In order to receive a 2.5 billion euro grant from the European Union’s total loan, Latvia must submit an investment and economic recovery plan to the European Commission by October. How the first loan in the history of the European Union will be divided and how it is planned to repay it, TV3 News explained.
Of the total debt of the European Union, Latvia is entitled to less than two and a half billion euros in the form of grants or non-repayable support, while about the same amount will be able to borrow at a favorable interest rate if necessary. This is a completely new mechanism, in contrast to the already usual multi-annual budget of the European Union, from which Latvia is entitled to a specific amount in various funds every seven years. Therefore, the way in which Member States spend these funds will be carefully assessed.
“If these implementation mechanisms are quite clear in cohesion policy and agricultural policy, then here, in order to contribute to the European economy and to the economic recovery of each Member State, each Member State will have to draw up an investment and recovery plan. The deadlines are quite short, because the first such draft plan can be submitted by the member states to the European Commission already in mid-October this year with the budget plan prepared by each country, ”says Irēna Blauberga, Deputy Head of the EU Budget and Finance Division of the Ministry of Finance.
The European Commission will be responsible for allocating the funds, but the Member States will be able to reject national spending by a qualified majority of two-thirds of the vote. Now Latvia’s task is to develop a recovery plan that would meet both European criteria and be smartly implemented.
“The next step is to work on European Union regulations on the specific conditions under which this funding is spent, and, of course, we need to reach our own agreement and understanding within ourselves where this money is going. And I would really like to hope that this money will be invested wisely, “says Foreign Minister Edgars Rinkēvičs (” New Unity “).
Latvia will receive the funding available to it in two parts. Most of the two and a half billion will be available next year. “These 2.5 billion in grants available to us from this new recovery instrument will be split into two major tranches. 70% are available immediately in 2021-2022. while 30%, or about 336 million, will be available after 2022. And there will be a change in how it will be allocated, if this 70% of GDP is measured by unemployment, then in the second part it is important how much each country’s economy has suffered from Covid-19, ”explains Blauberg.
The debt will be repaid gradually, both from the contributions of the Member States of the European Union and through the introduction of new taxes, such as the digital tax or the green policy tax. It should be noted that this loan is still controversial, the main concern is whether the block will not introduce itself into an endless debt yoke in this way. According to foreign policy researchers, the real picture will be seen in a couple of years.
“Will we be in a deeper crisis in three or four years, and at some point we will see the extent to which one or the other economy is ready to pay off those debts. It’s like with a personal budget – to grab a lot of credit, to live well at one point, to go on a trip, but at the same time, when the time comes to pay, you have to start to understand what has been done. The situation is similar with government borrowing, ”says Kārlis Bukovskis, a researcher at the Latvian Institute of Foreign Policy.
At the same time, the researcher emphasizes that the agreement on this recovery fund is a sign of the Union’s solidarity. Consequently, Latvia, which has experienced rapid economic growth since joining the European Union.
The first joint loan in the history of the European Union to the international financial markets must be repaid by 2058.
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