Merkel Macron plot blocked: Four EU nations oppose £448billion EU ‘backdoor debt union’

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French President Emmanuel Macron and German Chancellor Angela Merkel made the surprise proposal on Monday to set up a fund that would offer grants to European Union regions and sectors hit hardest by the pandemic. The two biggest EU countries, whose agreements usually pave the way for broader EU deals, proposed that the European Commission borrow the money on behalf of the whole EU.

This money would then be spent as an additional top-up to the 2021-2027 EU budget that is already close to one trillion euros over that period.

However, the idea of grants has been slammed down by the EU’s self-styled “frugal four” which includes Austria, Sweden, Denmark and the Netherlands who suggested loans instead.

The four countries generally oppose big spending and fear the proposal will lead to a mutualisation of member states’ debt.

French President Emmanuel Macron, said of the scheme: “That’s a real change in philosophy.

“I believe this is a very deep transformation and that’s what the European Union and the single market needed to remain coherent. It’s what the euro zone needs to remain united.

“We propose to create an Emergency Recovery Fund based on a ‘loans for loans’ approach,” the four countries said in a so-called “non-paper” outlining their position to other member states and released by Austria.”

The “frugal-four” countries produced a two-page document which listed principles they wanted the fund to adhere to.

This included “not leading to any mutualisation of debt” and that it be of a “temporary, one-off nature with an explicit sunset clause after two years”.

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But the document from the “frugal four” said the Commission predicts member states will suffer an “unprecedented economic contraction in 2020, with only a partial recovery in 2021”.

The four nations said in the document: “Additional funds for the EU, regardless of how they are financed, will strain national budgets even further.”

Austrian Chancellor Sebastian Kurz said his country would submit a counterproposal along with the Netherlands, Denmark and Sweden that would be based on loans, not grants, and avoid common borrowing.

Speaking yesterday, he added: “We want a time limit so that it is really emergency aid and does not become a debt union through the back door.

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“There has to be a compromise at the end of the day.

“We want to help, we want to show solidarity, but we are also committed to the people of our country.”

Mr Kurz added that a strong European response is needed and aid should flow quickly and without red tape.

The opposition from the Frugal four means that the French and German ideas could be watered down in the final version, which would have to be approved by all 27 member governments.

The European Commission is to present its own proposal for a recovery fund linked to the EU’s next long-term budget on May 27 and said it welcomed the initiative from France and Germany.

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