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Brussels plans to pay back the first wave of retaliation for the € 800bn plague

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Brussels is set to sign the country’s first recovery plan in hopes of reviving the plague-ravaged economy in Europe, with government officials expected to give a green light Wednesday to previous ideas of Spain and Portugal.

€ 800bn EU Next Group the fund, which was approved last year, bet that spending more money on key issues such as energy and digital transformation could prevent the bloc from re-emerging as a result of the 2008 global financial crisis, while its recovery remained in the US.

The future of this program should be determined primarily by the actions of those who will benefit the most such as Spain, which last year collapsed sharply due to the Covid-19 problem. Spain’s economy received 10.8% in 2020 and is expected to receive about 70bn in donations and 70bn in debt over the entire 2021-2026 years of the program. Portugal expects to receive € 14bn in donations and € 2.6bn in debt.

Italy will be a major beneficiary of the Next Generation fund, with € 191.5bn of loans and donations expected to be signed by the European Commission in the coming days.

In order to raise the funds, all international plans must establish how EU funds will be used to advance global goals such as digital production and greenhouse gas emissions, as well as to make major changes to its members. Observers warn that advancing the plans will test international member states.

“Establishment is important,” said Guntram Wolff, Bruegel’s think tank chief. Many of the ideas developed by EU countries were appealing, he said, but warned: “At the end of the day, you have to establish them, and that means tackling domestic resistance. This is the problem.”

Ursula von der Leyen, President of the Commission, will travel to Lisbon and Madrid on Wednesday to test their willingness to accept a visit to the EU headquarters while Brussels signs the idea in the coming weeks. Final assistance will be provided by EU countries this summer.

The commission predicts that all eurozone members will reconvene their problems by the end of next year, with the help of spending cuts, following a 6.6% decline in one region by 2020.

But Madrid’s method of recovery is highly controversial in Spain. Pedro Sánchez, prime minister in the long-running Socialist-led minority government, expects the integration of these funds and job creation will increase 800,000 jobs and add an average of 2% per annum to domestic sales during the planning period. He compares the changes with what Spain joined the European Community and created a single EU market.

Carmen Calvo, Spain’s deputy prime minister, on the left, says EU money will make Spain ‘more modern’ © © Juan Carlos Hidalgo / EPA-EFE / Shutterstock

“We will be able to establish our country, which is already the fourth largest economy in the EU, where it should be in terms of development and competitiveness… The most modern country.” Carmen Calvo, the deputy prime minister, told the Financial Times in a recent interview.

One of Madrid’s goals is to give 75% of the Spaniards access to 5G internet by 2025 and to install 250,000 electric vehicles on the way by 2023, bringing the total to 5m by 2030.

Government also seeks approval from EU regulators to use € 3bn – € 4bn new battery factory promoting automotive services.

Opponents, however, accuse the government of being too tight in EU controls and reforms that take into account Spain’s other major crises, including pensions, inflation, and the labor market.

Pablo Casado, the People’s Party leader, a middle-right opponent, told FT recently that the plan could cause serious damage.

“Any work that the bank has not paid for so far will not be accepted by taxpayers in Europe,” he said. “Merchants are releasing non-profit jobs in the district.”

The economic future in Spain did not depend on investing in companies such as the electronics industry but on the “question of national economic recovery”, he said.

The government has announced 102 changes in restructuring but the current situation in the pension and labor market depends on negotiations with businesses and corporations, while economic reforms are expected to await an expert report next February.

With Sánchez chairing the development committee, his government is insisting that more funds be spent by district commissioners and others.

Under Madrid’s projections of the 70 billion euros expected to be received, 40% will be spent on energy and other green activities, 30% on digital, 10% on education and training and 7% on research and development.

Fabian Zuleeg, head of the European Policy Center, questioned whether the EU’s response to the crisis could be satisfactory. But he said the bloc should be honored for wanting to respond with the epidemic and not repeat their sad response to the financial crisis a decade ago.

“From the very beginning we feel we have to address this issue together,” he added.

Additional reports of Peter Wise in Lisbon

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