Austria, the Netherlands, Denmark and Sweden reject any instruments or measures leading to debt mutualization and any significant increase in the EU budget and propose a “loans for loans” approach in which the borrowed funds would be distributed as short-term loans, on favorable terms but on the basis of a “thorough needs assessment” and accompanied by “strong commitments” by the recipients to “reforms and the fiscal framework,” to support activities that would contribute to the recovery such as research and innovation, enhanced resilience in the health sector, and activities supporting the “green transition” that underpins the EU’s climate, growth and digital agendas. The financial scope for the fund should be provided through savings in the MFF by reprioritizing in areas that are less likely to contribute to the recovery. And there should be an explicit sunset clause after two years. 

While they fully support creation of a time-limited emergency recovery fund, they argue that “important principles ought not to be thrown overboard: How could it suddenly be responsible to spend $500 billion of borrowed money and send the bill into the future?” Taking issue with the Commission’s proposal to disburse a substantial portion of the funds as grants, they said, “when we borrow money together in the EU, the fundamentally sound way to use that money is to convert it into loans for those who really need them, on the best possible terms.” And taking issue with the Commission’s proposal that the funds be distributed on the basis of the size of the member state’s Gross Domestic Product, its GDP per capita, and its rate of unemployment in 2015-19, they say the assistance should be available for the sectors and regions hardest hit by the pandemic: There should be “specific and crisis-related criteria to base decisions on. Conditions on the ground should decide where the money goes. Taking decisions now based on pre-crisis statistics simply makes no sense.” They say the fund should be open only until the end of 2022, should not be bigger than can usefully be absorbed by member states during the present emergency, and should not be “mixed up with other challenges and priorities” addressed in the long-term budget. And, they say, in setting new priorities in the MFF after the pandemic the EU must reprioritize: “Everything cannot be equally important.” Lastly, and living up to their name, they note that the crisis strains all of the national budgets, so there must be a “realistic level of spending. Most importantly, money should be used carefully and only where we know it will make a real difference.”

Last week, the OECD released its Spring 2020 forecast. It predicts a significantly greater economic contraction than the EU had predicted in its spring forecast a month ago. If there is no second surge in the pandemic, the OECD predicts GDP will drop by 9.1 percent in the euro area rather than by 7.7 percent as the EU predicted and by more than 11 percent in France, Italy and Spain rather than by 8 to 9.5 percent. And if there is a second surge in the fourth quarter—something that can’t be ruled out—the OECD predicts GDP will drop by 11.5 percent in the euro area and by 14 percent in France, Italy and Spain. Whether the “frugal four” and their allies will let the recovery fund to happen, and, if they do, how effective it will be, remains to be seen.


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