France is proposing that the European Commission issue bonds to finance a recovery fund for the European Union worth between one and two percent of the bloc’s gross national income (GNI) per year – or 150-300 billion euros ($165bn-$330bn) – in 2021-23.
The proposal, seen by Reuters, comes as the 27-member bloc is debating how to jump-start growth after a slump caused by the coronavirus outbreak.
EU leaders agreed last month to create the fund, but left most of the details unresolved amid deep rifts over the amount needed to spur recovery, how to finance any such special vehicle, and how to spend the money.
Member states will lock horns again over the matter after the European Commission, the EU’s executive branch, publishes its official proposal later in May on a new joint budget for all the 27 member states for 2021-27, known as the Multiannual Financial Framework (MMF), and the accompanying recovery fund.
“The size should be at least one percent to ten percent of EU GNI per year over the next three years, which would provide the EU budget with a top-up of 150 to 300 billion euros each year between 2021 and 2023,” the French discussion document on the recovery fund said.
“Loans to member states could help closing the gap, but need to remain a top-up to grants. To ensure maximum added value, such loans should have a grace period, very long maturity and low interest rate … It is also essential that this fund be set up as soon as possible, possibly before the entry into force of the next MFF.”
France – and Italy and other countries in the ailing south – have warned that denying sufficient aid to member states most hit by coronavirus would risk tearing the EU apart.
“We are really at a crossroads,” EU Economy Commissioner Paolo Gentiloni, from Italy, said separately on Friday. “Either we are able to have a strong common response, but we are not there yet, or the entire project is at stake.”
Paris proposed that the commission make a swift one-off bond issuance of paper with maturity of between two and eight years to raise funds against an increased MFF headroom and guarantees by national governments. Such bonds could be rolled over for a long time before eventually being repaid by the EU budget.
The headroom is the difference between national commitments to the EU budget – currently set at 1.2 percent of EU economic output – and actual payments amounting to around 1.1 percent.
An EU official said European Commission head Ursula von der Leyen wanted to go straight to the 1.2 percent ceiling in her proposal later in May to allow the EU executive branch to raise cash on the market.
Von der Leyen has previously said a higher commitments ceiling of about two percent of GNI would, however, be needed to let the commission borrow more against it. Such a move to expand the headroom would require legal changes.
These could take more time and are sensitive in the light of a German court ruling earlier this week that cast doubt on a different EU scheme that had allowed the European Central Bank to purchase bonds under a eurozone stimulus programme.
Germany, the EU’s biggest economy and main contributor to the bloc’s joint coffers, is open to a larger MFF, but Denmark, Austria, the Netherlands and Sweden refuse to go above one percent of the bloc’s GNI.