EU reveals plan to borrow 750 billion euros for its recovery fund

EU reveals plan to borrow 750 billion euros for its recovery fund

The European Commission (EC) has finally unveiled plans for a 750 billion euro [AU$ 1.2 trillion] fund to assist the European Union (EU) regions against the coronavirus.

After the proposal from Germany and France last week, the EC president Ursula von der Leyen has decided to combine the recovery fund with both grants and loans to EU states, coined “Next Generation EU.”

The fund will be divided into 500 billion euros worth of grants and 250 billion euros worth of loans, addressing the problem of the “frugal” nations opposing the German-French joint proposal.

The initiative was defined as a “breakthrough” and a “historic” measure as Germany had always questioned the idea of jointly-issued debt, even during previous crises.

The EU leaders will conduct a meeting on June 18 in the hope of finding an agreement over the exact details of the recovery fund. 

The European Parliament, the only directly-elected EU institution, will also have responsibility for approving any new financial aid as well.

For now, there are other short-term measures available across Europe. The European Central Bank is buying government bonds as part of its 750 billion euro program and there are 540 billion euros ready in unemployment schemes, business ventures, and credits to states.

Delaying the stimulus deal is not an option

In a CNBC exclusive interview, executive vice president of the European Commission Valdis Dombrovskis reiterated that this 750 billion euro agreement should be in place in the coming months.

In addition, Dombrovskis also stated that all EU member states are in a recession and they need a coordinated response since the nations are facing an unprecedented crisis.

How will the money flow?

Dombrovskis stated in the interview that the additional coronavirus stimulus was not yet pre-allocated but Italy, Spain, France, Poland, and Germany are expected to receive “substantial amounts of money.”

On the other hand, he also claims that “no country is left behind” in this proposal as it will focus on EU member states that need money the most.

In terms of where the money will come from, the EC is hoping to raise funds in public markets, but it has also proposed reimbursing that by creating EU-wide taxes.

Part of their plan would be including a carbon tax that could hurt importers from countries that don’t comply with Europe’s climate guidelines. In addition, they are also considering implementing a digital tax—this time for tech firms.

However, taxing these tech giants such as Google, Facebook, or Amazon could hurt its trade relations with the United States.

The EU shall see in the next couple of months if this proposed stimulus package is enough to save the region’s economies.

Featured Image courtesy of European Commission/YouTube Screenshot

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