Following a four-night summit, the Twenty-seven have given the green light to the first massive stimulus package to tackle the pandemic. The EU already had a first set of emergency loans on the table for up to 420 billion euros to be rolled out this fall. What was approved at dawn this Tuesday constitutes a battery of new investments that will be destined to make the European economy take off after the collapse expected for this year. These are the keys to what was negotiated last night.
1. Debt. The European Commission will go to the markets to borrow 750,000 million euros. That bond issue, which will be capped at 2026, already caused reluctance among the hawks, so it is established that its sole purpose is to face the consequences of the covid-19 crisis.
2. Size. The fund will have a size of 750,000 million euros. Despite the efforts of the so-called countries frugal by dwarfing it, it has ended up keeping the same volume as proposed by the European Commission and the President of the European Council, Charles Michel. However, the composition of the instrument has changed: 90% of the resources are allocated to the recovery and resilience fund (FRR), which must finance the investments and reforms that the countries present to Brussels. The fund to save companies, on the other hand, has disappeared. For its part, the EU Budget for the period 2021-2027 will have the volume proposed by Michel: 1,074 billion euros.
3. Grants and loans. The balance between grants and loans has indeed changed from the initial proposal. The Commission anticipated that 500,000 million would be articulated through aid (66%) and 250,000 through loans (33%). The most reluctant countries, especially the Netherlands and Sweden, refused to give subsidies, while France and Germany did not want to drop below 400,000 million euros. However, both parties have closed the figure of 390,000 million euros in grants (52% of the total) and 360,000 in loans (48%).
4. The key to the box. Once the distribution of subsidies was accepted, the Netherlands wanted a kind of veto right to force the recipient countries – especially Spain and Italy – to carry out structural reforms. The Twenty-seven have agreed to an emergency brake, although it will be necessary to see how it is applied. The national investment and reform plans will be evaluated by the Commission and approved in the Council by a qualified majority. If these two filters pass, funds will be disbursed to the country. The Commission will then ask the Economic and Financial Committee to assess compliance with these programs so that the Commission continues to disburse money. It will endeavor to seek consensus, but if "exceptionally" one or more countries believe that there are "deviations", they can request that the matter be taken to the European Council.
5. Conditionality. The document establishes that the plans will be evaluated by the Commission and must be consistent with the specific recommendations made by the Community Executive – reforms ranging from the workplace to education or minimum income – potential growth, the creation of employment, social and economic resilience, and green and digital transitions.
6. Checks. Five countries (Germany, the Netherlands, Sweden, Austria and Denmark) will keep a discount on their contribution to the EU Budget, despite Brussels' initial intention to eliminate all checks. Michel offered those five countries 6,479 million euros per year to be paid for with contributions from the rest of the partners. In the end, he had to increase those of the four hawks, so that together the checks reach 7,603 million.
7. Distribution of money. The funds will be distributed in two batches in response to demands, especially from eastern countries. 70% will be disbursed in 2021 and 2022 in accordance with the distribution criteria set by the European Commission. The remaining 30% will be paid in 2023, replacing the unemployment criterion set by the Community Executive for the fall in GDP in 2020 and the accumulated loss in the period 2020 and 2021. With this, the Eastern countries hope to reduce the weight of the rate of unemployment in the distribution and scratching funds to the south. As a rule, no country will borrow more than the equivalent of 6.8% of its gross national income.
8. New resources. To repay the debt, the partners undertake to seek new sources of income. Specifically, the document refers to a tax on non-recycled plastics that would come into effect on January 1, 2021; a border carbon adjustment mechanism to be designed in the first half of next year and a digital tax, to be introduced no later than 1 January 2023. The Council invites the Commission to make a revised proposal for the system carbon trading, which can be extended to aviation and the maritime sector, and there is even talk of a possible tax on financial transactions.
9. Rule of law. This section is decaffeinated after the latest version. In Saturday's proposal, it was stated that a conditionality regime would be introduced to address “generalized manifest deficiencies” in the governance of member countries regarding the rule of law. That expression upset the Hungarian Prime Minister, Viktor Orbán. The final document reads: "The European Council underlines the importance of respect for the rule of law." The less extensive text adds that the Commission may propose measures that can be approved in the Council by a qualified majority.
10. The victims of negotiation. The negotiation has killed some funds and projects raised by the European Commission. The fund to rescue companies (26,000 million that had to mobilize up to 300,000 million) or the health program (7,700 million) disappear. But the Just Transition Fund (from 30,000 to 10,000 million), which was to reconvert old mining regions, or the Horizon Europe innovation program (from 13,500 to 5,000 million) are also reduced.