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ECONOMY
02/16/2021
Corona Fund: How the economy should grow after the crisis
It is an unprecedented feat of strength for the European Union: Together we run into debt for reconstruction.
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How do you spend 750 billion euros sensibly? This is the task that the EU economics and finance ministers have to deal with today, Tuesday. Because the heart of the European program against the Corona economic crisis - the RRF development fund - is finally wrapped up after months of preparation. The money should help the European economy back on its feet and at the same time make it fit for the next decades.
RRF, what is it?
In total, the European Union wants to invest 750 billion euros in economic reconstruction after the pandemic. The program is called Next Generation EU. Most of the money - namely 672.5 billion euros - will be distributed via the construction fund - in EU jargon, construction and resilience facility, in English Recovery and Resilience Facility or RRF. There are 312.5 billion in grants and up to 360 billion euros in loans.
The rest of the 750 billion will be provided through programs in the EU budget. Incidentally, the sums are all given in 2018 prices.
Why is this politically significant?
For the first time, the EU Commission will take on such large sums as joint debts. And for the first time, debt-financed money is given as a grant to EU countries.
The countries that have been particularly hard hit by the pandemic have the prospect of the largest sums: According to estimates, Italy can receive 65.5 billion euros in grants alone, Spain around 59 billion euros. Loans of up to 6.8 percent of the economic output of 2019 can be added.
As things stand, Germany can expect grants of 22.7 billion euros. So there is a lot of redistribution. The aim is to narrow the economic gap in the EU and to strengthen the internal market, from which Germany in particular benefits.
What should the money be spent on?
The billions should stimulate growth and jobs, but at the same time make the European economy more modern and environmentally friendly. Therefore, at least 37 percent of the funds from the RRF should be spent on climate protection and 20 percent on digitization. Other priorities are economic and social cohesion and the strengthening of public institutions.
How do the EU countries get the billions?
The 27 governments have to submit detailed RRF plans to the EU Commission. These have to prove the financing goals for green and digital. In addition, the billions from Brussels are intended to help implement the economic policy recommendations for the EU to grow closer together.
According to the EU Commission, 18 countries have submitted drafts, and six others have at least approaches. Austria has not yet submitted a plan. Italy had plunged into a government crisis over the dispute over the use of the cash injection. Now this will be one of the most important tasks of the new government under the former ECB head Mario Draghi.
What does Germany want to do with its share?
The federal government wants to put 40 percent of the money each into climate protection and digitization and is thus above the European requirements. Projects for renewable hydrogen, climate-friendly mobility, climate-friendly construction and research into vaccines against the coronavirus are listed.
The money should also flow into digital education, a technically better equipped health system and a better digital administration - points where the corona crisis revealed clear deficits. The German draft also still has to be discussed at EU level. There is already criticism that the federal government wants to put the money primarily in projects that were already planned.
What are the next steps?
From February 18, the EU states can officially submit their applications. The deadline is at least April 30th. The EU Commission examines the templates within eight weeks, after which the Council of EU States must also approve them. The money is to flow in tranches, provided that commitments are kept.
One important hurdle has to be cleared before the first payments can be made: all 27 EU countries will have to ratify the so-called own funds decision in the next few months. This is the legal basis for the EU Commission to be able to borrow for the development plan. Only then can the first funds be paid out, probably in the summer.
