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EU member states are set to receive hundreds of millions of euros from the COVID-19 reconstruction fundImage: Daniela De Lorenzo/DW
PoliticsEurope

EU's coronavirus aid fund gets into gear

Barbara Wesel
February 9, 2021

The European Parliament on Tuesday will establish the legal basis for the historic COVID-19 reconstruction fund. But how will the money from Brussels be distributed?

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The coronavirus reconstruction fund is gradually coming together. Countries must present their plans to the European Commission by the end of April — then the Commission will evaluate them. Initial payments will be made this summer at the earliest, if Brussels gives the go-ahead.

Securing the agreement for the €750 billion ($907 billion) package last summer was a huge political feat. For the first time ever, the EU is incurring debt in order to help member states recover financially from the pandemic.

"Where reforms are concerned, the plans need to be more ambitious," said Romanian politician and economist Siegfried Muresan, vice chair of the conservative European People's Party (EPP) group in the European Parliament and a member of the budgetary committee.

The specifications are clear: 37% of the money must be invested in climate protection measures, 20% in digital restructuring, the rest in welfare system reform, or in the public health fcare sector.

Unemployment in Italy is female

"Some countries still need to have a rethink," stated Damian Boeselager from the Green Party group in the European Parliament.

He said their plans need to take into consideration the fact that the crisis is hitting some members of society much harder than others, adding that in 2020, over 70% of people who registered for unemployment were women. 

Two women open a gate at the Colosseum in Rome
Museums and tourist sights like the Colosseum in Rome have started to reopen — the lockdown hit women particularly hardImage: Yara Nardi/REUTERS

"But new investments are traditionally made in sectors that are dominated by men. We have to at least talk about imbalances like this," Boeselager said.

So far, 18 countries have submitted plans for how to use the money to the European Commission, six have made initial proposals, and three are still talking to the agency about what it thinks might get approved. The deadline is the end of April.

Applications approved by the Commission will initially receive 13% of the project's funding. The remaining funds will be paid out in installments, with the Commission continuously checking in on the projects' implementation. The plan is to control usage of the money more tightly than was the case with previous EU funding.

Germany, France criticized for 'political recycling'

The Commission has fired a serious warning shot across Hungary'sbows. In January, it called for urgent reforms in Hungary's procurement system for public contracts, saying that otherwise, the country would not receive any money from the reconstruction fund. It complained that there was insufficient competition ― a euphemism for cronyism and fraud.

But financial expert and lawmaker Sven Giegold, of the Green Party group in the European Parliament, is critical of Germany and France, the countries that initiated the reconstruction fund. They're not setting a good example for smaller EU member states, he says, because they want to use three-quarters of the EU funds for projects that have already been decided on.

Windmills in an offshore windpark off the coast of Denmark
According to the rules of the fund, countries must invest more than a third of the money in climate protectionImage: Valentin Wolf/imagebroker/imago images

While repackaging national economic stimulus programs in this way is permitted, it goes against the aim of the recovery fund, which is to make national economies more viable for the future, for example by focusing on climate protection or digitalization — and not simply to plug holes in national budgets that have been affected by the pandemic.

"The German government should lead by example, instead of practicing political recycling," Giegold said.

He warned that the desired economic effect will not kick in if old projects are now simply financed with EU money instead of through national borrowing.

Giegold is more optimistic about other countries, though. He said that Spain, for example, will probably seize the opportunity of "orienting toward the future" in its reconstruction. Giegold points out that the collapse of the tourism industry has highlighted the structural deficiencies of Spain's national economy: There is an urgent need for more research funding, development of skills in the labor market, and reforms to the pension and welfare systems.

Italy will benefit

In Italy, the government of Giuseppe Conte collapsed in January over plans for the reconstruction fund. The Italia Viva party used them as a pretext to pull out of the government coalition. Now the EU is pinning its hopes for Italy on a team of experts led by Mario Draghi, the former president of the European Central Bank, who has been tasked with building a new government.

"It's a very positive development," Zsolt Darvas of the Bruegel economic research institute in Brussels said.

People sitting on a park bench in Palma on the Spanish island of Mallorca
Spain is likely to receive a little more money from the fund than originally plannedImage: Clara Margais/dpa/picture alliance

Italy will be one of the biggest beneficiaries of the reconstruction fund. According to the current plans, it will receive more than €200 billion, €65 billion of which will be in grants.

Decisions on the reconstruction fund and how the money would be distributed were already made last year. At the time, Italy was considered to be one of the hardest-hit countries. Now Portugal, Spain, and France are all high on the list of those who have suffered the most damage as a consequence of COVID-19.

According to economist Darvas, the way the fund is distributed among EU countries will now probably be amended slightly, as economic performance from the summer of 2020 is still being taken into account. This would mean Spain receiving slightly more money and Italy slightly less.

Darvas points out that Draghi also needs the Italian Parliament to approve his revised plans. However, Darvas says, the governmental mandate given to him has created an opportunity for the country to use the money wisely.

This article was translated from German. 

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