The European Union is set to unveil a 100 billion-euro ($109 billion) loan plan to support countries worst hit by the coronavirus crisis in a program that could reduce tensions over Germany’s refusal to sanction mutualized debt.
Amid criticism that the EU has done too little to mitigate the economic impact of the pandemic, the European Commission signaled on Wednesday that the plan would help governments pay companies to keep workers in their jobs. According to a draft of the proposal seen by Bloomberg, it will take the form of a lending scheme underpinned by guarantees from EU member countries.
Von der Leyen didn’t give full details of the project, called Sure, which will be fully announced by the commission later this week.
The EU has faced criticism for its slow response to the crisis amid fighting between its 27 governments. Nine countries, including France, Italy and Spain, pushed for the establishment of joint debt instruments dubbed “corona bonds” but this met with opposition from Germany and the Netherlands. Governments are also wrangling over conditions attached to credit lines from the European Stability Mechanism, the euro area’s bailout fund.
French Finance Minister Bruno Le Maire is pushing for a common EU rescue fund that would be limited in time based on the corona bonds proposal.
According to the draft of the commission plan, EU governments will be able to request financial assistance if “public expenditure has suddenly and severely increased as of Feb. 1 2020 due to the adoption of national measures directly related to short-time working schemes” because of the coronavirus outbreak.
The plan would see the EU raise money on international markets backed by guarantees from member states, which should be “irrevocable, unconditional and on demand,” the draft said. That’s a form of shared liabilities that could make the plan unpalatable to the Germans and the Dutch.
The euro area is facing the deepest recession in its history as a consequence of the pandemic, which has killed more than 25,000 people in Europe and left most countries in lockdown.
Bloomberg Economics forecasts a contraction in Italy of more than 6% in the first quarter, while a Morgan Stanley report sees GDP dropping 19% in the quarter on an annualized basis, and by 33% in the next three months.
“If there are no orders and companies run out of work because of a temporary external shock like corona, they should not lay off their workers,” von der Leyen said. “They continue to employ them, even if there is less work.”
People would be able to “continue to pay their rents and buy what they need and this also has a positive impact on the economy,” she said.