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France and Germany Propose €500 Billion COVID-19 Recovery Fund

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Germany and France proposed on May 18, 2020, to inject €500 billion into a Europe-wide recovery fund. The aim of this fund is to support European regions that have been the hardest hit by the COVID-19 pandemic. The member states within the European Union have already pledged to provide a €540 billion coronavirus response plan to immediately lift the region’s economy once the crisis has ceased. Combing these stimulus packages aligns with what Ursula von der Leyen, the European Commission President, said, which was that any recovery plan should be valued at least one trillion euros.

Discussions regarding whether the fund will distribute the money via grants or loans stalled the process although both funds will be financed via debt which will be issued by the European Commission. The debt will then have to be repaid by the 27 EU countries including France and Germany, although not by the beneficiaries of this stimulus. Proceeds will then be distributed to these hardest-hit countries, such as Italy and Spain. Unfortunately, these hardest-hit countries are already debt-ridden with low government reserves, consequently outsourced financial aid is a necessity. The European Commission warned earlier in May that an estimated reduction of 7.5% would occur in the European Union economy during 2020. Fortunately, the funds that will be raised will be targeted at assisting the economy at large, with a particular focus on the medical and tourism industries that have been particularly hard hit.

Germany’s and France’s partnership is unlikely to be popular although the countries are putting their past differences behind them to show leadership in these challenging times. Chancellor Angela Merkel from Germany and President Emmanuel Macron from France proposed this recovery fund via a video conference meeting. Ms Merkel believes that the crisis threatens the European Union’s cohesion and said at a video news conference that, "to support a sustainable recovery that restores and enhances growth in the EU, Germany and France support an ambitious, temporary and targeted Recovery Fund."

Meanwhile, the European Commission still need to turn the Franco-German deal into a formal proposal and agreed upon by the 27 EU members. This is expected to potentially happen at a summit that is scheduled to take place on June 18, 2020. European Union officials warned that the pandemic could potentially have more long-lasting and severe effects than what is currently envisaged. Nevertheless. these two stimulus packages are a step in the right direction in regard to assisting the hardest-hit European economies in returning to pre-COVID-19 normalcy.

By Caroline Wong 

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