Home > EUR 750bn in Grants and Loans for Europe

EUR 750bn in Grants and Loans for Europe

Europe took a new step further on the back of the recent Franco-German statement from last week and announced a €750 billion Next Generation fund over the next three years. This is a big deal for Europe because €500 billion is in grants, and not loans to countries affected by the coronavirus pandemic.

As for the source of the funds, they will be borrowed over the next three years and will be reimbursed starting from 2028 for a period of 30 years, to 2058. This shows that the EU can and will issue common debt and that it can borrow at macro scale to increase spending in EU programmes when there is a crisis.

A Game-Changer for the European Fiscal Space

The coronavirus pandemic created such strong reactions from central banks and governments, that wording like “unprecedented” or “game-changer” tend to lose their significance. Yet, looking back in history, such bold moves from Europe were viewed as improbable any time soon. Yet here there are.

The spending will happen via an RRF (Recovery and Resilience Facility) and will go to financial projects via the EU budget instruments (agriculture policy, cohesion policy, etc.). There is also a Solvency Support Instrument for companies in need of liquidities.

Shortly after yesterday’s announcement, calculations have been made as to which countries will get the most grants and access to loans. Unsurprisingly, Italy and Spain will be the main beneficiaries, while Germany will support most of the bill. However such calculus, at least when it comes to who is going to pay for the borrowing, is wrong.  The GNI (Gross National Income) shares in the European Union may change dramatically over such a long period of time, and so the EU budget revenue structure.

If there is something we do know, it is where the funds go now. As for whose share will be the biggest when it comes to repaying the loans, that is unknown, unless there’s a crystal ball constantly used to forecast the future.

No matter how one looks at it, EU borrowing for EU spending is here now – albeit in its most simplistic form.

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