Wednesday

6th Jul 2022

EU countries can start 'going to the bank' for recovery funds

  • EU Commission president Ursula von der Leyen and Portugal's prime minister António Costa in Lisbon, with the freshly-approved recovery plan (Photo: European Commission)

"Now I can go to the bank?," asked Portuguese prime minister António Costa to EU Commission president Ursula von der Leyen, as the EU executive approved his country's national Covid-19 recovery plan.

"You can go to the bank," quipped von der Leyen in response.

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The comments are likely to cause some wincing in the capitals of the so-called 'frugal' EU countries, which have been frustrated with the idea of subsidising spending by what they see as less fiscally-disciplined southern member states.

Von der Leyen's visit to Portugal came as the commission on Wednesday (16 June) signed off the first batch of national recovery plans, in a move to start the unprecedented €800bn Covid-19 recovery spending plan next month.

The recovery plans of Portugal and Spain were approved on Wednesday, with plans of Greece, Denmark and Luxembourg are set to be given the green light later this week.

Von der Leyen traveled to Lisbon and Madrid as her team screened the plans and checked if they align with the targets - of at least 37-percent spending on climate and 20 percent on digital transition.

Portugal has asked for €13.bn in grants and €2.7bn in loans under the recovery fund between 2021-2026 and plans to spend 38 percent of that on climate efforts and 22 percent on digital transition.

Portugal, which holds the rotating EU presidency, was the first one to submit its draft plan to the commission, back in April.

Spain, which suffered more than a 10-percent drop in GDP last year, plans using €69.5bn in grants and is slated to have another €70bn available for it in loans between 2021-26.

Spain aims to have 40 percent of climate expenditure and direct 28 percent to digital objectives.

The commission, along with the approval of the plans, made a proposal for the council of member states to give a green light to the disbursement of funds.

Economic ministers will meet on 13 July to decide, after which the commission needs to sign documents with the particular member states and the first formal payments can come by the end of July.

Countries can receive pre-financing, up to 13 percent of the total allocated amount.

The subsequent tranches will be disbursed once member states deliver "milestones" and "targets" in the national recovery plans, which the commission will assess if EU countries have reached.

The EU's largest spending plan since World War Two aims to mitigate the Covid-19 pandemic's economic impact.

Its implementation will be key, especially for the large amounts of money targeted at a green and digital transition.

The aim of the spending plan is also to avoid the sluggish growth seen in the aftermath of the financial and euro crisis in Europe.

The commission expects that all eurozone member countries will return to their pre-crisis output levels by the end of 2022.

Raising cash

The first approvals come as the commission said on Tuesday that it raised the first batch of cash for the recovery fund via its bond sale.

Von der Leyen said the EU executive sold €20bn worth of 10-year bonds in a sale that was more than seven times oversubscribed.

The commission said in a statement that it was the largest ever institutional bond-issuance in Europe, the largest institutional single tranche transaction and the largest amount the EU has raised in a single transaction.

Two other bond sales will take place in June and July, and will be spent on the pre-financing the national recovery plans.

Budget commissioner Johannes Hahn said more than 50 percent of the AAA-rated bonds sold on Tuesday went to investors in the 27-nation EU, and around 13 percent to Asia and the Americas.

He said around 25 percent of the investors were central banks, 37 percent were bought by fund managers and 11 percent by insurance funds.

Commission to approve first Covid-recovery plans next week

This means that, following council approval, and after the financing agreement has been signed with EU governments, the first countries can receive pre-financing from the recovery fund, of up to 13 percent of their allocated funds.

First recovery euros could be paid out in July

Economy commissioner Paolo Gentoloni said the real challenge is whether member states can stick to their national plans and timelines. However, more than a dozen EU countries still need to ratify legislation to start the funding.

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