Brussels will seek to borrow €750bn (£672bn) on international markets to finance a recovery from the coronavirus pandemic, the European Commission president said on Wednesday.
Ursula von der Layen is also seeking a far larger European Union budget of €1.1 trillion over the next seven years for a revival of the bloc’s shattered economy – a demand which will be the subject of tough negotiations between divided governments in coming months.
The plan, dubbed Next Generation EU, would spare the balance sheets of already indebted EU members and take advantage of the commission’s AAA credit rating to raise cash on the capital markets. The debt will be repaid over 30 years after 2027.
However, it is likely to been seen by opponents of further integration as a naked power grab which could expose more prudent northern nations to higher bills in future.
The plans were unveiled after European Central Bank president Christine Lagarde warned that the eurozone’s economy would shrink by 8pc to 12pc this year. The coming recession has been compared to the Great Depression by senior EU figures.
Speaking to the European Parliament in Brussels, Mrs der Leyen said: “Today we face our very own defining moment.
“What started with a virus so small your eyes couldn’t see it, has become an economic crisis so big you simply couldn’t miss it. A bankrupt company in one member state is a reliable supplier gone for business for another.
“A struggling economy in one part of Europe weakens another part of Europe. This is bigger than all of us, this is Europe’s moment.”
The plan requires unanimous support among the 27 EU member states and is opposed by fiscally conservative member states.
They fiercely resist the idea of breaking the taboo of common EU debt on such a large scale. The proposal has been compared to Alexander Hamilton’s 18th century centralising of tax and debt-raising powers in the US, a key step along the road towards full-blown federal government.
Some €500bn will be provided in grants to the hardest-hit countries, with a further €250bn provided as loans.
The commission plan hews close to a joint Franco-German statement, which last week called for a €500bn recovery fund and was supported by Italy and Spain.
French president Emmanuel Macron tweeted it was “an essential day for Europe” and urged his fellow leaders to “adopt an ambitious agreement”.
But Austria, the Netherlands, Sweden and Denmark – known as the “frugal four” – are against the idea of grants and want any aid to be in the form of loans. That stance has reopened wounds left from the financial crisis among some southern member states, which were forced to swallow tough terms in return for EU bailouts.
The frugal four countries are against the plan to temporarily raise the ceiling on national contributions to the EU budget, while poorer member states have warned failure to show solidarity in the face of coronavirus could destroy the EU. Polls already suggest a surge of euroscepticism in Italy, which was hit first by the pandemic.
Mrs von der Leyen has also called for a raft of new tax-raising powers for the Commission, including a new tax on plastics, a digital tax targeting US tech giants and levies on polluting industries, which would be paid into the budget.
EU member states have traditionally resisted efforts from Brussels to stray into what many see as an exclusively national power.
The Commission also wants to access revenue from the EU’s emissions trading system – the world’s largest carbon permit market.
EU leaders will meet by video conference for an EU summit next month that is set to be dominated by the recovery fund.
Sources in Brussels say they hope a final deal over the next EU Budget, which is expected to be the first without UK contributions, can be struck over the summer.