Exogenous shocks and proactive resilience in the EU: The case of the Recovery and Resilience Facility

The Covid-19 pandemic prompted economic policy innovations in response to new exogenous shocks, resulting in economic recovery policies at the national and supranational level. This paper considers the modalities of these policy innovations and their long-lasting effects in the case of the European Union (EU), focusing on the Next Generation EU (NGEU) programme and its centrepiece, the Recovery and Resilience Facility (RRF). We discuss the novelties in the design of the NGEU/RRF in comparison to previous EU structural funds, aimed at reducing regional divergences across the EU. The NGEU is changing the way the EU finances itself as never before had the European Commission borrowed at such large scale and long maturities on financial markets. In the paper, we identify potential gaps in the design of the EU Recovery Funds, due to their focus on thematic clusters with limited linkages to other vertically designed EU programmes, an absence of microeconomics considerations, and likely spending overlap with the Structural and Investment (ESI) Funds. The scope for coordination is evident as, on top of the new RRF Funds, EU countries will have to absorb the unspent ESI Funds from the 2014-20 Multi Financial Framework (MFF) and those recently allocated under the new 2021-27 MFF. Considering these challenges, we articulate a proactive resilience framework for the design and implementation of policy instruments in the EU.

Keywords: Resilience, Economic governance, EU policies, Investment incentives, Next Generation EU, Recovery and Resilience Facility, ESI Funds

JEL Classification: F36, O38, O52, Q28