German Chancellor Angela Merkel (R) and French President Emmanuel Macron (L) arrive for a joint press conference at the end of the European summit at the EU headquarters in Brussels on July 21, 2020.
JOHN THYS | AFP | Getty Images
The 27 European Union governments have reached a breakthrough agreement over new fiscal stimulus, following marathon talks in Brussels that lasted four days.
The European Commission, the executive arm of the EU, has been tasked with tapping financial markets to raise an unprecedented 750 billion euros ($ 857 billion). The funds will be distributed among the countries and sectors most impacted by the coronavirus pandemic, and will take the form of grants and loans.
European Council President Charles Michel said early Tuesday that he believes this deal will be seen as a “pivotal moment” for Europe.
“Europe, as a whole, has now a big chance to come out stronger from the crisis,” European Commission President Ursula von der Leyen also said.
The heads of state had been locked in talks since Friday morning to discuss the proposed fund and the EU’s next budget. However, deep differences on how to divide the amount between grants and loans, how to oversee its investment and how to link it with the EU’s democratic values prolonged the talks into one of the longest EU summits in history.
In the end, they agreed to distribute 390 billion euros, out of the total 750 billion fund, in the form of grants — a significant reduction from an initial proposal made by France and Germany in May for 500 billion euros of grants. The EU also agreed to repay all the new debt by 2058.
In the meantime, member states will also have to develop plans outlining how they will invest the new funds. These so-called Reform and Recovery plans will have to be approved by their European counterparts.
They committed 30% of their total expenditure from the recovery fund and the next EU budget to address climate concerns. The EU has said it wants to be climate neutral by 2050.
The fund will be available from January 2021 and there will be no new bridge financing until then. This is because the EU has taken other measures since the crisis struck to provide liquidity to the member states if they are needed.
In April, finance ministers had already approved a 540 billion euro package of short-term fiscal stimulus and this comes on top of what the individual governments announced separately for their own economies since the pandemic first struck Europe.
In addition, the European Central Bank is buying government bonds as part of its Pandemic Emergency Purchase Program, which totals 1.35 trillion euros.