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The European Council has “agreed on a response to the gravest crisis in the history of the European Union,” declared Chancellor Angela Merkel.

After four days of deliberations, the heads of state and government of the 27 EU member states have agreed on a Multiannual Financial Framework (MFF) worth 1.8 trillion euros for the period 2021-2027. Between 2021 and 2023, 750 billion euros of this sum is to be made available to a recovery fund that is to address the economic consequences of the COVID-19. 390 billion euros are to take the form of grants and 360 billion will be provided as loans.

“In the end we knuckled down”

“We have now set the scene for the financial foundations of the EU over the next seven years, and at the same time have agreed on a response to the gravest crisis in the history of the European Union,” declared German Chancellor Angela Merkel after the intensive consultations at a joint press conference with French President Emmanuel Macron. Angela Merkel stressed that the negotiations had not been easy. “But for me what counts is that in the end we knuckled down and that we are now all convinced that we can really make something out of what has been decided here,” she said.

Statement of Federal Chancellor Merkel after the Special European Council

Focus on forward-looking tasks

The grants and guarantees allocated under the recovery fund will be tied to conditions. Cash will be disbursed in instalments and will be made conditional on reforms and on project progress. And there will be a focus on future-proofing: 30 per cent of spending is earmarked for climate-related action and digitalisation.

Ten billion euros, for instance, will be channelled into a Just Transition Fund. The programme is to help regions with traditional economic structures to attain the EU’s climate targets. Research too is to receive more support. A total of five billion euros is to be earmarked for the Horizon Europe scientific programme.

Projects to be assessed for future viability

The majority of grants are to be allocated through the EU’s new Next Generation EU programme. These funds will be used to support state-driven investment and reform. Member states can submit appropriate projects to the Commission, which will assess them in terms of their future viability.

“The budget is geared to the future of Europe,” stressed Angela Merkel. It also enables “the Single Market to continue to function in the face of the most serious economic crisis in the history of the European Union, as well as allowing the countries worst hit by the pandemic to enhance their recovery support services,” said the Chancellor.

You can find the Conclusions of the European Council here.

Additional funding for Germany

Within the scope of negotiations on the multiannual financial framework, additional funds were also approved for Germany. 650 million euros are to go to support the eastern German states, and the same sum again will be dedicated to rural development.

How it is to be financed

To raise the significantly increased sums required, the heads of state and government agreed on three additional sources of funding. As of 1 January 2021, a tax will be levied on non-recycled plastic waste. In the first six months of 2021, the Commission will also present proposals for a carbon border adjustment mechanism – a CO2 levy on imports into the EU – and for a digital levy. These proposals are to put in place a basis for additional own resources, and the measures are to be introduced no later than 2023.

Where we go from here

Before it can come into effect, the multiannual financial framework must still be approved by the European Parliament. The final step is then for the member states to ratify the MFF.