The European Commission proposal on the recovery fund


European Commission President Ursula von der Leyen presented the Commission proposal on the Recovery Fund to the European Parliament, the main European instrument to support economic recovery after the peak of the coronavirus pandemic.

The Commission’s proposal is called Next Generation EU and is based on the compromise reached by France and Germany last week, which provided for a 500 billion euro fund to be collected on the financial markets to distribute subsidies guaranteed by the budget of the European Union. The Commission has specified how it intends to channel these funds, and added some subsidized rate loans to the sum: in total, the entire proposed package is approximately 750 billion. The Commission has also proposed a plan for the European Union’s multi-annual budget valid between 2021 and 2028, which will be negotiated in the coming months.

The documents announced today are only proposals: the Recovery Fund, in particular, will be negotiated by individual countries in the coming weeks. Several countries, including Italy, hope to reach a compromise by mid-June, to then approve it during the European Council, i.e. the body that includes Union heads of state and government, to be held between 18 and June 19th.

According to some Commission documents read by journalists, Italy should receive 172.7 billion euros from the Fund, the highest share destined for a single country: 81.8 billion euros in subsidies and 90.93 billion in the form of subsidized rate loans. The figures are purely indicative, given that they will surely change over the next few weeks and also in the coming years if the Fund is approved.

According to the Commission proposal, the Fund’s main container will be a 560 billion credit line (of which 310 billion in grants and 250 billion in loans). The Commission also proposes to spend the other money raised to strengthen other funds already announced such as the Fund for a just transition, part of the European Green deal, the InvestEU fund and the usual funds for cohesion policy (the cohesion fund, the fund social and regional development fund).

The first impressions of analysts and observers on the Fund are positive. “It is a rather significant plan and, more importantly, the Commission is not using any multipliers or witchcraft in proposing these numbers,” writes Gregory Claeys, who works for the respected Bruegel think tank. Others point out that the proposal for the multiannual budget is instead more modest, and similar to that proposed by the President of the European Council Charles Michel in the autumn, when the negotiations began.

The Commission proposal on the Recovery Fund was originally expected on 6 May. It had been known for several days that Von der Leyen would announce it today with a speech to the European Parliament. This morning the Commissioner for Economic Affairs of the European Commission Paolo Gentiloni had anticipated the entity of the Fund speaking of “a European turning point to face an unprecedented crisis”.

After the announcement by Gentiloni and von der Leyen, a Dutch diplomat reminded Politic that “we are only at the beginning of the negotiations”, and that “it will take time because some positions are quite far apart and unanimity is needed for this type of decision”. Austria, Denmark, Sweden and the Netherlands – the most economically conservative European countries – continue to be against subsidies and would like only repayable loans to be made and tied to national budget control measures.

The Commission has clarified better how the proposed 750 billion would be collected: they will be found on the financial markets with the issue of long-term Community securities repayable by 2058, but in any case not before 2028. The Commission proposal also foresees new European taxes for reimbursement, to avoid weighing excessively on national budgets: in recent weeks there has been a lot of talk about a tax on disposable plastic, carbon dioxide and a kind of European web tax.

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