The European Union needs to agree on additional coronavirus-related stimulus “in the coming months,” a top EU official told CNBC Thursday, after a ground-breaking plan to help the region was proposed Wednesday.
The European Commission, the executive arm of the EU, proposed to raise 750 billion euros ($826 billion) in public markets and distribute that money in the form of grants and loans to the 27 EU countries. However, some nations are reluctant to approve the idea as it would mark the first time the EU tapped financial markets together on such a large scale.
The proposal needs to be agreed upon by EU members before it can be implemented.
“We cannot delay (an agreement),” Valdis Dombrovskis, executive vice president of the European Commission, told CNBC in an exclusive interview.
“We need an agreement already in the coming months.”
The coronavirus has hit Europe’s economy hard. The European Central Bank, in charge of monetary policy across 19 EU countries, forecasts a 15% contraction in GDP (gross domestic product) in the second quarter alone. Meanwhile, the European Commission said in early May that the 27 EU countries together could contract by 7.4% this year.
“All member states recognize that we are facing an unprecedented crisis, all EU member states are in recession and we need a coordinated response,” Dombrovskis said.
The Netherlands, Austria, Denmark and Sweden are among the EU countries that have raised doubts regarding the Commission’s proposal.
Where will the money go?
Speaking to CNBC, Dombrovskis said the additional coronavirus stimulus was not yet pre-allocated but Italy, Spain, France, Poland and Germany are expected to receive “substantial amounts of money.”
“But I would say no country is left behind in this proposal, so what we are concentrating is on member states’ ability to react to the crisis, whether it is due to the higher debt levels (or) if ability is restricted due to the overall lower level of economic development and incomes,” Dombrovskis said.
“So all those factors are taken into account so the money is focused indeed on countries that need it the most.”
Where will the money come from?
Initially, the European Commission is hoping to raise funds in public markets, but it has also suggested repaying that by creating new EU-wide taxes.
These would include a carbon tax — which could hurt importers from countries that don’t match Europe’s climate guidelines — and a digital tax, targeted at the big tech firms.
However, both taxes have sparked division among EU countries before, and there’s no clarity that these would go ahead in the coming years.
Dombrovskis told CNBC that without any new additional revenue, under the current proposal, member states would have to use their own funds to repay the markets.
Time for more coordinated minimum wages?
The European Union recorded an unemployment rate of 6.6% for the month of March. Among those aged between 15 and 24, the jobless rate reached 15.2% in the same month. However, both rates are expected to increase in upcoming readings, given the lockdown measures that were implemented in the region.
Speaking to CNBC Thursday, Nicolas Schmit, European commissioner for jobs and social rights, said “this crisis is becoming a jobs crisis” and young people might become the “big losers” from it.
He suggested that the EU look at coordinating minimum wages and other collective bargaining systems to ensure “wages are fair.”
“There are countries where there is a minimum wage but the minimum wage does not allow for a decent living, doesn’t allow to get out of poverty and here I think we have to work on,” he said.