https://www.bloomberg.com/news/articles ... ium-europe
EU Eyes $2.2 Trillion Plan as ECB Accepts Some Junk-Rated Bonds
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The European Commission is floating a 2 trillion-euro ($2.2 trillion) plan for economic recovery ahead of leaders’ talks on Thursday as it seeks a way past the divisions of recent weeks.
The European Union’s 27 heads of government will hold a videoconference to discuss the next steps in tackling the coronavirus pandemic after stringent lockdowns shuttered factories and halted travel, pitching the world’s largest trading bloc into the worst recession in living memory. The EU expects output to contract by as much as 10% this year, according to an official.
Amid the contentious debate over financing a euro-area rescue package, the European Central Bank also took steps, saying it would accept some junk-rated debt as collateral for loans to banks. This is a move that will affect Italy, which is in the eye of the storm, and whose credit rating is under review.
As the losses mount, the richer northern EU members have been resisting pressure for new financing structures to help reconstruction in the southern countries hardest hit by the virus. The compromise proposal, set out in an internal commission document seen by Bloomberg News, would partially use the EU’s existing seven-year budget and also establish a new financing mechanism.
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Under the draft plan, the EU would integrate a 300 billion-euro recovery fund into the 2021-2027 budget and borrow 320 billion euros on the capital markets. The document doesn’t say how the commission reached its 2 trillion-euro total.
The draft hasn’t been seen by the commission president, Ursula von der Leyen, or her cabinet, spokesman Eric Mamer said on Twitter. “She will present the main lines of her proposal on a way forward to recovery tomorrow during the videoconference of leaders,” he said.
With more than 100,000 fatalities in the region, Europe has been hard hit by Covid-19 and the fallout from the crisis is tearing at the fabric that holds the disparate group of nations together.
France, Spain and Italy have called for the EU to introduce joint debt sales but governments such as Germany and the Netherlands have rejected so-called coronabonds over fear that they’d be stuck with the bill. The pressure to act is increasing as the costs of halting large swathes of the economy become clearer.
Resources for the recovery fund should come from long maturity or perpetual debt, Italian Finance Minister Roberto Gualtieri told the Financial Times in an interview, according to a ministry spokesman. Italy will insist that funds be given to member states with grants, he said. He also said there is no plan to mutualize existing debts but to find a way to fight against a common challenge.
Germany’s public-sector deficit will widen to more than 7% of GDP this year due to extra spending to tackle the crisis, according to the government’s latest fiscal report for the EU. Public debt will also increase after several years of declines, rising to around 75% of output with almost a third of the companies requesting wage-support aid.
Italy’s deficit could be more than 10% of national output, pushing its debt-to-GDP ratio to more than 150%, according to officials familiar with the government’s latest projections. Prime Minister Giuseppe Conte’s cabinet is expected to seek parliamentary approval to broaden the deficit by about 55 billion euros, the officials said.
I would have lived in peace. But my enemies brought me war.
