Following a video call, German Chancellor Angela Merkel and French President Emmanuel Macron said the plan would involve the European Union borrowing money from the financial markets to help sectors and regions particularly affected by the pandemic.
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Basically, the money would be disbursed in the form of grants rather than loans, with repayments made from the EU budget, an unprecedented proposal that overcomes long-standing objections in Berlin to the concept of collective borrowing.
“Due to the unusual nature of the crisis, we are choosing an unusual path,” Merkel told reporters after the joint announcement.
Macron said the proposal was a means “of advancing Europe”.
“We must learn all the lessons from this pandemic,” he said, stressing the need for “solidarity” between EU member states.
Macron recognized that a Franco-German agreement alone “does not mean a 27 agreement.” The EU Executive Board will make its own proposal to the EU member states and “we hope that the Franco agreement -German will help, “he said.
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The President of the European Commission, Ursula von der Leyen, welcomed the proposal.
“It recognizes the scale and breadth of the economic challenge facing Europe and rightly emphasizes the need to work on a solution with the European budget at its heart,” she said. .
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European capitals feared that the pandemic and the bloc’s initial uncoordinated response to it would strengthen anti-EU sentiment in member states.
Merkel said it was important to ensure that all EU countries could meet the economic challenge “and this requires this unusual and unique effort that Germany and France are now ready to take on.”
“The aim is for Europe to emerge stronger from the crisis,” she said.
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National parliaments will have a say in the proposal, which is also likely to face strong resistance from tax hawks in the bloc such as Austria and the Netherlands.
Dutch finance ministry spokesman Jaap Oosterveer said the ministry was studying the plan and had no immediate comments.
Merkel, however, expressed cautious optimism about the general agreement between Berlin and Paris.
“I believe that if Germany and France send a signal, it is something that encourages the search for consensus in Europe,” she said.
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EU countries have so far only engaged in limited joint borrowing, for example through the European Investment Bank and the Union Rescue Fund for Governments in Crisis, the European mechanism stability, but require possible reimbursement by the Member States.
By using the financial weight of the whole block, bondholders get a high degree of certainty that they will be repaid, which means that the EU can borrow on more favorable terms than individual member states, but at the cost of collective responsibility.
The coronavirus crisis has raised fears that Italy, which already has debt equal to 135% of its annual economic output, may come out of the recession with debt so increased that bond investors would hesitate to continue financing its debt , which could trigger a financial crisis.
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Merkel noted that, combined with an earlier 540 billion euro stimulus package based on loans and guarantees, EU member states were collecting 1 trillion euros at EU level, and a total of EUR 3 billion combined with the EU multiannual budget and measures at national level.
The total is equivalent to almost 20% of the EU’s economic output in 2019.
Macron and Merkel agreed that stimulus spending would focus on the areas that will benefit most from future investments, including digitalization, the green economy and pandemic resilience in the health sector.
—Corbet brought back from Paris. Raf Casert in Brussels and David McHugh in Frankfurt, Germany contributed to this report.
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© 2020 The Canadian Press