Merkel: EU joint debt plan must remain 'one-off' instrument

BERLIN: The European Union's plan to take on joint debt on a large scale and channel the money to member states worst hit by COVID-19 will create an important tool to overcome the crisis, but it must remain a one-off event, German Chancellor Angela Merkel said on Thursday.

She spoke to the Bundestag lower house of parliament before it voted to approve the legislation for the EU plan. The upper house, or Bundesrat, is expected to pass it on Friday.

"In the debate today, it will be made clear again that the recovery fund is a one-off instrument limited in time and purpose," Merkel said, adding that it was an "indispensable" tool to help overcome the COVID-19 economic crisis.

The legislation later passed by a large majority in the Budestag, garnering support not only from Merkel's conservative bloc and the centre-left Social Democrats junior coalition partner, but also from the opposition Greens and business-friendly Free Democrats.

The question of whether the EU should take on joint debt for other tasks in the future is likely to be a key topic in campaigning for Germany's federal election in September.

Finance Minister Olaf Scholz, the SPD candidate to become the next chancellor, has said that strengthening relations within Europe would be one of his top priorities. He has hinted that he does not view the EU recovery plan as a one-off event.

PARTLY GRANTS, PARTLY LOANS

Scholz was a leading architect of a Franco-German blueprint to enable the European Commission to take on joint debt to help member states worst hit by COVID-19. This paved the way for the agreement among EU leaders last summer.

The European Commission will be allowed to raise up to 750 billion euros on capital markets and pass on the money to member states through payments linked to jointly agreed reform and investment plans, partly as grants and partly as loans.

The funds will be repaid from the EU budget over the next decades - meaning Germany will shoulder roughly 27% of the repayment, by far the biggest share of any member state.

In addition, European governments are considering a number of new EU-wide taxes that would allow the 27-nation bloc to repay parts of the borrowed money.

The disbursement of the first funds could be delayed by legal challenges in national courts.

The far-right Alternative for Germany (AfD) party and a group called "Citizens' Will Alliance" have said they will file a constitutional complaint against the German ratification law.

"There is much to suggest that German President (Frank-Walter) Steinmeier will not sign the law until the Federal Constitutional Court has ruled on it," Commerzbank analyst Christoph Weil said.

While the legal complaint is unlikely to stop the whole project, uncertainty about its implementation could increase in coming weeks, Weil added.

A spokeswoman at president's office declined to comment on when Steinmeier would sign the legislation.