HomeNext Generation EU – Grants and Loans for Member States, But No Money Disbursed Yet

Next Generation EU – Grants and Loans for Member States, But No Money Disbursed Yet

The COVID-19 pandemic brought some impressive fiscal responses around the world. The United States, once again, led the way, but Europe also acted big. 

For the first time ever, a pan-European fiscal policy, named the Next Generation EU, is supposed to provide grants and loans to member states. The program is designed to help countries fighting their way out of the pandemic and the funds to be received depend on how hard the pandemic has hit the economy.

By the time the Next Generation EU was announced, the euro, the common currency, rose dramatically across the dashboard. Optimism prevailed, and trust in the common European project was at highs.

Fast forward to March 2021, and not a single euro was yet disbursed to any of the European countries. In sharp contrast, the United States already delivered two rounds or more of fiscal stimulus directly to citizens, and thus the economic recovery in America will outpace the one in Europe.

Patience – The Name of the Game in Europe

The problem with the Next Generation EU program is that it is supposed to be disbursed in time. Yet, during a pandemic, the population does not have patience enough, and for a good reason.

The estimated cumulative impact on real GDP from the Next Generation EU funds is supposed to be 12% of the Euro area GDP by 2026 – a staggering level by all means. However, the road ahead is full of challenges, and, at the moment, two stand out of the crowd.

One is the vaccination rollout. The European Commission ordered doses too late and failed in securing a timely delivery. It ordered for the entire union in the hope of getting better prices, thus a lower cost. It did, but at the cost of late deliveries. In the end, the delay in the vaccination rollout will eat percentages of the GDP and will likely lead to a higher cost in the long run.

Another one comes from the way the Next Generation EU was designed in the first place. One year into the pandemic and not a single euro reached its destination.

The slowdown in rolling out the funds and the vaccines may prove too costly for Europe in the long run. Now that the United Kingdom has left, the danger is that Europe’s population turns against the common project due to increased bureaucracy.

 

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