European Union (EU) leaders reached a deal for 1 trillion euro investment fund for the economy after a video conference held on Thursday. The body also confirmed that 540 billion euros will be injected into the economy through the existing mechanism.
Stabilizing the economy battered by the coronavirus pandemic has been a topic of discussion to European leaders for weeks now, and they had repeatedly failed to reach a consensus. But this time, there’s a change in the story.
“This fund shall be of a sufficient magnitude, targeted towards the sectors and geographical parts of Europe most affected, and be dedicated to dealing with this unprecedented crisis,” leaders of the 27 EU countries said in a statement after the video conference.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Part of the agreement is the plan to expand the EU’s budget from about 1.2% of GDP to 2% of GDP, using the additional fund as guarantee to borrow at low rates from financial markets.
The heads of EU governments also asked officials of the European Commission to urgently design a detailed proposal that will explain how the recovery fund will relate to the bloc’s budget for 2021-2027.
The 540 billion euros is an immediate stimulus package aimed at augmenting existing economic dynamics of the union members. 100 billion euros is to be used from the fund as wage subsidies as the leaders are working to prevent mass layoff of workers.
Kit Juckles, Societe Generale strategist said on Friday that there is a measure of confidence that the collective efforts of the European leaders will amount to something sizable.
“There are reasons for some optimism that, even if we don’t get as joined-up a response as we’d like overall, the European fiscal response to this crisis may yet end up being sizable,” he said.
As every country keeps strategizing its way out of the COVID_19 crisis, the European Union has a collective responsibility to its member nations to save itself from the economic downturn that is plunging further as days go by.
The International Monetary Fund has warned that the EU GDP will shrink by 7% this year, and according to available data, there has been a 20% to 30% crash in economic activities between March and April.
The greatest threat to the chances of the EU to overcome the economic challenges has been the disunity among the leaders. French President Emmanuel Macron said last week that the crisis may escalate to give populists a win if there is no financial solidarity between member states.
“If we can’t do this today, I tell you the populists will win… today, tomorrow, the day after, in Italy, in Spain, perhaps in France and elsewhere,” he said.
After the video conference, Macron said there has been consensus between EU leaders on the need for a “strong, coordinated response worth around 5 to 10 [percentage] points of GDP.” But there have been differences among the leaders on how the money will be disbursed.
The contemplation rests on whether the money should be given as grants or loans to hard hit countries like Spain and Italy. The challenge of adopting the grant option lies on the cooperation of other member countries. Giving the fund as grant or direct money transfer means other members will share to some extent, in repayment of the loan, a situation the Netherlands, Germany and Austria had long resisted.
However, Macron said it is important to protect the interest of every member country as there is equalizing in production and purchase, which makes every region of Europe important.
“The common market today benefits certain states or regions that are the most productive in Europe because they produce goods that they can sell in other regions. If we abandon these regions, if we abandon part of Europe, all of Europe will fall,” he said.
Italy is hoping that other members will show solidarity as it is desperate for economic recovery. But Prime Minister Giuseppe Conte, expressed satisfaction with the virtual meeting held on Thursday.
“It’s important because this is a necessary and urgent tool. It is absolutely necessary Italy is the first in line to ask for this,” he said.
The 540 billion euros will be released on 1st June while the details of how the longer term recovery plan will be funded will be discussed in another video conference scheduled for May 6. While the European Commission work to create a workable strategy acceptable to all, German Chancellor Angela Merkel said Europe should brace up for a long fight with the virus. She added that Germany will have to make higher contributions to the EU budget.
EU leaders agreed to follow the advice of the European Commission that urged EU countries to ease movement and lift lockdowns as the pandemic reduces.