Catalina Espinosa
Research expert covering society, economy, and politics for Europe and the EU
NextGenerationEU - Statistics & Facts
The Next Generation EU economic recovery package is a series of programs launched by the European Union and its member states in the aftermath of the COVID-19 pandemic. All European nations were affected negatively by the pandemic with particularly hard hit nations, such as Italy and Spain, being some of the least prepared to deal with it both medically and financially. The economic fallout from the public health measures put in place by EU member states in particular, as well as by the negative global economic climate in general, led to calls for economic stimulus to counter these adverse impacts. The recovery instruments are significant as it is the first time that the European Union has collectively organized an economic stimulus package between its member states, with some of the loans and grants funded by the issuance of bonds at the EU level, meaning that for the first time the EU member states are collectively creating joint public debt together.
Due to the extraordinary economic circumstances, many of the member states who had previously been opposed to common debt and a EU 'fiscal union', notably Germany and the 'frugal four' (Austria, Denmark, Finland, and the Netherlands), agreed to allow the European Commission to raise 800 billion Euros on international capital markets in order to fund an EU recovery fund. Named 'NextGenerationEU', the plan would distribute funds to member states based on a calculation taking into account GDP per capita, unemployment rates, and the overall GDP declines during the pandemic. Member states were required to draw up national recovery and resilience plans outlining how they would use the funds to promote sustainable long-term growth.
On the other hand, some Southern and Eastern European member states such as Greece, Latvia, and Portugal will focus more on social, economic, and institutional development. Investments in this category include a wide variety of projects from vocational training and support for students, to investing in medical research and infrastructure such as motorways. Digitalization is also a core component of many member states' plans, with Germany being the country dedicating the greatest share of its funds to modernizing its businesses, public administration, and digital infrastructure. Expanding the coverage of high-speed internet and 5G networks are a priority in these plans.
The coordinated course of economic stimulus funded by collectively issued debt that the EU is now taking opens up the possibility of further economic integration, such as with taxation and fiscal policies. On the other hand, these measures have been taken as an exception to the usual EU budget process, which is funded directly by contributions by member states, rather than by common debt. Whether the sort of debt-funded fiscal stimulus and transfers to poorer member states materialize as a permanent part of the European Union's architecture, sometimes referred to as a 'fiscal union', remains to be seen. More fiscally conservative member states such as Germany, Austria, and the Netherlands are likely to see much political opposition and a rise in euroscepticism in such a case, while proponents of fiscal federalism see it as guarding against the possible future exit from the Eurozone of highly indebted member states such as Italy or Greece.
The COVID-19 Pandemic and the need for an EU-wide recovery plan
The COVID-19 pandemic reached Europe in February 2020, with most countries in the EU enacting emergency public health regulations and lockdowns by March of that year. The effect of the pandemic and shutting down of large sectors of the European economy was to cause a large decline in economic growth across the union, but particularly in the already struggling Southern European countries Greece, Italy, and Spain. With stress mounting as the interest rates on the government debt of these already heavily indebted countries rose, it became clear that if collective fiscal action was not taken, that there would be a risk of a second Eurozone crisis (the first having taken place between 2010-2012).Due to the extraordinary economic circumstances, many of the member states who had previously been opposed to common debt and a EU 'fiscal union', notably Germany and the 'frugal four' (Austria, Denmark, Finland, and the Netherlands), agreed to allow the European Commission to raise 800 billion Euros on international capital markets in order to fund an EU recovery fund. Named 'NextGenerationEU', the plan would distribute funds to member states based on a calculation taking into account GDP per capita, unemployment rates, and the overall GDP declines during the pandemic. Member states were required to draw up national recovery and resilience plans outlining how they would use the funds to promote sustainable long-term growth.
Green, Digital, and Social Transformation
The focus of the recovery programs are on three strategic areas in which the European Council has decided that investment is most necessary: the transition to green energy sources, the digitalization and modernization of Europe's economy, and the economic, social, and institutional development of EU member states. The member states were required to outline in their national recovery and resilience plans how their investments using the NextGenEU funds would be focused on these three areas, with discretion given as to which areas were prioritized. Some member states such as Denmark, Poland, and Belgium, will use most of the funds on projects focusing on the green transition, such as investments in renewable energy infrastructure, electrification of transport systems, and upgrading buildings to increase energy efficiency.On the other hand, some Southern and Eastern European member states such as Greece, Latvia, and Portugal will focus more on social, economic, and institutional development. Investments in this category include a wide variety of projects from vocational training and support for students, to investing in medical research and infrastructure such as motorways. Digitalization is also a core component of many member states' plans, with Germany being the country dedicating the greatest share of its funds to modernizing its businesses, public administration, and digital infrastructure. Expanding the coverage of high-speed internet and 5G networks are a priority in these plans.
What does the NextGenEU package mean for the future of the EU?
The NextGenerationEU plans represent a big step in the history of the European Union towards greater cooperation on fiscal issues and coordinated investment. Since the inception of the union in its current form in the 1990s following the signing of the Maastricht Treaty and the foundation of the Euro currency zone, the EU has been committed to national responsibility for public finances and debt. This became especially critical during the Eurozone crisis, when the EU pursued a course of bailout packages for insolvent member states which came with requirements that structural adjustments to their economies and social safety nets be made, such as by slashing government spending, raising retirement ages, and liberalizing labor market regulations. In contrast, the EU's response to COVID will result in a transfer of funds to support the poorer and more indebted member states.The coordinated course of economic stimulus funded by collectively issued debt that the EU is now taking opens up the possibility of further economic integration, such as with taxation and fiscal policies. On the other hand, these measures have been taken as an exception to the usual EU budget process, which is funded directly by contributions by member states, rather than by common debt. Whether the sort of debt-funded fiscal stimulus and transfers to poorer member states materialize as a permanent part of the European Union's architecture, sometimes referred to as a 'fiscal union', remains to be seen. More fiscally conservative member states such as Germany, Austria, and the Netherlands are likely to see much political opposition and a rise in euroscepticism in such a case, while proponents of fiscal federalism see it as guarding against the possible future exit from the Eurozone of highly indebted member states such as Italy or Greece.
