There is already agreement on all the pieces of the unprecedented European stimulus against Covid-19. After nine rounds of negotiations, the Member States and the European Parliament closed the details of the Recovery and Resilience Facility early this morning after 2 hours. This instrument will provide €672 billion in grants and loans to the Member States, for investments in European priorities (such as the digital or green agenda) and in exchange for reforms.
“This is a historic event. The biggest investment plan in the EU” Spanish Socialist Eider Gardiazabal, who was part of the EP’s negotiating team, wrote on Twitter after the agreement. This mechanism is the main pillar of the €750 billion recovery fund agreed by European leaders last July. Added to the EU’s regular multiannual budget, Europe will have €1.8 trillion until 2027 not only to overcome the deepest recession in its history but also to transform its economies and make them more competitive.
“It will give a strong boost to our economies and enable the Member States to shape a greener and more digital future for Europe’s citizens and businesses. This agreement is a crucial step to ensure that much-needed money can start flowing next year, “said German Finance Minister Olaf Scholz, whose country has chaired the EU this semester.
However, money is not expected to arrive until the second half of 2021.
Member States must ratify the new EU budget ceiling first in the coming months, much of it through their national parliaments so that the European Commission can borrow the amount of the fund on the markets. The early morning agreement declares that the Member States will have to devote at least 37 per cent of the funds to climate-related objectives. Besides, no investment may be directed to activities that cause damage to the environment. At the same time, 20 per cent of spending will have to go towards the digital transition, another major European priority.
One of the most divisive points during the negotiations between MEPs and the Member States was the conditionality that will be required of Member States in exchange for funds. The European Parliament won some concessions, but they did not go as far as they wanted. Thus, the possible blocking of recovery funds in case of a serious violation of the fiscal targets given to countries is maintained, although it will not happen until at least 2022, according to Ernest Urtasun, MEP. Partly because the Stability and Growth Pact, currently suspended by the impact of the pandemic, is not expected to be reactivated at least until then.
Member States will have until April to send their investment and reform plans, which will be evaluated and discussed with the Commission Parliament also managed to increase pre-financing from 10 per cent to 13 per cent, that is, the money that capitals will receive when their investment and reform plans are approved, but before they begin to apply them.
“The Commission and national authorities must now work hand in hand to swiftly approve, and then effectively implement ambitious and credible national plans,” said Finance Commissioner Paolo Gentiloni. Member States will have until April to send these investment and reform plans, which will be evaluated and discussed with the Commission before they can access the aid.
To unlock the funds, they will need to contain targeted investments from the EU and the reforms that Brussels has called for from capitals over the past couple of years. In the case of our country, the vice president of the Commission, Valdis Dombrovskis, pointed out in an interview that the Community executive was discussing with the government “important” aspects of the labour reform, the sustainability of pensions and the application of the Law on Market Unity to avoid regulatory fragmentation in our territory.
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