EU Commission proposes €750 billion recovery instrument

The European Commission has today proposed a new €750 billion recovery instrument ‘Next Generation EU’, embedded within a powerful and modern long-term EU budget. This is a historic and one-off proposal which reflects the scale and the size of the challenge facing the EU.

The corona virus has shaken Europe and the world to its core, testing healthcare and welfare systems,  societies and economies and its way of living and working together. However, in adversity so often comes opportunity.

“Now is the time for our European Union to get back to its feet and move forward together to repair damage from the crisis and prepare a better future for the next generation”, the Commission document outlines in a presentation to leaders.

Since the pandemic started, the EU and its Member States have taken unprecedented measures to protect lives and livelihoods. The EU supported national efforts to tackle the health crisis and cushion the impact of the economic hit. It freed-up every available euro in its budget to fight the virus. It used the full flexibility in the budgetary and State aid rules and proposed to create SURE, a new instrument to help people stay in work.

To get the economy moving again, confidence must return. People need to trust the places they work, buy and socialise in. They need to have certainty and peace of mind when it comes to their livelihoods and their future. Any recovery will depend on being able to gradually and sustainably lift containment measures, on our ability to live alongside the virus and on having a clear understanding of the situation across Europe.

To live up to the extraordinary challenge and to prepare a better future, the Commission  recovery instrument, called Next Generation EU, within a revamped long-term EU budget.

In total, this European Recovery Plan will put € 1.85 trillion (1) to help kick-start the economy and ensure Europe bounces forward.

The money for Next Generation EU will be raised by temporarily lifting the own resources ceiling to 2% of EU Gross National Income. This will allow the Commission to use its very strong credit rating to borrow €750 billion on the financial markets for Next Generation EU.

The funds raised will need to be repaid through future EU budgets – not before 2028 and not after 2058. To help do this in a fair and shared way, the Commission will propose a number of new own resources. These could include a new own resource based on the Emissions Trading Scheme, a Carbon Border Adjustment Mechanism and an own resource based on the operation of large companies. It could also include a new digital tax, building on the work done by the Organisation for Economic Co-operation and Development (OECD). The Commission actively supports the discussions led by the OECD and the G20 and stands ready to act if no global agreement is reached. These will be in addition to the Commission’s proposals for own resources based on a simplified Value Added Tax and non-recycled plastics.

In addition to Next Generation EU, the Commission is proposing a revamped EU budget, amounting to some €1 100 billion between 2021-2027.

In addition to Next Generation EU, the Commission is proposing a revamped EU budget, amounting to some €1 100 billion between 2021-2027.

All of the money raised through Next Generation EU and the new EU budget will be channelled through EU programmes. This means that every euro of investment will be made available to get Europe back to its feet, to accelerate the twin green and digital transitions and build a fairer and more resilient society. It also means there is full transparency and democratic accountability for the European Parliament and Council. The money from Next Generation EU will be invested across three pillars, through €500 billion in grants and €250 billion in loans to Member States.

The first pillar is support to Member States for investment and reforms to address the crisis, the second pillar is about kick-starting the EU economy by incentivising private investment and the third pillar is about learning the lessons of the crisis.

The Irish Times reports that “the plan earmarks €1.91 billion in grants to Ireland”.

If the plan is approved by member states it will mean a significant advance in the European Union’s integration policy due to the fact that funds will be secured by means of a joint debt guarantee scheme in the vain of a new “Marshall Plan”.

“It is in our common interest to support the hardest hit, strengthen our Single Market and invest in our shared European priorities.

“Europe’s recovery and building a better future for the next generation will not be easy and it cannot be done alone. This will need political will and courage and buy-in from all of society. This is a common good for our shared future.”

(1) Unless indicated otherwise, amounts are expressed in constant 2018 prices.