The European recovery plan (“Next Generation EU”) aims to address the economic and social consequences of the COVID-19 pandemic. The European Council of 21 July fixed its amount to €750 billion (including €360 billion in loans and €390 billion in grants), accompanied by a reinforced multiannual European budget of €1,074.3 billion for the years 2021 to 2027.
At present, the bulk of the €750 billion of the Recovery Plan is earmarked for the “Recovery and Resilience Facility”, for an amount of €672.5 billion, broken down into €360 billion in grants and €312.5 billion in loans to be committed by the end of 2024. The purpose of this fund is to “provide large-scale financial support to reforms and investments undertaken by Member States, with the aims of mitigating the economic and social impact of the coronavirus pandemic and of making the EU economies more sustainable, resilient and better prepared for the challenges posed by the green and digital transitions”.
The figures alone are impressive. The European Union has temporarily increased its investment capacity by almost 66%, but, in addition, it will, for the first time, borrow the funds on the markets. This federal leap will lead the European Union to have a budget equivalent to almost 2% of its GDP. This is much better than the current 1% of GDP but, as pointed out by Thomas Piketty, it is still far from the federal state budget in the United States, which accounts for some 15% of its GDP.
The recovery plan and the “facility” must be commensurate with the greatest recession in the history of the European Union. In order to counter a fall in GDP by 8.3% in 2021 according to the Commission’s forecasts, it is still necessary to ensure that the resources can be spent properly. It is one thing to allocate amounts and another to set up adequate projects, which are not only based on windfall effects.
This is why it is necessary to ensure in the final stretch of the legislative ordinary procedure between the European Parliament and the Council of the European Union that in the final version of the regulation, which will actually create this “facility”, eligible projects are going to be solidly anchored at local and regional level.
The name “facility” is a bad omen. Borrowed from financial engineering, it appears to be too technocratic, incomprehensible to ordinary people, ambiguous in a number of official languages of the European Union and it fuels the suspicion of a highly centralised fund at national level.
A number of other stumbling blocks remain to be identified in the coming three months for this “Recovery and Resilience Fund” to be useful and effective.
The French economic recovery plan for 2021-2022, announced on 3 September, out of which 40% comes from the European recovery plan, was the first national recovery plan presented. Although the legislative base has not yet been adopted, the Commission must now assess the “coherence” of the French plan with the European one, but it appears that the proposal of the “facility” regulation does not include any criteria for doing so. To fill this gap, the Commission will clarify in a communication to be presented in the coming days how to assess this “coherence”.
Another shortcoming is the articulation of the “facility” with the Sustainable Development Goals.
The European recovery plan must both enable us to emerge from the crisis and redirect the European development model. However, the level of ambition in this area seems too low at this stage. In fact, the Commission’s initial proposal presented in May only mentions the objective that the “facility” should contribute to achieving an overall target of at least 25% of EU budget spending on climate objectives. However, in the light of a recent report by the European Court of Auditors, according to which the potential contribution of certain EU policies to this objective is overestimated, the European Committee of the Regions believes that the “facility” should compensate for this deficit by earmarking at least 40% of its expenditure for climate action. It appears that the President of the European Commission has recognised the need to revise the objective upwards, as she stated in her State of the Union speech on 16 September that now 37% of the European recovery plan must now be earmarked for the implementation of the “Green Deal”.
The accessibility of local authorities and SMEs to the resources of the “facility” is of course a major concern for the European Committee of the Regions. The issue is not explicitly addressed in the legislative proposal of the European Commission. Indeed, the governance proposed by the Commission leaves it exclusively to the central governments to propose the national plans for the European Semester. However, the European Semester remains a “black box” in terms of transparency and democratic requirement. Neither the European Parliament, nor the European Committee of the Regions, nor the local and regional authorities at national level have a say for the moment. The European Committee of the Regions therefore calls for the introduction of requirements for the involvement of local and regional authorities in the elaboration of national plans. In the Le Mans conurbation, for example, I hope that the project of 1.000 hydrogen buses can be considered eligible by “Bercy”.
The interaction of the “facility” with the traditional European structural and investment funds, the main European investment instrument and mostly managed by local and regional authorities, also remains to be clarified. This is because it is necessary to avoid duplication and to avoid robbing Peter to pay Paul. At this stage, there is no distinction in terms of possible thematic fields of intervention. The distinction between the “facility” and cohesion policy lies above all in two aspects: on the one hand, the structural funds are long-term and have a horizon of 2027 or even 2030 (with the n+3 rule) and, on the other hand, their programming is based on the association and partnership of local and regional authorities.
There is therefore every reason to fear that the so-called “facility” may have an aspirational effect on the structural funds because it is intended to implement projects in the short term (by 2023-2024) and that governments will not be obliged to carry out a programming exercise that is demanding in terms of governance and consultation. This is why, in order to avoid this siphoning effect, the European Committee of the Regions opposes the option of transferring resources to the “facility” from the structural and investment funds (Article 6 of the Commission’s regulation proposal).
A more political stumbling block is that MEPs make their agreement to the “facility” conditional on the introduction of a mechanism to make EU funds conditional on respect for the rule of law. It is possible to agree with this demand of the European Parliament on condition that a freeze on funds only impacts funds managed by governments and not on those managed by cities and regions.
Finally, beyond the scope of the “facility” in the strict sense, it should be recalled that the entire European recovery plan is built on the assumption that autonomous (own) resources will be created for the EU budget, which would be neither a drain on national budgets nor a disguised form of tax on taxpayers or SMEs.
Indeed, even if the Member States in the European Union rightly open the “budgetary floodgates”, nothing is free, nothing is lost and everything is transformed.
It is therefore necessary to make very rapid progress in putting these new resources in place, otherwise the budgetary foundations of the European recovery plan would be at risk. This also means rapid progress at OECD level in setting up a tax on digital platforms, introducing a carbon border adjustment mechanism by 2023 at the latest, and introducing on 1 January 2021 an own resource based on non-recycled plastic waste and finally relaunching the proposal for a financial transaction tax.
If that failed, it is the taxpayer who will end up financing the European recovery plan and Europe risks breaking up when the Member States will have to compensate for the budgetary deadlock on the reimbursement of the European loan.
But this is not the time to play Cassandras. The “facility” may represent a real qualitative leap for European investment capacity, and it is encouraging to have heard Ursula von der Leyen drawing in her State of the Union address a number of concrete projects which could be financed by the “facility”, such as the installation of 1 million electric charging stations across Europe or the financing of the conversion to hydrogen of the European steel industry.
This article originally appeared on Sauvons l’Europe in French on 22 September 2020.
