Greatest concern in the EU member states during this July was the Union’s new multi-annual financial framework (MFF-2027), as well as the issues of the continental socio-economic recovery in the post-pandemic crisis’ period: the so-called “Next Generation EU” plan. The latter is to provide an unprecedented support for national green and digital priorities in perspective growth strategies. Only the time can tell how feasible the expected transition will be…
The Commission has come with a Next Generation EU plan at the end of May 2020, together with a suggested reinforced MFF totaled € 1.850 billion focusing on “green, digital and resilient recovery” to help European states and businesses to combat the crisis’ aftermath.
The severity of this crisis justifies an ambitious common response combining not only solidarity among the EU-27and huge investments but suggested numerous reforms in science, technology and business. The EU-27 leaders strongly supported green and digital dimensions in the “next generation plan’s” priorities regarding them as the main driving elements in national modernisation efforts.
However, discussions at the June’s Council have shown mounting differences of opinion on various issues, i.e. including an overall size of “next generation” financial facility, the balance between grants and loans, the allocation procedures, as well as changing sizes of the EU’s “own new resources” and possible rebates for the states. Most of these differences have been somehow resolved at the extraordinary summit, which was intended as a two-day event while turning into a five-day diplomatic marathon, resulting in a €1.82 trillion deal.
Source: The Commission’s press release/19.06.200 in: https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_1137
Recovery plan for Europe: three main directions
The initial Commission’s proposal revealed at the end of May 2020, called the Next Generation EU, amounted to €750 billion to “target reinforcements” in the long-term EU budget, the MFF for 2021-2027; the financial support would bring the total “financial firepower” of the EU budget to €1.85 trillion.
The “Next Generation EU” will raise money by both temporarily lifting the own resources ceiling to 2.00% of the EU’s aggregate GDP, and allowing the Commission to use its strong credit rating in the global financial markets to borrow about €750 billion for states’ recovery efforts. This additional funding will be channeled through numerous EU programs and repaid over a long period of time throughout future EU budgets (somewhere between 2028- 2058).
In order to make the “channeling” in a fair and shared way, the Commission has proposed some amendments to the EU’s “own resources” structures for 2021-27 financial period. The so-called “own revenue resources” in the EU budget traditionally included: a) customs duties, b) contributions from the states based on value added tax, and c) contributions from the states’ gross national income. However, already in May 2018, the Commission proposed some measures to increase these resources to finance increasing challenges in transition.
Due to the pandemic crisis, the Commission proposed additional features in “new own resources” to diversify the sources of revenues with new optional solutions and additions that would include the following four new contributions:
- Emissions Trading System-based contribution, including extension to the maritime and aviation sectors to generate €10 billion per year;
- Carbon border adjustment mechanism to raise additionally from €5 billion to €14 billion per year in own resources;
- Own resource contribution based on operations of companies, that draw huge benefits from the EU single market, which could yield around €10 billion per year; and
- Digital tax on companies with a global annual turnover of above €750 million to generate additionally up to €1.3 billion per year.
In this way, the Commission proposes to amend the current multiannual financial framework 2014-2020 to make an additional €11.5 billion in funding available already in 2020. However, these proposals for new contributions shall be agreed and ratified by the EU member states.
The EU «next generation’s » plan
The investments of €750 billion into the “Next Generation EU” would follow the following three directions:
1) Supporting the member states investments and reforms through the following four priority areas:
- New recovery and resilience facility of €560 billion, which will offer financial support for investments in green and digital transitions, as well as for reforms aimed at resilient national economies alongside the EU’s political priorities. This financial facility will be embedded in the European Semester and will be equipped with direct grants of up to €310 billion; the amount would be able to increase available sums up to €250 billion in loans. The facility’s support will be available to all EU states but concentrated on the most affected where the resilience needs are the greatest.
- € 55 billion top-up of the current cohesion policy programs between 2020- 2022 under the new REACT-EU initiative to be allocated based on the severity of the socio-economic impacts of the crisis, the level of youth unemployment and states’ relative prosperity.
- increasing the Just Transition Fund to €40 billion, to assist the EU states in accelerating the transition towards climate neutrality.
- reinforcement for the European Agricultural Fund for Rural Development with €15 billion to support rural areas in making the structural changes necessary in line with the European Green Deal and new targets in line with the biodiversity and “Farm to Fork” strategies.
2) Incentivizing private investments to stimulate the member states’ economy by:
- A new Solvency Support Instrument will mobilise private resources to urgently support viable European companies in the sectors, regions and countries most affected. It can be operational from 2020 and will have a budget of €31 billion, aiming to unlock €300 billion in solvency support for companies from all economic sectors and prepare them for a cleaner, digital and resilient future.
- Upgrade InvestEU, Europe’s flagship investment programme, to a level of €15.3 billion to mobilise private investment in projects across the Union.
- A new Strategic Investment Facility (as part of the InvestEU program) will generate investments of up to €150 billion in boosting the resilience of strategic sectors, i.e. those linked to the green and digital transition, as well as key value chains in the internal market, with additional €15 billion contribution from Next Generation EU.
3) Addressing the crisis’ aftermath:
- A new EU health program, EU4Health, to strengthen health security and prepare for future health crises with a budget of €9.4 billion.
- A €2 billion reinforcement of rescueEU, the Union’s Civil Protection Mechanism, which will be expanded and strengthened to equip the Union to prepare for and respond to future crises.
- An amount of €94.4 billion for Horizon Europe, which will be reinforced to fund vital research in health, resilience and green and digital transitions.
- Supporting Europe’s global partners through an additional €16.5 billion for external action, including humanitarian aid.
- Other EU programs will be strengthened to align the future financial framework fully with recovery needs and strategic priorities.
The money acquired through the “Next Generation EU” will be channeled through the following EU programs included into the agreed long-term EU budget:
4) The European Green Deal as the EU’s recovery strategy:
- A massive renovation wave of our buildings and infrastructure and a more circular economy, bringing local jobs;
- Rolling out renewable energy projects, especially wind, solar and kick-starting a clean hydrogen economy in Europe;
- Cleaner transport and logistics, including the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility in our cities and regions;
- Strengthening the Just Transition Fund to support re-skilling, helping businesses create new economic opportunities.
5) Strengthening the Single Market and adapting it to the digital age through:
- Investing in more and better connectivity, especially in the rapid deployment of 5G networks;
- Stronger industrial and technological presence in strategic digital sectors, including artificial intelligence, cybersecurity, supercomputing and cloud;
- Building a real data economy as a motor for innovation and job creation; and
- Increased cyber resilience.
6) A fair and inclusive recovery for al through:
- The short-term European Unemployment Reinsurance Scheme (SURE) will provide €100 billion to support workers and businesses;
- A Skills Agenda for Europe and a Digital Education Action Plan will ensure digital skills for all EU citizens;
- Fair minimum wages and binding pay transparency measures will help vulnerable workers, particularly women;
- The European Commission will step-up the fight against tax evasion and this will help the member states generate additional revenues.
Creating a more resilient Union
As soon as the main European modern challenge is to enhance EU-27 strategic autonomy in a number of specific areas, which (among other things) include strategic value chains and reinforced foreign direct investment. Besides, to increase future crisis’ preparedness and present crisis management, the Commission will reinforce the European Medicines Agency and give a stronger role to the European Centre for Disease Control (ECDC) in coordinating medical responses in crises.
The recovery must unequivocally be based on citizens’ fundamental rights and full respect of the rule of law: i.e. any emergency measures must be limited in time and be strictly proportionate. The Commission’s assessment will be included in the first report under the rule of law mechanism.
The member states must learn the lessons from this crisis, but this can only be done by involving the EU citizens, communities and cities. In this regard, the Conference on the Future of Europe will play an important role in further strengthening Europe’s democratic foundations in the post-coronavirus period.
The European Green Deal, a plan to achieve the EU-27 climate neutrality by 2050, has formed the backbone of the regional recovery strategy by including into the member states plans: e.g. renewable energy issue and projects in wind, solar and hydrogen capacities, as well as new impetus into sustainability, circular and sharing economy in Europe.
There will also be some initiatives to create a stronger presence in strategic sectors, including artificial intelligence, cybersecurity, supercomputing and cloud computing.
The European Parliament (at an “after-Council’s” meeting on 23 July) adopted a resolution declaring that it does not accept the agreed MFF and recue budget deal; it warned that the MFF’s cuts to health and other research programs “go against the EU’s objectives”. The resolution also condemned the proposed cuts to education, digital transformation and innovation, which could “jeopardize the future of the next generation of Europeans”.
As is known, the deal reached at the Council’s “21 July deal”, Horizon Europe is allocated €13.5 billion less than was initially proposed by the Commission, with €5 billion cut from the program’s allocation in the MFF and €8.5 billion less in the “Next Generation EU” recovery program.
However, the European Parliament President David Sassoli specifically cited research and the Erasmus+ program in his calls to negotiate a better deal. The European University Association (EUA) welcomed the Parliament’s resolution noting that the present budget “reveals a failure to invest strategically in the future”.
Horizon Europe, under the agreed budget, will receive €80.9 billion, compared to the European Commission’s original proposal of €94.4 billion, which was already substantially lower than the €120 billion sought by the EUA and 14 other university associations.
More information in the following Commission’s websites: Recovery Plan Communication: “Europe’s moment: Repair and Prepare for the Next Generation”; = EU Budget Communication: “The EU budget powering the recovery plan for Europe”. = Q&A on the MFF and Next Generation EU