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Building Back Better? Assessing the impact of NextGenerationEU

Ethan Ilzetzki and Suryaansh Jain

Thursday, 21 March 2024



The February 2024 CfM survey asked the members of its EU panel to assess the short-term impact of  NextGenerationEU on recipient EU member states. The panel was also asked to forecast the programme’s effects on the growth prospects of recipient countries over the upcoming decade. Most panelists think the programme has supported the post-pandemic recovery of member states, but only to a limited extent. The majority of the panel believes that the programme will have a similar small, yet positive impact on long-term growth in recipient countries over the upcoming decade.


The February 2024 CfM-CEPR survey asked the members of its panel to evaluate the current impact of NextGenerationEU and to forecast its impact on the growth prospects of recipient countries over the upcoming decade.



As countries in the EU imposed lockdowns to curb the spread of Covid-19, real GDP contracted by 6.1% in 2020, more than it did during the 2008 financial crisis (Verwey and Monks, 2021). There was substantial heterogeneity in the policy response and the economic fallout of the pandemic amongst EU members. The recovery of individual countries was predicted to be “incomplete, uneven and unfair” (European Commission, 2020).


In response, the EU adopted NextGenerationEU, a €806.9 billion (€750 billion in 2018 prices) package, in July 2020. The fund had 2 objectives:


  • to allocate funding to governments in distress due to the pandemic and support their economic recovery (Codogno and Van Den Noord, 2021)

  • to transform the EU into a more resilient, innovative, digital and sustainable economy (Alfonso et al., 2023).


The main component of NextGenerationEU is the Recovery and Resilience Facility (RRF) – an instrument that offers a total of €723.8 billion (in current prices) via grants (up to €338 billion) and loans (€385.8 billion) to support reforms and investments in EU Member States. To avail these funds, EU governments submitted national recovery and resilience plans, outlining the reforms and investments they will implement by end-2026, with clear milestones and targets. To ensure the transformation objective of NextGenerationEU is fulfilled, these plans had to allocate at least 37% of their budget to green measures and 20% to digital measures (European Commission, n.d.). Crucially, the RRF is performance-based: RRF funds are disbursed when Member States have satisfactorily fulfilled key milestones and targets in the implementation of the reforms and investments included in the recovery and resilience plans (European Commission, 2024).


The first plans were adopted on 13 July 2021, allowing for the release of 13% of the amount allocated to each member state as pre-financing. The payment of subsequent instalments varies from country to country, depending on whether states meet the interim targets set in their plans (Fondation Robert Schuman, n.d.).


Apart from the RRF, €50.6 billion from NextGenerationEU will be invested in Recovery assistance for cohesion and the territories of Europe (REACT-EU), which supports investment projects that foster crisis-repair capacities and contribute to the recovery of the economy, including support for maintaining jobs, short-time work schemes and support for the self-employed. The remaining funds will support the green transition by providing additional funding for existing EU schemes such as the Just Transition Fund and the European Agricultural Fund for Rural Development (European Commission, 2020). A full breakdown of the NextGenerationEU funds is provided in Figure 1.

Figure 1: NextGenerationEU breakdown (European Commission, 2023)

To finance NextGenerationEU, the European Commission will borrow around €800 billion in current prices on capital markets by the end of 2026 (European Commission, 2022). Apart from issuing its usual EU-Bonds and EU-Bills, the European Commission will fund up to 30% of NextGenerationEU by issuing NextGenerationEU Green Bonds, which would make it the largest green bonds issuer in the world. Repayment of this borrowing will begin in 2028 and continue until 2058. In order to retain its high credit rating and raise funds under favourable market conditions, the EU temporarily raised the resource ceiling of its budget by 0.6 percentage points of the EU's Gross National Income (GNI). This would increase its budget headroom and would serve as a guarantee that the EU will be able to make repayments under any circumstances. (European Commission, 2022).


A preliminary report by the European Commission (European Commission 2023b) estimates that NextGenerationEU has already boosted EU GDP by 0.4% and predicts it will increase GDP by a quarter of a percent in the long run. In an additional report, it estimates that around half of the expected increase in public investment between 2019 and 2025 will result from investment financed by the EU budget, specifically the RRF (European Commission, 2024b). Close to €225 billion has already been disbursed and around 75% of the milestones and targets planned to be achieved by the end of 2023 either have already been assessed as satisfactorily fulfilled or completed. Additionally, the Commission expects to disburse over €100 billion in additional payments by the end of the year.


Moreover, the performance-based payment structure of the fund seems to be achieving its purpose:


  • The share of 2019-2020 country-specific recommendations (CSRs) on which Member States had made at least ‘some progress' increased between 2021 and 2023 from 52% to 69%.

  • All Member States' plans have exceeded the 37% target on climate objectives, with some Member States dedicating over 50% of their total plan to the green agenda.


Bańkowski et al. (2022) estimated the structural reforms induced by the RRF could lift euro area potential output by between 1.0% and 1.4% over the long run. However, there has been a fair bit of criticism of the NextGenerationEU scheme. Analysis by Goldman Sachs suggests that for the top four EU economies — Germany, France, Italy and Spain — the impact of grants on output is in mere decimals and will turn negative towards the end of the scheme (Tamma, 2024). Moreover, in cases where the Member State and the EU are unable to reach an agreement on the targets needed for the performance-based payment structure, the provision of funds can be delayed, and projects may be held up.


Canova and Pappa (2022) evaluate EU regional structural funds that pre-date NextGenerationEU, but that have similar characteristics. They find that the European Regional Development Fund, which focuses on public investments, with a focus on green investments, digital connectivity, and competitiveness, has had a positive economic effect and has been useful as a countercyclical stimulative tool. In contrast, the European Social Fund, with a focus on social investments including health, education, and poverty alleviation, has had no—and positively a negative impact—on recipient countries’ growth. They note that the effects may also be different across countries.


Additionally, very few countries have attempted to use the loan facility of the RRF, leaving more than €220 billion unused (Demertzis, 2022). For countries with borrowing costs lower than the EU average, borrowing from this fund would be illogical. However, even countries with higher borrowing costs have refrained from using these loans due to the huge administrative costs associated with the close monitoring and ‘cooperation’ of the European Commission. Countries would prefer to pay a small premium and raise money from capital markets as opposed to borrowing money from the Commission with a list of conditions attached.


Another issue is the inability of Member States to effectively spend large amounts of money in a short period of time. Italy, notably, has been reported to be struggling with being able to spend the amount of money requested (and allocated) by the 2026 deadline, with government officials calling the plan ‘deeply flawed.’ Tamma (2024) cites another example of mismanagement of funds, describing how Italy used nearly €14bn of its recovery funds to partially finance a tax credit scheme for building renovation which caused a boom in the construction sector, but its long-term impact is doubtful as the scheme was subject to fraud.


This month’s survey asks whether the NextGenerationEU helped countries recover from the Covid recession, contributed to the high inflation in the past two years, and is desirable for long-run economic growth.

Question 1: To what extent did the NextGenerationEU help support the EU’s recovery from the pandemic recession in the average recipient country?

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Thirty-three panel members responded to this question. The majority of the panel (76%) believes the NextGenerationEU helped the recipient countries’ post-pandemic recovery to a small extent. A small fraction (21%) believes that the programme helped the recovery to a large extent, with the remainder (3%) claiming the programme had no effect whatsoever.


The consensus view of three-fourths of the panel is that the programme did not fully realise its intended impact, and only supported the EU post-pandemic recovery to a minor extent. Michael Wickens (University of York) characterised the programme as a “virtue signalling project”, claiming that only “countries that receive more than they contribute might [have] gain[ed] some small benefit.” Agnès Bénassy-Quéré (Banque de France) highlights two potential reasons for limited impact, stating, “The requirement of green investment may have delayed some expenditures or reduced the overall multiplier. Also, temporary bottlenecks may have reduced the multiplier.” Volker Wieland (Goethe University Frankfurt) further points out that “even highly indebted countries could access debt markets with almost no limit until inflation and interest rates started to rise in 2021/22”, which may have also contributed to the programme’s relatively low take-up and subdued effects.


The remaining panel members take a more optimistic stance on the impact of the NextGenerationEU scheme. Evi Pappa (Universidad Carlos III de Madrid) summarises this viewpoint: “We cannot have the counterfactual, but without the funds, the unfavourable shocks hitting Europe could have more negative effects on output and employment.” Fabrizio Coricelli (Paris School of Economics) states that the “principle of supporting hardest-hit member states [is] a breakthrough in EU policies”. He cites Italy as an example of the programme’s success, stating “[Italy’s] recovery post-Covid was rapid and in line with the euro area, compared with a dismal performance post-global financial crisis.” Agnès Bénassy-Quéré highlights Spain as another successful case, characterising the programme’s impact as ‘sizeable’ in the Spanish context.


Question 2: How will NextGenerationEU affect the growth prospects of the EU economy over the upcoming decade, in the average recipient country?

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Thirty-three panel members responded to this question. The majority of the panel (70%) believes that the programme will have small, positive effects on the growth of recipient countries over the upcoming decade. A small fraction (21%) believes the programme will not affect long-term growth, while the remainder is split between those who claim the programme will have substantial positive effects (6%) and those who think it will harm growth (3%) in the long run.


Most of the panel believes that the programme’s impact will depend on the institutional context of recipient countries and how efficiently they manage public investments. Ugo Panizza (Geneva Graduate Institute) sums up this viewpoint: “In countries with good institutions and where public investment is efficient, NextGenerationEU could have a positive effect. But most of these countries are not credit-constrained and would probably do the same thing without NextGenerationEU. In countries where public investment tends to be inefficient, a large part of the money will be wasted.” Echoing this viewpoint, Evi Pappa highlights Europe’s limited growth in recent decades and states that “unless structural changes take place, funds alone cannot make a difference.”


Other panel members take a more bullish stance on the expected long-term impact of the NextGenerationEU funds. Agnès Bénassy-Quéré points out that the NextGenerationEU is the “first time that investment and reforms are combined in a single programme” and hence could have a stronger impact than previous EU investment and support schemes. Ricardo Reis (London School of Economics) summarises the opinions of the optimistic panel members succinctly: “It [the programme’s impact] is very hard to tell. But given the dismal productivity growth in the EU, it seems worth trying.”


Reference list

Alfonso, S., Bonacina, L., Antunes, M.E., Bofill, C. and Van de Velde, H. (2023). Futureproofing Europe: How the NextGenerationEU programme is inspiring companies to transform. [online] Deloitte Insights. Available at:


Bańkowski, K., Bouabdallah, O., Semeano, João Domingues, Dorrucci, E., Freier, M., Jacquinot, P., Modery, W., Vives, R., Valenta, V. and Zorell, N. (2022). The Economic Impact of Next Generation EU: A Euro Area Perspective. [online] [Accessed 25 Feb. 2024].


Canova, Fabio and Evi Pappa, (20220 “The macroeconomic effects of EU Structural funds,” working paper.


Codogno, L. and Van Den Noord, P. (2021). LSE ‘Europe in Question’ Discussion Paper Series Assessing Next Generation EU. [online] Available at:


Demertzis, M. (2022). NextGenerationEU: an underused facility? [online] Bruegel | The Brussels-based economic think tank. Available at:


European Commission (2020). Europe’s moment: Repair and Prepare for the Next Generation. [online] Available at:


European Commission (2022). Press corner. [online] European Commission - European Commission. Available at:


European Commission (2023a). NextGenerationEU. [online] Available at:


European Commission (2023b). “Study supporting the mid-term Evaluation of the Recovery and Resilience Facility”


European Commission (n.d.). Recovery and Resilience Facility. [online] Available at:


European Commission (2024a). Recovery and Resilience Scoreboard. [online] Available at:


European Commission (2024b). Strengthening the EU through ambitious reforms and investments. [online] Available at: [Accessed 25 Feb. 2024].


Fondation Robert Schuman (n.d.). Plans de relance européens : chiffres et priorités - Fondation Robert Schuman. [online] Available at: [Accessed 25 Feb. 2024].


Tamma, P. (2024). Is the EU’s Covid recovery fund failing? [online] Available at: [Accessed 25 Feb. 2024].


Verwey, M. and Monks, A. (2021). The EU economy after COVID-19: Implications for economic governance. [online] CEPR. Available at:

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