RRF: Delivering ambitious reforms

Executive Vice-President Dombrovskis

As we reach the halfway point of the Recovery and Resilience Facility, it is a good time to take stock of what we have achieved with this ground-breaking instrument.

The RRF has succeeded in its immediate ambition: to help Member States recover faster from the harsh social and economic impact of the COVID-19 pandemic.

It inspired confidence at a very difficult time. With each national recovery plan adopted, it brought clarity of purpose. Thankfully, we have now moved on from the pandemic.

The RRF has another, more future-oriented goal.

This is to boost the EU’s overall resilience and make our economies and societies more sustainable, especially by supporting the green and digital transitions. And it is achieving these aims as well.

Since it was set up in early 2021, the RRF has been transforming economies and societies across Europe.

This is the first time that we are managing to combine investments with growth-enhancing structural reforms.

All EU countries need these to tackle longstanding challenges – and also new ones. 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, as we can see from the mid-term evaluation that we are presenting today.

The RRF’s innovative approach to EU spending, based on performance rather than costs, is bringing real results on the ground. Let me give you a few examples, and there are many hundreds of reforms and investments to choose from.

They are all thanks to RRF funding:

• France is pressing ahead with a 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.

These are just a few examples.

So far, we have paid out €225 billion in RRF funding to Member States, based on completed milestones and targets.

Based on the latest national reporting, we should see around 54% of all milestones and targets completed by the end of 2024. This corresponds to around €100 billion of new payments this year.

We expect, and we need, the pace of implementation to pick up during the second half of the RRF’s lifetime. In some cases, Member States will also have to catch up on delays.

Despite the challenges posed by high inflation and tense geopolitics, we see a sustained increase in investment in the EU. This is largely thanks to the impact of the RRF.

It is boosting public investment, which is expected to reach 3.4% of GDP this year.

And it is helping to generate private investments through enabling reforms.

At the same time, it is worth remembering that Member States have been carrying out their RRF reforms and investments through a particularly difficult period.

First, the COVID-19 pandemic.

Next, Russia’s continuing aggression against Ukraine – which led to disruptions in global energy markets and supply chains.

Against these fast-moving developments, the RRF has proved to be a flexible tool that can quickly adapt to new crises.

Its innovative design and priorities make it vital for addressing recent challenges linked to competitiveness and energy security.

Last year, Member States focused on revising their plans to address the impact of inflation and supply chain disruptions.

Some countries – Greece, Slovenia and Croatia – also had to cope with natural disasters like floods and wildfires.

We also encouraged Member States to include chapters to reflect the priorities of the REPowerEU plan, to:

• diversify the EU’s energy supplies,
• produce more clean energy,
• and accelerate the green transition.

Through the REPowerEU chapters, a further €60 billion will be dedicated to speeding up the green transition.

The RRF funding is supporting vast amounts of sustainable transport, energy efficiency renovations and renewable energy installations.

In all, €68 billion in RRF funding will support clean tech, clean energy and the decarbonisation of EU industry.

More than 3,000 kilometres of electricity transmission and distribution lines will be modernised.

This is roughly the distance between Lisbon and Riga.

However, despite the evident success of the Facility, it has not all been plain sailing. There are also lessons to be learned.

Feedback from Member States tells us there is room for greater flexibility and simplification.

One example is the very detailed definition of milestones and targets to be met for each payment. Another is 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. But 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.

I will conclude here and pass over to Paolo. Thank you.

Commissioner Gentiloni 

Good morning.

It is of course too early to deliver a fully fledged evaluation of NextGenerationEU. While the Regulation was adopted three years ago this week, most of 2021 was devoted to negotiating plans, so the actual implementation phase has been more like a couple of years; indeed much less for some Member States.

Nonetheless, we can point to a number of key achievements of this European success story.

The first achievement was immediate: the announcement of NextGenerationEU, a moment variously described as Hamiltonian or Rubiconian, led to an immediate narrowing of sovereign bond spreads. Of course, policy action at national level and by the ECB also played a role in this regard. But the NextGenerationEU decision was a game-changer in preventing a great European fragmentation.

Another immediate effect of the RRF was to get funds flowing relatively quickly: we disbursed €56.5 billion in pre-financing in 2021 and 2022, and an additional €10.4 billion of pre-financing this past winter upon the approval of the REPowerEU chapters.

NextGenerationEU also made the Commission a major player in capital markets. The volume of our issuance increased from €0.4 billion in 2019 to €120 billion in 2021 – of course also strengthening the international role of the euro.

The RRF also brought a new dimension to EU funding instruments by making the financing of investments conditional upon the implementation of reforms. Member States have used the RRF to tackle long-standing challenges – as reflected in the sharp improvement in progress with country-specific recommendations. As you will recall, all plans are required to address ‘all or a significant subset of relevant CSRs’. After two years of NextGenerationEU, this incentive had led to an increase of 17 percentage points in the share of CSRs for which ‘some progress’ had been achieved – from 52% in 2021 to almost 69% in 2023.

Furthermore, NextGenerationEU has played a key role in the preservation of public investment, a development that stands in stark contrast to the disastrous experience of the post-financial crisis years, when public investment collapsed. Based on our Autumn Forecast, the EU’s public investment ratio is expected to rise to 3.5% of GDP in 2025, up from 3.0% in 2019. And around half of that increase is related to EU funding, particularly the RRF.

The RRF played an important role in sustaining the robust rebound after the pandemic, which saw the EU economy return to its pre-pandemic output level by the third quarter of 2021 – sooner than expected. This again was very different to what happened in the wake of the financial crisis, when it took seven years for output to fully recover.

Modelling by the UK-based National Institute of Economic and Social Research indicates that EU GDP was 0.4 per cent higher in 2022 than it would have been in the absence of RRF spending.

It also shows that the initial disbursements were responsible for lowering unemployment in the EU by around 0.2 percentage points.

The joint investment impulse from the RRF is also supporting upward economic convergence in the EU because of the RRF’s allocation key. RRF disbursements had stronger effects in the southern and eastern Member States – as a rule – than in the northern and western ones with relatively higher levels of GDP. The EU growth map clearly illustrates this.

We sometimes hear critics pointing out that while the EU’s post-COVID rebound was impressive, it petered out without a more lasting impact on growth. And indeed we did see an impressive rebound in 2021 and 2022, but then the European economy slowed down. 11 Member States saw negative growth last year and we only expect an acceleration of economic activity in the second half of this year.

But what is the main reason for this? Russia’s war of aggression. It’s as simple as that. NextGenerationEU could not cancel out the economic impact of the war and the ensuing energy crisis, but it did substantially attenuate it. We also adapted the national plans and agreed on REPowerEU chapters to accelerate the energy transition. All in all, NextGenerationEU has helped us navigate these very rough waters.

Looking ahead, simulations with the Commission’s QUEST model estimate that NextGenerationEU has the potential to increase EU real GDP by up to 1.4% in 2026, compared to a no-NextGenerationEU scenario. This does not include the beneficial effects of the many reforms that are being enacted through the RRF, which will be felt gradually over the coming years, of course also strengthening productivity.

Of course there are also lessons to be learned from the first three years and improvements to be made.

We know that some – though not all – national authorities and institutions would like to see greater flexibility both in the assessment process for milestones and targets and the procedure for revising plans. And we stand ready to look at ways to address these challenges, without reopening the legal framework.

We also know that many stakeholders – regions, social partners – are very keen to deepen their involvement in the implementation of the plans. And let me urge Member States to also bear this in mind as they draw up their fiscal-structural plans in the second half of this year, under the reformed economic governance framework.

To sum up, NextGenerationEU is a success story. It has a little under three years to run and in many ways the second half of its life will be more challenging than the first, as investments reach a critical stage in their implementation.

Before I take your questions, let me add a word of sincere thanks to the staff of DG ECFIN and the Recovery Task Force for their incredible efforts over the past three years to steer the preparation and implementation of the RRF.

These efforts will continue to support Member States in this challenge.