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Vulcan Insight: European Commission presents next generation EU MFF and COVID-19 recovery package

May 27, 2020 |

After weeks of anticipation, debate, joint proposals and counterproposals, European Commission President Ursula von der Leyen today presented the executive’s plan for a revised long-term budget to lead the EU through its post-COVID19 recovery.

The Commission today proposed a plan for a significantly beefed-up MFF of €1.1 trillion, as well as an additional so-called Recovery Instrument worth €750 billion for a combined recovery effort of €1.85 trillion.

Speaking to the European Parliament, President von der Leyen stressed to MEPs that Europe’s recovery could only succeed if it focused on the Green Deal; digitising the Single Market; and placing social cohesion at its heart.

With respect to the MFF, today’s announcement builds and increases upon a rejected February proposal by European Council President Charles Michel, while suggesting a number of specific changes to increase the budget’s flexibility. 

Specifically, the Commission’s revised proposal sets out plans for a “reinforced” budget for rural development under the Common Agricultural Policy (CAP), a €55 billion increase in cohesion funding under a new REACT-EU initiative, an expanded Erasmus program, and a new EU health program to support and reinforce Member States’ health care systems.

As widely expected, the €750 billion COVID-19 Recovery Instrument closely mirrors the recent Franco-German joint initiative on mutualising some response-incurred debt at the EU-level. The Commission foresees it to be funded through raising its so-called own-resources ceiling, the maximum amount the Commission may request from Member States to finance expenditures, which, in turn, it will use to borrow money on the financial markets using long-maturing bonds. 

According to the Commission’s proposed plan the money, including interest, would be repaid “after 2027 and by 2058 at the latest” using a combination of increased national contributions, “reduced policy supports”, and new EU own resources. On the latter, in particular, the Commission plans to increase its own direct financial resources through an extension of the emissions trading system, the Commission’s mooted carbon adjustment mechanism, an EU-wide digital tax, as well as a tax on the “operations of large enterprises” in the EU.

Crucially in light of the fierce debate on whether the funds should be distributed in the form of loans or grants, with Austria and the Netherlands fiercely objecting to the latter, President von der Leyen today proposed that €500 billion of it will be distributed as non-repayable grants, while €250 billion will be in the form of loans.

Both Denmark and Sweden, two of the ‘frugal four’, yesterday dropped their strong opposition to grants, increasing the pressure on Vienna and the Hague to soften their positions in the upcoming negotiations. 

Both the European Parliament and EU diplomats welcomed today’s announcement as a well-balanced and bold European proposal. The European Council will now need to overcome its divisions and find a political agreement on the Next Generation EU program in the coming weeks, with the Commission calling on Member States to reach agreement by July. To achieve this, EU leaders are expected to meet several times in-person in Brussels for negotiations. 

Compliments of Vulcan Consulting – a member of the EACCNY.