Spain proposes a Fund linked to the European budget as an alternative to coronabonds
The European Council will discuss the European Recovery Fund at its meeting on Thursday 23 April. If last week France was talking about a fund of 500 billion euros, while Italy continues to insist on coronabonds, now Spain is proposing an up to 1.5 trillion euros fund, financed by perpetual debt issued by the EU.
It would be distributed as direct transfers limited to the crisis duration (and not debt) amongst the most affected countries (in terms of percentage of population affected, fall in GDP or increase in unemployment), and would be non-refundable. This would be an attempt to avoid the issue of coronabonds by setting up a large fund linked to the EU budget. With this instrument, only interest would be paid. And this would be taken on in solidarity and financed, at least partly, via taxes at a European level, for example on environmental policies (CO2 emissions). The intention is for this funding to be available on 1 January 2021.
The plan also proposes progress towards greater tax harmonisation to avoid a capital flight of revenue, especially corporate tax. On Thursday, the 540 billion euro package agreed by the Eurogroup last week will also be approved. It focuses not on post-Coronavirus recovery but on providing the most urgently needed liquidity in the short term, and funding should be available by June 1. The market does not seem to have many expectations, with the yields of peripheral countries and spreads rebounding. Particularly in Italy, which is already close to levels prior to the ECB’s PEPP announced on March 19.
Source: THE CORNER
