This is what Germany, France and the EU Commission suggested. Rutte, leader of the “stingy four” (the Netherlands, Austria, Denmark and Sweden), only wanted to grant loans – and drove the summit to the verge of failure.
The bosses sat together for four days, at the end of the day they agreed on almost half the distribution with mostly grants. Three months later it comes out: The group of four’s loan campaign becomes a farce. Many Member States do not want to hear about Rutte’s bonds.
“We will not take any EU loans, only grants,” the French Ministry of Finance told Handelsblatt. The conditions made the loans uninteresting: the country could borrow itself cheaper and easier. “Why should we take loans whose repayment via the EU will then be more expensive for us?” They ask in Paris.
It sounds similar in Berlin, Brussels, Madrid and Lisbon, but also in Athens. The highlight: Rutte, the Dutchman with the sewn pockets, even disdains the loans for which he fought so hard.
“We will not use the loans from the EU reconstruction package, but we will most likely use the grants,” a spokesman for the Dutch Ministry of Finance told Handelsblatt. More details are still up for discussion, there will be no decision in the foreseeable future – probably because the Dutch want to wait for their parliamentary election in March.
The Belgians, also one of the EU countries hardest hit by the pandemic in relation to the number of inhabitants, are also cautious about loans: “We are currently working on our recovery plan, which also includes grants.
When it comes to credit, the decision whether to use it or not depends on the current market situation, ”said a Belgian official. As in France, Germany and the Netherlands, Belgian government bonds have a negative return: the creditors pay money on them. The EU bond, on the other hand, could become more expensive.
“It was clear from the start that many countries had no interest in further loans,” said Green budgetary politician Rasmus Andresen. Not only for the countries with negative returns, but also for many highly indebted countries, further loans are simply too unattractive.
“Only with direct grants for future investments can states modernize their infrastructure in a climate-friendly way and create jobs,” the MEP is convinced.
The council’s agreement on the exact volume and the structure of the 750 billion euro corona reconstruction package was preceded by a long dispute about the coupling of corona aid funds to climate protection and the rule of law, which has still not been settled.
At their four-day summit in mid-July, the heads of state and government decided to introduce a mechanism for more rule of law, but they could not agree on the exact implementation. The formulation of the legal texts necessary for the Recovery and Resilience Facility (RRF) has met with resistance from the governments of Poland and Hungary: the formulation on the rule of law goes too far for them. The EU Parliament, on the other hand, considers the texts to be too soft and therefore does not want to agree.
This is dangerous because speed is the key with Corona aid. Only a quick disbursement of the funds will help to dampen the consequences of the worst recession since World War II. If the loans are not in demand, this can further reduce the clout.
Greece: fear of new debt
Not even poor Greece is keen on EU loans. Greece expects 32 billion euros in the next few years from the EU development program (RRF). The sum corresponds to 17 percent of last year’s gross domestic product (GDP). This means that Greece receives more money from the program in relation to its economic output than any other EU country. 19.5 billion of the total is accounted for by grants that do not have to be repaid, 12.5 billion by loans.
But it is still unclear whether the government in Athens will even use these loans. New debt is the last thing Greece needs. The country already has by far the highest debt ratio in the EU.
As a result of the Corona recession and rising new debt, the quota could exceed 200 percent of economic output this year – the International Monetary Fund (IMF) is forecasting 200.8 percent for the country. It is unclear how loans from the EU development program will be included in the national debt.
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There is a growing impatience in Greek government circles. “We are still waiting for the EU Commission to clarify the terms and conditions of lending,” says a government official concerned with the issue.
So far it is unclear what interest rates are due for the RRF loans and what the repayment should look like. Greece is probably not dependent on the loans from the program. Government bond yields are at their lowest level since the country introduced the euro in 2001.
“It could make more sense for us to take out the loans provided as part of the development program ourselves on the capital market, without the conditions attached to the RRF loans,” said Athens.
Spain: grants are a priority
EU grants are also a priority for Spain, said Minister of Economic Affairs Nadia Calviño on Monday. The country will not take the credit option for the time being. “If more is needed, we will use the credits, but we have six years. We can make a two-phase plan, and that’s what we suggested. “
The exact figures for the EU reconstruction fund have not yet been determined. Spain expects around 140 billion euros, around eleven percent of the Spanish economic output in 2019 and the second highest sum after Italy. Around 72 billion euros of this are grants that Madrid does not have to repay.
Prime Minister Pedro Sánchez has already planned all of this money in his reconstruction program for the years 2021 to 2023: He wants to modernize the domestic economy and use 59.5 billion euros in grants under the Recovery and Resilience Facility (RRF) as well as another 11.4 Billions of euros within the framework of the more flexible EU-REACT structural funds, which mainly benefit the health and education sectors.
Spain is one of the countries hardest hit by the corona virus – both in terms of the number of cases and the slump in economic performance. The International Monetary Fund assumes that the Spanish gross domestic product will fall by 12.8 percent this year and thus more strongly than that of all other developed economies.
Portugal: strict budgetary discipline
During a visit by EU Commission President Ursula von der Leyen at the end of September, Portuguese Prime Minister António Costa said that he would probably not take out any loans from the EU reconstruction plan. “Portugal has a very high level of national debt and is assuming that it will emerge from this crisis more socially, but also financially more solidly,” said Costa. “For this we have the opportunity to make full use of the subsidies, and we will not use the part that relates to loans as long as the country’s financial situation does not allow it.” Portugal expects 15.3 billion euros in grants.
Italy: Record amount from the aid program
Italy’s government pricked up its ears after media reports from Spain that the government wanted to forego the loans from the EU reconstruction fund. Prime Minister Giuseppe Conte and his counterpart Pedro Sánchez met in Rome for consultations on Tuesday. Italy is to get the largest share from the aid program: 209 billion euros, 127 of which as loans and 82 as grants, which the country does not have to repay.
Economy and Finance Minister Roberto Gualtieri recently said Italy has no problem with lack of liquidity. “The Italian state has full access to the markets,” he said. Therefore, the government expects a possible further decrease in the so-called spread, the risk premium on Italian bonds compared to Bunds.
It is possible that “the credibility of our economic strategy and the strength of the measures taken in Europe” could lead to a further reduction in the cost of public debt.
The economist Lorenzo Codogno is clearer: “If the countries issue debts at very low interest rates, the incentive to draw on the credit part (of the reconstruction fund) is reduced.” In Rome there is growing concern that the aid package in Brussels will continue delayed.
“It would be a collective defeat if a longed-for and necessary aid plan to help those economies particularly affected by the virus gets stuck,” comments the “Corriere della Sera”.
Rome has just sent the draft budget for 2021 to Brussels with a volume of 40 billion. The planned measures are to be financed by additional debt and by means of the aid fund decided by the EU in July, explained Minister Gualtieri: only grants.
The cross-shooting of the “stingy four” at the summit in July could go down as one of the most senseless actions of all time in EU history.
More: The Corona rebuilding plan paves the way for a next-generation Europe.