The proposal still needs to be unanimously agreed by the 27 EU countries, but the Commission has asked the European Council to come to an agreement by July.
The proposal is a key milestone aimed at staving off a growing economic rift between the well-resourced Northern nations that are expected to recover fairly swiftly from the pandemic, and some of their Southern neighbours such as Spain and Italy. Crucially the package is structured in the form of €500 billion of grants to keep these hard-hit Southern states happy, while the remaining €250 billion will be made available as loans to keep the Northern nations on side.
Countries such as Austria, the Netherlands, Sweden and Denmark reacted cautiously to the proposal. These nations (dubbed the “frugal four”) prefer loans-for-loans (i.e loans rather than grants), but they also recognise that unless a deal is found soon, there is risk of economic collapse for some member states and bailing them out at that point could prove more expensive. Staying at the table and pushing for a higher proportion of loans to grants could at least offer the hope of a compromise.
'Next Generation EU'
The Commission package builds on that unveiled by Germany and France last week. The new package has two parts: 1) the €750 billion raised through a one-off emergency European Recovery Instrument called “Next Generation EU” of new, front-loaded, targeted financing raised in the financial markets through existing EU programmes. These funds will need to be re-paid after 2027 and before 2059; and 2) a reinforced 2021-2027 EU budget of €1.1 trillion.
The Commission also plans to fund the recovery project through a suite of new EU own resources raised by extending the Emissions Trading System to the maritime and aviation sectors, digital and carbon border taxes and levies on large enterprises that have been major beneficiaries of emergency funds in order to survive. These measures are expected to raise tens of billions of euros a year.
The plan builds on three key pillars: the EU Budget, the EU Green Deal and the EU Recovery Fund. The Commission reiterated that the European Green Deal is “Europe’s growth strategy” and would promote “competitive sustainability”. It added that investments in large-scale real-estate renovations, renewables and clean hydrogen and transport solutions, sustainable food and digital infrastructure would boost economic growth. These sectors are therefore likely to be key beneficiaries of this package once agreed.