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European Commission calls for €750bn post-Covid recovery fund

The European Commission plans to borrow €750bn between 2021 and 2024 and pay it back in grants (€500bn) and loans (€250bn) to Member States to help them tackle the economic consequences of Covid-19. Italy and Spain will be the main beneficiaries with €172.75bn and €140.44bn respectively.

Ursula von der Leyen wants to "take a big step forward" with her "Next Generation EU" plan (photo: European Commission)
Ursula von der Leyen wants to "take a big step forward" with her "Next Generation EU" plan (photo: European Commission)
EUROPEAN UNION. To respond to the economic consequences of Covid-19 in the European Union, Ursula von der Leyen proposed on Wednesday 27 May 2020 in Brussels to MEPs an exceptional recovery plan with a new €750bn fund called "Next Generation EU". It will require a revision of the 2021-2024 EU budget.

According to the President of the European Commission, this fund would be provided by all 27 Member States through the issuance of a mutualised debt. The Netherlands, Austria, Sweden and Denmark are opposed to this strategy. It is the rallying of Germany - made official by a presentation by Angela Merkel, its chancellor, with Emmanuel Macron, the French president, on 18 May 2020 of an initiative along these lines - that could tip the balance and, in any case, has enabled Ursula von der Leyen to take this path.  "Either we all go it alone, leaving whole countries and regions behind, accepting a union of haves and have-nots, or we all move forward together, and take a big step forward. For me, this is a simple choice to make," she told MEPs. Italy and Spain will be the main beneficiaries of the new recovery fund with €172.75bn and €140.44bn respectively.

Grants and loans

The European Commission will itself borrow on the markets between 2021 and 2024, thanks to indirect guarantees from the Member States. This will allow it to inflate its budget and allocate more resources to certain programmes, and even to create new ones.

500 billion (as foreseen in the Franco-German project) will be transferred, via the European budget and in the form of subsidies, mainly to the Member States that have suffered most from the pandemic. This is provided that the latter present investment plans and reforms compatible with the European Commission's political priorities. These priorities will be presented in January 2020 under the name of the "green deal" or "Investment Plan for a Sustainable Europe", with the ecological transition as its backbone. "Let us abandon our old prejudices and rediscover the strength of the magnificent idea of a united Europe. The crisis is extraordinary, but so is the opportunity we have before us! With this plan, we can build the basis for a climate-neutral, digital and resilient Union," said Ursula von der Leyen.
Italy should receive €82 billion of these grants, Spain €77 billion, France €39 billion, Germany €29 billion...

At the same time, €250bn will also be allocated in the form of loans, with mainly a pre-allocation of €91bn for Italy, €63bn for Spain but nothing for France and Germany.

The European Commission will start repaying the €500bn borrowed and paid back in grants from 2028 and for a maximum of 30 years. The €250bn in loans to individual Member States will by definition be repaid by them to Brussels.

The 750 billion in the new recovery plan is in addition to the financing of the emergency measures already adopted (€540 billion in the form of loans with the SURE mechanism and the funds guaranteed by the European Investment Bank) and the €1,000 billion that the European Central Bank (ECB) plans to release for the financial sector.

However, this plan, the largest ever put in place by the EU, can only exist if this revision to the next budget 2021-2027 is adopted unanimously by the Member States. The opposition between the Northern countries (which advocate support only in the form of loans) and the Southern countries (which want only subsidies) is likely to spice up the debates. The solution proposed by the European Commission favours subsidies but still introduces loans. Ursula von der Leyen's proposal should be at the centre of discussions at the next EU summit on 18-19 June 2020. "The boldest measures are those that best guarantee the future," she said when presenting the recovery plan.

Wednesday, May 27th 2020

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