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Von der Leyen: new budget will be EU's corona response

  • Commission president Ursula von der Leyen argued for large-scale investment under the umbrella of the EU budget (Photo: European Commission)

The next seven-year EU budget should be the core of the European economic recovery from the coronavirus pandemic, EU commission president Ursula von der Leyen said on Wednesday (15 April).

"The next EU budget has to be the European answer to the corona crisis," she told at online press conference, unveiling the bloc's recommendations to member states on how to exit the lockdowns introduced to slow the spread of the coronavirus.

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"To be able to do that it has to be completely different than how normally European budgets work," von der Leyen added, saying that there has to be an emphasis in the first three years on investing more into EU countries.

Payments from the seven-year budget usually speed up in the second half of the budget period when EU countries submit more bills to the EU to draw on funding.

The commission chief argued investments should now start early.

Von der Leyen said that the new budget, beginning next year, would have an advantage in the recovery financing because the EU coffers will be freshly replenished for the next seven-year period.

EU governments have been mired in difficult discussions on how to finance recovery from a deep recession that is expected to follow the pandemic this year.

One idea is to increase the budget, but another is to use the budget as a financial vehicle to borrow funds on the market and leverage them to create a larger-scale investment.

"A European budget that, with all its might, is able to leverage the necessary money for a huge investment initiative in order to really restart the economic process," von der Leyen said on Wednesday.

"We're not talking about a billions, we're talking about a trillion, looking at the investment initiative that has to be done," von der Leyen added.

The German commission president argued that the commission is well-placed to leverage money guaranteed by member states.

On Tuesday commission vice-president Valdis Dombrovskis told German business daily Handelsblatt that the commission is working on new financing instruments related to the EU budget.

"We could finance the reconstruction fund with bonds backed by a guarantee from the member states," he added.

On Wednesday, von der Leyen suggested that using the EU budget as a financial vehicle to raise funds would remove the pressure on Germany, Netherlands and other countries to agree to jointly-issued debt, or so-called 'coronabonds'.

A joint resolution, drafted by the centre-right, socialist, liberal and green groups in the European parliament called for an increased EU budget and supported "recovery bonds guaranteed by the EU budget" to finance the economic bounce-back.

The resolution, which will be voted on on Thursday, said the the recovery package should, however, not include the mutualisation of existing debt, in reference to the toxic issue of jointly-issued debt.

Eurozone finance ministers struggled last week to agree on measures to help economies badly hit by the coronavirus pandemic, and have largely shelved the idea of the so-called eurobonds or coronabonds.

Budget fights

The EU commission plans to come out with a new budget proposal by the end of the month.

EU countries have been stuck negotiating on a proposal from 2018, which since last February (2019) has seen governments arguing over a few hundred million euros - a small amount compared to the combined wealth of the 27-member bloc.

A group of net-payer countries, led by the Netherlands, have been arguing that with the departure of the UK the EU budget should be less than one percent of the EU's gross national income.

It remains to be seen if countries would rush to pay more into the EU budget, on top of the financing gap left by the UK, to boost the economic recovery after the pandemic.

However, an agreement needs to come soon. The EU budget needs also to be approved by the parliament as well.

The commission has mulled the idea of putting more money in cohesion funds, aimed at less-developed regions, to help the recovery of the most-effected countries, such as Italy and Spain, Reuters reported.

But it is unclear where the commission would cut from, as other budget items - such as agriculture, digitalisation, and the greening of the economy - are also key objectives for the bloc.

EU Council president Charles Michel said on Wednesday that EU leaders will discuss a "strategic vision" on the EU budget during a videoconference summit on 23 April.

No breakthrough at EU budget summit

EU leaders failed to reach agreement on the EU's long-term budget, as richer states and poorer 'cohesion countries' locked horns. The impasse continues over how to fund the Brexit gap.

EU leaders at odds on virus-hit economy

Italy, with the backing of France and Spain, call for substantial EU economic help, others want to see how long the outbreak will last before committing to big plans.

Spain seeks trillion-size fund in EU recovery feud

Madrid added its voice to the debate on how to come up with big enough recovery plan that would help protect the euro and stabilise economies worse-hot by the corona-virus. EU leaders will flesh out ideas on Thursday.

EU corona recovery talks could drag into summer

EU leaders hold a videoconference Thursday to bridge divisions over financing Europe's recovery from the corona crisis, in talks interlinked with the bloc's long-term budget.

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Opinion

Italy has a responsibility, too

Little wonder the leaders of Austria, Denmark, the Netherlands and Sweden are unwilling to sign off: they're not going to give money so the Italians can fund a tax cut in the middle of an economic crisis.

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