It does not end here. The frugal against the Recovery Plan: “It’s not a good thing, let’s deal”

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“The negotiation is just beginning.” The cold shower was as quick as the spread of enthusiasm. The first comments arrive on the long-awaited 750 billion euro recovery plan announced today by EU Commission President Ursula von der Leyen to deal with the Covid emergency, and they are not all positive. A very ambitious project on paper called “Next Generation EU” which provides subsidies for 500 billion and loans for 250 billion, and which meets the requests of the countries of Southern Europe, most affected both on the health and on the economic front by the effects of Coronavirus . But the difficulty begins only now: as already leaked on the eve, several countries (called “frugal”) are against the principle of direct transfers to the Member States. And they didn’t wait long before cooling down the ardor with which many, especially in the southern countries, rushed to comment on the Brussels proposal with solemn tones. In other words: the Recovery Plan that will come out of the agreement at 27 will not be the same as that presented today with great pomp by the EU Commission. Unanimity is needed.

The first to get their hands on was, needless to say, Holland: “The positions are far away and this is a dossier that requires unanimity, so negotiations will take time. It is difficult to think that this proposal will be the end result of those negotiations “; diplomatic sources leaked on the EU proposal. A Dutch MEP – but it is more folkloric than illustrative – took the floor in the European Parliament defining the Commission’s plan “almost a coup”: “We are on the threshold of an unprecedented transfer of skills through which someone’s portfolio would pass on to others. Vetoes are possible and this applies to the budget or even to the European taxes that are ventilated and also to any debts of the Commission that would violate Article 311 of the Treaty “.

The colorful accusations made by the MEP of the Conservative Derk Jan Eppink group are based on truthful assumptions. The resources needed to set up the 750 billion coronavirus plan will come from various chapters. But the bulk will come from the issuance of bonds by the Commission on the financial markets on behalf of the EU. And to do so, it will have to modify the Own Resources Decision, the legal text that establishes the conditions for financing the EU budget. However, according to the chief economist of the German bank Commerzbank, Jorg Kramer, it is unlikely that this form of eurobond will be able to obtain an AAA rating from the rating agencies if it plans to repay them in an unspecified period ranging from 2028 to 2058. Other resources should then arrive from the introduction or remodulation of taxes on large companies, plastics and web giants and the extension of the ETS to the maritime and civil aviation sectors.

Details on which negotiations are only now starting, and they are all going uphill. Austrian Chancellor Sebastian Kurz made it clear that the Commission’s proposal is only “a starting point” and that the difference in the amount and proportion between “loans and subsidies needs debate” and “still needs to be addressed”. However, the Austrian chancellor will have to deal with government partners, the Greens, who are ready for solidarity measures towards the countries of southern Europe. Swedish government minister for EU affairs Hans Dahlgren said that “the current proposal announced today is not acceptable, they want a European action based on the loan and not on the transfer of resources”. The Danish representation in Brussels, to close the picture of the so-called “frugal four”, has been less clear: Copenhagen will examine the package in depth and “hopes that an agreement can be reached soon on Recovery and the Multiannual Budget”. “Restoring economic growth is in everyone’s interest and requires a common strategy.”

The positions on the field however remain distant. And the German Chancellor Angela Merkel has already clear that the time to reach an agreement will be long: “The negotiations will not be closed already at the next European Council in June”. The goal is that the tool for recovery can start in January next year. Above all, said Merkel, “the negotiation will be difficult” but Germany, the EU’s president since July, will make “every effort” to reach an agreement. France, however, is in a hurry: not June, but “already in July an agreement will have to be reached, without postponing until after the summer because we would send a negative signal”, said Elysian sources.

In the afternoon, Dutch Foreign Minister Stef Blok had a “good discussion” with his colleagues from Sweden, Austria and Denmark, from which it emerged that the Commission’s proposals “are a starting point for further discussions and will be analyzed on the basis to our common position “.

The negotiation promises to be incandescent and will concern not only the amount of resources to be deployed but above all the relationship between subsidies, loudly requested by the South, and the loans, on which the North would like to hinge the entire fund for the recovery, currently unbalanced in favor of the former (2/3 grants vs 1/3 loans). All, loans and subsidies, will however be strictly bound: the disbursement will take place in installments based on the progress made in the implementation of certain reforms, addressed to pre-established economic sectors, such as green and digital, and in some cases accompanied by co-financing.

Italy is the largest beneficiary of the subsidies with 82 billion euros, from which its share of the contribution is to be subtracted. According to estimates by Silvia Merler, Head of research for theAlgebris Policy & Research Forum, is expected to collect around 38 billion direct transfers in three and a half years (until 2024). Spain will benefit most, benefiting from 55 billion “net”, while the third beneficiary will be Poland, for around 24 billion in contributions from the EU fund. Germany, with around 89 billion, France with 35 billion, and Holland with 21 billion will lose out. For the latter, it is about 2% of its GDP.





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