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

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 a key instrument to overcome the crisis, but it must remain a one-off event, German Chancellor Angela Merkel said on Thursday.

Speaking to the Bundestag lower house of parliament ahead of a final vote on the plan, Merkel urged lawmakers to ratify the legislation for the EU decision as it would provide additional money needed to support the recovery.

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

Her remarks drew applause from lawmakers in her ruling conservative bloc and from the centre-left Social Democrats (SPD), junior partner in her grand coalition.

The question of whether the EU should take on joint debt in the future also for other tasks is likely to be one of the key campaign topics ahead of a German 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, hinting that he doesn't view the EU recovery plan as a one-off event.

Scholz was one of the key architects 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 which means that 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 all the money borrowed.

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

A German group called "Citizens' Will Alliance" has said it is planning to 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.