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European Commission presents recovery plan

Ursula von der Leyen

On 27 May the European Commission presented in Parliament a €750 billion economic stimulus plan that along with a revised proposal for the EU’s 2021-2027 budget should help mitigate the shock from the coronavirus pandemic and pave the way for a sustainable future.

Commission President Ursula von der Leyen unveiled the Next Generation EU recovery plan that aims to address the damage caused by the pandemic and invest in a green, digital, social and more resilient EU. Under the proposal, the Commission would borrow the money on the financial markets using its high credit rating, which should secure low borrowing costs. A total of €500 billion would be distributed in grants. Von der Leyen described the grants as “common investments in our future”.

The funds will be used to reach the EU’s objectives of climate neutrality and digital transformation, to offer social and employment support as well as to reinforce the EU’s role as a global player. The Commission’s plan for the recovery fund was introduced during the plenary session together with a revised proposal for the EU’s 2021-2027 budget amounting to €1.1 trillion. The proposals are subject to negotiations between Parliament and the member states in the Council.

A delicate moment

Most MEPs welcomed the Commission’s plans during the plenary debate. Following the debate, David Sassoli, Parliament President, urged member states to understand the seriousness of the situation and work toward an agreement on the measures.

“We must defend the European space,” he said. “We cannot afford speculation or attacks on our strategic assets. This is a delicate moment. That is why we are pleased that the European Commission’s plan takes on board our proposals and has the ambition to support and improve the lives of all Europeans.”

Grim economic forecasts

The latest economic forecast, presented by the Commission in early May, show the economy has taken a hard hit because of the health crisis. As people stay at home and entire sectors have abruptly shut down, the EU economy is facing the prospect of at least a 7.4% contraction this year, which is significantly worse than the fall in 2009.

Even this bleak forecast might underestimate the actual scale of the recession, as any relaunch of economic activity will be gradual and could be easily disrupted by a second wave of the coronavirus.

Everyone is affected: many people fear they might lose their jobs and are unwilling to spend, while businesses are facing disruptions in their supply chains. Governments see tax revenue falling and welfare expenditure increasing, which will bring budget deficits, higher levels of debt and drive up borrowing costs.

Long-term budget

The EU is currently devising its next long-term budget and as the response to the current crisis will define developments over the coming years, MEPs said the recovery measures should be added to the plans for the budget. However, Parliament insisted that the recovery package should come on top of the needs of existing EU programmes and not take funding away from them.

MEPs warned that if their demands for an increased long-term budget were not met, they could use their power to veto it.

Recovery funds should go to those hardest hit by the crisis, said MEPs. They wanted most of the money to be disbursed as grants, as there were concerns that loans could worsen the financial situation of crisis-stricken member states.

The resolution suggested the recovery package should be financed through the issuance of long-term recovery bonds guaranteed by the EU budget. MEPs also pointed out the need for new sources of revenue for the EU budget; otherwise, a larger budget would entail higher direct contributions from member states.

The EU will still need to prioritize climate actions and a digital strategy, said MEPs, adding that a new EU health programme should be created ensuring that medical supplies are available across the EU in times of need.

Parliament also insisted that it should have its say on decisions concerning the recovery fund. In a plenary debate on 13 May, MEPs pointed out that Parliament is the only elected EU institution and should have oversight on budgetary issues as a matter of democratic legitimacy.

Source: The European Commission

Photo: On 27 May 2020, Ursula von der Leyen, President of the European Commission, gave an opening statement on the EU recovery package at the Plenary Session of the European Parliament in Brussels, Belgium. On this occasion, Ursula von der Leyen unveiled her plan to help the EU economy rebound from its coronavirus (COVID-19) slump by combining grants, loans and guarantees exceeding EUR 1 trillion. Photographer: Etienne Ansotte