Covid-19: Europe prepares US$1,1 trillion fund

EUROPEAN Union (EU) leaders have agreed to create a fund that could raise at least 1 trillion euros ($1.1 trillion) to rebuild regional economies ravaged by the coronavirus pandemic.
“This fund shall be of a sufficient magnitude, targeted towards the sectors and geographical parts of Europe most affected, and be dedicated to dealing with this unprecedented crisis,” leaders of the 27 EU countries said in a statement last week.
The heads of the EU governments asked officials at the European Commission to come up with detailed proposals “urgently” that will include how the recovery fund will relate to the bloc’s budget for 2021-2027, they added.
The EU is planning to expand its budget from about 1.2 percent of GDP to 2percent of GDP and then use those additional funds as a guarantee to borrow at low rates from financial markets.
Asked by reporters how much could be raised, European Commission President Ursula von der Leyen said: “This has to be looked at thoroughly … but we are not talking about billion(s), we are talking about trillion(s).”

The EU leaders also signed off on an immediate package of rescue measures worth at least €500 billion ($538 billion) drawn up earlier this month by finance ministers. That package includes up to €100 billion ($110 billion) in wage subsidies aimed at preventing mass layoffs, as well as hundreds of billions in loans to businesses and credit for EU governments.
“There are reasons for some optimism that, even if we don’t get as joined-up a response as we’d like overall, the European fiscal response to this crisis may yet end up being sizeable,” commented Societe Generale strategist Kit Juckes in a research note last Friday.
The EU response, together with stimulus efforts worth several hundred billion euros already agreed at national level, amounts to a huge effort to prevent the region’s deep recession turning into a 1930s-style depression.
The International Monetary Fund expects EU GDP to fall by 7 percent this year, and recent data suggests economic activity in March and April may have crashed by between 20 percent and 30 percent.
Commenting on the development, French President Emmanuel Macron said there was consensus among EU states on the need for a “strong, coordinated response (worth) around 5 to 10 (percentage) points of GDP.”
Differences remain over how the fund should operate, in particular whether it should provide loans or grants to the hardest-hit countries such as Italy and Spain. Grants, or direct money transfers, would imply a degree of debt sharing that states such as the Netherlands, Austria and Germany have long resisted. — CNN