In a historic first, Germany and France have said the European Union should set up a €500 billion (US$542 billion) fund to restart economies hit hard by the coronavirus pandemic.
The plan represents a bid by the two leading members of the bloc to speed up progress on setting up a long-term recovery plan for a recession forecast to be of historic proportions.
Close allies Germany and France had previously been on opposing sides of a debate on EU fiscal stimulus, with Paris pushing for a far more ambitious vision than Berlin.
The sum would be raised on capital markets in the name of the EU and be paid out to hard-up states and regions as grants from the long-term EU budget, French President Emmanuel Macron and German Chancellor Angela Merkel said on Monday.
“For the first time together, what we propose is to raise a common debt in the market,” Macron said.
Under the plan, the European Commission would raise the debts rather than member states themselves.
EU leaders are at odds over how much fiscal firepower to roll out to shore up their deeply intertwined economies and in what guise.
The issue of shared debt is particularly divisive: it is a long-standing political taboo for several of the wealthy northern states, which fear taking on liability for their more heavily indebted neighbours concentrated in the continent’s south.
The commission is due to present an official proposal for EU leaders to consider on May 27 after a delay of some weeks, but welcomed the “constructive” suggestion on Monday.
The two strongest proponents of raising EU debt, virus-stricken Italy and Spain, also reacted positively.
But opposition came from Austria, Denmark, the Netherlands and Sweden, according to Chancellor Sebastian Kurz in Vienna.
“Our position remains unchanged. We are ready to help most affected countries with loans,” the centre-right politician tweeted after talks with his counterparts.
Rome and Madrid have pointed out previously that issuing crisis aid as loans will only compound their already high debt levels.
A first package of short-term loan assistance of up to €540 billion had already been agreed by the EU countries in early April.
The new initiative is “a real change of philosophy”, Macron said in the joint press conference by video link from the Elysee with Merkel in Berlin.
Merkel, more cautiously, described the plan an “extraordinary, one-time effort”.
“The goal is that Europe comes out of this crisis strengthened, cohesive and in solidarity,” the chancellor said.
Under the Franco-German concept, the aid should not be repaid by those who received it, Macron said. Instead, the plan is that the debts taken out at EU level will be paid back over a period of about 20 years from the EU budget.
The borrowing will also have a clear scope and expiry date, according to the proposal.
“It acknowledges the scope and the size of the economic challenge that Europe faces, and rightly puts the emphasis on the need to work on a solution with the European budget at its core,” commission President Ursula von der Leyen said.
The Franco-German suggestion “goes in the direction” of what the EU’s executive branch is working on itself, von der Leyen said.
The President of the European Parliament David Sassoli also greeted the proposal. Last week, EU lawmakers called for a mechanism worth €2 trillion.
Any proposal for a recovery mechanism subsumed within the EU budget faces a long approval process. EU capitals will have to sign off the whole seven-year spending plan starting from 2021.
The last EU summit on the matter in February ended without progress, and budget talks have since been derailed by the coronavirus pandemic.