EU economic powerhouses present their economic recovery plans

With days before the 30 April “orientation date” for national capitals to submit their economic recovery plans to the European Commission for assessment, the EU’s economic powerhouses this week submitted their national reform and spending plans in order to get a share of the mammoth €800 billion post-COVID Recovery and Resilience Facility (RRF). 

As the initial brains behind the landmark Recovery Fund, which, for the first time in EU history will be funded by Member States’ joint debt, German Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire jointly presented their countries’ plans on Tuesday. In addition to the Franco-German submission, both Italy and Spain also submitted their plans on Wednesday. 

According to Mr. Le Maire, “it was important for us to do this presentation together,” in order to show the strong relationship on European matters between the two countries, while also giving a clear sign of political buy-in to the international financial markets. Under the EU Budget and Recovery Fund deal reached between EU Heads of State or Government in July last year, some €338 billion in grants and €386 billion in low-interest loans will be available to EU Member States until 2026. 

In total, France, which has been affected among the strongest in the EU, foresees spending of a total of €100 billion, with it requesting its total allocation of €39.4 billion in EU grants, while it expects to borrow the remainder through national borrowing. While, under the Regulation governing the fund, Member States are required to spend a minimum of 37% on climate-related investment (and 20% on digitalisation), the French national plans foresee to spend some 50% on green investments, with the majority going in transport and mobility. In all, Paris expects its plan to increase GDP by 4% until 2025 and create up to 240,000 jobs by 2022.  

Meanwhile, Berlin’s reform and spending plan foresees spending of “only some €28 billion, with it also requesting its full RRF allocation of €25.6 billion. Compared to the French plans, Mr. Scholz announced climate spending Germany, for its part, has announced a green investment allocation of 40%, worth approximately €11 billion, with a green transport and electric mobility getting €5.5 billion. Following on from Germany’s hydrogen strategy, it also plans to invest €3.3 billion on developing hydrogen technology.

With the spending plans’ approval contingent on national reform commitments to address structural issues in national economies, France set out plans to reform its unemployment insurance system and public expenditure rules. Moreover, Emmanuel Macron’s Government also committed to pass a national climate law to further cement its climate ambitions. 

At the same time, in a somewhat unambitious proposal, Angela Merkel’s Government only promises to modernize and digitise its outdated public administration system and put in place measures to remove barriers to inward investments. With the country facing a September General Election, it’s first leadership change in almost two decades, and the Green outpolling all other parties, it remains to be seen to what extend the new Government will put in place new reforms. 

The Commission now has two months to assess the national plans and make a funding proposal to the Council, which is required to decide on it by qualified majority vote within a month. Once approved, Member States are eligible for 13% of their allocated funding immediately, with the rest paid out in tranches until 2026 to ensure the reform commitments are being implemented.