The EU has budgeted a trillion euros for coronavirus relief. This development has caused conflict among countries and debate about possible recoveries in the near-future.
As the world is adjusting to a new reality as a result of the COVID-19 outbreak, the question on everyone’s lips is where the world goes from here. It is also questioned whether countries’ economies and businesses can recover from a prolonged shutdown and how employment will recover for the long-term.
On April 23, it was announced that the European Union had decided on a trillion-euro emergency fund for coronavirus relief. [Reuters] The fund in question is part of a budget for the years 2021-2027 and is intended for long-term recovery plans. Due to the European Union headquarters being shut down in accordance with lockdown efforts, the meeting was held virtually, with 27 leaders involved in a four-hour long video conference.
Economic Predictions for 2020
The multi-year budget has not been an easy point of discussion among EU leaders, and it is now further complicated by the pandemic. However, Italy’s Prime Minister, Giuseppe Conte, has indicated that there is some progress in negotiations so far. According to French President Emmanuel Macron, the biggest bone of contention is how the funds should be dispersed — as grants or simply as loans?
The issue with giving the funds out as loans is that it would put pressure on countries like Greece, which already struggles with national debt. This is besides the fact that the virus is expected to lead to a reduction of between 5-15% of the euro zone economic output, according to the European Central Bank. [Financial Times] The euro zone is already expected to see a growth decline of 7.5%, the International Monetary Fund says, and it is unknown how long it will take to correct this.
Tensions Reemerge Among Member States
The ongoing efforts have also sparked conflict among world leaders and brought up previous squabbles among countries. For example, the Netherlands refused Italy’s request to issue common debt, and leaders have been divided; French and Austrian leaders back the idea, while Spanish leaders suggest that loans should be issued instead.
A half-a-trillion euros relief was approved earlier in April. [The New York Times] Some of the details about this new fund will be made public by the summer after many countries are predicted to have hit their peak infection rate. [Evening Standard] Proposals have been requested by EU leaders from the European Commission, with a deadline of May 6, 2020.
According to European Commission President Ursula von der Leyen, 1.8 trillion euros have already been spent by EU countries in relief efforts, and the new fund is to the tune of 1 trillion euros. [Independent] As a result, EU countries will be required to put forward 2% of their gross national income towards the recovery fund.
From all accounts, the EU is hoping for a clean shot at economic recovery when lockdown measures are lifted. This incident, however, has shown issues that exist in the global financial system, and as various institutions rebuild, it is uncertain if things can ever be the same.