July 21, 2020

Five things to know about the EU virus recovery plan

European Union EU

The European Union’s 27 member states emerged from an intense four-day and four-night summit on Tuesday branding a huge virus recovery plan and a trillion-euro long-term budget.

Here are five key points about what German Chancellor Angela Merkel called an impressive response to a historic recession and the worst crisis in the European Union’s history.

– Joint debt –

The 750-billion-euro coronavirus rescue is a package of loans and — more controversially — grants, to help hard-hit countries through the recession triggered by the epidemic.

The sum will be borrowed on the markets by the EU executive, the European Commission, and is thus based on the biggest ever issuance of joint European debt.

This was once taboo for Germany, and was resisted this time by an even more “frugal” coalition of the Netherlands, Austria, Sweden and Finland.

But, despite Dutch leader Mark Rutte and Austria’s Sebastian Kurz warning this would amount to forming the dreaded “transfer union” of well-run countries subsidising big spenders, it was approved.

Leaders like France’s President Emmanuel Macron who were pressing for more joint debt hailed the move as a historic step forward for the union and for its single currency.

“At base what we are building is a common solidarity, and that’s unprecedented as the budgetary function that Europe needs to become a geo-political power,” he said.

Rutte, however, stressed the temporary nature of the arrangement, insisting it was a “one off” to respond to the virus crisis.

– Loans vs grants –

The original Brussels plan for the rescue package would have seen 500 billion euros distributed as non-repayable grants, subsidies from the EU to its poorer members.

Resistance from the “frugals” saw this bargained down to 390 billion, with a further 360 billion issued as loans.

Of the grants, 312.5 billion will go to investment plans drawn up by national governments, and the rest to EU-led programmes, such as rural development, research and the green transition.

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The amount each country will be eligible to receive will be determined by a weighted formula: 70 percent of the total to be determined by a “resilience” rating taking into account population and long-term unemployment, and 30 percent based on how much GDP has been lost because of the virus crisis.

– EU oversight –

The national programmes submitted by member states will be studied by the EU executive, the European Commission, and afterwards approved by a qualified majority of member states — a minimum of 55 percent of capitals representing 65 percent of the population.

Because the “frugals” remain reluctant to allow their more indebted southern neighbours to spend joint funds without labour market reform, there will also be an “emergency brake”.

If a group member states it is unhappy with a national plan, they can thus call it in for discussion at a European Council summit — but it is not clear whether this amounts to a full veto.

– Rescue up, budget down –

The European Union’s seven-year budget — or Multiannual Financial Framework — that begins on January 1 is now set at 1,074 billion euros, 20 billion less than planned before the epidemic.

The European Parliament will still have to approve the sum.

It now includes a special five billion euro “reserve” to help the countries and sectors most affected by Brexit.

And it will be more flexible in allowing money to be moved to traditional regional support programmes and agricultural subsidies, and away from more recent areas of EU interest.

Nevertheless, EU spending must be in line with the Paris Agreement on climate change and the effort to build a carbon neutral economy by 2050.

– Rebates up –

Key to persuading the “frugals” to put aside their concerns about southern overspending was a decision to boost the rebates that some net contributors receive on their EU dues.

Denmark’s annual refund climbs to 377 million euros, up 91 percent on the figure planned before the summit. The Netherlands climbs 22 percent to 1.92 billion, Austria is up 138 percent to 565 million and Sweden 34 percent to 1.07 billion.

Germany did not need persuading to accept the deal, and its annual rebate remains at 3.67 billion.