Southern EU countries take the lead in recovery fund

European Commission President Ursula von der Leyen and Prime Minister Pedro Sánchez.ECE

The southern countries of the European Union, Spain in the lead, are quickly doing their homework to receive the funds from the recovery plan. They are the ones who have suffered the most from the economic crisis caused by the measures to stop the covid-19 pandemic and are now those who are most in a hurry to comply with the requirements set by Brussels to receive money from the Next Generation EU Fund. Spain has already received the first installment of the plan, around 10,000 million, and France, Italy, Greece and Portugal are the four others that have already requested it so far. No other country has.

Spain was the hardest hit country in the EU by the coronavirus in its first year. Gross domestic product fell by 10.8% in 2020. The other large Mediterranean countries are doing a little better. France left 7.9%; Portugal, 8.4%; Italy, 8.7% and Greece, 9%. The crashes were historic in all cases, unparalleled in statistics for decades. However, the Recovery Fund created to respond to the pandemic has been a 180-degree shift in how the 27 deal with a crisis. This is a very different action from that which took place between 2010 and 2014. At the time of the distribution of European solidarity, these States appeared to be among the most favored.

“These countries are the ones that will receive the most funds and have all the incentives to run at the moment,” analyzes Ángel Talavera, of Oxford Economics. “But one thing is that they are the first to receive the money and another that it will have the desired impact,” warns this economist. In other words, we will have to wait to see if the investments manage to lift the economies. Or even change them, as officials so emphatically try to convince him.

So far, the Council of the EU has given the green light to the plans of 22 states. Although it is the European Commission which negotiates the content of the plans and monitors their conformity, the decision rests with the meeting of all the Member States, the Council. Only five would miss the green light: Holland, Sweden, Bulgaria, Poland and Hungary. The first did not even submit the request because until a few weeks ago it did not have a government. Sweden did it late and Bulgaria had to adapt theirs. The case of Poland and Hungary is very different: the two countries have a long dispute with the European Commission for its decisions contrary to the rule of law and Brussels demands that these plans include measures in the opposite direction.

However, the approval of a plan is only one of the steps leading to the receipt of the money corresponding to the pre-financing. Subsequently, the country must sign with the Commission a kind of very detailed implementation contract, the so-called Operational agreement.

And already in this stage, we begin to see which countries are most interested in starting with the investments planned for the recovery. Of these 22 whose plans have been approved, only the five southerners, plus Slovakia, have already signed this contract. “These countries are the ones that will receive the most money in relation to their gross domestic product. Therefore, they have to work harder to spend it,” says Zsolt Darvas, senior researcher at the Bruegel Institute, one of the largest Focus groups of the municipal capital. “It makes sense that it is so,” she agrees.

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The country that should receive the most money from the recovery fund is Italy: between grants (68.5 billion) and loans (122.6 billion), that makes 191.5 billion. The next would be Spain, with 69,500 million. The state, for now, will only receive grants, since the government had decided not to seek the credits from the outset. This position will change, however, as the executive will renegotiate the Spanish plan to also include loan applications for initiatives such as the new ERTE regulation (the so-called RED mechanism), which plans to use these resources. France, for its part, will receive 39.4 billion.

All resources to be received in the form of donations are, however, provisional. Final figures will be finalized in April when there is an accurate picture of the impact of covid-19. These elements are decided 70% on the basis of a series of economic indicators prior to the pandemic; the remaining 30% is established according to the evolution of the economy in 2020 and 2021. According to what has been seen so far, the forecast indicates that Spain, which has been the hardest hit country and who has the most difficulty in recovering if taking the GDP as a reference, you will receive more money than announced; on the other hand, Italy or France, with a better evolution, can see something go down.

Commission sources point out that the plan as a whole is progressing as planned, since so far 90% of the milestones and targets committed to these dates in the countries’ approved plans have been achieved, they point out after analyzing the reports of the Commission. execution you receive. And that leads them to point out that for now there is no time limit.

Shortly after the signing of the contract, Spain requested the 10,000 million corresponding to the first installment of its plan, an amount which must be added to the 9,000 million pre-financing. The next country to receive its first tranche will be France, which a few weeks ago received approval at its request from the European Commission, and is now waiting for the Council to do the same. Italy, Portugal and Greece will follow, awaiting review by executive officials led by Úrsula von der Leyen.

And another different aspect will be disbursement. Community sources warn that it is one thing for countries to meet the milestones and conditions of the plans to receive the money, and another is how quickly those funds are going to be spent.

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