Europe’s 21st Century ‚Marshall Plan‘: EU Leaders Agree on €750bn Joint-Debt Covid-19 Rescue Fund

Written by | Thursday, July 23rd, 2020

European leaders have reached a breakthrough deal on a massive joint recovery package to cushion the economic fallout from the coronavirus pandemic and to deal with the deepest recession in its history. The deal follows days of rancour over the proportion of grants compared to loans repayable by the fund’s beneficiaries. On top of a seven-year, €1.074-trillion EU budget for 2021-27, the European Union will also set up a €750-billion coronavirus fund, partly based on common borrowing, to be handed out as loans and grants to the hardest-hit member states. German Chancellor Angela Merkel said “extraordinary events” required “extraordinary new methods,” while French President Emmanuel Macron hailed the deal as a “historic day for Europe” and Spain’s Prime Minister Pedro Sanchez likened the recovery package to Europe’s post-war Marshall Plan.
The deal’s novelty stems from the fact that for the first time in the history of the bloc, the European Commission is allowed to borrow on international markets to then transfer the funds to member states in need of economic help. “This is really a show of solidarity and something that was completely unthinkable before Covid-19. So it is ground-breaking in that respect,” said Alessandro Leipold, a former senior official at the International Monetary Fund. The Commission’s borrowing on financial markets, which will be on an unprecedented scale, will essentially mark a step towards deeper integration hailed as historic. To repay investors, EU member states have agreed to create new common taxes, including a plastics levy that will be introduced in 2021. The Commission, which drafts EU law, has been asked to propose a levy on polluting imports from non-EU countries, as well as a digital tax. But agreeing these taxes will not be easy, so there is no certainty about how the EU will repay its debts.
And why was there so much rancour? Because, on the one hand, some northern European member states have long accused southern Europe of failing to carry out necessary reforms to protect their economies from a crisis. But, on the other hand, Spain and Italy, among the hardest hit by coronavirus, accused those northerners of putting in jeopardy the EU project by failing to show solidarity in a pandemic not of their making. Are there any losers or has everyone won? Everyone had to give ground – Spain, Italy, Germany and France must accept less generous recovery grants than they had wanted. Meanwhile, the frugal club – namely Austria, Denmark, the Netherlands and Sweden – made a major concession by agreeing to grants at all. To grease the wheels of compromise, the “frugals” secured increases in their EU budget rebates, meaning a bigger discount on their contributions to the EU budget.

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