Recovery and Resilience Facility: the next generation pays
The European multi-annual budget plan (2021-2027) created a fund called the Next Generation EU (NGEU) which makes available a total of around €806.9 billion, of which €723.8 billion is destined to sustain the «covid-19 recovery package» known as the Recovery and Resilience Facility (RRF). There are two semantic deceptions embedded in this plan:
1) It is not exactly about combating «the effects of covid-19»; it is, strictly speaking, about dealing with the economic, social and environmental consequences of the policies implemented by the public authorities in recent years, including the measures adopted during the pandemic period.
2) Of the EUR 723.8 billion supporting the Recovery and Resilience Facility, some 42% is presented as non-repayable grants; the remaining 58% would be funds available for loans to member states. The reality is different: the entire RRF budget is obtained through loans raised on the financial market; there are in fact no «non-repayable» grants, everything ends up being a financial loan; everything will have to be repaid in full and with interest.
The first question that needs to be asked, given a sum of 806.9 billion euros: where is all this money coming from?
The EU's current budget comes (to put it simply) from member states' contributions calculated as a proportion of their GDP, plus a share of the VAT collected in each country.
This budget, however, would not be enough to sustain the massive Recovery and Resilience Facility, so it draws on other financial sources. This is where the NextGenerationEU financial fund comes into play, made up as follows:
Own revenues: a new tax on non-recycled packaging waste; new taxes based on «border carbon adjustment»(?), a tax digital products, etc. The European Commission has left open the possibility of creating new European taxes as and when needed, in a kind of sight-seeing approach. It has also vaguely promised to create a new tax on companies and financial transactions, but this will never be defined before 2024 (thus testing the memory of European citizens). In any case, these sources of own resources constitute a tiny fraction (0.86%, according to my calculations) of the NextGenerationEU.
Financial loans: «To raise the necessary funds for NextGenerationEU, the Commission will borrow on the capital markets on behalf of the EU, for up to around €800 billion in current prices» (source: «Funding NextGenerationEU», in The 2021-2027 EU budget – What’s new?, official website of EU, w/d).
«The European Commission is empowered by the EU Treaties to borrow from the international capital markets on behalf of the European Union. […] The European Commission’s largest programme is the NextGenerationEU recovery instrument of up to around €800 billion in current prices – 5% of EU GDP. To finance this programme, the Commission is issuing securities on the international capital markets […] The borrowing will be concentrated between mid-2021 and 2026. All borrowing will be repaid by 2058. […] The loans will be repaid by the borrowing Member States. The grants will be repaid by the EU budget.» – Source: «The EU as a Borrower – Investor Relations».
So we have a real credit lasagna, composed of two layers of debt: one traditional, contracted at the level of each member state; another contracted at the level of the Union, to be paid by each and every member state. We are facing a giant qualitative leap in the relationship between the European Union and financial capital (in its favour, of course).
The total loans that the Union plans to take out are equivalent to 66% of the 2018 EU budget, and are to be paid back (in principle) by 2058. It has to be acknowledged that the European authorities got the name of this financial fund right: it is the Next Generation EU that will pay off this debt.
In this booklet we begin a series of articles on recovery and resilience plans and the problems created by this collective indebtedness.
Sources and references
Please see RRF and RRP: Sources and References.