Commission’s Recovery Plan: a revised 2021-2027 MFF boosted by a temporary emergency recovery instrument

It aims to help repair the immediate economic and social damage brought by the coronavirus pandemic, kickstart a recovery that is sustainable, even, inclusive and fair for all Member States, and guide and build a more sustainable, resilient and fairer Europe for the next generation.

On 27 May 2020, the European Commission put forward its proposal for a major recovery plan to help repair the immediate economic and social damage brought by the coronavirus pandemic, kickstart a recovery that is sustainable, even, inclusive and fair for all Member States, and guide and build a more sustainable, resilient and fairer Europe for the next generation. To this end, it unveiled its revamped long-term EU budget (the 2021-2027 Multiannual Financial Framework (MFF) package), which will be complemented with a new recovery instrument Next Generation EU, as well as its adjusted Work Programme for 2020, which will prioritise the actions needed to propel Europe’s recovery and resilience.

Commission’s proposals call for a fair socio-economic recovery that leaves nobody behind, repair and revitalise the Single Market, guarantee a level playing field, and support the urgent investments – in particular in the green and digital transitions – which hold the key to Europe’s future prosperity and resilience.

Many of the measures proposed are directly related to the European Structural and Investment Funds (ESI Funds) and to support for the most deprived. Therefore, if adopted, they would represent a step forward and have an important impact in the coming years.

Main elements

The Commission’s proposal is a seven-year EU budget of €1 850 billion (an increase from the intial 1.29 billion budget foreseen), including:

1. A revised 2021-2027 Multiannual Financial Framework (MFF) package of €1 100 billion for 2021-2027

The long-term EU budget builds on the 2018 Commission’s initial proposal and on the progress that has already been made in the European Parliament and the Council and the recent discussions in the European Council and the fallout from the COVID-19 pandemic. While standing by these proposals, which are now being strengthened and adapted to power Europe’s recovery in a future proof way for the next generation, the Commission proposes to increase the budget available through the resources channelled via the ‘Next Generation EU’ initiative (see below).

Following the measures adopted earlier this year under the Coronavirus Response Investment Initiatives (CRII and CRII+) regarding the 2014-2020 programming period, the Commission now also proposes targeted modifications to the new generation of cohesion policy programmes to make them better fit to help the post-crisis recovery. They should operate in complementarity to the REACT-EU initiative (see below) and under more flexible rules and allow for quicker reaction to emergency situations at national and regional level. Under the adjusted proposals, additional flexibility is granted to Member States to transfer resources among funds, and to enable phasing of operations which could not be completed under the 2014-2020 programmes. Over the period 2021-2027, cohesion policy will maintain its long-term role for growth and in the transition to a more resilient, greener and digital Europe. To ensure adequate support to Member States and regions most in need, the Commission will review the cohesion allocations in 2024, taking into account the latest available statistics, with upward adjustments only. This review will lead only to upward adjustments of up to €10 billion for all Member States.

In particular, changes are proposed to the European Social Fund Plus (ESF+) to provide support to the most vulnerable – young people and children in poverty-, while maintaining the 20% requirement for social inclusion. Member States with youth unemployment levels above the EU average should programme at least 15% of these funds to support young people. At least 5% of the funds should be used to help lift children out of poverty.

2. A temporary emergency recovery instrument ‘Next Generation EU’ of €750 billion.

This one-off emergency fund, put in place for a temporary period and used exclusively for crisis response and recovery measures, will provide additional funds to be channelled through EU budget to Member States, including ESI Funds, and used to reinforce financial programmes key to recovery. Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow the amount on the financial markets. This will help to spread the financing costs over time (repayment throughout future EU budgets between 2028 and 2058), so that Member States will not have to make significant additional contributions to the EU budget during the 2021-2027 period. To help do this in a fair and shared way, the Commission proposes a number of new own resources.

Together with the three safety nets for workers, businesses and sovereigns endorsed by the European Council on 23 April 2020 and amounting to a package worth €540 billion, these exceptional measures taken at the EU level would reach more €1.290 trillion.

The Commission also proposed an amended own resources decision, which defines the sources of EU revenue and a mechanism to protect the EU budget in case of generalised deficiencies regarding the rule of law in a Member State (proposal from 2018).

Initiatives around three pillars

To ensure an effective implementation of the Recovery Plan, which reaches out to everybody in the EU and to global partners, the Commission is mobilising a variety of instruments, organised around three pillars:

Pillar I: Support to Member States for investment and reforms to recover, repair and emerge stronger from the crisis
The cohesion policy and the modifications and reinforcement of ESI Funds, including European Social Fund Plus (ESF+), are key elements of this pillar. Key instruments include:

New Recovery and Resilience Facility with a budget of €560 billion – distributed in grants (€310 billion) and loans (€250 billion). It will offer financial support for Member States to implement investments and reforms that are essential for a sustainable recovery, including in relation to the green and digital transitions and the resilience of national economies, linking these to the EU priorities. Member States will design their own tailored national Recovery and Resilience plans, based on the investment and reform priorities identified as part of the European Semester, in line with National Climate and Energy Plans, Just Transition Plans and Partnership Agreements and Operational Programmes under EU funds. Support will be available to all Member States but concentrated on the most affected and where resilience needs are the greatest.

A new initiative, REACT-EU, will make available a €55 billion top-up for the current cohesion policy programmesbetween now and 2022 (€50 billion from Next Generation EU in 2021 and 2022 and €5 billion already in 2020) by adapting the current Multiannual Financial Framework. This will include the flexibility introduced by the CRII and CRII+ initiatives, such as simplified procedures, the possibility 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. 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. Additional funding will be also provided for the Fund for European Aid to the Most Deprived (FEAD). In this way, funding for key crisis repair measures and support to the most deprived will continue without interruption.
A €15 billion additional funding for the European Agricultural Fund for Rural Development (EAFRD) to support rural areas in making the structural changes necessary in line with the European Green Deal and achieving the ambitious targets in line with the new biodiversity and Farm to Fork strategies.
A proposal to strengthen the Just Transition Fund up to €40 billion, to assist Member States in accelerating the transition towards climate neutrality.

In addition, as mentioned before, Cohesion policy programmes will also be strengthened in the next EU budget period to allow for greater flexibility and changes are proposed in the future ESF+.

Pillar II. Kick-starting the EU economy by incentivising private investments
It aims at the economic recovery and the investments in key areas such as digitalisation, innovation, sustainable infrastructures, ecological and digital transition. Key instruments include:

Upgrade InvestEU flagship investment programme to a level of €15.3 billion to mobilise private investment and support Union policies during the recovery in areas such as sustainable infrastructure, innovation and digitisation. This could trigger investment of over €240 billion.
A new Strategic Investment Facilitybuilt into InvestEU– to generate investments of up to €150 billion in boosting the resilience of strategic sectors, notably those linked to the green and digital transition, and key value chains in the internal market, thanks to a contribution of €15 billion from Next Generation EU.
A new Solvency Support Instrumentto mobilise private resources to urgently support viable European companies in the sectors, regions and countries most affected. It can be operational from 2020 and will have a budget of €31 billion, aiming to unlock €300 billion in solvency support for companies from all economic sectors and prepare them for a cleaner, digital and resilient future.

Pillar III. Learning the lessons from the crisis.
It focuses on extracting the lessons from the crisis and facing the strategic challenges of Europe through the allocation of additional resources to existing or new EU programmes including:

A new Health Programme, EU4Health, to strengthen health security and prepare for future health crises with a budget of €9.4 billion. It will be designed and implemented in full respect of the division of competences between the EU and its Member States in the area of health.
A €2 billion reinforcementof rescEU, the Union’s Civil Protection Mechanism, which will be expanded and strengthened to equip the Union to prepare for and respond to future crises.
An amount of €94.4 billion for Horizon Europe, which will be reinforced to fund vital research in health, resilience and the green and digital transitions.
Supporting Europe’s global partners through an additional €16.5billion for external action, including humanitarian aid.
An increase of the Neighbourhood, Development and International Cooperation Instrument to €86 billion, via a new External Action Guarantee, and additional €1 billion for the European Fund for Sustainable Development(EFSD) 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.
An increase of €5 billion for the Humanitarian AidInstrument, reflecting growing humanitarian needs in the most vulnerable parts of the world.

Other EU programmes and instruments will be reinforced to make the EU budget more flexible and responsive and address the challenges brought along by the pandemic and its consequences, including the Digital Europe Programme, the Connecting Europe Facility, the Single Market Programme, Erasmus Plus, Creative Europe, Common Agricultural Policy, European Maritime and Fisheries Fund, Asylum and Migration Fund and Integrated Border Management Fund, Internal Security Fund, Union’s pre-accession assistance). The Commission also proposes to reinforce flexibility and emergency tools for the period 2021-2027, notably the EU Solidarity Fund, the European Globalisation Adjustment Fund and the Solidarity and Emergency Aid Reserve. Together, these instruments would provide for up to €21 billion additional emergency financing over the 2021-2027 period compared to the Commission’s proposals of 2 May 2018.

Next steps

At this time of extraordinary hardship and uncertainty, 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 would 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.

The amendment of the Own Resources Decision requires approval by all Member States in accordance with their constitutional requirements.