Recovery Plan for Europe: Next Generation EU   

Healthcare and welfare systems across the world have been faced with extraordinary challenges in the past months. In Europe, as numbers of COVID-19 cases were rising, significant restrictions were being imposed to contain the virus. This inevitably led to severe social and economic damage and the urgent need for a consolidated financial response at EU level.   

Recovery plan proposal

On 27 May 2020, the European Commission (the “ Commission”) proposed an extensive recovery plan, which aims to reactivate the EU economy and remedy economic and social damage, caused by the COVID-19 pandemic.

The plan defines a twofold mechanism for mobilising the necessary financial support:

► Next Generation EU: an emergency recovery instrument of temporary character, consisting of €750 billion to be raised on financial markets;   

► Reinforced EU budget for 2021-2027 (€ 1 100 billion)   

All funds raised through Next Generation EU and the reinforced EU budget will be channelled through EU programmes.

What is Next Generation EU?

To confront the extraordinary nature of the COVID-19 pandemic and the serious economic and social repercussions, the Commission proposes an unprecedented emergency recovery instrument - Next Generation EU. It is designed to raise money by temporarily increasing the own resources ceiling from 1.20% to 2.00% of EU Gross National Income. This would allow the Commission to borrow €750 billion on the financial markets, using its strong credit rating, whereas €500 billion will be distributed in grants and €250 billion in loans to Member States. The funding will be repaid through future EU budgets no earlier than 2028, and no later than 2058, and will be used strictly to manage the impact of the crisis.

Next Generation EU requires an amendment to the Own Resources Decision (ORD), which defines the rules on the allocation of own resources of the Union to ensure the financing of the annual budget. The amendment would give the EU the power to borrow temporarily and exceptionally the amount of €750 billion in 2018 prices.

A question arises as to whether this instrument is a justified means to attain the EU’s objectives, and more specifically, whether it is compliant with EU Treaties. The answer is ‘yes’. In accordance with Article 311, first paragraph TFEU, the Union is allowed to provide itself with the means necessary to attain its objectives. Article 311, second paragraph TFEU adds that the financial means of the Union come predominantly, but not exclusively, from own resources. Consequently, the EU can choose the financial means necessary to attain its objectives as long as it respects the financial rules of the TFEU.

Although borrowing creates a financial liability for the EU, such operations are not unprecedented or prohibited by the Treaties. In fact, Article122 of the Treaty on the Functioning of the European Union (TFEU) stipulates that the Council, upon a proposal from the Commission and in a spirit of solidarity, may grant financial assistance to Member States, if they are threatened with severe difficulties, caused by exceptional occurrences beyond their control.

Fundamental pillars of Next Generation EU

Next Generation EU seeks to provide considerable funds over a short period in order to respond to Member States’ urgent needs in light of the COVID-19 pandemic. The money will be invested across three fundamental pillars:

1. Supporting Member States to recover

► Recovery and Resilience Facility: Financial support for investments and reforms in all Member States through a new Recovery and Resilience Facility of €560 billion, with a grant facility of up to €310 billion and the ability to make up to €250 billion available in loans - obtained in accordance with national recovery and resilience plans, developed by Member States;

► REACT-EU initiative: Financial support to mitigate the socio-economic impact of the crisis – €55 billion top-up of the current cohesion policy programmes between now and 2022;

► Just Transition Fund: Funding of €40 billion to assist Member States in expediting the transition towards climate neutrality ;

► European Agricultural Fund for Rural Development: Reinforced with €15 billion to support rural areas in making the changes necessary to comply with the European Green Deal.

2. Kick-starting the EU economy by incentivising private investments

    ► Solvency Support Instrument : Urgent support provided to viable European companies in the most affected sectors and countries through the mobilisation of private resources – disposing of a budget of €31 billion and aiming to unlock €300 billion in solvency support for companies from all economic sectors;

    ► InvestEU: Upgrading Europe’s flagship investment programme to a level of €15.3 billion to mobilise private investment in projects within the EU;

    ► Strategic Investment Facility: developed within InvestEU to generate €150 billion of investments and boost the resilience of sectors connected to the green and digital transition, and key value chains in the internal market - equipped with €15 billion provisioning from Next Generation EU

      3. Addressing the lessons of the crisis – support for health security, civil protection and innovation programmes

        ► EU4Health: A budget of €9.4 billion to strengthen healthcare systems, ensure preparedness in case of major cross-border health threats, secure availability of medicines and critical health supplies, encourage disease prevention and health promotion, boost digital transformation of health systems;

        ► RescEU: Equipping the EU with an expanded and strengthened Civil Protection Mechanism to respond to future crises – reinforced with €2 billion;

        ► Horizon Europe: Reinforcing vital research in health, resilience and the green and digital transitions through a funding of €94.4 billion;

        ► Support for Europe’s global partners – provided by an additional €16.5 billion for external action;

        ► Strengthening of other EU programmes and reinforcing other instruments to ensure the flexibility and responsiveness of the EU budget.

          Recovery Plan – when?

          The Commission’s proposal for a Recovery Plan, including Next Generation EU, is subject to a series of negotiations between Member States and approvals on EU level. This means it could undergo various adjustments prior to the actual adoption and implementation. To cover the immediate need for funding and increased spending in 2020, the Commission has also proposed an amended 2014-2020 budget.   

          ► In July, the European Council is expected to debate a political agreement on the Multiannual Financial Framework 2014-2020 and 2021-2027, as well as on the Own Resources Decision. Afterwards, the European Parliament will hold a consultation on ORD.  

          ► The adoption of the revised 2014-2020 budget is foreseen for early autumn 2020 and the adoption of the revised 2021-2027 budget and ORD (subject to ratification by all Member States) - for December 2020.

          ► The implementation of the new 2021-2027 budget, including Next Generation EU, is expected in January 2021.   


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