The cash should have a powerful effect. Countries that are in greatest need, such as Italy
and Spain, will receive the most. Beneficiaries will be encouraged to invest in clean
technologies and digital infrastructure, which should lift Europe’s otherwise lacklustre
growth potential. It will also help that monetary policy will stay stimulative. The
European Central Bank has pledged to keep interest rates low for as long as needed to
raise inflation towards its target of close to, but below, 2%. After completing a strategy
review, which concludes in mid-2021, it may even promise to tolerate a period of
above-target price rises, in the hope of encouraging an economic revival.
The recovery fund will mean a more muscular European Commission. For decades it
was charged with policing countries’ spending plans and enforcing the EU’s fiscal rules,
but had little power to punish misbehaviour. Now, with hundreds of billions of euros at
its disposal, it could have more bite. Its officials will review countries’ spending plans
before making payouts (though only national governments can veto handouts).
The commission will be a big influence in financial markets, too. Before the pandemic it
issued only a tiny amount of debt each year. By 2024 it will be one of Europe’s top
issuers. Investors, hungry for super-safe assets, will flock to its highly rated bonds. A
chunk of the recovery fund will be financed through green bonds, meaning that the
commission could account for as much as a quarter of eco-friendly issuance over the
next three years. That will contribute to the growing popularity of this newish asset
class.
Governments will also start discussing how all this debt should be paid off. The talks
will take years; but with some countries preferring that the EU levy its own taxes rather
than that their own contributions rise, an even mightier role for the commission could
be on the cards. And if the recovery fund opens the door to more debt issuance in the
future, as supporters hope, then the commission’s role as the EU’s quasi-fiscal authority
could be here to stay.
There will be niggles, of course. Some members—mainly the Dutch—will deem some
projects in some countries a waste of money. A truly speedy recovery would have
required the cash to be doled out much faster. Perhaps a fifth of the fund will make it
out of Brussels in 2021, and delays in national capitals mean that even less will actually
be spent in the course of the year. As economies stay fragile, countries will, undoubtedly,
need to spend more themselves. But for all that, without the recovery fund, Europe’s
economy—and the European project itself—would have been much, much feebler.
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