Macroeconomic & Geopolitical

From the EU, with Love

June 2020 – 3 min read
The EC Proposal for EU Recovery Funding.

The European Commission (EC) raised the stakes on the €500 billion Franco-German proposal and put forward a €750 billion investment plan, dubbed Next Generation EU, to support recovery from the pandemic. Through this action, the EC is transforming the need to repair the EU into an opportunity to propel it into the future. The plan, if approved by EU member states, is also a massive step forward for European integration.

Some will certainly welcome the coherence of the spending, embedding new funds into pre-existing strategies, but others will surely dislike the centralisation. These will interpret the project as a further step toward the emergence of a federal EU government. The proposal will be debated vigorously before a Eurogroup meeting of Finance Ministers on June 11. The final version of the plan will end up in the hands of national parliaments for a vote and requires unanimous approval.

The discussion will be spirited but it is unclear how much dissension there really is. The four known opponents (Austria, Denmark, Sweden and The Netherlands) are grandstanding to their electorate but intrinsically side with Germany. Chancellor Angela Merkel is behind the project and will lead the negotiations as Germany takes the presidency of the EU on July 1. The process needs to be completed by the fall for spending to start in 2021.

This new set of measures would complete the €540 billion of already-approved new programmes (the €100 billion SURE unemployment insurance, the €240 billion ESM credit lines, and the €200 billion EIB lending for corporates), for a total of €1.3 trillion in pandemic measures. The precise country allocation key is not set, nor are the details of what spending is done through grants or loans—there are just proposals and estimates. The funds will be managed together with the 202127 EU budget that, in parallel, the EC is putting forward for €1.1 trillion, creating a headline spending figure that reaches €2.4 trillion (12.5% of EU GDP).

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