BRUSSELS (Reuters) – The European Union’s economic recovery plan after the COVID-19 pandemic is likely to secure backing from member states in July, helping the 27-nation bloc emerge from the recession together, EU Budget Commissioner Johannes Hahn said on Wednesday.
EU leaders will tackle the European Commission’s 750 billion euro plan for the first time on Friday, together with a 1.1 trillion euro proposal for the next EU budget for 2021-2027. The plan will need the approval of all member states to be adopted.
“I’m really confident because everybody understands the urgency,” Hahn told Reuters in an interview. “There might be some modifications, adaptations, but the general direction will stay,” he said.
Under the proposal, the Commission is to borrow 750 billion euros on the market against higher government guarantees for the EU budget. Around 500 billion would be disbursed in grants and 250 billion as loans, to revive economies most badly damaged by the pandemic like Italy and Spain.
The Netherlands, Denmark, Sweden and Austria, dubbed “the Frugal Four”, say the fund is too large and want it used only as loans, since grants would have to be repaid by all EU taxpayers.
But Hahn said grants were necessary to prevent the EU’s single market of 450 million people from breaking up as the already high-debt southerners could not afford to borrow as much to help their economies as the lower-debt northerners. Their slower recovery would create dangerous economic divergences.
“If the European single market is really a single market, it means all these national economies have to pick up more or less at the same time… therefore provisioning via grants is necessary,” he said.
“The grants should be seen by the ‘frugals’ as a kind of investment in more resilience, in better performance, which finally is in the interest of everybody,” said Hahn.
“The ‘frugals’ should have an interest in economies like Italy or Spain picking up as fast as possible,” he said, noting much of internal EU exports go from the north to the south.
Earlier on Wednesday, European Central Bank Vice President Luis de Guindos, a Spaniard, said indebted euro zone countries needed grants rather than loans to deal with the pandemic’s fallout to avoid digging themselves into a bigger debt hole.
But Sweden’s EU minister said the recovery fund should be disbursed only as loans as handing out grants would be “wrong”.
For its part, France hopes for a deal on the recovery fund in July, a presidential adviser said on Wednesday. “I think there are nuances between the so-called Frugals Group,” he said, seeing “room for manoeuvre” in the negotiations.
Hahn said the video-conference meeting on Friday would be a start but an in-person gathering would be needed to clinch a deal of such complexity as the long-term budget and recovery fund. “This is something which will take place in July and I think then hopefully we can have a deal,” he said.
He rejected criticism that 750 billion for the recovery of the EU was too large, pointing to Germany – with the EU’s largest economy – which alone had a 1.2 trillion euro recovery blueprint.
Hahn said the Commission’s job was to ensure equality of recovery opportunities to keep the single market intact.
(Reporting by Jan Strupczewski in Brussels with additional reporting by Jesus Aguado in Madrid, Anna Ringstrom in Stockholm and Michel Rose in Paris; Editing by Mark Heinrich)