The EU executive will propose borrowing from the markets in order to finance a recovery plan that will come on top of the EU budget, the European Commission’s vice-president for the economy, Valdis Dombrovskis, told EU lawmakers on Monday (20 April).

On Monday, German Chancellor Angela Merkel signalled openness to additional EU debt instruments during a press conference, insisting however that this must be done in line with the existing EU treaties. Questioned about the possibility of using the bloc’s budget to issue EU bonds in order to finance the recovery, Merkel said she could imagine “such instruments further down the line.” 

“We’ll need quick answers to address this pandemic and Germany will participate in answers of solidarity that go beyond the €500 billion that we already have,” said Merkel in reference to the €540 billion package agreed by EU finance ministers on 9 April. 

Germany is still opposed to Eurobonds – or joint pooling of old EU debt – and remains reluctant to agree on a bigger EU budget. But the coronavirus crisis has shifted the debate in Germany. In particular, Merkel referred to the solidarity clause contained in article 122 of the EU treaty that was used during the financial crisis to set up the European Stability Mechanism, the EU’s bailout fund. 

It is the same article in the EU treaty that served as the basis for the Commission’s temporary ‘Support to mitigate Unemployment Risks in an Emergency’ (SURE). SURE will provide financial assistance in the form of loans in favourable terms for countries to set up temporary unemployment schemes for workers affected by the coronavirus pandemic, based on guarantees provided by member states.  

Merkel’s openness to look into further solidarity mechanisms does not mean Germany will suddenly agree to issue common EU debt, an idea supported by a group of nine EU countries led by Italy, Spain and France. And Berlin is not alone in this. The idea has been strongly rejected in the north, particularly by the Netherlands, Finland and Denmark. Nonetheless, Spain circulated a non-paper on Monday in view of the upcoming European Council meeting this week. Madrid’s idea for a recovery fund is far from what some capitals have in mind. 

According to Dombrovskis (European Commission’s vice-president for the economy), “a recession is unavoidable this year” but the extent and depth of the crisis will depend on measures taken to mitigate the impact and restart the economy.

So far, the European Union has taken the unprecedented step of temporarily suspending the bloc’s budget deficit rules in order to allow countries more leeway to battle the economic consequences of the pandemic. It has also relaxed state rules and re-channelled existing EU funds while agreeing on a €540 billion economic support package.  

EU leaders will meet on Thursday (23 April) for a teleconference to discuss how to fund the bloc’s recovery once the crisis is over. 

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