Factbox: France, Germany propose 500 billion euros in grants for post-COVID recovery

BRUSSELS (Reuters) – France and Germany have proposed a half-a-trillion euro (447 billion pounds) fund to make grants to European Union regions and sectors worst hit by coronavirus, to help them recover without taking on a mountain of new debt.

German Chancellor Angela Merkel holds a joint video news conference with French President Emmanuel Macron in Berlin, Germany, May 18, 2020. Kay Nietfeld/Pool via REUTERS

The deal does not mean that the proposal will be fully accepted by the EU, but its main elements will likely get through.

Below are the main points of the idea that the European Commission is likely to draw on heavily when it proposes its own Recovery Fund scheme on May 27.

SIZE AND TIME

Paris and Berlin want the 500 billion euros fund to have a clear end-date until which it can be accessed.

WHERE WILL THE MONEY COME FROM

It will be borrowed on the market by the European Commission using its triple-A rating to get the lowest rate – probably close to zero interest.

HOW WILL IT BE SPENT

The Commission will channel the money through the EU’s long-term budget for 2021-2027, front-loading it in the first years, mainly to fund investment in the EU’s transition to a “green” and digital economy and for research and innovation.

HOW WILL IT BE PAID BACK

Because the Commission will borrow the money, it will have to pay it back. The money will come from future EU long-term budgets, after 2027. It is unclear if future budgets will get extra revenue from higher national contributions, or from new taxes imposed by governments and assigned to the EU, or a mix of both.

STRINGS ATTACHED

The grants require “a clear commitment of Member States to follow sound economic policies and an ambitious reform agenda.”

The Franco-German paper notes they want to introduce a minimum effective level of tax on the digital economy – affecting Google, Apple, Facebook or Amazon – in the EU, and to establish a Common Corporate Tax Base – rules on what to tax companies on, rather than how much.

Reporting by Jan Strupczewski; Editing by Giles Elgood

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