The EU's Road To COVID-19 Recovery
The Recovery Plans
The European Council President Charles Michel started the discussion of plans with “the goal of our recovery can be summarised in three words: first convergence, second resilience, and third transformation. Concretely, this means repairing the damage caused by COVID-19, reforming our economy and remodelling our societies.”
And, after five exhaustive days of discussion, the European Union has finally unveiled its COVID-19 recovery package for the bloc last Tuesday on the 21st July 2020.
Included in the recovery plans were the Next Generation EU programme (NGEU) worth €750bn and the Multiannual Financial Framework (MFF) which was a long-term budget for 2021-2027 worth €1074.3bn. This extraordinary €1824.3bn package is dedicated to tackling the effects of COVID-19 and helping Europe rebuild its economy.
Out of the seven individual programmes which make up the NGEU, the Recovery and Resilience Facility is the core to accessing aid. €360bn has been allocated as loans and €312.5 billion will be distributed in the form of grants directly to the countries and sectors most affected by the coronavirus. The remaining €77.5bn will cover the six other standard EU programmes.
Funding for the plans
To fund for the recovery plans, the Commission will be borrowing on the international capital markets through EU issued bonds for the very first time in its history. Its deadline for repayments will be the 31st of December 2058.
Together, the EU leaders have agreed on a new plastic levy to be introduced in 2021 to pay back funds on top of its traditional methods (customs duties, sugar levies and VAT).
In the same year, the Commission will aim to propose a carbon adjustment measure and a digital levy to be introduced by the 1st January 2023. If needs be, the EU will also have to consider a financial transaction tax.
It is expected that this debt servicing will threaten normal contributions of future EU’s MFF budgets. Evidently, the generosity of the recovery plans comes with a hefty price to pay.
The politics behind the plans
It wasn’t just money that showed the recovery plans as costly; relations were also on the rocks during the Summit.
The scars from the European debt crisis were torn apart once again by the discordance between the wealthy, net-contributors ‘frugal’ states of the North (Netherlands, Austria, Denmark, Sweden and Finland) and the indebted states of the South (Italy, Spain and Greece).
The ‘frugal’ countries led by the Dutch Prime Minister Mark Rutte advocated for more loans and fewer grants. Opposing them were the heavily COVID-19 hit Southern countries who were supported by France’s President Emmanuel Macron and Germany’s Chancellor Angela Merkel this time.
Eventually, compromises had to be made.
The ‘frugals’ achieved some success by receiving significant increases in rebates on their future budget contributions and managed to lower the originally suggested €500bn grants to the still relatively impressive €390bn. Furthermore, borrowing countries will need to submit a plan on how they will be using the grants which seem fair compared to the outright veto proposed by Prime Minister Rutte.
Conclusion
Although the EU managed to come to an agreement, dividing fractures were apparent.
With Britain gone, the Northern states are unafraid to harness their newfound, elevated importance and power, questioning whether they will be the new origins for an increasing surge of Euroscepticism.
Additionally, the bloc’s commitment to enforcing democracy and the rule of law was also compromised to appease Hungary and Poland’s increasingly autocratic governments.
Regardless of the difficulties ahead, these significant recovery plans still show the EU’s strong commitment to addressing the devastating impacts of the coronavirus and is an attempt towards European unity. Whether divisions will worsen heavily depend on the successes of the Recovery plans.
Concluding this article are the positive words of the European Council President Charles Michel who believes “This is a good deal. This is a strong deal. And most importantly, this is the right deal for Europe, right now.”
by Ke Thie