Tuesday 2 March 2021
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French-German EU compromise for corona fund and multi-year budget

The "Franco-German Axis" within the European Union has reached a guiding compromise on the financing of the new corona megafund. This also removes a major obstacle for the new EU multi-year budget 2021-2027.

French President Emmanuel Macron and German Chancellor Angela Merkel agreed on a EUR 500 billion European support fund to be part of a revised European Union remit. Most notably, virtually no EU country will get exactly what it would like, and most countries will have to swallow something they haven't wanted so far.

In addition, Macron and Merkel avoid the controversial split or payments that new corona funds are now unconditional gifts or endowments, or grants and loans on conditions. Nor do they say which country can receive how much, and which country will contribute how much.

The leaders of the southern European countries of Spain, France, Italy, Greece, Portugal and Cyprus were clear about it last week: the EU had to come up with the 1.5 billion euro recovery fund as quickly as possible, three times as much than is now on the negotiating table. So they don't get what they asked for, and they just have to wait and see how much they will or won't have to repay.

The Southern European request was not warmly received by the ('strong economies') Northern European member states such as the Netherlands, Germany, Austria, Denmark and Finland. They think 1.5 billion euros too much, are against a donation, see more in a loan and find September too early. Chancellor Merkel did recognize last week that Germany will now have to pay more for the EU contribution.

"The goal is to emerge from this crisis more strongly and in solidarity as Europe," Merkel said. “That's what this money is for. This extraordinary one-time effort is designed to support the hardest-hit countries. ”

The now calculated 500 billion will have to be borrowed by the European Union on the capital market (the interest is currently lááǵ), with the 27 EU countries each having to guarantee a (not yet nominated) part. The permissible debt burden in Europe must be increased, Macron and Merkel say.

In doing so, they seem to be taking a step towards the issue of 'eurobonds' (debt securities), which has hitherto collided with a German 'nein'. In addition, Macron + Merkel paves the way for tapping 'new sources of income', jargon for new taxes on a European scale, within the EU budget.

Examples of EU taxes are an internet profit tax, or a CO2 climate tax on imported products, an environmental tax on disposable plastic bottles or a European kilometer charge for car use. According to the two leaders, the financing plan was drawn up after consultation with the Netherlands and Italy, among others.

Chancellor Merkel called the now Franco-German compromise the “short-term plan”. The medium and long-term plans have yet to be worked out. It is still unclear as to who (which countries) will ultimately have to pay / pay the mega debt, and whether this will go to the current EU distribution keys, or whether the strongest shoulders will have to bear the heaviest burdens.

In addition, no installments are mentioned, which could also mean that the mega debt is declared 'interest-only', as 'perpetual loans'. According to Macron, European solidarity is important in fighting the crisis.

The financial compromise now presented is broadly in line with the earlier Franco-German strategy paper ('non-paper') on the future of the European Union, and the reforms and modernizations desired by Paris and Berlin. The Brexit departure of the British would be used to thoroughly review the EU organization and the EU tasks. It would be initiated under the French Presidency of the EU at the end of 2020, and would be completed under the German Presidency at the beginning of 2020 ('Merkel's farewell party')

European Commission President Ursula von der Leyen welcomes the proposal, which "rightly emphasizes the need to work towards a solution with the European budget at its core". According to her, it goes “in the direction” of the plan the committee itself is working on. That proposal, consisting of the revised EU multi-year budget (MFF) and a corona recovery fund, will be presented next Wednesday.

The link between those two sizeable financial files does not seem to be good news for the eastern EU Member States that rely heavily on financial support from the current EU Structural Funds, rural investment, agricultural subsidies and other specific benefits.

Because the new EU Climate Policy ('Green Deal') is included in that multi-year budget, eastern EU countries such as Poland, Lithuania, Romania and Bulgaria fear that their beloved subsidies will be 'converted' into Green Deal subsidies. All 27 EU countries must ultimately approve the plan before it can be implemented.


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