The EU versus COVID-19: The Recovery Fund

On  July 21st , at the end of a long negotiation between European heads of state (in particular between the southern states and the “frugal” countries), the European Council launched a historic aid package to deal with the economic shock caused by the Coronavirus emergency. The measure approved by the Council marks an historic moment in the European economy, because of its enormous scale: around 1800 billion will be provided in order to stimulate European economic recovery.

Specifically, the total will be divided as follows: 750 billion will be allocated to the Economic Recovery Plan (Recovery Fund or Next Generation EU), while 1074 billion will represent the volume of the European budget 2021-2027 (Multiannual Financial Framework or MFF).

The most important innovation is the Recovery Fund, a common debt instrument of exceptional character, which is designed to integrate the European budget by providing support for investment and reforms to increase the resilience of Member States’ economies and promote sustainable growth. Of the EUR 750 billion, 390 billion will be granted in the form of non-repayable grants and the remaining 360 billion in the form of credits to be repaid by 2058, and can be used by States over the three-year period 2021-2024 to deal with the emergency, with particular regard to digitization and ecological transition.

The Next Generation EU plan contains several measures, divided as follows:

  • Recovery and Resilience Facility: This is the largest measure (€672.5 billion in total) and is aimed at supporting the necessary investments and reforms, with a special emphasis on sustainable growth.
  • ReactEU: The Recovery Assistance for European Cohesion and Territories (€47.5 billion) is a measure aimed at the recovery of Member States’ labor markets, and can be implemented through employment incentives, support for youth work and SME’s liquidity.
  • Horizon Europe: A program (€5 billion) aimed at boosting the scientific research in the field of innovation, fostering synergy between member countries, and widening participation and strengthening ofthe European Research Area.
  • InvestEU: A €5.6 billion fund whereby the Union wants to «support the policy objectives of the Union by mobilizing public and private investment within the EU that fulfil the criterion of additionality, thereby addressing market failures and sub-optimal investment situations that hamper the achievement of EU goals regarding sustainability, competitiveness and inclusive growth.»
  • Rural Development: €7.5 billion will be used to boost competitiveness and ecological transition in agriculture.
  • Just Transition Fund (JTF):A fund designed only for ecological transition, in compliance with the Paris Accords, which will be financed with EUR 10 billion.
  • RescEU: A fund (€1.9 billion) which will provide the Union with resources and an effective logistical infrastructure in order to respond to various types of emergencies, including health emergencies.

Italy is the country that will receive the most important share, amounting to EUR 209 billion: EUR 82 billion in non-repayable grants and EUR 127 billion in credits, the Government shall present the Recovery Plan in the autumn, which, will be approved by the European Council by the end of 2020 only if it is deemed to be in line with the Commission’s directives. 70% of the total will be distributed in 2021-2022, while the remaining 30% will be shared by the end of 2023, 10% of which (about 20 billion euros) will be distributed as pre-financing, with the aim of covering of expenses dictated by the emergency.