Spain Proposes an Ambitious €1.5 Trillion Debt Recovery Fund to The European Union to Aid Countries Worst-Hit by the Coronavirus Crisis

President, Pedro Sanchez, is planning on pitching an ambitious recovery plan to European leaders in the upcoming European summit, however it is open to negotiation with northern countries like Germany.

SO far it has been clear that the most disrupted region by the coronavirus has been Europe and that the recovery from this pandemic will not be an easy task to achieve. Countries such as Italy and Spain who have been worst affected by the pandemic will have no chance of recovering their economies unless there is some type of ‘Marshall Plan’ in the EU’s agenda over the next few years.

Therefore, Pedro Sanchez has chosen to stand firmly with his decision, at the upcoming European Summit on Thursday April 23, to create a €1.5 trillion recovery fund which is financed through perpetual EU debt and that will be assigned via a grant programme, not debt, to those countries who have been hit the hardest by the crisis.

Sanchez hopes to command more of a central role at the upcoming summit with a clear message which will be defended by other countries in the south of Europe like France and Italy. However, Italy and France are more open to different solutions and hope to meet an intermediary point after negotiations with Germany.

Angela Merkel, the German chancellor, has already made clear that there will be no kind of “coronabonds,” a measure which intends to distribute the burden of debt amongst all EU countries in order to reconstruct economies once the pandemic is under control.

The proposal by Sanchez, which is already being circulated and discussed in Brussels, does not focus on the immediate crisis, which each country is using its own resources to deal with and taking on reasonable debt thanks to the European Central Bank. Instead, Sanchez proposes to use a recovery fund limited at €1.5 trillion (practically the same size as the economy of Italy) which would directly fund the worst-affected economies.

The main difference of this new proposal is that southern countries would be able to avoid the massive amounts of debt attached to the Eurogroup loans which have been the prominent topic of discussion so far. This scheme is not meant to lend money but to make direct grants “based on a national allocation key related to the impact of the Covid-19 crisis on the basis of clear and transparent indicators, such as percentage of population affected, drop of GDP, increase in unemployment levels, etc.”

The current measures outlined by the Eurogroup have involved €500 million bailout funds from the European Stability Mechanism (ESM), guarantees from the European Investment Bank and funds for temporary suspension of employment schemes. However, these economic helps do nothing for improvement of economic recovery after the pandemic is under control, as they only focus on providing liquidity in the early stages of the crisis.