Last EU parliaments set to back recovery fund, first EU debt issue in mid-June

FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels
FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium May 5, 2021. REUTERS/Yves Herman/File Photo

May 27, 2021

By Jan Strupczewski and Francois Murphy

BRUSSELS/VIENNA (Reuters) – The last parliaments in the European Union were set on Thursday to back the ratification of a law raising national guarantees to the EU budget, paving the way for the bloc to start borrowing within weeks for its 750 billion-euro post-pandemic recovery.

Austria and Poland’s parliaments were set to approve later on Thursday the EU’s so-called Own Resources Decision, with lawmakers in the other 25 EU countries having already done so.

The EU legislation raises the upper limit for national contributions to the EU budget by 0.6 percentage point to 2.0% of gross national income to safeguard the repayment of borrowing for the plan in case there is not enough money from taxes planned for that purpose.

But the plan is to repay the hundreds of billions of euros in AAA EU bonds over 30 years with yet-to-be-agreed new taxes that would include levies on the digital economy, on CO2 emissions and imports of goods made using dirty technologies.

The ratification of the EU law will enable the European Commission to go to the markets in mid-June to start borrowing cash it will then disburse in grants and cheap loans to all EU countries over the coming years.

To get the EU cash each government must submit a plan on how it wants to spend it, which must conform with EU-agreed rules that it should be mainly on investment and reforms to make economies ready for the digital age and without CO2 emissions.

EU officials said that before the first debt issuance can be made the Commission still needed to set up a primary dealers network and adopt an annual funding decision, which could take at least a couple of weeks.

“Most probably the first issuance can be done in mid-June, if everything goes well,” one official said.

Among the biggest beneficiaries of the scheme are Italy and Spain, which have been among the hardest hit by the pandemic.

Each EU country can get an up-front payment of 13% of its share of the money, once the national spending scheme is approved. For the whole of the EU, that means around 45 billion euros this year.

While the borrowing for that may start in mid-June, first disbursements to governments are not expected until late July because the national spending plans need to get the approval of both the Commission and other EU governments in a process that can take up to three months.

($1 = 0.8201 euros)

(Reporting by Francois Murphy in Vienna and Jan Strupczewski in Brussels; Editing by Steve Orlofsky)