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The 750 billion euros EU recovery fund is said to include 500 billion euros in grants and 250 billion euros in loans.
The European Commission revealed its plans for a 750 billion euro ($826.5 billion) recovery fund as the whole EU region faces the worst economic crisis since the 1930s. The plan is to borrow these funds and then distribute them through the European budget, meaning the EU’s common basket of cash that supports programs such as student exchange program Erasmus. The loans should be repaid between 2028 and 2058.
European Commission to Protect EU Single Market
European Commission President Ursula von der Leyen proposed yesterday a new recovery instrument, called Next Generation EU – worth 750 billion euros.
“It will sit on top of a revamped long-term EU budget of 1.1 trillion euros. Next Generation EU, together with the core MFF, sums up to 1.85 trillion euros in today’s proposals. It goes alongside the three safety nets of 540 billion euros in loans, already agreed by Parliament and Council. In sum, this would bring our recovery effort to a total of 2.4 trillion euros.”
Von der Leyen added that the Next Generation EU will invest in repairing social fabric, protect the EU single market and help rebalance balance sheets across Europe.
Germany and France were the first to issue mutual EU debt last week, suggesting that the Commission, the EU’s executive arm, should raise 500 billion euros on the public markets to be distributed as grants.
The initiative was described as a “breakthrough” and a “historic” step as Germany had always opposed the idea of jointly-issued debt, even during previous crises.
There are four European countries that are still against issuing grants as a way to diminish the economic crisis due to the COVID-19 pandemic, preferring instead loans that will be repaid. Austria, the Netherlands, Sweden and Denmark also want strong economic reform commitments in return for any money given.
By including a component of grants and loans, the Commission’s intention is to overpass these differences among the 27 EU countries.
Negotiations Will Take Time
A Dutch official, who didn’t want to be named due to the sensitivity of the negotiations, told CNBC that “the positions are far apart and this is a unanimity file, so negotiations will take time. It’s difficult to imagine this proposal will be the end-state of those negotiations.”
Wednesday’s bid started a discussion among the 27 EU member states. The leaders will meet, likely via video call, on June 18 and try to come to a deal on the definite details of the aid package.
However, everything will have to be approved by the European Parliament.
Meanwhile, there are other short-term possibilities available across Europe. The European Central Bank said to buy government bonds as part of its 750 billion euro program and there are 540 billion euros available in unemployment schemes, business investments and loans to governments.
Because it is focusing on funding some of the extra costs, the European Commission proposed utilizing a carbon border duty, a common consolidated corporate tax base and a digital tax.