By Gabriela Baczynska
BRUSSELS (Reuters) – It may take European Union countries until the summer or even longer to agree on how exactly to finance aid to help economies recover from the coronavirus pandemic as major disagreements persist, a bloc official said on Wednesday.
A summit on Thursday is expected to produce only a broad agreement to use the EU’s 2021-27 joint budget to help kick-start growth. The bloc’s 27 national leaders should also rubber-stamp 500 billion euros of rescue measures effective from June.
The novel coronavirus has claimed tens of thousands of lives in Europe and measures to curb its spread have left economies at a virtual standstill.
“My hope is to make progress in June, July,” said the EU official, who is involved in preparing the leaders’ summit.
But a final deal might take even longer: “Political lines are moving … but it will take time,” the official stressed.
Wealthy, fiscally conservative countries like Germany, Austria, Denmark, Sweden, Finland and the Netherlands have rejected calls by the bloc’s ailing southern economies — led by Italy, France and Spain — to sell joint “coronabonds” to raise funds to restart growth.
The executive European Commission has instead proposed a compromise that could see it raise funds against the EU’s joint coffers to provide up to 1.5 trillion euros of economic support.
With the scale of the damage not yet clear and estimates of what might be needed to revive growth differing, a Commission spokesman told a briefing on Wednesday that the proposed fund should “lead to … the trillion (euro) figure of investments”.
But the EU official preparing the leaders’ summit said there was still “real reluctance” in some member states to back the Commission’s recovery fund proposal.
National capitals are far from agreement on what size such a fund should be, whether it would make grants or repayable loans, whether, how much and what type of debt it could issue, and what countries’ responsibilities would be.
“For some member states it is important to have grants or subsidies, while for others it can only be loans. There is a big divide,” said the official, who spoke on condition of anonymity.
“It’s sensitive, it’s a difficult political discussion.”
A call on Monday between the leaders of Germany, France, the Netherlands, Italy and Spain went only some way to reconciling the two camps, squabbling over Europe’s pandemic response.
“There is this misunderstanding that the south wants to use the COVID crisis to put their old debt on the shoulders of the north,” the official said, referring to COVID-19, the respiratory disease the virus causes.
“The north fears debt mutualisation will contaminate their financial and economic positions in the future through decisions taken by the south.”
Following Monday’s call, German Chancellor Angela Merkel said publicly Berlin was ready to help jump-start economic growth through a bigger EU budget and the issuance of joint debt via the Commission.
Friedrich Merz, the leading candidate to succeed Merkel, on Wednesday stressed that joint debt issuance was out of the question but that various instruments related to the EU budget could be considered — comments seen consistent with Merkel’s.
The Commission is expected to present a revamped proposal for the bloc’s seven-year budget, known as the Multiannual Financial Framework (MFF), on April 29, including how exactly any Recovery Fund linked to it could work.
All 27 members would have to agree unanimously for it to take effect next year — a tall order for a bloc that has been fighting over immediate economic rescue plans, medical equipment and emergency border restrictions for weeks.
Raising the stakes, France warned on Wednesday it would not give its blessing to the bloc’s next long-term budget if it were not big enough to tackle the economic fallout from the pandemic.
EU unity is being bitterly tested by the coronavirus, having already been damaged by the economic crisis that began more than a decade ago, a migration crisis since 2015 and then by Brexit.
But the bloc has agreed 500 billion euros of support for its coronavirus-hit economies, including a scheme to subsidise wages, more lending to companies through the European Investment Bank and cheap credit lines from the euro zone’s bailout fund.
Intervention by the European Central Bank has meanwhile ensured euro zone countries can still finance themselves on the market. ECB President Christine Lagarde has drawn a line on how far the bank can go in helping stricken euro zone states, however, saying lending to governments directly would be illegal and handing out cash to citizens difficult.
(Reporting by Gabriela Baczynska; Editing by Catherine Evans)