28 May 2020

COVID-19 EU Bulletin – Issue #13

Next Generation Europe Budget and Recovery Plan announced, Export restrictions on PPE lifted, WTO meets world leaders.

Next Generation Europe – Budget and Recovery Plan Introduced

President von der Leyen presented the Commission’s new EU budget proposal for 2021-2027 as well as the European recovery plan  at the European Parliament on Wednesday, 27th May. According to the President, the pandemic has endangered the single market at its core – including the level-playing field and the four freedoms of movement “None of that can be fixed by any single country alone,” she said. A response must balance between burden-sharing and sovereignty, von der Leyen said, and introduced a package called Next Generation Europe. Combining budget and recovery package, it racks up to €1.85 trillion over the next seven years. The Commission hopes to find an agreement on the package in July.

  • New EU budget: The Commission proposes a new budget of €1.1 trillion. In detail, spending on cohesion, defense, research and administration would be reduced compared to the 2018 blueprint. The Commission would not let those dry out – some of those programmes would get supplementary funding from the proposed recovery fund, such as cohesion. Defense and administration, however, would face cuts. Agricultural spending would increase, as well as funding for environmental and climate action (source: POLITICO).
  • Recovery plan: A €750bn recovery plan is drawn up to help those sectors and countries hit hardest by the pandemic. €500bn are designed to be grants for Member States, while €250bn would be distributed as loans. Putting some figures on paper: As for the Commission’s blueprint, Italy would receive €82bn in grants, Spain €77bn, France €39bn, Poland €37bn, and Germany €29bn (source: POLITICO).

Europe’s ATM? The capital needed to finance budget and recovery would be raised through Member State contributions but will also be sourced on capital markets on a scale far bigger than ever before. This meets previous demands by France and Germany, but also draws criticism from fiscally more rigorous countries. President von der Leyen stresses that her proposal to raise the Commission’s own-resources ceiling through borrowing would be a temporary and exceptional measure. Other ways to raise own resources proposed by the President are emission trading fees, carbon border taxes, and a digital tax. Investment priorities outlined by President von der Leyen are climate neutrality, digital economy, a social Union, and a geopolitically ambitious EU. See here for further details on the recovery plan (source: POLITICO).

Frugal four on the recovery plan: The governments of Austria, Denmark, the Netherlands and Sweden circulated a non-paper presenting their proposals for restoring growth to EU Member States’ economies in the post-pandemic era. The so-called “Frugal four” suggest setting up a temporary, one-off Emergency Fund to support the economic recovery and the resilience of member states’ health sectors to possible future waves. This Emergency Recovery Fund should be based on a ‘loans for loans’ approach and follow specific guidelines, such a thorough assessment to target the sectors most hit, a strong commitment to reforms by the Member States, an explicit sunset clause after 2 years, no mutualisation of debt, a link to the rule of law and Fundamental Rights and restoring and deepening the Single Market.

Institutional Response

European Commission

  • No more export restrictions on PPE: The European Commission’s export authorisation scheme for Personal Protective Equipment has ended on Tuesday, 26thMay without renewal. The Commission rules the measure a success as to its intent to deliver on public health needs as well as securing open trade flows. 
  • Business Losing Out: The Commission predicted that European companies could lose between €720 billion and €1.2 trillion in profits in 2020 alone. The sectors hardest hit are tourism, construction, and transport, but retail and agri-food are affected, too.
  • European Semester: The Commission published its European Semester recommendations, stressing the need for “immediate and long-term” resilience of health systems. The document said investments into health systems should be more important than staying in line with fiscal rules – a recommendation likely fueled by recent events.
  • State Aid: Since this newsletter was published last, the Commission approved a number of Member State state-aid applications under the temporary framework for state aid. Below is an overview, and here are all the details.
    • Portugal: Two schemes to protect jobs in Azores
    • Lithuania: €10 million for cultural and arts institutions; €1 billion liquidity to medium and large enterprises
    • Hungary: €156 million for companies; €60 million grants to micro and SMEs
    • Luxembourg: €30 million for investments
    • Italy: €9 million umbrella scheme
    • Austria: €8 billion for companies
    • Poland: €2.2 billion subsidised loans to large companies
    • France: €71 million for automobile parts producer NOVARES

Council (and other ministerial bodies)

  • Council Trio Programme:A final draft of the Council Trio programme dated 20th May was leaked. It is scheduled to be adopted by EU ministers on 16th The trio’s “overarching priority will be to implement all appropriate measures serving a robust recovery of the European economy, in line with a sustainable and inclusive growth strategy, that takes account of the goal to achieve climate-neutrality by 2050 and addresses the significant social impacts and human dimensions”. In line with previous drafts, priorities are to restore and further deepen the Single Market, as well as take forward the Green transition and Digital transformation. Key points for this are digital sovereignty, ensuring strategic autonomy through dynamic industrial policy, supporting SMEs and start-ups, screening foreign direct investment, building more resilient infrastructure in particular in the health sector, and producing critical goods in Europe to reduce over-dependency on third countries.

International Organisations

  • WTO notes on Members’ response to COVID-19: The WTO has published a note on policies adopted by Member States in response to COVID-19 covering standards- and regulation-related policies, and which have been notified to the WTO. The note mainly includes measures related to trade in PPE, food, live animals, medical equipment, and medicine. The notifications can be accessed via an online platform. Around half of the measures are to facilitate trade and fall into four categories: streamlining certification procedures; ensuring that medical goods are safe; making food available by relaxing technical regulations; and addressing COVID-19 risks from international trade in live animals.
  • WTO meets world leaders: On 20th May, Chancellor Merkel of Germany hosted a video conference with WTO chief Azevedo and a range of leaders from IMF, ILO, OECD, and the World Bank to map the health, economic, and social impact of the pandemic.  After the meeting, Azevedo said that the social and economic consequences are the worst of our lifetime, and that trade would be important for the recovery from the crisis. It is essential to avoid supply shocks, slowed down growth, weaker productivity, higher debt burdens, and lower living standards. He especially points to cross-border trade in medical equipment.
  • OECD: The OECD’s spring ministerial meeting has been postponed indefinitely. Ministers from the organisation’s 36 Members were supposed to meet to discuss multilateralism and trade (source: POLITICO).

(Former) Member States

  • UK: The UK Medicines and Healthcare Products Regulatory Agency has approved Remdesivir under its Early Access to Medicines programme, meaning the drug can now be given to patients who are severely ill with COVID-19. The drug has been found to reduce the severity of the illness.
  • France: Without a strong majority both the French National Parliament and Senate authorised the use of the French COVID-19 tracing app. The final decision to deploy the app this weekend will be taken by the President and the Prime Minister (source: POLITICO).

Re-Starting Europe

  • Mobility: Commissioner Kyriakides (Health) has outlined how a restart of European mobility could look like in a call with EU health ministers. According to Kyriakides, a system of immunity certifications would not be reliable. Instead, countries should continue with preventive measures such as physical distancing, testing, and contact tracing apps – as long as they are interoperable to protect citizens wherever they are. Travel restrictions should be lifted first between regions with similarly positively developing situations (source: POLITICO).

Tackling the Virus

  • Vaccine Development: France and Germany have been holding talks with French pharma firm Sanofi to prepare the production of COVID-19 vaccines in Europe, should Sanofi find one. A spokesperson of the French Prime Minister confirmed there were talks with Sanofi and other firms to promote production of vaccines and reshoring parts of those value chains. Sanofi has been previously criticised due to CEO comments that the U.S. might get priority over vaccine access were the company to develop a successful candidate (source: POLITICO).
  • Stocking the ATM: The Coronavirus Global Response Pledging Conference was set to raise €7.5 billion to fight the pandemic. Originally, the initiative hosted by President von der Leyen fell short at €7.4 billion, but since the launch of the conference more sponsors pledged, bringing the total to €9.5 billion, according to Commission chief spokesperson Eric Mamer (source: POLITICO).

Other

Automotive

  • MEP Dita Charanzová (Renew, Czech Republic) has sent a letter to President von der Leyen, signed by 10 other MEPs, asking for financial support for the automotive sector – more than has recently been proposed for the new budget. The MEP also proposes a joint strategy between the Commission and the sector to review the “current regulatory framework” and adjust it to suit the circumstances of the pandemic. Picking up on earlier demands of the industry, the letter also asks for loosening type approval rules.
  • Previous to the launch of Next Generation Europe, the auto lobby had already asked for a number of measures and Commission-drive actions to support the sector. In a joint statement, IndustriAll Europe, Ceemet, ACEA, CLEPA, CECRA, and ETRMA called for a coordinated relaunch, support to viable companies, stimulus measures, and regulatory reforms. Concrete points of actions asked from the Commission included investment support, R&D funding, SME help, and “innovative public procurement”.

 

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