Next Generation EU and Capital Markets Union to mitigate the social and economic damage caused by COVID-19 pandemic

Published in Oct 28, 2020

COVID-19 has caused significant economic and social damage all around the world, and so it has in Europe. As a response, the European Commission has taken unprecedented actions aimed at fighting the current extraordinary situation.

Next generation EU & the recovery and resilience facility

One of the most relevant measures adopted in this context is the creation of the ‘Next Generation EU’ (2021-2023) recovery fund by the European Commission. The cited programme, which consists in a temporary recovery instrument that will contribute to the reparation of the economic and social damage caused by COVID-19 pandemic, is complementary to the 2021-2027 Multiannual Financial Framework. Next Generation EU has a budget of 750 billion euros and will be financed by means of an unprecedented debt issue by the European Commission, being the distribution of money among Member States based on the impact of COVID-19 in the different countries. The budget of the programme is in turn divided into several budget lines corresponding to different sub-programmes, with the Recovery and Resilience Facility (RRF) being the most economically significant one (€672.5 billion). Other categories within NGEU budget include ReactEU (€ 47.5 billion), Horizon Europe (€5 billion), InvestEU (€ 5.6 billion), Rural Development (€7.5 billion), Just Transition Fund (€10 billion), and RescEU (€ 1.9 billion).

As for the Recovery and Resilience Facility, it calls for investments aimed at establishing the basis for a green, digital and sustainable recovery that will transform the European economy. From the €672.5 billion allocated to the RRF, €360 billion will come in the form of loans and €312.5 billion in the form of grants. In order to receive support from the Recovery and Resilience Facility, Member States are elaborating recovery and resilience plans and will submit them by 30th April 2021. Moreover, from the aforementioned grant, 70% should be committed by Member States in 2021 and 2022 and the remaining 30% by the end of year 2023, while the deadline for implementing projects is 2026.

More information on Next Generation EU and the Recovery and Resilience Facility can be found here.

Capital markets union

Despite the European Commission’s launch of the Next Generation EU recovery package and the efforts made by other European Institutions, Member States and banks in order to mitigate the consequences of the current economic crisis, their effect may most significantly impact Europe’s short and medium term recovery. For this reason, the European Commission published in September an Action Plan to boost the European Union’s Capital Markets Union (CMU), as developing EU capital markets and guaranteeing access to market financing will be crucial for the long-term recovery and future growth of Europe, considering the dimensions and anticipated duration of funding needs.

The CMU aims at integrating national capital markets into an EU single capital market by removing existing barriers, while making the European Union a safer place for individuals to save and invest in the long-term. The Plan also looks for supporting a green, digital, inclusive, and resilient economic recovery by means of more accessible financing for European firms. Achieving a CMU will be particularly beneficial for SMEs, which often face limited access to financing and require reliable access to market funding sources. What is more, the CMU may also play a key role in the EU Recovery Plan, as the European Commission will need liquid capital markets to be able to obtain the necessary funding.

You can learn more about the CMU Action Plan here.