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A treasure of 14 billion for Draghi. The EU deflator causes the Recovery Fund to rise from 209 to 223 billion

The vice president of the EU Commission, the “hawk” Valdis Dombrovskis, at the end of the Ecofin on February 16, inviting member countries to accelerate with the parliamentary ratifications of the Next Generation EU, necessary to start operations, said that the European Commission will be able to go to the markets to raise the resources for the Recovery Fund in June.

“June is a possible date for the Commission to begin operations” of issuing common bonds, said Dombrovskis, explaining that the schedule of approval of the plans still leads to June. “Now Countries can start sending the plans, then the Commission has two months to approve them, and the Council one month. This brings us to June ”, when the Commission will be able to issue the bonds“ to raise 13% of pre-financing ”of the Recovery.

The Vice-President of the Commission then added: “In parallel, the Commission is working hard to fine-tune all the elements for the finalization of Next Generation EU. This will happen through market loans of up to 750 billion euros at 2018 prices, or around 800 billion euros at current prices. This will make the Commission one of the largest euro-denominated issuers, at the level of the largest sovereign issuers ”.

Did you read that right? The 750 billion of the NGEU has become at current prices, i.e. using a 2% compound annual deflator up to 2021 equal to 800 billion. How is it possible? Nothing mysterious. In Brussels, the Commission’s offices explain that “the difference between the numbers is due to the standard conversion from 2018 to current prices, calculated by applying a fixed deflator of 2% to the annual amount of commitments. This practice is well established and applies to all EU spending programs and also to the ceilings of the Multiannual Financial Framework (the multiannual European budget, ed)”.

An example can even better explain the mechanism used, the Commission offices in Brussels always add: “The total amount available for grants (Grants, ndr) under the Recovery and Resilience Facility (Recovery Resilience Facility) is 312.5 billion euros at 2018 prices, which corresponds to 337.96 billion euros at current prices. The share of this total allocation for Member States is based on an allocation key which remains the same in 2018 and on current prices ”.

Then the additional 50 billion due to the recalculation of inflation (800-750 billion at 2018 prices) become for Italy, which has a share of 28% of the total of the NGEU, due to the transitive property of the percentage of 50 billion equal to 13.9 billion euros, an unexpected “treasure”.

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So if the 750 billion of the NGEU become 800 billion euros at current prices of 2021, it follows that the 209 billion euros destined for Italy (divided into 82 billion in grants (non-repayable transfers) and 127 billion in loans (loans) become with the increase of a “treasury” of 13.9 billion equal to a total of 223 billion euros respectively of which 87.5 transfers and 135.5 loans. An increase that obviously applies to all countries but that rthe option chosen by Spain and Portugal, to which France also seems to have started, to use only non-repayable transfers for the moment and leave the frozen loans for now until 2023 will make it even more interesting (you have until that date to choose to use them).

An option of caution that the premier himself Mario Draghi left it open in his speech to the Senate: “The share of additional loans that they will request through the main component of the program, the instrument for recovery and resilience, will have to be modulated according to public finance objectives”. Go ahead with judgment.

The increase in the total funds available allows with greater ease to use immediately only the non-repayable billions as also suggested by Tito Boeri and Roberto Perotti, and allow a greater deepening of the PNRR by the Government without having to rush to improvise construction sites that are not yet well defined and of dubious utility.


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