Merkel, Macron back EU crisis recovery fund

Germany and France agreed to back a plan for a €500 billion ($543 billion) recovery fund to help the European Union weather the worst recession in living memory.

German Chancellor Angela Merkel and French President Emmanuel Macron called for Europe to emerge stronger from the coronavirus crisis. In a show of unity, the leaders of the EU's two biggest economies appeared together in a virtual press briefing on Monday amid deep divisions over the recovery fund.

Ms. Merkel said the fund will be within the framework of the bloc's budget, which will have authority to borrow money.

Even as Germany and France find common ground, the world's largest trading bloc is far from reaching an agreement over a package to help stricken member states.

The European Commission, the bloc's executive arm, floated a €2 trillion plan last month that would have seen the EU borrow €320 billion on capital markets. Countries are still negotiating the ultimate size of the fund and how much would be available as grants vs. loans. The latest proposal is due on May 27.

The biggest obstacles haven't been the German and French positions, but bridging differences between richer and poorer nations. On the one side, there's the push led by Spain and Italy for more grants and common borrowing. On the other side, the Netherlands, Sweden and Denmark want more loans to limit the risk of getting stuck paying the bill.

The vast differences in resources was brought into focus after the EU said that Germany accounts for more than half of state aid approved to counter the pandemic's economic fallout.

Most of the hardest-hit EU countries have been banking on the recovery fund. Draft plans seen by Bloomberg suggest the commission's plan will include a mix of loans and grants, as well as funds that will be used as guarantees to mobilize private investment, help sound companies replenish capital and invest in strategic sectors.

The plan, which will have to be endorsed by the European Parliament and national governments, would see most of the funds spent on public investments and reforms in the countries most deeply affected by efforts to contain the disease.

While EU leaders have broadly accepted that some of the money will come from jointly-issued debt, how much the bloc will raise on the markets and how these funds will be distributed remain contentious.