France, Germany back US$542b EU recovery plan

France and Germany on Monday proposed a 500-billion-euro (US$542 billion) fund to finance the recovery of the European Union's economy.

France and Germany on Monday proposed a 500-billion-euro (US$542 billion) fund to finance the recovery of the European Union’s economy from the devastation wrought by the coronavirus crisis.

Putting aside past differences and seeking to prove that the Franco-German core of Europe remains intact, French President Emmanuel Macron and German Chancellor Angela Merkel announced the unprecedented package after talks by video conference.

European Central Bank head Christine Lagarde told major European newspapers that “the Franco-German proposals are ambitious, targeted and welcome.”

With the European economy facing its biggest challenge since World War II, Macron also acknowledged that the EU had fallen short in its initial response to the virus and needed to coordinate more closely on health.

Financed by “borrowing from the market in the name of the EU,” the 500 billion euros will flow into the “worst-hit sectors and regions” in the 27-member bloc, the two countries said in a joint statement.

“We are convinced that it is not only fair but also necessary to now make available the funds ... that we will then gradually repay through several future European budgets,” Merkel said.

Countries benefiting from the financing would not have to repay the money, Macron added.

The eurozone economy overall is forecast to contract by 7.7 percent this year, with the damage set to be most severe in southern members like Italy and Greece.

The agreement of such borrowing marks a major shift by Germany, which has until now rebuffed calls by Spain and Italy for so-called “coronabonds” for joint borrowing on financial markets to provide stimulus cash.

Germany, the Netherlands and other rich countries had seen them as an attempt by the indebted south to unfairly take advantage of the north’s fiscal discipline to raise money more cheaply.

The Merkel-Macron plan now faces a potentially painful negotiation with all 27 member states and then a vote in European Parliament, which had been eyeing an even larger package.

In the first signs of cracks within the EU, Austria insisted that any financial help should be paid back.

“We will continue to show solidarity and to support those countries which have been worst affected by the virus, but this has to be in the form of loans not grants,” a statement from Austrian Chancellor Sebastian Kurz’s office said.

On the other side of the spectrum, the Spanish government called the plan a “big step in the right direction,” adding it picks up a significant part of Spain’s proposals for a rapid and joint exit from the crisis.”

A source in the office of Italian Prime Minister Giuseppe Conte described the plan as a “good starting point,” but said it was a package that should not be “revised downwards, but rather expanded.”

European Commission chief Ursula von der Leyen, who would have to help implement the package, hailed the plan as a “constructive proposal.” “It acknowledges the scope and the size of the economic challenge that Europe faces,” she said.

Merkel said the seriousness of the crisis meant “solidarity” must be the order of the day. Calling the proposal “courageous,” she asserted Europe should come out of the crisis in a more cohesive and united way.

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