The European Commission will issue on Wednesday a new proposal for a long-term European Union budget and a coronavirus recovery fund to help economies in the bloc rebound from recession.
FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels, Belgium, February 19, 2020. Picture taken February 19, 2020 REUTERS/Yves Herman/File Photo
Both measures are controversial because they entail transfers of wealth across the 27-nation bloc, and views differ widely on how that should happen. The recovery package is also creating new faultlines because it entails financing through debt issued in the bloc’s name. Below are key points of contention that the Commission will have to address and on which EU leaders must find a compromise.The recovery package is to be a mix of grants, loans and guarantees that together add up to 1-2 trillion euros over the next few years. Most likely only part of this will be real cash: the rest is likely to entail financial engineering such as leveraging.A key sticking point is likely to be how much of the money comes in the form of grants and how much in loans.
One solution could be to allot future revenues from some new tax assigned to the EU in budgets after 2027 to repay the Commission’s borrowing now. This would be a milestone in further EU integration and a major step towards fiscal union, which is also why some governments will oppose it. If there is no new tax, the Commission borrowing could also be repaid through higher national contributions of governments to the long-term budget in the future - also an unprecedented sign of EU solidarity.The recovery fund will be linked to the EU’s 2021-2027 budget, which operates on the basis of grants and is itself a highly divisive issue.
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