Covid: the EU battle for grants and loans

The Covid crisis united Europe around the Recovery Fund and hopefully will trigger the necessary reforms in the Member States for a brighter future

Special European Council (17 -21 July 2020) was crucial not only for the future of Member States, but also for the future of a United Europe. The EU has taken the first most difficult but determinant step towards overcoming the effects of the Covid crisis.

The battle for grants and loans

The ‘Frugal Four’ and Finland opposed the amount of the Recovery Fund and the grants component in general. Contrarily, the rest of the MSs united around the debt mutualisation through a mixed system of grants and loans. Finally, the RF was granted €750bn as originally proposed by the Commission, but grants were reduced from €500bn to just €390bn.

The positive aspect of the Next Generation EU is that 70% of grants will be provided in 2021 and 2022. However, how will the MSs handle the absorption of the funds? From January 2021, MSs will have to absorb funds from the previous Multiannual Financial Framework (MFF), funds from the new 7-year long-term budget and the funds available under the NGEU. It should not be forgotten that the MSs most affected by the crisis, Italy and Spain, are among the worst performers in terms of absorption of EU funds.

Economic and environmental conditionality

Grants under RFF will depend on MSs’ recovery and resilience plans for 2021-2023 in accordance with the country-specific recommendations and the roadmap for green and digital transitions. The FF proposal for a veto right for individual MSs was rejected but this does not preclude the right of careful examination of funds at all.

Beyond the economic aspects, the question on the environmental prosperity is  problematic. The EU environmental policies strategies’ changes towards decades between the 1st Environmental Action Programs (EAPs) suggest and the 6th over the last 30 years “EAPs has been change over the last 30 years (…) policy actions,(…) can observe a gradual learning,” wrote Dr. Christian Hey, Secretary General of German Advisory Council on the Environment. However, he did not take into account the various crises that have been buffeted since 2007. EY Global warned that the economic relaunch would be similar to 2008 if new recovery policies aren’t created. “(ETS) scheme are expected to fall by nearly 400M metric tons in 2020.(…) as earlier crises have shown, temporary environmental improvements tend to be short-lived(…), global emissions dipped temporarily (…)before quickly returning to record highs”. Whether we take into account this data into the FF’s proposal of€1tn while the commission proposed €1.1tn, a sustainable question remains. Does the environment count in today’s economic recovery of the EU?

MFF and new EU own resources

EU leaders’ agreed on a €1.074 MFF to help MSs’ recovery, as well as on the introduction, starting as of January 2021, of a new own resource based on non-recycled plastic waste. This, together with the MSs’ gross national income (GNI)-based resource, the value added tax (VAT)-based resource, and the EU traditional own resources consisting of customs duties and sugar levies, funds the EU budget. The European Council also envisaged the possibility of adding new own resources at a later stage of the MFF.

Rebates

Ever since Margaret Thatcher said, “I want my money back” in the 80s, rebates have become a hot topic in the EU’s developmental process. They have been requested more and more over the years. The driving force behind these requests are the FF. Rebate privileges were strongly debated, as other MSs saw them as an unjustified exemption from EU fees. However, the alliance of rich northern MSs threatened to veto the compromise on the RF if they did not receive their discounts. An agreement was reached in spite of or thanks to the threat by the FF, which obtained more than €26bn from Brussels. Decades after Thatcher’s demands, the debate continues to cause friction between MSs.

It would not be easy for the EU to move forward and it is probably too early for predictions. Nonetheless, the crisis united Europe around the Recovery Fund and hopefully will trigger the necessary reforms in MSs for a brighter future.