Brussels said it plans to borrow €750bn ($826bn, £671bn) on international markets to finance the region’s economic recovery from the coronavirus pandemic, the European Commission (EC) president said on Wednesday.
Ursula von der Leyen (pictured) also told the European Parliament she wants a far larger European Union budget of €1.1trn over the next seven years for a revival of the bloc’s shattered economy – a request that will spark tough rounds of talks between divided northern and southern European governments.
The EC plan to borrow money comes as European countries feel the deep impact of the health emergency on the continent’s economy, which is expected to shrink by 7% by the end of 2020, as a result of strict lockdowns and travel bans to contain the spread of the virus.
The plan, dubbed Next Generation EU, would spare the balance sheets of already indebted EU members and take advantage of the commission’s AAA credit rating to raise cash on the capital markets. The debt will be repaid over 30 years after 2027.
Von der Leyen said: “Things we take for granted are being questioned. None of that can be fixed by any single country alone. This is about all of us and it is way bigger than any of us.”
The proposal is backed by two deep-pocketed EU members, Germany and France, both of which have joined forces to support a fiscal stimulus from the commission as reflected by recent announcements that pushed for at least €500bn in aid.
Germany’s prime minister Angela Merkel said rebuilding after the pandemic was the “biggest challenge in the history of the EU”.
European Central Bank President Christine Lagarde called the move “ambitious, targeted and, of course, welcome”. The central bank has also stepped in to assist in prior weeks through a €750bn program destined to buy government bonds.
Bond yields for some of the most affected EU countries, including Spain, Italy, and Portugal, have been dropping prior to the news, with 10-year bond yields sliding by 11.3, 34.9, and 20 basis points respectively since 15 May.
This announcement is only the first step towards what could be a complex debate, as all 27 member countries that constitute the European Union must approve the rescue package, along with the European Parliament.
The proposal is likely to encounter opposition from at least four key northern European countries within the Eurozone – Austria, the Netherlands, Sweden, and Denmark – all of which have opposed to this sort of bailout unless there’s a strong commitment towards implementing stronger structural economic reforms within the region.
EU members will be meeting on 18 June to discuss the plan.