quinta-feira, 30 de abril de 2020

Capitals criticize key plank of Brussels’ recovery plan



Capitals criticize key plank of Brussels’ recovery plan

Proposal for loans raised on financial markets faces pushback from Northern Europeans.

By HANS VON DER BURCHARD AND LILI BAYER 4/29/20, 8:53 PM CET Updated 4/30/20, 7:30 PM CET

A powerful array of EU countries including Germany is lining up against a key element of the post-coronavirus economic recovery plan floated by European Commission President Ursula von der Leyen.

Von der Leyen has proposed that the Commission raise money on financial markets, using guarantees that would be provided by EU members raising the ceiling on how much they could contribute to the EU budget. A large chunk of those funds would likely go to Southern European countries such as Italy and Spain, which have been hit hard by the pandemic and have limited fiscal room for maneuver.

But, although the Commission has yet to present a formal proposal, that central element of the plan is already facing deep skepticism from Berlin, Vienna, Stockholm, Helsinki and The Hague — highlighting once again a North-South divide when it comes to questions of EU financial solidarity.

Von der Leyen has said recovery funds, which she has suggested would generate at least €1 trillion of investment, will be a mix of grants and loans. But that raises the question of how money borrowed from the markets would be repaid if it is given to countries as grants.

“There is the idea that a big chunk of the money should simply be handed out as a grant. In other words, debt would be incurred,” a diplomat from a Northern EU country said, raising the question of who would be liable for this debt.

"We're willing to look at everything, but debt financing grants at this stage seems a bridge too far" — A Dutch official

The idea of using borrowed funds for grants has also sparked legal concerns. Under the EU's treaties, the long-term EU budget's expenditures cannot exceed its resources.

While some officials have raised the prospect of taking out very long-term loans that would not have to be repaid for decades, the diplomat said that this "is not possible, that would be against the EU treaties," and added: "There can’t be debt mutualization until there is a treaty change that would lead to a deeply integrated fiscal union with democratic oversight."

After commissioners held a debate on recovery financing on Wednesday, Commission Vice President Věra Jourová affirmed the plan would include "temporarily boosting the financial firepower of the budget by increasing the headroom [the ceiling on maximum contributions] and tapping financial market financing to channel extra funding to the member states."

"The College [of Commissioners] recalled the need to find an appropriate balance between loans, grants and financial guarantees," she added.

On Thursday, the Commission appeared to attempt to lower expectations about the new elements of the plan while indicating the semantics are likely to be sensitive, with Chief Spokesperson Eric Mamer telling reporters the plans would no longer be referred to as a recovery fund.

Northern headwind
The big problem for the Commission is that multiple countries contend that cash borrowed from the markets should be used for loans, not grants. Southern European countries, meanwhile, argue that loans will add to their debt pile and thus harm their long-term economic prospects.

An Austrian official, speaking on condition of anonymity, said a compromise would have to be found that works for all EU members but Vienna "supports strongly the borrow-to-lend approach."

Angelika Winzig, who leads the delegation of Austria's governing People's Party in the European Parliament, said her party supports "full solidarity" in the crisis but borrowed money has to be repaid.

"Raising money on the financial markets is one thinkable option to acquire the necessary means to help member states that are especially hard hit by the crisis. But we have to insist, that the countries who receive the recovery help will pay it back at some point in time when the recovery has succeeded. Solidarity is not a one-way street," she said.

Stockholm takes a similar line. "The Swedish position on a Recovery Fund is that it should provide loans, not grants," a Swedish official said last week.

A Dutch official said The Hague is skeptical about using loans to fund grants. "We're willing to look at everything, but debt financing grants at this stage seems a bridge too far," said the official.

"Before the EU resorts to ever new methods of financial alchemy, levers and bond constructions, we finally need clarity for what all the money is to be used for." — Eckhardt Rehberg, CDU spokesperson for budgetary affairs

Helsinki shares this view — but sounds more open to a compromise.

“We prefer loans, but are open to look at combination of loans and grants," said a Finnish official. "The problem with loans is that it adds up to the debt of the most indebted countries but the problem with grants is that it would leave the EU budget permanently in deficit or require actual money contributions down the line."

Commission officials insist they will find a creative compromise that is in line with EU law and that they are working hard to craft a plan that takes account of the concerns of all member countries.

German reservations
Ultimately, Germany's attitude to the Commission's plans will be crucial. And in Berlin, members of Chancellor Angela Merkel's Christian Democratic Union (CDU) highlighted strong reservations.

Gunther Krichbaum, the head of the Bundestag's European affairs committee, said the Commission's legal service had a "somewhat more generous" view about the use of grants whereas lawyers at the Council of the EU, which represents member countries, are "already more skeptical."

The CDU lawmaker also noted that Germany's constitutional court will next Tuesday issue a long-expected ruling on the legality of the European Central Bank buying the bonds of EU member countries, which would likely feed into the broader political debate.

Eckhardt Rehberg, the CDU's spokesperson for budgetary affairs, suggested the Commission was putting the cart before the horse.

"Before the EU resorts to ever new methods of financial alchemy, levers and bond constructions, we finally need clarity for what all the money is to be used for," said Rehberg. "It appears that some are only interested in putting large sums of money on display."

Merkel herself has suggested a more orthodox way of raising funds, making clear in recent days that Germany — the biggest contributor to the EU's coffers — is now ready to pay more into the long-term EU budget, the Multiannual Financial Framework (MFF).

But it is unclear if larger budget contributions — even if backed by all member countries — would raise anything like the amount of up to €1.5 trillion that Southern European countries say is required.

German MEP Niclas Herbst, a CDU member and vice-chair of the European Parliament's Budgets Committee, said Europe needs "a far more ambitious classic MFF." He backed the idea of cash that "comes from EU Budget and goes into special programs for member states."

Herbst said in an email that the budget should also include "some new financing instruments (such as money raised from financial markets)" but added that "we have to be realistic that some member states won't be in the condition to pay back loans in the near future. Therefore grants and loans under special conditions might be an adequate option."

Markus Töns, a German MP from the Social Democrats, the junior partner in Merkel's ruling coalition, said he had heard the German government has legal concerns about the Commission's plans.

But he criticized the government’s attitude, saying that it was in Berlin’s best interest to show more solidarity when it comes to pooling debt risk and thereby support European partners. “If foreign trade — which is set to collapse worldwide — now also collapses at European level, then things will also become very, very bitter for German exporters. And this would affect many thousands of jobs," he said.

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