Beach goers sunbathe and swim on a beach in Portimao, Algarve, Portugal.
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LONDON – The European Union is finally ready to raise much-needed funds from the public markets and stimulate the economies of its 27 members after the severe shock of the coronavirus crisis.
The bloc made an unprecedented decision in July to jointly raise capital to fund economic recovery – a fiscal effort worth 750 billion euros ($ 917 billion). This stimulus is in addition to what the individual governments have already used in the wake of the pandemic.
After all legislative steps have been taken, the European Commission can tap the capital markets in search of these funds this month.
“The European Commission is ready to go to the markets to raise money, to earn [the] EU greener, more digital and more resilient, “said President Ursula von der Leyen on Twitter.
The institute announced Monday that 38 financial institutions will be primary dealers, including France’s BNP Paribas, Germany’s Deutsche Bank and Italy’s UniCredit.
The 27 EU capitals will receive an initial payment of 13% of the total amount allocated to them in the coming months. Future payments will depend on whether countries implement the necessary reforms.
That is why Member States have come up with recovery plans outlining how they are going to use the money and how to make their economies more competitive.
However, these documents are still being examined by the European Commission and must be examined one last time by the Member States. The EU executive intends to complete its assessment in mid-June and the member states will then have a month to comment on each other’s plans.
Some Member States, like Portugal, are pushing for the whole review process to be completed by the end of June.
“It is a truly historic moment for Europe: the beginning of a large-scale joint borrowing program, even if it is a temporary program,” Erik Nielsen, UniCredit’s chief economist, told CNBC via email.
“Actual borrowing – and withdrawals – will not be an issue. The potential hurdles are more likely to arise in the implementation phase of reforms and investments – but that’s normal for anything big and ambitious, ”he said.
The economy of the European Union contracted by 6.1% in 2020 and is expected to recover by 4.2% in 2021, according to the European Commission.
The yields of the peripheral countries in the euro zone were lower on Tuesday morning.
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