Eurada News nº402 - July 2020

A new agreement on European Funding

A new chapter in the European Union’s history is being written at this moment. The new financial agreement which was reached on the 21st of July by the European Council after a thorough negotiation is certainly a milestone in European integration. 

The new financial agreement reached by the EU Council commits €1 824.3 billion, divided into two different blocks. Next Generation EU, the recovery fund proposed by the Commission, the goal of which is to restore the European economy post-Covid, will total up to €750 billion. The remaining €1 074.3 billion belongs to the Multiannual Financial Framework, the European Union’s budget for the next seven years, featuring a special focus on green and digital transition as the two main pillars of the future Europe. 

Let us take a closer look at these two instruments, both to their objectives and nature: 

  1. Next Generation EU (NGEU): a recovery fund 

After the COVID outbreak, EU Member States have seen themselves unable to deal with the economic fallout of the crisis. An initiative like this was, therefore, necessary. NGEU will be worth up to €750,000 billion, transferred to the Member States in two different ways: 

  • €390 billion will be granted to Member States as a subsidy, meaning the States will not have to return it. 
  • The rest of it, €360 billion, will be in the form of long-term, low-interest-rate loans. 

In order to acquire this money, the European Commission will turn to capital markets, creating bonds and selling them in a similar way to how public debt works. These bonds will be issued on a long-term basis with especially low interest rates, meaning that the EC will not have to return this capital in the near future. The EC will issue these bonds over the years 2021-2026 as and when the payments to the Member States have to be made. Meanwhile, the loans granted to the States will have to be returned on fixed dates, to be determined according to the amortisation of the aforementioned bonds. 

Regarding the transfers to the Member States, the European Council agreed on the following terms: the 70% of NGEU must be allocated during the years 2021 and 2022; the other 30% will have to be designated entirely by the end of 2023. The actual payments, though, will be ongoing until 2026. 

As for the specific amounts the different programmes will receive, they are: 

  • Recovery and Resilience Facility: €672.5 billion, €360 billion of which in loans and €312.5 billion in grants. 
  • REACT-EU: €47.5 billion.
  • Horizon Europe: €5 billion.
  • InvestEU: €5.6 billion. 
  • Rural development: €7.5 billion.
  • Fund for a Just Transition: €10 billion.
  • RescEU: €1.9 billion. 

Member States will elaborate national recovery plans explaining these investments and reforms the State commits to introducing during the period 2021-2023. These plans need to be accepted by the European Council on a qualified majority basis and revised and adapted as necessary in the year 2022 in order for recipients to receive the pay-outs due in 2023. 

It is also worth noting that any Member State can solicit a European Council meeting if they have doubts about how another State is complying with its national recovery plan. 

2. Multiannual Financial Framework (MFF) 

The budget for the next seven years (2021-2027) will equal up to €1 074.3 billion and has been discussed with the intent to provide the Union with the capacity to face the consequences the current crisis is having on the European economy and society. 

The main items included in the document have huge potential to contribute to those priorities the EU set and is working on. The entire budget revolves around seven topics: the Single Market, Innovation, and Digital; Cohesion, Resilience, and Values; Natural Resources and Environment; Migration and Border Management; Security and Defence; Neighbourhood and the World; European Public Administration. 

For the sake of being concise, we will focus on the three biggest economic items to be found in the entire MFF (i.e. the ones with the biggest funds allocation): 

  • Single Market, Innovation and Digital 

€132.78 billion have been allocated to this category. It includes all those programmes related to research, digital innovation, company and SME competitiveness, and Single Market enhancement. Within it, important projects and programmes are covered: the InvestEU Fund, Horizon Europe, and the Digital Europe programme. 

  • Cohesion, Resilience, and Values 

€377.76 billion have been assigned to this area. It will focus on the promotion of economic convergence, employment creation, and the reduction of the differences between the European regions. It will play a vital role in contributing to sustainable growth and social cohesion. It is divided into two sub-sections: 

    • Cohesion Policy

Through the ERD Funds, the Social European Fund Plus, and the Cohesion fund, the European Union will pursue the goal of investing in growth and employment in Member States and regions and European territorial cooperation, with the support of the ERDF. 

    • Resilience 

The Justice, Rights, and Values programme and the newly created EU4Health one, focused on sanitary resilience and security, are two of the most important programmes to be implemented under the resilience umbrella. 

  • Natural Resources and Environment 

With a budget of €356.37 billion, this will focus on the agricultural and fishery policies, as well as the climate and environmental and biodiversity protection. As has been demonstrated since the new European Commission team was nominated with policies as the Green Deal, the fight against climate change is a transversal priority, being included in the entirety of the MFF. This section represents a great contribution to the goal of using at least 30% of European expenses to protect the environment and fight against climate change. 

It is important to note that a great part of these funds will be assigned to direct payments and market-related expenses. One of these mechanisms will be the Fund for a Just Transition, created to face the economic consequences the desired climate neutrality will entail, being assigned €7.5 billion to it. The Common Agricultural Policy will remain important, with a specific strategic plan. 

As for the rest of the items in the budget: 

  • Migration and Border Management: €22.671 billion. 
  • Security and Defence: €13.185 billion. 
  • Neighbourhood and the World: €98.419 billion. 
  • European Public Administration: €73.102 billion. 

The European Union has taken a huge step ahead, demonstrating cooperation and the will to collaborate are important in times of crisis. 

Written by Alberto Soria, Project Officer at EURADA