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Document 52020DC0442

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The EU budget powering the recovery plan for Europe

COM/2020/442 final

Brussels, 27.5.2020

COM(2020) 442 final

COMMUNICATION FROM THE COMMISSION







































































The EU budget powering the recovery plan for Europe











THE EU BUDGET POWERING THE RECOVERY PLAN FOR EUROPE

1.An ambitious and innovative EU budget for European recovery

The Commission has set out a bold and comprehensive plan for European recovery 1 . This plan is based on solidarity and fairness, and deeply rooted in the Union’s shared principles and values. The plan sets out how to kick-start the European economy, boost the green and digital transitions, and make it fairer, more resilient and more sustainable for future generations.

The COVID-19 pandemic has touched every corner of the Union and the world. However, the economic and social impacts of the pandemic differ considerably between Member States, as does their ability to absorb the shock and respond to it. This threatens to create damaging divergences between Member State economies and puts the single market under severe strain. Europe needs a coordinated response that is swift, ambitious and targeted where it is needed most.

Delivering the recovery plan will require massive public and private investment. Forceful action is required to address these needs to close the overall public and private investment gap of at least EUR 1.5 trillion, to repair the immediate economic and social damage caused by the pandemic and set the Union firmly on the path to a sustainable and resilient recovery 2 .

The Commission is proposing to harness the full potential of the EU budget to mobilise investment and frontload financial support in the crucial first years of recovery. These proposals are based on:

Øan emergency European Recovery Instrument (‘Next Generation EU’) amounting to EUR 750 billion 3 . This will temporarily boost the EU budget with new financing raised on the financial markets. The funds raised will be channelled through EU programmes to underpin the immediate measures needed to protect livelihoods, get the economy back on its feet and foster sustainable and resilient growth.

Øa reinforced multiannual financial framework for 2021-2027. The Commission is proposing to create new tools and strengthen key programmes using Next Generation EU to direct investment quickly to where it is most needed, reinforce the single market, step up cooperation in areas such as health and crisis management, and equip the Union with a long-term budget to drive the green and digital transitions and build a fairer and more resilient economy.

Together with the three important safety nets for workers, businesses and sovereigns endorsed by the European Council on 23 April and amounting to a package worth EUR 540 billion, these exceptional measures taken at the EU level would reach EUR 1 290 billion of targeted and front-loaded support to Europe’s recovery 4 . Applying conservative estimates of the leverage effect of the multiannual financial framework and Next Generation EU, the total investment that could be generated by this package of measures amount to EUR 3.1 trillion.

These measures respond decisively to the calls by the European Parliament fora massive recovery and reconstruction package for investment to support the European economy after the crisis […] that is part of the new multiannual financial framework 5  and by Leaders for a recovery fund ‘of sufficient magnitude, targeted towards the sectors and geographical parts of Europe most affected, and be dedicated to dealing with this unprecedented crisis 6 .

This shared understanding provides the basis for a swift and comprehensive agreement between the institutions. The Commission calls for very close cooperation between the European Parliament and the Council on all elements of this recovery plan and invites them to review on an annual basis expenditures financed with external assigned revenues under Next Generation EU. The principles of such review could be laid down in an interinstitutional declaration. A rapid agreement on Next Generation EU and an ambitious long-term budget will be a powerful statement of European solidarity and resolve at a time when the stakes could hardly be higher.

The long-term EU budget, boosted by Next Generation EU, is uniquely placed to power the European recovery. The EU budget provides a transparent and trusted framework for the massive investment programme that lies ahead, anchored in the Community method of governance and decision-making. The EU budget is a proven driver of investment, cohesion and solidarity, and strengthens Europe’s single market.

In recent weeks, the Commission has used all the remaining flexibility in the current EU budget to channel every available euro into saving lives and protecting livelihoods. These measures demonstrated the power of the EU budget to provide timely and substantial support to Member States in a crisis. They have also exhausted all remaining flexibility in the current EU budget, highlighting the urgent need to put in place new measures to drive the next and crucial phases of the recovery.

The fundamentals of the Commission’s proposals for a modern and flexible long-term budget tightly geared to the Union’s priorities remain valid today. The Commission now proposes to adapt and strengthen these proposals to power Europe’s recovery. Building on the considerable progress that has already been made in the European Parliament and the Council will create the best possible conditions for a timely agreement.

The twin transitions to a green and digital Europe remain the defining challenges of this generation. This is reflected throughout the Commission’s proposals. Investing in a large scale renovation wave, in renewable energies and clean hydrogen solutions, clean transport, sustainable food and a smart circular economy has enormous potential to get Europe’s economy growing. Support should be consistent with the Union’s climate and environmental objectives. Investing in digital infrastructure and skills will help boost competitiveness and technological sovereignty. Investing in resilience to future health challenges and strategic autonomy will make the Union better prepared for future crises.

Next Generation EU will give the EU budget the additional firepower necessary to respond decisively to the most urgent challenges. This will be a one-off emergency instrument, put in place for a temporary period and used exclusively for crisis response and recovery measures. The funds will be channelled through the EU budget to Member States to support investment and reform priorities, and will be used to reinforce financial programmes key to recovery with an end date by 31 December 2024. Raising funding on the financial markets will help to spread the financing costs over time, so that Member States will not have to make significant additional contributions to the EU budget during the 2021-2027 period. The Commission will also propose new own resources that could help finance the repayment of the market finance raised under Next Generation EU.

Launching Next Generation EU quickly will be vital to turn the tide on the economic crisis. In addition, in order to make funds available as soon as possible to respond to the most pressing needs, the Commission proposes to amend the current multiannual financial framework 2014-2020 to make an additional EUR 11.5 billion in funding available already in 2020. This additional funding would be made available for REACT-EU, the Solvency Support Instrument and the European Fund for Sustainable Development, reflecting the urgency of these needs.

2.How will Next Generation EU be used?

Every programme and every euro in this package will be used to tackle the most crucial recovery needs, as identified in the Commission’s needs assessment. These proposals focus on where the EU budget can make the greatest difference, complementing and amplifying the essential work under way in the Member States.

The package is built on three pillars: tools to support Member State efforts to recover, repair and emerge stronger from the crisis; measures to boost private investment and support ailing companies; and the reinforcement of key EU programmes to draw the lessons of the crisis and make the single market stronger and more resilient.

1)Supporting Member States to recover, repair and emerge stronger from the crisis

Public investment has a vital role to play in a balanced and sustainable recovery. The bulk of the funding from Next Generation EU (more than 80%) will therefore be used to support investment and reforms in the Member States, concentrated where the crisis impact and resilience needs are greatest. The main instrument of recovery will be a new Recovery and Resilience Facility, specifically designed to fund investments and reforms aligned with European priorities. Cohesion policy will play its essential role in supporting a balanced and sustainable recovery through a new REACT-EU initiative to tackle the most pressing economic and social needs and adjustments to the future cohesion programmes to make them more flexible and fully aligned with recovery priorities. The European Agricultural Fund for Rural Development will help farmers and rural areas to deliver the green transition and support investments and reforms essential to Europe’s ambitious environmental targets. Finally, a significantly strengthened Just Transition Mechanism will help Member States accelerate the transition to a green economy and in doing so boost their economies.

ØA new Recovery and Resilience Facility

The EU budget can provide powerful support for the investment and reform priorities identified through the European Semester, all the more crucial at a time when national budgets are under strain.

The centrepiece of the recovery plan will be a new Recovery and Resilience Facility. The aim of the facility will be to support investments and reforms essential to a lasting recovery, to improve the economic and social resilience of Member States, and to support the green and digital transitions. It will be available to all Member States but support will be concentrated in the parts of the Union most affected and where resilience needs are greatest. This will help to counteract widening divergences between Member States and prepare our economies for the future.

The facility will offer large-scale financial support for investments and reforms that make Member State economies more resilient. Crucially, it will ensure that these investments and reforms focus on the challenges and investment needs related to the green and digital transitions. It will help Member States to address economic and social challenges that are even more critical in the aftermath of the crisis, in various areas such as social, employment, skills, education, research and innovation and health, but also in areas related to the business environment, including public administration and the financial sector. The Commission will offer extensive technical support to ensure that the funds are put to the best possible use.

The facility comes with a proposed budget of EUR 560 billion to help fund Member States’ recovery and resilience plans. It will be equipped with a grant facility worth up to EUR 310 billion and will be able to make up to EUR 250 billion in loans. 

The Recovery and Resilience Facility will be firmly embedded in the European Semester. Member States will draw up recovery and resilience plans as part of their National Reform Programmes. These plans will set out the investment and reform priorities and the related investment packages to be financed under the facility, with support to be released in instalments depending on progress made and on the basis of pre-defined benchmarks.

ØREACT-EU - increasing cohesion support for Member States

The Commission is proposing a new REACT-EU initiative to increase cohesion support to Member States to make their economies more resilient and sustainable in the crisis repair phase. This will help to bridge the gap between first response measures and longer-term recovery. 

Through REACT-EU, the Commission is proposing to provide EUR 55 billion of additional cohesion policy funding between now and 2022, EUR 50 billion from Next Generation EU in 2021 and 2022 and EUR 5 billion already in 2020 by adapting the current financial framework. This will be based on the current cohesion rules, including the exceptional flexibility introduced through the Coronavirus Response Investment Initiatives. Under these proposals, additional funding will be provided in 2020-2022 for the current cohesion programmes as well as the Fund for European Aid to the Most Deprived, allowing funding for key crisis repair measures and support to the most deprived to continue without interruption.

The additional funding will be allocated based on the severity of the economic and social impacts of the crisis, including the level of youth unemployment and the relative prosperity of Member States. The additional commitments will be implemented through programme amendments or a new dedicated programme submitted by the Member States and adopted by the Commission. The Commission will work closely with the Member States to manage this process as swiftly and efficiently as possible.

Funding will support key crisis repair actions in the most important sectors for a green, digital and resilient recovery. This will include investment to repair labour markets, including through hiring subsidies, short time work schemes and youth employment measures, support to health care systems, and the provision of working capital for small and medium-sized enterprises. Support will be available across economic sectors, including tourism and culture and for essential investments in the green and digital transitions, enhancing investment already planned under the future cohesion programmes. Part of these additional resources can also be used to help people suffering from food and material deprivation.

ØCohesion policy at the service of economic recovery for all

Beyond the immediate crisis response, cohesion policy will be crucial to ensuring a balanced recovery in the longer term, avoiding asymmetries and divergences of growth between and within Member States.

It is therefore essential for the Union’s strategic priorities to launch the new cohesion policy programmes on 1 January 2021, in parallel with additional funds made available for the current programmes until the end of 2022. These proposals have been designed to give maximum support to today’s priorities.

The Commission is now adjusting its proposals for the future cohesion policy programmes to give even stronger support to recovery investments, for example in the resilience of national healthcare systems, in sectors such as tourism and culture, in support for small and medium-sized enterprises, youth employment measures, education and skills and measures combatting child poverty.

Young people are likely to be particularly hard hit by the crisis and so Member States with youth unemployment levels above the EU average should programme at least 15% of their European Social Fund Plus resources under shared management to support young people. In view of the likely impact of the crisis on the most vulnerable in society, the Commission also proposes that at least 5% of total expenditure under the European Social Fund Plus should be used to help lift children out of poverty.

Technical assistance will be provided to help Member States maximise the combined benefits of the new cohesion policy programmes and the current programmes under REACT-EU.

The revised proposals also provide for greater flexibility for transfers between funds and introduce new provisions to be activated in emergency situations. To ensure sufficient support to Member States and regions most in need, the Commission’s revised proposals also provide for a review of national cohesion allocations in 2024, taking into account the latest available statistics. This review will lead only to upward adjustments of up to EUR 10 billion for all Member States.

ØSupporting a just transition

Europe’s recovery and future prosperity will depend on the steps we take now to prepare for the transition to a climate-neutral, resource efficient and circular economy. These changes will affect all Europeans but the burden of adjustment will fall more heavily on some sectors and regions than others. As part of the recovery package, the Commission is proposing to use Next Generation EU to provide financial assistance to accompany the transformation of the European economy and ensure that no-one is left behind.

In particular, the Commission is proposing to provide substantial additional funding of EUR 30 billion for the Just Transition Fund, bringing the total to EUR 40 billion. This funding will be used to alleviate the socio-economic impacts of the transition towards climate neutrality in the regions most affected, by for example supporting the re-skilling of workers, helping SMEs to create new economic opportunities, and investing in the clean energy transition and in the circular economy. Increased funding for InvestEU will also mean that the second pillar of the Just Transition Mechanism will be reinforced. The Commission is also making proposals to set up the new public sector loan facility that forms the third pillar of the Just Transition Mechanism. This will be supported by EUR 1.5 billion from the EU budget 7 and EUR 10 billion in lending by the European Investment Bank. Taken together, all three pillars of the Just Transition Mechanism are expected to mobilise up to EUR 150 billion of investments to ensure that no one is left behind during the green transition.

Rural areas will have a vital role to play in delivering the green transition and meeting Europe’s ambitious climate and environmental targets. The Commission is proposing to reinforce the budget for the European Agricultural Fund for Rural Development by EUR 15 billion to support farmers and rural areas in making the structural changes necessary to implement the European Green Deal, and in particular to support the achievement of the ambitious targets in the new biodiversity and Farm to Fork strategies.

2)Kick-starting the economy and helping private investment to get moving again

Urgent action is needed to kick-start the economy and create the conditions for a recovery led by private investment in key sectors and technologies. The Commission is therefore proposing to strengthen InvestEU, Europe’s flagship investment programme, to mobilise private investment in strategic projects across the Union. As part of this, the Commission proposes to create a new Strategic Investment Facility to invest in key value chains crucial for Europe’s future resilience and strategic autonomy. Healthy companies to invest in are a prerequisite for success in this investment drive, yet hundreds of thousands of companies are likely to come under severe financing pressure by the end of the year. The Commission is therefore proposing a new Solvency Support Instrument to provide urgent support to sound companies put at risk by the crisis and help them weather the storm. This instrument should become operational still this year.

ØCreating a liquidity and solvency lifeline for companies under pressure

The ability of the European economies to return to growth depends on the resilience and adaptability of the private sector. As a result of the crisis, many otherwise viable companies are experiencing serious liquidity and solvency problems. Commission estimates show that, in an adverse scenario, between 35% and 50% of firms with more than 20 employees could experience financing shortfalls by the end of the year. Equity repair needs for this year alone could be between EUR 720 billion and EUR 1.2 trillion. Faced with a crisis of this scale, the support currently being provided by Member States will not be sufficient. Moreover, the ability of Member States to support their companies differs widely. Therefore, action is urgently needed to help these companies come through the crisis, avoiding a vicious circle of economic damage and company bankruptcies and paving the way to a healthy recovery in the single market.

The Commission is therefore proposing a new Solvency Support Instrument to help mobilise private resources to provide urgent support to European companies that would otherwise be viable to address immediate liquidity and solvency concerns. This instrument will be temporary and targeted solely and strictly at addressing the economic impact of the pandemic. It will help to avoid massive capital shortfalls and possible defaults of otherwise viable companies and the severe economic damage this would cause. These fast-acting measures will be complemented by longer-term support under programmes such as InvestEU, cohesion policy and the single market programme.

The new temporary instrument will be created under the EFSI. It will mobilise private investment in troubled companies by providing partial guarantees against losses. With provisioning in the EU budget of EUR 5 billion from the current financial framework in 2020 to ensure a fast start and an additional EUR 26 billion from Next Generation EU, the Union budget will provide a guarantee of about EUR 75 billion to the European Investment Bank Group, which will ensure rapid delivery on the ground. The instrument will aim for an investment level of EUR 300 billion in solvency support.

The guarantee will be calibrated to ensure that the investments are targeted at those companies that are in greatest need of capital across all Member States and sectors, with a particular focus on Member States which are less able to intervene through state aid and on Member States and sectors where the economic effects of COVID-19 have been most severe. This is essential to maintain a level playing field in the single market and to avoid a further widening of damaging economic divergences within the Union. The capital situation of the institutions implementing the Solvency Support Instrument should be carefully considered.

In addition, as a complementary measure, the capital of the European Investment Fund will be increased in order to provide support to a wide range of small and medium-sized enterprises, including through implementation of the Solvency Support Instrument. This would further add to building a comprehensive package for European recovery, also in conjunction with the measures agreed by the European Council in April. This capital increase of up to EUR 1.5 billion will be financed both under the present and the next multiannual financial framework.

ØStrengthened investment capacity and strategic autonomy

Private investment will be hit hard by the crisis: Commission analysis suggests private sector investment may fall by over EUR 1 trillion in 2020-2021. Meeting the investment needs of the European economy will require urgent action to reverse this trend and put the conditions in place for an investment-led recovery. This investment is particularly crucial to the success of Europe’s green and digital transitions, where the Commission estimates that investment needs amount to at least EUR 1.2 trillion in the same period. Investment in key sectors and technologies, from 5G to artificial intelligence and from clean hydrogen to offshore renewable energy, holds the key to Europe’s future.

The InvestEU programme is uniquely suited to mobilising investment and supporting Union policies during the recovery from a deep economic crisis. This has been amply demonstrated by the experience with the implementation of the European Fund for Strategic Investments and financial instruments in the wake of the past financial crisis.

The Commission is therefore proposing to upgrade InvestEU to a level of EUR 15.3 billion for the four policy windows already agreed by the co-legislators. This could trigger investment of over EUR 240 billion.

InvestEU will provide crucial support to companies in the recovery phase and ensure a strong focus among private investors on the Union’s medium- and long-term policy priorities, in particular the European Green Deal and digitalisation. It will increase the risk-taking capacity of the European Investment Bank Group and National Promotional Banks in support of economic recovery. By mobilising significant private investment, it will complement the immediate support provided during the crisis repair phase by the Solvency Support Instrument and REACT-EU, and the funding under the future framework from cohesion policy and other programmes.

Investing in strategic autonomy: a new Strategic Investment Facility

A key feature of InvestEU will be a new facility to increase Europe’s resilience by building strategic autonomy in vital supply chains at the European level.

A Strategic Investment Facility will be created as an additional window under InvestEU. This facility will support projects contributing to building strong and resilient value chains across the EU and enhancing the autonomy of the Union’s single market, while maintaining its openness to competition and trade in line with its rules. This will enhance the resilience of the Union economy whilst providing the resources for strategically important companies to prosper and grow within the EU. Member State support for these projects is unlikely to be sufficient and the strong cross-border dimension means that a coordinated European approach is vital to success.

With provisioning of EUR 15 billion from Next Generation EU, the new facility would provide an EU budget guarantee of EUR 31.5 billion and could generate investments of up to EUR 150 billion to incentivise European industrial leadership in strategic sectors and key value chains, including those crucial to the twin green and digital transitions. The window will ensure that such investments exploit the potential of the single market to the full, with the EU budget guarantee supporting companies from across the European economy and becoming a powerful instrument of recovery.

3)Learning the lessons of the crisis and addressing Europe’s strategic challenges

The crisis has both underlined the value of European cooperation and demonstrated vividly that the Union must urgently build up its capacity to respond to crises and build resilience to future shocks. The Commission is proposing a new EU4Health programme to strengthen health security and prepare for future health crises. RescEU, the Union’s Civil Protection Mechanism, will be expanded and reinforced to equip the Union to prepare for and respond to future crises. Horizon Europe will be reinforced to fund vital research in health, resilience and the green and digital transitions. Other EU programmes, including its external instruments, will be strengthened to align the future financial framework fully with recovery needs and special instruments will be reinforced to make the EU budget more flexible and responsive.

ØNew and reinforced programmes to build resilience and strengthen cooperation

Next Generation EU will provide targeted reinforcement for key programmes that power growth and strengthen Europe’s ability to withstand and overcome future crises. These reinforcements are in addition to the Commission’s initial proposals for the future framework, which remain a fair and balanced basis for an agreement.

A new programme to strengthen health security and cooperation

The crisis has shown that funding for health must be given higher priority in the future financial framework. The Commission is proposing an ambitious stand-alone EU4Health programme to provide dedicated support for the health challenges ahead as identified in the needs assessment. Under this proposal, funding for the new programme will amount to EUR 9.4 billion, a major reinforcement as compared to previous proposals under the European Social Fund Plus.

The new programme will help ensure that the Union is equipped with the critical capacities to react to future health crises rapidly and with the necessary scale. The programme will aim to create a comprehensive framework for EU health crisis prevention, preparedness and response, complementing and reinforcing efforts at national level and regional support to healthcare systems under cohesion policy. 

The first strand of the programme will address health security and crisis preparedness. It will support investments in critical health infrastructure, tools, structures, processes, and laboratory capacity, including tools for surveillance, modelling, forecast, prevention and management of outbreaks. It will support the establishment of a mechanism to develop, procure and manage health crisis relevant products such as medicines - including vaccines - and treatments, their intermediates, active pharmaceutical ingredients and raw materials; medical devices and medical equipment such as ventilators, protective clothing and equipment, diagnostic materials and tools. It will help create a new EU-wide risk communication framework covering all phases of a crisis.

The second strand will support a longer-term vision of improving health outcomes via efficient and inclusive health systems across the Member States, through better disease prevention and surveillance, health promotion, access, diagnosis and treatment, and cross-border collaboration in health. The programme will, for example, support capacity building in the Member States, fund training programmes for medical and healthcare staff, and invest in the digital transformation of the healthcare sector and the deployment of interoperable digital infrastructures, including for research and data sharing.

The programme will be designed and implemented in full respect of the division of competences between the Union and Member States in this field. It will link up with relevant support provided under other EU programmes and establish new ways to implement joint actions and ensure availability of medical countermeasures and resources in the event of major health threats. It will work with a reinforced rescEU, which is focused on direct crisis response capacities, stockpiles, deployment and dispatching of equipment and staff in emergency situations, by providing the necessary health contributions.

Reinforcing the Union’s civil protection mechanism response capacity

A clear lesson of the pandemic is that Europe must be able to react more quickly and flexibly in serious cross-border crises given the scale of the potential disruption to our economies and societies. The Commission is therefore proposing to reinforce rescEU, the Union’s civil protection mechanism. This will make rescEU more flexible and increase the Union’s capacity to act together at EU level.

The financial allocation will be increased to EUR 3.1 billion, financing investments in emergency response infrastructure, transport capacity and emergency support teams. The upgraded rescEU will give the Union the capacity and the logistical infrastructure needed to cater for different types of emergency, including those with a medical component, complementing the new EU4Health programme. The proposal will also streamline and increase the flexibility of operational capacities. This will ensure a more timely and effective EU response in future to large-scale emergencies.

Horizon Europe – investing in innovation and preparedness for the future

Horizon Europe will amount to EUR 94.4 billion to increase European support for health and climate-related research and innovation activities. This will contribute to strengthened preparedness to effectively and rapidly respond to emergencies and investment in science-driven solutions, complementing the operational funding provided under the new EU4Health programme and rescEU.

In the health domain, the reinforcement will be used to scale up the research effort for challenges such as the Coronavirus pandemic, the extension of clinical trials, innovative protective measures, virology, vaccines, treatments and diagnostics, and the translation of research findings into public health policy measures.

It is also proposed to scale up resources for research and innovation in climate-related domains. This will strengthen support for the competitiveness of EU industry in related economic sectors and promote a recovery consistent with the goals of the European Green Deal. The reinforcement will provide additional means for emerging and breakthrough innovations by small and medium-sized enterprises, start-ups, and midcaps.

Standing alongside our global partners at a time of crisis

The pandemic is a global challenge. Without a global response, every country and region in the world, including the Union, will remain vulnerable. The EU must continue demonstrating solidarity with its partners across the world in the fight against COVID-19.

The Commission proposes to set the Neighbourhood, Development and International Cooperation Instrument at EUR 86 billion, via a new External Action Guarantee, and the European Fund for Sustainable Development to support partners – in particular in the Western Balkans, the Neighbourhood and the rest of Africa – in their efforts to fight and recover from the impact of the pandemic, in cooperation with international partners such as as international financial institutions, the United Nations and the World Health Organisation. A targeted adjustment to the current financial framework will allow EUR 1 billion of additional support to be made available already in 2020.

The support will provide liquidity to small and medium-sized enterprises, preserve investments in renewable energy projects, and increase the capacity of funding in local currencies in partner countries to reinforce health care systems, including preparedness, and to build manufacturing capacity for COVID-19 related vaccinations, treatments and diagnostics. This increased support will target also the most vulnerable countries and regions, addressing the severe social and economic consequences of the pandemic.

The Commission also proposes an additional EUR 5 billion to reinforce the humanitarian aid instrument, reflecting growing humanitarian needs in the most vulnerable parts of the world. The impact of the pandemic and the economic fall-out, for example the loss of income due to collapsing oil and raw material prices and a drastic fall in remittances, are compounding existing needs, making it all the more important that the Union is equipped to demonstrate solidarity with the rest of the world.

ØEquipping other programmes to build resilence and deliver on strategic priorities

The financial framework for 2021-2027 proposed by the Commission in 2018, as reinforced by the Just Transition Mechanism and the changes proposed today, remains the essential point of reference for the final phase of negotiations. The architecture proposed, the level of support, the balance between priorities, and key features such as the target of at least 25% of spending contributing to climate action, and measures to support gender equality and non-discrimination are all necessary for a balanced recovery package. The Commission’s proposal for a Regulation on the protection of the EU budget against generalised deficiencies in the rule of law is another key feature. In addition, strong measures to protect the budget against fraud and irregularities are in place and the Commission will strengthen them further. The European Anti-Fraud Office (OLAF) and the European Public Prosecutor’s Office (EPPO) will exercise their control and investigation powers.

The crisis has clearly illustrated however that in several key areas the levels of support discussed by Leaders in February will not be sufficient. In addition to the reinforcements financed under Next Generation EU, it is therefore imperative that other programmes are strengthened to allow them to play their full role in making the Union more resilient and addressing challenges that have been heightened by the pandemic and its consequences.

These include:

ØBoosting the Union’s cyberdefences and supporting the digital transition by equipping the Digital Europe Programme with a total budget of EUR 8.2 billion.

ØInvesting in an up-to-date, high-performance transport infrastructure to facilitate cross-border connections, such as Rail Baltica, through an additional EUR 1.5 billion for the Connecting Europe Facility.

ØCreating the conditions for a well-functioning single market driving recovery by maintaining the proposed budgets for the Single Market Programme and for programmes supporting cooperation in the fields of taxation and customs at a level of EUR 3.7 billion, EUR 239 million and EUR 843 million respectively.

ØInvesting in young people through an additional EUR 3.4 billion for Erasmus Plus, bringing the total to EUR 24.6 billion, as well as in the cultural and creative sectors through an increase of Creative Europe to a level of EUR 1.5 billion.

ØStrengthening the resilience of the agri-food and fisheries sectors and providing the necessary scope for crisis management through an additional EUR 4 billion for the Common Agricultural Policy and of EUR 500 million for the European Maritime and Fisheries Fund.

ØStepping up cooperation on external border protection and migration and asylum policy by reinforcing the Asylum and Migration Fund and Integrated Border Management Fund to reach a level of EUR 22 billion.

ØEnsuring strong support for European strategic autonomy and security by increasing the Internal Security Fund to EUR 2.2 billion and strengthening the European Defence Fund to a level of EUR 8 billion.

ØSupporting our partners in the Western Balkans by bringing the Union’s pre-accession assistance to a level of EUR 12.9 billion.

With these targeted adjustments, the Union will have a long-term financial framework better aligned with its priorities and ambitions and tailored to building the Union’s resilience and strategic autonomy in the medium- and long-term. The Commission is therefore proposing targeted amendments to its 2018 proposal for the next financial framework incorporating the results of the negotiations to date, its proposal for a Just Transition Mechanism 8 , and the reinforcements discussed above. The full programme by programme overview of the multiannual financial framework incorporating Next Generation EU is presented in the Annex.

ØMore flexible emergency tools

Beyond the individual programmes, the crisis has underlined how important it is that the Union is able to react fast and flexibly to put in place a coordinated European response. This in turn requires a more flexible EU budget. The wide-ranging fallout from the health crisis quickly exhausted the flexibility of the current budget. A more flexibile and agile budget is needed for the future, which can only be achieved through well-designed special instruments.

The Commission therefore proposes to reinforce flexibility and emergency tools that can mobilise resources at scale to deal with unforeseen challenges, such as the EU Solidarity Fund, which provides support to Member States and regions affected by large scale disasters, and the European Globalisation Adjustment Fund, that supports workers who lose their jobs as a result of major restructuring events.

A significantly enhanced Solidarity and Emergency Aid Reserve will reinforce EU action in response to all aspects of the health crisis, as well as other emergencies. Funds can be channelled to provide emergency support as and when needed through EU instruments such as humanitarian aid, the Emergency Support Instrument, the Single Market Programme, with its emergency veterinary and phytosanitary measures, or the Asylum and Migration Fund.

Together, these instruments would provide for up to EUR 21 billion in additional emergency financing over the 2021-2027 period compared to the Commission’s proposals of 2 May 2018.

3.Making it happen: Next Generation EU

The bulk of the proposed recovery measures will be powered by a new temporary recovery instrument Next Generation EU with financial firepower of EUR 750 billion. The instrument will be an exceptional and temporary emergency mechanism. The financing will be enabled by the Own Resources Decision, which will allow the Commission to borrow up to EUR 750 billion on behalf of the Union, for measures over the period 2021-2024.

To provide the necessary budgetary capacity to accommodate the potential liabilities relating to the financing of Next Generation EU and in accordance with the requirements of budgetary discipline, the revised Own Resources Decision will include an exceptional and temporary increase of the own resources ceilings for commitments and payments by 0.6% of EU gross national income. The expansion of the ceilings will be used for the sole purpose of addressing the COVID 19 crisis needs and limited to the duration needed to cover these liabilities.

The scale of Next Generation EU and its design reflect the magnitude and urgency of the challenges facing the Union. The financing needs for urgent investments arising in the wake of the crisis are unprecedented. A decisive and extraordinary response at Union level is therefore necessary. The unprecedented nature of this operation and the exceptional amount of those funds call for anchoring them in the system of own resources, which is approved by all Member States in accordance with their constitutional requirements. 

Additional support financed through increased national contributions in the immediate aftermath of the crisis would further increase the pressure on national budgets. In these extraordinary circumstances, it is fully justified to use a financing mechanism that would provide a significant and timely spending boost without increasing national debts, as an expression of solidarity at a scale commensurate with the crisis.

The borrowing will build on the Union’s strong track record of using market-based instruments to support investment and reforms in the Member States. The Union will borrow on the financial markets on terms reflecting its very high credit rating and channel these funds swiftly to where they are needed most.

To this end, the Commission will issue bonds with different maturities in capital markets, making best use of the capacity of these markets to absorb such bonds while ensuring the lowest average cost of borrowing. Such a diversified funding strategy allows the Commission to conduct borrowing operations in a manner best suited to the scale of the operations and the prevailing market environment.

EUR 500 billion of the funds channeled through Next Generation EU will be used to fund the grant component of the Recovery and Resilience Facility and reinforce other key crisis and recovery programmes. The rest of the funding mobilised via the instrument of EUR 250 billion will be made available to Member States in the form of loans under the Recovery and Resilience Facility.

The funds raised will be repaid after 2027 and by 2058 at the latest. This will help to relieve pressure on Member State budgets at a time when public finances are under severe strain, while ensuring that all obligations arising from this debt issuance will be honoured from future EU budgets. To facilitate the repayment of the market finance raised and further help reduce the pressure on national budgets, the Commission will propose additional new own resources at a later stage of the financial period.

Looking to the future: reforming the own resources system

The new economic context and the sustainable management of the repayment of funds raised under Next Generation EU strengthens the case for fundamental reform of how the EU budget is financed.

The Commission continues to take the view that phasing out all rebates will make the multiannual financial framework more balanced. However, in the present situation, given the economic impact of the COVID-19 pandemic, phasing out of rebates would entail disproportionate increases of contributions for certain Member States in 2021-2027. To avoid this, the current rebates could be phased out over a much longer period of time than foreseen by the Commission in its proposal in 2018.

New own resources would complement the traditional own resources, a simplified value added tax-based own resource and national contributions, as well as new own resources based on non-recycled plastics packaging waste. They will build on EU priorities and policies aiming to address climate change, but also fair taxation in a globalised world.

The Commission is committed to deliver on the Green Deal. In that context, green own resources could contribute to the recovery effort, while supporting the green transition of the European economy and society. Options could include an Emissions Trading System-based own resource including its possible extension to the maritime and aviation sectors, and a carbon border adjustment mechanism.

An Emissions Trading System-based own resource as discussed at the European Council in February 2020 would allow Member States to keep the same amount of revenue that they received from auctioning over a recent period. Any revenue generated by the European Emissions Trading System exceeding this maximum would go to the EU budget. Such own resource could generate revenues for the EU budget of about EUR 10 billion, depending on the evolution of the carbon price and the extension of the system to other sectors.

At the same time, it will be important to ensure that EU companies compete with non-EU companies on a level playing field. A carbon border adjustment mechanism would help to prevent carbon leakage, which undermines EU efforts to transition towards a carbon-neutral society. A carbon border adjustment mechanism could bring additional revenues ranging from about EUR 5 billion to EUR 14 billion, depending on the scope and design.

Companies that draw huge benefits from the EU single market and will survive the crisis, also thanks to direct and indirect EU and national support, could contribute to rebuilding it in the recovery phase. This could include an own resource based on operations of entreprises which, depending on its design, could yield around EUR 10 billion annually.

A digital tax would build on OECD work on corporate taxation of a significant digital presence; the Commission actively supports the discussions led by the OECD and the G20 and stands ready to act if no global agreement is reached. A digital tax applied on companies with a turnover above EUR 750 million could generate up to EUR 1.3 billion per year for the EU budget.

These new own resources could help finance the repayment of and the interest on the market finance raised under Next Generation EU. If introduced by 2024, Member States’ national contributions to the 2021-2027 multiannual financial framework could decrease as a share of their economy compared to their payments in 2020.

All revenue and payment flows based on Next Generation EU will be additional to the appropriations allocated during the annual budgetary procedure, and will therefore not impact on the budgetary balance. These flows, including interest paid, will be shown distinctly in the budget to illustrate their temporary and exceptional character and to provide full transparency 9 .

In addition, the economic impact of the Coronavirus pandemic highlights the importance of ensuring sufficient fiscal space for the Union in cases of economic shocks leading to a decrease in gross national income. In order to preserve a sufficient margin under the own resources ceilings for the Union to cover its financial obligations and contingent liabilities falling due in a given year, even under the most adverse economic developments, the Commission proposes to increase the own resources ceilings on a permanent basis to 1.46% of EU gross national income for commitments and to 1.40% for payments.

4.Conclusion – the path to a swift agreement on an ambitious budget for European recovery

At this time of extraordinary hardship and uncertainty, the Union needs more than ever to show that it is ready and willing to act decisively and chart a path to a better tomorrow. Agreement on an ambitious recovery plan with the EU budget at its heart will give the Union the best possible chance of success.

Next Generation EU will unlock the full potential of the EU budget to kick-start the economy and boost Europe’s sustainability, resilience and strategic autonomy. It builds on the Union’s experience of harnessing market financing and expands it to achieve the scale of support that is urgently needed in today’s circumstances.

A reinforced multiannual financial framework for 2021-2027 will guide the Union back from crisis to the path of long-term recovery, providing essential financing for immediate needs and for long-term investments in the green and digital transitions.

The success of the recovery plan will depend not only on its scale and ambition, but also on the speed of action and the ability to adjust the response in the light of developments. Financial support is urgently needed in many parts of the Union to keep businesses afloat and support those in greatest need. Time is also short for agreeing on the long-term framework – but it is not too late. A swift agreement will allow the reinforced programmes to be launched on time.

The Commission shares the European Parliament’s determination to ensure that there is a seamless transition to the new long-term framework. However,prolonging the current framework is no substitute for a comprehensive agreement on a new, modern long-term budget. This is the only way to equip the Union with the new programmes and tools that will be essential to delivering the recovery plan. The full and undivided focus of the interinstitutional work in the coming weeks should therefore be on finalising Next Generation EU and the new long-term framework.

The European Commission invites the European Council and the co-legislators to examine these proposals rapidly, with a view to reaching a political agreement at the level of the European Council by July. 

An early decision on the proposal to amend the current framework will allow additional funding to be made immediately available for REACT-EU, the Solvency Support Instrument and the European Fund for Sustainable Development, reflecting the urgency of these needs.

The Commission will then work closely with the European Parliament and the Council to finalise an agreement on the future long-term framework and the accompanying sectoral programmes. Completing this work in the early autumn would mean that the new long-term budget could be up and running and driving Europe’s recovery on 1 January 2021.

Acting now will show a Union ready to do whatever is necessary to get the economy back on track, to protect the livelihoods of all Europeans, and to invest in Europe’s long-term transition to a fairer, greener and digital future.

EUR billion, 2018 prices

(1)      COM(2020) 456.
(2)      SWD(2020) 98.
(3)      Unless indicated otherwise, amounts are expressed in constant 2018 prices.
(4)      Based on a conservative assumption concerning the expected multipliers and the results achieved by comparable instruments. However, the accuracy of the expected multipliers may be affected by the volatility of the current economic situation.
(5)      European Parliament Resolution of 17 April 2020 on EU coordinated action to combat the COVID-19 pandemic and its consequences, reaffirmed by the European Parliament Resolution of 15 May 2020 on the new multiannual financial framework, own resources and the recovery plan.
(6)      Conclusions of the President of the European Council following the video conference of the Members of the European Council, 23 April 2020.
(7)      EUR 1.25 billion from reflows from financial instruments and EUR 250 million from the budget.
(8)      COM(2020) 22, COM(2020) 23.
(9)      The borrowing costs for the grant component of Next Generation EU will be paid by the EU budget. It is estimated that these costs will amount to up to EUR 17.4 billion during the 2021-2027 financial framework.
Top

Brussels, 27.5.2020

COM(2020) 442 final

ANNEX

to the

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS








































The EU budget powering the recovery plan for Europe

























RECOVERY AND RESILIENCE FACILITY 

Objective: Support for investments and reforms to make EU economies more resilient and foster sustainable growth

Mechanism: Grants and loans 

Crisis needs and expected impact

ØThe COVID-19 crisis will severely affect all EU Member States. The impact and consequences of the crisis will however differ between Member States. The aim of the Recovery and Resilience Facility will be to improve the resilience of the economies of Member States, mitigate the economic and social impact of the crisis and support the recovery, while fostering green and digital transitions, thereby avoiding the crisis undermining convergence between Member States.

ØThe short-term impact of the COVID-19 crisis will depend critically on the duration and severity of the lockdown measures, the composition of output and the economic policy measures taken to cushion the immediate impact of the crisis. The medium and long-term consequences of the crisis will depend on how quickly Member State economies recover from the crisis, which in turn depends on the resilience of their economies and the the ability to take adequate measures. Given unequal fiscal starting positions and markedly different infection rates and degrees of public health emergency, there is a real risk that the COVID-19 crisis will lead to a further widening of the divergences in the EU. This would be economically, socially and politically very costly and – if left unaddressed – not sustainable.

ØThe Recovery and Resilience Facility will offer large scale financial support for investments and reforms, including in the field of the green and digital transitions, that make economies more resilient, and better prepared for the future. It will help Member States address the challenges they are facing, in an even more critical manner in the aftermath of the crisis. Crucially, it will also ensure that these investment and reforms focus on the challenges and investment needs related to the green and digital transitions, thereby ensuring a sustainable recovery. The facility will thereby counteract possible tendencies for longer-term investment into the green and digital transformation of our economies to be sidelined in the aftermath of the crisis. The Facility will be accompanied by the offer of significant technical support.

Implementation

ØThe Facility will have significant firepower and will be a key programme of Next Generation EU as part of the revised multiannual financial framework. It will provide both grants and loans to finance investment and reform needs.

ØThe Recovery and Resilience Facility will be embedded in the European Semester. Member States will submit national Recovery and Resilience plans as part of their National Reform Programmes. These plans will contain their investment and reform agenda for the years ahead, as well as the investment and reform packages to be financed under the Facility. The Commission will assess the plans on the basis of their impact on competitive sustainability, economic and social resilience, sustainable growth, and green and digital transition of the Member States.

ØThe allocation of resources will be an expression of the objective of the instrument: facilitating a lasting recovery, improving the resilience of the EU economies and reducing the economic divergences between Member States. No national co-financing will be required.

Complementarity with EU and national policies

ØThe Facility will be part of the European Semester. Investments presented under the Recovery and Resilience plans should be coherent with the long-term strategies of the Union, in particular the European Green Deal and the digital transformation, the Member States’ national energy and climate plans, as well as with the Just Transition plans whenever relevant.

ØThe Facility will be complementary to recovery assistance for cohesion (REACT-EU), which will target crisis repair actions in the shorter term related to labour markets, health care and SMEs (liquidity and solvency support), and essential investments in the green and digital transitions to provide immediate and direct support to Member State economies. The Recovery and Resilience Facility will support investments and reforms that will have a lasting impact on the productivity and resilience of the economies of the Member States.

ØMember States will indicate in their national recovery and resilience plans existing or planned financing under other Union policies and how complementarity between these investments will be ensured. Decisions to provide financial support to a Member State under the Recovery and Resilience Facility will take into account the measures financed by other Union funds and programmes, thereby avoiding double funding. Finally, investments and reforms that will benefit from financial contributions under the Recovery and Resilience Facility will be identified in the context of the European Semester, thereby ensuring additionality and facilitating the monitoring of their implementation.

Financial aspects

The financial envelope of the Recovery and Resilience Facility mobilised by Next Generation EU will be EUR 560 billion of which EUR 310 billion for grants and EUR 250 billion for loans.

RECOVERY ASSISTANCE FOR COHESION

AND THE TERRITORIES OF EUROPE (REACT-EU)

Objective: Investment in short-term crisis repair actions

Mechanism: Mainly grants

Crisis needs and expected impact

ØCohesion policy will be crucial to ensure a balanced recovery, avoiding asymmetries and divergences from growing between and within Member States. It will provide support to Member States and regions most impacted by the COVID-19 outbreak. The new REACT-EU initiative aims at increasing support to Member States, bridging the gap between first-response measures and longer term recovery.

ØREACT-EU will provide additional funding for the most important sectors assisting the crisis repair actions that will be necessary to lay the basis for a green, digital and resilient recovery.

ØThis will involve investment to repair labour markets, including through employment subsidies, short time work schemes and youth employment measures, support to health care systems and the provision of essential liquidity support for working capital for small and medium-sized enterprises. Such support will be available across economic sectors, including for the much-affected tourism and culture sectors; as these form a particularly large part of some EU economies hit hardest by the COVID-19 crisis, REACT-EU can also counterbalance trends of rising divergence in the Union.

ØThe additional support can also be used to invest in the European Green Deal and digital transition as part of the crisis repair measures, to enhance the significant investment in those areas that is already taking place and planned through cohesion programmes.

ØThe COVID-19 outbreak is also having a severe impact on the most vulnerable of our society. Therefore, part of the additional resources can also be used to support people suffering from food and material deprivation.

Implementation

ØThe 2014-2020 cohesion policy programmes are operating at cruising speed. They are adaptable and flexible, in particular following amendments as part of the Coronavirus Response Investment Initiative packages. They will continue to support costs for eligible projects until the end of 2023.

ØUnder REACT-EU, the current cohesion programmes will receive additional support for key crisis repair measures in 2020, 2021 and 2022. The additional commitments will be implemented through programme amendments or a new dedicated programme submitted by the Member States and adopted by the Commission.

ØThe additional resources will be allocated based on the severity of the economic and social impacts of the crisis and the relative prosperity of Member States. The additional flexibility provided through the Coronavirus Response Investment Initiatives will be maintained. This includes simplified procedures, the possbility to transfer resources between funds and categories of regions, and a relaxation of the rules on co-financing - thus enabling financing entirely by the EU budget.

Complementarity with EU and national policies

ØREACT-EU will be complementary to the Recovery and Resilience Facility and to existing cohesion policy support. It will target crisis repair actions in the shorter term related to labour markets, health care and SMEs (liquidity support for working capital), and essential investments in the green and digital transitions to provide immediate and direct support to Member State economies, while the Recovery and Resilience Facility will support investments and reforms that will have a lasting impact on the productivity and resilience of the economy of the Member States. 

ØREACT-EU will also be complementary to the proposals for the future 2021-2027 cohesion policy programmes. These proposals are being adjusted to give stronger support to investments in areas like the resilience of national healthcare systems, in sectors such as tourism and culture, or in youth employment measures, education and skills and measures combatting child poverty. They will also ensure appropriate support for small and medium-sized enterprises. They will provide for greater flexibility for transfers between funds and introduce new provisions to allow for rapid reaction in emergency situations. A review of national cohesion allocations in 2024 will ensure appropriate additional support to Member States and regions most in need, taking into account the latest available national and regional statistics.

Financial aspects

ØThe resources for REACT-EU will be EUR 55 billion to be committed in 2020, 2021 and 2022.

INVEST EU

(INCLUDING A STRATEGIC INVESTMENT FACILITY)

Objective: Mobilising investment to support the recovery and long-term growth, including a new facility to promote investments in strategic European value chains

Mechanism: Provisioning of budget guarantee

Crisis needs and expected impact

ØThe InvestEU Programme is uniquely suited to providing emergency funding and supporting Union policies in a recovery from a deep economic crisis. This has been borne out by the experience with the implementation of the European Fund for Strategic Investments and financial instruments — the precursors of InvestEU — in the wake of the past financial crisis.

ØIn the current crisis, the market allocation of financial resources is not fully efficient and perceived risk impairs private investment flow significantly. Deep uncertainty currently compromises the quality of financial market information and lenders’ ability to assess the viability of companies and investment projects. If left unmitigated, this can create pervasive risk aversion towards private investment projects and contribute to a ‘credit crunch’. Under such circumstances, the key feature of InvestEU of de-risking projects to crowd in private finance is particularly valuable and should be exploited.

ØAn enhanced InvestEU programme will be able to provide crucial support to companies in the recovery phase and at the same time ensure a strong focus of investors on the Union’s medium- and long-term policy priorities such as the European Green Deal and the digitalisation challenge. It will increase the risk-taking capacity of the European Investment Bank Group and National Promotional Banks in support of economic recovery.

ØThe programme will be further enhanced through a Strategic Investment Facility, which will focus on building resilient value chains in line with the strategic agenda of the Union and the new industrial strategy presented by the Commission. Such projects could include Important Projects of Common European Interest or projects with similar characteristics, for example in the pharmaceutical industry.

ØSuch a facility is of particular importance in the post-crisis situation, as some Member States might not have the financial means to support such projects with national state aid, and many projects are cross-border and require a European approach. The new facility will help overcome these difficulties.

Implementation

ØThe features of four policy windows of InvestEU have already been agreed by co-legislators, but their financial firepower will be increased. The capacity of the European Investment Bank Group and other implementing partners to provide finance will be increased accordingly.

ØThe new Strategic Investment Facility will be the fifth window under the InvestEU fund as an important part of the recovery package. The facility will support the creation and development of strong and resilient value chains across the EU. By targeting EU value chains, the Facility will enhance the strategic autonomy of the Union economy whilst providing from within the EU the resources for strategically important corporates to prosper and grow. The facility will target corporates established and operating in the European Union whose activities are of strategic importance and fall under areas such as critical infrastructure and technologies and critical healthcare provision. Moreover, it will support strategic value chains for example in smart health, the industrial internet of things, low-CO2 emission industry and cybersecurity. Such operations may be inherently riskier in the post-COVID business environment as the promoters are more exposed to demand or supply side risk. Long-term investments will therefore play a crucial role in strengthening companies that implement projects of high strategic importance. 

Complementarity with EU and national policies

ØThe Strategic Investment Facility will be complementary to the Solvency Support Instrument under the European Fund For Strategic Investments. The Solvency Support Instrument is an immediate and temporary instrument intended to provide support for the solvency needs of the companies most affected by the COVID-19 crisis, aiming to rebuild their capital position as a crisis response measure.

ØThe Strategic Investment Facility will take a more forward-looking approach, helping to build post-crisis markets, by focusing support on projects relevant for achieving strategic autonomy in key value chains in the single market by supporting the scaling up of EU-based projects via cross-border investments.

Financial aspects

ØThe additional financial contribution from Next Generation EU of EUR 15.3 billion for the existing policy windows and of EUR 15 billion for the Strategic Investment Facility window will bring the total allocation of InvestEU to a level of EUR 30.3 billion. This will enable a guarantee level of EUR 72 billion, allowing for an overall investment level of up to 400 billion.

SOLVENCY SUPPORT INSTRUMENT

Objective: Mobilisation of private investment to provide solvency support to viable companies hit by the crisis

Mechanism: Provisioning of budget guarantee

Crisis needs and expected impact

ØAt present, companies are receiving substantial liquidity support to help them bridge the crisis period, mainly via national budgets under the State aid temporary support to the economy in the context of COVID-19. However, as a consequence of the crisis, more and more companies that would otherwise be viable will face solvency problems and the liquidity support will not be sufficient. This is partly related to the fact that liquidity support typically takes the form of loans, which can further weaken corporate balance sheets as many companies witnessed a steady increase in leverage in recent years. This means that many EU businesses entered the crisis on a relatively weak financial footing and are likely to see a rapid deterioration of company earnings and equity positions as the recession unfolds.

ØInitial estimates indicate that, in case the baseline economic scenario from the Spring Forecast materialises, total losses to be incurred by firms with more than 20 employees could amount to EUR 720 billion by the end of the year. These losses would increase to around EUR 1.2 trillion in the stress scenario. Firms can partially weather the incurred losses by relying on liquid assets and working capital, but in many cases these buffers will not be sufficient. The estimates show that between 35% and 50% of firms with more than 20 employees could experience working capital shortfalls by the end of the year, depending on whether the central or the stress scenario materialise. This means that up to 260 000 European companies employing around 35 million employees could experience financing shortfall in the case of the adverse scenario. In general, most European industrial ecosystems rely on complex supply chains spread across Member States in the Single Market. If left unaddressed, these capital shortfalls may lead to a prolonged period of lower investment and higher unemployment. The impact of the capital shortfall will be uneven across sectors, industrial ecosystems and Member States, leading to divergences in the Single Market, and lasting damage to our productive potential and the ability to recover from the recession.

ØThe Solvency Support Instrument is a new and temporary instrument created as part of the European Fund for Strategic Investments to avoid massive capital shortfalls and possible defaults of otherwise viable companies due to the COVID-19 crisis. It will help mobilise private resources to support viable European companies to address solvency concerns. It will be temporary, targeted solely and strictly at addressing the impact of COVID-19.

ØIn some Member States, the State will have the capacity to step in to support those companies. In others, the capacity for State support will be more limited. The economic effects of the COVID-19 pandemic have also been different across the Member States. If left unaddressed, such differences would lead to a permanent distortion of the level playing field and a further widening of the economic divergences within the Union. The Solvency Support Instrument will counterbalance such distortions and support the smooth functioning of the single market.

Implementation

ØThe Solvency Support Instrument will provide a Union guarantee to the European Investment Bank Group in order to mobilise private capital to support eligible companies negatively impacted by the COVID-19 crisis.

ØWhilst ensuring that all Member States and sectors can benefit from the Union guarantee, the use of the Union guarantee would be steered to the Member States and sectors which have been economically hardest hit by the COVID-19 crisis, and to companies in Member States where the availability of State solvency support is more limited.

ØThe European Investment Bank Group will use the Union guarantee to reduce the risk for private investors of investing in eligible companies by providing guarantees or financing to investment vehicles (privately managed funds or Special Purpose Vehicles) that are run on commercial terms, thereby mobilising private resources to support such corporates. This will allow eligible companies to seek new capital from private investors, thereby strengthening their capital base and addressing risks to their solvency. Such an intermediated system ensures that only independent managers of the investment vehicles will decide on what companies will be supported. The involvement of the private sector as potential investors will allow for a more targeted provision of capital to companies that are genuinely viable.

Complementarity with EU and national policies

ØThe Solvency Support Instrument is an immediate and temporary complement to a reinforced SME window in InvestEU, an increased cohesion envelope targeting SMEs and the COVID-19 Guarantee Fund that is being established by the European Investment Bank, as well as to the Strategic Investment Facility under InvestEU.

ØThe instrument would complement national policies that a limited number of Member States are putting in place, ensuring solvency support is available across the Union. The conditions of the instruments should be consistent with State aid rules to ensure a level playing field and facilitate possible combinations with support provided directly by Member States, while due regard would be given to the European nature of the instrument and to the funds’ commercial management.

Financial aspects

A financial envelope of EUR 31 billion will increase the EU guarantee under the current financial framework by EUR 66 billion. This guarantee will allow mobilising investment of around EUR 300 billion, starting already in 2020.

EU4HEALTH PROGRAMME

Objective: Investments in health security and the resilience of health systems

Mechanism: Grants and procurement

Crisis needs and expected impact

ØAn ambitious self-standing EU4Health programme will reflect the lessons learned from the COVID-19 crisis and previous health programmes. It can help to build and re-build treatment capacities and equipment and medicine supplies, thereby providing support for the health challenges ahead. The new programme will be a key tool to help equip Europe against future health threats.

ØIt will aim at creating a comprehensive framework for addressing such health threats, link up with all relevant health-related EU programmes and establish new ways to implement actions and to ensure availability of medical countermeasures and resources in the event of major health threats.

ØA first strand of the programme will address health security. It will cater for a strong, legally sound and financially well equipped framework for EU health crisis prevention, preparedness and response. Such framework will reinforce national and EU capacity for contingency planning and enable Member States to jointly cope with common health threats, in particular cross-border threats (including those from outside the EU), where EU intervention can add tangible value.

ØA second strand will support a ‘One Health’ longer-term vision of improving health outcomes via efficient and inclusive health systems across the Member States, through better disease prevention and surveillance, health promotion, access, diagnosis and treatment, as well as cross-border collaboration in health. 

ØThe new programme will also address non-communicable diseases. They have shown to be strong determinant of mortality from COVID-19.

ØIn addition, ambitious specific initiatives could for instance target the eradication of specific diseases, like the reduction of cases of cervical cancer and seasonal influenza. They would help prevent avoidable harm and avoidable cost, and reduce health inequalities.

Implementation

ØThe programme will build on ongoing work, such as the European Reference Networks for rare diseases and crisis prevention, preparedness and management, to ensure sufficient critical mass and economies of scale. It will support upward convergence, promote prevention, integration of care and equal access to healthcare.

ØThe programme will secure sustained investments in the necessary structures and tools for operational support in the EU to deal with health crises, addressing prevention, preparedness and response, and supporting true cross-sectoral coordination at EU level. Work will be undertaken in close collaboration with the ECDC, EMA, EFSA or ECHA, expert groups and EU reference laboratories as well as with international bodies such as the World Health Organisation.

ØOn the basis of scientific advice, the EU4Health programme will ensure the strategic procurement for items such as biocides (disinfectants), reagents for testing, protective gear, essential medicines, medical equipment, diagnostic reagents (e.g. breathing support, CT scanners) and other relevant goods (such as injection material and sterile bandaging). It will aim to establish timely supply of appropriate countermeasures for major communicable diseases, available when needed for Member States. The programme will also provide incentives for vaccines development, production and deployment within the Union and to relaunch EU production of medicines and active pharmaceutical ingredients/precursors.

ØThe new programme will support rescEU efforts to strengthen the European Medical Corps by subsidising permanent expert teams. Building on the experience from the veterinary field, it will subsidise health and logistics experts and, where relevant, medical staff who can be activated at any moment in time and dispatched across the EU to provide advice and expertise. Teams will be supported with equipment (e.g. mobile laboratories).

ØThe programme will also support the coordination between health care infrastructures and medical and veterinary laboratory capacity across the Union, including preparations for the establishment of of a European infrastructure to exchange information on critical care possibilities. The programme will set up a simple system to support cross-border joint procurement of products, tools and services which demonstrate a clear EU added value for health systems’ collaboration.

ØThe EU4Health programme will help ringfencing funding for key interventions in eHealth in addition to funding in the Digital Europe Programme, including supporting the use of data for healthcare, research and policy making (in the context of the European Health Data Space) through clouds or other infrastructures and data intensive technologies such as artificial intelligence tools. It will support the increased use of tele-health, including the uptake and strengthening of the telemedicine model of European Reference Networks. It will help develop European benchmarks and transnational solutions.

ØThe programme will help preventing diseases, including through supporting Member States in their policies and based on their strong technical guidance and political choices, on prevention and of promotion of a healthy lifestyle. It will help gathering and appropriate sharing of available sources of data and intelligence across services, EU agencies as well as national and international health related bodies and promote evidence-based best practices in prevention and management of diseases.

ØAction on prevention will be based on a true ‘One Health’ approach to disease and will include building knowledge and understanding of the evolution of zoonoses, and potential zoonoses.

ØThe programme will support actions to improve infection prevention and control, to rapidly and correctly test for and diagnose infections, to treat patients using the appropriate antimicrobials and reduce inappropriate and dangerous antimicrobial use in all fields. An international component will ensure that European health policy is connected to international developments and usefully complements actions on issues of regional and global concern.

Complementarity with EU and national policies

ØThe key principle will be that the new programme will be the catalyst for new approaches from best practices or innovative solutions, or results of research projects by helping to pilot and test them at the susceptible population level before the full scale roll-out. The new programme will also interact with the Recovery and Resilience Facility. Whilst the facility will provide incentives for new reforms, the new EU4Health programme can support the coordination of implementation across Member States.

ØThe new programme will aim at delivering outcomes which are directly focused on health. It will thus create synergies and will help mainstream health in other EU programmes such as the European Fund for Regional Development, the European Social Fund Plus, Horizon Europe, the Digital Europe Programme, the Single Market Programme and the common agricultural policy. The new programme will in particular work with, and be complementary to, rescEU, which is focused on direct crisis response capacities, stockpiles, deployment and dispatching of equipment and staff in emergency situations, by providing the necessary health contributions.

ØThe new programme will work with Member States, respecting the division of competences set out in Article 168 of the Treaty on the Functioning of the European Union, and drawing on existing cooperation mechanisms, focusing on strategic and cross-border aspects.

ØComplementarity with the outputs of the agencies concerned with health will benefit from investments from this programme, particularly in view of transferring best practices, protocols for surveillance or programmes for capacity building.

ØThe new programme will also support common efforts of the Union and its Member States in ensuring the availability of medical resources (drugs, vaccines, human resources, equipment), in close collaboration with the future rescEU programme.

Financial aspects

ØThe additional financial envelope mobilised by Next Generation EU will be EUR 7.7 billion.

UNION CIVIL PROTECTION MECHANISM/rescEU

Objective: Reinforcing the Union’s civil protection mechanism response capacity

Mechanism: Grants and procurement

Crisis needs and expected impact

ØEnhanced Union Civil Protection Mechanism/rescEU capacities will allow the EU and the Member States to be better prepared for and able to react quickly and flexibly in crises, in particular those with a high-impact given the potential disruption to our economies and societies, as seen so clearly in the COVID-19 emergency. Although comparatively rare, large-scale emergencies and catastrophes can cause severe and long-lasting damage to our economies and societies, and therefore require a much greater level of planning and preparedness.

ØBased on the lessons learned from the crisis, the expanded rescEU capacities should allow the EU to develop and acquire stockpile capacity together with relevant dispatching capacity (such as warehouse facilities, transport means and overall logistical support).

ØEnsuring an effective overall EU response to large-scale emergencies, rescEU requires maximum flexibility and a true ability to act at EU level, including budgetary and operational flexibility and streamlining, in situations when overwhelmed Member States cannot do so.

ØThe upgraded programme will also endow the Union with capacities and a proficient logistical infrastructure that can cater for different types of emergency, including those with a medical emergency component. This would entail mechanisms that would allow the EU to:

·Aquire, rent, lease and stockpile identified rescEU capacities;

·Bring in products and personnel from outside the EU and dispatch inside the EU;

·Swiftly transport products and personnel from several points across the EU to other points where the products and personnel are needed. Internationally deployable expertise for all types of disaster (including ‘flying medical experts’ – specialist doctors, nurses, epidemiologists, intensivists and integrated well-equipped emergency medical teams);

·Swiftly transfer disaster victims/patients to where they can receive care most efficiently when local and national capacities are overwhelmed. Such infrastructure will include a system of available care facilities across Member States.

ØThe mechanism will include an enhanced, integrated live communication system that is accessible to all Member States, so that relevant assets can be activated at short notice at any moment in time.

ØThe international preparedness and response component will also be enhanced so that capacities can also be used outside the EU.

Implementation

ØThe EU will be able to directly procure, fund and put in place adequate strategic rescEU capacities, logistic warehousing and logistical transport, as well as an inter-connected emergency information management infrastructure that can cater for any type of emergency, deployable under the auspices of the rescEU. These strategic capacities will be supplementary to those of Member States. They should be located on the territories of several EU Member States in such a way as to ensure the most effective geographic coverage in response to an emergency. The EU budget would bear entry/exit/transport costs as well as storage and financial costs.

ØThe Commission should be able to acquire, rent or lease transport and logistical capacity (multi-purpose air lift / transport capacity). This would allow the EU to respond to any kind of emergency situation within the EU and in third countries (including medical: transfer of victims of disasters, patients, doctors, European Medical Teams, repatriations, as well as any type of cargo related to emergency response). The warehousing of assistance and the transport capacity should be strategically interlinked to increase the speed of delivery and ensure the well functioning of the supply chain.

ØAdministrative procedures will be kept to a minimum in order to reduce the burden and delays in deployment, which is crucial in emergency situations.

ØThe rescEU will have provisions that allow for budgetary flexibility, including multiannual programming for prevention and preparedness component and ensuring immediate availability and flexibility of funds for response. As amply illustrated with the COVID-19 crisis, emergencies are by their nature unpredictable and not evenly spread over a programming period; but when an emergency occurs, speed of response is of the essence.

Complementarity with EU and national policies

ØThe enhanced Union Civil Protection Mechanism/rescEU will be at the heart of a more integrated emergency management approach. With its enhanced European Emergency Management Hub, it will be the operational one-stop shop managing the EU’s strategic capacities and providing a swift and effective response to all kinds of large scale crises.

ØIt will serve all Member States across different sectors, having different types of strategic rescEU capacities, depending on the crisis situation. Having its own logistical capacities should be sufficient for transfer of goods, medical staff and patients to a degree needed by any overwhelmed State, bringing in a timely manner tangible EU added value.

ØThe complementarity of the Union Civil Protection Mechanism rescEU component, and in particular its emergency stockpiling, with other EU funded preparedness actions will be ensured. It will be based on specific criteria, such as the categories of items covered (specialist niche, generic needs, first-responder grade items, etc.).

Financial aspects

ØThe additional financial envelope mobilised by Next Generation EU for rescEU will be EUR 2 billion.

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