The €500 billion recovery fund proposed would see the European Commission, the EU’s executive arm, raise money on the markets under the EU’s name. It would come on top of the bloc's next budget — the Multiannual Financial Framework — and the €540 billion of loans already announced by the Eurogroup. The fund will then be given as grants, not loans, and repayment will be the financial responsibility of the entire bloc through the joint European budget, which is financed by a set formula by member states. This represents the first genuine creation of long-term EU fiscal debt.
It is envisaged that this will not only help the worst-hit member states recover in the short-term, but will also enhance the resilience, convergence, and competitiveness of the European economies.
The recovery programme will be based on a four-pillar model for reconstruction:
1. Health Protection: The fund aims to reinforce the EU’s strategic sovereignty in the health sector, through a boost in European research and development capacity in the field of vaccines and treatment methods, as well as the creation of common stocks of medicine and medical devices. The plan also foresees the bloc coordinating the creation of an EU “Health Taskforce” to develop national prevention and response plans against future epidemics, and the harmonisation in how health data is harvested and used.
2. Economic Recovery: The programme states that open markets, along with free and fair trade are crucial parts of the solution to the pandemic. This is to be achieved through the diversification of supplies chains in the EU, adapting the EU's industrial strategy and modernising the EU's competition policy.
3. Ecological and Digital Transition: The third pillar seeks to boost the modernisation of the European economy and its business models, particularly emphasising environmental and digital targets. Both leaders stressed the need to create conditionalities in the areas of climate, biodiversity and environment, underlining the commitment to the EU Green Deal announced earlier this year. These include increasing EU targets for reducing emissions in 2030, with the goal of climate neutrality by 2050, and implementing climate conditions on state aid. The plan also calls for accelerating the 5G roll-out.
4. Industrial Sovereignty: Additionally, the model provides for a strengthening of European sovereignty which is intended to reduce European dependence on
external supply chains and better protect European companies through efforts to diversify supply chains and promoting an ambitious and balanced free trade agenda with the World Trade Organisation at its core.
Yet the plan is still only a foundation. A final deal will need the backing of all 27 members, some of which have flatly rejected collective indebtedness in the past. Austria has already suggested that it and countries like the Netherlands want to help the most afflicted EU member states only with loans, not grants. If the plan goes through, the agreement could relieve some of the pressure on the European Central Bank, which has so far taken the lead in the EU-level response, pledging to buy more than a trillion euros of debt to stabilize markets. The Franco-German initiative also comes ahead of the EU Commission's own proposal - which is expected to be announced next week (27 May).
What does this mean for Ireland?
The approach that the recovery fund would be based on grants and not loans is supported by Ireland, Italy and Spain, with Taoiseach Leo Varadkar describing the plan as a “financial diuretic” that is good news for Europe and Ireland too. While it is yet to be seen exactly how much Ireland might benefit from the recovery fund plan – if it passes through the European Council – we will be set to repay a higher amount than states that have been more severely affected as we transition to a net contributor of the EU’s Multiannual Financial Framework.
Article by: Michaela Reilly - Policy and Research Executive at Chambers Ireland