The EU's new recovery plan worth 750 billion euros ($826 billion) to support the bloc's economy amid the COVID-19 pandemic announced by European Commission President Ursula von der Leyen means that, for the first time in European history, the bloc itself will incur debts and will also levy its own taxes
BRUSSELS (Pakistan Point News / Sputnik - 29th May, 2020) The EU's new recovery plan worth 750 billion euros ($826 billion) to support the bloc's economy amid the COVID-19 pandemic announced by European Commission President Ursula von der Leyen means that, for the first time in European history, the bloc itself will incur debts and will also levy its own taxes.
The plan, unveiled on Wednesday and dubbed Next Generation EU, includes 500 million that will be issued in grants and the remaining 250 billion in loans. It is set to be discussed by the 27 European heads of state from June 18-19 with the meeting likely to be difficult, as there is strong opposition to the idea of mutualizing debt.
NEXT GENERATION EU AND REACTION TO THE PLAN
While Europe starts to control the deadly pandemic, the world's biggest trading bloc, the EU, enters its deepest-ever recession, as the economic impact of the coronavirus kills tens of thousands of jobs, ravages the fabric of small and medium businesses and basically prevents economic growth. Virtually every European member state has broken the EU's deficit limit, as they have spent funds to keep health care systems functioning and businesses alive. In a bid to revive the economy, von der Leyen proposed a new plan.
The Next Generation EU plan, implying a package of 750 billion euros, will come on top of the bloc's yearly budget for the next seven years, which amounts to 1.1 trillion euros. In total, with 550 billion euros already agreed upon, this effectively brings the EU's overall recovery effort amid the pandemic to 2.4 trillion euros.
The new plan reflects the idea proposed by French President Emmanuel Macron and German Chancellor Angela Merkel on May 18. In particular, the leaders suggested that the European Commission borrow 500 billion euros or get it through taxation. This stimulus package would be allocated as a grant to the worst-hit countries, and to be reimbursed by the EU budget, which means all member states. The European Commission head added another 250 billion euros to be borrowed on financial markets, but these would be loans to countries in need, so they would be paid by the latter.
"The EU wakes up after having been totally absent from the first phases of the pandemic. The European Commission shows its cynicism by giving the name of 'Next Generation plan' to this huge debt that is simply put on our shoulders, but what is worse, on the shoulders of our children and grandchildren. Paying back these loans will only start in 2028 and will last at least until 2058. So calling it 'next generation' is awfully hypocritical. Indeed, von der Leyen, our children will have to pay back, and it shows the irresponsibility of the European Commission," Thierry Mariani, a French member of the European Parliament, told Sputnik.
According to the lawmaker, this "colossal" European debt load for future generations is a new way for European federalists to take another step towards creating a European super-state, though European citizens do not want it.
"The Commission would give itself the right to levy the tax and would become a leading borrower on capital markets. This is contrary to the treaties, but the European Commission is trying to force it. Von der Leyen asks the next generation to sacrifice itself. What a great heritage!" Mariani added.
Meanwhile, the European commissioner for economy, Paolo Gentiloni, wrote on Twitter that the plan is "a European turning point to face an unprecedented crisis," as it would help correct the economic differences between the countries of the eurozone.
As for Spain, the spokesman for Vox party in Spain, Alonso de Mendoza, said that the plan announced by Von der Leyen seemed like "a tragic and bad taste joke." According to the politician, the amount of aid is far from sufficient, while the amount of funds for climate change recently announced was twice as much. in addition, the president of the European Commission did not say anything about small and medium businesses, the true victims of the pandemic, and did not take into account that some countries are more affected than others.
Alonso de Mendoza added that the plan only proved that Brussels used the crisis "to impose that absurd, globalist ideological agenda that only benefits a few � the usual ones," which they could not have implanted under normal circumstances, as Europeans would never allow it.
"To talk about the 'ecological transition' and conditioning aid on compliance with the so-called 'Green Pact' or the Paris Agreement, when thousands of European SMEs [small and medium enterprises] are closing and millions of Europeans and Spaniards are going out of work, makes no sense at all. No European is going to accept that, and if the terms of the plan do not change, if the small businessman is not helped before the financial multinational or the electricity lobby, we highly doubt that this nonsense will be unanimously approved in the council," the spokesman said in a statement.
According to him, the assistance must be conditioned to three priorities � which sectors of the economy are the worst hit; which countries or regions of the bloc need the most help; and what the EU members can do not to depend on products from Asian countries.
CAN THE OPPOSING MEMBER STATES AND POPULIST OPPOSITION STOP THE NEXT GENERATION EU PLAN?
Several countries, which were efficient in their fight against the coronavirus and which are also lightly indebted, in northern Europe, have been surprised by the plan proposed by Macron and Merkel and the incredibly high level of grants, reserved as free money for those member states that did not manage to handle the crisis well and are also very much indebted.
Not only Austria, Denmark, the Netherlands and Sweden, often referred to as the "frugal four," but also Poland, Hungary or the Czech Republic, as well as major parties in several other member states, raise the question of how they can stop the distribution of free grants and how much loans there will be. They rejected the plan, proposing instead that support be issued in the form of repayable loans, cheap but not free.
According to Austrian Chancellor Sebastian Kurz, the plan is "only a basis for negotiations, where the part between loans and grants must be discussed." Kurz spoke in favor of loans, as did Danish Foreign Minister Jeppe Kofod. Meanwhile, Swedish Prime Minister Stefan Lofven said that "the planned amount of subsidies with no claims for reimbursement is astonishing."
As for the main opposition populist opposition parties in most member states, including Italy, the reaction is a total refusal of giving more power to the European Commission, especially the power to raise taxes.
"This is a 'Hamilton moment' for Europe: Alexander Hamilton, the first secretary of the treasury of the United States, convinced Congress in 1790 to create a federal debt, and thus, tipped the American confederation into federalism. We do not want this federal Europe that will start levying taxes, as von der Leyen so lightly said on Wednesday. Now, it might only be a tax on the GAFA [Google, Apple, Facebook, and Amazon] big tech companies, that will be popular, but when they will tax individual Europeans for the energy they use or their revenue, it will be too late to stop it. Europeans have the highest levels of taxation in the world. Giving free rein to the European Commission will only make matters worse," Gilles Lebreton, a French member of the European Parliament, told Sputnik.
The lawmaker added that though nothing was lost yet, it was off to a bad start. If adopted, the plan will mark a new stage in the federalization of the EU, with a common debt and the creation of European taxes to finance all this, Lebreton said.
According to the lawmaker, the plan is a "headlong rush" for both Macron, whose approval rating is decreasing, and the EU, that emerged discredited from the coronavirus crisis, with von der Leyen trying to compensate for its lack of popularity with this distribution of free money by indebting future generations.
"Our task is difficult because the victims of the crisis, the European citizens and businesses, react in the short term and see all of this in a positive light, without measuring the catastrophic long-term consequences," Lebreton added.
The German Alternative for Germany (AfD) party also strongly opposes grants and the "irresponsible attitude" of chancellor Merkel. According to Alice Weidel, the AfD parliamentary group leader in the German Bundestag, by promoting the recovery plan, Merkel, Macron and von der Leyen are breaking laws and undermining the trust of European citizens.
"I am sorry to have to say that the German citizens have to be grateful to Austrian Chancellor Sebastian Kurz and the heads of government of the northern states in Europe for keeping their heads clear and opposing the breach of law and trust that Merkel, Macron and now Ursula von der Leyen and the European Commission are planning at the expense of German taxpayers. The 500 billion euros that the European Commission intends to raise is nothing more than Eurobonds in new packaging and is just as unlawful," Weidel told Sputnik.
Given that Merkel promised that Germany would take 27 percent of the bill, German taxpayers will have to pay 135 billion euros out of the 500-billion "gift" by the European Commission, which breaches the taboo of mutualization of government debt in Europe, the politician said.
"German taxpayers must now hope that Austria and the Nordic countries will veto this new raid on German national wealth. The Merkel government has brought us into this absurd situation. It is grotesque that German interests appear to be better represented by some European partner countries than by the German federal government itself," Weidel added.
The principle of "no borrowing to finance the EU's budget" is a cornerstone of the EU treaties, without which the Treaty of Lisbon would not have come about. It is laid down in Article 311 of the Treaty on the Functioning of the EU. The European Commission is supposed to be the guardian of the Treaties but it is not, the lawmaker said.
In a press release, the AfD's spokesman for finance policy, Albrecht Glaser, also said that it was clear why EU institutions, especially the commission's president, were attacking the German Federal Constitutional Court in the city of Karlsruhe so violently due to its decision regarding the purchase of government bonds by the European Central Bank (ECB).
"The guardians of the basic law, who have rightly resisted the abuse of power of the EU, are to be intimidated again for this next round. I am sure brave citizens in Germany will attack Merkel's and von der Leyen's absurd plan before the constitutional court. The AfD group will also examine all possibilities to protect the battered citizens and companies in Germany from the next access by the eurocrats. The euro project is entering the final phase of its decline," Glaser said.
Earlier in May, the court ruled that Germany did not have enough oversight over the ECB's purchases of government bonds issued by indebted eurozone countries � the so-called quantitative easing � which opened the way for the German central bank to quit the program in three months' time. The court accused the ECB of overstepping its authority and gave these three months for the bank to prove the necessity of the bond-buying program in question. In response, the EU's executive body said it might start infringement proceedings against Germany, which might potentially result in sanctions against Berlin.
DOES AUSTRIAN OPPOSITION SUPPORT CHANCELLOR KURZ IN REJECTING NEW RECOVERY PLAN?
The new economic recovery plan should be adopted unanimously by all 27 member states, however, not all countries, including Austria, advocate for repayable loans rather than "gifts" to the worst-hit members.
According to Harald Vilimsky, the head of the Freedom Party of Austria in the European Parliament, the opposition backs chancellor Kurz's position on the issue but expects that, eventually, he will bow to pressure from the European Commission.
"What the EU Commission has presented is a double taboo break. One taboo break is the first-time assumption of joint debts. As was the case after the financial crisis and the founding of the ESM (European Stability Mechanism), there is a danger that this will become a permanent solution. And this even though the EU should not get into debt at all. The second taboo break is the planned introduction of EU taxes as a new source of revenue. These are intended to be permanent and are therefore a permanent burden for the citizens, on top of their 'normal' national taxes," Vilimsky said.
The lawmaker believes that countries like Spain or France do not care about the Maastricht treaty and expect the taxpayers of other countries like Austria to pay their bills, adding that the fact that 500 billion euros will be paid out as non-repayable subsidies will only contribute to the inflammatory debt policy and will not solve anything.
"Ultimately, the corona crisis is being instrumentalized by the Brussels' centralists to inflate the [European] Union's bureaucracy. What is presented as a 'solution' is 'coincidentally' a larger EU budget, the impetus for von der Leyens' favorite project of the Green Deal and the introduction of EU taxes. All projects that were wanted long before corona can now be implemented with the excuse of solidarity," Vilimsky�concluded.
Italy is one of the countries that would be the main recipients of the financial assistance from Brussels. The country can be granted up to almost 82 billion euros in subsidies out of the 500 billion euros, and 91 billion euros out of a 250-billion loan buffer. It remains to be seen, in detail, what reforms Brussels will require in return for its generosity efforts of budgetary consolidation and economic competitiveness, or more 'green' efforts, etc.
For his part, Italian Prime Minister Giuseppe Conte said that the Next Generation EU plan "really goes in the direction indicated by Italy," calling for the acceleration of negotiations to "quickly free up resources."
Meanwhile, the populist opposition led by the Lega party of Matteo Salvini has taken a position in refusing, form the start, the "poisonous present from Brussels." According to Salvini, accepting the subsidies from the EU would have to be repaid in less independence and more demands on Italy from Brussels, which is not acceptable.
Not all Italian parties support Salvini's stance on the issue, including its former ally, Five Star Movement (M5S), which is still in government. According to Dino Giarusso, member of the European Parliament from Italy's M5S party, the recent statements by German members of the EU's parliament, the European allies of Salvini, claiming that helping the countries most in difficulty due to the pandemic is a "political suicide" and a "coup d'état" are shameful and not acceptable.
"We are fed up with anti-Italian invectives that spread prejudices and lies about our country, and we are grateful for the great work of Conte in Europe. Italy is, in fact, the first beneficiary of the recovery fund with almost 173 billion euros, and we will make sure we can get these funds to citizens and businesses as soon as possible," Giarusso told Sputnik.
Another member of the European Parliament and M5S, Piernicola Pedicini, said in a press release that the European Commission's proposal was ambitious, adding that the non-refundable aid to Italy is satisfactory at about 82 billion euros.
Finally, the Fratelli d'Italia party (FdI), a large ally of the Lega, is also now in opposition. According to one of its members, Pietro Fiocchi, the European Commission's aid may not come before next year, when thousands of companies will be already bankrupt all over Europe. The lawmaker told Sputnik that the only thing Conte did is delivering 1,500 pages of bureaucratic rules and very little money, most of which are loans or delays in tax payment.
"The president of Fratelli d'Italia, Giorgia Meloni has reacted with a very intelligent proposal: Italy should use the liquidities in the International Monetary Fund [the IMF] (Italy has 3% of IMF), without conditions, except the approval of the IMF. Next, Italy should emit patriotic bonds, with the condition that no taxes will be applied to these bonds," Fiocchi said adding that Rome could get 200 billion euros from the IMF, patriotic bonds and the European Stability Mechanism.
According to the politician, these funds could arrive much faster, which would be providential for heavily indebted nations such as Italy.