EU Recovery Plan Set for Tough Talks With Sweden Voicing Doubts

Sweden won‘t support the 500 billion-euro ($548 billion) European Union recovery plan as it was proposed by France and Germany last week while also signaling a willingness to discuss a way forward with the bloc’s other members.

Swedish Finance Minister Magdalena Andersson said on Tuesday that her country supports a united response by the EU, but would not back the proposal from Berlin and Paris that would see the bloc tap the bond market for an unprecedented amount of money and distribute that as grants to countries that have suffered economically from the global pandemic.

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“We also will support some kind of recovery fund but we will have to discuss exactly how it will look like and from our perspective we think it has to be realistic both when it comes to size but also the conditions,” Andersson said in an interview with Bloomberg TV.

WATCH: Swedish Finance Minister Magdalena Andersson discusses the European crisis recovery fund backed by Germany and France,

(Source: Bloomberg)

Andersson‘s comments come just a day before the European Commission, the EU’s executive arm, unveils its proposal for a recovery package. Her remarks highlight the difficult negotiations the EU‘s 27 governments will have over the coming weeks. Some of Sweden’s fiscally conservative allies in recent days have already shown an openness to compromise that may lay the groundwork for an eventual accord.

Loans vs Grants

The commission‘s proposal will form the basis for discussions between EU governments, though dividing lines have already been drawn. France and Germany want the fund to make grants to countries and sectors most in need, while also saying that their plan wouldn’t lead to the mutualization of debt. Austria, Denmark, the Netherlands and Sweden released their won blueprint over the weekend that would offer loans to countries rather than grants, and would expire after two years.

While EU leaders have agreed on the need for a fund to assist with the recovery, disagreements include its size, whether allocated money would need to be repaid and any conditions tied to the disbursements. While theyve broadly accepted that some of the money will come from jointly-issued EU debt, how much the bloc will raise remains in dispute.

France and Germany threw their weight behind a plan to allow the commission to issue 500 billion euros of bonds, a significant shift for German Chancellor Angela Merkel 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.

And despite their skepticism, at least some of the four countries most averse to the Franco-German plan have already softened their positions, signaling a compromise may be in the offing.

Austrian Finance Minister Gernot Bluemel said in an interview with Austrian public TV that an agreement could see some of the aid disbursed as grants. Asked if a deal was thinkable in which the majority of the aid would be disbursed as grants, Bluemel told broadcaster ORF: “What we dont want is that it will be only grants, and that this is the start of debt mutualization.”

Still, giving hard-hit countries loans rather than handouts would be more palatable, according to Andersson. It would be “easier to explain to the citizens of Europe if we work with loans rather than grants when it comes to the recovery phase.”

— With assistance by Boris Groendahl, and Rafaela Lindeberg