Since the beginning of 2020, the global economy has been turned upside down. The European economies are no exception. The collapse in sales during the lockdowns and the Corona bailouts set the situation in motion, and the war in Ukraine made things even worse. Particularly hard hit by inflation, rising energy costs and supply chain disruptions was the construction industry, which saw a decline in many European countries. The slowdown in the construction sector is expected to be partly offset by fiscal stimulus.
Due to the rising energy and commodity prices, supply disruptions and weaker investor confidence due to the Ukraine war, a 750 billion Euro recovery fund was introduced after the pandemic hit the European continent. Announced in 2020 as part of a broader NextGenerationEU Recovery Plan. The main objective of the plan is to support post-pandemic economic recovery in EU member states while supporting green and digital transformation between 2021 and 2026. The RRF includes grants and loans of up to 6.8% of annual GDP upon application to individual member states.
The European countries that receive the EU funds had to present a plan on how the money will be used. In the following article, we look at the projects of the different countries and analyse how the member states decided to use the budget.
What is the RRF?
RRF stands for Recovery and Resilience Facility. The RRF is the core of the EU’s corona reconstruction fund NextGenerationEU, announced in 2020. In total, NextGenerationEU is worth €750 billion, which will be shared among the various EU member states. The aim is to reduce the impact of the pandemic and facilitate a shift to a resilient, sustainable, green and digital economy. The package is financed by a joint debt of the member states, something that has never been achieved before in the European Union.
With the war in Ukraine, the focus of the RRF has shifted somewhat for some countries. Many governments in Europe are very concerned about the rising prices of oil and gas and the threat of energy shortages. The money originally planned to combat the Covid consequences can therefore also be used more than planned to develop alternative energy sources as quickly as possible and to mitigate the financial consequences of the war.
So, what exactly is NextGenerationEU and its core, the Recovery and Resilience Facility? The RRF, or NextGenerationEU, is an ambitious EU project with multiple goals for a strong and sustainable Europe. The European Commission describes NextGenerationEU as follows: “NextGenerationEU is more than a recovery plan. It is a unique opportunity to emerge stronger from the pandemic, to rebalance our economy, and to create opportunities and jobs for a Europe we will enjoy living in for years to come.” Commission President Ursula von der Leyen even called the reconstruction fund “the opportunity of the century for Europe”.
How will the funds be used?
The money paid out to the different member states is earmarked. To benefit from the fund, the EU member states had to submit a plan describing how the money would be used. These plans were reviewed and evaluated by the European Commission before a gradual disbursement can take place. The assessment by the European Commission is based on eleven criteria. Nine of the 11 categories are rated on a 3-point scale, with an A rating indicating that the criteria are mostly fulfilled, a B rating indicating moderate or modest fulfilment, and a C rating indicating that the criteria are not fully fulfilled.
Of the 16 best-rated programmes, 15 received the same grade (10 A grades and 1 B grade), while Belgium received 9 A grades and 2 B grades. The Committee therefore assessed these programmes very positively. All 16 European countries received a B rating for cost equality. According to the Commission, this means the following: The justifications provided by Member States for the estimated total costs of the recovery and rehabilitation programmes are reasonable and credible and consistent with the principles of cost-effectiveness and expected economic and social impact.
The allocated RRF funds are used by the various member states to the extent of their own national programmes. These programmes had to comply with the requirements of the EU Commission, but otherwise the countries are free to use the money as they wish. Below we look at how the EU member states have chosen to use the funds, particularly in the areas of construction and green energy.
Plan for the use of the funds: Deutscher Aufbauplan
Amount of funds awarded: 28 billion euros
Originally, Germany was awarded funds amounting to 25.6 billion euros. With the updated distribution key, however, Germany can now apply for funds totalling 28 billion euros. The increase of 2.4 billion euros is almost irrelevant compared to the funding allocated to other countries. At 52 per cent, more than half of the 28 billion euros will go towards the implementation of digitization goals. 42 per cent of the money will be used to implement climate goals and six per cent will go towards strengthening economic and social resilience. Goals that affect the construction industry are the promotion of green energy sources and the modernization of hospitals.
Plan for the use of the funds: Österreichischen Aufbau- und Resilienzplan
Amount of funds awarded: 3.5 billion euros
Austria’s plan for the use of EU funds was approved, followed by the first disbursement on 28 June 2021. With around 3.5 billion euros, Austria receives the lowest amount of the countries we studied. 59 percent of the funds are to serve sustainability goals. The points of interest for the construction industry are “energy efficiency of residential buildings” and “environmentally friendly mobility”.
Plan for the use of the funds: Plan national de relance et de résilience
Amount of funds awarded: 39.4 billion euros
With 39.4 billion euros, France receives the third-highest amount from all 16 member states. France has set out how the money will be used in the plan national de relance et de résilience. The Plan national de relance et de résilience comprises 20 reforms and 71 investments. 46 percent of the money goes to environmental goals, 21 percent to digitalization and the rest to economic and social resilience. Of interest to the construction and real estate industry is that almost 6 billion euros is going into the renovation of buildings, 1.4 billion of which is going into the Ma Prime Renov project, which is investing in the thermal renovation of 400,000 households in the country.
Plan for the use of the funds: Piano nazionale di ripresa e resilienza
Amount of funds awarded: 191.5 billion euros
Italy was awarded the highest amount of money, originally 81.8 billion euros. The old government under Draghi managed to more than double this amount to 191.5 billion euros. 37.7 percent of the money will go to environmental projects and 25.1 percent to digital transformation. An exciting project for the construction industry is Ecobonus, which aims to increase the efficiency of residential buildings by creating fiscal incentives.
Plan for the use of the funds: Plan de Recuperación, Transformación y Resiliencia
Amount of funds awarded: 69.5 billion euros
Like Italy, Spain was also hit hard by the Covid crisis. Accordingly, the economy of Spain is supported by NextGenerationEU with almost 70 billion euros. The Spanish Plan de Recuperación, Transformación y Resiliencia is divided into 112 investments and 102 reforms. 40 percent of the money goes to climate protection and 28 percent to digital transformation. The construction sector is affected by projects such as the renovation of half a million homes.
Plan for the use of the funds: Krajowy Plan Odbudowy
Amount of funds awarded: 35.4 billion euros
Poland is one of the Member States receiving the most money from NextGenerationEU. With around 35.4 billion euros, the Republic of Poland is in fourth place. Poland will spend 42.7 percent of the funds on achieving sustainability goals and 21.3 percent on the digital transformation of the economy. Among other things, the country aims to build modern schools and refurbish its electricity grid.
Plan for the use of the funds: Planul Național de Redresare și Reziliență
Amount of funds awarded: 29.18 billion euros
Romania will receive a total of around 29.18 billion euros. Compared to its population, this is a huge amount. 41 percent of the money will go to projects and investments in the sustainability goals, 20.5 percent is for digital transformation. With the Renovation Wave Fund, Romania is spending 2.7 billion euros on the renovation of private and public buildings.
Plan for the use of the funds: Magyarország Helyreállítási és Alkalmazkodási Terve
Amount of funds awarded: 5.7 billion euros
According to its plans, Hungary could apply for 5.7 billion euros in aid money from the European Union’s RRF. However, the disbursement of the money has been delayed. For several years, the European Union has harboured doubts about the democratic order and the rule of law of Orban’s government in Hungary. Hungary has therefore had to commit to numerous goals to fight corruption and ensure the independence of the judiciary. Meanwhile, Hungary relented and took action. However, at the end of November 2022, the European Union recommended freezing the funds until positive effects of the measures adopted by Hungary are visible.
Plan for the use of the funds: Národní plán obnov
Amount of funds awarded: 5.7 billion euros
Under the RRF, the Czech Republic can apply for a total of 7 billion euros. Of these 7 billion euros, 42 percent will be used to achieve environmental goals. 22 percent of the money will go to reforms and investments in the area of digital transformation. One project with which the Czech Republic wants to reduce greenhouse gas emissions is with the renovation of buildings. By 2026, the Czech Republic plans to invest around 1.4 billion euros of the 7 billion in the renovation of public and private buildings.
Commonalities and differences
Looking at the plans of the various member countries, one quickly notices some similarities and some differences. This is due to the fact that, although earmarked, the governments of the individual countries were free to decide which measures could be used to achieve the loosely formulated goals. Below, we take a look at the differences and the commonalities of the individual national plans.
One point that all plans have in common is the way they are divided into the three points of sustainability, digitalization and economic resilience. This division was determined by the EU Commission. For most member states, around 40 to 60 percent falls on achieving environmental goals and 20 to 40 percent on digital transformation. The plans were approved by all the countries examined and rated B. Except for Spain, Italy, Hungary and Romania, all countries examined received the first payment stage on 28 June last year.
While the individual plans are similar to a certain extent, there are also significant differences. One of the most considerable differences that can be found in the disbursement of funds is the amount of the amounts. It is remarkable how some member states receive a multiple of other states. Given the collective debt, this has led to political tensions in some countries. The use, divided into investments and reforms, also varies greatly from country to country. Some projects have been hotly debated. Especially in Italy, the country that receives the most EU money, there have been repeated difficulties. For example, southern Italian authorities failed to submit applications on time. A competition to give away 20 million euros to a village inhabited by 142 people also raised eyebrows.
What are the benefits?
In addition, its positive macroeconomic impact in low-income countries can accelerate economic growth and boost employment, increasing aggregate demand. Besides direct tax subsidies, access to RRF loans can boost investment by offsetting the impact of rising EU sovereign bond spreads and allows countries with high borrowing costs to access lower interest rates through the European Committee’s secure NextGenerationEU Loan. This has the potential to increase investment in Southern and Eastern Europe and reduce the risk that rising borrowing costs will dampen investment, which has been evident in the last decade following the Eurozone crisis.
The RRF helps the EU achieve its goal of climate neutrality by 2050 and puts Europe on the path to digital transformation, job creation and growth. “A double twist: climate neutrality and the digital turn”. This exceeds the agreed targets of 37% for climate spending and 20% for digital spending. A joint, coordinated effort at European level is more effective and benefits Member States than individual national spending, especially as there are significant cross-border implications.
How is the construction sector affected by the RRF?
For the European construction industry, the RRF of NextGenerationEU is a crucial undertaking. During the pandemic, the construction sector in many European countries slipped into crisis. The war in Ukraine, high-energy costs and disrupted supply chains further exacerbated the situation.
With the RRF, much needed capital is flowing into the economies of the European Union. The construction sector will be one of the biggest beneficiaries. Most of the 750 billion euros will go to sustainability goals. Here, the construction sector is strongly represented and stands to benefit. Billions will be invested in the next few years to renovate houses and build infrastructure for green energy and sustainable transport. This applies to all member states and will lead to many new contracts throughout Europe. It is therefore essential for the construction sector not to miss the boat and to get involved in achieving the sustainability goals.
Funds from Recovery and Resilience Facility for construction: Conclusion
The Recovery and Resilience Facility under the NextGenerationEU is a unique and unprecedented project of the European Union. For the first time, a fund of joint debt is being created to serve all member states. This is intended to benefit the European Union and its member states together. The negative impact of the pandemic should be seen as an opportunity to reboot and transform the economy to be sustainable, digital and resilient. With the common, pan-European approach, the RRF will distribute around €750 billion, which will be channelled into investments and reformations in the different EU member states.
The goals of sustainability, digital transformation and economic resilience have been set by the EU. However, the projects with which these goals were to be achieved were left to the governments of the individual countries. On the scale of national plans, the member states had to formulate their investments and reforms and submit them to the EU Commission. These plans were evaluated and approved by the Commission. Subsequently, most member states received their first payment on 28 June 2021. Italy will receive the most, followed by Spain, France and Poland. Comparatively, extremely little money will flow into the DACH region. Germany will receive 28 billion euros and Austria 3.5 billion euros. Switzerland will not receive any money, as it is not an EU member state.
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