The European Commission has presented the Next Generation program to support the European economy affected by the effects of corona, and as revealed by the President of Ursula von der Leyen, this is an excellent financial assistance program for European countries affected by the crisis.
The recovery plan is based on the revised program of the European Multiannual Financial Framework, which is enriched by a recovery fund funded by large-scale borrowing by the European Commission.
Of the € 750 billion proposed by the Commission, $ 500 billion will be provided in the form of grants – as provided for in a joint French-German proposal last week – and the rest in the form of loans to Member States.
This is a brave package, beyond all expectations and based on the Franco-German proposal recently presented by Anne Merkel and Em. Macron.
The Rehabilitation Fund seems to be filled with weapons to deal with the crisis and with the Commission for the first time perhaps taking a clear position on the salvation of the Union.
The financing proposal is also a brave package and a very good breath. The Greek economy will receive huge sums of 32 billion euros, 22.5 billion as a direct grant and the remaining 9.4 billion as long-term repayment loans.
The benefit of Greece is estimated at 8.5% of GDP.
For Italy, the net benefit (after its contribution to the Community budget) is only 1%.
For Spain, the net benefit is 2.6% of GDP.
Prime Minister Kyriakos Mitsotakis tweeted about the Commission’s proposal for the Rehabilitation Fund: “We welcome the European Commission’s bold proposal for a 750 billion euro package, mainly in the form of joint loan grants. The bar has been placed high. It is now up to the European Council to take action.”
Of the 750 billion euros the Commission is expected to borrow for the recovery fund, Italy will receive 173 billion, of which 82 will be grants and 91 billion will be loans. Spain can receive a total of 140 billion euros, of which 77 billion will be grants and 63 billion loans.
Germany will receive € 28 billion in grants, much less than what corresponds to its GDP, which makes sense since someone has to pay for the package.
To finance the package, the commission will borrow up to 750 billion euros from the markets. The European Commission is proposing that the bloc’s common budget for 2021-27 reach 1.1 trillion. euro.
The Spanish government has announced that the European Union’s proposal for a € 750 billion recovery fund from the colonial will serve as a good basis for further negotiations.
The speech – station
In her opening remarks, European Commission President Ursula von der Leyen stressed the need for a bolder Europe.
“If the economy of one country is weakened, the economy of others is also weakened. All countries are affected. Europe is in a unique position to invest in the common future, “he said.
Generations before us have built a Union of peace and prosperity, without peer or precedent anywhere in the world. Today we face our own defining moment.
With #NextGenerationEU we can build a green, digital and resilient future for our Union. And https://t.co/JmHsay3I9g pic.twitter.com/coojAUgGu7
– Ursula von der Leyen #UnitedAgainstCoronavirus (ondvonderleyen) May 27, 2020
If accepted, the proposal represents the largest economic recovery program in the history of the European Union.
“We see potentially a radical shift in European macroeconomic policy… This sets an important precedent,” said Philip Lambertz, co-chair of the Green Group in the European Parliament.
Vice President Maro Sefkovic said: “The recovery will need a strong political direction. The adjusted work schedule, which reflects the new reality, shows that we will focus all our efforts on overcoming the crisis, starting our economy and firmly putting the European Union on a resilient, sustainable and fair path to recovery. It will help us recover stronger. »
The next-generation EU will raise money by temporarily raising its own resource ceiling to 2% of the EU’s gross national income, allowing the Commission to use its strong creditworthiness to borrow 750 billion euros in financial markets. This additional funding will be channelled through EU programs and will be returned for a long time to all future EU budgets – not before 2028 and not after 2058. To do so in a fair and common way, the Commission proposes one number of new own resources. In addition, in order to allocate funds as soon as possible to meet the most pressing needs, the Commission is proposing to amend the current multi-year fiscal framework 2014-2020, so that 11.5 billion euros will already be allocated for funding as early as 2020.
The money raised for the next generation of the EU will be invested in three pillars:
1. Support to Member States through investment and reform:
A fund to facilitate the recovery of the economy (Recovery and Resilience Facility) with a budget of 560 billion euros which will be available in the form of grants and loans. With this initiative, Member States will support investment and implement reforms for the sustainable recovery of the economy. EU Member States will present their own adapted national recovery plans, based on priorities set by the European Semester.
* A new initiative, REACT-EU, which will provide additional support for cohesion in Member States with a budget of 55 billion euros, available from 2020. The initiative will ensure that there is no interruption in the funding of key objectives to address it. crisis. It will support workers and small and medium-sized enterprises, national health systems and the green and digital transition and will cover all areas, from tourism to culture.
* To support the green transition, the Commission is proposing to provide additional funding for the Fair Transfer Fund and the European Agricultural Fund for Rural Development, while the Cohesion Funds will be strengthened to provide greater flexibility.
2. Starting the EU economy with private investment incentives:
A new means of supporting solvency will mobilize private resources to urgently support sustainable European companies in the areas, regions and countries most affected. It will be operational from 2020 and will have a budget of 31 billion euros, with the aim of unlocking 300 billion euros in support of solvency for companies from all economic sectors and preparing them for a cleaner, digital and sustainable future.
The Commission is proposing to upgrade InvestEU as the EU’s flagship investment program, more than doubling its capital.
In addition to the above, an investment facilitation fund will be set up within InvestEU that can attract up to € 150 billion in investment.
3. Dealing with the lessons of the crisis:
It includes a new health program, EU4Health, to boost health safety and prepare for future health crises with a budget of $ 9.4 billion. Euro.
Other EU programs will be strengthened to fully align the future financial framework with recovery needs and strategic priorities. Other means will be strengthened to make the EU budget more flexible and sensitive.
Achieving a prompt next-generation EU political agreement and the EU’s overall budget for 2021-2027 at the level of the European Council by July is necessary to give a new impetus to recovery and equip the EU with a powerful tool to restores the economy feet and build for the future.
Last week, Germany surprised by announcing together with France a significant change in the doctrine: in their joint proposal, Paris and Berlin supported a € 500 billion program, through a European debt repayment mechanism, an idea to which At the time, Berlin was in full swing.
However, the unanimous approval of the European Union Member States’ recovery plan will be a difficult task.
Already before the pandemic, the 27 had failed to agree in February on a multi-year (2021-2027) European budget of $ 1,000 billion.
The ensuing economic storm did not bring the North and South positions of the Union closer together, despite the fact that the countries of southern Europe are most affected by the pandemic crisis.
The two camps formed a new dividing line on both sides. Proponents of fiscal orthodoxy (the Netherlands, Austria, Denmark, and Sweden) argue that financial aid should only be provided through loans that need to be repaid. The opposing camp believes that the support should come exclusively in the form of grants.
Ursula von der Leyen’s plan is a combination of the two, and in that sense, it is not a “copy-paste” of the French-German proposal, European sources say.
The amount to be funded by the Recovery Fund, as well as the terms of its grant, remains to be finalized and depends on Brussels’ borrowing capacity.
Agreement at the June summit?
Yesterday, on the eve of the presentation of the European Commission’s plan to the European Parliament, Maro Sefkovic, one of the Vice-Presidents of the Commission, called for a swift political agreement during the next summit on 18 June.
In addition, once the new multi-year European budget enters into force by 2021, a solution will need to be found so that funding to support economies threatened with recession is available in the fall.
The next budget for economic recovery will also have to meet the Commission’s political commitments to the digital economy and energy transition at the heart of Europe’s economic growth.
At the same time, it remains the goal of developing the EU’s “strategic autonomy” to make it more resilient to crises and less dependent on the outside world, and especially on China.
To the Rehabilitation Fund and the European budget will be added the 240 billion euro loans of the European Stability Mechanism, the 200 billion euros of the Business Guarantee Fund and the 100 billion Euros of the SURE tool created to support its employers.
The commission has also approved $ 2,130 billion in government subsidies since the start of the crisis to support businesses. Half of it has been released by Germany.