What Happens Now to the EU’s Post-Covid Stimulus Fund?

The cogs have started to turn in the EU’s machine to secure the € 800 billion recovery package – designed to mitigate the economic fallout from the pandemic -.

But it will be time before member states’ budgets receive the first euros, at best in early summer, nearly a year after EU leaders agreed to issue joint debts to fund the continent’s recovery. .

The European Commission has started to receive the national plans underpinning stimulus funding, but clashes between capitals and the EU executive and between member state governments are expected to surface.

As the European Commission prepares to examine the EU government’s plans, EUobserver examines how policy and stimulus policy will shape the coming months.

The plans

The committee received a total of 14 stimulus packages on Tuesday (May 4) on the type of reforms the money will be used for.

Belgium, Denmark, Germany, Greece, Spain, France, Italy, Latvia, Luxembourg, Austria, Poland, Portugal, Slovakia and Slovenia presented their programs.

With the end of April deadline passed, other EU governments are expected to submit their plans in the coming weeks.

Thu Nguyen, project manager at the Jacques Delors Center based in Berlin, said it was not “a concern or a very big surprise” that all member states had not submitted their plans by the end of April.

Of the 14 countries that submitted their programs, four opted for loans available under the recovery fund in addition to non-repayable grants, according to the commission.

Member states can decide until the end of August 2023 whether they still want to borrow the loans they have, but will then need to submit a revised national plan to justify the spending increase.

Nevertheless, the loan program under the stimulus fund seems more attractive to member states than the 240 billion euros available under the European Stability Mechanism (ESM), the financial institution set up to help countries of the euro zone in financial distress.

“It worked better than the ESM loan. The bad memories of the euro crisis that are attached to the ESM and the political reputation attached to an ESM loan from the previous crisis is something the stimulus fund does. has not, ”Nguyen said.

Commission control

The commission has two months to recommend to the Council of Member States the approval of the plans.

The commission will assess the plans on the basis of 11 criteria, including an objective of devoting at least 37% of investments to supporting climate objectives and 20% to the digital transition.

If the Commission thinks the reform and spending plans fall short of what has been agreed, it could turn a blind eye with EU capitals over the details of the projects.

“The commission wants the member states to get the money and the fund to be a success. At the same time, for the fund to be successful and the commission to be credible, it has to be fairly strict on the criteria and diligent in the process. evaluation, ”said Nguyen

“I would not exclude that there will be criticisms or requests for changes. For the committee to be a credible player in this instrument, it must be strict on the rules and criteria. The most important thing for the committee is to ‘deepen the assessment to ensure that member states only receive the money where they meet the criteria,’ she added.

Peer review

One of the main demands of the so-called thrifty countries, which are net payers in the EU budget, last year during the grueling stimulus fund negotiations was that member states also check reform plans. each other before they are signed.

The frugal demand signaled unstable confidence in the commission, which is seen by these economically conservative countries as lenient with member states that have high debt but have fallen behind in implementing reforms, such as Italy. , for example.

Economists wanted to keep a close eye on member states in southern and central Europe in case they thought the money was being misused.

Once the committee has verified the plans, it transposes them into legal texts and makes a funding recommendation to the member states, the majority of which must approve it.

But while some EU governments might wish for a more rigorous scrutiny, they are unlikely to obstruct the process.

“Several Member States have to be flexible at the same time if they want to prevent a country from receiving funds. I am sure some Member States will take a very close look at the projects of other Member States, but I am not sure that anyone interested in stopping the process altogether unless a plan really meets the criteria, ”Nguyen said.

Any member state can then trigger an “emergency brake” on payments if it thinks a particular government has broken its promises. There will be deadlines attached to reform plans for member states to keep their promises.

As a first step, the equivalent of 13 percent of the total funds allocated to each country can be disbursed.

Own resources

However, EU countries must take a crucial step before the recovery money becomes a reality.

Before the commission can go to the markets to raise funds, the 27 member states must ratify legislation called the Own Resources Decision, which increases the collateral that backs new debt.

So far, 19 Member States have ratified the legislation, but Austria, Estonia, Finland, Hungary, Ireland, the Netherlands, Poland and Romania have yet to do so.

In some cases, the delay has exposed internal problems such as building a sufficient parliamentary majority, as in the Netherlands – which has just had an election – or, recently, in Finland.

In Poland, the ruling majority is divided on the issue. In Hungary, ratification is likely to be delayed until it loses its political leverage against the commission.

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