European Union leaders reached a deal on Tuesday on a package of measures to boost their economies after the coronavirus pandemic, agreeing to borrow and spend hundreds of billions of euros in the next few years and pay them back from new taxes.
- Key to the deal is a new element in EU policy making: the European Commission will borrow massively on the market and then grant much of the cash, rather than lend it, to countries most in need of economic stimulus.
EU leaders agreed the Commission would cheaply borrow 750 billion euros using its triple-A rating. Of that, it would disburse 390 billion in grants and 360 billion in cheap loans.
- The grants force the bloc to generate cash to repay the borrowing by 2058. Leaders agreed that:
- Germany, Sweden and the Netherlands would lose their current rebate on the amount of VAT they pass on to the EU.
- EU countries will impose a tax on non-recycled plastic and pass on the proceeds to EU coffers.
- From 2023 there would be a tax on goods imported into the EU from countries with lower carbon emissions standards than the bloc.
- A tax on financial transactions is another option as is a getting some money from extending the emissions trading system to maritime and aviation sectors.
Such new taxes will be expressly allotted to the repayment of the 750 billion borrowing, but they will become part of EU reality for the next 38 years.
- The grants will be disbursed to countries that present plans that strengthen their growth potential, job creation and economic and social resilience of their economies. The plans also have to make economies greener and more digital and be in line with the Commission’s annual recommendations.
The disbursement will need the approval of a qualified majority of EU governments and be linked to meeting milestones and targets. If any EU government believes such targets had not been met it can ask EU leaders to debate it within three months.
The money will also be linked to observing the rule of law — an issue for Poland and Hungary which are under EU probes over their rule of law practice. But there will be a lot of political leeway: if the Commission decides there are “manifest generalised deficiencies in the good governance of Member State authorities as regards respect for the rule of law”, it can propose measures that would have to get the backing of a qualified majority of governments.
- To secure their backing for the recovery plan, net contributors to the EU budget like the Netherlands, Sweden, Austria, Denmark and Germany, will receive much deeper rebates than before on what they have to contribute each year to EU coffers based on the size of their economies.