The economic crisis and the fight against the pandemic have proved to be unprecedented challenges for both nation states and international institutions.

The European Union is no exception.

On July 17-18, during a special summit of the European Council, EU countries will try to approve a plan to save the European economy.

What does such a plan involve and why have previous attempts to adopt it met with resistance within the EU?

Three components of salvation

Following a series of quick solutions and measures to overcome the effects of the economic crisis and pandemic, the European Commission presented on May 27 the EU's Multiannual Financial Framework of 1.1 trillion euros and the proposal of the National Economic Recovery Fund, later called the Next Generation of the EU 750 billion euros.

The proposed plan not only did not receive support among EU member states, but also provoked a heated debate between them, which of course called into question the future of the Union.

As a result of the talks, European Council President Charles Michel presented a compromise between the EU's seven-year budget plan and the National Economic Recovery Fund.

"The goals of our recovery plan can be summarized in three words: first, convergence, second, resilience, and third, transformation. Specifically, this means reimbursing COVID-19, reforming our economies, and transforming our societies," Michel said. .

What has changed in it?

As a result of preliminary negotiations, the amount of the EU's seven-year budget, which amounts to 1.074 trillion euros, was reduced by 26 billion euros.

Instead, the amount of € 750 billion for the National Economic Recovery Fund - The Next Generation of the EU remains unchanged.

At the same time, the sharpest discussions revolve around this 750 billion plan.

Of these funds, 500 billion is expected to be allocated in the form of grants and 250 billion in the form of loans. The fund is intended to use the EU's Recovery & Resilience Facility with a budget of € 560 billion, of which € 310 billion will be in the form of grants and € 250 billion in the form of loans.

€ 190 billion will be allocated through various programs aimed at rebuilding EU member states by stimulating and accumulating investment, supporting the green economy, funding research in health, digital technology, sustainability and more.

The precondition for receiving funding will be national economic recovery plans, taking into account the Commission's proposals for 2021-2023 and the adaptation of national legislation.

As for the timing of funding, according to Charles Michel's plan, 70% of the Fund for Reconstruction and Sustainability will be distributed in 2021 and 2022 according to the criteria of the European Commission, 30% - in 2023.

The appropriate mechanism is also a compromise.

If the allocation of funds in 2021-2022 the main indicators in the formula are GNP per capita and unemployment between 2015 and 2019, then the allocation of funds in 2023 will take into account the overall decline in GNP in previous years.

This approach is explained by the dissatisfaction of those member states where the unemployment rate was not particularly high.

Who will receive the assistance and who will pay it

According to estimates, Italy (€ 81.8 billion in grants and € 90.9 billion in loans) and Spain (€ 77.3 billion and € 63.1 billion respectively) will receive the largest recovery payments.

Germany and France support the existing plan and advocate for it.

The biggest skeptics of the plan are the so-called Four Thrift Countries - Austria, Denmark, the Netherlands and Sweden, who do not agree that the EU budget will finance member states and advocate that most of the Fund be allocated in the form of loans , not in the form of grants.

In order to reduce the skepticism of the Quartet, the updated proposal provides for the payment of budgetary compensation to Austria, Denmark, the Netherlands, Sweden and Germany.

Eastern members (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia) are also critical of the Commission's formula, as much of the money will go to the most affected countries in southern Europe.

On the other hand, the countries of Southern Europe (Cyprus, Italy, Greece, Portugal, Slovenia and Spain) believe that, of course, the allocation formula is not ideal, but it can be worked with.

Despite active consultations and compromises on some issues, a number of issues remain open.

However, neither the President of the European Council, Charles Michel, nor the President of the European Commission, Ursula von der Leyen, have lost hope of reaching an agreement between the Member States.

After all, it is not so much the agreement on the budget that is on the agenda, but the issue of preserving the unity of the EU in times of crisis.


Author: Svitlana Kovalchuk,

Candidate of Political Science, Executive Director of YES

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Posted in Economics