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Marathon EU summit secures EUR 750 bn recovery fund

27 July 2020, 15:19 CET
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Marathon EU summit secures EUR 750 bn recovery fund

Von-der-Leyen - Michel - Photo EU Council

(BRUSSELS) - Following a marathon four-day summit, EU leaders agreed Tuesday a EUR 750 billion recovery fund for Europe, and a long-term budget to help the EU rebuild after the pandemic and support green investment.

This was "the right deal for Europe," said Council president Charles Michel, after what he conceded were "difficult negotiations in very difficult times for all Europeans".

Having decided that sustainable recovery needed to be linked to the traditional multi-annual financial framework (MFF), the long-term budget for 2021-2027, the EU leaders agreed a comprehensive package of EUR 1,824.3 billion, combining the MFF with an extraordinary recovery effort under the 'Next Generation EU' (NGEU) instrument.

Long-term EU budget

The new MFF, reinforced by Next Generation EU, will also be the main instrument for implementing the recovery package to tackle the socio-economic consequences of the COVID-19 pandemic.

The leaders believe the size of the MFF - EUR 1,074.3 billion - will allow the EU to fulfill its long-term objectives and to preserve the full capacity of the recovery plan. The proposal is largely based on the proposal made by the Council president Michel in February, which reflected two years of discussions between the Member States.

The MFF will cover the following spending areas:

  • single market, innovation and digital
  • cohesion, resilience and values
  • natural resources and the environment
  • migration and border management
  • security and defence
  • neighbourhood and the world
  • European public administration

Lump sum rebates on the annual gross national income-based contribution are to be maintained for Denmark, Germany, the Netherlands, Austria and Sweden.

Recovery fund

The recovery fund, through NGEU, is aimed at addressing the challenges posed by the COVID-19 pandemic. Under the agreement the Commission will be able to borrow up to €750 billion on the markets. These funds may be used for back-to-back loans and for expenditure channelled through the MFF programmes. Capital raised on the financial markets will be repaid by 2058.

The amounts available under NGEU will be allocated to seven individual programmes:

Recovery and Resilience Facility (RFF), ReactEU, Horizon Europe, InvestEU, Rural Development, Just Transition Fund and RescEU.

Loans and grants

€390 billion from the package will be distributed in the form of grants to member states and €360 billion in loans.

Allocation from the Recovery and Resilience Facility (RRF)

The plan ensures the money goes to the countries and sectors most affected by the crisis: 70% under the grants of the Recovery and Resilience Facility will be committed in 2021 and 2022 and 30% will be committed in 2023.

Allocations from the RRF in 2021-2022 will be established according to the Commission's allocation criteria taking into account member states' respective living standards, size and unemployment levels.

For 2023 allocations, the unemployment criterion will be replaced by the drop in GDP in 2020 and 2021.

Governance and conditionality

In line with the principles of good governance, member states will prepare national recovery and resilience plans for 2021-2023. These will need to be consistent with the EU's country-specific recommendations and contribute to green and digital transitions. More specifically, the plans are required to boost growth and jobs and reinforce the "economic and social resilience" of EU countries. The plans will be reviewed in 2022. The assessment of these plans will be approved by the Council by a qualified majority vote on a proposal by the Commission.

The disbursement of grants will take place only if the agreed milestones and targets set out in the recovery and resilience plans are fulfilled.

If, exceptionally, one or more member states consider that there are serious deviations from the satisfactory fulfillment of the relevant milestones and targets, they may request that the President of the European Council refer the matter to the next European Council.

Climate action

30% of the total expenditure from the MFF and Next Generation EU will target climate-related projects. Expenses under the MFF and Next Generation EU will comply with the EU's objective of climate neutrality by 2050, the EU's 2030 climate targets and the Paris Agreement.

Own resources

EU leaders agreed to provide the EU with new resources to pay back funds raised under Next Generation EU. They agreed on a new plastic levy that will be introduced in 2021. In the same year the Commission is expected to put forward a proposal for a carbon adjustment measure and a digital levy, both of which would be introduced by the end of 2022.

The Commission would then come back with a revised proposal on the EU emissions trading scheme (ETS), possibly extending it to the aviation and maritime sectors. There may also be other new resources, such as a financial transaction tax. The proceeds of the new own resources introduced after 2021 will be used for early repayment of NGEU borrowing.

A €5 billion Brexit reserve will be established to support the member states and economic sectors hardest hit by Brexit.

European Council conclusions, 17-21 July 2020

A recovery plan for Europe (background information and timeline)

Long-term EU budget 2021-2027 (background information)

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