The Recovery Fund is about to be unveiled. The key week for EU aid has officially begun. On Wednesday 27 May the European Commission will present the plan to support the recovery of European economies nearly killed by the coronavirus pandemic which has strained the resilience of many Member States. Among them is Italy, the first country on the old continent to be knocked out by Covid-19 and among the nations that are most suffering from the effects of a crisis that promises to be epochal. It will be a crucial appointment, which risks leaving an indelible mark on the present and future of the European Union.
Two days after the presentation of the recovery fund to the European Parliament, the EU is split in half not only on the approach, but also on the amount of funding and the delivery mechanism.
RECOVERY FUND: LET'S MAKE A SUMMARY
After weeks of controversy and negotiations, last April 23, the EU Council has reached an agreement in principle on the recovery fund passing "the ball" to the EU Commission, which has the task of presenting the details of a plan which, in intention, should serve to help the member states to face the crisis triggered by the Coronavirus. However, the agreement signed a month ago did not touch on the crucial point of the question: how this aid should be configured and how to anchor it to the Community budget. "Some progress has been made, but we don't agree on how to make the Recovery Fund work, whether with subsidies (i.e. non-repayable money, ed) or loans" summarized the German chancellor, Angela Merkel.
THE FRANCO-GERMAN PROPOSAL: WHAT IT PROVIDES
The second and important step of the path that will lead to the birth of the recovery fund is represented by the proposal presented by Angela Merkel and the French president, Emmanuel Macron, on 18 May.
During a video conference, the two leaders announced that they had reached agreement on a plan establishing the creation of a European fund worth 500 billion euros. According to what is foreseen, the resources will be financed through common debt issues guaranteed by the multiannual EU budget up to 2027. Conditions which will therefore allow the exploitation of a very low interest rate. Another fundamental point of the Franco-German plan is represented by the possibility of distributing the money raised through the issue of bonds with non-repayable loans to be disbursed to the member states on the basis of the economic difficulties they will face due to the coronavirus and not on the basis of their contribution to the Community budget. This could allow countries such as Italy and Spain to receive more money from the European Union than they have paid.
The Franco-German plan, surprisingly, received the endorsement of the former German finance minister, now president of the Bundestag, Wolfang Schaeuble. An important Yes that comes from a former hawk, who has always been in favor of rigor and austerity. “If we fail in the face of this crisis, Europe's time is up,” Schaeuble said in an interview with the World. Today, he added, “there is a new situation. Europe is experiencing an economic collapse that we have never known in our times”. “One can already guess what upheavals this could bring about for our societies as the structures of our global order shift”. According to Schaeuble, therefore, "if Europe wants to have a chance, it must show that it is in solidarity and capable of acting".
Yes also from the president of the Eurogroup, Mario Centeno: “Although it is a temporary measure, the Franco-German proposal" for the creation of a 500 billion euro fund to be given as subsidies to the countries most affected by the pandemic "is a big step forward towards a fiscal union and a proper monetary union. All Europeans will benefit from this closer integration."
ITALY AND THE COUNTERPROPOSAL OF THE NORTHERN STATES
The Italian Premier, Giuseppe Conte, commented on the agreement between Merkel and Macron as follows: “The Franco-German proposal (500 billion non-refundable) is an important first step in the direction Italy hopes for. But to overcome the crisis and help businesses and households, we need to expand the Recovery Fund. Confident in an ambitious proposal from the EU Commission".
On the other hand, the "Northern" states expressed their opposition and presented a counter-proposal on 23 May. Austria, Sweden, the Netherlands and Denmark have in fact always been against any plan that provides for a redistribution of debt or non-repayable loans.
The "non-paper" presented by the 4 countries envisages the creation of "a temporary emergency fund (the indicated duration is two years, ed.) and 'one-off' to support the economic recovery and the resilience of our health sectors in the event of possible future waves" of infections and underlines the No to "any instrument or measure that leads to debt mutualisation or significant increases in the EU budget". For them, the only possible way out is to favor a "loan for loan" approach. This means that it will also be possible to proceed with the issue of common securities, but the recovery funds will have to take the form of subsidized loans and not non-repayable loans as envisaged by the Merkel-Macron proposal. Not only that: the funding will have to be used to "support national reforms and strengthen the single market", stating that "a strong commitment to reforms and to the budgetary framework is essential to promote potential growth". There must therefore be precise constraints and conditions, exactly what Italy has said it does not want.
RECOVERY FUND: THE KEY WEEK
These are not easy days for the president of the EU Commission, Ursula von Der Leyen. It will be her task to get everyone to agree, presenting to the European Parliament a proposal on the recovery fund that manages to bring together the various "souls of the Union". The very concrete risk is that of displeasing everyone in order to please everyone.
How the recovery fund of the EU Executive will take shape is not yet clear. A few days ago, Vice President Valdis Dombrovskis spoke of a 1000 trillion euro fund with a mix of loans and grants in an attempt to find a compromise between the various proposals on the table.
The EU Commissioner for Economic Affairs, Paolo Gentiloni, instead stated in an interview with El Mundo: “The objective of this recovery financing package is clearly defined by the European Council and is first and foremost to support the most affected sectors and geographical areas. And secondly, keep medium and long-term goals, green or digital transition in mind in the recovery process. Funding is more linked to priorities, not conditionalities. Ninety years ago we had a Great Depression, 10 years ago the Great Recession and now we have to avoid the Great Fragmentation”. “The Fund – continued Gentiloni – will provide firepower to the European Semester because it provides fiscal tools, common money for those affected. It will be new. The link is not with conditionality, but with a mix in which there will be investments, spending, reforms and, above all, firepower from the Commission. I repeat: fiscal instruments, real money”
RECOVERY FUND: THE CRUCIAL APPOINTMENTS
The road to the OK for the Recovery Fund is still at the beginning. After the Commission's presentation to the EU Parliament, the plan will have to be discussed by the 27 heads of state and government al European Council scheduled for 18 June. Then, if the leaders can agree, approval will finally come. However, the “when” remains an unknown factor. Best case scenario, not before summer.
