By Michel Rose and Gabriela Baczynska
BRUSSELS (Reuters) – France proposes that the European Commission issue bonds to finance a stimulus fund for the European Union representing 1-2% of gross national income per year – or 150-300 billion euros – in 2021- 2023.
The proposal, seen by Reuters, comes as the 27-member bloc is debating how to revive growth after a crisis caused by the coronavirus epidemic.
EU leaders agreed last month to create the fund but have not resolved most of the details amid deep disagreements over how much to stimulate the recovery, how to finance such a special vehicle and how to spend it silver.
Member states lock issue again after Commission, EU executive will publish later in May its official proposal for a new common budget for all 27 member states for 2021-2027, known as the financial framework multi-year (MMF), and the accompanying Recovery Fund.
“The size should be at least 1% to 2% of the EU’s GNI per year over the next three years, which would provide the EU budget with an additional 150 to 300 billion euros per year between 2021 and 2023, “said the Frenchman. Discussion paper on the Salvage Fund says.
“Loans to member states could help close the gap, but should be complementary to grants. To guarantee maximum added value, these loans should have a grace period, a very long term and a low interest rate … It is also essential that this fund be set up as soon as possible, possibly before entry in force of the next MFF. ”
France, as well as Italy and other troubled southern countries, have warned that denying sufficient aid to the member states most affected by the coronavirus would risk tearing the EU apart.
“We are really at a crossroads,” European Economic Commissioner Paolo Gentiloni said on Friday. “Either we are able to have a strong common response, but we are not there yet, or the whole project is at stake,” he said.
Paris has proposed that the Commission quickly proceed to a single bond issue of paper with a maturity of 2 to 8 years in order to raise funds against an increase in the MFF margin and guarantees from national governments. These bonds could be extended for a long time before being eventually reimbursed by the EU budget.
The room for maneuver is the difference between national commitments to the EU budget – currently set at 1.2% of EU economic output – and actual payments amounting to around 1.1%.
EU official said Commission President Ursula von der Leyen wanted to go directly to the 1.2% ceiling in her proposal later in May to allow the EU executive to lift funds in the market.
Von der Leyen previously said that a higher commitment ceiling of around 2% of GNI would, however, be necessary to allow the Commission to borrow more against it. Such a decision to widen the safety margin would require legal changes.
These could take longer and are sensitive in light of a German court ruling made earlier this week that cast doubt on another EU program that had allowed the European Central Bank to buy bonds as part of a euro area stimulus package.
Germany, the largest economy in the EU and the main contributor to the block’s common coffers, is open to a larger MFF, but Denmark, Austria, the Netherlands and Sweden refuse to exceed 1% of the block’s GNI.
(Additional report by Francesco Guarascio, edited by Alison Williams, Timothy Heritage, Giles Elgood, Philippa Fletcher)