EU recovery plan’s funding deal seen unlikely at Thursday meeting

European Union leaders meeting via a video call on Thursday are not expected to make any final decisions on exactly how to finance economic recovery from the coronavirus pandemic, diplomats and officials told Reuters.

During a preparatory discussion with EU national envoys on Monday, the bloc’s executive estimated the global outbreak could wipe off as much as a tenth of the continent’s economic output.

The Executive Commission told the 27 member states’ envoys that it wanted to finance a new recovery fund via increased so-called headroom in the bloc’s next joint budget, the sources said on Tuesday.

The sources participated in the discussion behind closed doors, or were briefed on it.

While the budget covers 2021-27, the Commission would ask for a temporary increase for 2021-22 of guarantees by member states for the EU budget’s “own resources” and thus the head room to allow the Brussels-based executive to raise more cash against that.

Countries such as Austria, Germany, the Netherlands and Sweden, part of the fiscally conservative north that has so far firmly held out against any form of EU-wide debt mutualisation – essentially the issuance of bonds backed by the whole bloc – told the gathering that such a recovery fund must be temporary.

European Union finance ministers agreed on April 9 to provide 590 billion euros’ ($640bn) worth of support, bringing the EU’s total fiscal response to the epidemic to 3.2 trillion euros ($3.5 trillion). One hundred billion euros ($108bn) will go to a scheme to subsidise wages so firms can cut working hours, not jobs. The European Investment Bank will step up lending to companies with 200 billion euros ($216bn), and the euro zone’s European Stability Mechanism (ESM) bailout fund will make 240 billion euros ($260bn) of cheap credit available to governments.

In an editorial published by Politico magazine, European Central Bank board member Fabio Panetta said the euro zone’s fiscal response to the coronavirus crisis has been inadequate so far and threatens the single market.

Budget action should be proportionate to the magnitude of the shock, should not aggravate fragmentation stemming from differences in initial fiscal positions and should not skew the playing field within the European single market, Panetta said on Tuesday.

“The fiscal response of European countries has thus far been inconsistent with these principles,” Panetta, formerly senior deputy governor of the Bank of Italy, added.

“The threat to the single market is clear: uneven fiscal support implies that a firm’s location, rather than its business model, will be the decisive factor in determining whether it survives this crisis.”