A French official on Tuesday expressed optimism the European Council will back the efforts by France and Germany for a 500 billion euro fund to aid economic recovery efforts.
“I am confident that we will find a way,” said Odile Renaud-Basso, director general of the French Treasury, during an online conference run by the Institute for International Finance. “I think that all countries share the assessment that this is exceptional circumstances at an exceptional time.”
The so-called Frugal Four — Austria, Sweden, Denmark and the Netherlands — have expressed opposition to the idea of collective financing. They support a recovery fund of only loans.
The European Commission on Wednesday is due to present its proposal.
Renaud-Basso said the issue is that there is a huge need for financing but it makes more sense to spread the cost over time. What’s new is that it would be the first time the European Commission finances expenditure, she said.
She expects debate to center around the mix of grants and loans for the fund and what conditions are attached. The proposal is to spend the money over three years, starting in 2021.
European Central Bank chief economist Philip Lane declined to call the move a “game changer” but acknowledged financial conditions improved after the proposal was announced. The yield on the 10-year Italian government bond TMBMKIT-10Y, 1.538% declined sharply after the proposal was announced.
“More generally we’re finding, not just in Europe but globally, in this low-interest rate world, the ability to capitalize relatively small amounts of annual budget in a European Union context can pack quite a lot of force,” Lane said.
Lane also noted that the Franco-German proposal is, by design, limited to a coronavirus response.
“It’s very much a kind of specific response which I think of course is much more likely at this point to gain a lot of consensus than some grand announcement of a permanent move to fiscal union,” he said.
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