France and Germany propose €500B recovery fund focused on innovation

20/05/2020
France and Germany proposed a €500 billion European recovery fund for the regions and industries hit the hardest by the COVID-19 pandemic following months of disagreement over the best way to stimulate recovery.

German Chancellor Angela Merkel and French President Emmanuel Macron have announced that they want to create a €500 billion recovery plan to offer countries and regions hardest hit after the coronavirus crisis. The recovery plan was announced via a joint video conference. They intend to set up a €500 billion temporary emergency fund, managed by the European Commission. European Commission would borrow cash on financial markets, then distribute the money as grants. The money is to be spent particularly on investment in the EU’s transition to a more green and digital economy, research and innovation, and to bolster preparedness for future epidemics.

“Faced with the pandemic, Europe was undoubtedly at fault at the beginning of the crisis. But there have been very concrete gestures of solidarity. This solidarity has saved lives,” said Macron, adding that health is not a core competence of the EU, but the economy is.

 The €500 billion would be on top of the 2021-2027 EU budget, which will be worth close to €1 trillion. The huge grant injection is also intended to allay concerns about the ability of poorer EU member countries to support their industries through the crisis, while bigger countries offer massive financial assistance for national champions.

The president of the European Commission, Ursula von der Leyen, will present her own post-coronavirus recovery plan on 27 May. The Commission stated that it welcomed the proposal, as it “acknowledges the scope and the size of the economic challenge that Europe faces, and rightly puts the emphasis on the need to work on a solution with the European budget at its core,” according to von der Leyen.

Strategic health sovereignty for Europe

In addition to promoting a green recovery and increased digitisation, the Macron-Merkel plan calls for a greater push on “strategic health sovereignty” for Europe. It proposes to “increase European capacities on research and development” for vaccines and treatments, with the goal of developing and manufacturing a coronavirus vaccine within the EU.

The EU would also keep common strategic stocks of drugs and medical products, such as protective equipment and testing kits, while “encouraging production” of these products on the continent. EU states would coordinate procurement policies for future vaccines and treatments, “in order to speak with one voice with the pharmaceutical industry”. The proposal also calls for a new “EU health task force” within the European Centre for Disease Prevention and Control, with a mandate to develop “prevention and reaction plans” against future epidemics.

Fiscal conservatives

"Due to the unusual nature of the crisis we are choosing an unusual path," said Merkel. The Macron-Merkel announcement follows weeks of disagreement over how best to rescue budgets left in tatters by the virus that has killed over 160,000 people in Europe. Southern European countries and France and Ireland had favoured grants, but the governments of the more fiscally conservative countries Germany and the Netherlands had rejected this, preferring the economic stimulus to come via loans. The first package of loans of up to €540 billion to struggling economies had already been agreed by the EU countries in early April.

The new fund will need agreement by the other 25 member states, although joint German-French accords usually pave the way for broader EU action. Still, it will be a hard deal to swallow for the so-called “frugal” northern EU countries, including the Dutch, the Finns and the Austrians. The concern for these countries is that the proposal would set a precedent for bailing out weaker EU countries and eventually mean higher national contributions based on the size of each economy or some new taxes or a combination of both.

SOURCE

For the official statement of French-German initiative, consult here.

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