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The result of the longest Council summit in decades (17–21 July 2020) has been a historical agreement on a recovery package to tackle the consequences of the current pandemic, “creating jobs and repairing the immediate damage caused by the COVID-19 pandemic whilst supporting the Union’s green and digital priorities.” To this end, two main tools will be deployed: a recovery fund, “Next Generation EU”, and an updated long-term EU budget or Multiannual Financial Framework (MFF).
Where will the money for recovery come from? “Next Generation EU” will amount to €750 billion and will be funded through the issuance of EU debt. The Commission will borrow billions of euros on behalf of the European Union on the financial markets; a majority of the funds will then be channelled to the Member States that were worst hit by the pandemic through a mixture of grants and loans. In the longer term, the EU will pay back this debt through future EU budgets; in this respect, and in order to ease the demands on future Member States’ contributions to the EU budget, the agreement also opened the door to new EU revenue streams such as a levy on non-recycled plastic, a carbon adjustment measure, a digital levy, a revised ETC scheme, and the possible future introduction of further own resources, which may include a Financial Transaction Tax.
The agreement is enormously significant for various reasons: first, this is joint debt issuance and burden sharing on an unprecedented scale. It is debt mutualization with certain caveats: it is a one-off, and Member States are not responsible for each other’s debts, as they would have been with Eurobonds (although there are different versions of such an instrument in as many proposals; the same applies to the mooted coronabonds). The debt is guaranteed by the EU budget itself, not by the Member States; the latter are still sharing the fiscal burden of recovery, though, in the sense that Member States remain responsible for their future contributions to the EU budget, beyond the new EU resources discussed above. It should also be noted that this recovery package and sharing of fiscal burdens is EU-wide, and not limited to the euro area. Secondly, the resulting funds will be channelled to Member States in need through a relatively even mix of grants (390 billion) and loans (360 billion). This is a hard-fought compromise between those—a majority of Member States including France and Germany, plus the Commission—who pushed for sharing the fiscal burden of recovery and insisted on channeling the vast majority of funds through grants, on the one hand, and the so-called “frugal” Member States—Austria, Sweden, Denmark, Netherlands, Finland—that were keen to limit risk and burden-sharing, and thus insisted on loans and repayment. Thirdly, conditionality will play a role, though not as large as the “frugal” Member States would have wanted. Member States hoping to receive either grants or loans will prepare “national recovery and resilience plans” that will need to be consistent with country-specific recommendations and contribute to green and digital transitions. The Commission will review these plans and Council will approve them by qualified majority voting; no single Member State will thus have an effective veto power, which was one of the “frugal” demands. Money will not be disbursed unless milestones and targets agreed in the plans have been reached. In general, oversight will be integrated within the framework of the European Semester. It remains to be seen what role national parliaments will need to play in the process. Furthermore, the initial push to make compliance with the rule of law one of the elements of conditionality was abandoned, sadly, in order to secure the agreement of Poland and Hungary.
Much of the detail will need to be worked out and developed further, but this agreement is nothing short of a milestone. Whilst imperfect, it is a necessary show of solidarity in unprecedented and harrowing times for millions of European citizens. It is the fair and right thing to do to share resources in these circumstances; anything less would have amounted to a failure for the European project, and given more ammunition to populist movements across the continent. And though much of the agreement is a one-off response to emergency circumstances, it is also likely to have long-term constitutional consequences for the EU and its Economic and Monetary Union, easing the way towards further fiscal integration through broader sharing of risk and fiscal burdens among Member States and the growing development of EU-own resources. Indeed, the debate on the future of EMU and the role that solidarity, burden-sharing and discipline should play within that future has been at an impasse for quite some time. It is—unsurprisingly and unfortunately—through the need to address existential threats that deadlocks break and significant change may come about.
