Merkel offers olive branch to ‘frugal four’ over EU crisis fund

Via Financial Times

Angela Merkel held out an olive branch to the “frugal four” nations opposed to European Commission plans for a €750bn post-coronavirus recovery fund, saying that EU countries must also show a willingness to reform their economies and make them more “future-proof”.

Ms Merkel expressed confidence that EU leaders would reach agreement on the fund and on the bloc’s new budget at a summit due to be held in July, although she admitted there was still a “long way to go”.

The chancellor was speaking at a joint press conference with French president Emmanuel Macron at Meseberg, a baroque stately home outside Berlin, just two days before Germany takes over the six-month rotating presidency of the EU.

In a sign of the strength of the Franco-German relationship, which has blossomed during the coronavirus pandemic, Mr Macron was the first foreign leader Ms Merkel has met in person since the shutdown was imposed.

The show of unity had huge symbolic value. Ms Merkel and Mr Macron have been at the forefront of efforts to drag the EU out of what is expected to be the worst recession in its history, triggered by a pandemic that has killed more than 500,000 people worldwide and strained Europe’s economic and social fabric.

In mid-May the two broached the idea of a recovery fund to help the bloc bounce back from the economic crisis caused by coronavirus. The plan envisaged the European Commission borrowing money on international capital markets and allocating it in cash grants to those countries worst affected by the pandemic. The commission later expanded its proposed size to €750bn, of which €500bn would be in the form of grants.

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But EU leaders are deeply divided over the details of the facility. There is disagreement on its size, how much of it should be given out in the form of grants and how much in loans, the period it will be in operation, and the starting date for repayments of borrowed money.

The so-called “frugal four” countries — Sweden, the Netherlands, Denmark and Austria — want the fund to be smaller and more of the cash to be handed out as loans. They say it should come with strings attached.

Ms Merkel said an “enormous number of talks” were being held by Charles Michel, the European Council president, to try to pave the way for an agreement at the July 17-18 summit, although she admitted there was “some resistance to be overcome”.

The chancellor refused to pre-empt discussions on the final shape of the recovery fund, saying only that it had to be a “strong instrument that . . . has to really help those countries that are otherwise at risk of being much worse affected by the crisis”.

She said that if some countries emerged from the turmoil much weaker than others, “that would call into question the cohesion and convergence of the EU, and the functioning of the single market”.

But she also expressed some sympathy for the sceptics and their demands for reform, saying it was not enough to agree on a new EU budget and a recovery fund. “Every country must also look at its own domestic policies and make them more future-proof,” she said.

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Mr Macron has insisted that €500bn of the fund should be allocated in the form of grants, not loans, which would only push up countries’ overall indebtedness. He said on Monday that the post-coronavirus facility was “about solidarity, but it’s also about [countries’] own interests” — because they could not flourish if the EU single market were harmed.

“We have reached a moment of truth for Europe,” Mr Macron said. “With this resolute Franco-German commitment, we can turn it into a moment of success.”