EU exec to propose 1 trln euro recovery plan with grants and loans

The European Commission will present a pandemic recovery plan next week that will exceed 1 trillion euros in a mix of grants and loans, Executive Vice President Valdis Dombrovskis said on Tuesday.

Dombrovskis, speaking after a meeting of EU finance ministers, welcomed a proposal by France and Germany for a 500 billion euro fund to disburse grants to worst-hit regions and sectors.

But he said the Commission would be bolder.

“Our ambition is not to increase the financing capacity in the range of hundreds of billions, but rather by a figure exceeding a trillion euros,” he said.

“Of course in this case we are talking about both in loans and grants.”

Dombrovskis said the Commission, like France and Germany, would link access to the recovery money to sound economic policies and structural reforms.

This could become a friction point with Italy and Spain, worst affected by the epidemic, who are wary of northern fiscal hawks dictating policies in exchange for grants.

“We not only need additional money for the recovery, but we also need reforms, we need to ensure a business environment that is conducive to investment,” Dombrovskis said.

“So, as part of our recovery instrument, we intend to propose… a Recovery and Resilience Facility, which will be concentrating on investments and structural reforms,” he said.

Dombrovskis also said the recovery money would have to follow the EU’s long-term priorities of making the bloc climate-neutral by 2050, digitalising the economy and investing in research and innovation.

EU governments are divided if the recovery money should be loans or transfers, with the highly indebted southerners like Italy, Greece or Spain calling for grants and less indebted and fiscally frugal countries in favour of loans.

The commission’s proposal on May 27, linking the Recovery Fund with the EU’s next long-term budget for 2021-2027, will be the basis for discussions of all EU governments in June.

Dombrovskis said the Commission was examining if some of the cash could be available in 2020, but said most was likely to be available in 2021.

[Reuters]