European Union leaders agreed on today to build a trillion euro emergency fund to help recover from the coronavirus pandemic, avoiding another all-night bust-up but leaving divisive details until the summer.

With the EU’s Brussels headquarters under lockdown – along with most of Europe – the 27 leaders held a four-hour video conference to consider proposals, rallying around a bigger common budget for 2021-27 with a recovery programme.

At around 1% of the EU’s economic output, the multi-year common budget has long been one of the most contentious subjects of debate for its members. Expanding it will not be easy, even if Italy’s Prime Minister Giuseppe Conte hailed “great progress” after the summit ended.

French President Emmanuel Macron said differences continued between EU governments over whether the fund should be transferring grant money, or simply making loans.

“Divisions remain,” Macron told reporters in Paris.

“I’m saying this sincerely. If Europe raises debt to loan to others, that won’t live up to the response we need,” he said, adding that it would saddle already heavily-indebted countries, such as Italy, Belgium and Greece, with yet more debt.

Europe is facing a severe economic shock from the spread of COVID-19, the respiratory disease caused by the novel coronavirus, which has also led to border closures across the bloc and left member states fighting over medical supplies.

European Central Bank Governor Christine Lagarde told the leaders the pandemic could cut between five percent and up to 15 percent of eurozone economic output, officials and diplomats said.

The eurozone’s economic growth for 2020 is forecast to contract 5.4%, which would make it the worst year since the common currency was introduced in 1999, according. That is still better than the International Monetary Fund’s latest forecast for a decline of 7.5 percent.

Amid deep fissures old European rivalries resurface

After weeks of squabbling, the leaders approved half-a-trillion euros worth of an immediate rescue scheme to protect jobs, businesses and offer cheap credit to governments.

But with Italy and Spain hit far harder than Germany by the crisis, old enmities have surfaced across the bloc. Reaching agreement among euro zone finance ministers two weeks ago on the smaller euro rescue scheme was torturous, as the Netherlands refused an Italian demand to issue common debt.

Conte told leaders that a recovery fund should be 1.5 trillion euros in size and provide grants to EU governments to stop countries heading towards economic collapse and thereby threatening the viability of the bloc’s internal market.

“Grants are essential,” Conte said, according to diplomats who were on the video conference. “The sanitary emergency has quickly become a social emergency. But now we are facing a political emergency as well.”

Austria’s Chancellor Sebastian Kurz took the opposite view, saying on Twitter that, while Vienna was ready to show solidarity, “we should do this through loans”.

Kurz said he would coordinate with “like-minded countries”, a reference to wealthy but cautious northern countries such as Denmark, Sweden, Finland and the Netherlands, who resent having to pay for poorer southern countries they see as fiscally irresponsible.

Source: Reuters

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