EU Unveils Conditions for Massive Recovery-Fund Payments

(Bloomberg) -- European Union governments hoping to receive a slice of the hundreds of billions of euros in jointly raised recovery funds will need to put forward plans of specific reforms and commit to spend the cash on digital infrastructure projects and the transition to a low-carbon economy.

That’s according to set of guidelines published by the EU’s executive arm on Thursday, clarifying what kind of spending is eligible from the gigantic rescue package agreed between the bloc’s leaders over the summer. The list includes investments ranging from high-speed broadband to electric-vehicle charging stations, boosting digital skills and financing building renovations, as well as the funding of structural reforms recommended by the European Commission.

The guidelines follow the agreement by EU leaders of an unprecedented stimulus package, which will be financed by jointly backed debt. Part of the package, known as the Recovery and Resilience Facility, will be pre-allocated to member states, giving out 312.5 billion euros ($369 billion) of grants and 360 billion euros of low-interest loans.

The commission urged national governments to start working on their spending plans as soon as possible and submit draft proposals from the middle of the next month. They face an ultimate deadline of end-April, and funds could start flowing in the first half of next year, the commission said.

The final version of the fund still needs to be agreed between EU governments, the European Parliament and the commission before it can become operational.

To be approved, proposals need to lay out how the stimulus will adhere to EU objectives like the green and digital transformation while reflecting a “substantive reform and investment effort.” Each plan will have to include a minimum 37% expenditure related to climate and 20% to digital, the commission said.

Officials also gave some strong hints of the kind of “flagships” they expect countries to propose in their investment plans, including:

• Renewable-energy projects
• Building renovation to improve their energy efficiency
• Promotion of sustainable transport
• Roll-out of broadband infrastructure, including 5G technology
• Digitizing public administration
• Modernization of education systems

The commission said it expects the whole 750 billion-euro recovery effort agreed by EU leaders to deliver a 2% boost to economic output by 2024 and create 2 million jobs.

While the countries’ plans could include some tax cuts if they are in line with the commission’s reform recommendations, general wide-ranging reductions will likely not be eligible, an EU official said.

Disbursements are likely to take place twice a year and will be linked to milestones that show countries are progressing with their reforms and investments. A first round of pre-financing, 10% of the funds, is expected to be paid out in the first half of 2021. A second round could take place toward the end of next year or in the beginning of 2022, the official said.

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