jeu. Août 13th, 2020

Daily Impact European

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European Summit: A great success for Europe, a challenge for Macron

5 min read

The leaders of the 27 concluded Tuesday at the end of a marathon summit a historic agreement on a post-coronavirus stimulus plan, based for the first time on a common debt, and will now have to find new resources to finance its repayment .

After this more than 90-hour European summit marathon, Italy is the big winner, leaving with more than 200 billion euros in financial support, a breath of fresh air but insufficient to make up for the vertiginous drop in Italian GDP. For Giuseppe Conte, “the agreement preserves the dignity of Italians and represents the best possible understanding and a historic victory for Europe”. In total, the peninsula received 209 billion euros in aid, including 81.4 billion in grants (400 million less than expected) and 127.4 billion in loans (36 billion more than expected).

During 5 days of intense negotiations, the French president raised the tone, the Hungarian leader brandished the threat of a veto, The Hague and Vienna have long resisted against aid that was too generous for their liking.

Regarding European economies, the President of the European Central Bank (ECB), Christine Lagarde, praised an “EU that comes together and progresses”, unlike the young climate activist, Greta Thunberg, who is less enthusiastic, who criticized the “Vague distant and incomplete environmental objectives”.

For the French President, Emmanuel Macron, ardent defender of the plan with Chancellor Angela Merkel, “a major step has been taken”. It is “a response to the biggest crisis in the EU since its inception,” added the German, whose country currently chairs the Union.

The President of the European Council Charles Michel, welcomed this “signal sent to Europeans and the rest of the world”, while calling for “to keep a cool head because it must be implemented”.

The 750 billion euro fund is intended to support the European economy in weathering a historic recession. They will be borrowed by the Commission on the markets and consist of 390 billion in subsidies (312.5 billion to which must be added 77.5 billion, distributed in different lines of the multiannual budget) allocated to the States most affected by the pandemic, a common debt to be repaid by the 27. In addition, 360 billion euros will be available for loans, repayable by the requesting country. This plan is backed by the EU’s long-term budget (2021-2027), which provides for an allocation of 1074 billion euros.

This common debt, a first, is based on a Franco-German proposal, which aroused fierce opposition from the four so-called “frugal” countries (the Netherlands, Austria, Denmark, Sweden), joined by Finland. At the end of the summit, the Dutch Prime Minister Mark Rutte affirmed that this common loan was not the beginning of a “Union of transfers” of wealth from north to south and that it was an operation ad hoc, the need for which is obvious given the situation ”.

The plan, the main beneficiaries of which are the countries of the South, such as Italy (210 billion), Spain (140 billion) and Greece (72 billion) has been threatened by the “frugal” countries, judging these countries to be particularly affected. by the epidemic, too lax in budgetary matters compared to their partners in the North. Budapest and Warsaw, whose governments are in Brussels’ crosshairs, fought to water down the provisions, blurring the wording of the final text.

The plan is important, focused and time-bound. Regarding debt repayment, it will be necessary to create new sources of revenue for the EU, without increasing state contributions and the tax on non-recycled plastic in early 2021 will not be enough. The Commission has been tasked with presenting proposals to introduce a carbon border adjustment mechanism and a tax on digital giants by early 2023 at the latest (30% of expenditure incurred will have to target climate change in order to achieve the objective carbon neutrality in 2050). The criteria used to determine the amount of the grant allocated for 2021-2022 are those defined by the Commission, based on the unemployment rate during the period 2015-2019; for 2023, this will be the extent of the recession caused by Covid-19 in 2020, which will then be recalculated by aggregating the years 2020 and 2021.

Here are the 6 important points of the recovery plan concerning for the first time, the borrowing by the Commission on behalf of the European Union and the distribution of funds between loans and grants granted to the different states:

1 – Generous and unprecedented grants
2 – Relaxed community control
3 – The rule of law as a condition
4- Increasing discounts
5 – Own resources to be developed to repay the loan
6 – 40 billion in subsidies for France
Each country requesting financial assistance must prepare a recovery plan which describes the desired reforms and investments for the period 2021-2023 (enhancing growth, creating jobs and the state’s social resilience).

Despite the right of veto that frugal countries wanted, the Council approved by qualified majority the Commission proposal while imposing, however, objectives to be met in order to release the funds. In the event of violation of the rule of law and democracy (Poland and Hungary for example, targeted by procedures for undermining the independence of the judiciary and the media, according to Brussels), the payment of aid may be suspended, a first in the history of the EU.

Some member countries had to make concessions despite the insistence of France and other countries, the discounts granted to frugal countries were maintained even higher than what had been planned before the summit. Between 2021 and 2027, the annual contribution based on the Gross National Income of Denmark, Germany, the Netherlands, Austria and Sweden will be reduced from 2021 to 2027. France will partially foot the bill while the rebate of 3.67 billion granted to Germany has not changed with the negotiations.

By developing its own resources, the EU will be able to repay the Community loan to finance the recovery plan from the revenues generated. For the moment, only the launch in 2021 of a tax on single-use plastics has been recorded in connection with the “green pact”.

The Gafa tax, a carbon tax at borders (to preserve the competitiveness of European industries called upon to reduce their emissions) and a reform of the current “polluted markets” (Emission Trading System, ETS) will be debated in 2021 when the proposals are presented. of the European Commission. The latter expects to increase its revenues by more than 30 billion euros per year via these measures also aimed at supporting its sovereignty by implementing the Gafa tax and the carbon tax by 2023 and a revival of the Tax on financial transactions (TTF ).

Regarding the 40 billion allocated to France out of the 390 billion in subsidies, the Minister of the Economy thinks of adding them within the 100 billion planned to finance the main priorities of the national plan over 2 years presented on August 24, including 30 % for climate spending, both for European and national funding.

Thanks to these 40 billion, multiple projects will be able to be financed: from the development of new technologies (hydrogen plan, recycling sector) to thermal renovation (schools and nursing homes) through the reduction in production taxes to support businesses, a vast plan for the employment of young people (exemption from charges), or the rehabilitation of small railway lines and the development of rail freight.

The President of the Republic maintains that there will be no new tax and that the French taxpayer will not have to participate in the reimbursement of European aid.

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