EU agrees on Corona aid and financial framework

After days and nights of discussions, EU leaders reached agreement in Brussels on the controversial issues of the Corona Rescue Fund, the EU budget and the rule of law. The Corona rescue package proposed by the EU Commission is expected to comprise a volume of 750 billion euros. Of this amount, 390 billion euros - not 500 billion euros as initially planned - are to be paid out as grants. Another 360 billion euros of the fund are to be granted as loans. Up to now, the EU budget has comprised around one percent of the European gross domestic product (GDP).

The summit now agreed that it will be increased to two percent of GDP for the three years from 2021 to 2023 - for which the Corona rescue fund is planned. However, the additional funds will not have to be paid into the EU budget by the member states, as is currently the case, but will be financed by loans of unprecedented amounts.

On the question of the Member States' right to have a say in the allocation of funds from the Corona aid package, the heads of state and government agreed that any EU state can appeal to the European Council if it considers that the allocation of funds does not comply with the rules. A qualified majority in the Council would then have to share the concerns. The same is the case for EU money from the budget, which requires a qualified majority of the European Council to decide on the allocation of funds in the event of a dispute (e.g. on questions of the rule of law).

Bert Van Roosebeke, Head of Department at the Centre for European Politics Freiburg, explains the outcome of the summit:

"With the Recovery Fund, the EU is starting an experiment with an open outcome. The main positive aspect is that the burden on the European Central Bank will be reduced. In the absence of political agreement on common fiscal measures, the ECB was forced to disperse doubts on the debt sustainability of several euro states by running ever larger purchasing programs.

The decisive factor for the outcome of the experiment will be that the eurozone states in particular are increasing their economic growth through structural reforms. So far these reforms have been insufficient, partly because the ECB's low interest rates have reduced the pressure to do so. The fact that €390 billion in subsidies are now needed to convince states of the necessity of these reforms is and remains astonishing; they should have a vested interest in them.

The conditionality of the grants and loans has been subject to an intense discussion. It remains to be seen whether the national reform plans and the monitoring of compliance with them will increase the competitiveness of southern European euro states. The fact is that the leverage of those states that push for reforms is limited. Even with Germany's help, the frugal five cannot stop payments. So it depends on the political will to reform whether the Reconstruction Fund will lead to a strengthening of Europe or whether, in the end, there is the threat of a permanent redistribution on a large scale.

For Stefano Milia, director of cepItalia, the compromise reached in Brussels represents "a new chapter in the joint exercise of financial responsibility at European level. Although the outcome is likely to strengthen the current Italian government in the short term, it should recognise that its problem is essentially not to obtain financial resources, but to invest them in the most effective way. I can only hope that the priorities set by the European Commission for the use of the new funds will contribute significantly to finding a way for comprehensive reform and investment.”

In the view of Julien Thorel, director of cepFrance, the compromise reached at the summit is "a difficult birth in an emergency situation, but nevertheless a success! The Member States in need were given a "right" to assistance. But now they must also fulfil their "duties"! The agreed conditionality calls on them to use the funds responsibly and to undertake economic and environmental policy reforms. If this principle can be applied within the framework of the Recovery Plan, it should also be effectively extended to other policy areas in the future in favour of greater intergovernmental convergence.”