Repair and Prepare: EU unveils 750 bln euro plan for coronavirus recovery

The European Commission unveiled on Wednesday a plan to borrow on the market and then disburse to EU countries 750 billion euros in grants and loans to help them recover from their coronavirus slump, giving an immediate boost to the euro.

Much of the money is to go to Italy and Spain, the worst affected by the pandemic, which together would receive 313 billion euros in grants and loans.

The aim is also to protect the European Union’s single market of 450 million people from being splintered by divergent economic growth and wealth levels as the 27-nation bloc emerges from its deepest-ever recession, which is expected this year.

Of the 750 billion euros, two-thirds would be in grants financed by joint borrowing and one-third in loans.

The grants, although controversial, are needed because Italy, Spain, Greece, France and Portugal already have high debt and are heavily reliant on tourism that was brought to a halt the pandemic. They will find it more difficult than more frugal northern nations to restart their economies through borrowing.

The euro rose on the news to trade at 1.1022 against the dollar, up from 1.0932.

The recovery fund package is in addition to the EU’s long-term budget for 2021-27, which the Commission will propose being set at 1.100 trillion euros, is virtually the same as the proposal discussed by leaders in February of 1.095 trillion.

“In total, this European Recovery Plan will put 1.85 trillion euros to help kick-start our economy and ensure Europe bounces forward,” the EU executive said in a document titled “Europe’s moment: Repair and Prepare for the Next Generation.”

Concern

The 500 billion euros in grants is in line with the wishes of the EU’s two biggest economies – France and Germany – though some nations would rather see the recovery package comprise only loans.

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

The Commission proposed new revenues in the form of a tax on plastics, some money from the CO2 emissions trading scheme, a digital services tax, a part of national corporate taxes and an import levy on goods produced in countries with lower CO2 emissions standards than the EU.

It also proposed the EU budget should get a bigger share of the Value Added Tax paid by governments to the EU.

[Reuters]