The stakes of the EU’s recovery fund are high. So are the risks

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BrusselsReport.eu
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By Belgian MEP Johan Van Overtveldt (Belgian Finance Minister between 2014 and 2018, Chairman of the European Parliament’s Budget Committee and Professor of Economics at the University of Hasselt)

The European project is under great pressure, something which became painfully clear following the departure of the UK and the breakdown of negotiations on a cooperation agreement with the Swiss. In many areas, joint European action comes too late or fails to materialize at all. The shift of the geopolitical center of gravity -away from the European continent- is both the cause and the result of this.

The European Union should gradually realize that it can only weigh and be taken seriously if it works efficiently. For that, it controls its own fate and in this regard, a number of important tests are coming up.

A first major challenge is the actual implementation of the Covid Recovery Fund. This was created to deal with the outcome of the Covid pandemic, but at the same time it was also an attempt to have a joint European response to the structural economic challenges facing the Eurozone. It remains to be seen whether this effort will be sufficient and whether the EU, with its debt-financed fund, will win its bet with history.

The Covid Recovery Fund distributes 800 billion euro to EU member states. Just under half of that are grants, which do not have to be paid back. The vast majority of these funds – 70% – must be spent by the end of 2022, in order to provide momentum to the recovery. In addition to these European funds, EU member states often allocate their own funds. To date, all member states – with the exception of the Netherlands – have submitted a recovery plan to the European Commission. At least 22 plans have now been approved and more than 50 billion euro has already been paid out as prefinancing.

Will the conditions to receive funds be respected?

The EU’s recovery plan “NextGenerationEU”, with the Covid Recovery Fund as its main component, differs from regular EU spending in several ways. It contains a number of explicit targets, including a climate target (37%), which is higher than the one foreseen for the EU’s regular budget (30%).

The kind of spending is also fundamentally different. The EU’s regular budget still consists largely of old priorities, including 1/3rd of agricultural spending and 1/3rd of cohesion spending. Thanks to the resources of the EU’s recovery plan, 56% of the total budget for the coming years (which amounts to more than 2,000 billion euro, with the EU’s regular spending and NGEU combined) will consist of forward-looking priorities, such as innovation, research and development and education.

Moreover, for the Covid recovery fund, even if the funds have already been allocated to EU member states, disbursement is linked to the achievement of milestones and targets. The enforcement of this is crucial to the success of the fund. After all, in addition to investments, member states have also pledged to implement reforms. That the Commission is serious about these reforms is very clear. Mere intentions to carry out reforms will not suffice, it has warned.

However, it remains to be seen what the influence of the dynamics among EU member states will be on these intentions to be strict. The major member states have deliberately refrained from commenting on each other’s plans, and we all know how other agreements have fared in the past.

For example, it remains to be seen what will happen when a new government would take office and reverses a far-reaching reform, or only partially implements it. What payments will then be withheld? What will be the yardstick for valuation? And will all EU member states be treated equally?

The key question, of course, remains why there is so much resistance to implement reforms, and why financial incentives are needed to implement structural reforms that would be beneficial in themselves. In a perverse way, the EU’s recovery plan may perhaps perpetuate the inability of certain EU member states to adapt.

Instead of “more Europe”, let’s aim for “a better Europe”

Some, for example MEP Guy Verhofstadt, are calling to anchor the Recovery Fund structurally into the European budget. This is nothing more or less than yet another clear attempt to achieve ‘more Europe’. Can’t we for once just aim for a “better” Europe instead of “more Europe”? The Recovery Fund was create to deal with the socio-economic consequences of the pandemic, and its success can and should only be measured by that.

The stakes of the EU’s recovery plan are high. So are the risks, not least to the reputation of the EU. Various bodies, such as the European Public Prosecutor’s Office (EPPO), the anti-fraud office OLAF, Eurojust and Europol, have already issued detailed warnings about the increased risks of corruption, fraud and conflicts of interest linked to the EU’s recovery plan.

The recovery plan’s resources which some countries will spend in the coming years are extraordinarily large. Moreover, to a large extent, the Commission is reliant on the cooperation of member states themselves to control expenditure. This does not exactly look like a watertight approach.

In the past, we have had quite a few major scandals concerning the spending of EU funds. Similar improper use of resources from the Recovery Fund is not inconceivable, and it could have far-reaching consequences for the support of member states for the European project. Therefore, there should be no question marks surrounding the correct use of these funds. With these recovery plans, Europe can prove that it has the potential to deal with the consequences of the crisis in a powerful and efficient way, and it can even emerge from it stronger. I sincerely hope that in a few years we will not be faced with half-baked results that have cost a lot of money.

Originally published in Dutch, by Belgian magazine Knack

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