European Leaders Create $858 Billion Recovery Fund for EU Economies

UTC by Steve Muchoki · 3 min read
European Leaders Create $858 Billion Recovery Fund for EU Economies
Ms Ursula VON DER LEYEN, President of the European Commission and Mr Charles Michel, President of the European Council. Photo: European Union

European leaders have agreed to borrow $858 billion from financial markets and distribute around half of it as grants and the rest as loans to EU countries.

After long discussions, European leaders have unanimously passed a total recovery fund of $858 billion for EU economies besides the $1.3 trillion budget. This will make the figure historic for the block to a whopping $2 trillion for the period between 2021 and 2027.

The stimulus fund is expected to be shared amongst the European hard-hit economies by the ongoing coronavirus pandemic. Half of the borrowed $858 billion, approximately $446 billion will be set aside for grant purposes while the rest will be used for loans. The EU leaders said in a joint declaration:

“It is an ambitious and comprehensive package combining the classical [budget] with an extraordinary recovery effort destined to tackle the effects of an unprecedented crisis in the best interest of the EU”.

The package will go a long way in reviving economies and sectors that have been crashed by the coronavirus pandemic since the beginning of the year. European Council President Charles Michel stated at a press conference Tuesday:

“We did it! Europe is strong. Europe is united. This is a good deal, this is a strong deal, and most importantly, this is the right deal for Europe right now”.

With most economies glaring at the possible recession, the grant and access to favorable loans will boost the economic situation by far. Previously, the EU commission said that they anticipate the European economy to shrink by 8.3% by the end of this year. The figure is much worse than earlier predicted at around 7.4% in the same period.

Recovery Fund Will Bring Relief for the European Trading Bloc

Most EU countries have experienced an overwhelming crisis from the coronavirus. Despite the decisive measures put in place to curb further spread of the disease, the curve has not yet fully subsided. With major economic sectors like the airline industry, and the oil industry still largely paralyzed due to low demand, further disruption of the supply chain is expected to hit the block. Originally the European Commission had proposed distribution of around $573 billion fund via grants and the rest $286 billion through loans. However, the so-called “Frugal Four” countries – Netherlands, Denmark, Austria, and Sweden – were worried it would burden them with a lot of debt to fund the spending of other governments.

According to the commission, the borrowed Monday is expected to be repaid back by 2058. In the meantime, the bloc anticipates finding other tax avenues to fund the large budget and repay the loan in time.

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Steve Muchoki

A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies. Mythology is my mystery! "You cannot enslave a mind that knows itself. That values itself. That understands itself."

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