EU To Borrow Around 150 Billion Euros Annually For Recovery Fund

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The European Commission plans to borrow around 150 billion euros annually until 2026 to finance the bloc’s unprecedented decide to make its economy greener and more digitalised, making it the most important debt issuer in euros, the Commission said on Wednesday.

The amount of the EU economic plan was agreed at 750 billion euros in 2018 prices, but now totals around 807 billion euros in current prices.

The money is split into 338 billion euros in grants and 386 billion in loans for the 27 EU countries and therefore the rest is for joint EU programmes. it’ll be distributed over subsequent five years with a 3rd to be spent on reducing CO2 emissions within the EU’s 27 economies.

Each of the 27 EU governments can get 13% of its share of the cash this year in pre-financing before projects purchased by the scheme reach agreed milestones and targets.

If EU governments specialise in the grants component of the pre-financing this year, EU borrowing within the third quarter might be around 45 billion euros, Budget Commissioner Johannes Hahn said.

To avoid crowding out the borrowing of EU governments, the EU will publish a funding plan six months beforehand to permit investors to plan.

The EU will sell bonds at auctions and thru syndication during a primary dealer network to enable regular payouts as governments complete agreed stages of projects and reforms.

The Commission said it might issue bonds with benchmark maturities of three , 5, 7, 10, 15, 20, 25 and 30 years and bills below one year maturity – EU-Bills.

The borrowing will start as soon as all 27 EU national parliaments ratify the EU’s Own Resources Decision – a law raising guarantees from EU governments to the EU budget to 2.0% of GNI from 1.4% GNI until 2058.

“Our structures are going to be ready by June and theoretically we could start borrowing then, but it depends on how quickly member states complete the ratification process,” Han told a press conference .

The ratification of the law is important because the guarantee of the EU budget will enable the EU to borrow at rock bottom possible rates on the market.

It is only a backstop measure because the repayment of the borrowing is meant to return from new taxes the EU is to agree on over the approaching years, instead of from national budgets.

The repayment is to start out in 2028 and continue until 2058. Loans are going to be repaid by the countries that borrowed and grants by the EU budget from money raised through a yet to be agreed tax on goods imported into the EU from countries observing less strict CO2 emissions goals, new levies on CO2 emissions within the transport sector and a digital levy.

The EU also plans a financial transaction tax and a financial contribution linked to the company sector or a replacement common corporate assets .