European Legal Limits for the Recovery Fund

Abstract

The political responses to the Covid-19 pandemic present unprecedented and acute challenges for the Member States’ financial and economic systems. To cushion the economic consequences of the Covid-19 crisis, the EU intends to set up a recovery fund with the substantial sum of 750 billion euros. The recovery fund will provide money in the form of loans and non-repayable grants to Member States particularly affected by the pandemic. This financial support aims to set the Member States on the path to a sustainable and resilient recovery and thus the funds predominantly support green and digital transformation. According to current proposals, the fund needs to be debt financed. For this purpose, the Own Resources Decision entitles the Commission to issue bonds on behalf of the EU. This paper reveals whether the current plans for the recovery funds are in line with the division of powers between the Member States and the EU, and EU budgetary laws.

Keywords: Recovery Fund, Covid-19 Pandemic, No-Bailout Clause, EU’s Right to Borrow, Debt Financing of the EU, Eurozone Budget, Enhanced Cooperation

JEL Classification: H31, K34, K33