Research Briefing | May 21, 2021

Eurozone | A first look at NGEU spending and reform plans

Ipad Frame - Eurozone - A first look at NGEU spending and reform plans

The Recovery and Resilience Plans (RRPs) that EU member states have so far submitted to the European Commission to unlock funds from Next Generation EU (recovery instrument) haven’t triggered major adjustments to our baseline forecasts, as we had incorporated its impact last summer. The intended take-up of loans has so far been weak but is likely to rise when spreads widen, presenting an upside risk to our forecasts.

What you will learn:

  • Based on our analysis of 18 RRPs formally submitted by mid-May, member states differ in the scope of their overall ambition, spending, and reform priorities. As expected, the main spending categories include green and digital investments as well as upgrading public services.
  • The recovery instrument may become a central pillar of the EU’s macroeconomic governance, providing incentives for weaker member states to implement growth-enhancing reforms, although we see some key risks.
  • Despite marking a significant milestone for Europe, it’s too early to say whether the instrument will become permanent in some form because this would face significant opposition from several member states.
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