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Germany expects bigger EU budget, bloc leaders set for recovery plan debate

Berlin/Brussels, Apr 23 (efe-epa).- Germany should be prepared to boost its contributions to the European Union budget to help countries most-affected by the coronavirus pandemic recover economically, chancellor Angela Merkel said ahead of a European Council summit on Thursday.

The 27 EU heads of state and government are due to sign off on a 540-billion-euro ($581.6bn) rescue package intended to protect jobs and businesses but some questions remain over how to finance the long-term recovery fund as member states tentatively start reopening their economies.

“Germany is prepared, in the spirit of solidarity and on a temporary basis, to make significantly higher contributions to the EU budget,” Merkel told lawmakers in the Bundestag.

The 540-bn-euro rescue package is to be made available through the European Stability Mechanism, the European Investment Bank and SURE, the EU’s coronavirus-era fund for workers facing unemployment, temporary lay-offs or pay-cuts.

But with the world facing an economic recession not seen since the Great Depression, according to the International Monetary Fund, a debate over what shape an EU recovery fund should look like has revealed divisions in the bloc.

The EU’s worst-hit nations, Spain and Italy, have called for the issuance of mutualized debt dubbed coronabonds, a proposal that has received little backing from the bloc’s wealthier northern countries like Germany and the Netherlands.

In the lead up to the videoconference summit Thursday, Rome and Madrid suggested a recovery fund of up to 1.5 trillion euros to be financed through perpetual debt, a topic that will likely be discussed by leaders later in the day.

France has backed the idea, but Merkel reiterated her country’s stance against the coronabonds during her Bundestag intervention on Thursday morning.

A number of countries are now looking at how the EU budget, the Multiannual Financial Framework for the years 2021-2027, could serve as a pillar in the recovery fund by expanding it, giving the European Commission more leeway in loaning out money.

“The point now is, to help quickly and to have instruments in hand quickly, which can alleviate the effects of the crisis,” Merkel said, although offered no detail on the amount of money Germany would be expected to fork out for the budget if the approach was approved.

She said it was unlikely that the 27 EU leaders would emerge from the videoconference with a concrete agreement on Thursday but insisted that Germany thrives when Europe thrives.

“Europe isn’t Europe when it doesn’t think of itself as Europe,” she said.

Austria’s government, which is also firmly against the issuance of mutualized debt bonds, on Thursday said it was in favor supporting European nations that are most exposed to the socio-economic fallout of the Covid-19 pandemic, but that loans would have to be distributed with clear conditions.

There have been over 100,000 coronavirus-related deaths in Europe since the outbreak began. Spain and Italy account for almost half of those fatalities.

The governments in Madrid and Rome have already unveiled expansive rescue packages — Spain’s was valued at roughly 20 percent of its GDP.

Amid IMF forecasts that the Spanish economy could contract by 8 percent next year, Prime Minister Pedro Sánchez faces an uphill struggle to pull the country back up onto its feet economically once the health crisis has subsided.

The IMF warned that the economic recession in the wake of Covid-19 would be deeper than that seen following the 2008/9 financial crash, memories of which still haunt the bloc and are behind a lot of the reticence from the country’s wealthier member states to share the debt load.

The European Commission president Ursula von der Leyen last week acknowledged shortcomings in the speed of the EU’s response to the health crisis and offered a “heartfelt” apology to Italy.

Presenting a roadmap on the EU’s strategy for exiting the pandemic, she insisted that Europe had since come together and shown solidarity. EFE-EPA

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