What is happening in the European Union, the European Commission and the European Council? What are their aims and ambitions, and where does the EU money go to? Read more
What is happening in the European Union, the European Commission and the European Council? What are their aims and ambitions, and where does the EU money go to?
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In its plans, Italy promises to recycle more plastic. © ANP, Andrew Medichini
Cash for reforms? Hard choices yet to come for EU’s recovery fund
The EU has set up a 700 billion euro fund to help economic recovery after the pandemic. What is unique about the programme is that payment is conditional on the achievement of pledged reforms to make the EU's economy more resilient. But upon closer inspection, several of these reforms are hardly revolutionary. Some countries have repackaged old promises, while others bragged about introducing measures they were legally required to take anyway.
It seemed like a safe bet at the time, but it has now led to an embarrassing delay in the disbursement of billions from Brussels to Berlin. Early in 2021, German pharmaceutical company CureVac was still very hopeful it could produce an effective vaccine against the0 Covid19 virus, just like its competitor BioNTech. Its hopes were shared in Berlin, where the government decided to bet on CureVac succeeding.
The German government promised the European Commission that it would invest 712 million euro in vaccine companies and that this would lead to a second approval request at the European Medicines Agency (EMA), in addition to the already approved BioNtech vaccine.
But CureVac was unable to deliver. Following disappointing results regarding the vaccine’s effectiveness, the German company announced in October 2021 that it had decided to withdraw its vaccine candidacy from the approval process. In the end, Berlin invested 121 million less than intended.
The failure was not only an embarrassment for CureVac, but it also put the German government in a difficult position, having repercussions beyond that specific investment.
A successful second vaccine was part of a package of 37 ‘milestones and targets’ Germany had promised to achieve
Berlin had included the promised CureVac vaccine in its national Recovery and Resilience Plan. Like all member states, Germany was required to submit such a plan before it could get any funding from the Recovery and Resilience Facility (RRF) – the 700 billion euro programme set up to help EU economies recover from the pandemic-induced lockdowns.
A successful second vaccine was part of a package of 37 ‘milestones and targets’ Germany had promised to achieve before the Commission would pay Germany an RRF instalment of 4 billion euro. As Berlin had not achieved all of its goals, the Commission could reduce the payment by an amount determined at its own discretion.
This is one of two reasons why the recovery fund is breaking new ground: member states do not receive money from the fund as reimbursements for specific costs, but only when they have fulfilled certain promises. These are the so-called milestones and targets member states have included in their Recovery and Resilience Plans, which have been approved by the Commission and the other member states.
This system of cash-for-reforms was introduced to gain the support from the so-called ‘frugal’ member states: the Netherlands, Austria, Sweden, and Denmark. The idea was for the system to be a kind of insurance policy to make sure that the money also contributed to making the economies of poorer member states more resilient against future economic shocks.
Germany’s former chancellor Angela Merkel agreed to this arrangement at a five-day EU summit in Brussels in July 2020. Since that long summer summit of 2020, 2.5 years ago this month, the pandemic in Europe seems like the distant past. However, the greater part of the Recovery and Resilience Facility has yet to be disbursed, with the programme running until the end of 2026.
The Commission has so far disbursed 95 billion in grants and 47 billion in cheap loans. The total fund consists of 338 billion in grants and up to 386 billion in loans.
Of the 37 milestones and targets which Germany included in its plan for the first financial instalment, 23 had already been fulfilled
A team of international journalists led by Follow the Money, collaborating under the banner of the #RecoveryFiles, has investigated some of the promised reforms made by their member states, and how they have been implemented so far. This has resulted in a picture which varies greatly from country to country across the continent, but it also raises questions about how the RRF will be implemented in the coming years.
How has the innovative cash-for-reforms system worked until now? And what hurdles and political challenges are up ahead?
The Recovery Files is a pan-European research project investigating the Recovery and Resilience Facility, initiated by Follow the Money in 2021. We joined forces with journalists across Europe to carry it out. You can read more about the project, the media partners and all participating investigative journalists on this page: https://www.ftm.eu/recoveryfiles.
The following journalists contributed to this article:
- Ada Homolova, Follow the Money, Netherlands
- Adrien Sénécat, Le Monde, France
- Attila Biro, Context Investigative Reporting Project Romania, Romania
- Ben Weiser, ZackZack, Austria
- Carlotta Indiano, IRPI, Italy
- Daiva Repeckaite, freelance journalist, Lithuania
- Gabi Horn, Szabad Európa, Hungary
- Giulio Rubino, IRPI, Italy
- Hans-Martin Tillack, Die Welt, Germany
- Janine Louloudi, Reporters United, Greece
- Jarno Liski, Iltalehti, Finland
- Karin Kőváry Sólymos, Investigatívne centrum Jána Kuciaka, Slovakia
- Karolina Farská, Investigatívne centrum Jána Kuciaka, Slovakia
- Lars Bové, De Tijd, Belgium
- Maria Delaney, Noteworthy, Ireland
- Maria Pankowska, OKO.press, Poland
- Mihaela Tănase, Context Investigative Reporting Project Romania, Romania
- Nadia el Khannoussi, Follow the Money, Netherlands
- Peter Teffer, Follow the Money, Netherlands
- Petr Vodsedalek, Deník, Czech Republic
- Staffan Dahllöf, DEO.dk, Denmark/Sweden
- Steven Vanden Bussche, Apache, Belgium
One discovery made during our investigations was that at least seven member states had included measures in their plans which were actually not new at all. Of the 37 milestones and targets which Germany included in its plan for the first financial instalment, 23 had already been fulfilled before the other member states approved the German plan. In other words, more than half of Germany’s promises for the first tranche required no effort from Berlin.
One such milestone was the approval of a first vaccine against SARS-CoV-2, a condition which had already been met on 21 December 2020 when the EMA approved the Biontech-Pfizer vaccine. Despite that, Germany included the approval of this vaccine as a to-be-achieved milestone when it submitted its plan on 28 April 2021.
According to documents made public following a request from Die Welt, the Commission pointed this out to Germany in its informal discussions about the draft plan. EU civil servants encouraged Germany to include a more ambitious goal – which is where the promise for a second vaccine came from.
It is unclear to what extent the Commission made similar suggestions to other countries – the Commission has refused access to many documents on discussions on member states’ plans. However, the Commission did approve all of the plans, including the six which included pre-achieved milestones.
The Netherlands proposed to achieve 26 milestones before it would request its first instalment. Of these, 13 had already been completed
For example, the Netherlands proposed to achieve 26 milestones before it would request its first instalment. Of these, 13 had already been completed by 8 July 2022, the day the Netherlands submitted its plan to Brussels. One such milestone was the coming into force of a revised Open Government Act – something which had already happened on 1 May 2022.
This repackaging of old reforms was not what the Netherlands, Germany and other member states originally had in mind. A month before the decisive EU summit, Merkel was told by her civil servants that Germany could be ‘a role model’ to other member states if its plan contained ‘an ambitious reform project’.
Frugality versus flexibility
When Merkel and her colleagues signed off on setting up the pandemic fund in July 2020, they said that the national plans should include ‘the reform and investment agenda of the Member State concerned for the years 2021-2023’. The Commission’s proposed legal text setting the detailed rules for the fund spoke of ‘the subsequent four years’.
But during parallel negotiations on these details, EU diplomats from the various member states were already changing which measures would be allowed as reforms and investments. A number of member states wanted to be able to include reforms already agreed on or achieved, and investments already made.
A previously confidential document written in the same week as the summit has shown that diplomats from France, Cyprus, Latvia, Hungary, and Malta were lobbying in favour of including old reforms and investments.
The Maltese delegation argued that member states should be allowed ‘sufficient flexibility to include proposals for reforms that would have already taken place’. France added that this was necessary because otherwise member states would ‘put off’ reforms until they were RRF-eligible. Hungary argued – successfully – that reforms and investments ‘initiated by the member states after 1 February 2020’ should be eligible.
Sweden and Austria were the only countries mentioned in the document as opposing it, although a spokesman for the Dutch Ministry of Foreign Affairs said that the Netherlands also ‘actively advocated’ for not using the RRF to finance ‘existing measures’. According to this confidential document, the Austrian delegation said: ‘Funding [at] the EU level should be used as a carrot for ambitious structural reform that would otherwise not take place.’
Given that context, it is surprising that Austria and the Netherlands ended up deciding to do the opposite of what they originally lobbied for. The Austrian think tank Momentum Institute found that of the investments announced in Austria’s ultimate recovery and resilience plan, only 4 percent were new.
We also found several instances of member states including compulsory measures they are required to take as milestones or targets.
At least eight member states have included milestones or targets which promise to ‘transpose’ EU directives into national law
At least eight member states (Bulgaria, Croatia, Cyprus, Italy, Lithuania, Romania, Slovakia, and Spain) have included milestones or targets which promise to ‘transpose’ EU directives into national law, or which promise to achieve targets laid down in such directives.
But adapting national laws to reflect agreements laid down in a new EU directive – a process called transposition – is obligatory, with or without the RRF. By signing up to the EU, member states have committed themselves to carrying out EU law, and providing the finance for the required measures from their own national budgets. Directive transposition is not optional and these agreements come with deadlines. Yet the Commission has accepted milestones which promise directive transpositions later than the legally agreed deadline.
In some cases, the promises relate to measures member states should have taken a long time ago. In 1991, EU member states adopted a directive to make sure that urban waste water was properly treated, which included targets for 2000 and 2005. Italy and Spain were among the countries not meeting those targets and the Commission even resorted to taking Italy and Spain to the Court of Justice of the European Union (CJEU) in 2019 and 2022 respectively.
However, the Commission also accepted the two southern countries using the RRF to finally meet these targets. Italy promised that none of its inhabitants would be living ‘in agglomerations non-compliant’ with the directive by the end of March 2026, while Spain promised to introduce measures ‘aiming at ensuring compliance’ with the EU rules by mid-2023.
Italy also included eight (sub)targets for the increase of the share of the waste that it recycles by the end of 2025. But these are not originally from Italy either. ‘These waste targets are already agreed, legally binding objectives within the packaging and packaging waste directive and the waste framework directive,’ says Jean-Pierre Schweitzer, expert on EU waste legislation at the European Environmental Bureau.
Politicians from ‘frugal’ countries may say that the Commission is rewarding member states with money from an EU fund for measures they are legally obliged to take anyway
The same can be said about Italy’s promise to set up a national air pollution control programme by Q4 2021 (required since 1 April 2019), Bulgaria’s promise to define energy poverty by Q4 2022 (required since 31 December 2020), and Lithuania’s promise to make sure public sector websites are accessible to persons with disabilities by Q1 2023 (required since 23 September 2020).
There are two ways of looking at this development. The recovery fund rules state that it cannot be used to pay for ‘recurring national expenditures’ except in ‘duly justified cases’.
Politicians from ‘frugal’ countries may say that the Commission is rewarding member states with money from an EU fund for measures they are legally obliged to take anyway – and which other member states have paid for out of their own national budgets.
Those from southern or eastern EU countries may point out that there are still enormous differences between what member states can afford to spend. That this was the whole reason why the stimulus package was set up in the first place, because member states were hit unequally by the pandemic and despite decades of coordinating economic policies, an internal market, and billions of EU subsidies, there were still gaps in the spending power between, for example, Germany and Italy.
The Commission can threaten to start so-called infringement proceedings, which may ultimately end with a Court of Justice ruling
Another view is that the existing methods to make sure member states carry out common agreements like EU directives have their limitations. The Commission can threaten to start so-called infringement proceedings, which may ultimately end with a Court of Justice ruling that a country has failed to implement an EU law and must therefore do so. However, if the problem persists and the Commission initiates another such procedure, it can end with the Court imposing fines – but only after years and years of legal proceedings.
Although the Commission has emphasised in a strategy paper published in October 2022 that the Recovery and Resilience Facility ‘is not an enforcement tool’, the system of milestones does give the Commission an additional device to make member states comply with EU laws.
Will the Commission pick a fight?
That said, this would require the Commission to muster the political will to pick a fight. As political scientist Tommaso Pavone said in an interview with Follow the Money last year, the Commission is showing a decreasing willingness to make sure member states enforce EU law in their own countries. Pavone: ‘The guardian of the European treaties has abandoned ship.’
The crucial question for the RRF is: what will the Commission do if milestones or targets are not met or if member states backtrack?
There is some evidence to suggest that the Commission is willing and able to stand its ground. ‘The RRF does have added value and we have seen it pushing reforms across the finish line,’ says David Bokhorst, research fellow at the European University Institute. ‘In countries like Italy, you can also see that the system of milestones has stabilised long-term transformations.’
In November 2022, the Commission disbursed 21 billion euro to Italy after it completed 45 milestones and targets. One of them was a new law which made companies accept electronic payments as a way of reducing tax evasion. Shortly after receiving the funds, the Italian government made a proposal that would weaken the new law by waiving penalties for transactions below 60 euro. Following criticism from Brussels, Rome quickly decided to scrap the proposed change in law.
While Italy has already received 67 billion euro from the RRF (of which 29 billion in grants it does not have to repay), it can still expect a further 123 billion up to 2026. However, if the Commission detects any backtracking with regard to past milestones, it can decide to withhold the funds.
Rule of law
Most of the attention will probably go to how the Commission is going to react to payment requests from Poland and Hungary, which first need to resolve core rule of law issues before they can receive any RRF money.
The Polish government will have to fulfil several milestones involving the country’s rule of law before it can receive any money from the recovery fund. This includes the status of judges who were suspended by the Disciplinary Chamber of the Supreme Court – an institution the Court of Justice has ruled lacks political independence.
EU justice commissioner Didier Reynders said on 7 January that a new draft law amending the law on the Supreme Court was ‘a promising step forward’ towards complying with the promises in Poland’s Recovery and Resilience Plan. With almost 3 billion euro for the first RRF instalment at stake, the bill passed in the Sejm a few days later.
Four groups of European judges filed a lawsuit to reverse the member states’ approval of the Polish recovery and resilience plan
However, there are concerns that even if the milestone is fully achieved, that does not necessarily mean that the rulings of the Court of Justice on Poland’s rule of law have been fully carried out. The Polish recovery plan does not talk about the suspended judges being able to resume their judicial activities. Instead, Poland merely promised a reform which ensured that the affected judges ‘have access to review proceedings of their cases’. This promise does not guarantee that the judges will be reinstated, which was what the Court of Justice demanded.
In August 2022, four groups of European judges filed a lawsuit before the Court of Justice to reverse the member states’ approval of the Polish recovery and resilience plan. In a statement, the organisations said that the Polish milestones 'fall short of what is required to ensure effective protection of the independence of judges and the judiciary and disregard the judgments of the CJEU on the matter’.
Smaller battles ahead
The Commission can also expect other, smaller test cases, which will elicit less attention than its high-profile rule of law battles with Poland and Hungary. One is the payment request for 3 billion that Romania submitted in mid-December 2022.
The Commission will have to determine whether Romania fulfilled the milestone which promised the transposition of the EU whistleblowers’ protection directive. The draft Romanian law implementing those rules has been heavily criticised by the European Public Prosecutor’s Office (EPPO), which feared that the law offered so little protection, it would actually discourage potential whistleblowers in Romania. Although the text was amended before it became law, concerns remain.
‘While some of the criticised provisions were eliminated, we still believe that it offers a lower standard of protection compared to the former legal framework,’ says Laura Ștefan, anti-corruption expert at the Bucharest-based think tank Expert Forum Romania. The new law doesn’t guarantee a sufficiently effective response to anonymous reporting ‘and it limits the possibility of reporting to the press’.
While Dublin did increase the carbon tax rate as promised, it also adopted a number of measures that can be seen as offsetting the tax’s effect
Another issue involves an Irish milestone. Ireland promised to raise its carbon tax annually, thus making the use of fuels with high CO2 emissions less attractive. Diarmuid Torney, co-director of the Dublin City University Centre for Climate and Society, said that this milestone was ‘an easy win’ for the Irish government as it was already a ‘long-standing commitment’ with cross-party consensus. ‘This was going to happen anyway.’
But while Dublin did increase the carbon tax rate as promised, it also adopted a number of measures that can be seen as offsetting the tax’s effect, like providing households with energy credits worth 800 euro. In a press release from last April, the government stated that a reduction in VAT on gas and electricity would ‘more than offset the increase in carbon tax’.
Professor Diarmuid Torney, co-director of the Dublin City University Centre for Climate and Society, said that the risk is that these ‘supposedly temporary’ cost of living measures would become permanent as ‘it is politically difficult to reverse [measures] that make the cost of fuels cheaper’. Ireland has so far not submitted a payment request.
The RRF regulation states that there should be ‘satisfactory fulfilment’ of the milestones and targets, leaving a margin of discretion for the Commission. What is still unclear, however, is what would happen if the Commission determines that one or several of the milestones or targets whose fulfilment is required for a financial instalment has not been ‘satisfactorily fulfilled’.
Although the Recovery and Resilience Facility is not due to be evaluated until February 2024, there are signs that the model of payments linked to milestones and targets is already becoming a blueprint for other EU funds. It found its way into a legislative proposal drafted before even a single payment had been made from the RRF.
In June 2021, the Commission proposed establishing a Social Climate Fund. This fund is meant to compensate Europe’s poorest households for the costs of the energy transition. The draft legislation setting up the fund proposed that member states would be required to submit national plans to Brussels, in which they would promise milestones and targets. The reimbursement of money from the fund would then be conditional on the fulfilment of those milestones and targets – exactly the way it works with the RRF.
The Social Climate Fund, like the RRF, ‘is a plan-based and results-oriented financial instrument’
When asked about this comparison, the Commission would only acknowledge that the Social Climate Fund, like the RRF, ‘is a plan-based and results-oriented financial instrument. However, the characteristics of the Social Climate Fund, including its objectives, target groups, duration and eligible measures, are rather specific and different from the Recovery and Resilience Facility.’
The European Court of Auditors did state that the plan for the Social Climate Fund ‘builds on basic features from the Recovery and Resilience Facility’, and stressed ‘the importance of drawing on lessons learned from the implementation of the RRF’. The auditors warned that it should be made clearer when milestones and targets can be considered ‘satisfactorily fulfilled’.
Researcher David Bokhorst points out that the Commission will have to monitor more than 5,000 milestones and targets, with the easy ones having been set for the first years of the fund’s lifetime. Bokhorst: ‘The really difficult targets have yet to be achieved and are scheduled to be fulfilled in 2025 and 2026.’
He highlights one of Portugal's targets: to enrol 800,000 participants in the Portugal Digital Academy programme by the third quarter of 2025. ‘That is 8 percent of the entire population. How can we make sure they all follow these training courses? What is the quality of those training courses?’
The European Court of Auditors urged the Commission to establish a method to calculate how to reduce payments in the case of failed milestones
Last September, the European Court of Auditors explained in a report why this could become a problem. It said: ‘The amount paid in a specific instalment is not necessarily based on the estimated costs for achieving the milestones and targets included in the payment request, but rather a result of the negotiations with the member state in question.’ As a result, in the case of partial fulfilment of milestones, it would be ‘difficult to determine which reduction would be appropriate’.
The auditors urged the Commission to establish a method to calculate how to reduce payments in the case of failed milestones, so that each member state is treated equally. The Commission tells Follow the Money that it is ‘following up on the European Court of Auditors’ recommendation to the Commission to prepare a partial payment methodology’, but declined to say when this would be ready.
The Commission has apparently not needed such a methodology for the 20 milestone-related payment requests it has received so far. But that can also be a result of member states wanting to avoid cuts in their allocated instalments. Only 11 out of 27 member states have so far received payments for having fulfilled their first milestones and targets. Several member states clearly hold off on submitting payment requests until they have acquired informal confirmation from the Commission that the required goals have been reached.
Germany is one such country, having originally planned to send a payment request in mid-2022. After the CureVac setback, Berlin decided to wait. On 9 December 2022, it submitted a new version of its national plan with amended goals. This will now have to be approved by the Commission and other member states. The German finance ministry expects to be able to send the delayed payment request in Spring 2023.
Only its small neighbour Luxembourg has also sent Brussels a revised version of its plan. That Germany, the EU’s largest and one of the richest member states, would be one of the first countries to tell the Commission that it would be unable to fulfil all its promises was probably not what Merkel had in mind when she left Brussels after the marathon summit in July 2020.
The production of this investigation was supported by a grant from the IJ4EU fund.