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“We have reached a deal”
In a special meeting of the European Council, held 17-21 July, EU leaders reached an agreement on an overall financial package, comprising the next Multiannual Financial Framework (MFF) 2021-2027, and the recovery plan, “Next Generation EU” (NGEU).
According to the agreement, the European Commission will temporarily be allowed to borrow up to 750 billion euro on capital markets, funds which may be used for both loans and for expenditures channelled through individual programmes. This reinforcement of EU programmes is dedicated to providing strong and targeted support in the early years of the next MFF, thereby supporting a rapid economic recovery.
“Europe has demonstrated its readiness to break fresh ground in this very special situation,” German Chancellor Angela Merkel said about the agreement. The European Council has “agreed on a response to the gravest crisis in the history of the European Union”.
The recovery instrument would supplement an agreed-upon 1.074 trillion euro MFF that covers spending in areas such as innovation and digitalisation, cohesion, resilience and values, natural resources and the environment, migration and border management and security and defence, as well as EU programmes in the European neighbourhood and globally. A proposed 30% of total expenditures from the MFF and NGEU will be dedicated to climate-related proposals that support the EU’s objective of climate-neutrality by 2050.
Both elements - the MFF and the recovery instrument - belong together, as a speedy, sustainable recovery needs to go hand-in-hand with the long-term political priorities of the European Union.
“We have reached a deal on the recovery package and the European budget. These were, of course, difficult negotiations in very difficult times for all Europeans,” said European Council President Charles Michel following the agreement. “A marathon which ended in success for all 27 member states, but especially for the people. This is a good deal. This is a strong deal. And most importantly, this is the right deal for Europe, right now.”
Detailed information on the agreement can be found here.
Next steps
It is now one of the top priorities of Germany’s Presidency of the Council of the European Union to achieve a rapid agreement with the European Parliament on the EU’s next long-term budget and to pave the way for a swift start for new programmes and initiatives.
The European Parliament’s approval of the MFF is required for implementation. In-depth talks on the EU’s next long-term budget and the recovery package will involve the European Parliament, the Council of the European Union and the European Commission and are expected to begin in August.
In a conversation on July 29 between Commission President Ursula von der Leyen, European Parliament President David Sassoli and German Chancellor Angela Merkel, it was agreed that an ambitious timetable for the upcoming negotiations is needed so that European programmes are in place in 2021.
The Own Resources Decision, which governs the financing of both the MFF and the new NGEU instrument, also has to be approved by all national parliaments.
“No country can weather the crisis alone, in isolation”
During the course of its Council Presidency, Germany will contribute to building consensus on this issue in order to ensure that Europe emerges from the crisis more unified and better positioned to master future challenges.
Ahead of final approval of the MFF and NGEU, the European Council and the European Parliament have already endorsed three additional safety nets for workers, businesses and member states amounting to up to 540 billion euro.
The European Stability Mechanism, an international financial institution supporting euro area members in severe financial distress, also offers the Pandemic Crisis Support Instrument with up to 240 billion euro in lines of credit to member states in need of assistance in weathering the coronavirus crisis.
Meanwhile, the European Investment Bank is mobilising additional financing of 200 billion euro to businesses in the EU, especially small and medium-sized enterprises, with a guarantee of 25 billion euro from the EU budget.
Finally, a new programme, Support to mitigate Unemployment Risks in an Emergency (SURE), provides temporary loans of up to 100 billion euro, mainly for so-called short-time work schemes, in order to help protect jobs and reduce loss of income for workers and the self-employed.
Building on a Franco-German Initiative
On 18 May 2020, Chancellor Merkel and French President Emmanuel Macron jointly put forward an ambitious proposal for a targeted European recovery fund to address crisis recovery, that would be in effect for a limited period of time in order to address crisis recovery. With an overall volume of 500 billion euro, the proposed fund aimed to enhance the resilience and competitiveness of European economies, increase investments - in particular in the digital and environmental transitions - and to strengthen research and innovation in the wake of the COVID-19 pandemic.
The EU leaders’ agreement of July 21 takes on board important elements of the Franco-German Initiative, such as allowing the European Commission to temporarily and extraordinarily raise funds on the capital markets, which could then be channelled to member states through targeted EU programmes that aid recovery efforts, as well as the proposed repayment of such funds through future EU budgets. The initiative also underscored the need for a legal foundation fully aligned with EU treaties, the budgetary framework and the rights of national parliaments.