covid-19 aid package, next generation EU

Experts say the post-pandemic rebuild needs to be sustainable: Next Generation EU is a COVID-19 aid package that promises to be green

There is an intense need for extra funding from the European Commission as countries begin to rebuild their economies, but will that take the shape of loans, grants, or something else entirely? Globally, experts and commentators have been calling for this rebuild to look drastically different from the former infrastructure in order to invest in a sustainable future. This encompasses von Der Lyyen’s cornerstone ideas: like creating digital transformation and stable handling of climate change.

European Commission President Ursula von der Leyen commented:

“The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalization will boost jobs and growth, the resilience of our societies and the health of our environment. This is Europe’s moment. Our willingness to act must live up to the challenges we are all facing. With Next Generation EU we are providing an ambitious answer.”

David Herszenhorn and Lili Bayer, writing for Politico, suggested:

“By proposing a €750 billion recovery fund, using borrowed money to be repaid over 30 years, the European Commission president is wagering that national capitals will put aside any misgivings, and not only agree to the novel financing mechanism to get EU economies back on their feet, but also cut a fast deal on a €1.1 trillion, seven-year budget that will secure resources for her priorities, including fighting climate change and promoting digital transformation.”

What is the likelihood of all countries, including the ‘frugal four’ (The Netherlands, Austria, Denmark and Sweden) supporting the use of borrowed money? The ‘frugal’ proposal is a one-time loan on favourable terms for the countries who were worst hit by the pandemic, a long distance away from the proposals contained in Next Generation EU.

Currently, it will be difficult to push through the von Der Leyen proposal to push through in exacrlt the same shape it entered the world in.

What is the European Green Deal EU recovery strategy?

1. A massive renovation wave of buildings and infrastructure and a more circular economy, bringing local jobs;
2. Rolling out renewable energy projects, especially wind, solar and kick-starting a clean hydrogen economy in Europe;
3. Cleaner transport and logistics, including the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility in our cities and regions;
4. Strengthening the Just Transition Fund to support re-skilling, helping businesses create new economic opportunities.

How would the money be created for the COVID-19 aid package?

Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow €750 billion on the financial markets.

This additional funding would be channelled through EU programmes and repaid over a long period of time throughout future EU budgets – not before 2028 and not after 2058. To help do this, the Commission proposes a number of new own resources. In addition, in order to make funds available as soon as possible to respond to the most pressing needs, the Commission proposes to amend the current multiannual financial framework 2014-2020 to make an additional €11.5 billion in funding available already in 2020.

Essentially, the European Commission would be creating a new ‘own sources’ capital that they believe could pay for itself in the long-term and that would not add to the national debt load of the hardest-hit countries, unlike the way that a loan would add to that daunting figure.

Countries are expected to fiercely contest the little and large of this proposal, which will be further consolidated in a face-to-face summit planned optimistically for June.

von Der Leyen, speaking at the announcement, clarified the one-off nature of the COVID-19 aid package:

“This is a completely new concept and a new step forward. The crisis is so huge, we have to take unusual steps.”


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