On Friday 10 July, the President of the European Council, Charles Michel, proposed a post-Covid-19 EU Economic Recovery Plan amounting to €750 billion, that preserves the balance proposed by the European Commission between grants (€310 billion) and loans (€250 billion) to Member states under the Recovery and Resilience Facility (see EUROPE 12519/1).
In exchange, Mr Michel’s ‘Negotiating Box’ reduces the EU’s multiannual financial framework (MFF) for 2021-2027 by 20 billion (compared to the European Commission’s proposal of 27 May). And it grants other concessions to the so-called ‘frugal’ countries, such as maintaining discounts and strengthening governance in the approval of national recovery plans.
Mr Michel reiterated his proposal of last February (qualified majority vote) on the mechanism linking the disbursement of EU funds to respect for the Rule of law. He also proposes a €5 billion Brexit special fund.
The European Council will meet on 17 and 18 July to try to reach a compromise on the recovery plan and the next MFF. Prior to that, the EU General Affairs Council will discuss it on 15 July.
It is time to act and to decide. “I do not underestimate the difficulties” in reaching an agreement, the President of the European Council, Charles Michel, admitted at a press conference.
“We need unanimous agreement. This proposal represents a solid foundation, and we will have to work very hard over the next few days to prepare for the next physical European Council on 17 and 18 July. I am counting on the political courage of EU leaders. I think it’s time to act and to decide”, he said.
In his proposal, Mr Michel identified “the six building blocks of a possible future agreement”.
The first is the size of the 2021-2027 MFF (€1,074 billion), largely based on Mr Michel’s February proposal, which “reflected 2 years of discussions between Member States”, the President of the European Council recalled.
The second element: rebates. According to the proposal, these would be maintained for Denmark, Germany, the Netherlands, Austria and Sweden.
The third component is the size of the Recovery plan. The Commission will be empowered to borrow up to €750 billion through an Own Resource Decision. These funds may be used for loans and expenditures under MFF programs. “This is an exceptional and one-off tool for an exceptional situation”, said Mr Michel.
The fourth element: loans and grants. Mr Michel proposes to preserve the balance between loans, guarantees and grants “to avoid overburdening Member States with high levels of debt”. Mr Michel admitted that there are differences of opinion between EU countries on the balance between grants and loans. He justified the need for subsidies because, for some countries, “the high level of public debt poses a problem for the countries concerned, but also to preserve the single market”.
The fifth theme: the allocation of the Recovery and Resilience Facility. The proposal establishes a real link between the Recovery Plan and the crisis and ensures that the money will go to the countries and sectors most affected by the crisis. Mr Michel proposes that 70% of the Recovery and Resilience Facility should be committed in 2021 and 2022, based on the Commission’s allocation criteria. Taking into account the decline in GDP in 2020 and 2021, 30% will be committed in 2023. The total envelope is expected to be disbursed by 2026.
The sixth element is the question of governance and conditionality.
On governance, Member States will prepare national recovery and resilience plans for 2021-2023 in line with the ‘European Semester’, including country-specific recommendations. The plans will be re-examined in 2022 in light of the final allocation key, and the assessment of these plans will be approved by the EU Council by qualified majority vote on a proposal from the Commission.
Rule of law. Mr Michel is sticking to his February proposal on a link between payment of funds and respect for the Rule of law, “with sanctions to be adopted by the Council by qualified majority”. He also proposes that the Commission and the Court of Auditors report on the deficiencies in the Rule of law affecting the implementation of the EU budget, as well as additional funding for the European Public Prosecutor’s Office and the Justice, Rights and Values programme.
“We can’t put our heads down or close our eyes. The Rule of law is a key issue for the future of the European project”, argued Mr Michel. “We are going to conduct this debate with respect for everyone”, he added.
CAP and cohesion spared. Mr Michel acknowledged that, compared to what the Commission had proposed last May, he had recommended reducing the total amount of the 2021-2027 MFF (by €20 billion). “I propose to keep cohesion and agricultural policies at the same level, as they are linked to convergence and the reduction of disparities”, he said.
The reductions affect Horizon Europe (a decrease of €5 billion, partly offset by an increase of €13.5 billion in Next Generation EU), InvestEU (a decrease of €10 billion, offset by an increase of €30.3 billion in the Recovery plan), and the Neighbourhood, Development and International Cooperation Instrument (a decrease of €4.7 billion, but with an increase of €15.5 billion under Next Generation EU).
Own resources. “In my proposal, repayments under the Recovery Plan would start earlier, in 2026, 2 years before” what the Commission was proposing, and this commitment “increases the pressure for new own resources”, Mr Michel said.
He proposes to focus on three areas: a tax on plastics, a carbon adjustment mechanism (at the borders) and a digital levy. The idea of a financial transactions tax has not been abandoned, according to Mr Michel.
The negotiating box is quite specific. As a first step, a new own resource would be introduced and applicable from 1 January 2021, consisting of a share of revenue from a national contribution calculated on the weight of non-recycled plastic packaging waste, with a call rate of €0.80 per kilogram.
The Commission would come forward with proposals in the first half of 2021 for a border carbon adjustment mechanism and a digital levy with a view to their introduction by 1 January 2023 at the latest.
The Commission is invited to present a revised proposal on the EU Emissions Trading Scheme, possibly extending it to the aviation and maritime sectors. Finally, during the next MFF, the Union will work on the introduction of other own resources, which could include a financial transaction tax.
The proceeds of the new own resources introduced after 2021 would be used for the early repayment of EU loans under the EU Recovery Plan.
Corrections. The Member States concerned would benefit from a gross reduction in their annual contribution based on Gross National Income (GNI) at 2020 prices: Denmark: €197 million; Germany: €3,671 million; Netherlands: €1,576 million; Austria: €237 million; Sweden: €798 million. These gross reductions would be financed by all Member States based on their GNI.
Brexit. Brexit “is challenging for all of us and that is why we propose a ‘Brexit’ reserve of €5 billion”, announced the President of the European Council.
These funds would be provided to avoid “unforeseen and negative consequences in the most affected Member States and sectors”.
Climate. The negotiating box includes “a 30% global climate target” that would apply to the MFF and the Next Generation EU programme (compared to 25% in the Commission proposal). The MFF and the Recovery Plan will also have to respect the EU’s objective of climate neutrality by 2050 and contribute to the achievement of the Union’s new climate objectives for 2030.
Health. The RescEU civil protection mechanism’s budget will be increased by €1.1 billion, and the health programme’s budge will be increased by €1.7 billion.
Link to the new negotiating box: https://bit.ly/38HuRdA
Link to the presentation of the proposal: https://bit.ly/2ZXUzGY
Link to the table: https://bit.ly/2OgeHOQ (Original version in French by Lionel Changeur)