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Spain calls for €1.5tn EU recovery fund to ‘protect internal market’

Eurozone reform

Spain calls for €1.5tn EU recovery fund to ‘protect internal market’

Economy minister Nadia Calviño tells the FT that richer countries should not be able to support their economies more generously

Nadia Calviño: ‘It cannot be that some countries are able to support their economies in a more generous manner than others’ © Bloomberg

Spain has urged EU leaders to approve up to €1.5tn in grants to rebuild the bloc’s pandemic-stricken economies and prevent the worst-hit countries from being undercut by better-off states.

Speaking to the Financial Times ahead of an EU summit on Thursday, Nadia Calviño, Spain’s deputy prime minister for the economy, said it was necessary for the so-called coronavirus recovery fund to award grants, not loans, to preserve the bloc’s internal market from unfair competition from states in a better financial position to fund business rescues and stimulus packages.

“The European response to this crisis cannot be that some countries end up with higher debt-to-GDP ratios,” Ms Calviño said. “We need to make sure that we protect the functioning of the internal market . . . It cannot be that some countries are able to support their economies in a more generous manner than others.”

The bloc needed to be “very vigilant” about relaxation of its state-aid rules so that “guarantees given to companies are similar across the EU”, she added.

Countries such as Germany have committed more money to fighting the economic consequences of the virus than Italy and Spain, which have been the worst-hit nations in the bloc and face higher funding costs. 

Ms Calviño’s comments echoed criticism from French president Emmanuel Macron who in an interview with the FT last week said the EU’s uneven levels of state aid in response to the pandemic had laid bare a “distortion” normally banned by the bloc’s treaties. 

Eurozone finance ministers agreed on the principle of a recovery fund this month, but its size and nature have yet to be decided on Thursday. Many northern countries resist the idea of raising debt and handing it in the form of grants to member states in need, preferring loans instead.

Spain has suffered more than 20,000 coronavirus deaths and has imposed a five-week lockdown. On Monday the Bank of Spain warned that GDP of the eurozone’s fourth-largest economy could contract by up to 13.6 per cent this year — depending on how much longer the country’s Covid-19 restrictions will last. The central bank added that public debt could increase from just under 100 per cent of GDP to 120 per cent, even before factoring in the cost of an ambitious recovery plan.

Ms Calviño said an EU finance ministers’ agreement this month on a €500bn package of palliative emergency economic measures was “welcome but clearly not enough”.

She said the recovery fund should be of “an appropriate size”; a Spanish government document dated Sunday cites estimates of €1tn to €1.5tn. She added that it would be “funded through permanent debt issued by the European institutions”, to be paid back by new revenue sources in the hands of the European Commission. 

This is not only about financial ability, this is about providing a European response to the crisis

Nadia Calviño

The Spanish plan calls for funds to be allocated on the basis of indicators such as falls in GDP and increases in unemployment, and for the payments to be front-loaded to start on January 1 next year.

Ms Calviño said there was no need for Madrid to tap the bloc’s €500bn European Stability Mechanism bailout scheme because the country was able to raise debt on the markets at terms that were still “very favourable”. Last week the Spanish government raised more than €13bn in loans at rates that remained low in historic terms. 

But she insisted the coronavirus recovery fund was needed, as support in Spain for the EU had fallen in recent weeks. “This is not only about financial ability, this is about providing a European response to the crisis,” Ms Calviño said.

The Spanish minister said EU member states needed to take up the slack after a decade in which the European Central Bank had been taking the leading role in steering the eurozone away from crisis. In March, the ECB announced a €750bn bond-buying plan to fight off the immediate economic effects of the pandemic.

“It needs to be complemented by action on the fiscal front,” she said. “We also need to build this second pillar of Economic and Monetary Union . . . with common fiscal policy tools, which is not only about issuing common debt or creating a recovery fund; it also has to do with tax harmonisation. We should avoid forum shopping in the area of corporate tax.”

She suggested that Spain was likely to phase out lockdown restrictions sector by sector and region by region. She also indicated that the government would give up trying to pass a budget for this year — hitherto an almost existential issue for Pedro Sánchez’s minority coalition — and concentrate instead on winning approval for a package next year.

“It is probably most productive to start preparing for next year’s budget but a final decision has not been taken,” she said.

Additional reporting by Sam Fleming and Tommy Stubbington

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