On Wednesday 21 February, the European Commission highlighted the innovative aspect of the Recovery and Resilience Facility (RRF), the financial instrument of the NextGenerationEU Recovery Plan, which is performance-based in that European funds are only disbursed once the structural reforms set out in a post-Covid-19 national recovery plan have been implemented.
“This is the first time that we are managing to combine investments with growth-enhancing structural reforms. (...) The RRF has brought a fundamental change in implementation as Member States carry out country-specific recommendations and put EU priorities into effect. The benefits are clear and tangible”, said European Commission Vice-President Valdis Dombrovskis when presenting the mid-term review of the facility.
The European Commissioner for Economic Affairs, Paolo Gentiloni, added that the RRF brings “a new dimension (...) by making the financing of investments conditional upon the implementation of reforms”. He noted “a sharp improvement” - from 52% in 2021 to almost 69% in 2023 - in compliance with the socio-economic policy recommendations that the European Commission makes to each Member State every year as part of the ‘European Semester’ budgetary process.
The European Commission believes that NextGenerationEU, which also innovates by entrusting the Commission with the management of a common loan at European level, contributed to an economic rebound after the Covid-19 pandemic. Among other things, it has helped to maintain an acceptable level of public investment, calculated at 3.5% of the EU’s GDP, compared with 3.0% in 2019. The European recovery plan “was a game-changer in preventing a great European fragmentation”, said Mr Gentiloni.
But the extra growth that NextGenerationEU may generate is difficult to quantify, not least because the full impact of investment and reform has yet to be seen, and Russia’s military aggression in Ukraine has contributed to a slowdown in growth. According to Mr Dombrovskis, the Commission’s simulations point to additional growth of 1.4% of GDP in 2026, compared to a situation without the European recovery plan.
At the halfway stage, up to one third of the overall budget of the RRF has been mobilised, i.e. €225 billion. The Commission, which believes that this ratio is already high, given the time needed to adopt the national recovery plans and revise them in line with the new priorities, expects cumulative disbursements of up to €100 billion in 2024.
Of the 27 Member States, Poland and Hungary have not yet received any payments, because they have not fully implemented the required reforms. Warsaw has nonetheless submitted an initial application for EU funding of €6.3 billion, to which the Commission is due to respond shortly. These countries will not have to implement all elements of their national plans by 2026, as they have already started to do so with national resources in the hope of obtaining European funds at a later date.
In response to some criticism from national authorities, the Commission acknowledges that procedures could be made more flexible to facilitate the use of funds. But it warns that, in order to extend the deadline for payment of financial aid beyond 2026, difficult decisions would have to be taken unanimously by the Member States to allow it to continue borrowing on the markets. It considers this hypothetical scenario to be unrealistic.
See the mid-term evaluation of the RRF: https://aeur.eu/f/ay4 (Original version in French by Mathieu Bion)