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EU27 leaders – after a marathon Council summit of Heads of state and government – agreed a deal on the next multiannual financial framework (long-term budget) of the EU as well as on the Covid-19 “Next Generation EU” recovery fund that had been proposed by the European Commission (EC). The structure of the final deal is attached.
Under the terms of the deal, EU member states agreed to the issuance – by the EC – of an unprecedented EUR 750 billion in common EU debt to finance the recovery for the 2021-23 period (reimbursable by 2058). The overall amount is split into EUR 390 billion that will be disbursed in the form of grants and EUR 360 billion in the form of loans. Above that sits the EUR 1.07 trillion long-term EU budget for the period 2021-2027.
It is important to note that although the size of the grants portion in the recovery fund was reduced after fierce negotiations over the weekend from the initially proposed figure of EUR 500 billion, the creation of this facility still marks a significant step in the direction of fiscal union for the EU.
Of further significance is an agreement by EU leaders to allow the EC to raise own resources to service the commonly issued debt. The text references in this context a Carbon Border Adjustment Mechanism (CBAM) and a digital levy (both for application by 1 January 2023) as well as the extension of the emissions trading system (ETS) to the maritime and aviation sectors, and a Financial Transaction Tax (FTT). Noteworthy in this regard, however, is that any legislative proposals in this context would fall into the area of taxation and would require unanimous approval by all member states.
Structure of the Next Generation EU recovery facility:
Total amounts of grants of EUR 390 billion and EUR 360 billion in loans – The Recovery and Resilience Facility (RFF), through which direct aid is provided to member states has an overall size of EUR 672.5 billion, split into EUR 312.5 billion in grants and EUR 360 billion in loans.
Pared back ambition on some of the other common EU programmes that had been proposed – leaders have removed both the Solvency support Instrument (an instrument for recapitalisation of otherwise viable companies) as well as the EU4Health programme. Additional funds that were earmarked for the InvestEU programme as well as the Just Transition Fund (the facility designed to help member states with transitioning their economies to a low carbon future) have also been reduced.
Emergency brake to control distribution of grants – this mechanism will allow individual member states to raise concerns about the disbursement of grants to the attention of all leaders in the Council, but the final decision will rest with the EC. This governance mechanism stops short of the outright veto power for individual member states that the Netherlands had been pushing for as part of the negotiations.
MFF (spending) – the German Council Presidency will engage in negotiations with the EP to finalise the negotiations, ideally before the end of 2020 so as to allow the new MFF to slide into place as of 1 January 2021.
Own-Resources (revenue) – this is the part that would grant the EC the lending capacity for the Next Generation EU Recovery Fund. In this context, the German Council presidency will similarly advance discussions in Council and negotiations with the EP to reach a final decision that can then be submitted to member states national parliaments for approval – ideally also before the end of the year.