EU leaders agreed a recovery package and the 2021-2027 budget that will help the EU to rebuild after the pandemic and will support investment in the green and digital transitions.
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. 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.
President Michel at the press conference of the European Council
The socio-economic fallout from the COVID-19 crisis requires a joint and innovative effort at EU level in order to support the recovery and resilience of the member states’ economies.
To achieve the desired result and be sustainable, the recovery effort should be linked to the traditional MFF, which has shaped EU budgetary policies since 1988 and offers a long-term perspective.
EU leaders have agreed to a comprehensive package of €1 824.3 billion which combines the multiannual financial framework (MFF) and an extraordinary recovery effort under the Next Generation EU (NGEU) instrument.
Long-term EU budget
The new Multiannual Financial Framework (MFF) will cover seven years between 2021 and 2027. The MFF, reinforced by Next Generation EU, will also be the main instrument for implementing the recovery package to tackle the socio-economic consequences of the COVID-19 pandemic.
The size of the MFF – €1 074.3 billion – will allow the EU to fulfill its long-term objectives and preserve the full capacity of the recovery plan. This proposal is largely based on the proposal made by President Michel in February, which reflected two years of discussions between member states.
The MFF will cover the following spending areas:
- single market, innovation and digital
- cohesion, resilience and values
- natural resources and the environment
- migration and border management
- security and defence
- neighbourhood and the world
- European public administration
Next Generation EU will provide the Union with the necessary means to address the challenges posed by the COVID-19 pandemic. Under the agreement the Commission will be able to borrow up to €750 billion on the markets. These funds may be used for back-to-back loans and for expenditure channelled through the MFF programmes. Capital raised on the financial markets will be repaid by 2058.
The amounts available under NGEU will be allocated to seven individual programmes:
- Recovery and Resilience Facility: €672.5 billion (loans: €360 billion, grants: €312.5 billion)
- ReactEU: €47.5 billion
- Horizon Europe: € 5 billion
- InvestEU: €5.6 billion
- Rural Development: €7.5 billion
- Just Transition Fund (JTF): €10 billion
- RescEU: €1.9 billion
Allocation from the Recovery and Resilience Facility (RRF)
The plan ensures the money goes to the countries and sectors most affected by the crisis: 70% under the grants of the Recovery and Resilience Facility will be committed in 2021 and 2022 and 30% will be committed in 2023.
Allocations from the RRF in 2021-2022 will be established according to the Commission’s allocation criteria taking into account member states’ respective living standards, size and unemployment levels.
EU leaders agreed on a Single Margin Instrument (SMI) to allow the financing of specific unforeseen expenditure in commitments and corresponding payments that could not be financed otherwise. The SMI annual ceiling will be set at EUR 772 million (2018 prices).
They also agreed on three thematic special instruments to provide additional financial means for specific unforeseen events:
- Brexit Adjustment Reserve to support the member states and economic sectors hardest hit by Brexit (€5 billion)
- European Globalisation Adjustment Fund to support workers who lose their jobs in restructuring events linked to globalisation (€1.3 billion)
- Solidarity and Emergency Aid Reserve (SEAR) to respond to emergency situations resulting from major disasters in member states and accession countries, and for rapid response to specific emergency needs within the EU or in third countries (€1.2 billion)
Governance and conditionality
In line with the principles of good governance, member states will prepare national recovery and resilience plans for 2021-2023. These will need to be consistent with the country-specific recommendations and contribute to green and digital transitions. More specifically, the plans are required to boost growth and jobs and reinforce the “economic and social resilience” of EU countries. The plans will be reviewed in 2022. The assessment of these plans will be approved by the Council by a qualified majority vote on a proposal by the Commission.
The disbursement of grants will take place only if the agreed milestones and targets set out in the recovery and resilience plans are fulfilled.
If, exceptionally, one or more member states consider that there are serious deviations from the satisfactory fulfillment of the relevant milestones and targets, they may request that the President of the European Council refer the matter to the next European Council.
30% of the total expenditure from the MFF and Next Generation EU will target climate-related projects. Expenses under the MFF and Next Generation EU will comply with the EU’s objective of climate neutrality by 2050, the EU’s 2030 climate targets and the Paris Agreement.
Rule of law
The Union’s financial interests will be protected in accordance with the general principles embedded in the Union Treaties, in particular the values referred to in Article 2 TEU. The European Council also underlines the importance of the respect of the rule of law. Based on this background, a regime of conditionality to protect the budget and Next Generation EU will be introduced.
The European Commission will propose measures in case of breaches for adoption by the Council by qualified majority.
The European Council will quickly revert to the matter.
EU revenue: own resources
EU leaders agreed to provide the EU with new resources to pay back funds raised under Next Generation EU. They agreed on a new plastic levy that will be introduced in 2021. In the same year the Commission is expected to put forward a proposal for a carbon adjustment measure and a digital levy, both of which would be introduced at the latest by 1 January 2023.
The Commission would then come back with a revised proposal on the EU emissions trading scheme (ETS), possibly extending it to the aviation and maritime sectors. There may also be other new resources, such as a financial transaction tax. The proceeds of the new own resources introduced after 2021 will be used for early repayment of NGEU borrowing.
The new sources of finance come on top of existing own resources:
- traditional own resources: mainly customs duties and sugar levies (member states will retain, by way of collection costs, 25% of the amounts collected, compared to 20% for 2014-2020)
- VAT-based own resource: a uniform rate of 0.3% is applied to the value added tax base of each member state, with the taxable VAT base being capped at 50% of GNI for each country (methodology will be simplified)
- GNI-based own resource: resulting from a uniform rate applied to the gross national income of member states, this rate is adjusted every year in order to balance revenue and expenditure (unchanged)
Under the MFF, the ceiling allocated to the EU to cover annual appropriations is fixed at:
- for payments: 1.40% of the GNI of all member states
- for commitments: 1.46% of the GNI of all member states
Lump sum rebates on the annual gross national income-based contribution will be maintained for Denmark, Germany, the Netherlands, Austria and Sweden.
On 10 July, European Council President Charles Michel presented his proposal for the MFF and the recovery package.
“The goals 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 economies and remodelling our societies,” he said.
Following bilateral discussions with EU leaders, President Michel identified six ‘building blocks’ for a possible agreement.
On 19 June, EU leaders exchanged views, via video conference, on the proposal for a new recovery plan and for the multiannual financial framework (MFF) for 2021-2027, presented by the European Commission on 27 May 2020.
Following the meeting, Charles Michel, President of the European Council, started political negotiations with EU leaders.
On 23 April 2020, the European Council decided to work towards establishing a recovery fund to respond to the COVID-19 crisis. Leaders tasked the European Commission with putting forward a proposal urgently, and also clarifying the link between the recovery fund and the EU’s long term budget.
Compliments of the European Council, Council of the European Union.