The European Council this Thursday is not going to reach any final decision on the European Reconstruction Fund, which should boost investment and stimulate the badly wounded economies after the coronavirus stoppage. It is important to know, to contain expectations and frustrations. The Heads of State and Government are going to give a mandate, an assignment, to the European Commission to explore possible formulas, rather than appropriate ones. Once off the table, the unaffordable for some countries, such as Eurobonds, among the rest, unlikely as it seems, will be the solution.

The open debates on structure are many. Spain has proposed a Fund of up to 1.5 billion euros anchored to the EU Budget (MMF) and that would be financed with the issuance of perpetual debt , a mechanism that has no maturity, which does not imply payment of the principal and that only requires the regular payment of interest. For an infinite time or until the EU decided to cancel it with a repayment, in a century perhaps. The idea has generated a level of applause among political groups, economists and specialists in the EU like few others. Even its detractors praise some of its components and "creativity". But it has little chance of prospering, after the near-molecular rejection of the usual suspects.

The most orthodox members believe that the European Commission "is a bureaucratic body that was not created for that" , that it should not be able to issue debt of this type, and less on its own initiative and starting from its own fiscal margin, and not only from direct guarantees of the states. And that the way can not be as much money without the need for reimbursements, there being the possibility of resorting to tools such as the Mede, which does not mutualise the debt but mutualises interest rates.

France advocates another type of special vehicle (SPV) that could perhaps issue European debt in the short term. Germany prefers that the existing mechanisms within the institutions are simply used, increasing certain items for a time. The most conflicting positions, those of the Netherlands and Italy (which has outlined a strange system of loans very little ambitious and difficult to fit in), seem to have lost some intensity, once the element they most feared or wanted has been ruled out.

And so right now it's about finding a balance. All the European sources consulted explain that the consensus opts for a mixture of transfers and loans. The frugal and hanseatic advocate tilting it to the latter, while in the south they prefer the former. The agreement will be in the proportion acceptable to all.

"Following the Eurogroup and the decisions of the ECB, the European Union has taken the necessary measures to ensure that Member States can finance themselves in the markets until the end of the year. However, Spain and Italy were already heavily indebted before this crisis and after She will not have the capacity to invest. For this reason, we need this massive investment plan to be carried out at a European level. This would mean a paradigm shift because the EU would go from being a lender to an investor, "says Luis Garicano, MEP for Citizens and one of the most active voices these weeks in Brussels in the search for consensus solutions.

Spain and Italy separate positions

"Most think right now about the Recovery Fund in terms of loans," explains a high institutional source. "I don't think the idea of ​​perpetual debt has enough consensus. But the idea of long-term loans does have good opportunities, " he adds. The pressure is strong these days and the problem is that although they have all given in, the advocates of the mutualisation path are not too cohesive. The words of the Italian Prime Minister, Giuseppe Conte, in which he assured that his country has not vetoed the use of the European Stability Mechanism (Mede) because Spain is very interested in resorting to it, have sat like a shot in the Pedro government Sánchez.

In Rome they indicate that Conte's team was upset that Spain did not consult well with them before launching their proposal. But in Madrid they do not understand the way out, which they see as throwing a friend on horses to protect themselves nationally in a very toxic fight. This Wednesday, in the Congress of Deputies, Pedro Sánchez has avoided up to four times the questions of Pablo Casado and Citizens about whether he thought of using the Mede lines of credit, which although they are different from the rescue programs of the past and they do not have any conditionality when they are used for direct or indirect sanitary spending, they still retain a certain stigma.

Von der Leyen initiative

Although the objective of the European Council is to give guidelines to the European Commission and the Eurogroup, the President Ursula von der Leyen, in close collaboration with Berlin, has distributed this Wednesday an outline, a first draft, that shows well her preferences and some of the Chancellor Angela Merkel. The Commission wants to be responsible for the Fund , to have the initiative. Because it would also allow him to gain powers. In The Hague, however, they do not even want to hear about the issue and these days they send messages through all channels indicating that this is not the time to change the fundamentals. The Commission has issued bonds in the past for certain functions, and will do so now for the unemployment reinsurance program. But they do not believe that it should overreach.

"It is not an official proposal, neither on the table, nor final. We would agree with it based on several criteria: the size of the program, that it be quickly executable, that we have availability of funds from this year or at the beginning of 2021, that we have money soon to make the investments and spending that we need. And that it responds to our spending priorities, All we have on the table is a pipe dream, "explain southern diplomatic sources.

The European Commission's plan draws on its traditions, with the best and the worst. Given that a kind of academic and political consensus has been established that the size of the Recovery Fund should be around one and a half billion euros, they have been reverse engineering to see what mechanisms and how much to activate. The Commission always works for these things with multipliers: that each euro in cash of public money mobilizes and activates many more. That is the basis of the so-called Juncker Plan.

Thus, the Von der Leyen draft does not propose, unlike the Spanish 1.5 trillion fresh money for investments, but to obtain with its own resources the margin to be able to issue up to 320,000 million euros and that this amount has a multiplying effect , with which it is would reach the desired figure. Even a little more, up to 1.6 billion. The initial amount would be obtained by increasing the ceiling for own resources spending, which according to the EU's Multiannual Financial Framework, its Budget, is capped at 1.2% of GDP. Von der Leyen's request is that for the period 2021-2027 it be increased to 1.3%, and in the first years to around 1.9%.

The Commission has already issued debt in the past, but this amount is almost 10 times higher than that used a decade ago to help the worst affected countries, such as Ireland. And it would include non-refundable transfers, and not just loans, which is the preferred route for the most skeptical. Long-term if necessary, but always with refunds

Calendar to be decided

In any case, there is no precise calendar. Spain, in the aforementioned proposal, wanted the triple safety net of half a trillion euros approved by the Eurogroup to be available from June 1, and that this Fund be available in early January, when in theory it should enter into force the Financial Framework for 2021-2027, but it is not clear.

A formal conclusion document will not come out of Thursday's European Council, but only a letter from President Charles Michel , which does not require unanimity. The idea is to push the institutions to move as quickly as possible, hoping that by June the leaders can meet in person in Brussels and perhaps finalize the issue. But it is not clear. There is also consensus that before closing the size and especially where each euro should go, more certainty is needed, to understand the real impact of the pandemic. And that will take time. "We have to balance technical work and urgency," settle community sources responsible for calendars.

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  • Spain
  • European Comission
  • Eurogroup
  • Italy
  • Citizens
  • Pedro Sánchez
  • European Union
  • Ireland
  • Congress of Deputies
  • Germany
  • Angela Merkel
  • Berlin
  • Pablo Casado
  • France
  • Madrid
  • GDP

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