NextGeneration EU: A better chance to spend European funds

19 January 2021 /

5 min

“NextGeneration EU” is the Commission plan presented during the Covid-19 crisis to give financial aid to the Member States who lost more from the pandemic. The European bazooka of 750 billion euros should be made available by Spring 2021. However, even if this plan represents a big step for European solidarity, some concerns arise on the capacity of Member States to use these funds in an efficient way. 

European Structural and Investment Funds: an example of money misallocation 

These worries are also fueled by the EU’s incapacity to control the correct implementation of European money. To demonstrate, let’s take the example of the use of the “European Structural and Investment Funds (ESIF)” funds from the Member States. First of all, it is useful to underline the functioning of the ESIF, which is the most effective economic instrument of the Union to promote development in the weaker regions of the Member States (Medve-Bálint, 2018). Using different funds, e.g. European and Development Fund and Cohesion Fund, the European Union aims to reduce territorial disparities and promote equal opportunities, as well as the fair distribution of wealth within the country. However, the effective expense of these funds has been and remains a thorny issue for the EU, since lots of Member States find themselves incapable of absorbing the subsidies. In this context, the “absorption capacity” is an indicator refering to how much European funds are spent. This concept is a simple percentage between the funds planned and the money effectively spent for each Country. If it is true that this rate is not considering the specificity of each country, therefore it is really useful to give an overview of challenges with the absorption capacity of European Funds. 

An European poor rate of absorption 

Globally, it is interesting to look at the absorption rate of all the funds together to draw some conclusions. What emerges from the data, that considers the 2014-2020 budget, is really important. First of all, the ESIF EU average has to be highlighted since only 47% of resources are spent. This means on average half of the money is not being used at all. Moreover, eight out of twenty-eight Member States are below average. Between them, we can find some densely populated States (Italy, Romania, and Greece), which shows the difficulty of spending European resources. The extreme case of this trend is represented by Spain in which the percentage is only 35%, i.e. mostly two-third of the funds are not spent. Anyway, looking at countries above the average, the results are not brilliant either. Specifically, 15 States out of 20 have an absorption rate between 47% and 56% in the expenditure of the funds, which remains a poor score (European Commission, 2020). The main reasons explaining these unsatisfactory results are different, but the most crucial one is the inability of the national administration to withdraw the funds. 

The case of Romania 

The example of Romania demonstrates a situation where funds are available but are not being spent. However, this situation can be improved. As a matter of fact, the absorption rate of this State grew these past few years. As revealed by European data, it passed from 26,5% between 2007- 2013 to 39% in 2014-2020. Even though today’s results are still considered poor, it is unquestionable that a big step has been made in the right direction. Moreover, Romania became a member of the European Union after a very specific and difficult transition from the Socialist Republic of Romania to a liberal democracy. However, the problem faced by this State, and still facing, with the implementation of EU funds can be extended to the big majority of other European countries. 

Different reasons explain the difficulty of spending European money in Romania. Low productivity is one of them, as former soviet countries that have since joined the EU have had to adjust their economies and their industries to the European mode of production. Secondly, the lack of a long-term vision must be mentioned. Since the European projects are long-range, the inability to plan represents an important obstacle to efficient spending of European money. In addition, the administrative sector is a relevant handicap. This is precisely the most disqualifying aspect for Romania which has to deal with inefficient institutions that manage these funds. Lastly, corruption has proven to be a susbtantial obstacle to the good implementation of resources, and excessive bureaucracy (Predonu and Gherman, 2013). Although this problem can be seen as an isolated one, lots of the Member States suffer from the same issue. 

NextGeneration EU 

With a history of poor money management, NextGeneration EU represents not only a possibility but also a challenge for national governments. But first, let’s take a step back. NextGeneration EU is a very important recovery plan and a historical point for the European Union. This is the first time in European history the Commission will collect money from the financial market, becoming an economic actor. Even though it is not possible to talk about a mutualisation of Member States’ debts, since this action will be limited in time and capacity, this is a step toward more integration in times of growing Euroscepticism. The negotiations are still in place and some Member States raised the question of how the European money will be spent efficiently if funds already available, like the ESIF, have such a poor absorption rate. 

To tackle this critical issue the Commission, together with Member States, decided to put in place a slightly different mechanism than the ESIF. Consequently, apart from the negotiation and adoption of strategic plans for how each Member State will use these funds, the Commission will also become a central actor in achieving these objectives. This is because the money will not be transferred to each Member State altogether but in tranches. The release of the successive tranches will be subjected to the realisation of previous targets. This mechanism aims to ensure the correct allocation of funds and the achievement of a more competitive, green, and digital European Union. 

The examples of the expenditure of ESIF and the Romanian case are really illustrative of how the European projects are not fully used by the Member States. In this context, it is only legitimate to ask if NextGeneration EU funds will meet the same fate. Let’s hope the crisis, together with the new mechanism of funds delivery, will push countries to be more efficient in their management of resources. However, the possibility of seeing the money trapped by, first, European and, second, national bureaucracies is a conceivable scenario. Furthermore, the problem of implementation of these funds will impact those weaker States who are most concerned by the economic effects of the pandemic. Will Member States seize the opportunity of this historical step? The answer is not obvious, but surely this is a decisive moment to build a more efficient and united Europe.

This article was first published in the 33rd issue of the magazine. Read the entire issue here.

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