EU HEADS have agreed to set up a €540bn post-pandemic recovery fund, tied to the EU’s seven-year budget.
European Council president Charles Michel, who chaired the video meeting, had hoped to avoid a clash between northern and southern member states, but European Commission president Ursula von der Leyen said there had been some “constructive” disagreement.
Italian prime minister Giuseppe Conte told the group that the health crisis was also an economic and social one, with some countries facing political emergencies.
Germany, Sweden, The Netherlands and other northern European countries are pushing for loans, rather than financial transfers. Hard-hit Italy and Spain have asked EU partners — including richer northern countries — to show some solidarity. Not all 27 states, whose leaders met by video conference, are in full agreement with the detail of the plan, as Von der Leyen hinted.
The European Central Bank (ECB) is under pressure. Market forces place doubt on the institution’s ability to provide the amounts of cash required by struggling Eurozone member states, such as Italy and Spain.
ECB president Christine Lagarde seems unable to avoid a sharp increase in European bond spreads that take the 10-year German federal “bund” as the benchmark. Yield on Italian bonds broke the two percent barrier this week, pushing the spread to 2.6 percent. There are fears that markets could lose confidence should spreads continue to rise. Subgroups have coalesced within the ECB council that are undermining the institution’s ability to intervene with the necessary force.
The ECB is trying to avert a debt crisis of unprecedented size. German chancellor Angela Merkel and French president Emmanuel Macron backed Lagarde’s initial “whatever-it-takes” statement, but she faces opposition from within and without the EU, including from the US.
After the (comparatively light) stresses of the 2012 Greek financial crisis, there are fears that renewed pressure from the pandemic could force the euro to give out completely — especially if key Eurozone economies such as Italy and Spain fall into a more serious position.
It is understood the EU recovery plan will go ahead using money from capital markets and a €2tn proposal put together by EC officials.
The video summit was held as the death toll from the pandemic topped 108,000 throughout the European Economic Area and UK.
The support package is expected to be released to states from June.