EU countries finally ratify € 750 billion recovery fund after months of delay
After six months of parliamentary debates, internal discussions and legal proceedings, the 27 EU countries have ratified the legal instrument underpinning the bloc’s € 750 billion recovery fund, paving the way for funding for national governments by July.
The last two pending green lights were those of Austria and Poland, which were completed on Thursday after a positive vote in their respective parliaments. The ruling Polish coalition almost broke up over disagreements over the country’s plan to spend and invest its allocated share of funds.
The legal instrument, known as the Own Resources Decision, will allow the European Commission to borrow the necessary liquidity from the financial markets and repay it over the next decades – no later than 2058.
All Member States had to approve legislation, including final version was agreed in December after Poland and Hungary lifted their veto on a mechanism that will link the disbursement of EU funds to respect for the rule of law.
Johannes Hahn, EU budget commissioner, took to Twitter on Thursday evening to celebrate the news and promised that the stimulus package, known as Next Generation EU, will be operational soon.
“I am confident that all remaining steps can be finalized again in May, which would allow us to launch #NGEU and start borrowing on #capitalmarkets as early as June!” Hahn said.
The European Commission is currently reviewing the National Recovery and Resilience Plans that Member States have gradually submitted. These plans, which cover hundreds of pages, describe how each country intends to spend the money. Most investment projects should be geared towards green and digital transitions.
To date, Brussels has received a total of 19 plans, from Belgium, Denmark, Germany, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Austria, Poland, Portugal, Slovenia, Slovakia, and Finland.
Now that the own resources decision is finally ratified and the Commission is therefore authorized to borrow on the markets, liquidity could start to flow as soon as the first national plans are approved by the Commission and the Council.
In the most optimistic scenario, disbursements could start in July, a year after EU leaders agreed to create the historic fund to help their economies recover from the devastating impact of the coronavirus pandemic.
Throughout the second half of 2021, Brussels is ready to distribute between 60 and 100 billion euros.
A complicated ratification process
The creation of Next Generation EU was initially hailed as “the Hamiltonian moment of the EU”, in reference to the 1979 compromise negotiated by US Treasury Secretary Alexander Hamilton which allowed the US federal government to take over the debt contracted by the US. American states during the revolution. War and pay off that debt with federal bonds.
The arrangement changed the jurisdiction of the US federal government forever and created a fiscal union. Next Generation EU does not set up any permanent fiscal union, a prospect which remains anathema to some, but which represents the most important milestone in European integration since the introduction of the euro.
Despite the urgency caused by the coronavirus pandemic, internal discussions and bureaucratic measures ended up slowing down the practical establishment of the fund. Croatia and Cyprus were the first member states690520_FR.pdf) to ratify the own resources decision in mid-January, while the latter, Austria and Poland, gave their green light at the end of May.
In addition to the protracted debates in some national parliaments, the ratification also took on a judicial dimension when, at the end of March, the German Constitutional Court decided to examine an emergency appeal filed by the far-right Alternative for Germany party ( AfD) which promoted the recovery fund. violated EU treaties.
The appeal was ultimately dismissed by German judges, who ruled that the price of the Next Generation EU derailment was too high to pay given the gravity of the current crisis.
The countries of the South, as well as the European Commission, are increasingly impatient with the slowness of the ratification process. Portugal, which currently holds the rotating EU Council presidency, urged colleagues to speed things up and end the economic damage.
After US President Joe Biden passed a colossal $ 1.9 trillion (€ 1.56 trillion) relief bill in March, all eyes turned to the EU, whose recovery fund has was conceived months before Biden’s but was still pending. French President Emmanuel Macron even hinted that a second package might be needed to prevent the bloc from lagging behind its Atlantic counterpart.
The main element of the EU fund is the Recovery and Resilience Mechanism (FRR) of € 672.5 billion, of which € 312.5 billion will be disbursed in the form of grants and € 360 billion in form of loans. Many countries have chosen not to apply for loans which, unlike grants, must be repaid at the national level. This means that the total EU stimulus fund will not reach the initial amount of 750 billion euros.