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5 NEWS 23.07.2020 LESS than 24 hours after European Union leaders hailed a landmark agree- ment on the bloc's coronavirus recovery package and next multiannual budget, the European Parliament has signalled that while the budget is a positive step for recovery, it views it as inadequate in the long-term. Parliament is particularly concerned that long-term EU budget has been cut, just at a time when citizens are calling for an increase in EU investment. Parliament is also unhappy with the fudge over tying funds to respect for rule of law, and cuts to flagship pro- grammes such as the Horizon science programme, InvestEU, LIFE, and Eras- mus+. Commenting on the conclusions of the EU summit, parliament's negoti- ators welcomed the 750 billion euros recovery fund – which will be financed by borrowing and distributed partly as grants, partly as loans – but warned that their agreement to the long-term EU budget cannot be taken for granted. "Parliament cannot accept the pro- posed record low ceilings as they mean renouncing to the EU's long-term ob- jectives and strategic autonomy, while citizens ask for more. More European solidarity, more European action in public health, in research and digitali- sation, youth, and in the historical fight against climate change. Key programmes to reach these ob- jectives have been considerably shrunk, and lost most of their top-ups under Next Generation EU," said the six mem- bers of the negotiating team, who rep- resent all of the European Parliament's main parties. "We will strive to secure improve- ments, including higher amounts, on future-oriented multiannual pro- grammes like Horizon, InvestEU, LIFE, Erasmus+. And if our conditions are not sufficiently met we will adopt the programmes on the basis of the existing MFF, as foreseen by the Treaty." e negotiating team also renewed their call for the EU to be able to raise its own funds, claimed that a new tax on plastics would not go far enough. Par- liament wants a "binding commitment" for the introduction of additional own resources as soon as 2021. Additionally, Parliament remains firmly against watering down the mech- anism to reduce or suspend EU funding if a member state disrespects the rule of law. Poland and Hungary both claimed victory after the compromise agreed by EU leaders delayed designing a rule of law mechanism. e European Parliament will have a final say over the 2021-2027 budget, which it must approve before it can en- ter into force. e current multiannual budget runs out on December 31, 2020. What EU agreed on in €1.82 trillion budget In order to engineer consensus for the €1.82 trillion package, European Coun- cil President Michel had to downsize his original proposal to meet the demands of so-called "frugal" members of the EU. For example, the €390 billion grants facility agreed is a significant cut com- pared to the €500 billion called for by France and Germany, but the share of grants in the Recovery and Resilience Facility (RRF) was slightly increased to €312.5bn. e Recovery Fund is the EU's first common counter-cyclical instrument, that is, there is no austerity requirement and commits 30% of funds for climate action. Secondly, the recovery package ap- pears to be large enough for the scale of the COVID impact and targeted at the hardest-hit member states and sectors. What the EU leaders agreed on €750 billion recovery fund Despite fierce initial resistance of fru- gal members (Netherlands, Austria, Denmark and Sweden), the EU agreed to have €390bn provided as grants (down from €500bn) and €360bn in loans. e bulk, €312bn, of the grants will go to a specially-weighted Recov- ery and Resilience Facility (RRF). Each member state can loan to a maximum of 6.8% of its GNI. maximum loan vol- ume for each country is capped at 6.8% of its GNI. Almost all for the RRF In order to spread the amount of grants provided to members through the RRF, an original €190bn earmarked to prop up the EU budget was slashed to €7.5bn. Cuts were seen in ReactEU funds; Hori- zon Europe funds; InvestEU; Just Tran- sition Fund; and an originally planned health programme and contributions to neighbourhood/international coopera- tion were abolished. €1,074bn Multiannual Financial Framework (MFF) Together with the recovery fund, this brings the total budget and recovery package to €1.82 trillion. In the final agreement, over seven years the 'cohe- sion, resilience and values' was slight- ly reduced to €377.7bn, followed by a slight increase in spending on natural resources and environment to €356.4bn. €132.8bn goes to the single market, in- novation and digital. Migration and border management as well as Securi- ty and Defence were kept unchanged from the earlier proposal at €22.7bn and €13.2bn, respectively. To Neighbour- hood and the World, leaders agreed to allocate €98.4bn, while €73.1bn will be spent on public administration. Governance rules Dutch PM Rutte wanted unanimous rather than qualified majority approv- al of members' recovery and resilience plans in the Council: qualified majority was agreed on, supplemented by a re- vised procedure in which members can delay approval of payments from the fund by putting the matter on the next Council's agenda. Rebates Instead of increasing the collection share in traditional own resources, an increase of rebates was further scaled up to €6bn for Germany, Netherlands, Sweden, Austria, and Denmark – al- though Germany's rebate remains un- changed. As an additional concession, the share of traditional own resources (mainly custom duties) kept by mem- ber states as collection costs will be in- creased to 25% from currently 15%. Rule of law Linking EU funding to the observance of rule of law was heavily criticized by Poland and Hungary, both of which are currently under Article 7 procedures for alleged breaches of the Union's rule of law, as a deal-breaker. Any references were reduced substantially. e agree- ment now contains a statement that the Council "underlines the importance of the respect of the rule of law" and that a "regime of conditionality" will be in- troduced, including measures in case of breaches that the Council will adopt by qualified majority. New own resources A plastic tax will be introduced al- ready on January 1, 2021. A carbon border mechanism and digital tax will be introduced until January 2023. e Commission will prepare a proposal for a revised and possibly extended emis- sion trading scheme. Other new own resources, such as a financial transac- tion tax, may be worked on during the next MFF. Climate target e Commission's and Chalres Michel's target to spend 30% of the MFF and recovery package on climate action was maintained. However, access to the Just Transition Fund will not only be granted to countries that commit to na- tional targets to reach climate neutrali- ty by 2050 but also members that only commit to an overall EU climate neu- trality target European Parliament issues stark warning over budget compromise European Commission President Ursula Von Der Leyen and European Council President Charles Michel

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