MNI EXCLUSIVE: Much Of EUR750 Bln Europe Plan May Stay Unused

--Roughly A Third Of EUR750 Bln Likely To Be Unused

--Frugal Four Likely To Negotiate Hard

By David Thomas

     BRUSSELS(MNI) - Roughly a third of the European Commission's EUR750 billion

coronavirus recovery plan is unlikely ever to be used, EU officials told MNI,

describing it as effectively a far smaller package than an earlier EUR500

billion Franco-German proposal and adding that it still faces tough negotiations

and is unlikely to be approved during the summer.

     Markets applauded Wednesday's 'Next Generation' plan, but officials pointed

out that, unlike the earlier proposal presented by the leaders of France and

Germany, it is composed of loans as well as grants and will be spread out over

the Commission's seven-year budget. The loans are unlikely ever to be taken up,

given the availability of easy finance from other sources, including the ECB's

PEPP bond-buying programme and the possibility of accessing European Stability

Mechanism pandemic credit lines, the officials said.

     "So quite a significant watering down of the Franco German proposal, as the

grants components is reduced to EUR310 billion and EUR250 billion of loans is

added, which nobody needs or will want," said one official close to EU

discussions on the fund.

     The Commission's "Recovery and Resilience Facility's grants worth EUR310

billion, plus EUR50 billion or so worth of funding under the cohesion heading,

say sources, is the more relevant comparison to the joint plan presented by

Emmanuel Macron and Angela Merkel, bringing the crisis-focused stimulus package

up towards EUR400 billion.

     Sources see hard bargaining ahead between ECOFIN finance ministers in

coming weeks and at a summit on June 18-19, not least over the Commission's

proposal for an increase in its own resources - including new EU taxes, such as

a carbon border tax and a possible digital tax - to help service the bloc's new

long-term borrowings.

     The so-called "Frugal Four" - the Netherlands, Austria, Denmark and Sweden

-- will most likely find these new taxes even tougher to stomach than the grants

in the Franco-German proposal which they have already rejected, the officials

said.

     --SUMMER AGREEMENT UNLIKELY

     Agreement on the own resources proposal may be unlikely by the summer or

even by September as the Commission has urged. That means the EU's new borrowing

will also need to be delayed since the new taxes are needed to back the member

state guarantees for the bonds.

     "This makes the idea of having a bridge [to front-load the Recovery and

Reslience Facility] this year more and more unlikely."

     One source felt that the Commission had probably made a serious tactical

error in not making the recovery fund bigger.

     "It would have given them a higher, so better, starting point in talks with

the Frugal Four."

     Rebates put forward by the Commission also look unlikely to appease the

Four, as some have suggested.

     "The rise in own resources will clearly bite into anything they gain from

that, if not negate it altogether."

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

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