June 17, 2020 / 4:26 PM / 21 days ago

Sweden's EU minister says using recovery fund for grants would be wrong

STOCKHOLM (Reuters) - A European Union coronavirus recovery fund should be disbursed only as loans as handing out grants would be wrong, Sweden’s EU minister said on Wednesday, two days ahead of difficult talks by the 27 EU member states on the matter.

On the agenda is the EU executive’s proposal to raise the unprecedented amount of 750 billion euros in debt (equivalent to $845 billion) to top up joint spending to 1.1 trillion euros in 2021-27. The European Commission has suggested that 500 billion euros of the debt be spent as grants, and 250 billion as loans.

The package requires unanimous support of member states to be adopted.

“In our view this fund is to be used for loans at favourable terms to the countries and sectors that need it the most,” EU minister Hans Dahlgren told Reuters in an interview.

“The commission’s idea...is to borrow this money and give it away mainly in the form of grants and then amortise this in coming long-term budgets, from 2028 to 2058 at the latest. That is in our view wrong. We are of the opinion that this should instead be loans,” Dahlgren said.

One of the major points of dispute among member states is over the proportions of the recovery fund to be disbursed as grants or as repayable loans, with several fiscally frugal northern states wanting the share devoted to loans increased.

That position was laid out by the leaders of Austria, Denmark, the Netherlands and Sweden in a joint op-ed in Tuesday’s Financial Times.

However, Dahlgren added: “We (EU member states) of course have different opinions about this and where it will end up is very hard to say but one thing is certain: no one will get exactly what they say today that they want.”

Dahlgren said there may be need for a number of meetings to negotiate a final deal.

Earlier on Wednesday, European Central Bank Vice President Luis de Guindos, a Spaniard, said indebted euro zone countries such as Italy or Spain need grants rather than loans to deal with the pandemic’s fallout without digging themselves into a bigger debt hole.

Reporting by Anna Ringstrom in Stockholm, Jan Strupczewski in Brussels and Jesus Aguado in Madrid; Editing by Mark Heinrich

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