The EU introduced a recovery plan from COVID-19 of 750 billion euros. Free News explains where the European Commission plans to take such funds and what they should go.
The European Union presented a recovery plan from the crisis caused by the epidemic of COVID-19 coronavirus disease. The project called “the EU of the next generation” was announced by the President of the European Commission Ursula von der Leyen, speaking on Wednesday, May 27, in the European Parliament in Brussels. According to her, “the recovery plan will turn the huge challenge we face into a chance. It will not only support the recovery but will also be an investment in the future.”
The amount of the plan presented by the European Commission is 750 billion euros. This is one and a half times more than the initiative of Germany and France, which offered to spend 500 billion euros on economic recovery.
Together with the plan, the European Commission presented an updated draft of the EU’s long-term budget for 2021-27 of 1.1 trillion euros. The recovery plan is not part of this budget but is closely linked to it since the budget framework is the only option to collect and distribute such a large amount of 750 billion euros.
To whom and for what purpose is EU assistance provided
As part of this plan, the money will be directed to three areas:
- A large share will go to the direct support of the EU countries. States themselves will develop concrete plans for reconstruction and reform. If these plans are approved, the money will be allocated for them. Also, funding is provided for the development of the most backward regions in the EU, as well as rural areas. Another priority is to support countries ‘ transition to climate neutrality.
- Direct assistance to the economy through investment, as well as a tool to support the financial stability of enterprises.
- The last element in the European Commission was called “Learn a lesson from the crisis.” We are talking about additional spending on research and science, a new health program, and increased support for third countries.
Assistance in the form of grants and loans
One of the most controversial aspects of the new plan of the European Commission is the question of what form of aid will be allocated: grants or loans. The countries most affected by the pandemic, such as Italy and Spain, are in favor of gifts. At the same time, investments are championed by countries that pay significantly more to the EU budget than they receive from it, such as the Netherlands and Austria. At the moment, the European Commission’s plan provides that 500 billion euros will be grants and 250 billion – loans.
Where will the EU take money for reconstruction?
The main question is where the EU will take these 750 billion euros. The European Commission will take them to the financial markets. The advantage is that most rating agencies rate the EU’s credit rating at the highest level – AAA. Therefore, the conditions will be favorable.
However, all this money will have to be returned. The loans are clear – they will be paid by the countries that received them. With grants, the situation is more complicated because for their recipients-this is irrevocable assistance. Therefore, the entire European Union will have to return 500 billion euros. Payments will be made from EU budgets starting in 2028 and ending in 2058. Interest will have to be paid in the period 2021-27.
This money can be raised in three ways: either by reducing other expenditures or by increasing member countries ‘ contributions to the Association’s budget or from the EU’s resources. The latter include, in particular, customs duties and VAT, part of which goes directly to the EU budget. The European Commission proposed to add to this part of the revenue from the system of trading in air emissions and the digital tax, the introduction of which is still an unresolved issue in the EU.
Approving the plan will take time
Now this plan should be considered by the heads of state and government of the EU countries. According to the head of the European Council, Charles Michel, it is planned to do this at the EU summit on July 19. However, this does not complete the approval process. For the European Commission to borrow funds, it is necessary to increase the upper limit of the EU’s resources. This requires ratification by the parliaments of all 27 member states of the Association. Therefore, the plan will not be fully implemented until January 1, 2021. At the same time, 11.5 billion euros are planned to be allocated from September – this amount will be enough for the consent of the European Parliament.