MNI EXCLUSIVE: Franco-German Fund Proposal May Be A Tough Sell

- Netherlands, Austria, Scandinavians Seen Pushing For More Loans Vs Grants

- How Fund Gets Allocated Also Key Future Sticking Point

- Finalising Deal May Take Weeks, Physical Leaders' Summit To Agree Details

By David Thomas

     BRUSSELS(MNI) - European Commission President Ursula von der Leyen and

Economic Affairs Commissioner Paolo Gentiloni have their work cut out to

convince fiscal hawks including the Netherlands and Austria to accept a

Franco-German EUR500 billion recovery fund plan in time for the Commission to

publish a proposal by May 27 which stands a chance of being agreed by leaders,

EU sources told MNI.

     While the "ambitious, targeted and temporary" announced by the leaders of

France and Germany was more incremental progress than a revolution towards

bloc-wide burden sharing, officials said that it showed Berlin is willing to

concede ground in the stand-off between northern and southern euro zone

countries over how to fund the post-pandemic economic recovery.

     "At least Germany moved a bit," one EU source said. Officials noted that

the proposal stressed grants to recipient countries rather than loans. While one

source agreed that the proposal was a basis for a compromise, he added: "some

efforts will be needed to convince the Dutch and Austrians etc."

     Another concurred that the Franco-German pitch was a promising start, as

the Commission prepares to present its own fund proposal by Wednesday next week.

     "It's not the trillion-plus amount the south has been asking but it is

borrowing for spending, though the Netherlands, Austria and the Scandinavians

will want to see part of it changed from grants to loans."

     Further out, still trickier issues are likely to divide member states.

     "Grants versus loans is definitely an issue but later on will be the issue

of who gets how much out of the pot," a source said.

     --BUDGET CHALLENGES

     Other thorny topics include how the Recovery Fund will interact with the EU

budget, the MFF. This could spark off a fight between the southern states and

the east, which has been used to being net recipients of EU funds until now.

     "How this 500 (billion euros) will interact with the traditional MFF

policies/envelope - the east and south will be wary of that," said one EU

source.

     Another delicate issue is how the European Parliament will respond. May

2019 elections boosted representation for right-wing and populist parties as

well as for the greens, making their reaction unpredictable.

     Thrashing out a deal will require more than a video call among leaders.

     "You need weeks, and a physical summit in the end I think," one official

said.

     In preparation for such an outcome the EU Council is already taking

measures to secure social distancing inside its Brussels conference rooms, MNI

understands.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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