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5th Jun 2020

Coronavirus

EU links access to recovery fund to economic advice

  • Commissioners Valdis Dombrovskis and Paolo Gentiloni (r) presenting the EU executive's economic guidence (Photo: European Commission)

The EU Commission on Wednesday (20 May) said member states need to link their coronavirus recovery plans to the economic guidelines set out by the commission in order to access EU funds aimed at tackling the pandemic's affects.

However, the commission did not reveal details on how the recommendations would be linked to the recovery fund, or if countries would be sanctioned if the fail to follow them.

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The EU executive was publishing it annual country-specific economic recommendations for member states, which sets out urgent needs for investments in health, job protection and liquidity for firms.

It also advices economies how to restore growth while supporting the green and digital transitions.

The commission is planning to unveil its new long-term budget proposal along with the recovery plan next Wednesday, with a large part of the money going to a new "recovery and resilience facility" to "fund public investments and reforms aligned with the EU priorities".

The commission suggested that accessing that money will be conditional on following its advice.

Commission vice-president Valdis Dombrovskis said that the economic advice should provide guidance for member states while preparing their "recovery and resilience plans and consequently accessing financing from the facility".

"We will be financing investment and reform packages of member states, in this specific case, linked to recovery and resilience plans. The European semester and country-specific recommendations will provide guidance in preparing these plans," he added.

Dombrovskis said this will be an "additional tool in facilitating the implementation" of this economic advice.

"The recovery plan will provide fiscal firepower. This firepower will be connected to priorities," economic commissioner Paolo Gentiloni said.

However, countries generally are slow to follow the commission's economic advice, if at all.

The EU executive also said it will not punish countries this time for breaking the bloc's deficit rules as it earlier suspended rules to allow governments to increase spending and public investment.

The bloc is facing a deep recession of 7.5 percent of GDP because of the coronavirus pandemic.

Gentling said "the economic and social consequences and policy challenges are unlike any we have seen in our lifetime".

All EU countries, except for Bulgaria, have broken EU rules on keeping their budget deficits below three percent of their GDP.

The executive said it will not sanction these countries due to the pandemic. Dombrovskis, however, warned that countries need to come back to adhering to EU budgetary rules in the medium term.

Gentiloni warned that governments should not sacrifice investment as they seek to rebalance the budgets.

"It will be vital to avoid making the mistakes of the past. In the fiscal consolidation of 10 years ago, investment was the first victim. To repeat this approach would be to sacrifice our long-term priorities," he said.

He urged governments to focus investment and reform during the recovery phase on greening and digitalising the economy.

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