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Facts and Findings

For a Stable Europe of Tomorrow

A Repayment Pact for the European Recovery Fund NGEU and pro-growth priority setting in response to the crisis

A principle of the European Union is that it must not go into debt. The Covid-19 crisis and its devastating effects on the economy and society have caused politicians to rethink. It finances the NGEU rescue fund through its own debt. Our analysis shows what this means for the EU and what consequences now need to be considered.

In response to the Covid-19 crisis, the European Union (EU) established a large recovery fund (NGEU) of 750 billion Euro to put Member States’ economies on a sustainable growth path out of the crisis. Given the exceptional nature of this pandemic, the NGEU is Europe’s instrument of solidarity and subsidiarity. It is also in Germany’s overall economic interest. To finance NGEU, the EU is for the first time taking on a large-scale debt of its own.
These debts are to be repaid over 31 years, although there are no binding repayment targets. A “repayment pact” with binding repayment options is therefore needed. In addition to setting growth-oriented priorities in the EU budget and strengthening expenditure control, this repayment pact would lend the much-needed credibility to the unique character and thus the added value of the debt-financed NGEU.

The repayment pact consists of a fixed and a flexible component. The fixed part prescribes a base amount from repayment obligations over a period of several years. The flexible part includes the option of making variable repayments depending on the growth rate of the national gross domestic product and thus avoiding pro-cyclical effects. The repayment pact also requires a clear agreement on a sanction mechanism in the event that repayment obligations are not or only partially fulfilled despite given preconditions

The EU should stand by its commitment that the debt financed NGEU remains a one-off measure. A departure from this would jeopardise the trust of citizens and economic stakeholders in the EU.


Read the entire analysis of the NGEU rescue fund here as a PDF.

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About this series

The series informs in a concentrated form about important positions of the Konrad-Adenauer-Stiftung on current topics. The individual issues present key findings and recommendations, offer brief analyses, explain the Foundation's further plans and name KAS contact persons.

 

Dr. Kristin Wesemann

Dr

Head of Strategy and Planning

kristin.wesemann@kas.de +49 30 26996-3803

Sophie Steybe

Referentin Publikationen

sophie.steybe@kas.de +49 30 26996-3726