October 31
2020
Dolores Utrilla
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27th May 2020
Institutional law

Europe’s Moment: Commission Recovery Plan unveiled

The European Commission has just unveiled its proposal for post-pandemic economic recovery in the EU, which relies on two closely intertwined pillars: (i) a special recovery fund, called ‘Next Generation EU’, and (ii) the new long-term EU budget (2021-2027). Together, these instruments make up 1.85 trillion euros to help kick-start the EU economy and ensure Europe bounces back     .

The Commission has also presented its adjusted Work Programme for 2020, which will prioritise the actions needed to propel Europe’s recovery and resilience.

The success of the Recovery Plan proposal will depend on the joint support of the European Parliament and the 27 Member States.

The European Recovery Fund: Next Generation EU

Firstly, the Commission proposes to launch a 750 billion euros Recovery Fund to help those Member States that have most severely been affected by the COVID-19 outbreak. This proposal relies on the Commission’s assessment that, if left to individual countries alone, the recovery would likely be incomplete, uneven and unfair.

Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow 750 billion euros on the financial markets. This additional funding will be channelled through EU programmes and repaid over a long period of time throughout future EU budgets – not before 2028 and not after 2058.

To help do this in a fair and shared way, the Commission will propose a number of new own resources. According to the proposal made public today, these could include a new own resource based on the Emissions Trading Scheme, a Carbon Border Adjustment Mechanism and an own resource based on the operation of large companies. It could also include a new digital tax. These will be in addition to the Commission’s proposals for own resources based on a simplified Value Added Tax and non-recycled plastics.

The 750 billion euro-budget from Next Generation EU will be given to Member States through a mix of grants and loans. Thereby the Commission proposal tries to bring together the approaches of Member States willing to mutualise debt and the views of EU countries opposing the idea of burden-sharing.

Regarding the 500 billion euros for grants, the proposal builds on the Franco-German Proposal put forward last week. In addition to this amount, 250 billion euros will be available for Member States in the form of loans subject to repayment by the beneficiaries, a line supported by the so-called ‘Frugal Four’ (Austria, Sweden, Denmark and the Netherlands) as confirmed by their joint ‘non-paper’ published last week.

The money raised for Next Generation EU will be invested across three pillars, devoted to: (i) support Member States with investments and reforms, (ii) kick-starting the EU economy by incentivising private investments, and (iii) reinforcing strategic EU action in the areas of health, civil protection, and external action. The Commission’s proposal suggests several specific actions on each of these pillars.

The EU long-term budget

In addition to Next Generation EU, the Commission is proposing a revamped EU budget, amounting to 1.1 trillion euros between 2021 and 2027. The proposal is below the level originally suggested by the Commission in May 2018 for the 2021-2027 period (1.135 trillion euros), but higher than a compromise plan put forward in February by European Council President Charles Michel (1.095 trillion euros). The money in the proposed long-term budget would be invested in the same pillars already mentioned for the European Recovery Fund.

Moreover, in order to make funds available as soon as possible to respond to the most pressing needs, the Commission proposes to amend the current multiannual financial framework 2014-2020 to make an additional 11.5 billion euros in funding available in 2020. This additional funding would be made available for REACT-EU, the Solvency Support Instrument and the European Fund for Sustainable Development, reflecting the urgency of these needs.

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