Covid-19, Crisis, EU – Baltic States, Financial Services, Modern EU

European Commission President Ursula von der Leyen on Wednesday proposed on 28 May a €750 billion recovery fund (500 bn in grants and 250 bn in loans), using borrowed money to be repaid over 30 years (starting from 2028), alongside a €1.1 trillion, seven-year budget that will secure resources for priorities including climate change prevention, sustainability and promoting digital transformation.

That means that the Baltic States would be forced to implement new priorities, the process which is subject to difficult discussions in the sub-region and among other states’ leaders. So far the positions are quite far apart, though the decision (according to the EU law) must be taken by a unanimity vote; hence the further discussions are unavoidable…

On “the new EU own resources” in:

https://ec.europa.eu/info/files/financing-recovery-plan-europe_en

The Commission’s €750 billion plan called “Next Generation EU”, consists of €500 billion in grants to countries hit hardest by the pandemic, such as Spain and Italy, with additional €250 billion available as loans. Besides the plan, a revised seven-year budget proposal, i.e. the EU’s Multiannual Financial Framework (MFF) adds another €1.1 trillion for 2021-27. The proposal is below the level originally suggested by the Commission in May 2018, but higher than a compromise plan put forward in February 2020 by European Council President Charles Michel. The repayment will take place during about 30 years, i.e. through the future EU budgets starting from 2028.

Source: the “suggested planning” on 27.05.2020, in: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_940

The greatest concerns of the proposal are the positions of the so-called “frugal four” states - the Netherlands, Austria, Sweden and Denmark, which are generally against a “common debt”: the EU Internal Market Commissioner Thierry Breton argued that “it was not about taxpayer money from one country that will pay for another”, e.g. support for tourism will help all countries.

Summit on June 19

European leaders will meet at the European Council on June 19, though leaders in France and Germany have already warned against a “clear deal”. Hence, the states’ leaders should find a compromise before this fall to give national parliaments and the European Parliament “enough time” to discuss and ratify the proposed mechanisms so that they can enter into force from January 2021. For example, German Finance Minister Olaf Scholz argued that it was the Franco-German proposal that “succeeded in bringing about a new start in Europe.” While the Commission proposal still needs the backing of all EU-27 countries, there is a very high probability that a good understanding will be reached. Similar satisfaction came from French President Emmanuel Macron, that Franco-German deal “made this progress possible.”

Under the plan, the Commission calls on EU countries to agree to new revenue “streams” in the so-called own resources to cover the repayment and interest costs of the money borrowed for the recovery plan. They include a digital tax, a tax on large companies’ operations, a carbon levy on non-EU imports and a plastics tax. In addition to that, the Commission would raise new revenue through the bloc’s carbon market. But most of these proposals, some of which date back from before the coronavirus crisis, face significant hurdles. It looks as a “single market tax”: the Commission’s suggested tax on large companies’ operations would target firms that draw huge benefits from the EU single market and will survive the crisis. The EU Budget Commissioner Johannes Hahn defended the proposal, but did not go into detail on how the levy might work. Previous attempts to establish a common consolidated tax base have proven difficult, but Hahn suggested the new proposal is more straightforward and “achievable.”

The Commission expects that the coronavirus recovery’s investments should not harm the EU’s strategic priorities in energy and climate policies; however, the plan lacks “conditioning recovery investments” on the EU’s green goals and excluding investments in fossil fuels, which environmental campaigners had pushed for.

Commission’s efforts

Now that von der Leyen and Hahn have unveiled the big picture, other commissioners will take their sectors: - executive Vice President and a “regular” Commissioner for the EU economy (Dombrovskis and Gentiloni) will concentrate on “recovery and resilience”. Another executive Vice President for the “green deal” Frans Timmermans, and Commissioner Nicolas Schmit responsible for jobs, social rights, as well as Commissioner Elisa Ferreira responsible for cohesion and reforms will take the line of “sustainable and just recovery.” The third direction will concentrate on health programs in the EU and the sates headed by Commission Vice President for the European Way of Life Margaritis Schinas and Health Commissioner Stella Kyriakides. Thus, for example, the EU-states’ health priority is elevated from a meager €413 million to a much higher level of €9.4 billion; now it is up to the decision-makers to direct the money into the most efficient for health national agendas, which have for long a heavily-guarded member states’ competence. 

Message to the Baltics’ governance

The post-pandemic period is reflecting the “new reality”, showing that the states have to focus all their efforts, i.e. political economy’s instruments on overcoming the crisis, “jumpstarting” economies and putting the perspective growth on resilient and sustainable recovery paths.

Some drastic shifts in national priorities as a result of the pandemic are already visible both in the EU (i.e. including cuts for spending on cohesion, defense, research and administration) and in the member states (through “smart growth”, specialisation and digital economy).

However, spending on the Union’s Common Agricultural Policy would be increased, as well as funding for the environment protection and climate actions.