Capitals criticize key element of Brussels recovery plan – POLITICO
A powerful array of EU countries, including Germany, are aligning themselves with a key element of the post-coronavirus economic recovery plan launched by European Commission President Ursula von der Leyen.
Von der Leyen proposed that the Commission raise funds in financial markets, using guarantees that would be provided by EU members by increasing the ceiling of their contribution to the EU budget. Much of these 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 space.
But, although the Commission has not yet presented a formal proposal, this central element of the plan is already the subject of deep skepticism on the part of Berlin, Vienna, Stockholm, Helsinki and The Hague, once again emphasizing plus a North-South divide with regard to EU Financial Solidarity issues.
Von der Leyen said the stimulus funds, which she said would generate at least € 1 trillion in investment, will be a mix of grants and loans. But this raises the question of how money borrowed from the markets would be repaid if it was given to countries in the form of grants.
“There’s the idea that a lot of the money should just be given out as a grant. In other words, a debt would be incurred, ”said a diplomat from a northern EU country, raising the question of who would be responsible for this debt.
“We are ready to look at everything, but the debt financing grants at this point seem a bridge too far” – Dutch civil servant
The idea of using borrowed funds for grants also raised legal concerns. Under the EU Treaties, the long-term expenditure of the EU budget 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 “it is not possible, it would be contrary to EU treaties. “, and added:” It may not be a matter of a mutualisation of the debt until there is no modification of the treaty which would lead to a fiscal union deeply integrated with democratic control. “
After Commissioners held a debate on financing the stimulus on Wednesday, Commission Vice-President Věra Jourová said the plan would include “the temporary increase in the financial strength of the budget by increasing the margin [the ceiling on maximum contributions] and harnessing financial market funding to channel additional funds to member states. “
“Middle School [of Commissioners] recalled the need to find a fair balance between loans, grants and financial guarantees, “she added.
On Thursday, the Commission appeared to be trying to lower expectations for new elements of the plan while indicating that the semantics are likely to be sensitive, with chief spokesperson Eric Mamer telling reporters the plans would no longer qualify as funds. stimulus.
head wind from the north
The big problem for the Commission is that several countries argue that money borrowed from the markets should be used for loans, not for grants. Southern European countries, meanwhile, say the loans will increase their debt and thus hurt 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 “strongly supports the approach to lend.”
Angelika Winzig, who heads the Austrian People’s Party delegation to the European Parliament, said her party supported “full solidarity” in the crisis but the borrowed money had to be repaid.
“Raising money on the financial markets is a possible option to acquire the necessary means to help the Member States particularly affected by the crisis. But we must insist that countries that receive stimulus aid will pay it back at some point. in time when the recovery will have succeeded. Solidarity is not a one-way street, ”she said.
Stockholm takes a similar line. “The Swedish position on a stimulus fund is that it should provide loans, not grants,” a Swedish official said last week.
A Dutch official said The Hague was skeptical about using loans to fund grants. “We’re ready to look at everything, but the debt financing grants at this point seem like a bridge too far,” the official said.
“Before the EU resorts to new methods of financial alchemy, levers and bond constructions, we finally need clarity on what all the money is to be used for.” – Eckhardt Rehberg, CDU spokesperson for budgetary affairs
Helsinki shares this point of view, but seems more open to compromise.
“We prefer loans, but we are open to considering a combination of loans and grants,” said a Finnish official. “The problem with loans is that they add to the debt of the most indebted countries, but the problem with grants leaving the EU budget in permanent deficit or requiring real monetary contributions down the line.”
Commission officials insist they will find a creative compromise in line with EU law and work hard to craft a plan that takes into account the concerns of all member countries.
In the end, Germany’s attitude towards the Commission’s plans will be crucial. And in Berlin, members of Chancellor Angela Merkel’s Christian Democratic Union (CDU) have put forward strong reservations.
Gunther Krichbaum, head of the Bundestag’s European Affairs Committee, said the Commission’s legal service had a “somewhat more generous” view of the use of grants while lawyers for the Council of the EU, which represents member countries are “already more skeptical.”
The CDU lawmaker also noted that the German Constitutional Court will next Tuesday issue a long-awaited ruling on the legality of the European Central Bank’s purchase of bonds from EU member countries, which would likely fuel the debate. broader policy.
Eckhardt Rehberg, CDU spokesperson for budgetary affairs, suggested that 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 on what all the money is to be used for,” Rehberg said. “It seems that some are only interested in exposing large sums of money.”
Merkel herself has suggested a more orthodox way of fundraising, making it clear in recent days that Germany – the biggest contributor to the EU’s coffers – is now ready to contribute more to the long-term budget of the EU. EU, the multiannual financial framework (MFF).
But it is not clear whether larger budgetary contributions – even if supported by all member countries – would raise something like the amount of up to 1.5 trillion euros which, according to European countries in the South, is necessary.
German MEP Niclas Herbst, CDU member and vice-chairman of the European Parliament’s committee on budgets, said Europe needed “a much more ambitious classic MFF”. He supported the idea of money that “comes from the EU budget and goes into special programs for member states”.
Herbst said in an email that the budget should also include “some new funding instruments (such as money raised in financial markets)”, but added that “we have to be realistic that some member states will not be able to repay the loans in the near future. Therefore, grants and loans on special terms might be an adequate option. “
Markus Töns, a German Social Democrat MP, Merkel’s ruling coalition junior partner, said he had heard that the German government had legal concerns over the Commission’s plans.
But he criticized the government’s attitude, saying it was in Berlin’s interest to show more solidarity when it comes to mutualising debt risk and thus supporting European partners. “If foreign trade – which is about to collapse all over the world – now also collapses at European level, then things will become very, very bitter for German exporters as well. And that would affect thousands of jobs, ”he said.