One unintended benefit of the protracted negotiations on the EU’s budget for 2021-2027, known as the Multi-Annual Financial Framework, is that the European Commission was able to substantially revise the proposals to include an EU recovery fund. Budget negotiations had been the source of substantial division between the so-called “frugal north”, who favour attaching stricter conditionality to EU funding and the countries of the southern EU, who want Europe’s members to better leverage their combined financial muscle.
The Commission’s “Next Generation EU” fund proposal comes down on the side of those who want to see the EU spend more. It proposes that the Commission hand out €500 billion in grant funding to member states and another €250 billion in loans. The Commission wants to raise this money by temporarily raising the “own resources ceiling” to 2% of EU Gross National Income, which will allow it to borrow cash on financial markets. To pay this back in the long-term, it wants additional taxation powers, including imposing an EU-wide digital tax.
As for spending the money, there are two key pillars of the plan: digital connectivity and the green transition. Member states will each draw up an individual investment plan based on the Commission’s priorities.
On digital and connectivity, there are four key elements to the Commission’s plans:
- Investing in more and better connectivity, recognising that Europe needs resilient infrastructure which provides sufficient bandwidth to support the economy.
- Technology sovereignty, to ensure that European companies are present in key parts of the technology supply chain. This will include investment in strategic digital capacities and capabilities, including artificial intelligence, cybersecurity, secured communication, data and cloud infrastructure, 5G and 6G networks, supercomputers, quantum and blockchain.
- The development of a data economy, i.e. the implementation of the Commission’s Data Strategy
- A fairer and easier business environment, to be delivered through the Digital Services Act and a new Cybersecurity Strategy
There are also four strands to the green transition pillar:
- A massive renovation wave of buildings and infrastructure and a more circular economy
- Rolling out renewable energy projects, especially wind, solar and mobilizing a clean hydrogen economy in Europe;
- Cleaner transport and logistics, including the installation of one million charging points for electric vehicles and a boost for rail travel and clean
- Strengthening the Just Transition Fund to support re-skilling and avoid structural unemployment
The European Commission leadership was initially stung by criticism of its response to the Covid-19 pandemic and wants to be seen as a strong and decisive driver of the European response. The final size of the fund will be subject to negotiations with member states and the European Parliament, alongside discussions on the overall budget and accompanying proposed EU-level taxes. With this process set to conclude by the end of the year, companies who provide connectivity infrastructure and solutions or who drive the green transition should start reaching out to national capitals to discuss the broad outlines of each country’s investment plan to ensure that the EU’s money is well spent.