Spain floats new finance scheme for EU reconstruction

Pedro Sánchez (back, center) at meeting of European Council leaders in February. Photo: El País
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An ambitious 1.5-trillion-euro compromise proposal by Spain to help Europe finance its way to economic recovery after the coronavirus emergency passes appears to have a moderate chance of acceptance by European Council leaders at their upcoming summit conference Thursday, following previous rebuffs by Germany, Holland and other countries of so-called “coronabonds” borrowing schemes floated by Spain, Italy and other Eu member-states hit hardest by the crisis.

The new Spanish proposal for financing reconstruction of European countries’ economies represents a shift away from the earlier “coronabonds” scheme of mutualized borrowing of funds by Europe as a whole, but with spending on reconstruction by individual countries.

Instead, Spain’s President Pedro Sanchez has now proposed to his European Council counterparts that they consider creation of a 1.5-trillion-euro fund for reconstruction that would be linked to the European Union’s budget and underwritten through borrowing of “permanent debt” in line with EU budgetary borrowing guidelines.

► News Sources: El Diario, La Vanguardia and Bolsamanía …

The ability to borrow money on global debt markets under such a plan would take advantage of the EU’s strong “AAA” bond ratings, enabling securing debt for reconstruction of the region’s economies at the best available interest rates.

The new proposal has already been favorably received by European Council President Charles Michel and is in line with recent remarks by EU Commission President Urusula Van der Leyen on the need for a plan linked to the EU budget.

Critically, the proposal may be able to succeed in winning key support from German leader Angela Merkel, whose government’s firm opposition sank the earlier coronabonds scheme backed by Spain, Italy and France.

According to press reports, the new Spanish proposal may be acceptable to Germany because it would not require any legislative changes to German restrictions on borrowing, enabling Merkel to avoid a potentially politically damaging vote in Germany’s Bundestag parliament and any possible challenge before Germany’s Constitutional Court.

► Read more in English at: El País, Reuters and Bloomberg …

Although the Spanish proposal looks to be more acceptable to Germany, Holland and other northern EU member states, it is not yet clear whether it will be seen as sufficient by other southern EU countries, particularly Italy, Greece and Portugal.

Absent agreement by all leaders of the 19-member European Council on Thursday, it is likely that negotiations to find a way out of the stalemate over financing post-coronavirus European reconstruction could drag on for weeks or even months.

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