EU Leaders Agree on Economic Recovery Fund but... Conflict Resurfaces Over 'Subsidies VS Loans'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] European Union (EU) leaders have agreed to establish an economic recovery fund to prevent economic damage caused by the spread of the novel coronavirus disease (COVID-19). Southern and Northern European countries, which had clashed over funding and operational methods regarding COVID-19 economic measures such as the EU joint bond called 'coronabond,' once again confronted each other over the operation method this time.

According to Bloomberg and others on the 23rd (local time), the leaders of the 27 EU member states agreed through a video conference to adjust the EU's long-term budget plan for 2021-2027 and to establish an economic recovery fund. They also approved the 540 billion euro (approximately 718.5 trillion KRW) COVID-19 relief fund agreed upon by the Eurogroup, a consultative body of finance ministers from the Eurozone (19 countries using the euro), on the 9th.

The decision to establish an additional economic recovery fund following the approval of the relief fund reflects the recognition that the relief fund alone is insufficient to overcome the current difficulties. Christine Lagarde, President of the European Central Bank (ECB), who attended the meeting, reportedly stated that Europe's economic growth rate could decrease by up to 15% in the worst-case scenario this year.

However, opinions diverged regarding the operation method of the economic recovery fund. France, Italy, Spain, and other economically struggling member states argued that funds should be provided in the form of grants to support these countries. They proposed operating the fund as perpetual bonds, where only interest is paid and the principal is effectively not repaid. On the other hand, relatively stable Northern European countries such as Germany and the Netherlands insisted that the fund should be in the form of loans with repayment conditions.

French President Emmanuel Macron said after the meeting, "Frankly, if Europe provides loans, it will not meet the response we need," pointing out that it would burden countries already heavily in debt. German Chancellor Angela Merkel emphasized that all funds borrowed from the market must eventually be repaid and drew a line by saying, "Grants are not within the scope I can agree with."

As the two sides remained deadlocked, the leaders requested the European Commission to prepare and present specific details by the 6th of next month. Although the exact fund size has not been determined, it is reported that the EU considers about 1 trillion to 1.5 trillion euros necessary. Ursula von der Leyen, President of the European Commission, stressed, "It is necessary to find an appropriate balance between grants and loans," adding, "(The next EU long-term budget) must be adapted to the new environment after the COVID-19 crisis. We need to expand its firepower."

However, Chancellor Merkel stated at the meeting that Germany would provide substantial support for the EU-level joint response. She supported the plan despite knowing that the adjustment of the EU long-term budget would increase her country's burden. She said, "We should expect to contribute more to the next budget," adding, "But that is appropriate and good. Significant investment will be necessary."

This content was produced with the assistance of AI translation services.