The EU Recovery Fund Entails Partial Debt Mutualization And Fosters European Financial Integration

EU

Axel Botte (Ostrum AM) | The EC recovery package “Recovery and Resilience Facility” draws on the joint France-Germany initiative to promote recovery efforts in Europe. The €750b aid will include grants and loans to countries and sectors of the economy that have been most affected by the fallout of the Covid crisis. Green investments and digital transformation will be prioritized. Crowding in private investments into key strategic sectors is another. Importantly, transfers across countries are no longer taboo. It is a great step forward to tackle increasing divergence in economic performances of member states. Under the proposal, the Commission will issue bonds with different maturities with the aim of minimizing funding cost. A total of €500b will finance grants and reinforce other key programmes. The remaining €250b may be used in the form of loans to Member States. Funds will be repaid from 2027 and by 2058 at the latest using future EU budget resources (possible tax at the European level or increased contribution of Member States). In all, the facility will avoid stressing national budgets of most affected countries. It entails partial debt mutualization and fosters European financial integration.

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