German Chancellor Angela Merkel and French President Emmanuel Macron may have come to an agreement on a €500 billion COVID-19 recovery fund for Europe – but there is still a long way to go before any such plan becomes EU policy.

Speaking at a press conference following a video meeting between the leaders of both countries, the German Chancellor said that “this crisis is the most substantial one the EU has been exposed to since its inception”.

She acknowledged that any plans will need to be agreed by all other members of the EU27, but she hopes that if “France and Germany can give impetus certainly that would be a good thing and make it possible to foster common decision making […] so we could then be strengthened after the COVID crisis.”

She stated that the objective is for France, Germany and the EU “to come out of this […] further consolidated after the crisis”, before stating that “the crisis varies within the EU […] therefore we need economic stimulus measures if we want to boost the economy.”

Ms. Merkel said that “the recovery fund must make a major contribution, making it possible for various EU countries to react according to their need […] we are prepared to make these major efforts from France and Germany. The EU must show cohesion, we have to quickly overcome this.”

The fund will “be limited in time” but “these won’t be loans; this will be budget spending that will be earmarked to regions and sectors that are hardest hit by COVID.”

Recognising the complexity of initiating such a project within the EU, Ms. Merkel stated that “this recovery fund needs to be established on a very firm, serious legal foundation and must respect the autonomy of national parliaments.”

“The commission will be borrowing money, then through the recovery fund we will be able to include all of this under the 2021-2027 budget […] this will guarantee cohesion of the European Union even more so than previously.”

She further reiterated her commitment to the EU green deal, digitalisation, and to fighting disasters.

Speaking at the same press conference, President Macron acknowledged that “Europe was probably lacking at the beginning of the crisis.” The reasons for this, he postulated, were that “health skills are not under community remit […] furthermore, there were some nationalist ideas such as borders within the Schengen area.”

Giving further details on the recovery fund, Mr. Macron said that “there are four pillars in the initiative: health protection, budgetary stimulus, economic sovereignty, and the environmental and digital transition.”. He said that “this is the basis for rebuilding our societies, our lives and our countries which hinge on these strategies.”

Health protection measures will include shared masks and tests, ability to purchase and produce vaccines and treatments in a coordinated manner, and shared prevention plans for academics.

“For the first time Germany and France together are proposing to the 27 member states firstly to […] raise common debt on the market, use the €500 billion debt, which will then be paid back […] to provide financing, targeting mainly the hardest hit sectors and the hardest hit regions during this crisis.”

“It’s a shared strategy we’re talking about to complete the European Budget”, he concluded.

This mutualisation of debt was called for from the hardest-hit countries during the crisis such as Italy, Spain, and Portugal, whose cost of borrowing is otherwise likely to increase substantially as the financial impacts of COVID-19 are set be continually felt into the future. These countries have warned that the future of the EU is at stake should such a measure not be initiated.

Cheaper borrowing can be facilitated should it be backed by all 27 EU member states, but finding agreement on such a measure has been difficult. Opposition to such a measure has been raised most prominently by the Netherlands, with their Finance Minister Wopke Hoestra stating previously, regarding coronabonds, that such mutualisation of debt would remove “incentives for sensible policy”. Coronabonds were a separate measure for EU27-backed borrowing that has been subsequently ruled out. The Netherlands, Austria, Denmark, Sweden and Germany opposed the issuing of coronabonds.

Posting on Twitter last night, Chancellor of Austria, Sebastian Kurz stated that he “just had a good exchange with the Prime Ministers of #Denmark, #Netherlands & #Sweden on the expected proposal by the EU Commission on the #RecoveryFund and the updated #MFF”.

“Our position remains unchanged. We are ready to help most affected countries with loans. We expect the updated #MFF to reflect the new priorities rather than raising the ceiling.” The MFF refers to the Multiannual Financial Framework which regulates the EU’s annual budget.

Should the Franco-German initiative be seen through at an EU level, it will require the assent of all 27 member states. With Austria, Denmark, Netherlands and Sweden already seemingly willing to take a hard stance against the measure, it could become difficult for an agreement to be reached. In order to give their assent to the proposal, these four countries are likely to push for tight regulations on any beneficiaries of the proposed initiative in order to maximise their assurance that the EU will get all of its money back – this is likely why Chancellor Merkel and President Macron reiterated on several occasions that these, while not being loans in the traditional sense, will need to be paid back regardless.

The announcement of this initiative is a welcome, but belated, sign of European solidarity from Germany. With relationships fraught following weeks of tension within the EU, and emotions raw after more than 1.3 million COVID-19 cases and over 150,000 COVID-19 deaths across all member states, there is still a long way to go before it comes to fruition – if it comes to fruition, that is. The “frugal five”, now seemingly four, have been more than willing to dig their heels in up to this point – there’s no sign of this radically changing just yet.