26 April 2020

FT - Munchau: How to think about the EU’s rescue fund

The deed is done. Italy’s “coronabond” is history, and so is Spain’s proposal of a perpetual bond as a fiscal stabiliser.The leaders of the EU may not have reached final agreement. But they set the direction:

there will be a temporary increase of the EU’s budget, perhaps from 1.2 to 2 per cent of the EU’s gross domestic product. This money will not be paid in cash, but will come in the form of guarantees. A report suggests that the European Commission plans to raise maybe some €320bn on the financial markets over a period of two or three years. Part of that money will be spent in the form of grants. The rest is supposed to be leveraged for a fund that would lend for investments. Both grants and loans would be directed to the regions most affected by Covid-19.

A report suggests that the European Commission plans to raise maybe some €320bn on the financial markets over a period of two or three years. Part of that money will be spent in the form of grants. The rest is supposed to be leveraged for a fund that would lend for investments. Both grants and loans would be directed to the regions most affected by Covid-19. This is a very rough sketch. The details will be worked out over the next few weeks — and those details will matter more than the headline numbers. Only the numerically illiterate ever add up grants, credits and lending capacity into a single number. What will determine the economic impact for the worst-affected member states is the redistributive portion of the grants — the bit they have not funded themselves as part of their share in the scheme....

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