NextGenerationEU is a temporary recovery instrument which can raise up to €750 billion in 2018 prices or some €800 billion in current prices through bond issuance. It is at the heart of the European Union (EU) response to the coronavirus crisis and has the ambition to support the economic recovery and build a greener, more digital and more resilient future.
To finance NextGenerationEU, the European Commission, on behalf of the EU, will borrow on the capital markets. Thanks to the EU’s high credit rating, the Commission will be able to borrow on advantageous conditions. The Commission will then pass the benefit on to the EU Member States directly when providing them loans or to the Union budget in the form of low interest rate payments on borrowings to finance recovery spending.
The borrowing will be concentrated between mid-2021 and 2026. All borrowing will be repaid by 2058.
The EU budget – which is financed by own resources and contributions from all EU Member States – will back the borrowing.
To size of NextGenerationEU would translate into borrowing volumes of on average roughly €150 billion per year between mid-2021 and 2026, which will make the EU one of the largest issuers in euro.
Given the volumes, frequency and complexity of the borrowing operations ahead, the Commission will follow the best practices used by sovereign issuers, and implement a diversified funding strategy.
By using diverse funding instruments and funding techniques, the Commission will expand the investor base for EU securities, facilitate the smooth repayment of borrowed amounts, and deliver all funds as required on the most advantageous terms for EU citizens.
Directing the funds to where the needs are
The centrepiece of NextGenerationEU is the Recovery and Resilience Facility - an instrument to offer grants and loans to support reforms and investments in the EU Member States with a total value of €723.8 billion in current prices.
Part of the funds – up to €338 billion - will be provided in the form of grants.
The other part – up to €385.8 billion - will provide Union loans to individual Member States. These loans will be repaid by those Member States.
In addition, NextGenerationEU will reinforce several EU programmes.
Repayment of the borrowing
Repayment of the borrowing will start as of 2028 and will take place over a long-time horizon – until 2058.
The loans will be repaid by the borrowing Member States. The grants will be repaid by the EU budget.
To help repay the borrowing, the Commission will propose new own resources to the EU budget (or sources of revenue), on top of the already existing ones. These could be also used for early repayment before 2028.
These new own resources will be based on a carbon border adjustment mechanism, the Emissions Trading System and a digital levy. Detailed proposals will follow by June 2021.
Further own resources, to be proposed by June 2024, could include a Financial Transaction Tax, a financial contribution linked to the corporate sector or a new common corporate tax base.
Guaranteeing of the borrowing
To back the borrowing, retain its high credit rating and raise funds under favourable market conditions, the EU will use the EU budget and its headroom.
Headroom is the difference between the Own Resources ceiling of the long-term budget and the actual spending. To ensure sufficient headroom, the EU is increasing the Own Resources Ceiling of its budget by 0.6 percentage points of the EU’s Gross National Income (GNI).
The Own Resources ceiling determines the maximum amount of own resources the Commission can call from Member States in any given year to finance expenditure. This gives certainty and predictability to Member States for their budgetary and financial planning. A sufficiently high ceiling allows the Union to cover all of its financial obligations and contingent liabilities falling due in a given year.
The permanent Own Resources ceiling of the budget is currently being increased to 1.4% of EU’s gross national income. The additional ceiling of 0.6 percentage points will come on top. It will be limited in time, until 2058, and will only be used in the context of the recovery from the coronavirus pandemic. This increase in the Own Resource ceiling will expire when all funds have been repaid and all liabilities have ceased to exist.
The headroom will serve as a guarantee that the EU will be able to make repayments under any circumstances. This will enable the EU to continue benefiting from its high credit rating and borrow funds under advantageous market conditions.
All documents linked to the EU funding strategy for NextGenerationEU are available in the documents' section of our website.