Have the Next Generation funds increased productivity?
The manna of the Next Generation (NGEU) European funds will soon come to an end, given that they should have been allocated, in principle, only until last August 31st. A very large percentage, between 75% and 80%, has already been allocated. The stated objective of the European funds, and of the Spanish Recovery, Transformation and Resilience Plan, is to accelerate economic and social recovery after the COVID-19 crisis and to increase growth capacity in the medium and long term by increasing productivity.
It is clear that the NGEU funds have contributed to Spain's differential growth in relation to Europe. (Funcas estimates that the accumulated growth of real GDP between 2021 and 2025 due to the NGEU funds is approximately between 1.4 and 2.1 percentage points of GDP.) What is not as clear is whether they have contributed to a structural change towards higher productivity, to modernizing the industrial fabric, and to reducing dependence on low-productivity sectors. The Spanish plan has four axes that broaden the focus significantly and disperse the objectives: ecological transition, digital transformation, social and territorial cohesion, and gender equality. Too many objectives if a profound transformation is desired.
Spain committed to carrying out reforms to promote fiscal sustainability and growth. Regarding the first objective, it is not at all clear that the 2021 and 2023 pension reforms are moving in this direction. Regarding the second, according to the 2025 Bank of Spain annual report, the 2021 labor reform decreased formal temporary employment from 25% in 2021 to 15% in 2025 (though much less so for effective temporary employment; for example, permanent seasonal workers are classified as indefinite), and companies with more temporary contracts had higher productivity growth than those with fewer. This fact is consistent with greater job stability, which encourages the accumulation of firm-specific human capital. Furthermore, the bank's report documents a positive effect of the Digital Kit program for SMEs and the self-employed on the total factor productivity (TFP) of beneficiary companies (an increase in TFP of approximately 1.2% one year after the subsidy was granted, which remains to be seen if it is maintained over time) and an increase in investment in intangible assets.
An important question is whether the funds have generated additional investment or if companies would have done it anyway. According to the Bank of Spain survey, green investment (very important in the program: about 40% of the expenditure had to contribute to climate objectives, according to European guidelines) was not very additional. At an aggregate level, productivity per worker has been stagnant between 2019 and 2025.
The regional distribution of the funds has favored communities with per capita income below the average, such as Castile and León and Extremadura, and richer communities, such as the Basque Country, Navarre, and Aragon. Madrid is at the average of the distribution, and Catalonia is below it. Large expenditure chapters have been long-distance sustainable mobility (with Adif and high-speed rail as major beneficiaries) and urban mobility. Catalonia has received more than 10 billion euros, with a predominance of physical capital and infrastructure (railway, mobility, water, and rehabilitation), an important industrial component (the electric vehicle PERTE), knowledge and digitalization (Digital Kit, chips, supercomputing, digital technologies, health), and many small programs (social, “tourism sustainability”, municipal). We do not know, for now, what percentage of the investments has contributed to improving productivity. And one must wonder if actions such as the green axes in Barcelona (contrary to urban planning law, according to several court rulings) have contributed to reducing pollution (not locally, but in the city as a whole) or if they have served to accelerate the gentrification of parts of the city for the enjoyment of expats and tourists.
Perspective is lacking to evaluate the impact of the Next Generation funds. It does not seem, however, that they will serve to drive structural change despite some green shoots. The percentage dedicated to disruptive technologies—an area in which Europe and Spain are very far behind—is not very high. The impact on economic growth is positive in the short term—with a reversal when the funds run out—and will likely be very moderate in the long term. If that is the case, we will always have the consolation of having done better than the other major recipient of the funds, Italy.
