Michel gives control to member states to facilitate recovery fund deal

European Council President, Charles Michel, during the presentation of his negotiating box on Friday (10 July). [Council]

European Council President Charles Michel proposed on Friday (10 July) giving more control to member states over the recovery funds to overcome northern member states’ opposition to the ambitious stimulus.

In parallel, his proposal reduced the overall spending of the multiannual financial framework for 2021-2027, the EU’s long-term budget, by around €20 billion to €1,074 billion, to please the ‘frugal’ capitals.

Michel put forward a negotiating box to narrow the important differences among the national governments over the European Commission’s proposal for a €750 billion recovery fund. The draft document will be the basis for the EU leaders summit on 17-18 July.

“The goals of our recovery can be summarised in three words: first convergence, second resilience and transformation. Concretely, this means: repairing the damage caused by COVID-19, reforming our economies, remodelling our societies,” he told reporters in a video-press conference

Michel made a plea to all EU governments, national parliaments and the European Parliament to understand the “constrains and sensitivities” in every member state “to make the agreement possible” this month.

A senior EU official, however, admitted that the negotiations continued to be “very difficult”.

EU agreement on recovery plan by July 'very difficult', officials warn

It will be “very difficult” to reach an agreement on the recovery fund and the EU’s overall seven-year budget by July, as intended, given the disagreements over the size, the distribution of the stimulus and the attached conditions, EU officials and national diplomats acknowledged on Wednesday (10 June).

Some of the main stumbling blocks are the size of the fund and the volume of non-reimbursable funds (grants), a total of €500 billion in the Commission’s original proposal.

Northern member states, in particular the ‘Frugal four’ (Netherlands, Austria, Sweden and Denmark), are against the large volume of grants, and instead prefer to offer loans to countries hard-hit by the pandemic.

Conditionality

Michel kept the Commission’s ambition for the recovery fund but detailed the conditions to access the fund. Member states will also have more powers to validate their national plans and to decide on the disbursement of the funds.

His draft text said that member states’ recovery and resilience plans to unlock the funds will be assessed by the Commission within two months of submission.

Their proposals will be approved depending on their “consistency with the country-specific recommendations, as well as strengthening the growth potential, job creation and economic and social resilience of the member state”. Their contribution to the green and digital transition will be also a “prerequisite”.

Fiscal adjustment needed to unlock recovery funds, EU official warns

EU leaders will discuss for the first time on Friday (19 June) the €750 billion recovery fund proposed by the Commission to overcome the coronavirus crisis. But in order to access EU aid, member states will have to bring down their ballooning public debt, an EU official explained.

A senior EU official did not clarify whether the economic resilience would include fiscal adjustments.

Michel’s text strengthened the wording from the Commission’s original plan, where there was only a vague reference to the digital and green transitions and European Semester recommendations.

Northern member states, however, requested tougher conditionality to access the European aid.

The Netherlands and other countries also asked for political control through the Council, instead of the technical oversight of national envoys (‘comitology’) initially proposed by the Commission to authorise the national recovery plans. 

Von der Leyen proposes €750 billion stimulus under member states’ grip

European Commission president, Ursula von der Leyen, proposed on Wednesday (27 May) an unprecedented stimulus of €750 billion, mostly through non-refundable grants, with governments having a crucial role in deciding how the money will be spent.

Member states should validate them by qualified majority four weeks after the Commission gives its opinion. 

In total, member states should know whether their plans receive a positive assessment three months after submission.

National governments will also have a say in deciding on the disbursement of the funds, according to the completion of milestones to implement the national recovery plans.

Michel admitted that having an agreement on the governance of the fund will be “difficult” because member states have “totally different opinions on this topic”.

Northern countries’ opposition towards grants is arguably the main obstacle to overcome, as the €500 billion non-reimbursable transfers are at the core of the Commission’s plans to overcome the coronavirus crisis.

In addition to the tight grip and oversight of their use, Michel also offered some sweeteners to the net contributors to the EU budget, who would maintain the rebates, the money they get in return to compensate for smaller returns from the EU budget.

No consent to ‘historic’ recovery plan without new revenues, MEPs warn

The European Parliament will only give its consent to a new EU long-term budget if the basket of own resources is increased to pay for the recovery fund, the main political groups warned in a letter addressed to EU leaders ahead of Friday’s (19 June) summit. 

The European Council president also tried to win the European Parliament’s consent by offering more clarity on the new taxes and levies that will be created to pay back the €750 billion that the EU will borrow from the markets

Michel expects to have a plastics levy already applied on 1 January 2021, which could generate up to €3 billion annually.  The carbon border tax and a digital levy should be introduced two years later. Proposals on a new Emission Trading System and other new own resources, such as a financial transaction tax, would come by the end of 2027.

One of the main novelties of Michel’s proposal is the introduction of a €5 billion special Brexit Adjustment reserve. The new mechanism would support sectors and regions hit hard by UK’s withdrawal from the EU, although the Commission should work on the proposal.

Michel proposal offers Council more control over rule of law conditionality

European Council President Charles Michel’s latest compromise proposal for the bloc’s 2021-27 budget offers more power to member states in deciding to cut EU funding in case of rule of law problems, and instead promises more funding for values projects and the fight against disinformation.

[Edited by Benjamin Fox]

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