布鲁盖尔-The-nonsense-of-Next-Generation-EU-net-balance-calculations_16页_390kb

Summary of "The nonsense of Next Generation EU net balance calculations"

Core Content

This document by Zsolt Darvas, a Senior Fellow at Bruegel, analyzes the challenges and limitations of calculating the net financial balance of EU member states in relation to the Next Generation EU (NGEU) recovery fund. It critiques the European Commission’s impact assessment and the traditional method of calculating net balances, arguing that the current approach fails to account for the economic impact of NGEU and overestimates the financial burden on member states.

Main Points

1. NGEU Overview and Funding

• NGEU is the EU's economic recovery instrument, intended to help the bloc recover from the economic impact of the pandemic.
• It is financed by EU borrowing from the markets, with the resulting debt expected to be repaid between 2027 and 2058.
• The total financial envelope of NGEU is approximately €390 billion in grants and guarantees and €360 billion in loans, measured at 2018 prices.
• NGEU consists of seven facilities, including the Recovery and Resilience Facility (RRF), REACT-EU, Just Transition Funds (JTF), Rural Development, Horizon Europe, civil protection (RescEU), and InvestEU.

2. Estimating Net Balances

• Estimating the amounts of grants and loans to each member state is relatively precise due to reliance on historical data.
• However, estimating national contributions to EU debt repayment is extremely uncertain, especially due to the long-term nature of the repayment period (2027–2058) and the difficulty in forecasting GNI up to that point.
• The European Commission's impact assessment is criticized for being exaggerated and not accounting for the economic impact of NGEU, which is a key factor in assessing net benefits.

3. Economic Impact of NGEU

• The traditional net balance approach only considers cash flows and ignores the economic impact of EU spending.
• This is particularly problematic for NGEU, a temporary and one-off instrument, as it can have positive economic effects through increased public investment, reduced borrowing costs, and cross-border spillovers.
• The Commission’s "low additionality" scenario estimates a 9% GDP increase from 2021–2030, but Darvas argues that even half of this estimate would make all member states net financial beneficiaries.
• He proposes a fiscal multiplier of 1.2, which is more realistic than the Commission’s higher estimates, and considers a zero economic impact scenario for comparison.

4. Repayment or Roll-over of EU Debt

• The European Council has mandated that NGEU-related EU debt must be repaid by 2058.
• However, rolling over debt at near-zero interest rates could significantly reduce the financial burden on member states.
• If the EU borrows at low rates and repays at higher rates in the future, the net financial burden could be substantial.

5. Interest Rates and Borrowing Costs

• The EU is expected to borrow at negative interest rates in the short term (2021–2026), which would reduce the cost of repayment.
• The expected borrowing rates for the EU are based on the German government bond yields and assumed spreads.
• By 2026, the EU borrowing rate is expected to be negative for short-term maturities and slightly positive for long-term maturities.
• The annualized interest cost for NGEU-related EU borrowing is estimated at around €430 million in 2027–2058.

6. Challenges in Forecasting GNI and GDP

• Forecasting GNI up to 2058 is highly uncertain, with no reliable assumptions available.
• Darvas uses GDP projections to estimate GNI, assuming a constant GNI/GDP ratio.
• GDP per capita is measured at purchasing power parity (PPP), and projections are based on historical trends.
• Long-term GDP projections are subject to major uncertainties, especially for countries like Italy and Poland, which have diverged from Germany over the past few decades.

7. Role of New Own Resources

• New revenue sources for the EU budget (own resources) may shift the distribution of contributions, but they do not necessarily reduce the total burden on member states.
• Examples include a plastic packaging waste levy and a digital tax.
• These own resources are not recycled to national budgets, meaning they do not reduce the overall financial obligation of member states.
• Only carbon border adjustment mechanisms could potentially reduce the burden, as they are not under national control.

Key Information

• NGEU's total financial envelope: €390 billion in grants and guarantees, €360 billion in loans (at 2018 prices).
• Repayment period: 2027–2058.
• Estimated net financial burden: As a share of GNI, it is expected to decline from 0.075% in 2027 to 0.04% in 2058.
• Fiscal multipliers: Darvas estimates a multiplier of 1.2 for the low additionality scenario, which is more in line with academic literature.
• Impact assessment critique: The Commission's estimates are exaggerated and do not account for the economic impact of NGEU.
• Population projections: The United Nations provides probabilistic forecasts for population growth up to 2060, showing high uncertainty in long-term trends.
• GDP per capita projections: Used to estimate GNI, with different scenarios for countries like Italy and Poland, reflecting their different growth trajectories relative to Germany.

Conclusion

NGEU should not be evaluated solely based on net financial balances, as the economic impact of its spending is a critical factor in assessing its overall value. The traditional net balance method is flawed because it ignores the long-term benefits and multipliers associated with EU spending. Darvas advocates for a more nuanced approach that considers the economic and social impact of NGEU, rather than focusing only on the financial flow between the EU and its member states.