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Now that the big shots of the EU already had a quick huddle about the deets of their Recovery Plan, I’ve got a neat summary of what you need to know.

This idea was first announced by German Chancellor Merkel and French President Macron in a joint statement mid-May, then the folks over at the European Commission were able to iron out the fine print last week.

What’s the plan?

ECB StimulusAfter their pow-wow, the European Commission unveiled an unprecedented 750 billion EUR fund designed to help the hardest-hit EU nations to pull out of the slump created by the COVID-19 outbreak.

This was larger than the proposed 500 billion EUR package by Merkel and Macron but still lower than the “trillions” initially called for by EC President Ven der Leyen in April.

Out of the 750 billion EUR, two-thirds or 500 billion EUR will be distributed as grants while the remaining 250 billion EUR will be doled out as loans.

That’s great. Where will the moolah come from?

This stimulus fund, which is worth approximately 5.6% of the entire region’s GDP, would be financed through the European Commission’s coffers. 

To do so, the Commission would have to temporarily raise the ceiling of their “Own Resources” EU budget. This “Own Resources” limit refers to the maximum amount in a year that can be called from member states to finance EU expenses.

However, since the Commission wants to refrain from putting added financial pressure on troubled EU nations, they are expected to come up with other ways to raise funds.

Proposals include enforcing a new digital tax, an Emissions Trading Scheme, and a Carbon Border Adjustment Mechanism.

Once this budget is approved, the EC can then issue “Eurobonds” in the financial markets on behalf of the union, with part of the securities likely to be bought by the European Central Bank.

Why is this a big deal?

This EU Recovery Plan is seen as a huge show of solidarity between Germany and France and a win-win situation for the entire bloc in terms of recovering from the pandemic.

Keep in mind, though, that there is still a degree of pushback from some nations like Austria, Denmark, the Netherlands, and Sweden (a.k.a. the “Frugal Four”).

Frugral Four

After all, they are worried that the measures could overburden smaller EU nations with even more debt.

Sources say that these nations are currently drafting a counter proposal for the EU Recovery Plan but that there’s also a good chance they’d soften their stance during negotiations.

Any other roadblocks left?

Remember that in order for this ambitious stimulus plan to unfold, all 27 EU member nations have to give the green light.

Negotiations are still set to take place over the next few weeks, and drafting the legislation to include the fund in the EU’s long-term budget could take some time.

If the EU’s legislative process is to be followed, the deadline for the Commission to enact the budget will be in December. In other words, the recovery fund ain’t likely to be ready before 2021!

Also, there’s still the issue of allocation that will likely be subject to a lot of debates among the EU nations. As it is, the EC and European Parliament jointly decide how much each country will receive based on their needs and commitment to an economic reform agenda.

Merkel has suggested that the funds should be distributed “to the sectors and regions most severely affected” by the COVID-19, which means that some might receive more grants than their actual contributions.

For now, the shared currency has welcomed the developments positively as most of the bloc seems to be supportive of the much-needed aid package. Still, better keep tabs on how the negotiations are going to see if the stimulus can start taking effect sooner rather than later!