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EU announces $825B stimulus plan to aid coronavirus-driven recession

European stocks ticked up on Wednesday after the European Union announced a larger-than-expected stimulus bill. Yahoo Finance’s Edmund Heaphy discusses.

Video Transcript

ADAM SHAPIRO: We want to turn our attention now back to markets and what's happening in Europe. Edmond Heaphy joins us from London on the latest on this European Union stimulus plan and what it really means. Edmund?

EDMUND HEAPHY: Yes, Adam, under this plan, the European Union will borrow 750 billion euro on the financial markets. That's more than $800 billion, as you said. And this might not sound like the biggest deal in the world, given the extent to which practically every country is borrowing to fund stimulus measures. But this would actually mark the first time that EU countries have jointly issued debt at any kind of scale.

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Germany have long opposed such a move. It had been concerned about taking on the debt burden of weaker, less financially prudent member states. But in what is now being called the EU's Alexander Hamilton moment, Germany has decided that the coronavirus crisis justifies this kind of debt mutualisation.

Just as significant then is the fact that 500 billion euro of the fund will be distributed to European countries in the form of grants, rather than loans. And this is also quite a contentious idea. Austria, Denmark, the Netherlands, and Sweden, known as the frugal four, have argued that the whole package should instead come in the form of low-interest loans.

But countries like Italy, Spain, Greece, and France are already heavily indebted. And Italy and Spain, two of the worst hit countries, will receive a huge proportion of these funds. Some reports suggesting that 40% of the $750 billion will go towards these two countries. And the recovery fund comes in addition to, as I said, the EU's long-term budget, which runs up to 2027, which brings the total package to 1.1 trillion euro.

But the issue here is that this proposal could still be blocked by member states opposed to the plan. This really is just the beginning of what is likely to be weeks and months of wrangling about this recovery plan.