Will the billions start flowing by the summer? POLITICO tells you what needs to happen, and what might still go wrong.
Like the proverbial pot of gold at the end of the rainbow, the EU’s recovery fund is proving to be a moving target.
All the pieces are slowly falling into place, and EU capitals are anticipating first payments to start flowing before the end of summer — roughly one year after EU leaders agreed on issuing €750 billion in joint debt to reboot their pandemic-ravaged economies.
But the road is fraught with potholes and opportunities for delays.
“It would be terrible for confidence if the Commission and the Council were to now get into a fight over substance that then resulted in a delay, and raised the question among market participants as to whether money would even be made available by July or even September,” said Mujtaba Rahman, Europe director at political risk consultancy firm Eurasia Group.
Beyond the urgency to get money flowing, and despite the fund being construed as a one-off tool, the success of the recovery fund will have huge ripple effects for future talks of fiscal integration.
Whether it will succeed in rebooting the bloc’s economies in a way that ensures sustained and sustainable growth in the long term will weigh heavily on any discussion on deepening the union. Its failure would have disastrous consequences for the EU’s image and its leadership, market confidence, and possibly for the European project itself.
Given all that is at stake, the pressure is on. POLITICO drives you through what still needs to happen, and the potential fights ahead:
1. Ratification of the Own Resources Decision
All 27 EU countries need to ratify legislation — called the “Own Resources Decision” — allowing the Commission to increase the guarantees it can call on from EU countries for it to be able to issue debt.
A large majority of them have already done so, but 10 EU countries still have to complete the formalities for ratification. In some cases, it’s down to securing a majority in a parliamentary vote, as in Finland and the Dutch Senate; in others, a vote hasn’t yet been scheduled, as in Hungary and Austria.
The process has already survived a few close calls: A complaint to Germany’s constitutional court sought to stop it, but failed; the Polish ruling coalition split on the issue, forcing the Law and Justice party to clinch a deal with the opposition to pass the bill; and the Baltic countries had been using it as a bargaining chip to secure funding of a rail infrastructure project.
While all the ratifications are expected to be finalized by the end of June — to allow joint borrowing to begin the following month — the Commission shouldn’t count its chickens before they hatch, as disbursements can’t happen until then.
“For the first payments to be made, we need all Member States to have approved the Own Resources Decision. I am confident that all will be in place by the summer,” Commission President Ursula von der Leyen said.
2. Sign-offs on spending plans
A majority of EU countries are set to submit their spending plans by an April 30 deadline or soon after. Italy, Spain, France, Germany, Greece and Portugal — six of the fund’s largest beneficiaries — have submitted their plans already or will do so this week. The Commission has two months to give its approval to the plans — something that may entail locking horns with EU capitals over expenditure lines or reform plans it deems unsatisfactory.
“The question is, what’s the ultimate leverage? And how much will the Commission be able to pull this through in case there’s a substantial disagreement?” asked Guntram Wolff, director of think tank Bruegel.
The national plans also need to fulfill a number of conditions, such as targets for green and digital investments; commitment to a sufficient number of structural reforms; and establishment of an independent monitoring body to oversee the expenditures.
“The Commission will also assess whether those control systems provide sufficient assurances to ensure the safeguarding of the financial interests of the Union. If the control systems are not sufficient, the plan cannot be approved,” a Commission spokesperson said Wednesday.
But the Commission ultimately has little interest in holding up the plans. “They won’t recommend not to fund the plans. It’s their baby,” said Damian Boeselager, an MEP with the Greens/EFA group who was involved in the negotiations of the recovery fund.
Rejection of a plan “would be a massive political blow to be dealt by the Commission. And I think there’s lots of caution within the Commission about doing this, unless the example is extremely egregious,” said Rahman at Eurasia Group.
3. Peer scrutiny
Once the Commission approves the plans, it makes a funding proposal to the Council, which a majority of countries must sign off on. This built-in peer scrutiny is likely to be where political tensions will come to a head.
So-called frugal countries — the Netherlands, Austria, Finland and Sweden — who insisted on the possibility to pull an “emergency brake” should they think that EU funds are being misused, will likely be performing a thorough check of the plans submitted by their Southern, Central and Eastern peers. Conversely, close scrutiny of wealthier, Northern countries is going to be less likely.
“There’s a certain asymmetry here,” said Wolff at Bruegel. “I think, realistically, there will be not that much peer pressure on Germany. But conversely, I could see quite a bit of peer pressure on big net recipients.”
At least for the first disbursement — equivalent to 13 percent of each country’s total allocated funds — there isn’t a high chance of plans being struck down before takeoff “unless there is really a flagrant case of complete misuse of funds,” said Wolff.
The scrutiny will, however, continue in the future, as disbursements are tied to the accomplishment of scheduled reforms and investments, with the Commission being able to reduce or altogether halt the funds if a country veers off course.
4. Parliamentary oversight
The European Parliament also has a say in the process — albeit not a binding one. MEPs fought tooth-and-nail to exercise some form of control, but had to settle for an oversight role. The Parliament and the Commission will hold a “structured dialogue” every two months in which MEPs will point to implementation issues and the commission has to take them into account.
Still, Parliament is hell-bent on ensuring that EU money isn’t misused, and has already started organizing its own follow-up process, with a meeting scheduled for May 10 between the economic and budget committees and Commission honchos Valdis Dombrovskis and Paolo Gentiloni.
Their goal will be to make sure countries’ plans, and their implementation, follow the regulation to the letter. “My interest is that this program is successful so we can build on that, so it becomes a best practice,” said MEP Boeselager.
A separate issue, so far intentionally kept low-key, will be how to repay the over €400 billion in grants and interest costs. The Commission’s readying a proposal for three new levies — an extension of the bloc’s carbon-trading scheme, a carbon border adjustment mechanism, and a tax on digital companies’ revenue — meant to raise sufficient funds to repay the debt over the next three decades.
However, each of these proposals is going to need extensive negotiations, and isn’t guaranteed to pass. The alternatives are also highly unpalatable: increased income-based contributions from the EU budget, or cuts to expenditure.
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Source: POLITICO https://www.politico.eu/article/europe-eu-recovery-fund-5-things-to-know/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication