Coronavirus: Merkel and Macron propose €500bn EU recovery fund

Germany's Chancellor Angela Merkel (L) and France's President Emmanuel Macron speak as they walk after a bi-lateral meeting on the second day of a special European Council summit in Brussels on February 21, 2020, held to discuss the next long-term budget of the European Union (EU). (Photo by kenzo tribouillard / POOL / AFP) (Photo by KENZO TRIBOUILLARD/POOL/AFP via Getty Images)
Germany's Chancellor Angela Merkel (L) and France's President Emmanuel Macron. (Kenzo Tribouillard/AFP via Getty Images)

German chancellor Angela Merkel and French president Emmanuel Macron have outlined a joint initiative to help drive the European Union’s recovery from the economic damage of the coronavirus crisis.

Merkel and Macron jointly proposed a €500bn (£445bn, $543bn) economic recovery fund that could offer grants to the hardest-hit regions and sectors, the leaders announced at a joint virtual press conference on Monday (18 May).

They proposed that the European Commission would be authorised to borrow the money on the financial markets. All 27 EU member countries would have to approve the fund.

“Such a crisis demands a corresponding response,” Merkel said, adding that the goal was to ensure that the European Union comes out of this crisis in solidarity.

The leaders of the EU’s two largest economies met via video conference between Berlin and Paris to try and find a common position on a recovery fund, which would come out the European Union’s 2021 to 2027 budget.

The “ambitious, targeted and temporary” recovery fund would finance the relaunch of the EU economy. The eurozone economy is predicted to shrink by 7.7% overall this year.

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Since the coronavirus crisis hit, France has sided with Spain and Italy to demand that the EU issue joint debt, in the form of “corona bonds,” to raise money for EU member states whose economies have been devastated by the coronavirus pandemic.

Germany, Austria, and the Netherlands opposed debt mutualisation for the bloc, although Germany has said it is ready to commit to much more aid for EU countries.

Spain, France, and Italy have been the worst-hit EU countries in terms of both coronavirus cases and deaths from COVID-19.

Germany, although it is now in recession and expects a significant drop in GDP in 2020, has seen comparatively fewer deaths — currently still under 8,000 according to Johns Hopkins University data.

French President Emmanuel Macron (R) listens to German Chancellor Angela Merkel during a video conference to discuss a joint plan to spur the EU's recovery from the coronavirus crisis at the Elysee Palace on May 18, 2020, in Paris. - The talks were held to "define a French-German initiative to respond to the COVID-19 crisis at the European level, in the areas of health, the economic recovery, the environmental and digital transition, and industrial sovereignty," French presidency said. (Photo by Francois Mori / POOL / AFP) (Photo by FRANCOIS MORI/POOL/AFP via Getty Images)
Emmanuel Macron (R) listens to German chancellor Angela Merkel during a video conference to discuss a joint plan to spur the EU's recovery from the coronavirus crisis at the Elysee Palace, 18 May 2020. (Francois Mori /AFP via Getty Images)

READ MORE: Coronavirus drives German GDP down by 2.2% in the first quarter

EU spokesperson Arianna Podesta said today that Berlin’s state aid to support its economy accounts for more than half the €1.95tn in state aid approved by regulators for the whole EU.

The coronavirus pandemic pushed Europe’s largest economy to abandon its long-held ‘black zero’ rule against taking on new debt, and it has mobilised billions in grants, state-backed loans for companies, and short-term work programs.