‘Defining moment’ as EU executive pushes for €500bn in grants

Jennifer Rankin in Brussels
Photograph: Anadolu Agency/Getty Images

The European Union executive has called for a €750bn (£671bn) recovery plan to help the hardest hit countries find a way out of the unprecedented economic downturn caused by the pandemic.

The European commission president, Ursula von der Leyen, said the EU faced a defining moment, never seen in its 70-year history. “The crisis has huge externalities and spillovers across all countries and none of that can be fixed by any single country alone.” 

Addressing the European parliament, where MEPs wore face masks and sat further apart than usual under mandatory physical-distancing rules, von der Leyen said the sum would be split into €500bn of grants for EU member states and €250bn of loans.

Under the commission’s blueprint, Italy would get €82bn in grants, Spain €77bn, France €39bn, Poland €37bn and Germany €29bn.

The money would be raised by the EU borrowing on capital markets on a far bigger scale than ever before, meeting a key demand from France and Germany, but provoking opposition from fiscal hardliners opposed to shared debt.

In an attempt to convince governments that are against handing out large grants to their neighbours, von der Leyen told MEPs the money would go through the EU budget, meaning it would be subject to checks and controls. “A struggling economy in one part of Europe weakens a strong economy in another part,” she said.

The commission claims its proposals could unleash €3.1tn of investment in the EU economy and is pledging to intensify spending on the European Green Deal, the pre-crisis plan to meet the demands of the climate emergency.

It has promised to add €30bn to the €10bn “just transition fund”, intended to help coalmining regions move away from fossil fuels.

But officials face a political fight to persuade all 27 member states that shared debt is the right approach. Battle lines were drawn last week, after Angela Merkel and Emmanuel Macron called for a €500bn recovery fund, as the chancellor broke a long-held German taboo against common EU debt

Austria, Denmark, the Netherlands and Sweden, a group labelled the “frugal four”, think the recovery fund should offer stricken countries loans, not grants. While Danish and Swedish finance ministers have spoken of the need for compromise in recent days, they remain opposed to mutualised debt.

Responding to von der Leyen’s plan, one EU diplomat argued the commission had favoured southern and eastern Europe. “By moving to the south and the east the commission has avoided any difficult decisions or compromises at this stage. As a result the leaders will have been set back significantly in their efforts to reach an acceptable compromise fast.”

None of the money would be available until next year, so the commission is calling on member states to agree an extra €11.5bn spending under the current EU budget. This would not affect the UK, as its liabilities are capped under the Brexit withdrawal agreement. 

Separately, the commission published an outline for a revamped €1.1tn EU budget for 2021-27. EU leaders failed to agree their long-term spending plans in February, in a sign of deep divisions between the “frugals” and more free-spending countries, before the crisis took hold.

The plan takes the commission into new territory, borrowing on capital markets on a far bigger scale than ever before. Officials hope to take on debt with a maximum maturity of 30 years, and not start repayments until 2027.

Under the proposal, debts would be serviced by new EU taxes, such as corporate levies, a plastics tax or charges on imported goods with a high carbon footprint.
If EU countries failed to agree on common EU taxes, they would have to contribute more to future EU budgets or see cuts in EU programmes. Von der Leyen argued that neither of these were attractive options, urging member states to agree new “own resources” for the EU.

In recent years, EU governments, generally wary of ceding revenue-raising powers to Brussels, have rejected an EU digital tax and – repeatedly – a common consolidated corporate tax base, a prerequisite for corporate taxes at EU level.

“Member states hate [EU taxes] because they basically lose power,” Philippe Lamberts, a Belgian Green MEP, told the Centre for European Reform thinktank on Wednesday. But he expressed hope EU finance ministers would change their attitudes. “I think that the pandemic and this recovery plan are gamechangers and if we agree to borrow together we will need to reimburse together … in a way the pandemic opened doors that many believed totally shut up until now.”

Central and eastern European countries, who are net beneficiaries of EU spending, are worried about losing money to southern Europe. The Czech prime minister, Andrej Babiš, has said it would be “unfair to be penalised for being successful” referring to the low number of coronavirus cases in his country.

Luděk Niedermayer, a Czech MEP and vice-president of the European parliament’s economic and monetary affairs committee, said such comments were “unfortunate”. Niedermayer, who sits in the opposition centre-right party, said: “For us, the recovery of overall EU demand is as important as stabilising our domestic situation and one is not possible without the other.” 

Pascal Canfin, a French MEP and Macron ally who chairs the European parliament’s environment committee, described the crisis recovery fund as a “major political victory” and “a great step forward in accelerating the ecological transition”.

But green campaigners did not share this positive view. “We are missing clear mechanisms for implementing and enforcing the green conditions to truly ensure that no money spent by member states will go to harmful activities such as fossil fuels or building new airports and motorways,” said Ester Asin, the director of the WWF European policy office.