This article was originally published by Euractiv.
Dominated by the Ukraine crisis, the informal summit of EU heads of state and governments meeting this week in Versailles is likely to see tough discussions on the implementation of a new common debt issue that would operate in a similar way to the Recovery and Resilience Facility (RFF)of the NextGenerationEU (NGEU) programme. This programme was developed to deal with the medium- and long-term consequences of the Covid-19 crisis.
The idea that will probably be discussed in Versailles is to provide EU member states with additional means to deal with the economic consequences of the war in Ukraine – energy, anyone? – and to build a “European defence.”
Beyond the tensions of certain northern European countries over the systematic use of public debt to combat all the ills affecting the European Union, it is perhaps useful to recall two things:
- On the one hand, the activation of the RFF is underway and we will have to wait a little longer to know whether it has achieved its objectives. The economic effects estimated ex ante are generally positive, all the more so as the funds allocated will be directed to the Member States most affected by the pandemic (Italy and Spain).
- On the other hand, the NGEU programme is divided between transfers or grants (390 billion euros, in constant 2018 euros) and loans (360 billion euros, in constant 2018 euros).
The benefits of each are quite different:
- Transfers are a form of free money at least in the short-term for those who receive them: repayment will be late and shared between all Member States, so recipients will only repay a fraction of what they receive.
- The loans imply paying immediate interest charges, albeit at a lower rate than the national rate if the borrowing country has a positive interest rate differential compared to the best borrowing conditions in the European Union.
The expected gain from the loans is therefore much less than the expected gain from the transfers… which has as a corollary that of the 360 billion euros foreseen for these loans, a significant fraction may never be mobilised by the Member States.
Why take out a common loan if you can go directly to the financial markets to finance yourself?
The facility exists; it has not yet proved its worth, but Europeans have agreed that it should be implemented.
So rather than considering renewing the NGEU programme – already – by adapting it to new challenges, would it not be possible for the EU to transform the residual loans of the RFF into immediate transfers and grants to Member States?
The facility exists; it has not yet proved its worth, but Europeans have agreed that it should be implemented. Let’s give it every chance to be effective by using it fully and very quickly: there is no shortage of projects to finance!
License and Republishing
The Choice - Republishing rules
We publish under a Creative Commons license with the following characteristics Attribution/Sharealike.
- You may not make any changes to the articles published on our site, except for dates, locations (according to the news, if necessary), and your editorial policy. The content must be reproduced and represented by the licensee as published by The Choice, without any cuts, additions, insertions, reductions, alterations or any other modifications.If changes are planned in the text, they must be made in agreement with the author before publication.
- Please make sure to cite the authors of the articles, ideally at the beginning of your republication.
- It is mandatory to cite The Choice and include a link to its homepage or the URL of thearticle. Insertion of The Choice’s logo is highly recommended.
- The sale of our articles in a separate way, in their entirety or in extracts, is not allowed , but you can publish them on pages including advertisements.
- Please request permission before republishing any of the images or pictures contained in our articles. Some of them are not available for republishing without authorization and payment. Please check the terms available in the image caption. However, it is possible to remove images or pictures used by The Choice or replace them with your own.
- Systematic and/or complete republication of the articles and content available on The Choice is prohibited.
- Republishing The Choice articles on a site whose access is entirely available by payment or by subscription is prohibited.
- For websites where access to digital content is restricted by a paywall, republication of The Choice articles, in their entirety, must be on the open access portion of those sites.
- The Choice reserves the right to enter into separate written agreements for the republication of its articles, under the non-exclusive Creative Commons licenses and with the permission of the authors. Please contact The Choice if you are interested at firstname.lastname@example.org.
Extracts: It is recommended that after republishing the first few lines or a paragraph of an article, you indicate "The entire article is available on ESCP’s media, The Choice" with a link to the article.
Citations: Citations of articles written by authors from The Choice should include a link to the URL of the authors’ article.
Translations: Translations may be considered modifications under The Choice's Creative Commons license, therefore these are not permitted without the approval of the article's author.
Modifications: Modifications are not permitted under the Creative Commons license of The Choice. However, authors may be contacted for authorization, prior to any publication, where a modification is planned. Without express consent, The Choice is not bound by any changes made to its content when republished.
Authorized connections / copyright assignment forms: Their use is not necessary as long as the republishing rules of this article are respected.
Print: The Choice articles can be republished according to the rules mentioned above, without the need to include the view counter and links in a printed version.
If you choose this option, please send an image of the republished article to The Choice team so that the author can review it.
Podcasts and videos: Videos and podcasts whose copyrights belong to The Choice are also under a Creative Commons license. Therefore, the same republishing rules apply to them.