European ways for growth through recovery and resilience: midterm review

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Since early 2021, the EU’s Recovery and Resilience Facility, RRF has been transforming the member states’ socio-economic development. The EU-27 states adopted national recovery-resilience plans, NRRPs in line with the RRF’s requirements and according to nation-specific growth reforms. Bringing additional clarity to the EU-wide transformation efforts during the three years in action, the review shows the results achieved. 

Background
The Recovery and Resilience Facility, RRF is a temporary instrument (though it is a center part) of the NextGenerationEU plan to facilitate stronger and more resilient ways from the current crises and challenges. Through the RRF, the Commission raises funds by borrowing on the capital markets (by, e.g. issuing bonds on behalf of the EU), which are then available to the member states to implement ambitious reforms and investments that: a) make their economies and societies more sustainable, resilient and prepared for the green and digital transitions, in line with the EU’s priorities; and b) address the challenges identified in country-specific recommendations under the European Semester framework of economic and social policy coordination.
Starting from its 2022 cycle, the European Semester process was adapted to take into account the RRF creation and the implementation of the national recovery and resilience plans, NRRPs.
The RRF is also crucial for implementing the REPowerEU plan, which is the Commission’s response to the socio-economic hardships and global energy market disruption caused by Russian military invasion in Ukraine.
Source: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility_en
More on linking the European Semester and RRF in: https://commission.europa.eu/business-economy-euro/economic-and-fiscal-policy-coordination/european-semester/european-semester-timeline/linking-european-semester-and-recovery-and-resilience-facility_en

Midterm review: recovery and resilience
The RRF midterm review, which has followed the EU-wide three years in action, with the evaluation of the NextGenerationEU program, and included the negotiating period with all member states, has shown some positive results and provides perspective vision in reforms.
So far, the EU has paid out €225 billion in RRF funding to the member states, about one-third of the total. Based on the latest national reporting, about 54 percent of all RRF’s milestones and targets are supposed to be completed by the end of 2024; it corresponds to €100 billion additional payments this year.
Most of 2021 was devoted to negotiating and adopting NRRPs, so the actual implementation phase has been just a couple of years; for some states it was even less…

The EU-wide twin financial-executive means (i.e. recovery and resilience) have been adopted as an urgent reaction to the member states’ needs for assistance in fast recovering measures from the harsh social and economic impact of the covid-pandemic. There has been as well another and more future-oriented goal: i.e. to boost the member states’ resilience by make their economies more sustainable, especially by supporting the green and digital transitions.
The European Commission has also encouraged the member states to include in the NRRPs some chapters reflecting modern challenges and priorities of the REPowerEU plan, e.g. to: a) diversify the member states’ energy supplies, b) produce more clean energy, and c) accelerate the green transition.
Among the “means” there is the REPowerEU plan as a vital supplement to the RRF implementation: through the REPowerEU chapters, additional €60 billion are being dedicated to speeding up the green transition.
Besides, the RRF funding is supporting vast amounts of sustainable transport, energy efficiency renovations and renewable energy installations. About €68 billion in RRF funding will be devoted to support clean technology and clean energy installment in order to decarbonise the member states’ industrial sectors.
All these measures are aimed at boosting the EU’s overall resilience and make the member states’ economies and societies more sustainable, especially by supporting the green and digital transitions. As the Commission’s authorities underlined “this is the first time that the EU is managing to combine investments with growth-enhancing structural reforms”.
More on midterm review in: https://ec.europa.eu/commission/presscorner/detail/da/ip_24_943

RRF: funding elements
The RRF has explored an innovative approach to funding the member states’ spending, based on performance rather than costs; i.e. bringing real results as a final outcome.
The following are the most vivid examples of the RRF funding:
= France’s renovation programme to make 1.5 million households more energy efficient.
= Bulgaria is improving its minimum income scheme.
= Austria has introduced a scheme to make climate-friendly transport easy and affordable.
= Lithuania is improving school infrastructure and making sure that children have equal access to education.
= Greece is investing heavily in the digital transformation of its public sector entities.
The Commission’s official assessment shows that due to “innovative design and priorities the EU made it vital to address recent challenges linked to competitiveness and energy security”.
Commission Executive President’s comment on: https://ec.europa.eu/commission/presscorner/detail/da/statement_24_971

With the help of the RRF, over 28 million megawatt hours in energy consumption have been saved around the EU-27. Over 5.6 million additional households now have internet access via very high-capacity networks, and almost 9 million people have benefitted from protection measures against climate-related disasters, such as floods and wildfires.
Another RRF’s “immediate effect” was to get funds flowing relatively quickly to the states: the EU disbursed €56.5 billion in pre-financing in 2021 and 2022, and an additional €10.4 billion of pre-financing during the winter-23 preparations and approval of the REPowerEU chapters.

The NextGenerationEU plan
Another EU-wide executive means, i.e. the NextGenerationEU plan also made the Commission a major player in the global capital markets: the volume of the EU’s bond-issuance increased from €0.4 billion in 2019 to €120 billion in 2021; it could as well strengthen the international role of the euro.
The NextGenerationEU plan is the EU’s €800 billion temporary recovery instrument to support the member states’ post-pandemic economic recovery and build a greener, more digital and more resilient future. The plan is of a complex nature: it includes such components as the 23 REPowerEU chapters, the RRF itself, the European Semester process, and certainly the NRRPs.

The NextGenerationEU plan is regarded as a success story by the Commission: with less than three years to run, the second half of its term would be more challenging than the first, as investments reach a critical stage in their implementation.
The plan’s financial part consists of: a) grants of up to €338 billion being provided to the member states to implement NRRPs, and b) loans of up to €385.8 billion to individual member states; these loans will be repaid by the states.
More on the plan in: https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/nextgenerationeu_en

Lessons to be learned
Analysis of the NRRPs from the member states has shown that there is room for greater flexibility and simplification: the states’ authorities underline that it is often difficult to follow very detailed definitions of milestones and targets to be met for each payment. Other complications are connected to the accumulation of data collection requirements for audit and control purposes.
Involving other parties such as regional and local authorities, as well as social partners, is crucial for a country to plan and carry out measures contained in its national plan; however, the degree of their involvement varies a lot around the EU.
Social partners must play a pivotal role in the design and implementation of labour market and social policy reforms. “And if a national plan is to bring its full benefits, countries must have enough administrative capacity to make sure that RRF funds are properly managed, absorbed and put to the best use” noted Commission VP.

Sufficient flexibility in the design and implementation of RRPs is necessary to ensure continued added value and smooth implementation. Adequate administrative capacity in the member states is a key for a swift RRF implementation, as is the close involvement of regional and local authorities, as well as social partners, concluded the Commission.
More in the Commission press release (21.02.2024) and reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_943

At the end of 2023, the Council revised all 27 NRRPs “to maximize their impact in a changing context”; the plans were updated to help address increased energy prices following Russian war in Ukraine, high inflation and supply chain disruptions. Thus, in Greece, Slovenia and Croatia, the plans were updated to help tackle natural disasters, which – in addition to the human suffering they caused – made it challenging to implement certain reforms and investments.
These updates considerably increased the size of EU support for the states’ economies with close to €150 billion.
This also includes additional financing for the 23 REPowerEU chapters and €125.5 billion in additional loan support; totally, the RRF is set to inject €650 billion in financial support for the member states perspective recovery-resilient socio-economic reforms.

 

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