– by Andreas Rinke and Christian Krämer
Berlin (Reuters) – At the EU summit from Thursday afternoon, the heads of state and government want to tie down the amount of the reconstruction fund in order to boost the economy again after the coronavirus crisis.
“A European economic stimulus program could support the necessary upswing in the next two years,” said Chancellor Angela Merkel in the Bundestag. Germany is prepared to make significantly higher contributions to the EU budget for a “limited period”. Vice-Chancellor Olaf Scholz said that the controversial financing of the fund will probably only be clarified later in a second step. According to EU insiders, final decisions should be taken in the summer – and the fund should ideally be launched in early 2021. Sums up to two trillion euros are under discussion.
The European finance ministers had recently launched a € 500 billion emergency aid package after very difficult negotiations. It includes promotional loans for small and medium-sized companies, credit lines from the ESM rescue fund for governments and a European short-time work allowance based on the German model. Resistance from the heads of state and government is not expected. Merkel said in her government statement on Thursday that she hoped the funds would be available from early June.
Italy and Spain in particular could benefit from this, as they are particularly hard hit by the pandemic but at the same time are pushing up huge mountains of debt. The government in Rome insisted on the EU’s swift agreement on the reconstruction fund ahead of the discussions. Your country cannot afford to wait until June for an agreement to fund the fund, Deputy Economics Minister Laura Castelli told Radio Capital. “The virus won’t wait.”
REBUILDING BONDS?
Spain recently proposed a volume of 1.5 trillion euros, the EU Commission 1.6 trillion. An internal document from the Brussels authorities even mentions funding of two trillion euros. In addition to the new fund, the EU budget for the years 2021 to 2027 should be tapped. The paper also states that the Commission can raise 320 billion euros in the financial market and pass half of it on to governments in Europe. Part of the money could be paid out as a direct grant.
An EU official said the reconstruction fund could be in early 2021. That would be the ideal case, parallel to the new medium-term EU budget that will then begin. If the political will is there, all the necessary decisions could be taken in time in the national parliaments. Countries from southern Europe want to combine the fund with common bonds – so-called euro bonds or corona bonds – sometimes with extremely long-term bonds. The Federal Government rejects both. It would take years for the legal conditions to be created, said Merkel. But you have to act quickly.
Scholz said on ZDF that funding via the EU budget is the preferred way. “Then there are also ways, for example, to ensure that we can spend more money in the beginning.” Refinancing would be made through the budget of the following years. “This is the best way you can choose.” In an interview with the news portal t-online.de, he also indicated that the reconstruction fund would have a volume of more than 500 billion euros and would have to go hand in hand with further integration steps by the EU. “Then they also need joint income.” More countries should participate in the planned financial transaction tax.
According to a survey by the economic research institute ZEW among a good 200 experts, just under 16 percent think corona bonds make sense. A good 61 percent considered loans from the ESM rescue fund to be correct. “Additional aid payments from the EU budget consider 55.7 percent of financial market experts to be a suitable instrument to deal with the crisis.”
