MNI: EU To Redirect EUR200Bln NGEU Loans Due To War- Officials

European Union finance ministers are set to back a European Commission proposal to redirect more than EUR200 billion in loans left unused in the NextGenerationEU facility towards new priorities such as ending energy dependence on Russia, and might agree to allow member states to access funds originally allocated to other countries, EU sources told MNI.

The Commission could publish guidance as soon as next Wednesday to permit states to rapidly access unused loans from NGEU, which was established to restore the EU economy to health in the wake of the Covid pandemic, sources said. The announcement of a large new facility to provide loans to Ukraine is also due on May 18.

“Changing the objective that the funds are trying to achieve is something no-one would question,” one official said. “This is something that all finance ministers would support. If funds are available, then it’s best to make use of them.”

EU finance ministers are likely to discuss the Commission’s proposals on NGEU loans at their May 23-24 meetings in Brussels. It should also be possible to allow member states to access NGEU loans left unused because the countries to which they were allocated, such as Germany and the Netherlands, found it cheaper to borrow from markets themselves, officials said, without making clear whether this would be proposed by the Commission itself.

HELP ITALIAN SPREADS

Such a move, crucial for countries like Italy, whose borrowing costs are well above those of the European Commission and which has already applied for its full quota of NGEU funds, would require legislative or regulatory measures, they said.

“The transfer would seem logical, but implementation is not so easy to solve,” said one source. It might be easiest to alter the country allocation of loans in the second phase of NGEU which begins next year, the source added.

Concerned by the scale of spending required in response to Russia’s invasion of Ukraine and reluctant to further increase its own borrowing, Italy had earlier pushed for a wholly new NGEU-type facility, but an Italian government source told MNI that Rome would be happy to accept redirected funds from the existing programme. Such additional funds could speed up financing for green projects and infrastructure to take delivery of liquified natural gas.

“It would work for us. We have been very creative but at the end this would be a good solution,” the source said. “This is a way to keep spreads under control.”

Even the EU’s so-called “frugal” bloc, which frowns on excessive borrowing, would be likely to approve a re-allocation of national loans, a finance ministry official from one such country said.

“This one has a chance of flying, if it is tied to the impact of sanctions and economic effects,” the official said.

UKRAINE FUND

While countries such as France had joined Italy in seeking new EU programmes to help their economies over the impact of the Ukraine war, diverting money already allocated is politically more feasible at this point, particularly as the EU is already working on the sizeable EU-Ukraine fund, officials said. (See MNI SOURCES: Limited Support For Macron's EU Defence Bonds)

The Ukraine fund is expected to be designed along the lines of the SURE programme, which was backed by EUR25 billion in guarantees from member states and provided EUR100 billion of cheap loans to help maintain employment and businesses during the Covid shutdowns of 2020-21.

One source said loans to Ukraine would have to be long-dated, given the country’s dire fiscal situation and added that the programme might be split into short-term assistance and longer-term reconstruction aid. Such a demanding programme will curb the appetite of richer EU countries for additional spending to help other member states, the official said.

“That is why we are not sure that anything more than repurposing existing funds will happen any time soon at EU-level,” the official said.