Some analysis on the big risks and battles ahead for Merkel and Macron over the historic Franco-German accord on a pandemic recovery fund

The 500bn fund is far from being a done deal and needs unanimous support of all 27 EU countries and there is strong opposition, including questions over its legality (although details are thin on the ground)

It avoids the taboo for Germany and others of taking on the national debt of countries like Italy by issuing German bonds to covering foreign borrowing. Instead taps legally established route of using EU budget to raise and disburse the cash

But if paid out as grants, as envisaged, it risks saddling northern countries and much poorer East Europeans with repayments of billions a year to pay back money that is spent to the benefit of southern European countries + France

Really important to look beyond there "frugal" to note that central and East European countries - poorer than France, Italy and Spain - will be paying out to the recovery fund and getting little in return, for countries like Slovakia this could be very big deal indeed

It will help defuse a populists backlash against the EU in the south but is likely to fuel nationalists and populists in the north or even central and Eastern Europe over fiscal transfers from northern/CEE taxpayers to southern Europeans

For Merkel she is standing with France, Italy and Spain as legacy healing of bitter eurozone decisions of the past with a big shift, even if it avoids the eurobond taboo
But some, in rather barbed references, compare the move to her 2015 open door refugee policy

While on a different order in terms of scale and repayment schedules (possible problematic), the budget route is long established legally safe way of raising cash at EU level without changing the how eurozone government debt is financed.

It also has effect of putting eurobond demand back in the box, so she has made a pragmatic calculation this the least costly option for her

For Macron he got what he demanded - albeit at lower end - according to a non-paper the French ask was “a top-up of 150 to 300 bn € each year between 2021 and 2023”. He has reinforced and reforged principle of EU solidarity with Germany and its big chequebook

The Franco-German accord faces national vetoes and might well be watered down to demand the money is paid back as loans rather than grants (but with minimal conditions)

Netherlands, Denmark, Austria and Sweden, the "frugal" are against paying the recovery cash out as grants and want the money to paid back as loans by beneficiaries. Some new central and East European allies might well appear on the scene

By paying as fund out as grants, beneficiary countries will not pay the money back on a one for one basis meaning the EU27 as a whole picks up the bill

All the "frugals" have a veto and slender coalition parliamentary majorities. All blocked February spending plan because of increased contributions which must get past their MPs

All are wealthy, low debt northern countries but all made painful eurozone austerity cuts that have been resented and remembered by voters 
They are also against increasing the EU budget by raising its ceiling to 2% to allow financing (with some 165bn of national guarantees)

According to a confidential French paper, “repayment could start after [3] years, spread over [40] years and be completed by [2060]” 
This could be legally difficult as established route of leveraging EU budget to raise cash usually expires within the terms of a 7 year MFF

If grants (and its not really clear) this means Germany would be on the hook for 105bn in repayments, the Netherlands some extra 30bn of cost for Dutch taxpayers 650m a year
This is likely to be resented