After four months of negotiations, the Council and the European Parliament agreed yesterday the new 2021-2027 budgetary framework. Although the full breakdown is not known, the budget will mobilise more than 1.8 trillion euros during this period. In addition, both bodies agreed to unblock the Next Generation EU programme. The accord includes reinforcing with an extra €15 Bn the funding of key programmes such as EU4Health, which will triple its previous budget, Erasmus+ or Horizon Europe (R&D).
EU recovery fund
For the first time in its history, the European Union will take on debt to finance an extraordinary economic stimulus composed of 390 billion euros in grants and 360 billion in loans.It has finally managed to put together a European instrument for sharing debt. Equally important, the plan sends a signal to markets that the EU remains united in response to existential threats. However, the price for achieving the agreement has been high: maintaining the rebate cheques, renouncing of strict control as far as respecting the rule of law mechanism in the management of EU funds, increased conditionality and the fact the fund cannot work completely without ECB’s support.
Monex Europe | The euro found support in anonymous reports this morning that the frugal four countries are now satisfied with €390bn of the fund coming in the form of grants. The initial proposal included a total of €500bn to be allocated in grants, but the leaders failed to find a compromise on the overall size over the weekend. The talks will resume at 4pm CEST today.
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. 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.
The Recovery Fund exceeds the Merkel/Macron proposals with an amount of €750 billion euros (equivalent to 5.4% of the EU27’s annual GDP). Italy and Spain would be the countries to most benefit. This was something that was quickly reflected in the performance of peripheral credit on Wednesday, especially in the financial sector, with improvements on average of about 10bp in the CDS of banks in both countries. For its part, France and Germany will receive transfers of 39 Bn and 29 Bn, respectively.