The European Council extraordinary meeting on the Recovery Package: a new convergence in the European governance process

After many weeks of debates about coordinated measures to face the consequences of the Covid-19 pandemic, the European Union succeeded in finding a final compromise on a common response to the emergency. The extraordinary meeting of the European Council, opened the last 17thJuly and finally ended on 21th July, incorporated the introduction of the recovery plan Next Generation EU within the European Multiannual Financial Framework 2021-2027 (“MFF”), the long-term budget of the Union.  It represents a pivotal moment for the history of the European Union as such: as the President of the European Council Charles Michel said in his closing remarks, this deal does not only express a balanced solution that takes into account the interests and the positions of all the Member States, but it represents “the first time that [we] are jointly re-enforcing our economies against a crisis”.

The discussions about a strategy to react to European countries’ socio-economic downturn started on 23th May, when the European Council recognised the necessity of creating a recovery fund and charged the Commission to urgently introduce an initiative that could be adequate and corresponds to the needs of each Member State. On the following 27thMay, the Commission presented its proposal on an “emergency package”, to be discussed by the Council of Ministers: it included the establishment of the temporary instrument Next Generation EU, finalised at boosting the financial power of the EU budget through funds raised on the capital market, and the reinforcement of the Multiannual Financial Framework for the period 2021-2027. As it has been recognised by Charles Michel in a further letter to the European leaders, the first evaluation by the Council showed the possibility to find a common road, but at the same time it highlighted a urgent need to converge over burning themes of the proposal: an example is the issue of conditionality and governance of these funds, which has been a dividing line between “frugal” States and the South-Eastern ones.

For this reason, on 19thJune the President of the European Council declared the opening of the negotiations and bilateral discussions with the leaders of the 27 countries with the purpose of drafting new and concrete alternatives. Recognising that “it is essential to take a decision as soon as possible” during this crisis, Michel presented himself a new proposal on 10thJuly, to be successively discussed by the European Council.

The President’s proposal collected the different interests of the European countries and laid the basis for the construction of the current agreement. It was inspired by the three basilar concepts of convergence, resilience and conversion, which would have fostered not only the EU recovery from the sanitary emergency, but also the reconstruction of European economy merged with the priorities of the Union, such as the digital agenda, environment and the maintenance and strengthening of the values of democracy and rule of law. The elements touched by the scheme shown by Michel were six: the entity of MFF and of the Recovery plan, the maintenance of rebates for certain designed States, the balanced application of both grants and loans, the allocation of the Recovery and Resilience Facility and an ordered mechanism for conditionality and governance.

These guidelines were the object of the fateful five-day meeting in Brussels. As the President wrote in his report, they have been widely welcomed and substantially taken as a basis for the agreement by the European leaders, notwithstanding the intensive negotiations and the divisions among different clusters of countries.

From the conclusions drawn by Michel at the end of the meeting, the final deal provides a package of 1824,3 billion euros that combines the MFF with another “financial effort” aiming at the post-pandemic reprise, namely the Next Generation EUproposed by the Commission.

The MFF, according to the Article 312 TFUE, is an instrument within which the annual budget of the European Union is determined. It is set in order to check the Union’s expenditure trend, within the limits of its own resources. The period of the program, that should be a minimum of five years, has been extended to cover seven years. The agreement provides the MFF size equivalent to 1074,3 billion euros that must be engaged in the expenditure sectors that reflect the priorities of the Union, such as the functioning of the common market, innovation, natural resources, cohesion, security and defence. Thus, it will be the main instrument for the implementation of the recovery package in response to the socio-economic consequences of the COVID-19 pandemic, reinforced by the Next Generation EU.

This recovery plan is an exceptional instrument, that will take a huge but temporary effort in order to guarantee a safe buffer to the economic crisis for the Member States. It is based on the role of the Commission, which has been conferred the power to borrow up the amount of 750 billion euros on the capital markets, that will have to be given back within 2058. Specifically, the financial supply that will be obtained by the Commission could be used both for delivering loans, up to 360 billion euros, and for grants, up to 390 billion euros. These loans will be allocated to seven expenditure programs:  Recovery and Resilience Facility will take the greatest part (672.5 billion euros), while the rest will be given to ReactEU, Horizon Europe, InvestEU, Rural Development, Just Transition Fund and RescEU. Since it is an instrument focused to face the emergency, the powers of the Commission are limited in the scope and time.

This fund ensures that money will be used according to the sectors that have been most affected by the crisis: for example, in the case of the Recovery and Resilience Facility, 70% of money will be committed in 2021 and 2022 and 30% will be committed in 2023. The distribution of financial endowments among the Members, for the two-year period 2021-2022, will be executed according to the criteria established by the Commission, taking into account the living standards, employment levels and dimensions of each State.

Clearly, the supply allocated to each Member State will not be given for granted, but it will be based on the principles of good governance and conditionality. This means that, for the initial three-year timeframe, each Member State should determine its own national recovery plan, which must be coherent with the country-specific recommendations, with the creation of new jobs and the objective of a transition to a more digital and green society. In order to check their alignment to the European Union’s values and goals, in 2022 each plan will be resubmitted and reanalysed by the Commission and approved through qualified majority by the Council, in the light of the supply of money for 2023. Furthermore, supply of financial resources will be provided only if the national contributions respect the intermediate and final targets, agreed with the Union. Obviously, there is a constant monitoring in the activity of the States over the money: exceptionally, if one or more States notice that there is a mismatch with the established measures, they can ask the Council to send the question to the European Council.

Moreover, the “Union that strives for more”, as the President of the Commission Ursula Von der Leyen defined it in her settlement speech, must guarantee continuity in pursuing its goals consistently with the recovery program. As Charles Michel underlined in his conclusions over the extraordinary session of the European Council, it is necessary to keep our commitment alive and constant over the struggle to the climate change, in the light of the objectives of the Paris Agreement and Horizon 2030. This means that the grants and the future expenditure under the MFF and Next Generation EUshould be consistent with the environmental policies of the EU and it should not hinder the promises of the recent EU Green Deal: indeed, the agreement provides that 30% of the expenditure of the two parts of the package will be destined to projects strictly connected with climate.

The same continuity must be ensured as for the constant observance of the values on which the Union is founded: its financial interests will be safeguarded in respect to the general principles enshrined in the European Union Treaties, which are mainly provided by Article 2 of the Treaty of the European Union. According to what Charles Michel wrote in his conclusions, a system of conditionality over this will be introduced to protect the budget and the Next Generation EU. Particularly, a primary importance is given to the respect of the rule of law from the Member States: whenever there are violations, the procedure will involve the role of the European Commission, which will propose measures that should be adopted by the Council of Ministers through qualified majority.

The deal recalls also the own resources of the EU. According to the Council decision 2014/335/CE, these are normally constituted by traditional resources (customs duties, sugar tax), by a uniform rate to VAT base and a uniform tax applied to GNI base of each Member State. The new package implements these resources with additional amounts to pay back funds and loans raised under the Next Generation EU. Indeed, besides the possibility of a financial transaction tax, the proposal foresees the introduction of a new levy on plastic waste in 2021. In the same year, the Commission is expected to present a proposal for a carbon adjustment measure and a digital levy, both to be introduced by 1stJanuary 2023 at the latest. The Commission would then present a revised proposal on the EU Emissions Trading System (ETS), possibly extending it to the aviation and maritime transport sectors.

Especially for the periphery of the Union, these measures are an advantage for those States that are suffering the most the effects of the pandemic. Anyway, there have been countries that are still claiming their positions, in favour of more loans and less grants. For this reason, the agreement provides a security clause for them: for the period 2021-2027, great lump-sum corrections will reduce the annual GNI-based contribution of Denmark, the Netherlands, Austria, Sweden and, in the context of support for the recovery and resilience, of Germany too.

Overall, this “rescue” plan proposed by Charles Michel has been accepted as a compromise among EU Members, notwithstanding the different views over the management of the crisis in each country. Although it could be regarded as the latest solution provided through intergovernmental ways and the prominent action of the European Council, the five-days meeting and the consequent agreement open a new step in the European integration process.In a climate of discouragement and disillusionment towards the European Union work, its actors succeeded in enhancing the role of the Commission and creating a convergence of various interests and necessities of 27 States towards a common response, meanwhile depicting a reconciliation of different perspectives on what the Union represents and on the enhancement of  the Commission’s role. As Michel stated in his post-meeting speech on 23rdJuly, this agreement does not concerns just financial issues, but “[i]t is much more than that, because it has launched a debate that puts the meaning and direction we want to give the European project in the years to come firmly at the top of the agenda”.