Six years of a European manna that is ending: from expectations to reality

MadridAn unprecedented crisis like that of the covid-19 pandemic led to an unprecedented solution: anti-pandemic funds for reconstruction. A European windfall of 750,000 million euros in direct aid and loans that broke some taboos – for example, that of strict debt control – but also maintained concessions to northern countries that made it Solomon-like: transfers were capped and control over the awarded money was tightened.

Six years after that historic agreement, the funds dubbed Next Generation are reaching their end. They do so having moved from expectations to a reality that, in general, leaves a good taste in the mouth. The Spanish government, for example, attributes to this windfall the fact that Spain is today the European locomotive in terms of growth. In Catalonia, the Generalitat boasts of having been the "pioneering" community in attracting funds. Sources from the Ministry of Economy explain that they are analyzing its impact, but in a first analysis with the University of Barcelona they have placed the accumulated impact on GDP between 2021 and 2027 at 6.2%.But there are also more cautious voices: pending tasks remain, a part of the business community is still struggling to access this type of opportunity, and challenges continue to loom over the Catalan and Spanish economies. Furthermore, there are gaps between what was announced at the beginning – the expectations – and what has ultimately been managed.

One example is the loans that have not been requested, points out Josep Reyner, from the College of Economists of Catalonia: "The general impact [of the funds] is positive [...] But there is a certain distance between what was intended and what has ended up happening". On the other hand, from the Observatory on Debt in Globalization (ODG), which has also been monitoring the execution of the funds during this time, they recall that having requested fewer loans means not being so condemned to their repayment and interest. They recall, in fact, that subsidies are financed through the issuance of joint EU debt in the financial markets. "It is a second layer that is not talked about enough", indicates the ODG researcher, Nicola Scherer.

Brussels required that the aid from the Recovery Plan of each country be executed by August 31st at the latest. This means that the agreed milestones and objectives must have been completed by that day. However, the final closure will be extended. In fact, the State plans to request the seventh and last disbursement this September: around 25,000 million euros, mostly transfers. The Spanish government has worked with the Commission to expedite its collection by simplifying the verification and certification of the 148 pending milestones and commitments.

Spain has already received 78,000 million euros, 76.5% of the total assigned funds, after having met 338 milestones and objectives, according to the latest data from the Spanish government. The total injection of money will be over 100,000 million euros between the period 2021 and 2026. In the Catalan case, the Generalitat has raised 10,889 million euros (4,048 million assigned to the Generalitat and 6,841 million managed by the State), according to the latest available data from the Ministry of Economy. The Ministry of Economy has slightly more updated data on the execution rate by the Generalitat itself: 4,075 million.

The effort of SMEs

At the state level, there have been 1.5 million beneficiaries. Of all of them, 68% are SMEs and micro-enterprises. Whereas in Catalonia, with data up to June 30, more than 197,186 individuals and self-employed workers and 70,198 companies have benefited. From the Department of Economy, however, only detailed information is available for 52,985 companies: 451 are large companies, which have captured more than 1,770.7 million out of a total of 5,554 million. "It is a very notable amount, which also makes some sense given that they concentrate large investments and projects," indicate sources from the Economy Department. SMEs, they assure, represent 99% of beneficiary companies, capturing 68% of the aid.

Both administrations have boasted about the impact on small and medium-sized enterprises. But for Reyner, these have been clearly in the background. "I wouldn't say they have been absent, but considering that we are an SME economy, the truth is that large projects [investors] are the ones that have spearheaded the large investor companies and administrations of the State," he points out. Some of the projects that have been most successful among this business fabric, and that have been driven by the government itself, are the Digital Kit or the Consulting Kit.

At the state level, the main beneficiaries of European funds are: Adif, Adif-Alta Velocitat and the Empresa de Transformación Agraria (Tragsa), according to the official list of the 100 largest recipients of European funds.

Promoting projects

In the impact of funds on the economy, for economists, massive projects or those that have acted on more traditional sectors have played a key role. For example, energy self-consumption, urban actions, and low-emission zones. Also, changes in public transport fleets. To all of them are added the traditional sectors of the Catalan and Spanish economy, that is, with an important weight in growth, such as the automotive industry, which has had the PERTE with the most money. "It has translated into the battery gigafactory or in Martorell with the digitalization of the [Seat] plant," reflects the economist from the College. Seat, Renault, and Mercedes Benz are the three automotive companies that have benefited the most.

The main challenge was also to grow in areas where there is not so much tradition. Here, more complex or innovative projects have come into play. "It was the opportunity to make a qualitative leap and it is here where the shortcomings are seen," says Reyner. For example, the State and Catalonia, which had a special interest, have seen a microchip factory, which the Spanish government intended to acquire, pass them by. "We have laid a foundation to be able to advance in research and design, it is a first step," indicates Reyner.

The Spain Grow fund, which the Spanish government has approved to give "continuity" to European funds, should come into play here. In fact, the basis of this fund is part of the funds.

From the State, sources from the Ministry of Economy defend that "progress has been made in highly knowledge-intensive areas, such as semiconductors, high-performance computing, artificial intelligence, quantum technologies, and health sciences".

The challenge of reforms

"It's not just a matter of money," adds the College economist. European funds have been linked to reforms and commitments, and he regrets that some have been "unambitious." "It wasn't just about justifying collecting [the money], but about betting on structural reforms that would put the economy on a dimension of greater productivity," he says. For example, while he acknowledges that the labor reform has ended the problem of temporary employment, precariousness remains high.

In this regard, the Spanish government's difficulties in advancing some measures in Congress and after an increasingly tortuous relationship with its investiture partners have also not made it easy to achieve all the promised changes, for example, in housing or taxation. For the moment, not only has the land reform been shelved, but also the equalization of diesel with gasoline.

Agility in administration

Finally, one of the great unknowns since the funds began to be deployed was whether public administration would be able to manage so much money in such a short time. "It has been a major challenge," they acknowledge from the Ministry of Economy. Here, moreover, some experts have criticized centralization. Also territories like Catalonia, which together with 148 European regions already pressured Brussels to avoid, precisely, a centralization of cohesion funds, one of the most substantial in the EU.

Finally, Reyner misses the establishment of independent bodies that can monitor and analyze the execution of the money. "A step must be taken here, and a very important one. We have tools, we monitor, but we must have guarantees that this is done neutrally, and sometimes we are prisoners of a discourse that tends more to sell the product than to carry out a rational analysis of its impact." Also from the ODG, "little transparency" is detected. "We access a list of 100 large companies, but then it is very difficult to follow the trail [of the funds]," they lament.