EU Budget Hard-Liners Outline Aid Plan Edging Toward Compromise

The European Union‘s budget hard-liners outlined elements of a deal for collectively financing the bloc’s response to the coronavirus recession, signaling they may be open to concessions.

In a joint paper, the leaders of Austria, Denmark, Sweden and the Netherlands — net donors to the EU budget and traditionally skeptical of its expansion — reiterated their opposition to debt mutualization and emphasized that any aid program must have a time limit.

Along with pro-austerity language, the document includes signs that the four governments are exploring areas of compromise that could unlock the proposed 500 billion-euro ($545 billion) fund set out by German Chancellor Angela Merkel and French President Emmanuel Macron on Monday.

Austrian Chancellor Sebastian Kurz told German and Austrian radio stations on Saturday that hes open for granting some of the virus aid as a direct handout, a position previously rejected by all four nations.

Sebastian Kurz in Vienna on May 8.

Photographer: Helmut Fohringer/APA/AFP via Getty Images

“We believe that there needs to be a discussion about how much of those 500 billion are grants and how much are loans,” Kurz told German broadcaster Deutschlandfunk. Rather than insisting all aid must be in the form of loans, the most important issue is “how we give this aid a clear and binding time limit, so that we dont have a full debt union as the next step,” Kurz said.

“At the end of day there needs to be a compromise, thats how the EU works,” Kurz said in a separate Austrian radio interview.

Countries such as Italy and Spain have been banking on the EUs long-anticipated recovery fund to help them rebound from the economic devastation caused by the pandemic. The European Commission, which is supposed to draft a blueprint, will present its plans on May 27.

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While EU leaders have agreed on the need for a fund to assist with the recovery, disagreements include its size, whether it should disburse loans or grants and conditions on what the money can be spent for. While theyve broadly accepted that some of the money will come from jointly-issued EU debt, how much the bloc will raise on the markets remains in dispute.

As long as guarantees are sufficient that the program wont set a precedent, the four donor nations could live with the European Commission issuing debt for the emergency fund, according to two officials familiar with the discussion, who asked not to be named because the discussions are private.

Merkel and Macron threw their weight behind a plan to allow the commission to issue 500 billion euros of bonds, a significant shift for the German leader who has previously resisted French calls to shoulder more of the burden of the European recovery. The proposal would require approval by all 27 EU countries and the European Parliament.

The Franco-German plan foresees debt issuance by the European Commission on behalf of the entire EU. Merkel has said this isnt debt mutualization as each country would be on the hook only for part of the issuance, in line with its share of EU economic output.