Friday, 16 April 2021

EU'a recovery fund may be too little, too late

 Euronews briefing earlier this week reported that the €750 billion recovery fund that EU leaders agreed last July is still on stand-by

Despite the new rise in infections, the re-imposition of restrictions and the closing down (again) of businesses, the much-awaited package, also known as Next Generation EU, is paralysed. In fact, the cash doesn’t even exist. At least, not yet.

The European Commission is still waiting for the ratification of the Own Resources Decision, the legal instrument that would allow the executive to borrow the money on the financial markets and then distribute it in the form of grants and loans. As of today, only 17 out of 27 member states have ratified the bill, with approval from every country needed for the process to continue.

As we told you last month, the German Constitutional Court delayed the country’s signature and is now examining an emergency appeal that argues the Own Resources Decision breaches EU law. It’s still not clear when and how the Court will respond, but the decision has already cast an ominous shadow over the whole process.

"It was German Chancellor Merkel, together with President Macron, who very much pushed exactly for this financial facility (that) we have created on the basis of Article 122 in the Lisbon Treaty," Johannes Hahn, the EU Budget Commissioner told Euronews this week.

"It's important that they (the German court) lift their reservation. And I'm also confident that this will be done in due time so that we are indeed not losing any time."

The Commission is also waiting for the recovery and resilience plans that each EU country has to submit before April 30. These plans must lay out the reforms and public investment projects that will be financed by the billions of euros from Next Generation EU, and they have to be approved by both the Commission and the Council.

But these programmes are also proving to be controversial and divisive. In Poland, the ruling coalition is split on how the money should be spent and repaid. Even the pro-European opposition parties are threatening to vote down the plan because they fear the current right-wing government will not use the cash in a fair and transparent manner.

Brussels is feeling the pressure. Southern countries are increasingly impatient and investors are becoming concerned over the lack of action. To make matters more awkward, the US Congress managed to pass a colossal $1.9 trillion relief bill in a matter of weeks, a fact that only served to underline the EU’s tardiness. The International Monetary Fund has welcomed the Biden-led initiative with open arms: the forecast for the US economy has been upgraded to an impressive 6% in 2021.

The Commission hopes that the recent developments will turn out to be just temporary hiccups and the eagerly anticipated cash will arrive in summer. The team of President von der Leyen deliberately designed Next Generation EU to advance the twin goals of making the bloc more sustainable and digital. Around 30% of the bonds (equal to €250 billion) will be green bonds, making the EU the largest issuer of this kind of debt security.

"At the end of the day, we will only be successful if each and every member state is contributing to this reform agenda because it's about the recovery of the single market and the single market is only as successful as every part of the single market is," Hahn told us.

The clock is ticking and the pandemic rages on. And the recovery fund still has a long path ahead.

The EU is a great and necessary institution, which the UK was ill-advised to leave, but it does not respond well to emergencies. Such things as response to epidemics are best left to individual nations. In the long run, the measures taken by China and the US will lift the global economy, including European nations and the proposed recovery fund, if it is ever ratified, will prove to be irrelevant for all but the very weakest economies in the EU.

No comments: