The EU’s recovery fund proposals: crisis relief with massive redistribution

Poorer European Union countries and those hardest hit economically by the COVID-19 crisis could obtain up to 15% of their GNI in grants and guarantees from the EU’s proposed recovery instruments. Yet the proposal would represent a net benefit for all EU countries, even if there is only a small positive economic impact over the long-term. The proposed very long-maturity loans would lead to non-negligible benefits, exceeding 1% of GDP for some countries.

When European leaders convene this Friday (19 June), each will mainly look at how much her or his country can expect to receive from the European Commission’s recovery proposals. However, the Commission has so far shied away from publishing an estimate of national shares.

Limited guidelines were provided however on the estimated overall cross-country allocation in the Commission’s two recent proposals: the €750 billion ‘Next Generation EU’ plan and the additional €11.2 billion amendment to the 2020 annual budget. Cross-countries allocation proposals have been published for only three out of the twelve different instruments that make up the package: the Recovery and Resilience Facility, the Just Transition Fund and agricultural subsidies. Guidance is vague for the other nine, which account for about a third of the grant and guarantee components. The Commission either provided the detailed methodology behind cross-country allocations without any estimate (REACT-EU); indicated broad principles for cross-country allocations (Solvency Support Instrument and Invest EU); or provided no guidelines for cross-country allocation – for good reasons that I discuss.

A Commission staff working document (page 52) uses an “illustrative allocation key” assumed to be the same for all grant, loan and guarantee components of the package. But the regulation proposals, on the contrary, explain that each instrument will be allocated differently, and that there may even be no cross-country allocation key at all.

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