Council reaches agreement on MFF and Recovery Fund

Shares

On 21 July, after several days of negotiations, the European Council reached an agreement on the new Multiannual Financial Framework 2021-2027 (MFF) and COVID-19 Recovery Fund (‘Next Generation EU’). The MFF and Next Generation EU (NGEU) are closely intertwined, as they will help transform the EU through its major policies, particularly the European Green Deal and the digital revolution. The MFF, specifically focused on the digital and green transitions, will amount to €1,074.30 billion, lower than the figures proposed in February 2020, to account for the extra effort regarding the NGEU. The new MFF includes provisions for new income streams through several levies and taxes. The NGEU will consist of €750 billion which the European Commission will borrow on the capital markets on behalf of the EU, of which €360 billion loans and €390 billion grants, to be repaid by December 2058.

MFF Digital Provisions

The Council MFF conclusions, compared to the European Commission’s EU budget proposal of May 2020, demonstrate significant cuts in the field of digital, which Commission President Von der Leyen described as ‘regrettable.’ The European Council decided to streamline all existing financial instruments for the Single Market into InvestEU, which will act as the EU’s sole investment support mechanism for internal action. However, its funding was heavily reduced to €8.40 billion, as opposed to the €15.30 billion in the Commission’s latest proposal. In line with EU’s commitment to the digital transition, Horizon Europe and Digital Europe programs will receive significantly more funding compared to the 2014-2020 MFF, yet less than what was recommended in the Commission’s two previous proposals. Horizon Europe will receive €80.90 billion as opposed to the €94.40 billion proposed by the Commission, and Digital Europe will get €6.80 billion as opposed to the €8.20 proposed previously. Connecting Europe Facility (CEF) will receive €1.80 billion as opposed to the €2.00 billion proposed by the Commission to develop up-to-date, high-performance digital infrastructure.

In terms of revenue, the Commission will raise its own resources, the proceeds of which will be used for early repayment of Next Generation EU borrowing from the financial markets. In case the OECD negotiations regarding the introduction of a global digital tax, do not deliver results by the end of the year, the Commission is ready to act at EU level. It will put forward in the first semester of 2021 a proposal on a digital tax with a view to its introduction at the latest by 1 January 2023. While the previously suggested introduction of a corporate revenue tax in the Commission proposal is missing from the Council conclusions a potential Financial Transaction Tax is mentioned as part of the creation of additional EU own resources.

Next steps

The European Parliament and national parliaments of the Member States need to agree to the MFF and the NGEU compromise respectively. The European Parliament has already voiced its criticism over the current agreement, arguing for a higher budget and Recovery Fund prior to the negotiations.  Some national parliaments are expected to also be sceptical towards the agreement, especially those in the ‘Frugal Four’ countries (the Netherlands, Austria, Denmark and Sweden) and Finland. The European institutions and Member States aim to have the new budget operational as of 1 January 2021.

Shares