Recovery plan for Europe

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In July 2020, European leaders reached an agreement on a Recovery Plan for Europe consisting of:

  • A strengthened Multi-Annual Financial Framework (MFF) for 2021-2027 and estimated at 1.210 trillion euros.
  • A new temporary recovery Instrument, NextGenerationEU (NGEU), that will complement the MFF with € 806,900 million to help the EU rebuild after the pandemic. To finance this new instrument the European Commission will obtain loans in the markets at more favorable costs than many Member States and will redistribute the amounts.

It is the largest stimulus package ever funded through the EU budget: a total of € 2.017 trillion to rebuild Europe after COVID-19 with the aim of making it greener, more digital and more resilient. This is a long-awaited agreement because negotiations began more than two years ago and because the conclusion of more than 30 legislative proposals governing the various programs of the Community budget for the years 21 to 27 depended on this agreement.

Recovery plan for Europe
Recovery plan infographic

Background

  1. The MFF needed the approval of the European Parliament, which was finally obtained on November 10. For the first time in this type of negotiation, o Parliament has managed to increase the amount of the MFF, specifically by 16 billion euros for 10 centrally managed programs, such as the new health programs (EU4Health) or R & D & I (Horizon Europe).
  2. In order to be able to obtain loans in the markets, the Commission needed to increase his own resources of the Community budget. A dossier that requires unanimity in the Council, which, at first, was not possible by the opposition of Poland and Hungary to the conditionality of these funds to compliance with the rule of law. In December 2020, negotiations were unblocked and the decision on own resources was ratified by the Council. However, the final approval by the national parliaments of the states took place at the end of May 2021.
  3. In case of obtaining unanimous agreement, the MFF will be launched: adoption of the 2021 budget, final adoption of the sectoral programs, etc.
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The first EU debt issuance under the NextGenerationEU Instrument was successfully completed in June 2021. The Commission has raised a total of € 20,000 million through a ten-year bond, which will expire on 4 July 2031. This is the largest institutional bond issue in Europe and the largest ever raised by the EU in a single financial transaction. Two months later, in August 2021, the European Commission transferred to Spain the first 9 000 M of the recovery plan España Puede (Spain Can), equivalent to 13% of pre-financing of the total budget of 69,500 million euros corresponding to the Spanish plan.

The European Commission plans to make a second disbursement to Spain in 2021, which will amount to 10,000 million euros for the milestones and objectives achieved. The Commission’s half-yearly disbursement schedule will allow Spain to receive 80% of the planned transfers between 2021 and 2023.

Multiannual Financial Framework 21-27

More than 50% of the amount will support the modernization of European economies through:

  • research and innovation, via Horizon Europe.
  • fair climate and digital transitions, via the Just Transition Fund and the Digital Europe Programme.
  • preparedness, recovery and resilience, via the Recovery and Resilience Facility, rescEU and a new health programme, EU4Health

30% of EU funds will go to the fight against climate change, the highest share ever of the European budget. The package also pays special attention to the digital transition, biodiversity protection and gender equality.

Traditional policies, such as the common agricultural policy and cohesion policy, ultimately do not suffer major cuts and continue to account for almost 2/3 of the budget:

The CAP is reduced by 10%

The CAP is reduced by 10% over the previous period (2014-2020). For Spain, it was a red line in the negotiations not to reduce its allocation of this policy. For the new financial period, the total amount of the CAP will be € 343,944 million, which represents approximately 31% of the MFP compared to 35% in the previous period 2014-2020. The CAP will be distributed in two pillars: Pillar I corresponding to the EAGGF which will receive € 34,124 million at current prices, and Pillar II corresponding to the EAFRD which will receive € 8,531 million for rural development (including the technical assistance supplement and the supplement of NextGenerationEU of € 730 million). In the case of Spain, the amount of the corresponding CAP for the period 21-27 is € 47,724 million.

Cohesion policy

Cohesion policy remains at the level of the current period. Although Galicia is moving from a more developed region to a region in transition -since its GDP is down by 10 points-, its theoretical grant of funds is reduced by ceasing to benefit from the safety network that had been granted for the current period to leave for the first time from the group of less developed regions. The Xunta de Galicia, supported by the Fundación Galicia Europa, has warned about this situation in Brussels, demanding that the regions that are relegated cannot see their theoretical grants reduced. After getting the European Parliament and the European Committee of the Regions to take up this demand in their respective positions, the Common Fund Regulation of the Funds agreed on 1 December finally includes an invitation to Member States to take this factor into account when deciding the internal distribution of funds. At the internal level, states have full flexibility to distribute resources between regions in the same category, and, in the new period, even more flexibility to transfer money between categories of regions. Spain will receive 35,376 million euros at current prices (31,388 at 2018 prices).

The COVID-19 crisis has shown that the EU budget needs to be flexible, so outside the MFF, reserve programs are strengthened in the face of unforeseen situations and a new fund is created to mitigate the consequences of Brexit:

  • The Solidarity and Emergency Aid Reserve: allows for quick EU financial assistance when needs arise, for example, emergencies after major disasters. With a maximum annual amount of 1.2 billion euros. Galicia has received help from this fund when the Prestige disaster happened and on two other occasions by forest fires.
  • The European Globalisation Adjustment Fund: This fund provides support for the reinstatement of those who lose their jobs as a result of major and unexpected restructuring, for example, due to a financial or economic crisis. The budget will be tripled, with a maximum annual amount of 186 million euros. In Spain it has already been used at least 30 times, and specifically in Galicia in the textile and naval sectors.
  • The Brexit Adjustment Reserve: designed to offset the negative consequences of Brexit in the Member States and the most affected sectors. With an overall amount of 5 billion euros. The FGE is defending Galician interests in the design of this fund.
  • The Flexibility Instrument: it is used for clearly identified expenses that cannot be funded through other sources in the budget without exceeding the spending ceilings. It has a budget of 915 million euros per year (at 2018 prices).
  • The Single Margin Instrument: it will replace the previous three instruments (the global margin for commitments, the global margin for payments and the margin for contingencies). The total annual amount mobilized for this instrument under an adjustable or annual budget may not exceed 0.04% of EU gross national income (GNI) in commitments or 0.03% of EU GNI in payments. It must also be compatible with the own resources limit.

“NextGenerationEU” European Recovery Tool

Because of the pandemic, a strong response from the EU has been demanded to help countries with less financial capacity cope with its economic consequences. Based on an informal proposal from France and Germany, the Commission proposed in May 2020 an extraordinary recovery instrument under the name NextGenerationEU, which means an increase in the multiannual budget thanks to the issuance of Community public debt.

It will not be the first time that the Commission has issued debt taking advantage of its good credit rating. It is new that it is of such a high amount and that it is used to thicken the budget, channeling resources through its programs in the form of grants, in addition to loans.

The EU budget will pay interest between the years 21 and 27, as well as the loan capital corresponding to the grants between 2026 and 2058. In the case of loans, the beneficiary Member States will have to repay them.

To contribute to the disbursement of the loan, the EU has committed itself to a timetable for the introduction of new own resources:

  • The plastics own resource came into force on January 1, 2021 and consists of a national contribution based on the amount of non-recycled plastic packaging waste.. This own resource is expected to encourage Member States to reduce packaging waste and to stimulate the transition to a circular economy through the implementation of the European Plastics Strategy.. At the same time, it leaves it up to the Member States to define the most appropriate policies to reduce pollution from plastic packaging waste, in line with the principle of subsidiarity.
  • On 14 July 2021, the Commission presented a proposal for a Regulation to stablish a Carbon Border Adjustment Mechanism, including a tax on imports from countries with excess CO2 emissions, and a EU Emissions Trading System (EU ETS), extending it to aviation and maritime transport. Also, a proposal on the digital tax is scheduled for 2021 and will be accompanied by an impact assessment. The first two should be implemented in early 2023.
  • By June 2024, the Commission will propose new sources of revenue, such as a financial transaction tax, a financial contribution linked to the business sector, and a new common corporate tax base.

The following are the main programs in which NGEU is distributed:

  • Recovery and Resilience Facility (RRF)
  • REACT-EU
  • Just Transition Fund (JTF)
  • Direct management programmes