Explainer: how would EU countries apply for coronavirus recovery funding?

Explainer: how would EU countries apply for coronavirus recovery funding?

The European Commission has set out its COVID-19 recovery package plans, and now it is up to EU leaders to negotiate the terms.

Whatever the final amount, member states will have to meet certain conditions to access any cash. This brings up bad memories from the 2008 financial crisis, where rescue plans meant biting austerity measures in return.

The Commission is clear they do not want to revisit the past. The Economy Commissioner said that the rescue tool is not annexed with 'conditionality', referring to the conditions attached to loans or debt relief.

Although there may not be the same austerity cuts, there will be certain conditions for lending.

Green and Digital recovery

Member States will have to present a national plan with investment proposals.

In order for the Commission to approve it, the investments will have to prioritize the transition to a greener and more digital economy.

"I think the main difference with the previous one from the financial crisis, is that this time it is about investments and not austerity," explains analyst Sandra Parthie (German Economic Institute).

Parthie explains that the coronavirus recovery means EU countries are supposed to spend money, but that their spending plans will subject to Commission scrutiny, in this case, their green and digital ambitions.

The Commission said that any spending plans must 'do no harm' to climate goals. The bloc has set the target to be carbon neutral by 2050.

Structural reforms?

The second condition is that national plans must modernize the economy and make it more resilient. At this stage, they are deliberately vague-sounding terms, that many translate as structural reforms. This could mean changes in the rules governing the labour market, education or pension systems.

The so-called frugal countries are the most reluctant to accept the Commission's plan, and could use this card to negotiate. Austria, Denmark, Sweden and the Netherlands could try to introduce more conditions linked to structural reforms.

"They will try and link any money spent via the recovery plan to a lot of conditions, especially in terms of economic governance, sort of set up of pension systems, perhaps, this kind of thing," says Parthie.

Talking tough

But it might not be their only goal, during the difficult negotiations ahead.

According to Spanish MEP Luis Garicano, the frugal countries will have two goals in the negotiations. Firstly, to reduce the proportion of grants and increase the proportion of loans, and secondly, to introduce more conditions to receiving cash.

Show me the money

Another problem is timing. Countries need the money now, and the negotiations could drag on for months.

At best governments could introduce their national plans next April and would start receiving the money in 2021.

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