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Explainer: Will Ireland be a 'net contributor' to the EU's €750 billion recovery fund?

Member states will have to produce national recovery plans to access the funds.

German Chancellor Angela Merkel speaks with (from left) Italy's Prime Minister Giuseppe Conte, Dutch Prime Minister Mark Rutte and European Commission President Ursula von der Leyen
German Chancellor Angela Merkel speaks with (from left) Italy's Prime Minister Giuseppe Conte, Dutch Prime Minister Mark Rutte and European Commission President Ursula von der Leyen
Image: AP/PA Images

AFTER FOUR DAYS of contentious talks in Brussels — which even had French President Emmanuel Macron threatening to jump in his helicopter and fly away — EU leaders have agreed on the broad contours of a €750 billion pandemic recovery fund as part of its €1.8 trillion seven-year Budget.

The main beneficiaries of the fund will be southern member states like Italy and Spain.

Ravaged by the virus, those two countries have limited room to borrow money because of their high levels of historic debt.

Ireland, on the other hand, is reportedly set to receive about €3 billion from the fund itself and more through various EU Budget instruments over the next seven years.

Questions have been asked in recent days about whether or not Ireland will be paying into the fund and what exactly our contribution will be.

Over the weekend, Taoiseach Micheál went as far as to assert that Ireland would be a “net contributor”, comments which were repeated by his party colleague, Europe minister Thomas Byrne, this morning. 

So what’s the story and how does it all work?

Is Ireland a ‘net contributor’ to the €750 billion recovery fund?

No, not for the moment anyway.

The Republic’s and, indeed, every member state’s contribution to the €750 billion recovery fund will be exactly €0 at the outset.

Why?

Because the entire point of the fund is that it will give the European Commission, the executive branch of the EU, unprecedented elbow room to borrow money on capital markets and distribute it to member states.

There’s no central pot into which countries are paying — the funds will be raised by the Commission issuing debt.

This has never really been done before, or certainly not on this scale.

Not even in the depths of the last major crash did EU leaders agree to issue joint debt in this fashion and if the deal is ‘historic’ or ‘unprecedented’ or any of the things European politicians are saying about it, it’s in the precedent that it sets in that particular area.

The Commission’s legal powers to borrow on behalf of the EU27 and dish out funds are grounded Article 122 of the EU Treaty.

Already this year, it has borrowed about €100 billion for an initiative called SURE, the EU Council’s jobs safety net programme unveiled in March in response to the pandemic.

But this is a significant ramping up of the Commission’s activity in debt markets.

What’s all this about grants?

Under the plan, around €390 billion of the €750 billion will be carved up and served to the EU27 in the form of grants, €312.5 billion of which will form the EU’s Recovery and Resilience Fund.

The rest will be set available to EU countries as loans, which have to be paid back eventually. 

On the other hand, member states do not have to directly pay back grant funding under the scheme, which is why some EU leaders fought so hard to reduce the total amount doled out under this heading and attach conditions to its distribution.

Member states will have to produce national recovery plans in order to access these funds, which will be handed out between 2021 and 2023.

Four northern countries, the Netherlands, Sweden, Denmark and Austria succeeded in reducing the grant portion from the €500 billion that was originally proposed to €390 billion in the final agreement.

But will Ireland and other member states have to back the money?

Yes, eventually.

The Commission will have to pay back the €750 billion that it plans to borrow from institutional investors. The deadline it has set itself is 2058.

Member states, the ultimate guarantors of the borrowed funds, will also eventually have the Commission back for the loans but potentially over a longer period and under more generous conditions. 

Overall, the plan is for the Commission to cover the €750 billion tab through revenue-generating ‘own resources’.

This could mean new bloc-wide taxes and levies and could well put the controversial (at least in Ireland) digital sales tax issue to the top of the European political agenda as the Commission hammers out the detail over the next few years.

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If the executive fails to get some of these policies over the line in the next two to three years, it could mean that member states end up increasing their payment contributions in future EU budgets.

So technically, over time, Ireland could become a net contributor to the repayment effort but only if the EU does not reach consensus on new revenue-generating policies. 

What’s the story with the EU Budget anyway?

Alongside the emergency recovery fund, European leaders were also negotiating a seven-year Budget framework for the EU.

Basically it means that EU leaders worked out how much money will be given to various bloc-wide programmes like, for example, the Common Agricultural Policy.

Ireland has been a net contributor to the EU since 2013 and will remain so over the next seven years.

Contributions to the EU Budget are based on financial capacity so Ireland paying the EU more than it receives each year is, so the argument goes, a reflection of the State’s economic health.

These contributions fluctuate because they’re based on the member states’ gross national income for a particular financial year so it’s impossible to predict exactly what Ireland will be paying over the seven years.

And what does the new Budget look like?

A decidedly mixed bag.

In order to get the recovery fund deal across the line, compromises had to be made, which meant hacking budgets for certain EU programmes to pieces.

The Commission’s Just Transition Fund, a key part of the EU’s plan to reduce carbon emissions to zero by 2050, was slashed from a proposed €50 billion to just €10 billion.

The bloc’s medical research programme Horizon, slated to receive an extra €13.5 billion over the next seven years, will now only get €5 billion.

On the plus side domestically, Ireland will benefit from a €5 billion Brexit reserve fund, set aside to help countries and businesses that have been impacted and an extra €300 million under the Common Agricultural Policy.

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