The new European recovery plan a giant leap for Europe


Five months ago, in last July, the European Council agreed on a 1 825 billion euros recovery plan to face the Covid-19 pandemic, adding to the multiannual financial framework (MFF) of 1 075 billion euros, the Next Generation EU recovery plan, a new instrument and key step forward for the EU. Since then however, the approval of the plan has been blocked by the on- going debates with Hungary & Poland. 

The EU recovery plan incorporates a major new feature: the European Commission will now issue debt instruments directly on the market in order to finance the Next generation plan. 

I. Where are we today, before the European summit 

The recovery plan is still facing major uncertainties, as disagreements between the Council and the European Parliament have delayed its implementation. Through its position of a veto- player on the adoption of the budget, the Parliament has been putting pressure on the Council to negotiate for an in- creased funding to 15 European key programs such as Erasmus+ and Horizon Europe, which could add to the budget of the recovery plan 110 billion euros. 

Another major deadlock has been in the conditionality of the Rule of law. Member States have only briefly mentioned it in July’s agreement due to the strong opposition of some countries, but the European Parliament reopened the debate. The leaders of the four main EP groups have published a column in several newspapers across the continent to support this initiative. 

The question of the Rule of law in the agreement reached in July obviously targeted Hungary and Poland. Supported by a majority of European citizens, the link between the respect of the Rule of law and the access to EU funding is also defended by northern countries such as the Netherlands. Germany, which holds the Council’s Presidency, has recently broken a compromise on the question in order not to block the Multiannual Financial Framework, by narrowing the definition of Rule of law to issues related to anti-corruption and the misuse of European funds, going into the eastern states’ direction. 

On 4th December, the negotiators from the European Parliament and the Council reached a common understanding on the 2021 EU Budget. Member States succeeded in reinforcing, on top of the Commission’s original budget proposal, programmes they considered key to boosting growth and jobs, reflecting widely agreed European Union priorities, namely Digital Europe (+25.7 million) and the Connecting Europe Facility (CEF) for transport infrastructure ( €60.3 million). As a supplementary effort to fight climate change, the reinforcements obtained by the Parliament for the LIFE programme (+€42 million) aim at contributing from the outset to reaching the target of 30% of climate-re- levant spending in the EU budget for the 2021-2027 period. The Rights and Values programme will receive an additional €6.6 million, and the European Public Prosecutor’s Office (EPPO), an independent Union body which aims at fighting crimes against the Union budget, will benefit from an extra €7.3 million. 

After the European Parliament, the next steps will be the ratification by national parliaments, which would normally take a year. Due to current circumstances, the European Commission wants a quick ratification, ideally in the first half of 2021. Despite the European leaders’ confidence to ratify the plan in time, the EU is envisaging a backstop measure with temporary national guarantees to the EU budget, in case there is a blockage at national levels. Hungary and Poland have already announced that they expect their national parliaments to reject the ratification if Rule of law clauses were to be introduced. 

Another major issue consists in the late arrival of European funds. The European Commission expects only a quarter of the money to be spent in 2021-22, and three quarters in 2023 and beyond, which is already a rapid timeframe for EU funding. 

II. The SURE program and the financing of the plan 

The SURE program (temporary “Support to mitigate Unemployment Risks in an Emergency”) is available for Member States that need to mobilise significant financial means to fight the negative economic and social consequences of the coronavirus outbreak on their territory. This program will moreover bring a much-needed short-term recovery assistance to Member States and was approved by the European Commission on the 2nd of April 2020 and activated in September, with a total envelope of 10Bn euros. So far, 17 member states have applied for the mechanism and the Commission has proposed a total of 87.8 bn euros. 

This program was created in order to act on short-term economic disaster, with a temporary instrument to mitigate the unemployment risks in an emergency. The Commission described it as a temporal measure to protect companies and their employees, as well as independent workers, against the economic backdrop of Covid-19. The SURE program will be financed by a contribution from each Member State and bond issues. 

Through the SURE program, the European Union could raise up to 100 bn euros, and started by issuing in October a very successful bond issue of 17 bn euros of social-linked bonds at a 10 and 20-year maturities. Demand for these bonds on the first day broke records, reaching 150 billion euros, 10 times what was expected – all of that despite the negative yield on offer for the 10-year debt and the hardly positive yield on the 20-year. This has made the EU one of the five main issues in Europe next to France, Germany, Italy and Spain. Hence the confidence of all parties that once political issues are resolved, the financing of the recovery plan will not be an issue. We therefore have to hope that the European Summit will manage to resolve the political disagreement and move the block forward! 

Sophie Javary, Vice-chairman CIB EMEA at BNP Paribas, Administrator of EuropaNova
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The European Commission recovery plan as proposed on May 27th 2020 for addressing the need to repair for the Covid crisis and preparing for the Next Generation is revolutionary. It opens a new era for the EU and for the euro as a currency especially the “Next Generation EU” plan of €750 billion. Some commentators have described this as a “Hamiltonian moment” for Europe insofar that – if the EC plan is adopted in mid-July by the Member states – the EU will both borrow independently in an unprecedented way. The EU will also raise taxes directly hence gaining budget autonomy outside member contributions. “Hamiltonian” refers to the first time that, in 1790 under Secretary Hamilton, the 13 states of the US decided to borrow jointly. This moment has been a “point de bascule” for the US into a real federation. We are living an almost as historically important moment for Europe and it is remarkable that the Commission has put this plan together only a few weeks after the also historic Franco-German decision to push for a common recovery plan.
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