EU Commission proposes €750 billion recovery fund in wake of Covid-19 crisis

The European Commission is proposing a €750 billion recovery fund to reboot economies hit hard by the coronavirus outbreak, EU officials said on Wednesday.

Speaking ahead of the plan's formal presentation, officials said southern countries worst hit by Covid-19 would get the lion's share of the proposed fund, which includes €500 billion in grants and the rest in loans.

The Commision will propose that Italy and Spain — the countries most affected by the epidemic — be awarded €173 billion and €140 billion respectively through a mix of grants and loans, the officials said.

Paolo Gentiloni, the EU economic affairs commissioner, hailed the proposal as a "European breakthrough", tweeting that the fund would help "tackle an unprecedented crisis".

The aim is to protect the European Union's single market of 450 million people from being splintered by divergent economic growth and wealth levels as the 27-nation bloc emerges from its deepest ever recession expected this year.

The plan's advocates say its is necessary because countries such as Italy, Spain, Greece, France and Portugal, burdened with high debt and heavily reliant on tourism, will find it more difficult than more frugal northern nations to restart their economies through borrowing.

Franco-German push

The €500 billion in grants is in line with the wishes of the EU's two biggest economies — France and Germany — though some nations would rather see the recovery package comprise only loans.

The package would also provide guarantees that could draw in many times more in private cash by reducing the risk of various investments.

But it is the grants, financed through joint borrowing, that worry the Netherlands, Sweden, Austria and Denmark. The borrowing will have to be repaid, meaning higher national contributions to the EU budget in the future or new taxes assigned to the EU.

The Commission is expected to propose new revenue streams. They are most likely to come from a tax on plastics, some money from the CO2 emissions trading scheme, a digital services tax, national corporate taxes and an import levy on goods produced in countries with lower CO2 emissions standards than the EU.