The bailout, known as the ‘Recovery Fund’, will be distributed to EU countries worst affected by Covid-19.
EU leaders have sparred for weeks over how to best help the eurozone recover from the impact of the coronavirus pandemic. This proposal between Paris and Berlin could signal a way forward.
Spanish PM, Pedro Sanchez, has welcomed the news stating via Twitter: “We welcome the proposal by France and Germany to establish a €500 billion European Recovery Fund based on grants,” adding that “now it’s time for EU to put forward a proper financial package.”
Spanish Member of European Parliament Luis Garciano, with the Ciudadanos party in Spain that is part of the ALDE liberal alliance in EU Parliament, also welcomed the proposal, saying it was a clear step forward. He also welcomed the change from loans to grants.
Austria, however, has insisted that any aid should come in the form of loans and not grants.
“Our position remains unchanged. We are ready to help most affected countries with loans not grants,” Austrian Chancellor Sebastian Kurz tweeted on Monday evening, after the announcement.
In talks on Monday, French President Emmanuel Macron and German Chancellor Angela Merkel agreed that the funds should be provided as grants.
The proposal represents a significant shift in Mrs Merkel’s position.
Mr Macron said it was a major step forward and was “what the eurozone needs to remain united”.
“I believe this is a very deep transformation and that’s what the European Union and the single market needed to remain coherent,” Mr Macron said following discussions via video link.
Under the proposal, the funds would be given as grants to hardest-hit sectors and regions in the EU.
The 27 EU countries would also borrow together on financial markets to raise the funds. The proposed €500 billion in grants would be in addition to the 2021-2027 EU budget that is close to €1 trillion for this period.