Mix of loans and grants in Commission €750bn package

The EU Commission unveiled on Wednesday (27 May) plans to borrow up to €750bn on the markets, to fund a recovery package kickstarting a European economy now facing its deepest recession in history.

The EU executive also proposed to a 2021-2027 EU budget of €1.1 trillion, which is higher than then the latest compromise proposal of EU Council president Charles Michel of €1.095 trillion in February.

"The boldest measures are the safest for the future," commission president Ursula von der Leyen told MEPs when presenting the package.

The commission proposed that €500bn from the package be distributed in the form of grants to member states and €250bn in loans.

The recovery package is at the heart of efforts to turn around economies worst-affected by the coronavirus outbreak, with some countries estimated to contract by almost 10 percent this year.

It would come on top of the seven-year EU budget and the €540bn already agreed by EU leaders to support workers and businesses.

The recovery money would be focused on investment and reform tied to EU priorities such as digitalisation and greening the economy, while following the bloc's economic direction on deficit and debt.

It is also intended - via a EU guarantee to the European Investment Bank - to mobilise private capital to viable companies and capital for strategically-important sectors and health care.

Under the plan, the worst-effected countries will get much of the funds.

Italy will be able to access €82bn in grants and €90bn in loans.

Spain can receive €77bn in grants and €63bn in loans.

Germany would get €28bn in grants, but no loans, also no loans planned for Belgium, Denmark, France, Luxembourg, the Netherlands, Austria, Finland and Sweden. Poland planned to receive €37bn in grants and €26bn in loans.

The proposal marks a major step towards integration - with joint borrowing done by the commission at this scale.

Financial burden-sharing has already been a toxic issue during the euro crisis a decade ago and threatened the cohesion of the bloc.

The commission's borrowing would be paid back after 2027, although paying back interest would start before that, during the 2021-27 budget.

The EU executive proposes to use new resources, such as the digital tax, the extension of the emissions trading scheme, carbon border tax for it.

Next steps

Von der Leyen needed to find a balance between winning over sceptical member states like the Netherlands and Austria - which reject any joint debt - while generating help to countries such as Italy, whose public debt could spill out of control threatening the euro.

A key moment was German chancellor Angela Merkel's support for an initiative with French president Emmanuel Macron to back a recovery fund to the tunes of €500bn, and large borrowing by the commission.

The budget and the recovery package still faces tough political hurdles as they need to win the approval of the 27 governments.

Von der Leyen appealed to EU countries on Wednesday that have so far been reluctant to sign off on recovery plans party financed by joint borrowing and grants.

"We either go all alone, and accept a union of 'haves and have-nots', or we will walk that road together," she said.

"No member state should have to choose between responding to the crisis or investing in our people," the German commission president added.

"The positions are far apart and this is a unanimity file, so negotiations will take time. It's difficult to imagine this proposal will be the end state of those negotiations," a Dutch diplomat warned on the proposal.

Dutch prime minster Mark Rutte on Wednesday said he talked to Italian PM Giuseppe Conte about Italian reform plans. "For a strong EU we need strong member states," he tweeted.

Conte said the proposal "goes to the right direction", and said the €750bn is the right amount for the recovery.

"Now let's speed up the negotiation and free up the resources soon," he added.

Italy was initially the epicentre of the pandemic, where the government initially felt abandoned by the EU, fuelling eurscepticism.

For others, the commission's proposal is viewed as moving towards to southern and eastern member states, and avoiding difficult decisions.

"As a result, the leaders will have been set back significantly in their efforts to reach an acceptable compromise fast," an EU diplomat said.

However, it seems that Green coalition partners in governments in Austria and Finland could nudge governments there towards accepting the commission's proposal.

EU leaders are expected to discuss the proposal on 19 June, with no decision yet on whether leaders should meet personally for the traditional horse-trading.

"Everything should be done to reach an agreement before the summer break. […] They need targeted relief without delay," Michel, who will chair the meeting, said on Wednesday.