On Thursday 23 April, the Heads of State or Government of the European Union will discuss the possibility of setting up a Recovery Fund to finance the restoration of the European economy, which has been paralysed by the COVID-19 pandemic.
This initiative, if validated at the highest political level, would complement the arsenal of emergency measures already taken at the European level. Some measures have already been authorised, such as the freezing of EU fiscal rules, while others have yet to become operational, such as the activation of the European Stability Mechanism (ESM) credit lines, the euro area permanent rescue fund, the SURE instrument to support short-time working, and the pan-European EIB guarantee fund. On Thursday, the Heads of State or Government could set a deadline for completing the ongoing procedures, with Spain proposing 1 June.
The Twenty-Seven will base their discussions on the Eurogroup report (see EUROPE 124652/2), as well as on two joint documents by the Presidents of the European Commission, Ursula von der Leyen, and the European Council, Charles Michel. The first document, which is already available, concerns a European exit strategy from the pandemic crisis (see EUROPE 12467/2), while the second document, a roadmap for the recovery of the European economy, is still in draft form.
“We’re all in the preparation phase”. Mrs von der Leyen and Mr Michel made it clear that they would “present their first ideas on Thursday” at the video conference of European leaders and “not before”, said Commission spokesman Eric Mamer on Monday 20 April.
Despite strong pressure from the countries - Italy, Spain - most affected by the pandemic, a decision on the precise modalities of a future Recovery Fund and its potential connection to the 2021-2027 Multiannual Financial Framework (MFF) may not be taken as early as Thursday by the Twenty-Seven, according to a European source informed about the discussions held on Monday 20 April at the level of Member States’ ambassadors to the EU (Coreper).
Indeed, the health crisis linked to the coronavirus is not over, and there is uncertainty about the additional amounts needed to specifically boost the European economy, with a range of between EUR 500 billion and EUR 1,500 billion being mentioned.
However, in his letter to his counterparts, Eurogroup President Mário Centeno pointed out that the finance ministers are ready to work on “the practical and legal aspects” of a Recovery Fund, “including its connection with the EU budget, its sources of funding, and the creation of innovative financing instruments” based on the guidelines to be set by the Twenty-Seven.
See Mr Centeno’s letter: https://bit.ly/2VJz4Yb
Several proposals for a Working Ventures Fund have been put forward. The European Commission and the European Parliament’s proposals naturally favour the Community method. Some Member States rely on the MFF, while others openly advocate the intergovernmental method, which from the outset provides a large margin for manoeuvre. An attempt at an overview...
European Institutions. The Commission believes that the EU budget for the next seven years should be the core of the post-pandemic Marshall Plan (see EUROPE 12470/2 and 12467/4).
By increasing the own resources ceilings in the EU budget by up to 2%, the European Commission would be able to provide a public guarantee that would enable it to raise substantial amounts on the capital markets while maintaining its top financial rating. This approach has already proved its worth in the rescue of Greece (EFSM mechanism) and the launch of the ‘Juncker’ investment plan (SIEF fund), and it will be re-engaged with the establishment of the SURE instrument, even if the latter will benefit from additional guarantees from Member States, since the 2014-2020 MFF is at the end of its cycle.
The mobilised funds - loans and/or grants - will be distributed to the Member States according to an allocation key that is still to be determined and by targeting this intervention on the first years of the MFF. Limiting the increase in the ceilings over time and the gradual repayment of the loans would eventually meet the obligation for the EU budget to be in balance (Article 310 of the Treaty).
A decision on increasing the margins under the own resources ceilings requires unanimity of the Member States and inevitably connects the creation of the Recovery Fund to an agreement by the Twenty-Seven on the 2021-2027 MFF, the negotiations for which are already very complex. It should be noted that Member States remain solely responsible for the amounts of their contributions to the EU budget.
In the resolution adopted on Friday 17 April, Parliament, as the European budgetary authority, voted by a majority in favour of a central role for the MFF. In particular, it advocates the issue of ‘recovery bonds’ guaranteed by the EU budget in order to make the investments necessary for economic recovery (see EUROPE 12469/2).
MEPs are calling for new own resources to reduce the EU budget’s dependence on national contributions. These own resources could provide the guarantees needed to raise capital on the markets.
Proposals from the Member States. Some Member States fear that mobilising the MFF alone will not be enough to cover all the costs of economic recovery. Several of them have therefore developed their own proposals.
This is what the Spanish authorities have done, as the El País newspaper reported on Monday. At an amount that could reach EUR 1,500 billion, the Recovery Fund wanted by Spain would be fed by European debt (‘perpetual EU debt’) with the European Central Bank playing a stabilising role. It would be anchored to the 2021-2027 MFF while remaining above the expenditure ceilings.
According to Madrid, Member States would only pay interest on debt raised at the European level, with the creation of own resources (e.g. an EU border adjustment mechanism) such as European taxes playing a role to this end. The support they would receive would be in the form of grants to invest in the ecological and digital transition.
Linking its proposal to a revision of the 2021-2027 MFF, Spain also stresses the importance of eradicating all harmful tax practices.
See the Spanish proposal: https://bit.ly/3513Yjf
France has been campaigning for several weeks for a Hybrid Recovery Fund: the raising of capital would take place on an intergovernmental basis, but the granting of funds would take place via the EU budget (see EUROPE 12460/6). This fund, both temporary and focused on future investments, would allow for pooling of national budgetary resources. Ideally, Member States would be jointly responsible for raising cheap debt on the markets, with the costs of this debt spread over time. However, such pooling represents a red line for Germany, Finland, the Netherlands and Austria.
The resources pooled by the French Recovery Fund would feed into the EU budget and finance both existing and future EU programmes. The countries most affected by the pandemic would benefit most.
See the explanatory sheet from the French authorities (in French): https://bit.ly/3eF9SdZ
The Netherlands, which has been strongly criticised for its lack of solidarity, is proposing the creation of a solidarity fund with EUR 10-20 billion in voluntary donations for the two countries most affected by the pandemic. (Original version in French by Mathieu Bion, with Lionel Changeur)