![]() ![]() ![]() The time profile is based on the estimates presented in the European Commission’s proposal for establishing NGEU. Only countries with a cost of borrowing above the expected interest rate on NGEU loans are assumed to draw loans up to the ceiling of 6.8% of gross national income. Notes: The allocation of grants to euro area countries is assumed to follow agreed allocation keys. Sources: European Council conclusions of 21 July 2020, European Commission and ECB calculations. NGEU: expected disbursements of funds to euro area countries Provided it is deployed for productive spending and accompanied by growth-enhancing reforms, NGEU would not only help to underpin the recovery but also increase the resilience and growth potential of Member State economies going forward. While there is still uncertainty regarding the implications for national budgets, NGEU would imply a debt-based fiscal expansion of around 1% of GDP on average in the euro area over the period from 2021 to 2024, assuming that the support is used at the national level to finance additional expenditure. Based on currently available information, the grants will have a more back-loaded time profile than the loans. The idea is for the financial support under NGEU to be fully committed by the end of 2023 and largely disbursed over the period from 2021 to 2024 (see Chart A). The financial support to be provided under NGEU is intended to have a meaningful volume in macroeconomic terms, totalling almost 5% of euro area GDP. The financial support will be disbursed in instalments when milestones and targets identified in these plans are reached. They should also strengthen the growth potential, job creation and economic and social resilience of the Member State concerned. These plans are expected to feature coherent packages of reforms and public investment projects and address the challenges identified in the context of the European Semester. To receive financial support under the RRF, EU Member States need to prepare national recovery and resilience plans setting out their reform and investment agenda for the years 2021-23. The remaining part of NGEU will mainly be used to reinforce EU-wide spending programmes under the MFF. The entire loan portfolio and 80% of the grants will be assigned to the RRF, the purpose of which is to support investment and reform in Member States to pave the way for a sustainable, resilient recovery, while promoting the Union’s green and digital priorities. The Recovery and Resilience Facility (RRF) constitutes the core of NGEU. While the loans will be repaid by the beneficiary Member States, the European Council agreed to reform the own resources system and ensure that grant repayments will be covered by gross national income-based contributions and new EU own resources. The NGEU issuance will increase outstanding Union debt by a multiple of around 15, constituting the largest ever euro-denominated issuance at supranational level. These will be disbursed up to the end of 2026 and repaid by 31 December 2058 at the latest. The funds can be used to provide loans of up to €360 billion and grants of up to €390 billion. While the 2008 European Economic Recovery Plan was only intended to coordinate national budgetary stimulus packages to be financed by each Member State, NGEU establishes a joint funding model to support government spending and reform in the EU.įor NGEU, the European Commission has been authorised to raise up to €750 billion on the capital markets on behalf of the European Union. Together with the regular Multiannual Financial Framework (MFF), NGEU will ensure a coordinated European fiscal response to the economic fallout from the coronavirus (COVID-19) pandemic. On 21 July 2020 the European Council agreed on an exceptional temporary recovery instrument known as Next Generation EU (NGEU). The EU’s recovery package represents an important milestone in European economic policy integration. Published as part of the ECB Economic Bulletin, Issue 6/2020. Prepared by Alessandro Giovannini, Sebastian Hauptmeier, Nadine Leiner-Killinger and Vilém Valenta ![]()
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