The vast investment unleashed by the European Union's budget and recovery package deal this week will prevent the economic damage of the coronavirus pandemic from otherwise being far worse, European Commission president Ursula von der Leyen has told the Irish Times.
“Our experience from the last economic and financial crisis was that in those regions where there was immediately a massive public investment in the crisis, those regions recovered better and faster and stronger,” Ms von der Leyen said in an interview in the EU executive’s Brussels headquarters, the Berlaymont.
Without the recovery package, “we would see a skyrocketing unemployment and mainly also youth unemployment, the next lost generation, we would see masses of companies going bust”, she said.
“We would see an increase of pressure on public finances and security systems and an even deeper crisis, and a sluggish recovery. Therefore the investment now in a strong and fast recovery with a modernised single market is in our common interest.”
A former German defence minister who was born and partly grew up in Brussels as the daughter of a European civil servant, Ms von der Leyen vowed to increase Europe’s clout in the world and push economies toward becoming green and digital when she began her presidency in December.
The advent of the pandemic forced her to adapt these plans, but created the circumstances for an agreement between EU member states to undertake jointly-guaranteed borrowing in a move seen as a step forward in integration in the bloc.
Marathon talks
The agreement was reached this week after four days and nights of negotiations, and amounts to over €1.8 trillion, including the EU’s seven-year budget. It also includes a €750 billion once-off recovery fund that will be borrowed on financial markets by the commission and distributed to member states in grants and loans.
Overall, 30 per cent of all the spending is earmarked for projects that help the EU towards its target of carbon neutrality by 2050 in order to ward off catastrophic climate change.
Member states will be able to access the recovery funds by putting forward proposals for investment projects to the commission, which will assess whether the plans are in line with overarching EU strategies of digitalisation and reducing emissions.
The plan includes €17.5 billion in subsidies to ease the path away from fossil fuels, in the so-called Just Transition Fund. The cost of inaction, Ms von der Leyen said, would be far greater.
“It is in our European people’s interest that we fight climate change. We all have the experience now of droughts in summers, unprecedented flooding, extreme weather conditions. And this is all only the beginning. The cost of not acting is way higher than the cost of now fighting climate change.”
The borrowing must be repaid by 2058, and to do so, the commission has asked member states to grant it the power to collect pan-EU levies that it would use for repayments.
Proposals for these so-called “own resources” include a tax on non-recycled plastic due for introduction in January, and the commission is due to put forward additional proposals next year, including for a levy on imports based on the carbon emitted in their production, and a digital tax.
Ireland has strongly resisted the idea of the EU introducing a digital levy, warning that any such measure would need to be agreed internationally, to prevent tech multinationals relocating out of the single market to avoid it.
Digital tax proposal
Progress towards an international agreement on a digital tax led by the Organisation for Economic Co-operation and Development (OECD) was dealt a blow last month when the US called a halt to the negotiations.
“We would have preferred an OECD-based solution. Now the commission has a very clear tasking by the council to come forward with a proposal in the first semester of 2021.”
The recovery plan agreed by the member states instructs the commission to design a proposal for the digital tax and carbon levy “with a view to their introduction at the latest by January 1st 2023”. But any own resources can only be put in place if they are approved unanimously by member states, meaning Ireland has a veto.
Ms von der Leyen said that Ireland’s strong economic growth as an EU member, a period in which it has grown from being a major recipient of EU funding to becoming a net contributor, makes it an example of the benefits of the bloc.
“We are full of admiration for how the Irish people during the last years have overcome very, very difficult times and are now in such a strong position that Ireland turned into a net payer,” Ms von der Leyen said.
“If there’s one country that made the experience that a strong single market is also of huge benefit for the domestic economy, then it’s Ireland.”
