EU leaders on Thursday (23 April) tasked the European Commission with drafting a trillion-euro “recovery fund” linked to the EU budget but didn’t specify how it will support the green transition they claim to be committed to.
Last month, they urged the Commission to promote “the green transition and the digital transformation” as part of the post-pandemic recovery plan.
The priority is “first to repair crisis damage,” said Commission President Ursula von der Leyen in a press conference after the summit. “And then generate recovery, build resilience and guide our economies along the paths of the green and digital transitions in a fair manner”.
The exact amount of the recovery fund is still a matter of discussion but should be of “unprecedented” magnitude, EU leaders agreed.
“We’re not talking about billion, we’re talking about trillion,” von der Leyen said, echoing statements from German Chancellor Angela Merkel who spoke of a trillion euro EU recovery fund.
But the German Chancellor insisted that crucial details still need to be clarified first on where the money should go and how it will be disbursed.
“That’s why we have asked the Commission to make proposals to us, assessing the individual sectors and working out how much damage they will suffer,” Merkel said, highlighting the tourism and car sectors.
EU budget will be the main tool
Speaking after the video summit, von der Leyen said the EU budget will be the main tool to finance the recovery.
“I am convinced that there is only one instrument that can deliver this magnitude of tasks behind that recovery – and that is the European budget clearly linked to the recovery fund,” she said.
Initially scheduled for 29 April, the Commission’s revised budget proposal for 2021-2027 – known as the Multiannual Financial Framework – has been rescheduled and will be presented jointly with the recovery fund in the second or third week of May, von der Leyen said.
To finance the recovery, the Commission president announced a temporary increase in the EU budget amounting to “around 2%” of the EU’s gross national income, up from 1.2% currently.
This increase would not come in the form of direct contributions from EU countries, but of guarantees, backed by the EU budget. The money would then be redistributed in the form of grants and loans, in proportions that still need to be decided.
According to the Frankfurter Allgemeine Zeitung, the annual volume would reach €100bn per year, or approximately 0.6% of EU-27 GDP.
The money raised would be channelled back into the EU budget and concentrated into “programmes” focused in four areas, von der Leyen said: 1) Investments supporting reforms in the member states including cohesion programmes; 2) The European Green Deal and the digital transition; 3) Common crisis response tools; and 4) Investments in the EU’s neighbourhood and partner countries.
State aid under the spotlight
But as the immediate priority focuses on avoiding economic collapse, there are growing calls on EU governments to avoid bailing out companies that are out of step with the EU’s green objectives.
“For state aid to be accepted by the European Commission, the assisted company must commit to aligning its economic model with the Paris Agreement,” said Pascal Canfin, a French MEP who chairs the European Parliament’s environment committee.
“This commitment must take the form of an ecological transition contract which defines the measures that will be taken within 6 months,” he added.
For Canfin, the EU “lost a decade” after the 2009 crisis by using public funds to bailout companies without requesting green commitments in return.
“In some key sectors such as aviation, automotive, infrastructure, and mobility, it would be a very big mistake to reinvest without transforming, because we will not have a second chance to do so,” the French MEP said.
Last week, Austria announced that a deal to save Austrian Airlines from bankruptcy will have green strings attached.
And Denmark earlier this week became one of the first countries to ban companies that are registered in tax havens from accessing financial aid during the coronavirus pandemic. Firms applying for Danish state aid must also promise not to pay dividends to shareholders or make share buy-backs in 2020 and 2021.
Whether conditions – green or otherwise – should be imposed on state aid to troubled companies is one of the key questions Europe has to answer.
At the moment, the European Commission has limited leverage to impose green conditions on state aid to companies.
“It is up to member states to decide if they wish to grant state aid” and align those with policy objectives such as the Green Deal and digital transformation of their economies, an EU Commission spokesperson told EURACTIV. That said, the Commission “will revise relevant state aid rules,” including Environmental and Energy Guidelines, against the objectives of the Green Deal, the spokesperson added.
Von der Leyen herself acknowledged that state aid was a contentious issue that EU leaders discussed during yesterday’s video summit.
“The fiscal impact of the crisis differs significantly” between EU member states because “some are able to direct much more direct budgetary support to their economies than others,” she said.
Up until now, state aid provided by member states to support companies affected by the coronavirus amounts to €1.8 trillion, von der Leyen said.
“But there are huge differences in how much our member states are giving” depending on the financial space they have, she pointed out, warning those discrepancies risked deepening economic disparities within the 27-member bloc.
“This difference will have massive effects on the level playing field unless we counter-balance that. We have to design a common future-proof answer to this to ensure the integrity and the cohesion of the internal market and its shared prosperity,” she said.