The revised proposal for the Multiannual Financial Framework (MFF) for 2021-2027, which the European Commission presented on Wednesday 27 May (see EUROPE 12493/1), provides for an additional 750 billion euros firepower for the EU budget.
This sum corresponds to the level of the PEPP operation for the massive repurchase of public securities that the ECB initiated to counter the crisis caused by the Covid-19 pandemic, placing the EU’s budgetary response for economic recovery on a par with the monetary policy of the Frankfurt Institute.
Gathered under the title of Next Generation EU, these additional funds constitute the financial arm of the European Recovery Plan designed to heal the wounds of the pandemic and stimulate economic recovery, while the President of the ECB, Christine Lagarde, spoke on Wednesday of a recession in the euro area of between 8% and 12% by 2020.
Funds will mainly go to the countries most affected by the pandemic and its economic consequences: Italy could receive 173 billion euros (82 billion euros in grants, 91 billion euros in loans) and Spain 140 billion euros (77 billion euros in grants, 63 billion euros in loans).
Mobilised by the end of 2024, these sums will all be redirected to existing or new community policies, programmes and instruments and will be granted to the Member States either in the form of grants (500 billion euros) or loans (250 billion euros) repayable in the very long term.
As anticipated (see EUROPE 12492/2), Next Generation EU will be based on three main pillars. With 560 billion euros to be distributed in the form of grants (310 billion euros) and loans (250 billion euros), the first pillar, the Recovery and Resilience Facility, will help Member States to invest and implement reforms enabling them to modernise their economies in line with European strategic priorities (Green Deal, Digital Agenda).
All Member States will be eligible, but the aid will be concentrated on the regions most affected by the crisis. On a voluntary basis, each country will present a recovery programme adapted to its specific needs. The Commission will examine this national programme in the light of its country-specific socio-economic policy recommendations (see EUROPE 12491/12).
“We are linking the grants to the budget process of the ‘European Semester’”, stressed the President of the European Commission, Ursula von der Leyen.
The Commission’s recommendations are not binding, but the European institution indicates that the financial support will be disbursed in instalments according to progress made on the basis of predefined benchmarks.
On Tuesday, a European source had also indicated that once agreement between the Commission and a country on its recovery programme has been reached, Member States, meeting in a specific committee, will give a prior and binding opinion under the review procedure (qualified majority voting).
“The sums we are talking about are substantial. It is a manner to make sure there is a collective ownership of the plan proposed”, the source said.
Also within the first pillar, cohesion policy will benefit from a budget increase called REACT-EU, which will amount to 50 billion euros, plus 5 billion euros to be made available from September 2020 through the current MFF. This support, which will build on the Coronavirus Response Investment Initiatives (CRII and CRII+), could go, for example, to health systems and support youth employment. The capital key between beneficiary countries will take into account the impact of the crisis. In 2024, a review of national allocations under cohesion policy will be carried out, with a further increase of 10 billion euros.
The second pillar will aim to help the private sector overcome the paralysis of the economy. The Commission forecasts that between 35% and 50% of European companies with more than 20 employees could face liquidity problems by the end of 2020.
In this context, the InvestEU programme, which will succeed the ‘Juncker’ investment plan, will benefit from additional resources (see EUROPE 12239/13). The Commission proposes to increase the public guarantee for InvestEU to 72 billion euros. 15.3 billion would go to the four components already identified and 15 billion to a new intervention component called the Strategic Investment Facility.
This fifth component, which could generate up to 300 billion in new investment, will aim to stimulate private investment in companies active in strategic markets, such as technology and health infrastructures. It will contribute to strengthening the EU’s strategic autonomy (see other news).
The Solvency Support Instrument will also be set up, which will make it possible to prevent the failure of viable businesses on a temporary and targeted basis. By granting a guarantee of 75 billion euros to the EIB, the Commission hopes that 300 billion euros can be mobilised to invest in the companies that need it most and in countries that are not in a position to grant State Aid.
Finally, the third pillar of Next Generation EU will aim to draw lessons from the pandemic, which has brought to light profound dysfunctions. A 9.4 billion euros EU4Health programme (see EUROPE 12494/5) will be set up and the Civil Protection Mechanism rescEU will be reinforced with 3.1 billion euros (see EUROPE 12494/6).
“The twin transitions to a green and digital Europe”
Trying to respond to calls for a ‘green recovery’ (see EUROPE 12479/33 - 12466/16), the Commission insists that economic recovery must not undermine the objective of climate neutrality by 2050.
The public investments that will be generated should therefore be guided by the priorities identified in the framework of the ‘European Semester’, the National Energy and Climate Plans (NECPs) and the Just Transition Plans.
Private investment will be guided by the EU Regulation on the Taxonomy of Sustainable Finance (see EUROPE 12469/23).
In addition to this desire to direct the recovery towards ecological transition, the plan includes some concrete innovations in terms of funds devoted to the environment.
In order to further support farmers, rural areas and the most vulnerable regions in the green transition, the Commission therefore proposes to reinforce the budgets of the Just Transition Fund and the European Agricultural Fund for Rural Development (EAFRD) with an additional 32.5 billion euros and 15 billion euros respectively. It also suggests doubling the amount devoted to sustainable infrastructure under InvestEU in order to contribute to the objective of at least doubling the annual rate of renovation of buildings (see EUROPE 12484/16).
In addition, the Strategic Investment Facility “will invest in technologies key for the clean energy transition”, the Commission says, citing in particular operating technologies and storage of renewable energy, clean hydrogen and batteries.
Nevertheless, these few new elements remain minor compared to the many proposals contained in a recently leaked internal Commission note (see EUROPE 12489/6).
In addition, the Commission is sticking to its proposal to devote 25% of the EU budget to climate action.
Disappointed by Next Generation EU, the NGO Greenpeace regretted that the recovery plan does not set “strict social or green conditions on access to funding for polluters like airlines or carmakers”.
The Commission’s other key priority for recovery is to strengthen the single market and adapt it to the digital age.
To this end, the European institution considers the following four actions to be essential: (1) investing in more and better connectivity, including the rapid deployment of 5G networks; (2) ensuring a stronger industrial and technological presence in strategic digital sectors, including artificial intelligence, cybersecurity, supercomputing and the cloud; (3) building a true data economy as a driver of innovation and job creation; (4) developing a fairer online business environment so that it ceases to be largely monopolised by a number of major platforms.
Within the framework of the Recovery and Resilience Facility, Strategic Investment Facility and InvestEU instruments, stimulus investments will thus be directed in particular towards strategic digital capacities.
See the Communications:
- The EU budget powering the recovery plan (https://bit.ly/3esGKFR ) and its annex (https://bit.ly/2MfFcDr )
- Europe’s moment - Repair & Prepare for the Next Generation: https://bit.ly/2XDnQpj (Original version in French by Mathieu Bion and Damien Genicot, with Marion Fontana)