Driven by Angela Merkel and Emmanuel Macron, the EU is proposing to borrow billions and give it to member states. For the first time in EU history, two-thirds of the money would be grants — not loans — that the recipient countries wouldn’t have to repay.
“This is Europe’s moment.” The speaker was Ursula von der Leyen, the president of the European Commission, the bureaucratic motor of the European Union.
She was unveiling a vast program at the commission meeting on May 27, a program worth $1.12 trillion Cdn, to help European economies reeling from the COVID-19 crisis.
The EU would borrow the money and then hand it out to member states. And for the first time in EU history, two-thirds of the money handed out would be grants — not loans — that the recipient countries wouldn’t have to repay.
In fact, though, this was German Chancellor Angela Merkel’s moment. Nine days earlier, she had launched this quiet European revolution along with French President Emmanuel Macron.
Together they said their countries would put up $750 billion Cdn in grants to help Italy and Spain climb out of the economic hole caused by COVID-19, the illness caused by the novel coronavirus. That sum is now the core of the announced EU program.
Spain’s central bank forecast last month that the country’s economy could contract by more than 12 per cent this year, and unemployment could surpass 21 per cent. It has lost more than 27,000 people to COVID-19.
Italy, meanwhile, where more than 33,000 people have died of the illness, could see its GDP contract by more than nine per cent in 2020, according to the International Monetary Fund, and see unemployment close to 13 per cent.
Germany and France, by comparison, are expected to see GDP contractions of around seven per cent, with unemployment of around four and 10 per cent, respectively.
“Extraordinary circumstances call for extraordinary measures,” Merkel said on May 18, and in European terms, that announcement was nothing less than what her finance minister called the “Hamilton” decision.
Hamilton’s legacy
That’s Alexander Hamilton, an American “founding father.” He lived a life of adventure, died in a duel and became the subject of a Broadway hit musical more than two centuries after his death.
He was also the man who set up the U.S. banking system and enshrined in law the concept that the American federal government would come to the financial aid of states in crisis.
In Canada, the concept goes by the name of equalization, where the federal government transfers money to poorer provinces. It’s the economic backbone of a functioning federal system, but in the EU, even after the creation of a common curren