Lagarde says ECB expects more grants than loans in EU recovery fund

FILE PHOTO: European Central Bank President Christine Lagarde smiles before addressing the European Parliament during a debate on the 2018 annual report of the ECB in Strasbourg, France, February 11, 2020. REUTERS/Vincent Kessler/File Photo

FRANKFURT (Reuters) - The European Central Bank expects a pending European Union stimulus scheme to favour grants over loans in the funding mechanism it uses to help kick-start the bloc’s economies, bank president Christine Lagarde said on Thursday.

Leaders of the 27 EU states are due to meet on Friday to try to hammer out their differences over how the 750 billion euro recovery fund will operate. [nL5N2EN2N4]

Some wealthy northern states favour loans over grants for their southern peers who have been hit harder by the pandemic, and are calling for economic reforms as preconditions for accessing the money.

“Our assumption... is that the recovery fund ... will come about and will be a strong mixture of grants on the one hand in larger proportion than loans on the other,” Lagarde told the ECB’s post-policy meeting news conference.

“Certainly there are very strong expectations... which have to do with addressing the damage to those countries and sectors which have been massively hurt” by the coronavirus epidemic.

The ECB has put steady pressure on EU governments to roll out more extensive fiscal measures in support of the extraordinary monetary policy steps that it has taken to stimulate the EU economy and the unprecedented damage to it wrought by COVID-19.

(The story corrects to ‘grants over loans’ in first paragraph.)

Writing by John Stonestreet; Editing by Hugh Lawson