Brussels is set to sign the first of the national stimulus packages which it hopes will revive the pandemic-stricken European economy, with officials ready to give the green light to the historic spending proposals on Wednesday. Spain and Portugal.
The 800 billion euros New generation EU The fund, agreed last year, is a bet that large-scale spending on priorities such as energy transition and digitization can prevent the bloc from repeating the consequences of the 2008 global financial crisis, when its recovery was underway. lag behind that of the United States.
The fate of the program will largely depend on the performance of major beneficiaries such as Spain, which suffered the largest drop last year due to the Covid-19 crisis. The Spanish economy contracted by 10.8% in 2020 and is expected to receive around € 70 billion in grants and € 70 billion in loans over the 2021-2026 lifespan of the plan. Portugal plans to access 14 billion euros in grants and 2.6 billion euros in loans.
Italy will be the largest beneficiary of the Next Generation fund, with 191.5 billion euros in loans and grants expected to be signed by the European Commission in the coming days.
To receive the money, all national plans had to define how EU funds would be used to advance bloc-wide goals such as digitization and carbon reduction, while engaging members in far-reaching reform. Observers warn that implementing the plans will test member states.
“Implementation is key,” said Guntram Wolff, director of the Bruegel think tank. Many of the stimulus packages defined by EU states were impressive, he said, but he warned: “At the end of the day, you have to put them in place, and that means overcoming some national resistance. This is the challenge. ”
Ursula von der Leyen, the committee chair, will travel to Lisbon and Madrid on Wednesday to mark approval of their plans in what is expected to be a series of visits to EU capitals as Brussels approves the proposals in the coming weeks. Final support will be provided by EU member states this summer.
The committee predicts that all eurozone members will return to their pre-crisis production levels by the end of next year, helped by recovery spending, after production fell by 6.6% in the single currency area in 2020.
But Madrid’s stimulus package is deeply controversial in Spain. Pedro Sánchez, prime minister of the Socialist-led minority government, which is declining in polls, hopes a mix of funds and reforms will create 800,000 jobs and add an annual average of 2 percentage points to gross domestic product during the life of the plan. . He compares the transformational impact of Spain’s entry into the then European Community and the creation of the EU’s single market.
Carmen Calvo, Spanish Deputy Prime Minister, left, says EU funds will transform Spain into “an ultramodern country” © Juan Carlos Hidalgo / EPA-EFE / Shutterstock
“We will be able to position our country, which is already the fourth largest economy in the EU, where it deserves to be in terms of development and competitiveness. . . an ultramodern country ”, Carmen Calvo, the Deputy Prime Minister told the Financial Times in a recent interview.
One of Madrid’s goals is to give 75% of Spaniards access to 5G internet coverage by 2025 and to put 250,000 electric vehicles on the road by 2023, for a total of 5 million by 2030.
The government is also asking EU state aid regulators for permission to invest in a new € 3-4 billion project. battery cell factory to boost the automotive industry.
However, opponents accuse the government of excessive centralized control over EU funds and an overly cautious reform agenda on some of Spain’s biggest structural challenges, including its pension system, budget deficit and market. dysfunctional work.
Pablo Casado, leader of the People’s Party, the main center-right opposition, recently told the FT that the plan could lead to immense waste.
“Any project that has not been funded by a bank so far cannot be funded by the European taxpayer,” he said. “Companies are pulling unprofitable projects out of the drawer. “
Spain’s economic future was not based on funding projects such as a battery factory but was rather “a matter of restructuring the national economy,” he said.
The government claims to have outlined 102 reforms in its stimulus plan but that progress on pensions and the labor market depends on negotiations with companies and unions, while tax reforms must await an expert report expected in February. .
While Sánchez will head the committee overseeing the development and execution of the stimulus package, his government insists that much of the resources will be spent by regional and other governments.
According to Madrid’s proposals for the 70 billion euros in grants it should receive, 40% will be devoted to energy transition and other green projects, 30% to digitization, 10% to education and training and 7% in research and development. .
Fabian Zuleeg, managing director of the European Policy Center think tank, questioned whether the EU’s response to the crisis would ultimately prove to be sufficient. But he said the bloc deserves credit for organizing a collective response to the pandemic and not reluctantly repeating its response to the economic crisis of ten years ago.
“From the start, there was a feeling that we had to solve this problem together,” he added.
Additional reporting by Peter Wise in Lisbon
