COVID19, Vulcan Insight

EU leaders back recovery fund linked to EU budget

24 April 2020

At their 23 April European Council video-conference, EU Heads of State and Government backed European Commission President von der Leyen’s plan to use the EU’s next long-term budget (MFF) to fund the post-coronavirus Recovery Fund. While EU leaders have not yet agreed on a final sum of the recovery fund, in a critical compromise, the Fund is set to drive the economic recovery through a combination of loans and grants.

However, according to President von der Leyen, there still remained debates about finding the right balance between grants and loans in the recovery fund with groups of countries in favour of either one or the other.

EU leaders tasked the Commission with presenting a proposal for a significantly increased MFF on 6 May. Speaking about her plans following the video-conference, Ms. von der Leyen said that the Commission planned to “increase the so-called headroom, that is to say the space between the existing ceiling in the MFF and the own resources ceiling,” adding that “thanks to the legal guarantee by Member States, the Commission will be able to raise funds on the bond markets which will then be channelled through the European budget towards Member States.”

The Commission currently estimates that an own resources ceiling of around 2 percent of GNI, for a period of two or three years, instead of the current 1.2 percent will be required.

While funding the recovery through the EU’s MFF is considered the fastest and most effective measure, the most recent February MFF negotiations broke down over leaders unwillingness to compromise on increasing national contributions.