Brussels proposes to create a joint debt mechanism of up to 395,000 million for large crises | Economy

by Andrea
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that can respond quickly to unforeseen crises. Learn the lesson of the pandemic and the invasion of Ukraine by Russia, the commission has raised in its project project for the 2028-2034 period a mechanism that would be activated in case of crisis and would have a firing power of 395,000 million euros, according to the data that appear in the texts sent to the Council and the European Parliament. , but it would be a joint debt issued in the markets that would later be lent to the states, a scheme similar to that used for the Nextgen funds created in the pandemic.

“The crises are no longer the exception, they are the norm. We have learned the lesson,” said the president of the European Commission, Ursula Von der Leyen, this Wednesday when she presented the next multiannual financial framework project. In his speech he recalled the problems he had to face in the previous mandate “and every time it was extraordinarily reacting quickly and the required fire power”, remembering that 90% of the money of the current budgets is committed. Then he talked about a specific crisis mechanism of 400,000 million, but gave no more details.

The concretion appears in the legal texts subsequently disseminated. There it is clarified, for example, how that mechanism would work if it is finally reflected in the multiannual budgets that are approved. “The activation of this extraordinary and focused mechanism in the response to the crises will be decided by the Council, taking into account the specificities and needs of the crisis,” he says. This means that the Member States will finally be and not the Commission who will decide if this tool is used.

Once activated it would correspond to the community executive to go to the markets to request the money borrowed and, then, give it to the affected Member States in the form of credits, not in subsidies.

This design is clearly inspired by the EU reaction to the pandemic. In 2020, when Covid-19 broke out, the EU created a fund with which it financed the ERTE of Member States, being Italy and Spain the ones that received the most credits. That mechanism was called Sure and amounted to 100,000 million. Shortly after the recovery fund was created, once the requests from the countries have been completed to about 650,000 million. In both cases, the resources have left joint debt emissions in the capital markets that must be paid in the next budgetary period.

The two funds were invented after the need arose. Now the Commission puts on the table a previous mechanism and the design of how it should be activated. This is novel, for its operation and by the size.

This is not the only background that Von der Leyen puts on the table to finance with common debt. There is another call Catalyst Europe, which will also give loans to the states. The total amount will be 150,000 million and the credits that the Commission collects in the market will be supported by the budget itself. As explained by Von der Leyen, if governments want to have access to these credits in favorable conditions, they must allocate it to “specific European priorities”. “They can invest it, for example, in the defense industry, strategic infrastructures or strategic technologies,” said the German, who added that “it is the first time that an additional source of this type of additional financing is proposed.”

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