The ‘Next Generation EU’ recovery fund has been making headlines since its conception – the end of May 2020 – and has even been named the European ‘Marshall Plan’ by some. However, it was not until last week that the 27 EU Member States ratified the Own Resources Decision. Its ratification is essential for the European Commission to be able to issue debt and, thus, start disbursing aid linked to the Recovery and Resilience Facility (RRF).
The Own Resources Decision allows the European Commission to borrow up to €750 billion on the capital markets on behalf of the European Union (EU). It also increases the maximum amount that the EU can borrow from the Member States to cover its financial obligations. This decision is the pillar of the EU’s long-term budget and also introduces new taxes. It introduces new revenue categories for the 2021-2027 period based on a levy on non-recycled plastic. The new categories were implemented in order to work in line with the European Plastics Strategy, the Carbon Border Adjustment Mechanism (CBAM), and revenues from a revised Emissions Trading Scheme (ETS). These resources make up the three traditional sources of revenue for the EU budget, i.e. customs duties, VAT, and direct contributions from the Member States based on their Gross National Income.
The road to ratifying the new Own Resources Decision has not been smooth. In Poland, the opposition considered that the new European instrument represents a violation against fundamental rights of Polish citizens. In this sense, the Next Generation EU not only incorporates new own resources to finance post-COVID-19 recovery, but also an additional key element: conditionality. It is the first time in EU history that the allocation of funds is linked to the proper functioning of the law, a fact that was contested by Hungary and Poland, who already threatened to veto the budget in December 2020. Moreover, they turned to the European Court of Justice in March 2021 for a ruling on the alleged “unconstitutionality” of such a condition, a verdict that has not yet been made public. Austria and Poland were the last countries to validate the Own Resources Decision in their national parliaments, finalizing the ratification of the EU-27. This was a milestone celebrated by the EU Austrian budget Commissioner, Johannes Hahn, who optimistically stated that the EU will soon start borrowing money on the capital markets.
Although the green light from the EU-27 is a fundamental step to receiving the funds, the true determining factor of disbursement will be the approval by the Commission and the European Council of the National Recovery and Resilience Plans submitted by the Member States. The novelty of this financial instrument, together with its conditionality to the rule of law, is that it is directly linked to the implementation of national reforms. Moreover, it is connected with the ‘twin’ green and digital transition, to which at least 37% and 20% of funds must be dedicated, in addition to establishing specific “milestones” to achieve these objectives. Likewise, Member States must incorporate the main priorities of the mandate of the current President of the European Commission, Ursula Von der Leyen, into their plans. This includes a commitment to clean and renewable technologies, the renovation of public buildings, charging and refueling, broadband services, the modernization and digitization of public administrations, as well as everything related to data capacity and the modernization of education systems.
Most EU countries have already submitted their recovery plans to the European Commission, but there are four who still have not done so: Malta, Estonia, Bulgaria, and the Netherlands, which has already announced that it will not submit its plan until after the summer. The first countries to present their plans, led by Portugal, are putting pressure on the European Commission to quickly approve them. They argue that the European executive does not need the two-month period it is allotted to evaluate the projects. Spain, Greece, and France are also in advanced negotiations with the Commission, hoping to see their plans approved by the end of June. Thus, once the plan is approved by the European executive, the money can start flowing, as a pre-financing of 13% has been proposed. The Commission insists that it will take the time needed to complete a thorough assessment. Paolo Gentiloni, Italian economy Commissioner stated, “We are on schedule to adopt the Council’s proposed implementing decisions in the second part of June.” Despite this fact, it is possible that the topic is not addressed until the meeting of the European Economic and Financial Affairs Council (ECOFIN) on 13 July. The Council will then have four weeks to validate them, possibly by the end of July, leading to the disbursement of the first funds.
Inés Domènech Canadell
Public Affairs Consultant at Atrevia Brussels
