EU leaders have agreed on a historic deal to help member states in their economic recovery after the COVID-19 crisis.
The €750 billion recovery fund will be divided into €390 billion in grants and €360 billion in loans. The money will be borrowed from the international markets by the European Commission, which will issue bonds taking advantage of its strong credit rating. Then, the institution will lend the money to countries that have been hard-hit by the pandemic at the same interest rate it borrowed it. This will ensure that highly-indebted countries like Greece and Italy, whose bonds have very high interest rates, will have a steady flow of investments during the recovery. After almost five days of negotiations, the bloc also agreed on its regular budget of €1.1 trillion to finance the EU over the next seven years, bringing the total funds available to over €1.8 trillion.
Economists have warned that the COVID crisis could be the start of an unprecedented recession for the EU, especially for Spain, Italy and France. Southern European countries have been hit harder by the virus and also by its consequences, since tourism makes up a big chunk of their GDP. Plus, their fiscal ability to support mass lay-offs is more limited than in richer northern European states.
The deal has been praised by leaders all over the continent. “We did it!" said European Council President Michel Charles in a press conference announcing the agreement at 6AM. “Europe is strong. Europe is united!” Pats on the back aside, the long negotiation process brought up bitter divisions within the block and major concessions had to be made.
The self-proclaimed "Frugal Four" – Austria, Denmark, Sweden, spearheaded by the Netherlands – have supported a more fiscally conservative line. They were sceptical about joint-borrowing since they'd be underwriting loans for weaker economies. Although the group agreed to keep the fund's total of €750 billion the same, they managed to negotiate the portion of grants down to €360 billion from the originally planned €500 billion euros. The final agreement also requires countries to present a plan on how they'll spend the money before the European Commission this autumn. Then, other Member States will be able to review it and object to it within three days of its submission if they believe it to be too financially irresponsible.
The deal was also originally going to include a provision that would make funds available only to countries respecting rule of law principles. This clause had to be watered down to bring Hungary and Poland on board, since they have been called out by EU institutions in the past for their breaches of democratic principles. Another issue that is yet to be resolved is the way these loans will be paid back. The deal sets a very long-term period for repayment, between 2028 and 2058, but the specifics will need to be agreed in the coming years.