German Chancellor Angela Merkel said in an interview Friday with six European newspapers that Germany can take on more debt to finance an economic recovery initiative for the European Union. The EU has been deliberating a financial assistance program for countries and regions that have been hard hit by the ongoing coronavirus pandemic.
Merkel told the Guardian, Germany’s Sueddeutsche Zeitung, Le Monde in France, Italy’s La Stampa, La Vanguardia from Spain and Poland’s Polityka that “the coronavirus pandemic is confronting us with a challenge of unprecedented dimensions.” She said Germany should support extra financial help for countries such as Italy and Spain “in an extraordinary act of solidarity.”
“For Italy and Spain, for example, the coronavirus pandemic signifies a huge burden in economic, medical and, of course, because of the many lives lost, emotional terms,” she said. “In these circumstances, it is only right for Germany to think not just about itself but to be prepared to engage in an extraordinary act of solidarity.”
In May, France and Germany introduced a 500 billion euro ($560 billion) recovery fund in grants to help European regions and industries that have been devastated by the coronavirus. Later in the month, the European Commission proposed a 750 billion euro ($841 billion) plan that would not only include 500 billion euros ($561 billion) in grants, but also an additional 250 billion euro ($281 billion) in loans for heavily impacted European economies such as Spain and Italy.
Austria, the Netherlands, Denmark and Sweden have come out against the idea of grants, and have argued that assistance should only be provided in the form of loans.
Mediterranean European countries heavily reliant on tourism have seen their economies contract the most, as travelers stay home. Spain’s GDP fell by 5.2% in the first quarter of the year, while Italy saw a contraction of 4.7%. Germany, which had recession worries before the pandemic, only saw a 2.2% drop during the first three months of the year.
According to a press release from the European Commission in May, the EU economy as a whole is expected to contract by 7.5% in 2020. In 2021, the EU is projected to have a modest recovery of 6%.
On Wednesday, the International Monetary Fund warned of an even deeper downturn for the global economy than previously projected. The IMF in April predicted the global economy to drop 3% but now sees a 4.9% contraction.