There is movement in the discussion about an EU reconstruction fund. Based on the Franco-German proposal, the fund is to have a volume of 500 billion euros, be managed by the EU and be launched in a few months‘ time. Brussels would also decide alone on how the money is to be used, but this would be based on how badly the recipient states are affected by the crisis. Contrary to what was initially demanded by Berlin, the fund would provide grants rather than loans and would be conceptually similar to the EU’s Cohesion Fund. This also explains why it should be smaller than previously discussed. To finance the money, the EU would first issue bonds on the financial market. This would require the approval of the national parliaments. However, the EU’s debt is to be gradually reduced over the next few years through higher financial contributions to the EU by the nation states. If we assume a share of payments to the EU of around 23% for Germany, the share of the largest EU member state would add up to EUR 135 bn.
At first glance the proposal seems far less groundbreaking than that of the Corona Bonds. The volume of the already existing EU budget would be increased and the financial contributions of the nation states to the EU in the coming years would be increased. What is new, however, is that the EU would be able to take on considerable amounts of its own debt. This would amount to a paradigm shift. Until now, Brussels‘ financial room for manoeuvre has always been limited by the fact that the nation states wanted to keep their payments to Brussels within limits. This would change with the new proposal. The financial burdens on the states would be shifted into the future, which would also usually result in fewer conflicts with their own voters. The agreement to pay off the EU’s debts would, however, initially only be a promise – whether all EU states will keep this promise is uncertain. It would therefore be quite likely that debt-financed EU aid could become a permanent arrangement once it is in place.
The new mechanism is likely to arouse covetousness, especially in Southern Europe. Ultimately, the risk for Germany would be hardly less than with corona bonds, as the federal government would ultimately also be liable for Brussels‘ debts. So what made Merkel change her mind? The ruling of the Federal Constitutional Court on the PSPP may have played a role here. It calls for a time limit on bond purchases by the ECB and the Bundesbank. The central banks thus serve as a crisis fire brigade, but not as a permanent solution to the problems of the common currency area. In order to keep the eurozone together, Italy in particular needs financial assistance. If the central bank’s bond purchases are cancelled, Rome is threatened with financial imbalance. The northern European states will therefore not be able to avoid transferring money to Rome. Instead of financing Italy directly from the federal budget, it should now be directed by the EU, but the taxpayers will only gradually pay for it. In the spirit of the European idea, greater financial solidarity is probably inevitable – but an open discussion about the risks and side effects of the chosen form is desirable.