At the EU summit in July, European leaders reached what many referred to as a landmark agreement on a recovery fund to help the European economy rebuild after the coronavirus crisis. What is it that makes this agreement so remarkable?
I believe that this EU summit will go down in history for several reasons. Not only because the July summit was the most lengthy in the history of the European Union, but also because the package agreed on is historic in terms of its content. We are all working together in solidarity to stave off the consequences of a pan-European crisis and dedicating unprecedented financial resources to ensuring a quick recovery for Europe.
We have also entered new territory as regards financing the recovery package: the European Commission has been authorised to borrow funds on the capital market for the first time ever and for a limited period. This is also a groundbreaking development.
What will the planned recovery fund look like specifically?
Our intention with what is known as the Recovery and Resilience Facility (RRF) is to improve social and economic cohesion within the EU once the coronavirus crisis has abated. EU member states will be provided with grants and loans to help them improve the resilience of their national economies and implement the measures needed to modernise the economy, especially in the areas of green energy and the digital transformation.
In return, the member states must agree to certain stipulations, including the implementation of needed reforms. The instrument is therefore embedded in the European semester of fiscal and economic policy coordination. The objective is to make funds available quickly in order to directly promote recovery after the crisis. That’s why member states can also use the funds to cover past expenditures incurred to stabilise their economies from February of 2020 onwards. To receive funds, member states must submit national recovery and resilience plans in which they detail the measures planned for the next three years. The national plans are reviewed by the European Commission and approved by the Council. The funds can be disbursed upon completion of certain milestones anchored in the member states’ plans.
Do you expect the European Parliament to approve the plans for a recovery fund, or do you anticipate lengthy negotiations?
First of all, it’s worth noting that the heads of state and government responded to the consequences of the pandemic with great strength and solidarity. The now pending negotiations with the European Parliament are a central task during Germany’s Presidency of the Council of the EU. We are very invested in working together to ensure that the plans are approved quickly so that the relief measures can start taking effect straight away.
As we are all aware, the European Parliament has formulated its own ideas and demands. These range from having a say in the allocation criteria and in the approval of recovery and resilience plans to a stronger focus on digital technologies and the environment to a range of new own resources, to be used primarily to repay funds borrowed for the recovery instrument.
Thus the negotiations with the European Parliament will almost certainly include issues requiring in-depth discussion. It will surely not be easy, but I believe that all parties are cognisant of their responsibility to reach a good outcome quickly in the interests of all EU citizens.
The recovery fund originated from a German-French initiative. What role will Germany have in implementing the fund during its Council Presidency?
Now that agreement has been reached at the summit on the core policy elements, it’s time to finalise negotiations on the specific legislative acts. The negotiations will be conducted under Germany’s Council Presidency. Our goal is for the new instruments to enter into force at the start of 2021 to enable rapid, effective relief from the impact of the crisis. The negotiations are therefore on a very tight schedule. All participants in the Council of the EU, the European Parliament and the European Commission will have to be willing to compromise in order to reach rapid agreement. We will do our very best to make sure that the negotiations proceed quickly and constructively.
European finance ministers are faced with the crucial task of implementing the recovery fund. What will be especially important here?
EU member states agree that the most important thing right now is to use the funds provided by this historic instrument as effectively as possible. The fund presents a once-in-a-lifetime opportunity to strengthen the future viability of the EU and its member states and prevent a widening of divergences between member states. Initial responsibility lies with the individual member states, which are called upon to present ambitious investment and reform programmes for their national economies. The European Commission is then responsible for reviewing the national plans. The plans must subsequently be approved by the finance ministers in the ECOFIN Council, based on the Commission’s assessment. In this context, it is important to ensure that the national plans are capable of making a lasting structural impact, are in line with the objectives of the European semester, and support green and digital transitions.
The recovery fund is directly related to the multiannual financial framework (MFF) for 2021 to 2027, which sets out the EU budget for the next seven years. What policy priorities does it contain?
The multiannual financial framework for 2021 to 2027 represents a compromise and shows how the EU has begun to shift its budgetary focus.
If we look at how resources are distributed among the separate policy areas, we can see that the portion allocated to the more traditional areas such as agriculture and cohesion policy has declined by more than 4 percentage points (to 68.3%) compared with the 2014–2020 MFF in favour of more modern policy areas such as digitalisation. This can be seen as a success, especially considering that there has also been a clear internal shift within the traditional policy areas towards implementing the objectives of the European Green Deal. One example is the EU’s Just Transition Fund, which was established to mitigate the social impacts of the structural changes brought by the energy transition.
If we take a closer look at the more modern policy areas, significantly more resources have been allocated to research and digitalisation – which is a good thing. If we then proceed to consider the policies designed to strengthen Europe’s role in the world, one aspect worthy of note – apart from the increase in the category of Migration and Border Management – is the establishment of a European Defence Fund under the new expenditure category of Security and Defence.
However, it’s also correct that the transformation to a more modern expenditure policy for the EU, as targeted by Commission’s first proposal from 2018, has not quite been accomplished. One reason for this is that the modernisation that has been achieved is almost exclusively a result of spending increases rather than real priority-setting. It will be an ongoing task to keep heading in the direction of modernisation and prioritising areas offering European added value.
I nevertheless believe that the present compromise represents a good and appropriate response on the part of the EU to the challenges to be faced over the next seven years and beyond, especially in the areas of climate action, digitalisation and security.
How can the new multiannual financial framework and the recovery fund kick-start the European economy?
The recovery fund has two primary objectives. First, we want to make it possible for crisis management measures to be enacted quickly to avoid lasting negative impacts on society and the economy. The idea is to prevent weaker EU member states that have been particularly hard hit by the crisis from entering a prolonged period of low growth because they lack the tools to manage the crisis. One helpful factor is that member states are able to utilise fund resources to finance any stimulus programmes adopted since February that meet the recovery fund specifications. In addition, we want to ensure that the funds are used to set the right economic policy objectives. For that reason, the funds can also be used to address structural challenges in the member states, which we identify each year as part of the European semester. Transitioning to a sustainable, net zero economy is another area of focus. All member states are faced with considerable challenges in this regard. If we succeed in setting the right tone, I am optimistic that this will have an enduring and positive impact on the economic performance and the resilience of our national economies.
Europe’s response to the coronavirus crisis appears to be characterised by a completely new level of solidarity. Is this indeed the case?
Yes, absolutely! Europe has again proven that despite the wide variety of perspectives and opinions existing among us, we have the capacity to act together in response to challenges and crises. For instance – as we’ve already discussed – the EU is now able to raise funds on the capital markets for a limited period to finance grants. This is something that would have been absolutely unthinkable just a few years ago. Numerous media reports from different countries likewise tell us that Europe is perceived as having reached a new level of solidarity based on its response to the crisis.
Looking more closely at the recovery instrument, we can view the considerably higher proportion of grants compared with loans as a sign that heads of state and government have realised that this is the only way we will be able to help member states with little budgetary headroom to overcome the crisis quickly so they can rapidly return to not only healthy but – in what I regard as the purpose of the assistance – sustainable growth. Thus the grants awarded will benefit the entire EU in the long term.
However, what is much more important to me in this context is the fact that the package revolves around upholding the European idea. We are facing the consequences of the crisis together, and we will bear the financial burden arising from managing the crisis together over the next decades. Those who have been lucky enough to emerge from the pandemic relatively unscathed are supporting those who, through no fault of their own, have been especially impacted by the coronavirus crisis. The support is fast, targeted, and at a level that is attracting worldwide attention. This sort of crisis response demonstrates a level of trust in the European project on the part of the member states that has never before existed in this form. This is most certainly an encouraging development.
Will the new European solidarity lead to a deepening and further development of the EU?
Yes. I am firmly convinced that Europe will only be able to assert itself on the global stage if we continue to grow together. This will involve bringing fresh vigour to tackling long-standing problem areas such as how to deepen economic and monetary union as well as issues relating to banking union and capital markets union. It requires a foundation of mutual trust, which we have created by virtue of our mutually supportive response to the crisis. We have not let ourselves be driven apart but have dared to take a courageous step forward. Without having departed from our basic principles, we have enabled resources to be made available to those EU member states that have been particularly hard-hit – out of a sense of solidarity, but also in our own self-interest. That is unique accomplishment, anywhere in the world.