Recovery Fund: A Plan For The Next Generation EU

The European Union’s Recovery Fund is a plan to collectively resist the pandemic and support the economic status of the member states.

Recovery Fund - Ursula Van der Leyen
© European Union 2020 – European Parliament/Daina LE LARDIC

There’s need to include the general public into Europe’s political and economic decisions, considering that the funds come straight from the pockets of EU citizens.

The pandemic has affected the world, including the member states of the European Union, with lockdowns causing businesses to close, the health system to be weighted down by the increase of requests and intake of patients, and — as we are currently observing — a tremendous impact on both the national and European economy.

At the beginning of this global crisis, the European Commission (EC) has proposed a 750 billion euros recovery fund — also identified as the recovery and resilience facility. The amount is meant to be distributed between member states that are the most affected by the current emergency.

The figure is so elevated that the Commission has created bonds purposely set up that are guaranteed by the EU. This sum is divided into 310 billion euros that are provided in grants and 250 billion euros in loans. Furthermore, the EC will be taking care of repaying the debt of the countries that need such loans.

While grants are defined by the maximum allocation for each EU country, depending on population, GDP per capita and unemployment rate, loans are issued based on the maximum volume of the loan for each member state of up to 4.7% of its Gross National Income. Furthermore, loans can be requested together with the plan, or at a different moment in time, accompanied by a revised plan.

Italy, alongside other member states, such as Spain, will be receiving a specific amount of financial aid: the EC’s quota for the southern European country is the highest. Doubts are on when member states will be able to access these funds.

Debts have to be repaid between 2028 and 2058 through the post-2027 common budget.

The hardest-hit country

Italy will be receiving 81 billion euros in aid and 91 billion in loans for a total of 172.7 billion euros. This decision was supported by the European Commissioner for Economy Paolo Gentiloni.

The EC suggested the ways in which these amounts are to be allocated among the states. Each country is then required to send the European Union periodical reports showcasing reforms and other actions, so that the bloc can evaluate the quality of that expense.

Other forms of support are available, like the InvestEU and SURE — which are additional funds for medium-small companies — for a total amount of 540 billion euros.

On the other hand, the Just Transition Mechanism, which is worth 100 billion euros, consists of three pillars: a Just Transition Fund, a Just Transition Scheme under InvestEU, and a public sector loan facility. This financial measure is part of the 1 trillion euro European Green Deal investment plan that was proposed back in January 2020.

To MES or not to MES?

MES is an acronym for the Italian expression Meccanismo Europeo di Stabilità, meaning European Stability Mechanism. It was established in 2012 when edits to the Treaty of Lisbon were approved, and it has the function to provide assistance to member states in economic need.

The value of this financial operation is of 700 billion euros, as every member state pays a total of 80 billion euros each. The fee of a single member state is determined by two rules: the population and GDP in each state versus the total of all adhering member states.

When the pandemic has begun, of this total amount, 2% were made available to every complying member state to use in order to combat the crisis — with Italy being able to access 36 billion euros.

The concern with the MES is that member states resorting to this loan mechanism must agree to mandatory guidelines on the national and public spending, which may lead to cuts to healthcare and pensions. For this reason, bonds — also known as coronabonds — and the recovery plan are seen as better options to counter the economic crisis triggered by the new coronavirus.

Next Generation EU

Alongside other financial support previously mentioned, during the last plenary session at the end of May, European Commission President Ursula Von der Leyen stated:

The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitization will boost jobs and growth, the resilience of our societies and the health of our environment. This is Europe’s moment. Our willingness to act must live up to the challenges we are all facing. With Next Generation EU we are providing an ambitious answer.

Hence, besides the recovery plan, the Next Generation EU will add, as a temporary measure, 750 billion euros to the already mentioned funds.

During the first plenary sessions in March — after the crisis had been declared — some members of the European Parliament (MEPs) had criticized the choice to dedicate part of the budget to the Green New Deal. They thought that the European Union had missed the opportunity to instead think ahead and reserve funds for a crisis like the current one.

Therefore, von der Leyen’s words appear quite ironic, alongside those uttered by many of the MEPs who had initially criticized her, as they now say that funding opportunities and future steps should include a stronger focus on sustainability and digitization.

As for the latter, in fact, the European Parliament is working on a voting system for its members to facilitate keeping the legislation ongoing, due to its exceptional circumstances, where everything is happening remotely.

A big part of the debate is figuring out what stand member states are taking to support each other. As a matter of fact, several are concerned that the debt will weight on those nations that are suffering the most of the economic crisis. Is the EU trying to find ways to provide financial support on their own? The EC has said it is working on a plastic and web tax in order to gather funds directly on its own.

Progettiamo il Rilancio: planning Italy’s recovery

In a recent statement, European Parliament President David Maria Sassoli voiced the need to include the general public into political and economic decisions, considering that the above-mentioned funds come straight from the pockets of EU citizens.

Although Sassoli underlined the impossibility to recover single-handedly, he also stressed that solidarity and unity can bring Europe forward through the Next Generation EU.

This year has been quite an eye-opening moment for everyone. It is in this hope that in addition to these funds, we acquire the understanding of two things: how much the EU is a key factor in the many upsides that come with living within a member state, and that an environment comprised of a public healthcare system and a supporting economy can change the way countries handle a crisis. 

The criticisms brought forward by some MEPs towards the EU’s management of this crisis, does not reflect the so-called solidarity that has been mentioned — over, and over, and over again. The word is used too often to define a state of being that should exist, but is not always there among member states. Will this recovery fund instead define how member states should support each other? There is little use of an establishment as this one if, first we do not make it liable of its own actions (or absence of it), but also if its members do not work collectively.

The pandemic has pressured the way member states have been handling numerous matters — we have already seen it with the issue surrounding the coronabonds debate, where countries argued among each other, instead of supporting each other. In the same way, the Next Generation EU and the recovery fund could further show the true colors of the EU block and its member states.

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