European Commission Confirms €750bn Economic Stimulus Plan

Recovery programme will include €500 billion of grants and €250 billion of loans to be invested in three action ‘pillars’ – addressing the Covid-19 crisis, kickstarting the economy, and learning lessons from the pandemic
Ursula von der Leyen

Recovery programme will include €500 billion of grants and €250 billion of loans to be invested in three action ‘pillars’ – addressing the Covid-19 crisis, kickstarting the economy, and learning lessons from the pandemic


The European Commission has today confirmed the launch of a €750 billion coronavirus pandemic recovery programme aimed at supporting those countries hit hardest by the virus and strengthening Europe’s single market.


The initiative, called ‘Next Generation EU’, will involve the commission using what it described as its “very strong credit” rating to borrow €750 billion on the financial markets.


The programme has yet to be approved by the member states, but analysts have calculated that the investment – which would take the form of grants and loans – could see those countries hit particularly hard by the pandemic, that is Italy and Spain, being awarded grants of €81.8 billion and €77.3 billion respectively. Meanwhile, Bloomberg reported that Greece could get €32 billion in grants and loans, while France could get €39 billion in grants. 


The commission said that the funds raised would need to be repaid through future EU budgets, “not before 2028 and not after 2058”. It added that, to do this in a “fair and shared way”, the commission has proposed a number of initiatives including: a plan based on the Emissions Trading Scheme; a Carbon Border Adjustment Mechanism; and a scheme based on the “operation of large companies”. The commission said it could also include a new digital tax, which would build on the work done by the Organisation for Economic Co-operation and Development (OECD).


Imposing new taxes


In practical terms, it is suggested that the funds could be repaid, in part, through: an EU-wide tax on plastic waste, which could raise €7 billion per year; a levy on carbon-intensive industrial products shipped from outside the bloc that could raise up to €14 billion per year; a tax on tech behemoths like Google and Facebook, which could raise €1 billion per year, according to estimates.


The money from Next Generation EU will be invested in the form of €500 billion worth of grants and €250 billion in loans to member states. The investment would be made across what it described as three pillars:
 

  • The first pillar will support member states to make investments and reforms aimed at addressing the crisis. This pillar will include a new ‘Recovery and Resilience Facility’, with a budget of €560 billion, that will be distributed in the form of grants and loans. This will help member states to implement investments and reforms that are “essential for a sustainable recovery”. Member states will design their own tailored national recovery plans, based on the investment and reform priorities identified as part of the European Semester, in line with National Climate and Energy Plans, Just Transition Plans and Partnership Agreements and Operational Programmes under EU funds. This pillar will also include a ‘REACT-EU’ programme, which will provide a top-up for cohesion support to member states, with a budget of €55 billion. This will be available from 2020 and be distributed according to a “new allocation key” taking into account the impact of the crisis. The commission said this will “ensure there is no interruption in funding for key crisis repair measures and support to the most deprived”. It will support workers and SMEs, health systems and the green and digital transitions and be available across sectors – from tourism to culture. In addition, to support the green transition, the commission is proposing to provide additional funding for the Just Transition Fund and the European Agricultural Fund for Rural Development. The commission added that the cohesion policy programmes will also be strengthened in the next EU budget period “to allow for greater flexibility”.

     
  • The second pillar is about “kick-starting the EU economy by incentivising private investment”, according to the commission. It said a new ‘Solvency Support Instrument will mobilise private resources to provide urgent support to otherwise healthy companies. Investment will be channelled to companies in the sectors, regions and countries most affected, the commission added. “This will help to level-up the playing field for those Member States who are less able to support through state aid,” according to the commission. It said the scheme can be operational from 2020 and will have a budget of €31 billion, aiming to unlock more than €300 billion in solvency support. “Guidelines will be developed to help align investments towards EU priorities,” the commission said. The Commission is also proposing to upgrade InvestEU, the EU’s flagship investment programme, by more than doubling its capacity. In addition to the above, a Strategic Investment Facility will be created within InvestEU, which will be able to unlock €150 billion of investment thanks to the €15 billion put into it by Next Generation EU. This will invest in strengthening resilience and “strategic autonomy across key technologies and value chains”.

 

  • The third pillar is, according to the commission about “learning the lessons of the crisis”. The commission is proposing to create a new standalone EU4Health programme, with a budget of €9.4 billion. It will invest in prevention, crisis preparedness, the procurement of vital medicines and equipment, as well as improving long-term health outcomes. A number of other key programmes will be reinforced to learn the lessons from the crisis, notably rescEU and Horizon Europe.

 

‘Fairer, greener, more digital Europe’


The commission said that, when using the ‘Next Generation EU’ investment, Europe must “invest in protecting and creating jobs and in driving our competitive sustainability by building a fairer, greener and more digital Europe”. It added: “We must repair the short-term damage from the crisis in a way that also invests in our long-term future”. Key to this is the ‘European Green Deal’ growth strategy. The commission said public investments in the recovery should respect the “green oath to do no harm". It added that the priorities identified in the European Semester, National Energy and Climate Change Plans (NECPs) and Just Transition Plans should guide this investment.


European Commission President Ursula von der Leyen (pictured) said the recovery plan turned the “immense challenge” Europe faces into “an opportunity”. She added that this was because the plan not only supports “the recovery but also by investing in our future – the European Green Deal and digitalization will boost jobs and growth, the resilience of our societies and the health of our environment.” Von der Leyen continued: “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.”
 

Commissioner Johannes Hahn, in charge of the EU budget, said: “Our common budget is at the heart of Europe's recovery plan. The additional firepower of Next Generation EU and the reinforced multiannual financial framework will give us the power of solidarity to support member states and the economy. Together, Europe will arise more competitive, resilient and sovereign.”


To read the European Commission document, 'Europe’s moment: Repair and Prepare for the Next Generation', detailing the rescue plan, click here

 

 

Read the full Special Report: The Economy Strikes Back

To avoid their economies collapsing into a Covid-19 shaped crevasse, national and regional governments have released billions in financial aid since the beginning of the pandemic. And yet, with unemployment rates in double figures across much of the developed world, the threat of a long recession remains. Leaders League takes a look at the various economic stimulus packages being introduced around the world and examines whether they will be enough to steer the global economy to safety.
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