Macron, Merkel agree €500bn virus recovery plan for Europe

France and Germany on Monday proposed a 500-billion-euro ($542-billion) fund to finance the recovery of the European Union’s economy from the devastation wrought by the coronavirus crisis.

Putting aside past differences and seeking to prove that the Franco-German core of Europe remains intact, President Emmanuel Macron and Chancellor Angela Merkel announced the unprecedented package after talks by video conference.

With the European economy facing its biggest challenge since World War II, Macron also acknowledged that the EU had fallen short in its initial response to the virus and needed to coordinate more closely on health.

Financed by “borrowing from the market in the name of the EU,” the 500 billion euros will flow to the “worst-hit sectors and regions” in the 27-member bloc, the two countries said in a joint statement.

“We are convinced that it is not only fair but also necessary to now make available the funds… that we will then gradually repay through several future European budgets,” Merkel said.

Countries benefitting from the financing would not have to repay the money, Macron added, emphasising that the funds “were not loans.”

The eurozone economy overall is forecast to contract by a whopping 7.7 percent this year, with the damage set to be most severe in southern members like Italy and Greece.

The agreement of such borrowing marks a major shift by Germany, which has until now rebuffed calls by Spain and Italy for so-called “coronabonds” for joint borrowing on financial markets to provide stimulus cash.

Germany, the Netherlands and other rich countries had seen them as an attempt by the indebted south to unfairly take advantage of the north’s fiscal discipline.

The Merkel-Macron plan now faces a potentially painful negotiation with all 27 member states and then a vote in European Parliament, which had been eyeing an even larger package.

In the first signs of cracks within the EU, Austria insisted that any help should be in the form of loans, not grants.

“We will continue to show solidarity and to support those countries which have been worst affected by the corona crisis, but this has to be in the form of loans not grants,” a statement from Austrian Chancellor Sebastian Kurz’s office said.

On the other side of the spectrum, a source in the office of Italian Prime Minister Giuseppe Conte described the plan as a “good starting point”, but said a package that should not be “revised downwards, but rather expanded.”

European Commission chief Ursula von der Leyen, who would have to help implement the package, hailed the plan as a “constructive proposal.”

“It acknowledges the scope and the size of the economic challenge that Europe faces,” she said.

Merkel said the seriousness of the crisis meant that “solidarity” must be the order of the day.

“The aim is to ensure that Europe comes out of the crisis more cohesive and with more solidarity,” she said, calling the proposal “courageous.”

Traditionally seen as the engine that powers Europe, the French-German alliance had until the announcement appeared to be stumbling in recent months.

Paris wanted Germany to show more fiscal flexibility and some reports suggested Berlin was irritated by Macron grandstanding on the European stage.

Macron said stronger European coordination on health issues must be a priority, admitting that the EU fell short in its initial response to the coronavirus outbreak.

“Europe was without doubt put at fault at the beginning of this crisis,” Macron said.

He added that unilateral steps by some EU countries to close borders — without consulting their neighbours — had given a “sad image” of Europe, with some members showing “nationalist reflexes”.

He said Europe needed “very concrete capacities” to handle health crises with shared stocks of masks and tests, and prevention plans to combat epidemics.

“A Europe of health — which has never existed — has to be our priority,” he said. “We need to learn all the lessons from this pandemic.”

In a sign of how the pandemic has changed global diplomacy, their joint press conference saw them stand at lecterns in cities hundreds of kilometres apart, with Merkel in Berlin and Macron in Paris.

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