#EUinTwo

This week, the European council agreed on the details of the next EU budget and the new #NextGenerationEU recovery fund, which aims to reduce the impact of #Covid19 on the EU. In our latest #EUinTwo episode, Anna Davreux gives an overview of what was agreed and what to expect next.

Script:
On the 21st of July a deal was reached by the European heads of State and Government on the “Multiannual Financial Framework” long-term budget & the Next Generation EU recovery fund, which aims to reduce the economic and social impact of the COVID-19 pandemic in the EU.

In total, this unique package amounts to 1.824 trillion euros, with 1.074 trillion for the EU budget for the period from 2021 to 2027 and 750 billion to reboot the economy through to 2023. The deal took four days of intense negotiations to finalise, with the amount and balance between grants and loans being a particularly contentious issue. The agreed recovery package comprises 390 billion euros in grants and 360 billion euros in loans to EU Member States.

This is a less generous ratio than the initial plan put forward by the Commission, inspired by the joint initiative of President Macron and Chancellor Merkel. But this reduction was necessary to convince The Netherlands, Austria, Sweden and Denmark, along with Finland, to agree to the deal. Other concessions to appease “the frugal four” include an “emergency break” system to guarantee that necessary criteria and reforms are met before transferring funds to Member States and maintaining the rebates on their contributions to the EU budget. To appease Hungary and Poland, budget conditionality on rule of law was also significantly limited.

The deal will also push Member States to consider ways for the EU to finance the common debt, something unthinkable not long ago. Possibilities include a Carbon Border Adjustment Mechanism, a digital tax, the extension of the EU’s Emission Trading System to the maritime and aviation sectors and an Financial Transaction Tax.

All eyes are now on the European Parliament to finalise discussions. The Council deal was met with mixed reactions across the political spectrum, in part due to cuts to programmes such as InvestEU, EU4Health and the Just Transition Fund. Only after final approval will the consequences for all sectors and policies be clear - be it climate, tech, energy, transport, healthcare or financial services.

What is certain is that the agreed EU budget and the new Next Generation EU fund will be central in the definition and implementation of the EU’s priorities for the years to come. At FleishmanHillard, our teams of sectorial experts stand ready to help you navigate these developments and understand what they mean for your industry.

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