“This fund shall be of a sufficient magnitude, targeted towards the sectors and geographical parts of Europe most affected, and be dedicated to dealing with this unprecedented crisis,” leaders of the 27 EU countries said in a statement after they met via video conference on Thursday.
The heads of the EU governments asked officials at the European Commission to come up with detailed proposals “urgently” that will include how the recovery fund will relate to the bloc’s budget for 2021-2027, they added.
The EU is planning to expand its budget from about 1.2% of GDP to 2% of GDP and then use those additional funds as a guarantee to borrow at low rates from financial markets.
Asked by reporters how much could be raised, European Commission President Ursula von der Leyen said: “This has to be looked at thoroughly … but we are not talking about billion[s], we are talking about trillion[s].”
“There are reasons for some optimism that, even if we don’t get as joined-up a response as we’d like overall, the European fiscal response to this crisis may yet end up being sizeable,” commented Societe Generale strategist Kit Juckes in a research note on Friday.
The International Monetary Fund expects EU GDP to fall by 7% this year, and recent data suggests economic activity in March and April may have crashed by between 20% and 30%.
Speaking after the video conference, French President Emmanuel Macron said there was consensus among EU states on the need for a “strong, coordinated response [worth] around 5 to 10 [percentage] points of GDP.”
Differences remain over how the fund should operate, in particular whether it should provide loans or grants to the hardest-hit countries such as Italy and Spain. Grants, or direct money transfers, would imply a degree of debt sharing that states such as the Netherlands, Austria and Germany have long resisted.
Still, EU leaders tried to put on a show of unity.
“The common market today benefits certain states or regions that are the most productive in Europe because they produce goods that they can sell in other regions. If we abandon these regions, if we abandon part of Europe, all of Europe will fall,” Macron said.
“It’s important because this is a necessary and urgent tool. It is absolutely necessary Italy is the first in line to ask for this,” he said in a short video statement.
“If we can’t do this today, I tell you the populists will win… today, tomorrow, the day after, in Italy, in Spain, perhaps in France and elsewhere,” he told the Financial Times.
James Frater, Anna Stewart, Charles Riley, Mia Alberti and Pierre Bairin contributed to this article.