NextGenerationEU: Questions and Answers on the Commission’s first funding plan
(Source: European Commission)
What is a funding plan?
The funding plan is one of the elements of the Commission’s diversified funding strategy, which will enable the Commission to raise funding for NextGenerationEU under the best possible conditions in the necessary volumes.
The funding plan announces the volumes of borrowing to be undertaken, which must remain within the boundaries set by the annual borrowing decision. The purpose of the funding plan is to ensure that the necessary funds are available to cover the relevant payment needs when required.
Key elements of the funding plan are communicated to market participants in order to offer the needed predictability. In particular, the Commission will publish on a regular basis:
- The targeted amounts to be financed by bonds;
- The target auction dates for bond and bill issuances;
- Indications on the expected number and aggregate volumes of syndicated operations.
What does the first funding plan foresee?
The Commission’s first funding plan, which covers the period between June and December 2021, outlines how the Commission is going to approach the market in order to raise the necessary market funding.
In short, the Commission has today announced its estimates to issue around €80 billion of long-term bonds in 2021, to be topped up by tens of billions of EU-Bills, to fund Europe’s recovery through NextGenerationEU. The Commission will use the EU-Bills to raise the additional funds quickly when needed to complement the amounts from the long-term bond issuance. The exact amount of both EU-Bonds and EU-Bills will depend on the precise funding needs, and the Commission will revise today’s assessment in the autumn. In this way, the Commission will be able to fund, over the second half of the year, all planned grants and loans to Member States under the Recovery and Resilience Facility, as well as cover the needs of the EU policies that receive NextGenerationEU funding.
In more detail:
The Commission intends to start borrowing under NextGenerationEU in June 2021. The first borrowing transaction will take place via a syndication, i.e. through a group of underwriters, or banks whose role is to place the debt with investors. More syndicated transactions are planned to take place by the end of July.
The Commission also intends to start auctioning EU-Bills and EU-Bonds as of September 2021. Once the auctioning system is in place, the Commission will consider the possibility to issue in general one syndication and one auction per month.
The auctioning system will be used together with syndications to increase volumes raised through bonds already issued (referred to as “taps”).
In line with standard market practice, the Commission will be issuing EU-Bills exclusively via auctions. The issuance of EU-Bills will start in September, once the NextGenerationEU auction platform (managed by the Banque de France as announced earlier in May) is operational.
Further details regarding the structure of the EU-Bill programme and the auction dates will be communicated prior to the start of auctioning.
This funding plan is based on initial estimates of the grant and loan needs to Member States. The Commission will update the funding plan in September, when it has a more precise overview of the funding needs of the EU Member States for the last months of the year.
What does the Annual Borrowing Decision foresee?
The Annual Borrowing Decision is a legal instrument which would empower the Commission’s budget department to borrow under NextGenerationEU. It also includes the maximum amounts that the Commission is authorised to borrow by the end of the year. The amounts indicated in the Annual Borrowing Decision are to be viewed as an upper ceiling on the amounts that the Commission can raise in the market, and which cap the amounts which the Commission can include in its funding plan.
When will the Commission adopt the next funding plan?
The next funding plan, to cover the period from January-June 2022, will be published in time to serve as the basis for the timely and open communication with market participants ahead of the start of the borrowing operations in the first half of 2022.
In the meantime, the Commission will update the current funding plan in September, to take into account the latest forecasts for financing needs, especially the necessary disbursements following the possible completion of milestones under the Recovery and Resilience Facility – the instrument at the heart of NextGenerationEU.
When will the Commission carry out the first transaction under NextGenerationEU?
As outlined in the funding plan, the inaugural NextGenerationEU bond issuance is planned for June.
The exact timing will be identified taking into account market conditions as well as the issuance plans of the EU’s partners across the EU, both sovereign and supranational issuers.
So far, and in line with the diversified funding strategy as presented in April 2021, the Commission has taken all the necessary steps for the NextGenerationEU funding framework to be up and running in time. Earlier this month, the Commission chose the provider of its auctioning platform. The Commission also announced the initial list of Members of our Primary Dealer Network. The 39 institutions on the list will support the successful placement with investors of NextGenerationEU bonds on the terms that are most advantageous for EU Member States and their citizens.
What about the other programmes?
While starting the issuances under NextGenerationEU, the Commission will continue to operate its other financial assistance programmes.
In 2021, the Commission intends to issue €5 billion under the European Financial Stabilisation Mechanism (EFSM) and €1.8 billion under the Macro-Financial Assistance programme. The transaction under the EFSM is currently scheduled for the month of July.
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