Plans for spending European Union recovery funds submitted by the four largest EU countries reflect rather different priorities. So far, only Italy is interested in borrowing from the EU.
Joint EU borrowing to boost the recovery, if not treated as national deficit and debt, will substantially ease rules-based fiscal adjustment needs in southern and eastern Europe, but not in western and northern Europe.
The EU has set ambitious goals for economic recovery: how these recovery funds are spent by member states will be critical to its success. A look into the European framework and the case of Italy.
If not handled correctly, the European Union’s transition to take on a new role as an issuer of public debt risks crowding out existing markets. Managing that transition correctly is almost as big a challenge as spending the money itself.
How much cake does everyone actually get and at what speed? This blogpost estimates the yearly Next Generation EU (NGEU) payments to each EU country at current prices in euros and as a share of GNI.
Ensuring effective recovery spending is a high-stakes challenge for the European Union, with the potential for derailment because of fuzzy objectives and overloaded procedures. The EU should work with member countries to identify limited policies that will maximise the impact of EU investment, while accounting for spillovers.
The impact of EU debt on the EU market of safe assets.
Guntram Wolff and Luis Garicano discuss how to ensure that the EU borrowing mechanism would successfully boost economic recovery.
To deliver on the goals of the European climate law, the European Union needs finally to get coal out of its energy mix: the EU should quicken the pace of decarbonisation whilst delivering on its goal of social inclusion.
The plan to fund the European Union’s recovery programme via debt issuance has raised hopes that a new type of euro-denominated safe asset could emerge. As a priority, the European Commission needs a strategy to create a liquid and transparent market in EU bonds. For now, funding through EU green bonds would complicate that effort.
Next Generation EU, was rightly hailed as a major breakthrough: never before had the EU borrowed to finance expenditures, let alone transfers to member states. But the programme and its Recovery and Resilience Facility amount to a high-risk gamble.
To help finance the post-coronavirus recovery, the European Union is raising large amounts to pass on to its members. But absorption of EU funds is typically slow and some countries might struggle to spend what they can get, even if they will have broad freedom to design spending programmes. The focus should be on worthwhile spending, not just on absorbing EU funds.