The European Union agrees to a historic recovery plan after the COVID-19 pandemic

• Decisive for maintaining and developing employment

           Brussels 21 07 2020

On Tuesday morning, European Union (EU) Governments reached an agreement for a recovery plan totalling almost two trillion euros to relaunch the Community’s economy after the coronavirus pandemic. The "Twenty-Seven" agreed to activate a recovery fund of 750 billion euros funded through the issue of shared debt, and a 1.074 trillion euro budget for the 2021-2027 period.

This is an unprecedented economic package in the EU to alleviate the greatest recession in a century. "This is a strong deal. And more importantly, the right deal for Europe right now," said president of the European Council, Charles Michel, upon completion of the summit that began Friday morning and ended today, Tuesday, at 5:30 AM (3:30 GMT) with a deal.

"Today we've taken a historic step, we can all be proud of," said President of the European Commission, Ursula Von der Leyen, highlighting the fact that the EU has demonstrated its ability to take action against one of the "most difficult" economic and health crises.

Fund: 390 billion in subsidies

The deal sets forth that, of the 750 billion in the recovery fund, 390 billion will be disbursed to non-recoverable subsidies and 360 million to loans, which entails a cutback to the former and an increase to the latter in comparison with the Commission's initial proposal to grant 500 billion in direct aid and 250 billion in credit.

This is the result of concessions that most countries had to make to obtain a green light from the self-described "frugal countries" (Netherlands, Austria, Denmark, and Sweden), who were joined by Finland. They sought to cut back the amount of aid, with greater control over it and to maintain their discounts in contributing to the budget.

These were the most controversial points, along with the proposal to bind reception of budgetary funds to respect for the State of Law, in an intense negotiation. The large countries: Germany, France, Italy, and Spain sought at least 400 billion euros in subsidies, while the frugal countries requested 350 billion.

The compromise ended up closer to the original figure, but the cut-back in subsidies means reductions in the programmes funded by the fund: the Horizon Europe science fund went from 13.5 to 5 billion; the Invest EU investments fund went from 30.3 to 5.6 billion, or the Just Transition Fund for climate, from 30 to 10 billion, amongst others.

On the other hand, the Recovery and Resilience Facility, the most relevant item, intended to fund reforms and investments, increased its allocation to 672.5 billion. Spain is entitled to 140 billion euros from the fund, of which 72.7 billion will be direct grants.

Greater control

The final deal reinforces control over granting direct aid to satisfy the Netherlands, who wanted States to be able to veto its partners' reform and investment plans, while the Commission sought for them to solely make technical contributions.

The countries shall provide their plans to the Commission, which must also be approved by a qualified majority of the Twenty-Seven. Afterward, when authorising disbursement of each section of aid, if one or several States have doubts, this issue may be raised with a summit of leaders, freezing payment until the issue has been addressed.

Discounts

The "frugal" States reached their objective of not only maintaining, but even increasing the discounts they hold in their budgetary contribution, since they contribute more than they receive, even though these discounts were intended to disappear.

The Netherlands will hold a 1,921,000,000-euro discount, as opposed to 1,576,000,000 in the initial proposal, with Denmark going from 197 to 377 million, Austria from 237 to 565 million and Sweden from 798 million to 1,069,000,000. Germany, which also has a discount, simply maintains it (at 3,671,000,000 million per year).

New conditions

Moreover, for the first time, conditions bound up in the State of Law have been introduced. Opposing these conditions were Poland and Hungary, who have open proceedings with the EU in this regard, although the text was watered down in comparison with previous versions.

The deal stipulates the introduction of "cross-compliance" to "protect" the budget and the fund, to which end the Commission shall "propose measures in the event of violating" the state of law as adopted by the Council by qualified majority. Also, for the first time, the objective that 30% of budgetary expense and the fund support climate goals has been set. For the deal to enter in force, it requires approval of the European Parliament and several State parliaments.