To avoid a recurrence of the post-pandemic recovery fund and to ease finance requirements for economically disadvantaged areas, the European Commission is speaking out against both. The German-led coalition of fiscally conservative nations is resisting calls to borrow additional money to fund expenditure. Thus, this step is in line with their policies. Conditions on the hundreds of billions of euros that the commission is also pushing the Commission grants to the poorest countries in the EU. This marks the last chapter of a period of easy money when member states contributed to the enormous post-pandemic recovery fund rather than sharing the burden.
The current seven-year budget of the European Union (EU) is €1.2 trillion, with most of the funding coming from member states. The Commission is already planning for the next edition, which will begin in 2028. Concerns will arise as nations discuss the distribution of funds among several initiatives. Governments must reach a majority decision by the end of 2027 after the Commission submits a formal recommendation in the summer of 2025.
This time, things are more complicated because, at the start of the last seven-year cycle, the European Union established its emergency post-pandemic recovery fund, which was the first of its kind and relied on the pooling of borrowing among the 27 member states instead of government contributions. The fund had a value of €723 billion. Although some EU nations, particularly those with the highest levels of debt, favor reviving the Recovery and Resilience Facility (RRF) to establish a new “investment fund” once it expires in 2026, the Commission is against the idea.
The Commission’s current “cohesion policy” aims to reduce the disparity between wealthy and poor areas and accounts for almost 25% of the budget; nonetheless, it would worsen the situation for some poorer nations by extending the cash-for-reforms model of the recovery fund to this program. Nobody is going to be happy about this.
After the June European election and the composition of the new executive, the most delicate political issues, such as whether to establish a new investment fund, will be decided based on the Commission’s proposal, which will be used as a springboard for discussions between capitals.
