Spain plans to propose to the other EU countries the establishment of a coronavirus support fund worth 1.5 trillion euros. Particularly in Italy and Spain, figures exceeding one quadrillion euros have been mentioned for the EU recovery fund. This money may be used both for immediate medical costs and for remedying the economic damage caused by the coronavirus pandemic.
Spanish Prime Minister Pedro Sánchez will submit the proposal today during an extraordinary EU summit. The corona fund should be financed through the issuance of new ‘perpetual’ government bonds. These are bonds without a fixed maturity date for which countries only have to pay the annual interest. In this case, an EU reconstruction fund will be created, financed by loans that the European Commission will issue backed by its budget. This is then comparable to the EU unemployment scheme, the so-called Juncker Fund.
The money received from this corona recovery fund is intended to count as a transfer and not as debt. These new perpetual government bonds could replace the earlier eurobonds that were rejected by Germany and the Netherlands.
The fourth virtual EU summit on Thursday is not expected to give definitive clarity on the economic recovery fund. EU President Charles Michel proposes that the European Commission first analyze the precise needs and then present a proposal to revise the multiannual budget.
The Social Democrats in the European Parliament called on the heads of government in a letter yesterday to raise the maximum ceiling for EU expenditures from 1.2 to 2.0 percent of collective national product. They point out that the current crisis will have effects lasting for years and cannot be resolved with the current budgets.
EU President Michel wants the fund established as quickly as possible, but this extraordinary summit will not produce a concrete, finalized financial plan. If the heads of state agree on the issuance of this EU debt bond, the European Commission will be tasked with reconsidering all existing plans and significantly adjusting the 2021-2027 multiannual budget.
The Commission will come forward next week with a revised proposal for the EU budget, it is already known. Michel urges premiers and heads of state to meet in a “spirit of unity and solidarity.” The finance ministers earlier this month reached an agreement on a 540 billion euro package to soften the socio-economic consequences of the crisis. Michel is asking the leaders to approve this so that the financial safety net can be operational by June 1.
The Financial and Monetary Committee of the European Parliament urged the heads of state yesterday to allocate more new money for the recovery package. They feel that the current proposals mainly consist of loans, which will give the countries hardest hit by the coronavirus an even heavier debt burden.