EU to “fund” Coronavirus rescue package – three times size of the Marshall Plan

By Simon Gentry, Newgate Public Affairs

France and Germany have launched an audacious and dramatic new bid to deepen the European Union.  In many ways what they announced is far more profound than many of the much fought over Treaties that have been the more familiar building blocks of the EU.

Whilst attention is firmly focused on the human cost of the Coronavirus – Paris and Berlin announced a € 500 billion fund for those EU member states worst hit economically. That is a staggering amount of money, roughly three times, in today’s prices, the size of the Marshall Fund that rebuilt Europe after WWII.

What is most important is the European Commission will be raising this debt itself on behalf of the EU as a single sovereign political entity.  It will be a common debt that will need to be serviced and repayed by the 27 member states but will not be raised by the 27 as individual states.

It’s worth noting too that the money will not be loaned to member states, it will be given by the EU Commission as a straight grant. This is a fundamental change on Germany’s part because it signals acceptance of mutualisation of the debts of the EU’s poorer south by the wealthier North, something Germany has always resisted.

I wrote some weeks ago about the clash between the north and south of the EU on this issue and how the economic crisis that has followed the health crisis would drive the EU closer. What I don’t think anyone had anticipated was the scale and the audacity of what has now been agreed between Paris and Berlin.  It is certainly a victory for Emmanuel Macron, France will be a big winner from this approach, which will partly plug a huge budget deficit.

All 27 will have to sign off on this plan and while there will be some grumbling in the Netherlands and the Nordics, EU realpolitikmeans that they will probably have to accept Germany’s decision.

The fund will fully double the EU’s budget for the next three years which also has the very useful additional benefit of papering over the gap caused by the end of the UK’s payments into the EU’s coffers, something that had been worrying all the remaining member states.

It is reasonable to expect that once this tranche of money is spent, and if there is a market for EU paper, the 27 governments will not be shy about using this mechanism again.  The prospect of governments being able to escape the discipline imposed by the markets will be irresistible to politicians from most, if not all member states, and politicians of all political hues.

In the EU, the greater the crisis, the greater the impulse to integrate and mutualise becomes.  Debt, and debt that they are not directly responsible for, is to governments is what crack is to addicts.  The scale of this hit is stupefying.