The deployment of the European Recovery and Resilience Fund, the most ambitious financial instrument in the history of the European Union, has been slower than expected, but the deadline of August 31, 2026 to execute it is hard to miss. will extend, warned yesterday the European Commission, which encouraged governments to step on the accelerator, approve the necessary reforms to collect aid and make the most of this opportunity before it ends.
“Changing the deadline would require a series of very complex decisions [some would need unanimity and would have to go through national parliaments], so we don’t think this is a feasible scenario. The message to the member states is to focus on applying it and work with this date in mind”, explained the vice president of the Community Executive, Valdis Dombrovskis, when he presented the interim evaluation report of the fund and its already famous Next Generation EU grants. “I would not invest a lot of political capital in moving the deadline, on the contrary, I would dedicate it to identifying new instruments to finance our common priorities, such as defence,” added the European Commissioner for Economy, Paolo Gentiloni, in a closed defense of the instrument Its creation represented “a Hamiltonian moment” or “crossing the Rubicon” for the EU, given that it was financed for the first time through the issuance of common European debt.
Despite the challenges, for Brussels the Recovery Fund is “a success story” that can serve as a model for future community aid programs. Designed in the middle of the pandemic, with the economies of Italy and Spain particularly affected, the fund fulfilled the primary objective, “to help member states recover more quickly from the severe social and economic impact of covid”, he recalled Dombrovskis. The creation of the fund “led to an immediate reduction in risk premiums,” added Gentiloni.
The evaluation report that was published yesterday calculates that, in the Equator of the program, of the total of 800,000 million euros available, only 225,000 million have been disbursed, between aid for lost funds and loans. The figure, lower than expected, is attributed to the fact that it took longer than expected to design the national reform plans, as well as the process of revising them, as many countries have made in 2023 to adapt them to the economic context of the war.
“Lower absorption rates in the first years should lead to higher rates in the following years and a greater economic impact. In general, we see that it has a substantial impact on growth and on the level of public investments”, which in 2023 were above pre-pandemic levels, partly thanks to the fund, Domvrovskis emphasized. Another weighty factor in explaining the level of use of the fund is that the Commission “assumed” that governments would resort more to the loan formula, he admitted. But Spain, for example, has not played this game, it has only used the aid.
By now, it seems clear that the fund will not be exhausted, but according to Brussels projections, the economic impact of the European investment, in the medium term, will more than double its cost. The system of conditioning the delivery of aid to the fulfillment of conditions such as the approval of reforms has triggered compliance with the specific recommendations by country that the Commission regularly makes and which, in the absence of incentives, governments were reluctant to do.
Gentiloni drew attention to the fact that, according to a model included in the report, so far the impact of the fund on European GDP has been 0.4%, compared to the 1.9% that loved “Let’s look, for example, at the speed of recovery of the European economy” after the pandemic compared to the financial crisis, when it was much slower, or how the recovery came earlier than in the US. “Then what happened? Well, the war came, with all the consequences for the price of energy, and the economy slowed down, but thanks to the NextGen funds we were able to help Europe”.
