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24th Jul 2021

Commission waiting on 10 states for recovery bonds

  • Budget commissioner Johannes Hahn called on member states to speed up the ratification process (Photo: European Commission)

The EU Commission plans to borrow at least €150bn every year until 2026 to finance the bloc's recovery fund to help the European economy rebound from the Covid-19 pandemic, the EU executive said Wednesday (14 April).

It means the commission plans to raise around €800bn on the capital markets to finance the recovery.

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EU leaders last year agreed on an unprecedented €750bn package - that is in 2018 prices (as part of the 2018 budget counting process), which in current prices now totals around €800bn.

The fund is split into €338bn in grants and €386bn in loans for the 27 countries, with the rest going through the EU budget.

The fund will be distributed over the next five years - and a third of it, roughly €250bn will be spent on greening the economy.

The commission plans to start the borrowing in June, if all EU member states agree to the necessary national legislation by then, raising guarantees to the EU budget to 2.0 percent of GNI (gross national income), from 1.4 percent GNI, until 2058.

"Our structures will be ready by June and theoretically we could start borrowing then, but it depends on how quickly member states complete the ratification process," EU budget commissioner Johannes Hahn told reporters.

EU governments need to submit their national plans on how to spend the available funds by the end of April.

The commission is assessing the draft plans, and the council of member states will also need to approve them before money can be disbursed.

The countries can get 13 percent of their share in pre-financing, meaning that the commission needs around €45bn this year, which can be raised in two months, Hahn said.

Repayment should start in 2028 and continue until 2058, and is supposed to come from new levies the EU wants to agree on in the next years.

Hahn said the first proposal by the commission on those new taxes should come at the end of June.

The plan is to agree on a new tax on goods imported into the EU from countries adhering to less ambitious CO2 emissions goals, new levies on emissions in the transport sector, and a digital tax.

Hahn said that the commission would need around €15bn annually to service the interest on the debt.

The commission plans to publish funding plans six months in advance, to avoid crowding out EU governments on the markets.

The executive will issue bonds with different maturities (between three and 30 years, and with under one-year maturity), called EU-Bills.

National conditions

However, before the commission can act, EU countries need to ratify the necessary legislation and submit their plans.

Hahn said so far 17 member states have ratified the legislation - but Germany, Estonia, Austria, Poland, Hungary, Finland, the Netherlands, Romania, Ireland, and Lithuania have not yet done so.

In Germany, there is a court challenge to the recovery fund, where the constitutional court will have to decide on the legality of the instrument.

"We have no time to lose," Hahn said.

In addition, the commission told EUobserver in an emailed statement that "no member state has yet presented the final version of their recovery and resilience plan for assessment at this stage".

"So far, the commission has received draft plans, or a large number of components from 26 member states. All of this preparatory work has one goal: to facilitate swift decision-making in the formal approval phase," a commission spokesperson said.

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