The European Commission could find it difficult to transfer the first tranche of the recovery funds to all member states according to its calendar, as most plans are expected to be approved at the same time and there will be limited capacity to borrow from the markets.
Last July, the EU’s € 800 billion recovery fund was greeted as a historic deal. But its slow implementation, doubts about its size, problems with its ratification in some member states, especially Germany and Poland, and difficulties in drawing up national recovery plans have tarnished the instrument.
In every step of the way, Europeans are finding new obstacles for its quick implementation, as it could happen only after the fund is ready to make the first transfers.
If the foreseen calendar were to be met, the European Commission would not have enough funds to make the first transfer of 13% of the total amount allocated to each member state, once the Commission and the Council validate the national reform and investment plans, most of which will arrive in Brussels at the same time.
If the process goes according to plan, transfers should start taking place in the second half of July.
Budget Commissioner Johannes Hahn said on Wednesday (14 April) that around €45 billion will be needed to cover the 13% of prefinancing – the amount corresponding to non-refundable grants.
Hahn added that the Commission could raise from the markets between €15 billion and €20 billion a month to finance the fund, or around €150 billion a year until 2026.
Spain and Italy alone, as the main beneficiaries of the fund, would already absorb almost €20 billion in grants.
The evaluation of the national plans should have been completed by July, as the Commission needs two months and the Council one additional month starting from the end-of-April deadline for submission of the drafts. By summer, the EU executive also expects the recovery fund ratification process to be completed in all member states.
However, the member states’ blessing to the fund could be further delayed, depending on the German Constitutional Court’s assessment of the European stimulus.
To date, a total of 17 member states have approved the EU Own Resources decision, which will allow the Commission to borrow the €800 billion.
The difficulties to meet the capitals’ prefinancing needs could be further complicated if countries also apply for the loans offered, as the Commission is encouraging to do to benefit from its good financing conditions.
In that case, the amount necessary would double if all countries take advantage of these cheap loans, as they can request 13% in advance payments.
In spite of this, Hahn told reporters that the first payments “should be manageable”. If there are not enough resources for all the pre-financing requested, member states will split and receive payments in July and in September, as in August markets enter a summer freeze.
Given that most countries may end up sending their plans at the same time, Hahn explained that the decision on who receives the money first will be based on merits, meaning who gets the best score in the Commission’s evaluation of the national draft.
Although member states have to submit their recovery plans by the end of this month, an EU source explained that the legislation said 30 of April “as a rule”, and therefore some capitals could send their investment and reforms proposals beyond this month.
“Quality is the most important thing”, the EU source added, warning that not all member states will meet the deadline.
To date, no EU country has yet submitted the recovery plan. The most advanced countries include Spain, Greece and Portugal.
This flexibility with the calendar would help to avoid bottlenecks with the first disbursements. Still, Hahn told reporters that the Commission’s machinery will be ready by the end of June, and could start borrowing from the markets in July if necessary, once the first plans are approved and the recovery fund is ratified by all 27 member states.
A second EU official added that the ongoing preparatory work and the diversified funding strategy presented on Wednesday is “precisely to avoid a scenario under which there is insufficient money to meet the prefinancing needs for grants and loans.”