The “Next Generation EU” plan will share €750bn stimulus among member states
— 3 minute read — By Sam Portillo
This July, the longest diplomatic summit in the E.U.’s three-decade history culminated in possibly its most ambitious collaboration to date. For the first time, member states have permitted the organisation to borrow money from financial markets – some €750bn – giving countries much-needed funds as they attempt to bounce back from recession.
The E.U. will then make this funding available to member states as a mixture of loans and grants. Italy and Spain will receive the most generous grants – close to €80bn each, more than twice as much as France in third place. Like a perverted version of David and Goliath, a miniature – indeed, microscopic – foe has brought their big and heavy economies crashing to the ground. In the second quarter of 2020 (April to June), Italy and Spain recorded miserable 12 and 17 percent falls in GDP respectively, making them major casualties of the crisis in both a public health and economic sense.
Around €360bn of the funding will be made available to member states in the form of repayable loans. Again, Italy and Spain lead the way, opting to borrow a further €90bn and €63bn respectively on top of their sizeable grants.
Their economies were faltering before the crisis. Italy has the fifth-oldest population in the world; retirees are leaving the workforce at a quicker rate than young Italians are joining it. An older population is not just expensive, with regards to the economy, but also more vulnerable to diseases and ailments – not least COVID-19. The Spanish government, even before telling businesses to close and ordering the public to quedarse a la casa, faced systemic problems with poverty and unemployment. As of January, 1 in 7 Spanish workers were without a job. Even while the government awaits official figures, common sense suggests the numbers are now even bleaker. Further exacerbating the problem is the countries’ unique reliance on the tourism sector, at a time when trips to the Costa del Sol or Rome have never looked less inviting.
The “Next Generation EU” package is entirely focused on the COVID recovery, with each country’s funding being directly linked to the economic damage it has faced during the pandemic. It comes into action, however, alongside the next seven-year budget, which sets out a further €1,074bn for a wide range of purposes.
Collectively, the representatives for Austria, Denmark, the Netherlands and Sweden have gained the nickname of “the frugal four”, owing to their reluctance to borrow so greatly from the financial markets. Von der Leyen, Merkel and Macron – the three most influential figures in the Euro-sphere – pushed for a larger stimulus which would have provided €500bn in grants. The frugal four, however, argued that such levels of borrowing would necessitate long-term budget cuts and tax rises, forcing the others to compromise at €360bn after a gruelling five days of negotiations.
President of the European Commission Ursula Von der Leyen has suggested countries introduce carbon or non-recyclable plastic taxes to help repay the loans while at the same time providing an incentive for businesses to cut emissions. She also advocates reforming the way that digital corporations, including the likes of Amazon and Facebook, pay taxes, a move which would also see governments generate extra cash.
They must finish repaying by 2058, giving them a healthy thirty-eight years to recover from the recession, and bounce back – or as Von der Leyen hopes- “bounce forwards”.