Risk of delay in payments from EU’s pandemic recovery fund

Stimulus: President Joe Biden has pushed through a $1.9trn package of spending even as an overall EU response has sputtered. Photo: Andrew Harnik/AP

Nikos Chrysoloras and Alberto Nardelli

March 13 2021 02:30 AM

The European Union's pandemic recovery fund has run into early trouble, with the bloc's executive arm judging that most of the national spending plans submitted so far still need work to get approved, raising the risk of delays in disbursements to some of the region's battered economies.

Germany's submission is among those deemed to fall short of expectations, with southern European nations including Greece and Spain having the strongest plans, according to officials familiar with the discussions who asked not to be identified.

Some countries haven't made proposals at all yet, and others are way behind, they said.

A Commission spokeswoman said that staff are in "intensive dialogue" with member states with the aim of making disbursements starting from mid-2021, but that "it is also essential" that these plans meet the key objectives of the fund.

The slow progress with the €750bn fund threatens to slow the region's recovery. For money to be distributed this summer as planned, proposals need to be cleared in April and some countries risk missing that deadline.

It highlights how the EU is lagging behind other advanced economies. The bloc is already struggling to step up coronavirus vaccinations and extended lockdowns mean its running at only about 95pc of its pre-pandemic output.

In contrast, the US this week passed President Joe Biden’s $1.9trn (€1.6trn) fiscal stimulus package that will see cash reaching citizens' bank accounts within days. The EU economy is only likely to reach its pre-pandemic size in 2022, a full year after the US.

The national spending plans are subject to approval by the Commission and a weighted majority of EU member states. The disbursements are contingent on the money being used to finance investment for climate-friendly projects and digital transformation, as well as on structural economic overhauls in areas including the labour market and the pension system.

The recovery fund was passed last year in tortuous negotiations by the 27 member states, with the final agreement for a fund backed by commonly issued debt, a first for the bloc, reached only on condition that this is a one-time tool.

Still, the Commission sees it as a test case for a permanent future funding facility, according to one official.

The European Central Bank has long said the region needs a permanent fiscal capacity to smooth out economic divergences.

Some nations back that view, while some wealthier countries fear it would lead to their taxpayers repeatedly providing financial support to weaker economies.