The Roadmap to European Fiscal Integration

The Spring of 2020 will remain in history as the time of the coronavirus pandemic. However it will also mark the beginning of the long-awaited European fiscal integration. 

What seemed impossible only a few years ago, suddenly became a viable solution for Europe. In the couple of weeks that have passed with investors first hearing about the possibility of joint debt, the Euro, as well as the European stocks, jumped, as investors’ funds start pouring.

In the meantime, there is even a timetable for the road ahead, highlighting the dates where main milestones must be crossed in order for the plan to succeed. Will it succeed in the current form? No one knows yet. However investors and traders have  already marked down the dates in the economic calendar, as likely to create volatility on the Euro pairs.

Preparing for the Next Generation

The European Commission’s Next Generation EU fund consists of €750 billion – €500 in grants and €250 in loans to member states. It aims at supporting investment and reforms to fight the coronavirus effects, to stimulate private investment, and to develop measures to prevent similar crises in the future.

The three pillars described above further split into various programs – Recovery and Resilience Facility (RRF) (€350 billion), Strategic Investment Facility (SIF) or the Solvency Support Instrument (SSI). All these programs and others, are part of the plan of how to use the funds obtained via the Next Generation EU program.

In total, the firepower of the EU budget rises to €1850, to spend between 2021 and 2027, for Europe’s economic recovery. By July 2020, the European Council should reach a political agreement on MMF.

Next, by the summer of this year, the European Parliament’s consultation on Own Resources (carbon tax, digital tax – sources to repay part of the borrowed capital) begins. Further, the adoption of the revised MFF is scheduled for early autumn 2020. Finally, the adoption of the revised MFF must get the European parliaments’ consent in December 2020.

All these steps are important for European investors. In particular, the last step has a significant risk for the Euro as some Nordic states expressed concerns about the repayment schedule and their contribution.

Regardless of its final shape, what started two weeks ago and ends this upcoming December, will go down in history as the first attempt that the European Union had towards fiscal integration.

A small step today, but a giant leap for tomorrow.

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