EU says it now has €1.85trn firepower to fight Covid-19 economic devastation across the continent

The recovery plan was first agreed by the EU leaders in principle last month and was cemented last week after Angela Merkel and Emmanuel Macron in a choreographed announcement gave their backing to the EU raising borrowing on bond markets to spend big to stop the European economy from falling apart.

In the details unveiled on Wednesday, the Commission said it plans to raise €750bn on debt markets to help fund through what it calls a Next-Generation EU programme the enormous healthcare and economic costs entailed in fighting Covid-19.

The money may not need to be paid back through 2058, all but ensuring that interest rates on financing the huge debt piles built up by Italy and Spain, in particular, but also by the Irish State, in fighting the pandemic, will stay low for decades.

It said that the Next-Generation EU plan, along with the agreement last month to pump up spending through the current and future EU budgets, will amount to the firepower of €1.85 trillion through 2027.

“The coronavirus has shaken Europe and the world to its core, testing healthcare and welfare systems, our societies and economies and our way of living and working together,” Commission president Ursula von der Leyen said “To protect lives and livelihoods, repair the single market, as well as to build a lasting and prosperous recovery, the European Commission is proposing to harness the full potential of the EU budget,” she said.

The Commission stressed the green and sustainable principles behind refashioning the European economy after the Covid crisis, including a €560bn recovery and resilience fund; a €55bn “top-up” for existing cohesion programmes; up to €40bn for a transition fund; and a €15bn “reinforcement” for European agricultural -- again with the purpose of helping the industry prepare for a green future.

More immediately, it proposes €31bn for a new solvency support fund to leverage €300bn to keep companies from going under; inject more money into its Invest EU programme; and proposes a €150bn for a new strategic investment programme -- again that it says will be focused on promoting a green future.

Other measures include “addressing the lessons of the crisis” by investing in health and science finding.

Tom McDonnell, co-head of the think tank, the Nevin Economic Research Institute, said a key purpose of the new funding was to direct grants and not force additional borrowing on already indebted countries. The huge firepower would mean that Ireland will get a proportionate share of its needs paid by all of Europe through a version of the long-mooted corona bonds.

It will give the existing Government or a new administration the confidence to go out and design a national recovery package knowing that interest rates will be kept low for some time, he said.

Mr McDonnell also said there was even less pressing need for the Government to contemplate cutting the €350 pandemic unemployment payment or the wage-support schemes, any time soon.

Edgar Morgenroth, economics professor at DCU Business School, said the debts of the Covid-19 crisis will be paid by the young and the benefits of the EU recovery funding based on the greening of the European economy will accrue to that young generation.