France’s and Germany’s $ 550 billion rescue package for coronaviruses is a 21st century Marshall plan, but could be dead before it even starts


macron merkelReuters

  • Germany and France on Monday proposed a € 500 billion ($ 547 billion) European stimulus fund to fight the economic fallout from the coronavirus pandemic.
  • The plan would be the largest transnational fiscal effort in Europe since the Marshall Plan, which helped rebuild the continent after the Second World War.
  • Designed in particular to help sectors most affected by the virus, such as aviation and hospitality, the fund would provide grants that need not be repaid, rather than loans.
  • However, the fund could be dead before it even took off, with several bloc countries publicly opposing the use of subsidies.
  • The European Commission is expected to unveil its own proposal on May 27.
  • Visit the Business Insider home page for more stories.

A 500 billion euro (574 billion dollars) fund for the recovery of coronaviruses proposed this week by France and Germany could be the modern equivalent of the Marshall Plan – the post-World War II economic package designed to save the European economy – according to analysts.

The two largest economies in the euro area announced on Monday a joint proposal, specially designed to tackle the sectors most affected by the coronavirus pandemic.

“We must act – we must act in Europe in order to come out of this crisis well,” said German Chancellor Angela Merkel after talks with French President Emmanuel Macron.

The idea is that the funds will be collected and distributed by the EU’s executive body, the European Commission, and distributed as grants to sectors such as travel and hospitality, which have been ravaged by the pandemic. .

Although the European Commission itself has not yet presented its own rescue plan, it should do so next week.

The main difference between the relief package proposed by Berlin and Paris and the package likely to be proposed by the European Commission on May 27 is that it advocates granting subsidies rather than loans. These will then be reimbursed from the EU budget, perhaps over a longer period of 20 years.

Indeed, UBS noted: “What makes the Franco-German proposal meaningful is the idea that the 500 billion euro fund (3.6% of EU GDP), borrowed by the Commission European, would be fully mutualized – that is to say fully distributed via grants and not loans. ”

Such a plan would require the consent of the 27 EU countries, with some already saying they would not support it.

Most analysts applauded the announcement, but had differing views on the effectiveness of the measure.

Grants instead of loans

Mohammed Kazmi, portfolio manager for UBP’s absolute return fixed income team, said in a note on Tuesday: “The stimulus fund offered by Merkel & Macron for the EU is certainly a positive surprise for the players of the market. “

He added: “Significantly, the proposal puts on the table the idea of ​​debt pooling for the region, in which funds would be provided in the form of grants rather than loans.”

Andreas Billmeier, a sovereign research analyst at Western Asset, compared the proposal to the Marshall Plan, the American initiative adopted in 1948 for foreign aid to Europe.

“We consider the Franco-German proposal as a very significant step forward in the European institutional architecture. If adopted as described, the grant-based stimulus fund will have a similar importance to that of the Marshall Plan for the host countries in the late 1940s / early 1950s. ”

The Marshall Plan provided unprecedented funding of US $ 15 billion to bail out war-torn European economies and help them rebuild infrastructure destroyed during the fighting.

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Proposal could be dead before it starts

Sebastian Kurz/ Photo taken on November 10, 2018 / REUTERS / Leonhard Foeger

Most analysts have said that some bloc countries, such as Denmark and Austria, are opposed to the provision of subsidies and would like the system to involve the provision of loans instead.

“Austrian Chancellor Sebastian Kurz said he and his Dutch, Danish and Swedish counterparts were only ready to accept a loan-based recovery fund,” said UBS.

“Our position remains unchanged. We are ready to help the countries most affected by loans ”, Kurz tweeted Monday after the plan was unveiled. He added that his position is shared by the leaders of Sweden, Denmark and the Netherlands.

Naeem Aslam, chief market analyst at, said, “Countries like Denmark don’t agree with the package. We are still not there, it will take some time. “

He said the deal was a “decent size package” and does not expect the figure to increase after that, but he expects European stock markets to be more concerned about the progress of a vaccine only through the relief fund over the next few months.

Read more: Small businesses are the biggest post-coronavirus battlefield on Wall Street. 4 of the world’s best money managers share their strategies for space – and the unique stocks they love.

“The markets have moved away from fiscal stance, a lot has been done in terms of monetary policy. The focus will likely be on the vaccine, “added Aslam.

But UBS said: “Obviously, all national governments and parliaments should accept this proposal – which poses a significant risk that the Franco-German proposal will be vetoed or watered down. “

The European Commission is expected to come up with its own blueprint on May 27, but it could take months before any stimulus plan is approved and adopted.

UBS said it did not expect a deal in the second half.

“We would expect the EU finance minister to continue the discussion and then hand the floor over to EU leaders, who could discuss the 2021-27 EU stimulus plan and budget summit of June 18 and 19; but a final deal could only be reached in the second half, “said UBS.

Nancy PelosiSAUL LOEB / AFP via Getty Images

The Franco-German proposal is the latest enoromated recovery plan suggested in the major economies to help ward off the worst economic suffering from the coronavirus. In the United States, a $ 2,000 billion fiscal stimulus package has already been put in place and on Friday, the House of Representatives voted to approve a second package of $ 3,000 billion stimulus packages proposed by Democratic Leader Nancy Pelosi.

The bill, which still requires Senate approval, is controversial, with many Democrats voting against it, and Senate Republican Majority Leader Mitch McConnell describing it as “a parade of nonsense,” according to Wall Street. Newspaper.


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