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THE ECONOMIC RECOVERY PLAN TO BUILD A POST-COVID-19 EUROPE

"We have reached an agreement on the recovery plan and the European budget [...] This agreement sends a concrete signal that the EU is a driving force. "These were the words of Charles Michel, President of the European Council, following the summit of July 17-21st of 2020, during which the leaders of the European Union negotiated the amount of the budget for the period 2021-2027.

 This budget represents a total of €1.8 trillion to help member states address the economic consequences caused by the pandemic through a greener, more digital and more resilient Europe. To support this, NextGenerationEU, as a temporary instrument, was created to stimulate recovery to address the unprecedented nature of the situation.

Foremost, NextGenerationEU introduces a new funding model for the EU. Its long-term budget will retain the standard structure of customs duties on imports from third countries, on levy on part of the VAT, and contributions based on gross national income.

The novelty lies in the origin of the loans allocated to member states. They will be made possible by "borrowing resources", which means that the European Union will borrow on the capital market.  Secondly, the recovery plan intends to set up new resources focused on ecological priorities. For example, a levy on non-recycled plastics or a tax on the activities of large companies are examples of contributions that could be used to pay for the recovery plan.

Member States had never before agreed to take on such a large amount of debt in the name of common solidarity[1].  Despite this, this commitment speaks volumes about the willingness of the states to preserve the European project. 750 billion annual budgets for 2021 was adopted by the European Parliament and the Council on March 17th, 2021.

So far, 16 member states have ratified the fund for the current year. However, on March 26th, 2021, the ratification process was suspended in Germany. The German Constitutional Court issued an interim injunction suspending the ratification process. The reason is that Germany has always been reluctant to share the burden of debt with other states.

In fact, this interruption risks to further slow down the implementation of these 750 billion funds, at a time when the pandemic is still affecting Europe and with severe impacts on entire sectors of the economy.


[1] Article 122 of the TFEU