Covid-19: the EU plan for the economic recovery 


The EU is preparing massive investments to support people and businesses as Europe battles a deep economic recession due to the Covid-19 outbreak.

On 27 May the European Commission presented in Parliament a €750 billion economic stimulus plan that along with a revised proposal for the EU's 2021-2027 budget should help mitigate the shock from the coronavirus pandemic and pave the way for a sustainable future.

After the leaders of EU countries agreed a deal on the budget and the recovery plan in mid-July, MEPs adopted a resolution on 23 July laying out their position ahead of negotiations with the Council. Parliament welcomed the agreement on the overall size of the recovery plan, but deplored the decrease in the funds to be disbursed as grants. MEPs also insisted that Parliament, as the only directly EU institution, should be fully involved in decisions on the recovery plan.

Next generation EU: the Commission's recovery plan

On 27 May Commission President Ursula von der Leyen unveiled the Next Generation EU recovery plan that aims to address the damage caused by the pandemic and invest in a green, digital, social and more resilient EU.

Under the proposal, the Commission would borrow the money on the financial markets using its high credit rating, which should secure low borrowing costs. The Commission’s plan envisaged that €500 billion would be distributed in grants, however EU leaders cut the level of grants to €390 billion at their summit on 17-21 July.

The funds will be used to reach the EU’s objectives of climate neutrality and digital transformation, to offer social and employment support as well as to reinforce the EU’s role as a global player.

The Commission’s plan for the recovery fund was introduced during the plenary session in May together with a revised proposal for the EU's 2021-2027 budget amounting to €1.1 trillion. EU leaders reduced the proposed budget to €1.074 trillion at their summit on 17-21 July, which provoked protests from MEPs who pointed out that this would put essential programmes at risk.

The proposals are subject to negotiations between Parliament and the member states in the Council.

Grim economic forecasts

The latest economic forecasts, presented by the Commission in July, show the economy has taken a hard hit because of the health crisis. As people have stayed at home and entire sectors have abruptly shut down for months, the EU economy is facing the prospect of at least a 8.3% contraction this year, which is significantly worse than the fall in 2009. In May the Commission had said it expected the EU economy to shrink 7.4% in 2020.

Even this bleak forecast might underestimate the actual scale of the recession, as the relaunch of economic activity is gradual and could be easily disrupted by a second wave of the coronavirus.

Everyone is affected: many people fear they might lose their jobs and are unwilling to spend, while businesses are facing disruptions in their supply chains. Governments see tax revenue falling and welfare expenditure increasing, which will bring budget deficits, higher levels of debt and drive up borrowing costs.

©Photocreo Bednarek/AdobeStock  

Ambitious response needed

Faced with the scale of the economic hardship, MEPs called for bold and decisive action from Europe in a resolution adopted on 15 May.

The EU is currently devising its next long-term budget and as the response to the current crisis will define developments over the coming years, MEPs said the recovery measures should be added to the plans for the budget. However, Parliament insisted that the recovery package should come on top of the needs of existing EU programmes and not take funding away from them.

MEPs warned that if their demands for an increased long-term budget were not met, they could use their power to veto it.

Recovery funds should go to those hardest hit by the crisis, said MEPs. They wanted most of the money to be disbursed as grants, as there were concerns that loans could worsen the financial situation of crisis-stricken member states.

The resolution suggested the recovery package should be financed through the issuance of long-term recovery bonds guaranteed by the EU budget. MEPs also pointed out the need for new sources of revenue for the EU budget; otherwise, a larger budget would entail higher direct contributions from member states.

The EU will still need to prioritise climate actions and a digital strategy, said MEPs, adding that a new EU health programme should be created ensuring that medical supplies are available across the EU in times of need.

Find out what the EU is doing to fight the Covid-19 crisis and check out a timeline of the adopted measures.