French President, Emmanuel Macron & German Chancellor, Angela Merkel.

French President, Emmanuel Macron & German Chancellor, Angela Merkel.

18-05-2020Kay Neitfield, Reuters Pool

The German Chancellor, Angela Merkel and French President, Emmanuel Macron, have proposed launching a €500 billion recovery fund for the European economy and Sectors hardest hit by the coronavirus pandemic, through budget transfers.

The joint initiative was announced after a video-conference between the two European leaders on Monday.

"We want a 500 billion euro fund, which will be budget expenditures, for the Sectors and Regions hardest hit by Covid-19," said Angela Merkel. "A colossal effort is needed and France and Germany are ready to do it."

"The crisis we are experiencing is unprecedented and requires a response that, to be effective, must be collective and, first and foremost, European,” added Emmanuel Macron. "The virus knows no borders and has hit all of Europe.”

The Franco-German proposal to create a fund of 500 billion euros is a long way from the 1.5 billion euro plan proposed by the European Commission or Spain, and proposes that it be directed to European Capitals through non-repayable grants.

Merkel and Macron's approach to the rest of the EU partners also includes the issuance of European debt by the European Commission. The money raised in the markets would be transferred to the Member States through the EU budget, or MFF with special emphasis on accelerating green and digital transitions.

EU Chief Executive, Ursula von der Leyen welcomed the Franco-German proposal, which "recognises the scope and scale of the economic challenge facing Europe and highlights the need to work on a budget solution, at its core and follows the same direction as the Commission's proposal,” she said.

The President of the European Council, Charles Michel, said “this is a step in the right direction, but in order to reach an agreement all 27 Member States must agree, and I call on them to work in a spirit of commitment as soon as the Commission presents its proposal," he tweeted.

The Franco-German approach has been set out in a joint document in which Paris and Berlin stress that the reconstruction fund must strengthen the resilience, convergence and competitiveness of European economies through investments focused mainly on ecological and digital transitions.

Merkel and Macron pointed out that the European Green Pact is the “new growth strategy for the EU" which in turn must raise its greenhouse gas emission reduction targets by 2030 and "accelerating the digital transformation" mainly through the deployment of the 5G network, investments in Cybersecurity Infrastructure and Technologies, "Digital Identity Management" or the creation of an "Artificial Intelligence" framework.

The two European leaders want to establish a fair tax system for digital multinationals that completes a "minimum and effective" corporate tax base.

They also emphasised the urgency of the EU strengthening its industrial strategy and encouraging the creation of "champions" in various industrial fields that can compete with foreign multinationals.

Beyond economic aspects, the Franco-German document emphasises that the EU's response to both the current health crisis and "future" emergencies must be based on a new "strategic health sovereignty" that "reduces dependence on the production of medicines from abroad, for example.

They advocate increasing investment in the Research & Development of vaccines and treatments, as well as improving coordination between Member States to reach product markets through joint procurement "to talk with a single voice for the pharmaceutical industry and ensure more effective European and Global access.”

Merkel and Macron want to create "common strategic reserves" of pharmaceutical or protection products and their "development of production capacities" within the European Union.

Finally, they’re calling for a group of experts within the European Centre for Disease Prevention and Control, or ECDC to draw up plans for the prevention and response to future epidemics and to define European Standards for the management of health data.

Spain Reax

The Spanish Prime Minister, Pedro Sanchez, has welcomed the Franco-Germany proposal to create a European coronavirus recovery fund for countries and sectors most affected by the crisis.

"It is a first step in the right direction, an initiative in line with our demands and in which we must continue to move forward," he tweeted, stating that it would be a fund recovery “through non-reimbursable grants” to the countries and sectors most affected.

Government sources have said that the Franco-German initiative includes many of the proposals Spain suggested for a quick and supportive exit from the crisis.

The Government now hopes that the European Commission table an ambitious proposal in the coming days that will serve as the basis for an agreement to kick-start the European economy after the pandemic, according to sources.

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