Germany buckles to France on coronavirus recovery plan

BERLIN — Coronavirus has claimed a new victim: German frugality.

Berlin dropped its longstanding resistance to common European bonds, as Chancellor Angela Merkel and French President Emmanuel Macron agreed to a blueprint for a €500 billion recovery fund to help the countries hardest hit by the pandemic get back on their feet.

Under the plan, the recovery fund would be fully financed by debt issued by the EU and backed by all 27 members. The money would be distributed by the European Commission in the form of grants as part of the bloc’s normal budget and repaid over the long term by the EU.

While the proposal was welcomed by the European Commission, it would require the approval of all EU member countries — which promises to be a torturous process — to be realized. Countries such as Austria, the Netherlands and Finland, which share German traditions of parsimony, are likely to oppose the plan, or at least try to.

Austrian Chancellor Sebastian Kurz wasted no time in making clear that the hard-line frugal faction had not changed its opposition to grants for coronavirus-hit countries.

“We are ready to help most affected countries with loans,” Kurz tweeted after consulting with his counterparts from Denmark, the Netherlands and Sweden.

Even so, the Franco-German accord marks a major breakthrough.

“Extraordinary circumstances call for extraordinary measures,” Merkel said at a press conference following a video call with Macron during which they sealed their agreement.

Macron struck a similar note.

“The crisis that we are experiencing is unprecedented and it requires a response which is efficient, collective and above all European,” he said. “The virus does not know any borders and has affected all of Europe.”

Berlin has resisted calls for so-called eurobonds for years, amid worries that common debt instruments would leave Germany holding the bag for other countries’ spending.

While those sensitivities haven’t dissipated (both Merkel and Macron avoided the term “eurobond” on Monday), the depth of the political and economic crises triggered by coronavirus appears to have convinced Merkel that Germany had no other choice if it wants to avoid further fissures in the EU.

Political leaders across southern Europe have been demanding more solidarity from Germany and other northern countries for weeks, warning that their populations, which have been walloped by coronavirus, would turn against the EU if more help isn’t forthcoming.

“Germany and France are standing up for Europe,” Merkel said.

Economists who have been pushing Germany to pursue bolder action cheered the plan, in part because it doesn’t rely on leverage or some other financial sleight of hand to inflate the amount of money available to recipients.

“It’s a pretty good proposal,” said Lucas Guttenberg, a former European Central Bank economist who is now the deputy director of the Jacques Delors Centre, a Berlin-based think tank. “It’s very unambiguous. It’s not financial wizardry, it’s straightforward — European bonds for EU expenditure.”

The European Commission, which is due to present its recovery blueprint next week, hailed the Franco-German plan.

“It acknowledges the scope and the size of the economic challenge that Europe faces, and rightly puts the emphasis on the need to work on a solution with the European budget at its core,” Commission President Ursula von der Leyen said. “This goes in the direction of the proposal the Commission is working on which will also take into account the views of all Member States and the European Parliament.”

Though the size of the proposed recovery fund is smaller than some had hoped, the fact that the money will be distributed as grants to the countries most in need, and not as loans, marks a major concession on Merkel’s part and suggests that the German leader has learned from past crises.

Europe’s rescue efforts for Greece and other countries hit by the eurozone debt crisis were widely perceived as too punitive, mainly due to the austerity demanded by Germany as a condition for the aid. That experience rattled confidence in the EU in much of Southern Europe and fueled anti-German sentiment in many quarters.

The nature of the pandemic, which unlike the debt crisis was not caused by government mismanagement, likely made it easier for Merkel to agree to relax the conditions for the money. That said, she still needs to sell the idea to her own parliament.

Although the plan is a Franco-German initiative, an Elysée official said Berlin and Paris had kept the Commission and various member countries informed as they hashed out the agreement.

“They were aware it was coming, they didn’t discover it in front of their TV, [Dutch Prime Minister] Mark Rutte had many conversations with the chancellor, with the president, they will speak again in coming days,” the official said.

Both Merkel and Macron stressed that the proposal could be put into motion under the EU’s existing treaty framework and that national parliaments would have the final say.

“It’s a very transparent process,” Merkel said.

The two leaders said that countries and sectors with the greatest need would be given priority, while adding that it would be up to the Commission to work out the details.

Germany’s opposition Greens, who have been pressing for debt mutualization for years, welcomed the plan but said the EU must act at its next summit. “Now we need quick approval for an ambitious EU budget to ensure that these urgently needed funds can be distributed,” said Franziska Brantner, a Green MP who is her party’s spokeswoman on EU affairs.

Merkel described the Franco-German proposal as a “short answer” to the crisis, but added that “longer answers” would also have to be discussed in the coming weeks and months. In other words: more fundamental steps toward European integration that would require treaty change.

Europe’s divisions have put such sweeping reform plans out of reach in recent years and it’s far from certain that the coronavirus crisis will change that dynamic.

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