Outside view of the European Commission headquarters in Brussels

By Jan Strupczewski and Paul Carrel

BRUSSELS/BERLIN (Reuters) – European Union leaders will on Thursday take their first step towards joint financing of an economic recovery after the coronavirus pandemic but will kick any difficult decisions about the details into the long grass.

Speaking ahead of a video conference of the 27 national EU leaders due to start at 1300 GMT, German Chancellor Angela Merkel called for a bigger EU budget for 2021-27 to help jump-start growth on a continent ravaged by the disease.

She said it was clear that “in the spirit of solidarity, we should be prepared, over a limited period of time, to make very different – meaning much higher – contributions to the EU budget”.

But she stressed Germany’s continued resistance to issuing joint EU debt with common liabilities across member states, something that the hardest-hit southern countries – Italy and Spain – as well as France have demanded for weeks.

With a wide split between member states on how best to pay for getting their economies going again after the coronavirus slump, the European Commission has proposed a tentative compromise under which the Brussels-based executive would raise funds against the bloc’s next long-term budget.

An internal Commission note prepared for Thursday’s EU summit showed it was proposing to produce two trillion euros of spending and investment through the EU’s 2021-2027 joint coffers and a new recovery fund.

The Commission planned to release most of the spending in 2021-22 as a mix of free grants and repayable loans.


But while many in the EU see a massive joint recovery financing as a crucial solidarity tool, there are broad divisions over how much money is needed, how to raise it, how to spend it, to what extent member states would be responsible, and what maturities would any proxy joint debt have.

“The leaders will outline their preferences and red lines to the Commission at the summit and von der Leyen will then have to come back with a proposal that will suit everybody,” one EU diplomat said, referring to Commission head Ursula von der Leyen.

The Commission will be asked to make more specific proposals around the end of the month and the bloc’s leaders could have another discussion around June.

But any final decision may take even longer, officials cautioned, because of the complexity of talks over the EU budget, called the Multi-annual Financial Framework (MFF), and bitter divisions in the bloc over the scale and scope of the necessary recovery financing.

“The hawks of the eurozone are realising there is a need for an extraordinary instrument to help us out of this extraordinary crisis,” said a senior EU diplomat from one of the countries pushing for debt mutualisation.

But there was no agreement for now on how exactly to achieve that.

Some in the bloc will have a harder time than others regaining their economic footing after the deepest-ever EU recession this year.

A more even recovery would help preserve the EU’s cherished single market of 450 million people and keep at bay eurosceptic parties trying to capitalise on popular resentment of EU economic inequalities.

While France and Spain presented proposals that involve joint debt issuance, that option has been rejected by Germany, the Netherlands and several other countries.

Some national capitals argue that grants, rather than loans, are the way to go, because that would help avoid a large buildup of debt in the already highly indebted countries – another idea hard to swallow for the more frugal camp.

While discussion on the recovery has so far mostly pitted the ailing south against the more fiscally conservative north of the EU, the poorer eastern flank of the bloc has also said it should not be overlooked when the money is spent.

“We are slowly heading towards some form of joint debt. We’ll never call it ‘coronabonds’ or ‘eurobonds’ and it will be raised by the Commission, rather than member states together,” said another senior EU diplomat involved in preparing the summit.

“There is plenty of detail still missing and there will be plenty of fights ahead to nail it down. But we are moving into a territory that would have been beyond the pale before the coronavirus crisis.”

(Reporting by Jan Strupczewski, Additional reporting by Robin Emmott, Kate Abnett, Gabriela Baczynska, Paul Carrel and Michelle Martin, Editing by Peter Cooney, Robert Birsel and Giles Elgood)