European Union unveils €750 billion economy rescue plan

Bloc will borrow funds from the market and disburse them in loans and grants.

The European Union (EU)’s executive unveiled a €750 billion plan on Wednesday to prop up economies hammered by the coronavirus (COVID-19) crisis, hoping to end months of squabbling over how to fund a recovery that has exposed fault-lines across the 27-nation bloc.

Under the proposal, which could still be blocked by more frugal northern nations, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans to cushion the unprecedented slump expected this year due to the coronavirus lockdowns.

Worst-affected nations

Much of the money will go to Italy and Spain, the EU nations worst affected by the pandemic. EU leaders agree that, if they fail to rescue economies now in freefall, they risk something worse than their divisive debt crisis of a decade ago, which fanned euroscepticism and threatened to pull the eurozone apart.

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But fiscally conservative northern countries have resisted pressure from a “Club Med” group to take on mutual debt to protect the EU’s single market of 450 million people from being splintered by divergent economic growth and wealth levels. “We either all go it alone, leaving countries, regions and people behind and accepting a union of haves and have-nots, or we walk that road together...,” said European Commission President Ursula von der Leyen. The euro rose as she laid out in the European Parliament details of the Commission’s plan, entitled “Europe’s Moment: Repair and Prepare for the Next Generation”.

The grants, although controversial, are needed because Italy, Spain, Greece, France and Portugal already have high debt and rely heavily on tourism, which was halted by the pandemic.

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The recovery fund package comes in addition to the EU’s long-term budget for 2021-27, which the Commission proposed should be set at €1.100 trillion ($1.21 trillion).

Germany welcomes plan

The 500 billion euros in grants is in line with the wishes of the EU’s two biggest economies, France and Germany, which came up with a grants-only proposal last week. France, Germany, Italy and others welcomed the Commission plan.

The more frugal nations would rather see the recovery package comprise only loans, and the Netherlands — among the most resistant to mutualised debt and grants - responded cautiously to the proposals.

The plan has to be approved by all 27 member states and the European Parliament.

The borrowing will ultimately have to be repaid, meaning higher national contributions to the EU budget in the future or new taxes assigned to the bloc.