EU aid? Nothing definitive yet. Michel’s word (EU Council)

EU aid? Nothing definitive yet. Michel's word (EU Council)

We have to work a lot on various issues, including the conditionality of aid, the financial dimension of the recovery plan, as well as on 'discounts' to budget contributions for some countries. This was said by EU President Michel at the end of the European summit. All the details

The European videoconference summit dedicated to the Recovery fund and the next EU multi-annual budget has ended. An interlocutory meeting was held on Friday 19 June to probe the ground and bring positions closer in view of a possible compromise which should arrive in mid-July when Heads of State and Government will be present in Brussels.

The words of the President of the EU Council Charles Michel are significant.

What did Michel say?

Total amount of EU budget and Recovery, discounts, proportion of loans and grants, conditionalities and distribution criteria are all issues on which the discussion "remains very difficult", according to the President of the EU Council.

"In the coming days we will have to work" on this, "we will try to speed up the negotiations to have a useful discussion in July, today I felt that there is a common political will to act," said Michel.

The work therefore remains complex. "There is an emerging consensus on the recovery fund and the budget, but at the same time we must not underestimate the differences in vision on the various points," admitted EU President Michel on the sidelines.

For the President of the EU Commission Ursula von der Leyen "The first discussion" on Recovery fund and budget "was very positive", the leaders said they wanted "an agreement before August" and are aware that "the success of the Recovery plan it also depends on its rapid adoption ”.

The pressing of the Prime Minister continues. "On the domestic front – he said – Italy has already launched a national consultation with all the political, productive and social forces to develop an investment and reform plan that allows us not to restore the pre-Covid 19 situation but to improve the level of productivity and economic growth ".

Germany has spent money on reaching an agreement in the EU quickly, Angela Merkel said in Berlin after the European Council by videoconference.

The German Chancellor quoted the President of the ECB Christine Lagarde and reiterated that "the economic implications of the pandemic are very tough, we are facing the greatest challenge since the Second World War". Solidarity from Austria, which however does not intend to make discounts.

"The Recovery Fund must not pave the way for a debt union" therefore "there must be a time limit" and "we must discuss who pays how much, who benefits most and what conditions are tied to aid". Thus the Austrian Chancellor Sebastian Kurz in a message posted on Twitter on the sidelines of the EU summit.

"Austria is well coordinated with Denmark, Holland and Sweden" and wants to "contribute" to the EU debate, Kurz underlines, "the goal" of Vienna "is to show solidarity with the countries most affected by the coronavirus".



The documents that illustrate in detail the different pillars on which the 750 billion plan is based, additional to the 1,100 of the budget still under discussion for the 2021-2027 period, explain everything clearly. To the point that it would have been more appropriate to hold the document: “Italy, do you want financial help? Then you have to do until 2058 what we tell you. "

We proceed by points:

  1. Let's start with the numbers. Having ascertained that the additional 750 billion are divided into 500 of subsidies and 250 of loans, in turn the 500 are divided into different instruments, the main one being the tool for recovery and resilience (Rrf). This instrument will make it possible to provide subsidies for 310 billion (335 in current prices) and loans for 250 billion (268 in current prices). The complement to 500 billion will end up in other smaller instruments and, above all, for 67 billion they will serve as a guarantee to the EIB to issue bonds whose proceeds will allow the disbursement of loans to businesses. In essence, the 500 billion drops, at current prices, to 335 billion. Italy can benefit from this sum up to a maximum of 68 billion, followed immediately by Spain with 67 billion. The basis for sharing our share is therefore 20.4%. This does not mean that the 82 billion has reduced to 68, but only that the distribution base of the other instruments will not be the same as the main instrument and that the other sums are even less manageable from Italy. Furthermore, the Commission plans to concentrate the availability of the sums in the first four years of the next seven years, therefore expiring on 31 December 2024, with a commitment to concentrate at least 60% of the expenditure in the first two years. And here the good news ends, if they can be defined.
  2. Admitted and not granted that this numerical distribution holds up to the examination of the European Council on June 19th, the complicated part – but on the other hand unavoidable, if only it has a minimum knowledge of how Community funding works – begins when examining the procedure to follow to receive those funds. The path is very narrow and rough. It provides financial support solely for the purpose of implementing reforms and making investments. Which? Only what helps to address the critical issues identified in the economic policy coordination cycle of the European Semester and is aimed at the "green" and digital transition. Chapter 5 of the document of 47 pages plus attachments that contains the proposal for the Rrf Regulation is a real obstacle course and the pivot of all is the National Reform Plan, of which the plan for the Rf will constitute an attachment to be presented. by April 30th. This plan must define the reforms and investments deemed suitable to achieve the economic policy objectives of the European Semester. An armored path at the center of which is the transition to digital and the "green". Everything must be detailed: intermediate objectives, costs, plan of activities. Everything will be subjected to a careful assessment by the Commission which will examine its consistency with the objectives already defined and make the appropriate changes. But it doesn't end there. Indeed, a quarterly monitoring plan is foreseen, in which the beneficiary Member State will report on the progress made in achieving the commitments undertaken. Finally, the squaring of the circle comes with the progress payment. No reforms? No money.
  3. The other issue still to be explored is that of guarantees. In fact, in order to issue 750 billion triple A rated bonds, the Commission must offer the market well-defined guarantees or capital reserves. It is not enough for the market to know that, in the next 2028-2034 budget, additional revenues will be foreseen (specific to the EU or greater contributions from the Member States). Not surprisingly, in the Merkel-Macron proposal of 18 May, it is clear that the subsidies are "connected to a binding repayment plan". The issue is still in the shadows but the Member States have to commit already, now by then, otherwise goodbye to triple A. We still await details on this.
  4. Having ascertained that all the flesh of the 500 billion grants is concentrated in the 335 billion of the RRF (68 of which are available for Italy), we note that the 250 billion loans are added to the subsidies only if the Member State proves that the reforms and the Planned investments are such that they exceed the available subsidies. Loans come to the rescue. But they are not automatic at all and therefore the 172 billion become a hoax.
  5. The reform and investment agenda – proposed annually by 30 April until 2022, but hopefully brought forward to October of this year – will be assessed by the Commission, to verify its consistency with the predefined objectives. It will therefore be approved with an official decision communicated to the Parliament and the EU Council. The point underlined is that, with this plan, the BICC (budget tool for competitiveness and convergence) is canceled with a stroke of the pen after a year and a half of negotiations. The difference between Bicc and Rrf is enormous: with the former, national governments had a greater role in defining strategic guidelines and the Commission would only supervise the implementation of the programs; it was also permanent, not temporary like the Rrf. With the second, the Commission climbs into the chair and forces governments to stay inside (or outside without pecking a cent) its perimeter. And what are the reforms that the Commission likes? Just read the 1993 specific provisions contained in the memorandum of understanding signed between the Commission and Portugal to obtain the Mes loan. A regulatory deluge that disciplines practically all knowledge of the country's economic policy which must be made virtuous. The guidelines of the RRF are the same: market competitiveness, job flexibility, potential growth. Good clothes for all seasons that the Commission is looking forward to having reprobate Italy wear. But here the reforms are not contested as much as the fact that there are taxes imposed on us as with unruly schoolchildren. A country like ours can and must independently identify priorities and finance them head-on in front of savers.
  6. Has anyone taken into account the damage that our country will receive due to its being subject to the Stability Pact starting from 2021/2022? Have we already forgotten the damage of the "reforms" conceived at the end of 2011 by the Monti government, to make us "credible" in Europe, and the cause of almost 3 years of recession until 2014?
  7. Everyone focuses on the additional 750 billion fund, but few worry about what could happen to the "ordinary" budget of approximately 1,100 billion, which has seen us net taxpayers for 36 billion in the previous seven years. The exit of the United Kingdom, net taxpayer for around 70 billion, will further complicate this game, the balance of which will weigh heavily on the overall budget.
  8. The ECB is buying bonds (mainly public) at the rate of 8 billion per day. We understand that something had to be done to ease the pressure on Lagarde. But those who thought of replacing this pressure with sums paid slowly, late and to a modest extent, perhaps made a mistake. June 4, the date of the next Governing Council of the ECB, is approaching and that day we will be able to understand many things.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Fri, 19 Jun 2020 14:00:17 +0000.