New EU Debt? Conservative Think-Tank Warns Of NextGen ‘Design Flaws’

By Jonathan Packroff 

(EurActiv) — In the debate about a programme that could succeed the EU’s Recovery and Resilience Facility (RRF), a think tank close to the centre-right EPP has criticised “significant flaws” in the current scheme, including the lack of a plan for repaying the joint EU debt.

“NextGenerationEU has two significant design flaws,” Klaus Welle from the Wilfried Martens Centre for European Studies told Euractiv.

“The first one is that the search and finding of new EU own resources has not worked yet.”

At the height of the COVID crisis in 2020, EU leaders agreed on a €723 billion-worth fund – €338 billion in grants and €385 billion in loans – as the centrepiece of the NextGenerationEU joint borrowing scheme, to sustain the bloc’s economic recovery and direct EU funding to the hardest hit areas.

As the RRF will support EU-wide investments only until 2026, Economy Commissioner Paolo Gentiloni has recently called for the fund to become a “blueprint” for a permanent EU joint borrowing facility, but this idea is strictly opposed from the right side of the political spectrum as well as several member states.

As part of their discussion on how to finance NextGen disbursements, which are fully funded by debt issued by the European Commission on capital markets, EU institutions also agreed on establishing revenue streams from the EU budget.

In 2021, the Commission proposed that additional sources would come from tapping into 75% of the revenues produced by the bloc’s carbon border tax, known as CBAM, which will be phased in as of 2026, and 25% of its Emissions Trading System (ETS). 

Additionally, some tax revenues from large corporations – meant to be reallocated at the level of the Organisation for Economic Cooperation and Development – should add to the finance avenues.

In June 2023, the EU executive further increased the proposed contribution to the budget from ETS revenues to 30%, alongside additional contributions from member states based on company profits.

However, such proposals have so far found no agreement among member states.

If there is no deal by 2026, the repayment of the NextGen EU debt would need to happen outside of the regular EU budget and could lead to cuts in other expenditure areas.

“Therefore, I believe that a mere repetition – thereby shifting debt from the national to the EU level without there being corresponding solid financing from [the EU’s ] own resources – in my view makes no sense,” Welle added.

The European Parliament’s Economy and Budget committees will hold a debate on Monday (22 April) evening, which will most likely focus on recently detected critical roadblocks for the RRF’s implementation.