Merkel said the crisis threatened the cohesion of the European Union. The initiative by Europe’s top two economies was aimed at helping achieve a consensus among all 27 EU member states, she added.
“To support a sustainable recovery that restores and enhances growth in the EU, Germany and France support an ambitious, temporary and targeted Recovery Fund,” Merkel said, speaking at a video news conference.
Charles Michel, president of the European Council of EU national leaders, had called for the package to be operational by June 1. But the Commission failed on May 6 to finalize its proposal.
Differences over whether the fund should provide loans or grants to the hardest-hit countries such as Italy and Spain stalled progress. Grants, or direct money transfers, would imply a degree of debt sharing that states such as the Netherlands, Austria and Germany have long resisted.
But Merkel and Macron confirmed that under their proposal, the European Commission would borrow money to boost the EU economy and channel the funds via the EU budget to the hardest-hit regions and sectors.
“Given the exceptional nature of the challenge of the Covid-19 pandemic for economies across the EU, France and Germany propose to allow the European Commission to finance such recovery support by borrowing on markets on behalf of the EU,” she added.
Macron said the EU recovery fund would enjoy the backing of the European Central Bank. While the fund would have to be repaid over time, that burden would not fall solely on those who need the help most.
“These 500 billion euros will have to be repaid,” Macron said, but “not by the beneficiaries,” he added.
The European Union economy will shrink by a record 7.5% this year, the European Commission warned earlier this month, and the drop could be even more precipitous across the 19 countries that use the euro.
Ursula von der Leyen, president of the European Commission, welcomed the “constructive proposal made by France and Germany.”
EU Council President Michel called it a “step in the right direction” for the EU.
“I welcome Germany and France’s efforts to find common ground on the recovery fund,” Michel tweeted. “I call all 27 member states to work in a spirit of compromise as soon as the European Commission has tabled a proposal.”
EU officials have warned that the pain could be even worse than forecast if the pandemic is more severe and long-lasting than currently envisaged.
EU leaders have already signed off on immediate rescue measures worth at least €500 billion ($538 billion), a package that includes wage subsidies aimed at preventing mass layoffs, as well as loans to businesses.
— Stephanie Halasz, Pierre Buet, Nada Bashir, Rob North and Charles Riley contributed reporting.