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EU Budget: what’s in it for Europe and Malta

Reading Time: 4 minutes

by Keith Zahra

 

European Union leaders reached a deal on a package of measures to boost their economies after the coronavirus pandemic, agreeing to borrow and spend hundreds of billions of euros in the next few years and pay them back from new taxes.

GRANTS AND CHEAP LOANS

Key to the deal is a new element in EU policy making: the European Commission will borrow massively on the market and then grant much of the cash, rather than lend it, to countries most in need of economic stimulus.

EU leaders agreed the Commission would cheaply borrow €750 billion using its triple-A rating. Of that, it would disburse €390 billion in grants and €360 billion in cheap loans.

REPAYMENT MEASURES

The grants force the bloc to generate cash to repay the borrowing by 2058. Leaders agreed that:

• Germany, Sweden and the Netherlands would lose their current rebate on the amount of VAT they pass on to the EU.

• EU countries will impose a tax on non-recycled plastic and pass on the proceeds to EU coffers.

• From 2023 there would be a tax on goods imported into the EU from countries with lower carbon emissions standards than the bloc.

• Other financing options available include a tax on financial transactions and extending the emissions trading system to maritime and aviation sectors.

Such new taxes will be expressly allotted to the repayment of the €750 billion borrowing, but they will become part of EU reality for the next 38 years.

DISBURSEMENT TIED TO GOVERNANCE

The grants will be disbursed to countries that present plans that strengthen their growth potential, job creation and economic and social resilience of their economies. The plans also have to make economies greener and more digital and be in line with the Commission’s annual recommendations.

The disbursement will need the approval of a qualified majority of EU governments and be linked to meeting milestones and targets. If any local government believes such targets had not been met by a particular country, it can trigger an EU debate within three months.

The money will also be linked to observing the rule of law — an issue for Poland and Hungary which are under EU probes over their rule of law practice. But there will be a lot of political leeway: if the Commission decides there are “manifest generalised deficiencies in the good governance of Member State authorities as regards respect for the rule of law”, it can propose measures that would have to get the backing of a qualified majority of governments.

REBATES FOR NET CONTRIBUTORS

To secure their backing for the recovery plan, net contributors to the EU budget like the Netherlands, Sweden, Austria, Denmark and Germany, will receive much deeper rebates than before on what they have to contribute each year to EU coffers based on the size of their economies.

MALTA TO RECEIVE €2.25BN

€2.25bn is the allocation of EU funds for Malta and Gozo for the next seven years. Prime Minister Robert Abela said that “this largest ever package will translate into further investment in our economy and citizens”.

A government statement described this allocation as exceptional, adding that this is even more significant considering Malta’s economic growth in recent years and the UK’s withdrawal from the Union leading to a loss of €75 billion to the EU budget.

The total figure includes €1.923 billion from the EU’s budget (core MFF), as well as €327 million from the grants of the newly established Recovery Instrument, known as Next Generation EU. This amount does not include the loan element.

President Michel convened a special meeting of the European Council between 17 and 21 July where he presented his second negotiating box.

During the meeting and in its margins, Prime Minister Abela held discussions with the President of the European Council and other Heads of Government to explain the specific issues pertaining to Malta, explaining that despite its strong economic performance in recent years, Malta, as a small island Member State, has unique challenges that are different from those of other Member States. Heading into the negotiations which spanned over 5 days, the Prime Minister stressed that Malta should not be penalised for its efforts in recent years to keep unemployment low.

The deal for Malta translates into €842 million in funds under the core Cohesion Policy. This amount, that does not include a further €92 million additional funds for ReactEU (Cohesion Policy) from the Recovery Instrument.

For agriculture, Malta obtained €191 million. This was possible due to a special allocation that was granted to Malta to support efforts in this area. In total, under the traditional EU policies of Cohesion Policy and Agriculture, which account for around 60% of the total EU Budget, Malta obtained €1.125 billion.

The Government has decided that a minimum of 10% of the allocation under Cohesion Policy and Agriculture will be earmarked for Gozo. This will ensure that Gozo receives more funds overall than it currently has ringfenced under the 2014-2020 financing period.

Recovery instrument

Over and above, Malta will benefit from €327 million in grants from the Recovery Instrument to assist in the recovery effort. The Government also has the option to access the loan element if it wishes to do so.

Own resources paid to the EU budget are automatically calculated on the basis of the relative economic development of Member States. Despite Malta’s strong economic performance in recent years, this excellent package means that Malta’s net balance from the EU budget will also remain significantly positive for the coming years.

The Prime Minister thanked all those involved in the months of complicated and very difficult negotiations that led to Malta’s final package, emphasising that the government will do its utmost so that the outcomes are translated into programmes and projects to consolidate further investments in the economy and citizens.

 

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