Charles Michel presents revised MFF, recovery fund negotiating box

He proposes introduction of a digital levy by the end of 2021

Photo: EU Charles Michel.

The revised proposal for the "negotiating box" that will be the basis for the discussions on the next programming period finances by the EU27 leaders at their summit exactly after a week, was resented by European Council President Charles Michel on Friday. After intensive bilateral talks with the leaders of all 27 Member States and meetings with the Parliament, he identified the six building blocks of possible future agreement, he told the press at a news conference.

The European Council President proposed 2021-2027 budget a €1.074tn, a bit less than his proposal in February -  €1.094tn, and smaller than the suggested by the EC President Ursula von der Leyen in the Recovery package on 27 May - €1.1tn for the next 7-year budget.

The rebates will be maintained for Denmark, Germany, the Netherlands, Austria and Sweden in real terms on the basis of 2020, in a lump sum.

On the Recovery Fund, he proposed that the Commission will be empowered to borrow up to €750bn through an own resource decision. He specified that this is an exceptional and one-off tool for an exceptional situation. These funds may be used for back-to-back loans and for expenditure channelled through MFF programmes.

He also projected to be preserved the balance between the loans, guaranties and grants to avoid overburdening EU countries with a higher level of with high levels of debt. “This is also key for the future of the Single Market and to prevent more fragmentation and disparities’, he pointed out.

On the allocation of Recovery and Resilience Facility (RRF), the proposal establishes a real link between the Recovery Plan and the crisis, and ensures the money goes to the countries and sectors most affected by the crisis.

"I propose that 70% of the Recovery and Resilience Facility will be committed in 2021 and 2022, according to the Commission’s allocation criteria, 30% will be committed in 2023, taking into account the drop in GDP in 2020 and 2021," he stressed adding that the total envelope should be disbursed by 2026.

The sixth building block is dedicated to the question of governance and conditionality. According to President Michel the three important goals that should be reached, and first of them - the Reform and Resilience National Plans.

"On governance, Member States will prepare, based on our proposal, national recovery and resilience plans for 2021-2023 in line with the European Semester, notably Country specific recommendations," he said.

The plans will be reviewed in 2022, taking into account the final allocation key and the assessment of these plans will be approved by the Council, with qualified majority vote on a proposal by the Commission.

The second important goal is related to climate change and for the first time is proposed to target 30% of funding on climate-related projects.

"That is important for Europe's young generations and Europe's future ambitions," he outlined noting that climate transition remains a top priority and the recovery must also focus on the transformation of the economies.

"Expenses under the MFF and NextGenerationEU will comply with our objective of climate neutrality by 2050, the EU’s 2030 climate targets, and the Paris Agreement," he defined.

The third important conditionality he proposed to support is the question of Rule of Law and the European values.

"We are taking a key step to anchor the rule of law and values in our European project and this is why I propose a strong link between funding and respect for governance and rule of law," he described.

As instrument, he proposed first a new budget conditionality.

"I maintain the February proposal sanctions on funds to be adopted by Council with Qualified Majority Vote," he said mentioning as well the Rule of Law monitoring that is under preparation by the Commission.

Michel proposed that the Commission and the Court of Auditors make a report on deficiencies in the rule of law that affect the implementation of the EU budget.

“We have of course also Article 7 of the Treaty and I propose to increase the funding for Rule of Law and values projects, through additional financing for the European Public Prosecutor's Office and the Justice, Rights and Values Program, with a special focus on disinformation and to promote media plurality”, he also clarified.

On repayments and own resources, his proposal is taking into account  the concerns voiced by many Member States and the European Parliament over the repayment at the beginning of the next budget cycle and the lack of own resources that would finance the reimbursement. In his proposal, repayments would start earlier in 2026, two years ahead, and “this commitment enhances the pressure on us to introduce new own resources”.

He suggested to focus on three areas- plastic waste, carbon adjustment mechanism and the digital levy.

“There will be a new own resource related to the use of plastic waste starting in 2021 and I invited the Commission to put forward a proposal in the first semester of 2021 on a carbon adjustment measure. And I will propose to introduce a digital levy with the view of introducing it by the end of 2021, based on the Commission proposal. Then I propose to invite the Commission to come back with a revised proposal on ETS. And finally, we will continue to work on the project of a financial transaction mechanism,” Michel underscored.

EUCO President put in his plan a Brexit reserve of €5bn in order to counter the unforeseen consequences in the most affected Member States and sectors.

The EU leaders will meet on 17 and 18 July in Brussels for their first physical meeting since the beginning of the pandemic. They will try to thrash out their differences and to reach an agreement on the next MFF and Recovery Fund.


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