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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