European Post-COVID Recovery Plans

Yesterday, the Interreg’s Policy Learning Platform team organised an interesting webinar dedicated to the European Recovery and Resilience Facility (ERRF). The Commission’s representative had the keynote and she took the opportunity to exemplify some of the projects and reforms the European Commission (EC) envisions to be financed under the ERRF financial umbrella. As the ERRF’s timeline is rapidly unravelling, this is a great opportunity to delve a bit into what this package is all about and what kind of outcomes it will likely generate until its scheduled conclusion in 2026.

The ERRF comprises 672,5 Billion Euros to be distributed via loans and grants to support reforms and investments undertaken by the Member States. They are meant to boost a speedy recovery from the considerable economic, social and cultural disaster that followed the COVID-19 pandemic onset on early March 2020.

As previously mentioned, the ERRF will not be managed by the EC but directly by each Member State. To receive financial support, each individual country must set forth until April 30th a national recovery and resilience plan where they detail a coherent investment and reforms package for a sustainable recovery.

The plan should be a comprehensive and measured response to the economic and social ailments brought about by the pandemic. According to the EC’s own suggestion, the explanation should conform to the following framework:

Figure 1. ERRF priority areas.

 

The EC will then make an assessment of the plan and, if accepted, pay out 13% of the total amount pertaining to each individual member state.

As the national plans are only going to be approved after April 30th, we may wonder what kind of investments and reforms will be included. The EC however presents a number of significant requirements, to the point that we can already envisage their scope.

First of all, there are ex-ante targets. For example, the plans must allocate at least 37% of total expenditure to investments and reform that support climate action. Moreover, 100% of the expenditures must respect the “do no harm” to the environment principle.

Secondly, the spending priorities should be aligned with the latest set of country-specific recommendations that the EC regularly publishes (the so-called European Semester). These are particularly relevant for the reforms part of the ERRF package and may include such actions like anti-corruption activities, effectiveness of the justice system, and taxation policies.

Thirdly, the plan can include both Reforms and Investments. Reforms are designed to improve the framework conditions in areas such as quality of public services, business environment and social protection. Investments are one-off activities (projects). The EC “strongly encourages” investment and reforms in the seven (flagship) areas presented below.

Figure. European Recovery and Resilience Facility – seven flagship areas. Source: European Commission.

Climate action projects must amount to at least 37% of the projected amount in each national plan. Note that this limit only pertains to climate-related expenditures, and not green projects in general, such as in the circular economy or ecological protection. The InvestEU regulation presents a reliable list to understand what constitutes a climate or environmental investment or not.

Fourthly, each national government must develop the plans in full coherence with their own Territorial Just Transition Plans, under the Just Transition Mechanism.

So, what kind of projects are we talking about? This is where the INTERREG webinar got interesting. A number of examples were presented that may guide prospective proponents on what kind of project can be funded through the ERFF. The following two pictures present the examples provided in the webinar, both related to the energy sector.

Figure. Priority Areas for Energy Investments.
Figure. Priority Areas for Energy Reforms.

 

I would like to wrap up by mentioning a novelty in the way payments are going to be approved. As a result of the intense negotiations within the European Union, taken place throughout 2020, under the ERRF payments will be linked to performance. This means that Member States will be proposing in their plans a set of realistic and verifiable targets and milestones, and only when these targets and milestones are considered fulfilled will the Member State be able to present the request for disbursement of financial support.

What happens if the targets are not fulfilled? Well, the ERRF agreement clearly states:

in exceptional circumstances where one or more Member State considers that there are serious deviations from the satisfactory fulfilment of the relevant milestones and targets of another Member State, they may request that the President of the European Council refers the matter to the next European Council” (European Council).

This obligation could indeed sway potential laggers across Europe or actually bring one Member State against the other. Anyway, it would be important for the climate that we don’t reach that level.

Leave a Reply

Your email address will not be published. Required fields are marked *