Lawmakers strike deal on first recovery funds as vetoes loom

Chief negotiators on REACT-EU of the European Council, Parliament and Commission reach an agreement. [Twitter/@ElisaFerreiraEC]

EU lawmakers on Wednesday (18 November) reached a political agreement on REACT-EU, the €47.5 billion fund that will channel European money to prop up the bloc’s economy by supporting health services and small businesses.

REACT-EU will be the first European fund to be financed from the €750 billion that will be borrowed from the markets if member states convince Hungary and Poland to lift their vetoes on the seven-year budget and recovery fund.

The two states blocked the approval of the EU’s seven-year budget and the recovery fund totalling €1.81 trillion on Monday (18 November).

Hungary and Poland veto stimulus against pandemic 

Hungary and Poland blocked the approval of the EU’s seven-year budget and the recovery fund totalling €1.81 trillion, as both countries continued to oppose the rule of law mechanism attached to the EU funds. 

“I think that it’s important now for Poland and Hungary to hear this message and to avoid and avert any blocking of these funds,” one of the European Parliament’s leading negotiators on the file, social democrat Constanze Krehl, said.

In 2020, Hungary and Poland are set to receive €834 million and €1.556 billion, respectively.

Asked by journalists if the European Commission has a backup plan in case it will not receive the recovery money to fund REACT-EU, cohesion and reform commissioner Elisa Ferreira said “there is no Plan B for the budgetary negotiations.”

“We will reach a positive conclusion because it is essential for Europe,” she added.

Regions will be able to retroactively cover COVID-related costs via REACT-EU starting from 1 February 2020 and start projects with financing from the fund up to 2023.

“That means, even if the money will come only in March next year you can [already] finance your projects 12 months back,” Krehl said.

REACT-EU will serve as a bridge between the long-term, normal cohesion policy and the coronavirus-related measures implemented so far, which relaxed rules on regional funding to draw on €37 billion of unused EU cash.

States will be able to continue to shuffle the EU funds available to them after 31 December 2020, having so far reprogrammed €16.9 billion, which resulted in a net increase of €5.7 billion for health actions and €1.9 billion business support across the bloc.

“I want to underline is that there is no vacuum in terms of the support from Europe to the regions between now and then,” Commissioner Ferreira added.

The first €37.5 billion of REACT-EU funding are expected to be made available in 2021, with another €10 billion following a year later.

The set up also seeks to reduce the usual bureaucratic burden associated with EU structural funds and will allow countries to utilise the funding within the framework of investment programs they have already set up in the previous 2014-2020 period.

The REACT-EU legislation is only the first piece of the cohesion package to be agreed by Council and Parliament, with negotiations still ongoing on the cross-border programs regulation, the European Rural Development, the European Social Fund, the Just Transition Fund that will help green coal-reliant regions and the common cohesion package rulebook known as the Common Provision Regulation (CPR).

The most controversial issue in the CPR regulation is still the “macroeconomic conditionality” linking the disbursement of EU funds to EU countries’ fiscal health, potentially allowing the suspension of  payments if a member state fails to take action to reduce its budget deficit.

The Parliament opposes the criteria, fearing it may deprive economically fragile regions of much-needed support during the pandemic.

[Edited by Benjamin Fox]

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