Paris, Madrid, Rome In a historic decision in the summer of 2020, the EU members agreed to jointly borrow for the first time. The money is used to feed the European reconstruction fund, in the technical jargon “Next Generation EU”. It has two goals: to cushion the economic downturn and to make the economies more sustainable and crisis-proof.
In the meantime, economic growth in southern Europe is picking up speed. The EU funds only have a very small share in this. In the two largest recipient countries – Italy and Spain – the machinery for awarding projects is only slowly getting underway. There are still no tenders for important major projects. Italy and France have so far mainly used the aid from Brussels to support existing projects.
The result is that the funds fulfill their function as economic aid at best in a procyclical manner. “It will be the case in many countries that economic output has already returned to its pre-crisis level when the effects of the EU funds come to bear,” says BBVA chief economist Rafael Doménech.
But this is not only due to the tough national awarding practice. It took a year for the national reconstruction plans to be approved and the first funds to be disbursed. Poland and Hungary, for example, have not yet received anything because they are initially supposed to implement the rule of law.
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“What remains of the original idea of the reconstruction fund is primarily the transformation of the economy,” says Doménech. It should become greener and more digital across Europe. The money from Brussels is also intended to help facilitate structural reforms in order to eliminate chronic weaknesses.
Spain: Businesses are frustrated
When the Spanish government set the budget for 2021 at the end of 2020, it planned 26 billion euros from the European reconstruction fund. The money should help to compensate for the collapse of the economy by a historic 10.8 percent as quickly as possible. In August, Spain received the first nine billion euros from Brussels – 13 percent of the 70 billion euros the country receives in aid that it does not have to repay.
The Spanish Ministry of Finance said on request that it was not yet possible to say how much EU money Spain has spent so far. The European statistical authorities have not yet determined what expenditure can be allocated as part of the implementation of the reconstruction plan. Based on the data available, economists assume that it was only around five billion euros by August.
Businesses are frustrated. “We could have started a year ago,” says a large company in Madrid. “But instead of strategically important major projects, only smaller tenders have been launched so far.” Many of them were aimed directly at consumers, such as grants for the purchase of an e-car or a solar system on the roof, which had already existed in a similar form.
Spain has set up a kind of fast track for transformational projects. The projects named “Perte” are approved directly by the cabinet. In March, the government presented one on the electric car, which ranges from a battery factory to the construction of electric vehicles and charging infrastructure. The only difference is that there is still no invitation to tender for specific orders. It should be so far soon. Companies that apply, however, will be awarded the contract for their projects in the first or even second quarter of 2022 at the earliest.
Administrative mills grind slowly
Another large corporation says that the Spanish government wants to make the major tenders absolutely watertight so that they meet all the Brussels conditions – and cannot be challenged later. “This is delaying the planned start of the projects more and more,” they say.
This seems to confirm a concern that was in the room with the Next Generation EU from the beginning: the slow mills of the administration. “The ministries could have started much earlier – for example with further training offers for the new professions that are in demand for the restructuring of the economy,” warns economist Doménech. He heard from companies that numerous jobs could not be filled because there were no qualified employees. “This is very worrying given an unemployment rate of 14 percent.”
The government, however, rejects the allegations. “We’re not slow,” says Raül Blanco, General Secretary in the Spanish Ministry of Industry. “We had to wait until the end of June to issue tenders when our rebuilding plan was approved,” he says. In the coming months, the tender for the development and construction of e-cars will take place – with a volume of around three billion euros. “It’s quite a record pace,” he says. “After all, it’s not about projects for the next six months, but for a whole decade.”
There is no rapid boost to the economy. “The EU funds were not necessary for the short-term economic recovery,” says economist Doménech. The progress in vaccinations, the lifting of the restrictions and the catch-up effects after the break-in had already triggered them.
Italy: Reconstruction machinery is only now getting underway
In Italy, EU funds are expected to increase economic growth by around four percentage points between 2021 and 2023. According to current forecasts by the Ministry of Finance, the gross domestic product (GDP) will rise by six percent this year, but this is mainly due to the revitalized industry and global demand for “Made in Italy”. The greatest effects of the Brussels fund on GDP and jobs will only be felt in the coming years, as soon as the first major projects are implemented.
Italy also received around 25 billion euros as the first tranche from Brussels in July. Rome plans to spend 15.7 billion of this by the end of the year. So far, however, ongoing projects have dominated in which EU funds have replaced previously national funding at more favorable terms. This applies, for example, to “Transizione 4.0”, a tax incentive program for companies with digitization, or the Kita expansion program. Railway lines that are already under construction are now also being financed from EU funds, such as the high-speed network in the northern region of Liguria.
For a core project – the connection of Calabria at the toe of the boot to the high-speed rail network – there is, however, as for many others, no tender. According to the government, the contracts should be signed in December 2022 at the earliest. One of the major goals of the 191 billion euro EU program is to finally advance the economically weak south and make it more competitive. So far, the express trains have ended in Salerno, shortly after Naples.
The economy fears processes that are too slow
The rebuilding machinery is just getting started. It was not until the beginning of August that the state placed job advertisements for 500 experts: lawyers, economists, engineers and computer scientists are being sought, among other things, in order to distribute the money in the country to the best of their conscience.
Italy is not yet known for its spending discipline. In recent years, the country has not even been able to call up all of the funds it has promised from the EU financial framework – and these have been well below the sums that are now being received. After all, the government recognized the problem and recently passed a reform designed to speed up public procurement.
Nonetheless, there is a concern in the economy that money will not be spent quickly enough. “Whether the plan works well depends on the government’s ability to meet the 528 terms negotiated with the EU,” said Carlo Bonomi, President of the Confindustria industry association. He does not only mean the subject areas for projects, but also the promised political measures and reforms. Bonomi also calls for companies to be more involved – and for public-private partnerships to be pushed with the money.
After all: On Thursday, Minister of Education Patrizio Bianchi assured that the first tenders for projects in the education sector should start in November. This involves a volume of around five billion euros that municipalities can access for canteens, gyms, new schools and daycare centers.
France: Reconstruction plan supports existing projects
As in Italy, France has so far mainly used EU aid for ongoing projects. France receives 40 billion euros in non-refundable transfers. They flow into the national reconstruction plan, which amounts to a total of 100 billion euros. Paris received the first 5.1 billion euros from Brussels in August, and another 8.5 billion should flow in by the end of the year.
A train has been traveling through France since September 6th to inform young people about job offers and companies about possible measures. However, the information campaign is not very far: According to a survey, only 27 percent of the companies are informed about the possible help of the development plan.
Half of the 100 billion euros has already been planned, and by the end of the year it should be 70 billion. The plan contains many projects for the expansion of local public transport, for example in Toulouse and Strasbourg. The problem is, however, that the local actors wanted to sign agreements on the development plan as quickly as possible, which is why they have also started projects that are already well advanced.
At best, the reconstruction plan can accelerate its implementation, experts and local politicians criticize. Those who have not prepared anything are left behind. The reconstruction plan does not create any new projects, but “mixes existing and upcoming projects”, complains about Clara Osadtchy, head of an ecological project for 49 municipalities in Normandy.
More: Endurance test for the euro: the south is booming – and is piling up debts.