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EU launches coronavirus stimulus program

Bernd Riegert Brussels
June 23, 2021

The EU will invest a record €750 billion to kickstart the bloc's post-pandemic economic recovery. Bernd Riegert reports from Brussels.

empty shopping street in Cologne
German shops were closed for months on end during the pandemicImage: Andreas Rentz/Getty Images

EU Commission President Ursula von der Leyen is busy visiting the capitals of almost all EU member states as the bloc launches its ambitious coronavirus recovery program, NextGenerationEU. The commission has given the go-ahead for various European states to commence their investment schemes. A total of €750 billion ($895 billion) will be distributed by the EU in the coming six years.

On Tuesday, von der Leyen visited Berlin, Riga and Rome to promote the recovery program — actual negotiations between the Commission chief and national governments were not on the agenda. Ursula von der Leyen and German Chancellor Angela Merkel, for instance, were scheduled only for the briefest of meetings, even though Germany will receive €25,6 billion ($29 billion) from the recovery fund.

Germany's Angela Merkel meets President Ursula von der Leyen
Germany's Angela Merkel meets Commission President Ursula von der LeyenImage: Michael Sohn/AP/picture alliance

On Thursday, the Commission head was in Paris and Brussels to drum up support. She has called the scheme the biggest investment program in Europe since the US's Marshall Plan, lauding at as "an extraordinary response to an extraordinary crisis."

Italy a major beneficiary

European government heads initiated the EU recovery program in 2020. For the first time in the community's history, this type of fund is financed through common debt. The scheme was designed to help kickstart Europe's economy and break though the coronavirus recession.

EU member state Italy will receive almost €200 billion — the largest share of the funds by far. Spain, France and Poland will also receive substantial sums going into billions of euros. Tiny EU member Luxembourg, by contrast, will get a mere €100 million.

Most EU member states have already submitted plans to the Commission detailing how they intend to invest the recovery funds over the coming years. Only half the money, in the form of a low-interest loan, will have to be repaid.

Eco-friendly investments

Investment plans must meet a range of criteria set out by the Commission. It has decided that at least 37% of funds must go towards protecting the environment and climate. A further 20% must be invested in promoting the digitalization of European economies and societies.

The Commission wants schools and universities to receive better teaching equipment, and wishes to see investments in vocational training programs, and the health care sector. Investments in public transport are another requirement. Above all, EU member states must show their investments can boost overall economic growth.

A sleight of hand?

Germany, Ursula von der Leyen said, has fulfilled all these funding criteria. It plans to spend a large share of the funds on advancing a digital transformation in the public health care sector, in hospitals and schools. An area where, Chancellor Merkel recently conceded, "we have some catching up to do." Money will also go towards climate-friendly hydrogen research. The EU Commission estimates that these recovery funds will allow Germany's gross domestic project to grow by between 0.4 and 0.7%.

Made in Germany - Hydrogen - Fuel of the future?

But Greens MEP Daniel Boeselager takes issue with Germany's investment proposal. Much of what Germany touts as part of the EU recovery scheme was already factored into the country's national €130 billion stimulus package in 2020, meaning Germany is simply reallocating EU funds for projects that would have been covered by its own budget. This, Boeselager says, produces no additional economic stimulus.

Italian reforms planned

Italian Prime Minister Mario Draghi has set up a special task force to oversee and direct the extensive EU investment program in his country. There are plans to initiate a spate of overdue reforms. The idea is to enhance the efficiency of Italy's bureaucracy and judiciary. The government has also established an auditing body to prevent EU funds being siphoned off or embezzled. Italy has a national stimulus program worth €40 billion — EU recovery funds will lend extra momentum to that effort.

Daniel Boeselager, however, accuses the country of green-washing its investment proposal. He says projects are couched in eco-friendly language to secure EU funds. He therefore calls for legally binding targets that set out how much CO2 will be cut.

Money could start flowing soon

National investment plans, however, still remain somewhat vague at this stage, largely proposing criteria, procedures and strategies for realizing projects. And before Brussels can begin transferring money, the European Council still needs to give the go-ahead. Ater this, states will submit concrete investment requests that must be approved by the Commission. EU figures project money could begin flowing by late 2021.

The EU recovery budget is funded through loans secured on the financial markets. The first funding round worth €20 billion has been vastly oversubscribed, signifying substantial trust in the bloc's creditworthiness. The idea is to use tax revenue and member state fees to pay off this debt over the coming decades. 

This article was translated from German

Bernd Riegert
Bernd Riegert Senior European correspondent in Brussels with a focus on people and politics in the European Union