The grants in the Next Generation EU fund will, no doubt, be gratefully accepted by recipient countries, but some may think twice before taking the loans to finance their recovery.
The EU showed this week that it can raise funds at least in line with France. At that level, it is able to offer a discount to most of the EU, particularly the periphery. But even countries for which it would be a saving may still not take the discount.
Spain, at least, will take the transfers first and “resort to loans if necessary”.
The European Stability Mechanism’s pandemic crisis support facility remains untouched, though it could provide a discount to 10 countries.
For some, there is political unwillingness. Some Eurosceptic elements would rather their countries borrowed on their own account than accept funds from the EU, even with the light conditionality of the instruments.
Others may find it difficult to find projects to fit the standards for spending imposed by the EU or the ESM. In such a case, grants will certainly take priority over loans.
But the main obstacle is simply that funding conditions, thanks to the ECB’s support, are superb. Every sovereign in Europe is able to borrow more than ever, and bring down their average cost of debt with every deal.
In conditions like this, expect some countries to decide that the saving of a few basis points is not worth the headache from domestic malcontents and the hassle of observing the EU’s conditions.
