RECOVERY FUND: THE ENGINE BEHIND THE EUROPEAN TRANSFORMATION SPECIAL REPORT | MAY - JUNE 2021 https://eurac.tv/9ThZ With the support of RECOVERY FUND: THE ENGINE BEHIND THE EUROPEAN TRANSFORMATION SPECIAL REPORT https://eurac.tv/9ThZ The unprecedented Recovery and Resilience Facility, the main instrument of the EU’s €800 billion recovery fund, represents a unique opportunity to overcome the recession triggered by the COVID-19 pandemic and complete the twin green and digital transitions of the European economies. But the European Commission, international institu- tions, and experts agree that for this to work, member states must put forward well-designed investment proposals, ambitious reforms and solid governance systems. Contents EU recovery fund struggles to find its true nature 4 Pressure mounts on member states to ensure successful roll- out of recovery fund 6 National authorities take center stage in fight against fraud 8 with recovery funds The new kid on the EU bond block 10 Portugal investors demand bank bond money back or will 12 boycott European fund Thinking about investing in Portugal? Think again. 14 The truth behind BES and Novo Banco! 16 4 RECOVERY FUND SPECIAL REPORT | EURACTIV EU recovery fund struggles to find its true nature By Jorge Valero | EURACTIV.com French president Emmanuel Marcon and chancellor Angela Merkel and EU High Representative, Josep Borrell, during the special European Council summit of July 2020 when the recovery fund was agreed. mid doubts around the concerns among investors and has been dwarfed by the never-ending implementation of the criticism in national capitals. impetus of the Biden Administration, A€800 billion recovery fund, who have already put forward the fifth European Commission and experts “We have lost too much time. spending package for the US economy. stress that the EU instrument is not China has resumed its growth, the US a US-like emergency stimulus but an is booming, the EU must remain in the In recent weeks, EU institutions investment tool for the medium-term race,” French finance minister, Bruno and finance ministers have rushed to to transform the European economy. Le Maire said recently. point out that the comparison with the US efforts is unfair because EU Last July, every EU leader agreed By Friday (6 May), only half of EU governments had already approved on describing the recovery fund governments have submitted their national measures and European as a “historic deal”, built on the investment and reform proposals to welfare programmes are more robust unprecedented joint issuance of €800 access their part of the funds, although than on the other side of the Atlantic. billion of EU bonds. they were expected by 30 April. Meanwhile, seven member states must “Critically, a focus on But the slow process of finalising still ratify the Own Resources Decision scale understates the size and all the details of the fund, preparing to make it possible to borrow the €800 transformational nature of the national recovery plans and green- billion in the markets. support being provided, particularly lighting the massive borrowing for the EU economy,” Eurogroup in national parliaments sparked In addition, the European stimulus president Paschal Donohoe wrote in Continued on Page 5 RECOVERY FUND SPECIAL REPORT | EURACTIV 5 Continued from Page 4 the Financial Times in March. It will take many years to see what economic shocks, as the European results it will bring”, for example in Central Bank already requested in The Commissioner for Economy, the digital transformation. September at least for the euro area. Paolo Gentiloni, emphasised that the recovery fund, in particular its main In the medium term, the Facility This step would require a pillar, the Recovery and Resilience could represent the ‘carrot’ to potentially tricky change of EU Facility, is not “emergency money”, implement long-delayed reforms treaties, and member states allergic given that the first response given by in member states, for example, to to new fiscal transfers, including member states was very strong and transform the labour market in Germany and the Netherlands, have other EU instruments were approved Spain or the justice system in Italy. insisted on the temporary nature of before, including the SURE scheme to The European Semester, the EU the recovery fund. This will be one support workers. mechanism to coordinate national of the political battles to come, but economies, did not provide enough only once the pandemic is over and Gentiloni explained that “this incentives in past years because it member states prove they are making common money is for quality growth, lacked teeth, experts said. good use of the recovery funds. it should be connected to green and digital transitions and reforms”. In a recent paper, the Centre for the European Policy Studies Maria Demertzis, deputy director highlighted that the RRF “has the of Bruegel think tank, agreed that potential to steer the implementation the recovery fund is not a stimulus of structural reforms”. comparable to the checks sent to citizens and authorities by the Biden “The disbursement of the RRF Administration. funds is linked to the completion of targets and milestones set in the She argued that the European National Recovery and Resilience fund “is a medium-term investment Plans, which are defined in line with instrument, not a fiscal stabilisation the structural reforms identified by the tool, and it is important to remember country-specific recommendations that because people talk about it as if (CSRs),” the paper said. it was an ordinary stimulus”. But Demertzis was sceptical OPPORTUNITIES about the implementation of major reforms with high political costs and The unprecedented Recovery and recommended “not to expect too Resilience Facility offers primarily much” from governments. She said three opportunities in the short, that “emphasis” would be given to medium and long term. reforms linked to the green and digital agendas, although some “first steps” In the near future, it could provide would be taken in labour, pensions resources to impulse Europe’s and other difficult areas. leadership in the green transition and help the bloc catch up in the digital “This would be already a good race. thing because it is important to remain realistic,” she added. Ángel Talavera, head of European Economics at Oxford Economics, In the long run, the RRF, which will however, warned that “there is a lot be operative until 2026, could turn of uncertainty about the economic into the permanent fiscal instrument impact of a recovery plan of this kind. the EU is missing to deal with 6 RECOVERY FUND SPECIAL REPORT | EURACTIV Pressure mounts on member states to ensure successful roll-out of recovery fund By Jorge Valero | EURACTIV.com European Commission executive vice-president, Valdis Dombrovskis, after the Ecofin Council on 16 April. [Consilium] s the EU recovery fund slowly The EU stimulus programme by the end of May or early June, more nears its implementation represents a “unique opportunity” for than a month later than the initial Aphase, member states’ Europeans to build back better after end-of-April deadline. absorption capacity and control the COVID-19 pandemic, European mechanisms are considered among of Commission executive vice-president Dombrovskis said that the main challenges for its successful Valdis Dombrovskis, said recently. But governments who already submitted roll-out. its implementation is a “challenging their plans met the green and digital task”, he added. targets of the recovery facility and Only six member states are still included a “good balance” of reforms to give their blessing to the EU’s The first priority for the EU and investments. The Commission €800 billion recovery fund. National executive is to ensure the quality now has two months to assess the governments could receive the first of the national recovery plans. To national plans in detail, some of them funds by the end of July, once the date, 18 national governments have more than 50.000 pages long. “We European Commission approves their submitted their investment and are under a lot of pressure to deliver national recovery plans. reform proposals. Most member states swiftly”, admitted Economic Affairs are expected to send their proposals Commissioner, Paolo Gentiloni. Continued on Page 7 RECOVERY FUND SPECIAL REPORT | EURACTIV 7 Continued from Page 6 Council, and the role of the European institution added. But the results of the six-year Parliament. strategy to modernise Europe’s But according to the European economies using EU cash will depend Demertzis did not expect that Court of Auditors, the control on the capacity of member states to approving funds would turn into a mechanisms of the fund “need to be handle the unprecedented amount of lengthy process such as the troika strengthened”, in particular against new funds coming from Brussels. programmes. But “there will be fraud and irregularities. discussions among member states, EU officials and diplomats agreed and there needs to be”, she added. “We would like to stress the that the absorption of the recovery importance of effective measures fund will be “challenging” in Italy and The European Court of Auditors against fraud and irregularities Spain, the two largest beneficiaries of issued a note of concern with the to counter the risks arising from the instrument. governance and recommended significant additional resources to simplifying the procedures to be spent in a short time,” the court To ensure a timely and efficient the extent possible, to reduce the explained. absorption of the funds, the European administrative burden and facilitate Central Bank recommended absorption. For that reason, it proposed bolstering administrative capacity bolstering the European oversight in member states and reducing The court also proposed by “clearly” defining the role of the bottlenecks. last October reconsidering the European Parliament and the Court of frequency and timing of reporting Auditors in the instrument.