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Explainer: Next Generation EU – Legal Construction

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The proposed architecture of the exceptional financing is based on three pillars:

  • The Own Resources Decision authorises the full amount of the borrowing, to be used for exceptional expenditure and for loans to Member States. Those amounts are not entered into the Union budget. It also organises the repayment of the amounts used for expenditure under the future MFF. The repayment will be entered into the Union budget in the year it takes place (as of 2028, until 2058).
  • The Recovery Instrument based on Article 122 TFEU identifies recovery measures and allocates the borrowed funds to various Union programmes to that effect.
  • The Union programmes receive the resources and lay down the rules for their implementation.

The major innovation, the borrowing for spending, is compliant with the Treaties.

1)    Under the current circumstances, borrowing is a justified means to attain the Union’s objectives

  • The Union is allowed to provide itself with the means necessary to attain its objectives [Article 311, first paragraph TFEU]. A highly competitive social market economy, aiming at full employment, the promotion of economic, social and territorial cohesion and solidarity among Member States is an objective of the Union [Article 3(3) TEU].
  • The financial means of the Union come predominantly, but not exclusively, from own resources [Article 311, second paragraph TFEU]. Therefore, the Union enjoys some discretion as to the choice of the means necessary, as long as it respects the financial rules of the Treaty.
  • Borrowing constitutes such a means. Under the current circumstances, it is necessary. Tackling the exceptional consequences of the crisis requires large resources in short period of time, without increasing national debt in the short to medium term.
  • Borrowing creates a financial liability for the Union. However, financial operations involving liability of the Union are not extraordinary. The Treaties do not prohibit the Union from taking liabilities. The Union is already now taking liabilities e.g. from loans for financial assistance to Member States and third countries or budgetary guarantees, inclusive for market operations (e.g. European Fund for Strategic Investments). Borrowing used for crisis spending would simply be a new type of a liability operation.

2)    Borrowing must respect the principle of budgetary discipline. For that reason, provisions are needed in the Own Resources Decision

  • According to the principle of budgetary discipline [Article 310(4) TFEU], the Union’s actions can be financed within the limits of the multiannual financial framework (MFF) and own resources. The Treaty also obliges the Union institutions to ensure that the Union can satisfy its financial obligations towards third parties [Article 323 TFEU].
  • Therefore, liability from borrowing is only permissible if the Union is able to repay the debt including interest. This requires that the own resources ceiling be sufficiently high to ensure each year sufficient financial space for the full coverage of the Union’s liability. It also requires a mechanism ensuring availability of resources in all circumstances.
  • The proposed amendment to the proposal for the new Own Resources Decision makes sure that these pre-requisites of budgetary discipline are fulfilled:

o   A dedicated and temporary increase of the Own resources ceilings will create sufficient budgetary space. That space is available (i) for the contingent liabilities from loans to Member States and (ii) for the repayment of the debt from borrowed funds used for spending programmes in the future (2028 to 2058);

o   An additional rule will allow the Union to call on resources from the Member States where, on a given year, the authorised appropriations entered in the budget are not sufficient for the Union to comply with its obligations resulting from borrowing.

  • The Own Resources Decision will go one-step further. It will determine the maximum amount that may be borrowed and will set the parameters for its repayment, in particular the start date for repayment (2028) and the end date for repayment (2058). This can be done under the Own Resources decision for the following reasons:

o   Those provisions are a corollary of the dedicated increase of the own resources ceiling. The size and the modalities of the repayment delimit the maximum amounts of future own resources revenue, which will be needed for that purpose. They may, therefore, be considered as an integral part of the establishment of the system of own resources [Article 311, third paragraph TFEU].

o   When defining the amounts of the needed revenue in the own resources decision, it is normal for the legislator to take into account related expenditure. E.g. the UK rebates were calculated in function of the total allocated expenditure in favour of the UK.

o   Moreover, the Own Resources Decision is of quasi-constitutional nature. It only enters into force after approval by all Member States in accordance with their national constitutional requirements. The authorisation of the borrowing will need the approval of all Member States, and, depending on national procedures, of their national parliaments. This provides for the necessary democratic legitimacy of that innovative proposal necessary to fulfil the Union’s objectives.

o   At the same time, the approval by all Member States will constitute a clear commitment to bear the liability from the borrowing

3)    Allocation of the funds to Union spending programmes, Article 122 TFEU

Article 122 TFEU allows for targeted derogations from standard rules in exceptional crisis situations. On that basis, the Recovery Instrument will provide for the financing, by reference to the authorisation to borrow provided by the own resources decision, and will assign those funds to the various spending programmes, as so-called “external assigned revenues”, for the purposes of recovery and resilience. [Article 21(5), Financial Regulation]

The borrowed funds will remain additional to the annual budget. They will not be part of the MFF and of the annual budgetary procedure.

Such way to proceed for large amounts diverges from the standard practice for the establishment of the budget and financing of the Union [point 1, requirement of principal financing of Union policies from own resources]. It is justified as a temporary and exceptional solution in the context of the current crisis.

Q&A:

Is the mechanism compatible with the principle of budgetary balance?

The principle of budgetary balance [Article 310(1), 3rd sub-paragraph, TFEU] requires equilibrium between revenue and expenditure of the annual budget. The borrowed funds are exceptional and one-off amounts coming in addition to the annual budget as external assigned revenue (for the spending part), they do not form part neither of revenue nor of expenditure under the annual budget.

The borrowing does not mean that the Union engages in deficit spending in a manner comparable to a Member State. Budgetary deficit occurring in the Member States budgets relies on future income from revenue (taxes), which the Member State can impose as a sovereign.

The Union does not have that option. It has to rely on the own resources previously authorised in the own resources decision and can act only within such limits, in accordance with the principle of budgetary discipline. The borrowing will constitute an operation respecting those constraints because the Own Resources Decision will already guarantee the financial means needed for the repayment. In substance, the Member States agree to make financial resources available to the Union, but, having limited immediately available fiscal space, “defer” or “delay” the making available.The budgetary space thus created will allow the Union to engage into extraordinary and one-off borrowing operation, permitting the immediate adoption of the recovery measures.

Why do we need a Recovery Instrument based on Article 122 TFEU? Why could the resources not go directly from the own resources decision to the spending programmes?

  • The Recovery Instrument is based on Article 122 TFEU, which allows for extraordinary measures in situations of crisis as an expression of solidarity among Member States.
  • Recourse to that legal basis is necessary for derogating from standard Treaty rules, which would not allow the financing of such large amounts in addition to the Union’s budget and outside of the annual budgetary procedure. This is justified only in the circumstances of the current crisis.

Can the borrowed funds be considered “external assigned revenue” provided for by the Recovery Instrument in accordance with Article 122 TFEU, while the empowerment to borrow and the repayment of the borrowing are embedded in the own resources decision?

  • The borrowing and use of the funds involve three steps:

o   Empowerment to borrow, including the determination of the maximum amount;

o   Receipt of the borrowed funds and their assignment to particular items of expenditure;

o   Repayment of the borrowing in the future, including the determination of the end date.

  • The Own Resources Decision provides the legal basis for the first and third steps, whereas the Recovery Instrument constitutes the legal basis for the second step, in accordance with Article 21(5) of the Financial Regulation.
  • This architecture is the result of a policy choice, while respecting legal constraints.
  • It is legally possible to determine the maximum amount of liability in the Own Resources Decision. Article 311(3) TFEU has two functions, which are closely interlinked: it determines the revenue attributed to the Union and it contains the Member States’ commitment to provide such revenue. The determination of the overall amount of funds that may be borrowed and of the modalities of repayment provides legal certainty concerning the revenue needed by the Union in the future and the obligations of the Member States to provide for it.
  • However, the borrowed funds will not constitute own resources but a new category of ‘other revenue'[Article 311(2) TFEU]. Such revenue comes in addition to the Union’s budget and is intended to finance particular items of expenditure.
  • Concerning the second step mentioned above, Article 122 TFEU constitutes the appropriate legal basis for receiving the borrowed funds and attributing them to particular items of expenditure. The choice of the legal basis for a Union act must be based on objective factors which are amenable to judicial review and which include, in particular, the aim and content of the measure. In the present case, the content is the provision of additional financing by derogation to certain rules; the objective is the recovery and resilience of the Union in an unprecedented crisis situation.
  • To conclude, the three steps mentioned above are interlinked, but given the political and legal constraints, they may be regulated in two separate legal acts based on different legal bases.

The Own Resources Decision is an act establishing the revenue of the Union, the own resources. How can it constitute legal basis for expenditure (repayment of the borrowing)?

Article 310(3) TFEU provides that the “implementation of expenditure shown in the budget shall require the prior adoption of a legally binding Union act providing a legal basis for its action and for the implementation of the corresponding expenditure in accordance with the [financial] regulation”. The Own Resources Decision is a “legally binding Union act” as defined by Article 2(4) of the Financial Regulation. As long as it can validly authorise the borrowing and its repayment (see previous question), the necessary consequence is that it will constitute a basic act for the expenditure intrinsically linked to the borrowing, i.e. the instalments of the borrowing. Therefore, this aspect belongs to the ‘system of own resources of the Union’ [Article 311(3) TFEU].

Do the borrowed amounts constitute own resources?

No:

  • The amounts are one-off additional reinforcement of Union’s actions, as ‘other revenue’ expressly provided for by Article 311(2) TFEU. Own resources are regular income of the Union.
  • The amounts need to be repaid by the Union, while own resources are a final revenue that is not repaid.

The borrowing can be authorised based on the third paragraph of Article 311TFEU. The determination of the maximum Union’s liability and the modalities of repayment are intrinsically linked to the determination of the additional own resources ceilings.

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Coronavirus response: EU support for regions to work together in innovative pilot projects

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The Commission has announced the winners of a new EU-funded initiative for interregional partnerships in four areas: coronavirus-related innovative solutions, circular economy in health, sustainable and digital tourism, and hydrogen technologies in carbon–intensive regions. The aim of this new pilot action, which builds on the successful experience of a similar action on “interregional innovation projects” launched at the end of 2017, is to mobilise regional and national innovation actors to address the impact of coronavirus. This initiative also helps the recovery using the new Commission programmes through scaling up projects in new priority areas, such as health, tourism or hydrogen.

Commissioner for Cohesion and Reforms, Elisa Ferreira, said: “Interregional partnerships are proof that when we cooperate beyond borders, we are stronger as we come up with smart and useful solutions for all. This new pilot initiative supporting interregional innovative partnerships is especially important in the current coronavirus context, showing how much cohesion policy is committed to contribute to Europe’s prompt response and recovery.” 

Following a Commission’s call for expression of interest launched in July 2020, four interregional partnerships were selected, with one or several coordinating regions in the lead:

  • País Vasco (ES), together with three regions, will focus on the support to an emerging industry sector for prediction and prevention of the coronavirus pandemic;
  • In the field of Circular Economy in Health, the RegioTex partnership on textile innovation involves 16 regions led by North Portugal (PT);
  • In the field of Sustainable and Digital Tourism, the partnership coordinated by the Time Machine Organisation, an international cooperation network in technology, science and cultural heritage, involves five regions and Cyprus, led by Thüringen (DE); 
  • In order to enable the development of innovative solutions based on Hydrogen technologies in carbon–intensive regions with a broad geographical coverage, two partnerships will merge: the European Hydrogen Valleys partnership gathering 12 regions led by Aragon (ES), Auvergne Rhône Alpes (FR), Normandie (FR) and Northern Netherlands (NL), and the partnership led by Košice Region (SK) with four other regions.

These partnerships will benefit from the Commission experts’ support, providing, among others, advice on how to best combine EU funds to finance projects. In addition to this hands-on support from the Commission, each partnership can benefit from external advisory service of up to €100,000 for scale-up and commercialisation activities. The money comes from the European Regional Development Fund (ERDF).

Next steps

The work with the partnerships will start in this month and will run for one year.This pilot further stimulates interregional cooperation, with the possibility for the partnerships to apply for support under the new programmes and the “Interregional Innovation Investment” instrument from 2021 onwards.

Background

In recent years, the Commission has called on national and regional authorities to develop smart specialisation strategies aiming at more effective innovation policies and enhanced interregional cooperation in value chains across borders. To date, more than 180 regional smart specialisation strategies have been adopted. Their implementation is supported by €40 billion of EU Cohesion policy funds.

As part of a set of actions presented in 2017 by the Commission to take smart specialisation a step further, a pilot action on “Interregional innovation projects” sought to test new ways to encourage regions and cities to develop new value chains and scale up their good ideas in the EU single market. This pilot action, which involved nine partnerships in high-tech priority sectors, was completed in 2019 and showed significant potential to accelerate the investment readiness of interregional investment projects.

The lessons learned will be integrated in the new “Interregional Innovation Investment” instrument proposed in the framework of the post 2020 Cohesion Policy package.

The new pilot action has similar goals. Moreover, in the context of the crisis, it aims at finding solutions to the coronavirus challenges and accelerating the recovery through the commercialisation and scale-up of innovation investment. 

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Commission proposes to purchase up to 300 million additional doses of BioNTech-Pfizer vaccine

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image: BioNTech

The European Commission today proposed to the EU Member States to purchase an additional 200 million doses of the COVID-19 vaccine produced by BioNTech and Pfizer, with the option to acquire another 100 million doses.  

This would enable the EU to purchase up to 600 million doses of this vaccine, which is already being used across the EU.

The additional doses will be delivered starting in the second quarter of 2021. 

The EU has acquired a broad portfolio of vaccines with different technologies. It has secured up to 2.3 billion doses from the most promising vaccine candidates for Europe and its neighbourhood.  

In addition to the BioNTech-Pfizer vaccine, a second vaccine, produced by Moderna, was authorised on 6 January 2021. Other vaccines are expected to be approved soon.  

This vaccine portfolio would enable the EU not only to cover the needs of its whole population, but also to supply vaccines to neighbouring countries.

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Brexit deal: How new EU-UK relations will affect you

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EU-UK relations are changing following Brexit and the deal reached at the end of 2020. Find out what this means for you.

The UK left the EU on 31 January 2020. There was a transition period during which the UK remained part of the Single market and Customs Union to allow for negotiations on the future relations. Following intense negotiations, an agreement on future EU-UK relations was concluded end of December 2020. Although it will be provisionally applied, it will still need to be approved by the Parliament before it can formally enter into force. MEPs are currently scrutinising the text in the specialised parliamentary committees before voting on it during a plenary session.

A number of issues were already covered by the withdrawal agreement, which the EU and the UK agreed at the end of 2019. This agreement on the separation issues deals with the protection of the rights of EU citizens in the UK and UK citizens living in other parts of the EU, the UK’s financial commitments undertaken as a member state, as well as border issues, especially on the Isle of Ireland.

Living and working in the UK or the EU

EU citizens in the UK or UK citizens in an EU member state who were already living there before January 2021 are allowed to continue living and working where they are now provided they registered and were granted settlement permits by the national authorities of the member states or the UK.

For those UK citizens not already living in the EU, their right to live and work in any EU country apart from the Republic of Ireland (as the UK has a separate agreement with them) is not automatically granted and can be subject to restrictions. Also, they no longer have their qualifications automatically recognised in EU countries, which was previously the case.

For UK citizens wanting to visit or stay in the EU for more than 90 days for any reason need to meet the requirements for entry and stay for people from outside the EU. This also applies to UK citizens with a second home in the EU.

People from the EU wanting to move to the UK for a long-term stay or work – meaning more than six months – will need to meet the migration conditions set out by the UK government, including applying for a visa.

Travelling

UK citizens can visit the EU for up to 90 days within any 180-day period without needing a visa.

However, UK citizens can no longer make use of the EU’s fast track passport controls and customs lanes. They also need to have a return ticket and be able to prove they have enough funds for their stay. They also need to have at least six months left on their passport.

EU citizens can visit the UK for up to six months without needing a visa. EU citizens will need to present a valid passport to visit the UK.

Healthcare

EU citizens temporarily staying in the UK still benefit from emergency healthcare based on the European Health Insurance Card. For stays longer than six months, they need to pay a healthcare surcharge.

Pensioners continue to benefit from healthcare where they live. The country paying for their pension will reimburse the country of residence.

Erasmus

The UK has decided to stop participating in the popular Erasmus+ exchange programme and to create its own exchange programme. Therefore EU students will not be able to participate in exchange programme in the UK anymore. However, people from Northern Ireland can continue to take part.

Trade in goods and services

With the agreement, goods exchanged between the UK and EU countries are not subject to tariffs or quotas. However, there are new procedures for moving goods to and from the UK as border controls on the respect of the internal market rules (sanitary, security, social, environmental standard for example) or applicable UK regulation are in place. This means more red tape and additional costs. For example, all imports into the EU are subject to customs formalities while they must also meet all EU standards so they are subject to regulatory checks and controls. This does not apply to goods being moved between Northern Ireland and the EU.

Regarding services, UK companies no longer have the automatic right to offer services across the EU. If they want to continue operating in the EU, they will need to establish themselves here.

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