Czech Business Today

The German presidency of the Council of the EU that started at the beginning of July has a difficult task ahead of it – to find a compromise on the recovery plan and the new Multiannual Financial Framework (MFF) for the period 2021-2027. The recovery plan, also called ‘Next Generation EU’, was initially proposed on 27^th May with a budget of 750 billion EUR, while the initial MFF budget amounted to 1.1 trillion EUR. It is based on three major pillars of supporting Member States to recover, kick-starting the economy and helping private investment, and learning the lessons from the crisis.

Although it may seem that the special summit of EU leaders, which ended on the 21^st of July after extremely long and complex negotiations with an agreement on both the MFF and the recovery plan, was a major step ahead, it was, in fact, just the beginning of the process. Shortly after the Council summit agreement, the European Parliament adopted a resolution that did not approve the deal of EU leaders. Members of the Parliament especially opposed the idea of cutting the budgets of programmes focused on education, health and research in the MFF, although they welcomed the size of the Next Generation EU budget. However, given the specific situation, the MFF and the Next Generation EU are largely considered as one package.

Furthermore, MEPs insisted that the European Parliament should be fully involved in the decision-making process regarding the recovery plan. The million-dollar question is, of course, where to get the money to finance the recovery. Therefore, for the first time, the Commission proposes that it would borrow money on international financial markets under favourable conditions and redistribute the money to the Member States. The Commission would start repaying the debt as of 2028 and the money would need to be paid back by 2058. Immediately after the proposal, a lively debate emerged about whether it is responsible to run into debt that would be paid back by future generations.

As for the Czech Republic, economists and analysts agree that the budget of 750 billion EUR, representing roughly 4 per cent of EU GDP, isn’t by itself overly large. Public debt to GDP ratio of the EU usually reaches 80 per cent, it will most probably surpass 90 per cent next year and from this point of view, the amount isn’t huge. On the other hand, experts argue whether further increasing the debt would give confidence to investors and encourage recovery, or have negative effects. Another big debate ahead of the representatives of EU institutions and Member States is going to be about internal resources. The Commission came up with several options how to increase the EU budget, for example digital tax, tax on plastics, or carbon tax. However, not all Member States are inclined to this idea.

Czech business organizations share this point of view and are not in favour of introducing new taxes. The idea of applying more taxes on EU companies could be especially counterproductive in times like these, when the pace of recovery will very much depend on the competitiveness of EU companies. In addition, Czech business organizations agree that money from the recovery fund should be distributed to the economy as soon as possible.