The announcement by the president of the European Commission, Ursula von der Leyen, of a €750bn recovery fund is a defining moment in Europe’s response to the Covid-19 crisis and could also mark a significant challenge to EU cohesion and integration.
The fund is part of an overall package worth in total €1.85trn for the EU’s next long-term budget that would see the commission borrowing on the capital markets on a scale never seen before.
The commission’s proposal involves raising the recovery funds through joint borrowing in what could be a landmark shift towards integration in the EU. It also means that €500bn of the fund would be distributed by way of grants, with the rest in low-interest loans.
It has been welcomed by Spain and Italy and also has the support of most other EU states, including Germany and France.
However, on the other side, the so-called Frugal Four – Austria, Denmark, the Netherlands and Sweden – are against pooling debt and allocating grants and have come up with a counter-proposal endorsing a ‘loans for loans’ approach, coupled with reforms.
Any member state can veto von der Leyen’s proposal but the consequences of blocking a recovery plan could be dire. Can the Frugal Four be won over? The future prosperity – indeed the continued existence – of the EU may depend on it.