What can we expect from the European Reconstruction Fund?

 

After a long struggle at the EU summit there was the longed-for agreement on a European „Solidarity Fund“. The aid fund or the new Recovery and Resilience Facility (RRF), as it was called in the summit’s final document, is to amount to 750 billion euros, as proposed by the EU Commission – but its composition has changed. Instead of EUR 500 billion in non-repayable grants to member states and EUR 250 billion in loans, the total amount of grants is now only EUR 390 billion. In 2021 and 2022, 70 percent of the funds are to be disbursed and in 2023 the remaining 30 percent of the funds are to be disbursed again.

Allocations under the facility in the years 2021-2022 will be determined according to the Commission’s allocation criteria, taking into account the respective standard of living, economic size and unemployment in the Member States. For allocations from 2023 onwards, the unemployment criterion will be replaced by the decline in gross domestic product (GDP) in 2020 and 2021. This means that the level of support payments for the individual Member States can now also be approximated.

In absolute figures, as was to be expected, Italy and Spain are the largest recipient countries. Assuming that the allocation key remains constant, Italy would receive around EUR 153 billion by 2023. In total, this would correspond to more than 8 per cent of GDP in 2019, while Spain would receive around EUR 149 billion or even 12 per cent of GDP. In the smaller EU countries and especially in Eastern Europe, the relative support is even higher.

This alone should provide a stronger impetus for economic recovery in these countries. In addition, additional cross-border positive growth effects via foreign trade are expected throughout Europe. For example, countries that are among the most important suppliers of imports could also be pulled along.

Last year Germany supplied 68 billion euros to Italy and 44 billion euros to Spain. Together, these alone accounted for more than 8 percent of German goods exports. If the economic stimulus provided by the aid facility in Italy and Spain were to boost domestic demand and imports in the same way, this would also increase German exports to these countries to the same extent. The EU’s reconstruction and resilience facility would thus also be a pan-European economic stimulus package.

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