Restructuring European Social Democracy amid Global Chaos: An Appeal for Innovative Management of EU Investments
In the wake of the COVID-19 pandemic, the Recovery and Resilience Facility (RRF) was launched as a stimulus measure in 2020. This new financial instrument, designed to support Europe's recovery, has played a significant role in maintaining government investment during the crisis.
The RRF was created with the ultimate goal of "investing in a collective recovery and a common future." However, the initial assessment has identified several teething problems, including delays in payment requests due to administrative issues, complex renegotiations, and downsizing or cancellation of projects.
Despite these challenges, the RRF has been instrumental in ensuring that funds were invested by the end of 2026 to maximize short-term impact on member states' economies. Estimates suggest an additional annual investment effort of approximately 2% of GDP by 2030 (EUR 356bn in total) is needed to maintain the trajectory towards climate neutrality.
Political leaders are tasked with articulating EU and national resources (public and private) and using them in a discerning way to implement the proposed policy and action masterplan. The positive long-term effect of infrastructure investments on growth and competitiveness is confirmed by a corpus of economic literature.
The RRF has not only focused on traditional infrastructure projects but has also allocated funds for the digital transition and the reinforcement of European defense systems. Adding these amounts, the total additional investment needed per year reaches EUR 500bn.
In Belgium, companies supported with RRF funds are transforming the North Sea into a major power and hydrogen hub and expanding infrastructure for fiber optics and 5G capabilities in industrial areas. Renewable energy and technology firms involved in offshore wind and hydrogen projects are among the beneficiaries, though specific company names were not detailed in the available information.
The RRF has proven to be a crucial preventive measure, avoiding a major economic (and social) crisis. Unlike previous crises where investments were sharply cut, public sector investment in Europe has held up surprisingly well despite economic shocks.
However, the reinstatement of EU fiscal rules in 2024 is likely to result in fiscal consolidation, which tends to affect public investment disproportionately. A protective framework for government investment spending is needed to prevent another prolonged period of low government investment.
As the RRF funds are being invested by the end of 2026, the European Commission is looking for fresh ideas for a "New Industrial Strategy" to develop a broad policy and action masterplan covering carbon-reduction and digitalisation projects, de-risking of priority technologies and resources, and possibly an upscale in defense capabilities.
The European Commission has also requested two important reports on the EU's competitiveness and the deepening of the internal market. An independent Mid-Term Evaluation Report of the RRF has been published, paving the way for the future beyond the term of RRF as the question is asked: what should come next, after the RRF funds have been invested by the end of 2026?
In a challenging socio-economic environment affected by the war in Ukraine, tense relationships with China, and a potential return of a "America-first" policy from the US, Belgium has taken on the Presidency of the EU. The unique European model of combined solidarity and prosperity is at stake, and there is a need to carry out infrastructure investments required by digital and green transitions.
The EU has returned to its pre-pandemic levels of growth, with 2022 growth even faster than the US and China. The RRF has been a significant contributor to this recovery, preventing a major economic (and social) crisis, as the EU did not repeat the 2008 mistake of a sudden budgetary contraction that triggered a protracted recession.
The RRF brought two fundamental novelties: the EU raised EUR 800bn in "AAA" bonds and attached strings to the substantial handovers in the form of mandatory implementation of structural reforms and strict eligibility criteria for the use of the proceeds. As we look towards the future, the importance of continued investment in Europe's green and digital transitions cannot be overstated.
