Coronavirus: France and Germany call for €500bn European recovery fund to combat economic impact of pandemic

EU budget expenditure would be used to help worst-hit countries and regions

Angela Merkel and Emmanuel Macron hold a joint video news conference (Kay Nietfeld/Reuters)

France and Germany have called for the creation of a €500bn reconstruction plan to help Europe recover from the economic damage of the coronavirus outbreak.

The recovery fund would see European Union budget expenditure used to offer grants to the European countries and sectors hardest hit by the crisis.

In a joint statement, the French president, Emmanuel Macron, and the German chancellor, Angela Merkel, said they were proposing to authorise the European Commission to borrow money on financial markets in the European Union’s name. All 27 EU members would have to approve the fund.

However, the short-term plan remains the development of a Covid-19 vaccine, they said. They also called for an increase in the European budget over the first few years of the reconstruction plan.

Mr Macron, who called the Franco-German initiative “a major step forward”, said that for the first time the two countries had proposed that the EU raise debt jointly.

Ms Merkel said they were in favour of reforming the EU’s merger and competition rules so the bloc would be able to create stronger European champions after the crisis.

She said EU member states and the bloc’s executive would mobilise a combined sum of €3 trillion to ease the economic impact of the pandemic.

The two leaders said they would seek a “swift agreement” on the EU budget and the proposed recovery fund.

However, the proposal is likely to run into resistance from fiscal hawks in the bloc, such as the Netherlands.

Germany has also long resisted the idea of joint borrowing, but Ms Merkel said that “because of the unusual nature of the crisis we are choosing an unusual path”.

Several European countries have been concerned that the impact of the pandemic and the bloc’s initially uncoordinated response could boost anti-EU sentiment.

Mr Macron said a French-German deal alone “doesn’t mean an agreement from the 27 [member states]”.

The European Commission will soon make its own proposal to EU member states and “we hope that the French-German deal will help”, he added.

The commission’s president, Ursula von der Leyen, said she welcomed the proposal: “It acknowledges the scope and the size of the economic challenge that Europe faces, and rightly puts the emphasis on the need to work on a solution with the European budget at its core.”