By Michel Rose and Gabriela Baczynska

BRUSSELS (Reuters) – France has proposed that the European Commission issue bonds to finance a recovery fund for the European Union worth 1-2% of gross national income per year – or 150-300 billion euros – in 2021-23, according to a French proposal seen by Reuters.

The EU is debating how to jump-start growth after a slump caused by the coronavirus outbreak. The Commission, the EU executive, is due in the week starting May 18 to make a formal proposal on a new joint budget for all the 27 member states for 2021-27, known as the Multiannual Financial Framework (MMF), and an accompanying Recovery Fund.

“The size should be at least 1% to 2% of EU GNI per year over the next three years, which would provide the EU budget with a top-up of 150 to 300 billion euros each year between 2021 and 2023,” the French discussion document on the Recovery Fund said.

“Loans to member states could help closing the gap, but need to remain a top-up to grants. To ensure maximum added value, such loans should have a grace period, very long maturity and low interest rate … It is also essential that this fund be set up as soon as possible, possibly before the entry into force of the next MFF.”

EU leaders agreed last month to create the fund but left most of the details unresolved amid deep rifts over the amount needed to spur recovery, how to finance any such special vehicle, and how to spend the money.

“We are really at a crossroads,” EU economics commissioner, Italian Paolo Gentiloni said separately.

“Either we are able to have a strong common response, but we are not there yet, or the entire project is at stake,” he said.

His comments echoed warnings from Paris, Rome and elsewhere in the ailing south that denying sufficient aid to member states most hit by coronavirus would risk tearing the EU apart.

Paris proposed that the Commission make a swift one-off bond issuance of paper with maturity of 2-8 years to raise funds against an increased MFF headroom and guarantees by national governments. Such bonds could be rolled over for a long time before eventually being repaid by the EU budget.

Germany, the EU’s biggest economy and main contributor to the bloc’s joint coffers, is open to a larger MFF but Denmark, Austria, the Netherlands and Sweden refuse to go above 1% of the bloc’s GNI.

(Additional reporting by Francesco Guarascio, Editing by Alison Williams, Timothy Heritage and Giles Elgood)