Von der Leyen warned EU leaders could kill her trillion-euro coronavirus rescue plan

The European Commission President last week called for a “new Marshall Fund” to pay for the economic damage caused by the global pandemic to be bolted to the bloc’s next seven-year budget. With capitals to be briefed of her plans on Thursday, doubts have surfaced over whether leaders will be able to end their bitter squabbles over the long-term budget. Luxembourg finance minister Pierre Gramegna warned linking any recovery funds to the MFF would be a risky strategy.

“If we were to embark on a discussion that says ‘let’s link this recovery fund to an agreement on the whole MFF’, which we have been discussing for 18-months to no avail, that would be the best way to bury the recovery fund,” he told the Financial Times.

“If we want to be credible we need to be able to deliver on this before the summer.”

EU leaders have failed to reach an agreement on a new long-term budget on several occasions, with February’s attempt ending in a row over how to replace Britain’s budget contribution while also increasing spending.

Mr Gramegna instead called for a separate rescue fund to be established, echoing the visions of France’s Emmanuel Macron.

Under the Commission’s current proposal, member states would agree to increase the EU budget ceiling to allow for eurocrats to borrow cash to fund the bloc’s coronavirus recovery.

Some national and regional parliaments would have to sign off on the changes, leaving talks at risk of being scuppered at a late stage.

Mr Gramegna said it would take too long to agree the package as part of the EU’s MFF, and risks inflaming opponents of increased contributions.

“To put it simply: if we want to increase the guarantee that the EU as such can give, increase the borrowing capacity of the Commission, it is completely irrelevant if the total MFF is one percent or 1.06 percent or 1.11 percent of GDP,” he said.

“We must avoid getting entangled in a discussion that involves the whole lot of issues that are included in the MFF, where the risk is that a lot of other issues will block it.”

EU officials are also uncertain that Mrs von der Leyen will be able to garner support for her plans after Germany and the Netherlands blocked plans to create a “coronabond” that share the borrowing costs of the economic rebuilds.

The northern states were unhappy to endorse the strategy without clear political attachments to any loans issued to struggling capitals.

However, Italy rejected the prospect and demanded the EU deliver a no-strings-attached vehicle to fund their recovery.

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An EU diplomat said: “If the recent meetings of the Eurogroup and the European Council have shown one thing, it is that a recovery fund financed by mutualised debt is not a realistic option at all.

“The answer will be more along the lines of a recovery fund linked to the MFF, which the commission is working on.”

When EU leaders hold a virtual summit next week, Italian prime minister Giuseppe Conte will continue his efforts to deliver a mutualised debt tool.

He said: “We are experiencing the biggest shock since World War II, and Europe has to come up with an answer.”

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The “full firepower” of the EU must be mobilised, with the “issuance of shared bonds”, he added.

The Italian demanded Germany and the Netherlands drop their opposition to the policy, insisting their view “had to change”.

He said the European Stability Mechanism, Berlin and the Hague’s favoured tool to address the economic impact, “has a bad reputation in Italy”.

“Our economic systems are connected with each other and interlinked,” Mr Conte said.

“When one country has problems, it triggers a domino effect and that’s something we should absolutely avoid.

“What’s needed here is the European Union’s full firepower – namely through the joint issuance of bonds.”

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