For weeks already, the political debate on the reconstruction of the European economy has dominated the European public. Last week, Angela Merkel and Emmanuel Macron presented their vision of a recovery fund. The novum is that for the first time the Commission is permitted to borrow money from capital markets, de-facto joint bonds, which will be distributed to Member States via the EU budget. This shall generate a volume of 500 Billion Euro aid money, which would benefit Member States in the form of grants and not – as demanded by Austria, Sweden, Denmark and the Netherlands - in form of loans.

“Next Generation EU”: 750 billion Euro for the leap forward

The Commission shares this vision and increases the stake: in addition to the Multiannual Financial Framework, 500 billion Euro shall flow into reconstruction and further 250 billion Euro shall be awarded in form of loans. The revised Multiannual Financial Framework 2021-2027 itself provides for further 1.1 billion Euro. Apart from that, resources for the SURE Fund, the ESM Pandemic Crisis Support and the additional funding by EIB to tackle the crisis are also available.

To get out of the crisis, the Commission counts on investments around the Green Deal and the digital agenda, which are to make Europe resilient and sustainable for future generations. The aim is not to pit investments against crisis measures and to avoid an “either, or” logic, thereby making investments affordable for all Member States. The funds from the “Next Generation EU” instrument are divided into a variety of already existing EU programmes, ensuring that the additional money is spent in a target-oriented manner. To strengthen the social dimension, the Just Transition Fund shall be increased from only 7.5 to 40 billion. The cohesion programmes too, among them the European Social Fund, can count on a plus of 55 billion Euro, which, for example, are to benefit the fight against youth unemployment and child poverty tailored to Member States’ needs.  A new Health Programme shall support and improve the capacities of European healthcare systems.

Apart from the so far bitterly discussed borrowing by the Commission, new  finance sources shall be exploited at last: the EU’s own resources shall play an important role in the recovery plan and relieve Member States’ budgets in terms of repayment. In her speech before the European Parliament, Ursula von der Leyen announced the intention to generate income from the extension of the emissions trading scheme, a CO2 border tax, a plastic tax and a long overdue digital tax.

Majority in the European Parliament satisfied

MEPs of almost all political groups welcomed the Commission’s plan as ambitious, proportional and fit for the future. Whilst the EPP talked of the "return of solidarity”, the S&D group – in view of the forthcoming difficult discussions by the Council – renewed its pressure for a decision on the budget by qualified majority voting, instead of unanimity. The European Left was critical and forecasted a renewed high debt burden of countries with extensive allocation of funds. After all, the money borrowed by the Commission had to be paid back, even if this were to happen between 2028 and 2058. With regard to the announced resumption of the budgetary rules within the framework of the European Semester, there was a warning against “austerity through the backdoor”. Referring to Poland and Hungary, Renew Europe pushed for linking the award of funds to the respect of rule of law principles, which is also provided for by the Commission.

The ball is now in the corner of the Council

Many heads of state and government have already made positive comments on the Commission proposal, among them Emmanuel Macron, who sees the German-French draft confirmed by the Commission’s proposal. Italy and Spain were also satisfied, even though the proposal fell significantly short of the far-reaching Spanish proposal . Whether the “Frugal Four”, which include only two Euro countries, i.e. Austria und the Netherlands, will come round to accept the proposal remains to be seen. In any case, the Government cannot hope to get much support regarding a further intransigent stance from Austrian MEPs. Denmark already voiced its readiness to negotiate while the Netherlands appear to insist on the paper published last week and the blockage on joint debt. The German Finance Minister Olaf Scholz was nevertheless optimistic that a common agreement could be reached by the Council. The Commission is urging for a speedy agreement by July this year.

Further information:

European Commission: Europe’s moment: Repair and Prepare for the Next Generation

European Commission Factsheet: Financing the Recovery Plan for Europe

European Commission: Recovering from the crisis: EU funding to protect jobs and support a green, digital, inclusive society and economy

A&W Blog: 1,500 Billion for a European Marshall Plan – (how) can this be financed?

AK Budget analysis Budget 2020: Steps to overcome the Coronavirus crisis (200)