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France and Germany jointly presented their national plans under the EU pandemic recovery package, as evidence of the unity of Europe’s strongest bilateral ties.
“It is important for us to make this presentation together, because Germany and France have been working together since the beginning of the crisis,” French Economy Minister Bruno Le Maire said at a press conference Tuesday with his German counterpart Olaf Scholz.
The two countries’ joint efforts to get debt-fueled money to save Europe’s economy were ravaged by the pandemic caused EU leaders agreed to issue a collective debt of more than € 800 billion for the first time. The fund, whose center the Recovery and Resilience Facility will disburse up to € 338 billion in grants and € 386 billion in low-cost loans to EU countries, is expected to start paying off this summer, with the approval of a national plan by the Commission and Council.
“When France and Germany want it, Europe can,” joked Le Maire.
France, Germany, Italy and Spain will submit their plans to the Commission together on Wednesday, said Le Maire, urging EU executives to release them “as soon as possible so that they can be approved by the Council by the end of July,” and to the first payment tranche that flows “before the end of summer”.
The Commission has two months to assess the plan and draft a funding proposal to the Council, which must sign it by a qualified majority within one month. Countries are then entitled to receive 13 percent of allocated resources, with the remainder unlocked for years until 2026 depending on the achievement of planned investments and reforms.
Neither France nor Germany requested access to the loan portion of the fund, as expected, because their high credit rating allows them to borrow capital on terms equal to or better than the Commission. That French recovery plan amounting to a total of € 100 billion, with € 39.4 billion financed by EU grants and the remainder by national loans. But France has asked for € 41 billion in grants, more than that shared allocation under regulation, a spokesman for the finance ministry confirmed without stating the reason.
The German plan amounts to a total expenditure of € 28 billion, with the government adding another € 25.6 billion to EU grants with its own funds.
France expects its plan to increase economic growth by 4 percentage points over the 2020-2025 period and create about 240,000 jobs by 2022. Germany expects GDP growth to be 2 percentage points higher in the long run compared to the base scenario, and for jobs to increase by half a point percentage.
France and Germany plan to spend 50 percent and 40 percent, respectively, of funds on climate-related investments – “ far beyond ambitious targets [37 percent] set by the European Union, “as Germany’s Scholz puts it.
In France, most of the green investment will go towards infrastructure and mobility, around € 7 billion. The aviation sector will receive around € 1.5 billion, while support for the rail sector amounts to € 4 billion.
In Germany, investment in the decarbonization of transport and electric mobility will be up to € 5.5 billion, with another € 3.3 billion going to developing hydrogen technology.
The two countries also invested heavily in digital, spending more than 50 percent (Germany) and 25 percent (France) on projects including the new European Important Common Interest Project on microelectronics, financed by Berlin of € 1.5 billion, and focus on “technology sovereignty” by France, costing € 3.2 billion. The Commission’s requirement is to spend at least 20 percent on digital investment.
Other major spending items include € 7.7 billion for research, health and territorial cohesion in France, and € 3 billion for hospitals in Germany.
Overcoming structural problems through substantial reforms other built-in conditions of the Recovery and Resilience Facility, intended to make large-scale transfers under the fund more politically suitable for countries, including the Netherlands, Austria, Finland and Sweden, which are skeptical of collective debt obligations. All countries are required to address “all or most” of the issues contained in the so-called Country Specific Recommendations, or the annual duty roster that Brussels compiles for EU governments each year.
France plans to include three main reforms: reforms to the unemployment insurance system, climate laws and changes to the country’s public spending rules.
“We are not introducing reforms in the interest of the European Commission – we are introducing reforms in the interests of French citizens,” said Le Maire.
The French plan provides no timeline for forthcoming but controversial pension reforms presented in December 2019 by the Macron administration, another major request from Brussels. Reforms are described as “essential” but discussion of them will only restart “as soon as improvements to the health and economic situation allow,” according to the plan.
Pension reform “is not a prerequisite for the EU. “But I kept thinking it was really necessary when the time came,” explained Le Maire.
Germany’s plan includes reforms to remove barriers to investment and modernize public administration. However, reforms of the tax system to take the fiscal burden away from the workforce, as well as the state pension system – both requested by Brussels – were not included in the plan.
Reiterating criticism that the German plan lacks ambitious reforms, Scholz of Germany said: “We carried out very ambitious reforms in Semester Europe, as others would … so you see we are on the right track.”
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