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28th Jan 2021

Coronavirus

Macron and Merkel propose €500bn EU recovery fund

  • 'The goal is for Europe to emerge from the crisis stronger,' said German chancellor Angela Merkel (Photo: Council of the European Union)

German chancellor Angela Merkel and French president Emmanuel Macron proposed on Monday (18 May) a recovery fund of €500bn to support the sectors and regions in the EU most affected by the coronavirus crisis.

The initiative suggests giving the European Commission the authority to borrow money on financial markets in the European Union's name - while respecting the treaties and budgetary controls.

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However, Macron insisted that the recovery fund would be made available in the form of grants and not loans, which has been an ongoing discussion for weeks.

"We will strive to make the budgetary effort related to coronavirus-crisis available as soon as possible," states the initiative, adding that member states would be subjected to "an ambitious reform agenda" on economic policies.

The Franco-German proposal is based on four pillars covering health protection, economic recovery, ecological and digital transition and industrial sovereignty.

The fund will be part of the the bloc's budget. The initiative could boost chances for an EU-wide agreement on the recovery fund, where countries such as Italy and Spain have locked horns with the Netherlands, Austria, Sweden and Denmark over common borrowing.

However, Austrian chancellor Sebastian Kurz said that the position of the so-called 'frugal four' remains unchanged.

"Our position remains unchanged. We are ready to help most affected countries with loans. We expect the updated MFF [EU's long-term budget] to reflect the new priorities rather than raising the ceiling," he tweeted.

Yet, Macron pointed out that the Franco-German initiative was the outcome of extensive talks with other member states, including Italy and the Netherlands.

"The goal is for Europe to emerge from the crisis stronger," Merkel said.

The initiative, for instance, suggests improving the framework for taxation in the EU - especially in the context of the digital economy.

This has been one of the priorities for Macron's government, which aims to impose a tax on America's biggest tech companies.

Additionally, the initiative also calls on making the Green Deal the new growth strategy of the European Union, while enhancing the EU's digital and industrial sovereignty.

"Open markets, free and fair trade are crucial parts of the solution," states the text, which calls for the diversification of supplies chains in the EU, adapt the EU's industrial strategy and modernise EU's competition.

However, Merkel described the proposal as a "short-term" response to the crisis, stressing that the EU will have to develop further long-term solutions.

The Franco-German initiative comes ahead of the EU Commission's own proposal - which is expected to be announced next week (27 May).

The president of the commission, Ursula von der Leyen, welcomed on Monday the "constructive proposal" made by France and Germany, saying that it is aligned with the proposal the commission is working on.

"It acknowledges the scope and the size of the economic challenge that Europe faces, and rightly puts the emphasis on the need to work on a solution with the European budget at its core," she said.

France and Germany have previously clashed over what the recovery package's format should be.

While France led the coalition of member states willing to issue joint debt (also called 'coronabonds'), other fiscally-conservative countries such as Germany opposed this approach.

However, Merkel said that "because of the unusual nature of the crisis we are choosing an unusual path".

And, likewise, Macron stressed that the Franco-German deal alone "doesn't mean an agreement from the 27".

The commission will soon announce its proposal to EU member states and "we hope that the French-German deal will help," he said.

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