recovery fund.
Ahead of the videoconference, Ms Merkel told lawmakers in Berlin that they needed to be ready to make much higher contributions to the MFF, which starts in 2021, as part of the collective effort to lift the bloc’s economies from the slump induced by the pandemic.
Her words suggested a shift in position, since the northern European countries that are among the biggest net contributors to the EU budget have been insisting that their payments be no more than 1 per cent of gross national income.
Leaders from so-called frugal four countries — Austria, the Netherlands, Sweden and Denmark — spoke ahead of the summit and discussed their approach to the budget.
No consensus was reached on the way forward, EU diplomats said. However, some countries are discussing whether a boost will be needed to bring levels closer to those envisaged by Charles Michel, the European Council president, at the previous summit.
Mr Michel proposed a compromise in February in the region of 1.06-1.07 per cent of GNI, but the talks ended without any consensus being reached.
Since then the devastation wreaked by the coronavirus crisis has forced northern countries, EU diplomats said, to contemplate more substantial commitments to the budget in the face of Europe’s deepest recession since the 1930s.
Additional reporting by Victor Mallet in Paris