Fierce debate brews as EU Commission lays out recovery plans

The European Commission will set out its proposal on Wednesday for an economic recovery package to rescue the bloc from a pandemic downturn expected to be the worst in a century.

The plan is expected to be a mix of loans and grants, available to member states to implement investment and reforms in line with the EU’s strategic priorities of stopping climate change and promoting digital infrastructure and innovation. It will be part of the EU’s seven-year budget, which must be agreed and in place by 2021.

Debate between the 27 member states of the European Union over the design of the package is expected to be fierce, and was already well underway on the eve of the launch of the plan when the bloc’s European Ministers met over video conference.

At least half of the ministers urged that a decision on the recovery plan needed to be made quickly so that money was available as soon as possible, and that funding should be front-loaded so that it could quickly counter the severity of the downturn, according to one attendee.

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“Voices could be heard about the need to have a speedy decision and to reach the agreement,” said Croatian state secretary for European affairs Andreja Metelko-Zgombi. “We are all aware that we have been facing a robust crisis, and we need a robust response to get out of the crisis and to reaffirm EU credibility.”

Key questions

The biggest questions yet to be answered are what size of fund the Commission will propose, and how much of it will be available in grants to the hardest-hit countries, which they would not have to directly repay.

France and Germany have made an influential joint appeal for €500 billion in grants. The European Parliament has called for €2 trillion, while the Commission itself has indicated that the fund will comprise more than €1 trillion in a mix of grants and loans.

The figures will be finalised when Commission President Ursula von der Leyen meets with her commissioners on Wednesday morning. They will then be presented in a public press conference.

The plan requires approval by national leaders in the European Council as well as by the European Parliament, and some aspects of it may also require ratification in national parliaments.

Opposition is expected from the so-called frugal four of Austria, Denmark, the Netherlands and Sweden, which have long opposed increasing national contributions to the joint EU budget, and have said that they will reject proposals for a recovery fund consisting of grants, favouring instead loans that are tied to obligations of budgetary reforms.

But Germany's move away from a frugal position to join France in calling for grants and joint EU borrowing has left the four isolated. Ahead of the Commission's announcement, Danish foreign minister Jeppe Kofod said it was important to find a "compromise".

Several stumbling blocks may lurk in the detail of the plan.

The Commission is likely to propose raising money for the recovery fund by borrowing from financial markets on the back of its AAA rating.

If this money is passed on to member states as loans, repayment is straightforward. However, if it is given as grants, member states will need to agree whether this should be repaid by future national contributions to the common EU budget, or by giving the Commission the ability to raise its own funds, for example by imposing a carbon tax on imports into the bloc – potentially a highly contentious area.