Pablo R. SuanzesBrussels Correspondent

Brussels Correspondent

Updated Wednesday, February 21, 2024-18:09

The European Union is not going to extend

the deadline for the execution of Next Generation funds

beyond 2026

. He had warned it, ruled it out and closed the door definitively this Wednesday, by presenting the mid-term review established in the regulations. The European Commission believes that the idea was a success, that the result so far is more than good and that the impact on the economies of the 27

has left and will continue to leave its mark

. But it also assumes that a good part of the money will not be able to be spent on time, that the administrative needs to be able to absorb that huge amount of money with such little margin were underestimated and that, with the lessons learned,

more flexibility will be needed

if in the future once again achieves the green light from the Member States for

common debt

for programs with transfers that will not have to be returned.


We do not consider it a probable scenario, so our message to the

Member States is to concentrate on the execution

of the funds within the deadlines set by the regulation," said Vice President Valdis Dombrovskis in the presentation of results. "The recovery fund has just under three years of life left and, in many ways, the

second half

of its life will be more complicated than the first as investments reach a critical stage," said Italian Paolo Gentiloni, urging not to waste "political capital" in that fight.

There are countries, such as Spain, Italy or Greece and Portugal that have asked for much more margin to be able to

really take advantage of the money

. And others like Hungary because they have not even started, since by not making the necessary judicial reforms their games have been frozen. Almost the same thing happens to Poland, despite the change of Government. But as the Latvian vice president has said,

that would require major changes

, something that requires the approval of the 27, and the most orthodox refuse. Their summary is clear: they warned at the time that 800,000 million was too much and they were not listened to, and time would have shown that with much less amount the objectives of reducing risk premiums could be achieved,

recovering the pre-pandemic GDP

, avoiding the energy crisis and create jobs. So they are hardly going to open the melon again and before an election.

The program's numbers are bittersweet. Since the beginning of the program, the Commission has disbursed, with the permission of the capitals, 225,000 million euros, of the 67,000, almost a third, were what is known as pre-financing, that is, the

first almost automatic payment

for any country whose Recovery Plan was approved. And it was designed to quickly assume part of the direct costs of facing the pandemic. The rest doesn't because everything is slow, very slow. Capacities and agility were overestimated, and the cumbersome procedures that make

money reach companies,

especially SMEs

, were not taken into account .

Everything ends up being done through the State and public companies. And the impact is less than expected and the perception is even less than reality. Not to mention the transparency and audit problems.

As of December 31, 2023, only eight states, including Spain, had received

40% of the corresponding transfers

. But this partial evaluation does not consist of reviewing which country has received how much, how it has been spent or exactly where the money has gone. It is rather a mechanism conceived in its original design to take stock,

with hundreds of examples of

how money is being used by sectors or specific success stories.

Thus, the books say that by the end of 2023, more than 1,150 milestones and objectives have been satisfactorily met, which are each of the demands in forms of reforms or investments to be able to achieve unlocking. "The achievement of these steps in the implementation of reforms and investments has led to positive changes and tangible results on the ground," says the Commission. "With their help, for example,

more than 28 million megawatt

hours (MWh) in energy consumption have been saved

. More than 5.6 million additional homes now have Internet access through very high capacity networks, and "Almost 9 million people have benefited from protection against climate-related disasters such as floods and wildfires."

The problems over execution are no surprise. Looking at the precedents, in Cohesion or structural ones, it was clear that there would be countries in great trouble. If in general, due to problems of bureaucracy, lack of resources,

communication difficulties

between the national, regional and local levels, they could no longer cope, with up to hundreds of billions to use in just five years there was no doubt that it would be impossible. The Commission knew it, the governments knew it, but then it was a matter of volume, of sending a signal to the markets in the middle of a strong recession. It consisted of making it clear that unlike other crises there would be no wild procyclical measures and that investment would be maintained. And at least in that part, that's how it was.

The Commission estimates that around half of the expected increase in public investment between 2019 and 2025 has and will ultimately come from investments financed by the EU budget, in particular by the Recovery Facility. Unlike 2008, for example, public investment in

Europe increased during the COVID-19 pandemic

and subsequent energy crisis, from 3% in 2019 to an estimated 3.3% in 2023. And in 2024, the public investment reaches 3.4% of GDP.

The Commission's economic modeling suggests that the Next Generation Funds "have the potential to increase real EU GDP by up to 1.4% in 2026", compared to what would have happened without them. And those results

do not include "the expected significant impact

of improved growth from the reforms included in the recovery plans, which manifests itself in the long term. Employment in the EU is expected to increase by up to 0.8% in the short term "says the document.

There are also enormous differences between countries in these. Thus, for example, Spain is one of the countries that benefit the most from the macro models of community technicians. The mechanism was designed to

support the lowest-income

or most vulnerable Member States, which had also been the most affected by the pandemic, as was our case due to the sudden halt to tourism, the main source of income.

All the updated simulations, explains the Commission, indicate "that Member States with a lower than average GDP per capita experience the greatest boost in GDP levels due to significant investments. Thus, Greece would reach a growth of 4.5% , more than 4% in Croatia and around 3.5% in Spain and Bulgaria, compared to the EU average impact of 1.4%.

Payment delays

Spain was at the head of the process at all times. It was among the countries that previously presented their Recovery Plan, among those that received the first pre-financing payment and before reaching the third disbursement. But the

call for early elections

changed the course. The addendum that was presented in the summer created a bottleneck. All countries had to do one to incorporate new things. On the one hand, to incorporate the money available through the so-called Repower mechanism in the face of the energy crisis. On the other hand, new reforms and investments, since Spain benefited from having had a more severe crisis than expected when the

initial calculations were made, so more transfers were due to us

. But also because at that time the Government, seeing that the situation in the markets was no longer so favorable, among other things due to the rise in interest rates, decided to request the loans contemplated in the Next Generation, something it had not done since the principle. Because it did not need financing and because the Executive itself was aware that if absorbing the transfers was going to be a challenge, adding 82,000 million more in credits was impossible.

When the addendum was presented, the fourth disbursement was paralyzed, since the Commission could only examine one of the two things at a time. And then various problems have arisen, since the dissolution of the courts

prevented the completion of required legislative reforms

. And the new Congress recently overturned, with the vote against Podemos, one of the laws required to be able to access the fourth disbursement as a whole. So the Government is negotiating with Brussels for all possible flexibility to delay the evaluation so that a partial payment does not arrive, which would have no economic importance at the moment, but would have a political stigma.