The European Union (EU) will take the unusual step of giving away hundreds of billions of euros to Member States in an unprecedented step to mitigate the economic devastation wrought by the raging COVID-19 pandemic.
The European Commission (EC) Wednesday unveiled a recovery fund plan to raise $825 billion (€750 billion) on financial markets through its 2021 to 2027 budget for the purpose. It said two-thirds of the money will be distributed to countries via grants that don't need to be repaid. The balance will be offered as loans carrying modest interest rates.
The EC proposal includes $550 billion (€500 billion) in grants and $275 billion (€250 billion) in loans. Of the $550 billion in loans, $341 billion (€310 billion) will be invested in green and digital transitions.
The EC plans to finance the borrowing with new taxes on polluters and non-recyclable plastics. It also plans to introduce a carbon border duty, a common consolidated corporate tax base and a digital tax on digital services firms.
The EC is the EU's executive branch responsible for proposing legislation, implementing EI decisions, and managing the day-to-day the business of the EU, among other functions.
EC President Ursula von der Leyen said the EU understands the pandemic crisis "is so huge we have to take unusual steps to overcome the crisis and to get out stronger." She also said the recovery plan turns the immense challenge facing the EU into an opportunity.
The EU proposal will trigger discussions among the 27 EU Member States. EU leaders will meet in a video call on June 18 to reach a consensus over the exact details of the recovery fund. The European Parliament will have to approve the recovery fund
The recovery fund is expected to have some effect in diminishing the already huge damage to the EU as a whole. The EC forecast the GDP in the 19 countries comprising the eurozone will shrink by 7.75% this year, which is a record high. European Central Bank (ECB) President Christine Lagarde Wednesday said the damage might be even greater, and estimates a loss ranging from 8% and 12% of GDP.
The recovery fund was made possible by the support of Germany and France, the two largest economies in the EU. Last week, both countries said they supported the extensive use of grants even as they affirmed the immense economic damage caused by the pandemic. The EC's inclusion of grants and loans sought to bridge the wide differences among EU Member States.
