The EU is gathering together trillions to cope with the economic impact of coronavirus. The UK won’t have to contribute, but it also won’t benefit.
The next generation will be paying for the mistakes which led to this global pandemic: The EU’s recovery fund (Ursula von der Leyen has even named it “Next Generation EU”) will require repayments over 30 years from 2027 to 2058.
Once approved – it will need referenda in many countries – the EU plans to raise the cash from the financial markets.
According to the current plan, €500 billion will be grants, and another €250 billion will be available in loans.
Money will be distributed based on economic impact per region/countries to buffer against damage, recapitalise major industries, and also reinforce medical research against future pandemics (the ‘learning the lessons pilar’).
When Britain and the EU agreed the Brexit Withdrawal Agreement last year, the financial settlement was on the basis of existing commitments. An EU source confirmed that means the UK will not have to cough up for the ‘Next Generation’ fund.
But that also means the UK will not get a slice of the pie.
The vision set out today by the President of the European Commission, Ursula von der Leyen, is that this huge pile of cash will not only set businesses straight after the devastation and disruption of the virus. She also wants to use it to, in her words “fast forward” the economies of the EU ahead of its competitors.
“Next Generation EU will invest in repairing our social fabric, protect our Single Market, help rebalance balance sheets across Europe. And while we are doing this, we need to press fast-forward towards a green, digital and resilient future.”
Ursula von der Leyen (President, European Commission), 27 May 2020
If it works, could the UK be left behind?
Of course the UK Treasury has its own plans to kickstart the British economy out of looming recession, but there is surely at least the risk now that a massive injection to European companies will create an imbalance.
Or to put it another way: Unlevel the playing field.
And what about raising the money to pay back the markets?
Undoubtedly there will be pressure on the EU to make cuts in some of its current spending (farming subsidies still make up the biggest chunk of EU spending), but it will likely also mean either the 27 member states contributing more and/or the EU being given permission to raise more of its own resources through, for example, imposing additional taxes on airlines or through a “fair and growth-friendly” digital tax.
UK businesses trading with the EU (with or without a deal this year) will feel the impact of that.
And there’s another way the EU could raise at least some of the cash, and that is through the access fees it charges the UK.
The British government has signalled it wants to continue to be part of various EU schemes including research funding, the EU’s pandemic alert system, international criminal databases and so forth. The price for these has not yet been set.
Expect some tough bargaining, and spill over into the post-Brexit talks at the trickiest of times.