The @EU_Commission is out with its new set of proposals for the recovery - ec.europa.eu/info/sites/inf…. Some early thoughts: 1) As expected the earlier French-German 500bn fund proposal forms the foundation for the financing, with up to EUR750bn in loans added. These are 1/n
sums that, given their for the first time explicit macro-stabilization purpose, are likely to be both politically and economically relevant. 2) The majority of the funds will be "new money" to be spent/invested with only relatively limited reliance on leverage to incentivize 2/n
more private investment. The fact that the proposed equity support pillar relies on such leverage though means the details of this proposal should be studied in detail when available and headline numbers might be inflated. 3) The @EU_Commission proposes a set of new own 3/n
resources to partially finance its new debt and reduce the additional burden on MS. Several of these however are problematic. Allocating ETS revenue towards debt repayments, rather than as now where the vast majority is sent as earmarked grants to MS for decarbonization 4/n
purposes, represents a step backwards from the commitment to the Green Deal. Similarly, allocating potential carbon border adjustment mechanism proceeds towards debt repayment provides a potential incentive for protectionism well beyond a "level carbon playing field". Raising 5/n
taxes on large firms, while at the same time trying to get them to invest more, also appears inconsistent (and will raise political flak in many member states). Allocating digital tax proceeds towards debt repayments meanwhile seem more sensible. It is of course for a US 6/n
fiscal history nerd interesting to note that the @EU_Commission - which like the US federal gov pre-1913 cannot raise meaningful direct taxes, proposes to raise revenue by selling CO2 credit (US gov sold land in 19th century), through carbon border adjustment (US gov just 7/n
levied trade tariffs) and via specific taxes on biz (US gov used specific sales/sin taxes).... not that much changes over time when you are dealing with an incomplete fiscal union!! 4) The @EU_Commission sensibly increases money for rural development and decarbonization (Just 8/n
Transition Fund), giving itself the tools with which to incentivize the EE to support, just as the focus on green and digital investments should provide a big carrot to the Scandinavian nay-sayers. 5) A direct link is made between Next Generation Europe fund, reforms and the 9/n
European Semester, highlighting that any "frugal conditionality" on these funds will come indirectly via the simultaneous reform of the European Semester/SGP. 6) Much focus will be on the precise degree of transfers from these proposals (small as IT for instance remain a 10/n
major net contributor to regular EU budget), but key for especially high debt countries is the new willingness to use the EU budget for stabilization purposes- a precedent that can/will be expanded over time. 7) All in all a constructive proposal with some issues to work out 11/n
which in an EU budget negotiation without the UK and German conservatives stepping on the brakes looks likely to be adopted with some concessions given to the frugals on non-core issues. Ends
