Despite bumps on NGEU road, investments that mostly rely on EU funds seen as key growth driver*

By Elizabeta Sabolek Resanovic,
Economic analyst, Raiffeisen Research

NGEU supposed to lift growth prospects further

Designed as a temporary funding instrument of the European Union that can mobilise up to 723 billion euro (at 2022 prices) in grants and loans, the NGEU was established to encourage the completion of investments and structural reform measures. The ECB staff estimate that, the NGEU may increase the level of real GDP in the euro area by up to 1.5% by 2026 if fully implemented (The economic impact of Next Generation EU: a euro area perspective ( This makes quite a difference as it will lift growth prospects further.

Two and a half years into the life of the programme, the question should be asked: “Is the NGEU on track?“

The RRF disbursements of grants to EU countries have so far reached 107 billion euro. This amounts to more than 30% of the total envelope expected to be requested by EU countries in the period 2021-2026. At EU level, the most successful country in terms of funds withdrawal is Spain where the third payment has been disbursed already while Greece, Italy and Croatia have submitted a request for the third tranche. Among the CEE countries, the second payment has been disbursed only to Croatia and Slovakia. Up to now, only Croatia has submitted an application for the third payment. In some countries, the required structural reforms were delayed, and as these are the preconditions for funds disbursement, there has been a knock-on effect on the schedule for payments. This, above all, refers to the situation in Poland and Hungary. Poland is still in the process of fulfilling the milestones required to release the NGEU funds. Within this process, a bill that should support an agreement with the EU was sent by the President for an assessment to the Constitutional Tribunal. The Tribunal itself is at the heart of the disputed judiciary reform and has not been able to gather and decide on the bill. As a result, this again delays the release of the funds. Moreover, the upcoming Parliamentary elections in October additionally complicate the process from a political point of view. As of now, it cannot be excluded that no agreement is reached before the elections which would mean that any payments would come only in 2024. In the case of Hungary, although the country has managed to avoid the worstcase scenario (i.e. irreversible loss of EU funds) towards the end of 2022, there is still no agreement on the contentious issues and, accordingly, the RRF and cohesion funds are still to be released. Like in the case of Poland, access to the funds is secured only if the Hungarian government fulfils 27 “super milestones”. Bottom line: EU funds are unlikely to support Hungary’s economic growth in 2023.

Strengthening of the power of the RRF in the framework of the REPowerEU plan

A significant change in the geopolitical situation, particularly the war in Ukraine, prompted the European Commission (EC) to propose a strengthening of the power of the RRF in the framework of the REPowerEU plan. The REPowerEU Plan aims to rapidly decrease the European Union’s dependency on Russian fossil fuels. Under the REPowerEU regulation, which entered into force in March 2023, Member States wishing to benefit from the increased financial envelope of the RRF have to modify their recovery and resilience plan to include a REPowerEU chapter, listing reforms and investments that will deliver on the objectives of the REPowerEU Plan. The modified plans (containing REPowerEU chapters) had to be submitted no later than August 2023.

Close to 270 billion euro of REPowerEU funds are available for member states, including 20 billion euro in new grants, 5.4 billion euro of funds from the Brexit Adjustment Reserve and the remaining 225 billion euro of the RRF loans that the member states can use for REPowerEU purposes. So far, 17 out of 27 countries have submitted their modified plans.

Speed and efficiency of withdrawal of the available funds as a biggest risk

Bearing in mind that the NGEU can only reach its full potential if all national reform and investment plans are implemented in a timely, efficient, and effective way, the question of potential risks arises, especially in terms of speed and efficiency of withdrawal of the available funds. Besides the already mentioned postponed disbursement requests due to a delay in required structural reforms, like in the case of Poland and Hungary, some countries have postponed their investments funded by the RRF. The reason for such a development that increases implementation risk, should be sought, on the one hand, in the energy crisis and higher inflation that have been raising new challenges, such as the strong need for revision of procurement contracts or public tenders due to higher inflation or difficulties to access the necessary materials, equipment i.e. due to bottlenecks. On the other hand, the other obstacle that arises in a lot of countries relates to limitations in administrative capacity and political hurdles.

Past country performances in the absorption of EU funds call for a cautious stance. According to data from the European Commission, of the countries addressed in this report, by the end of 2020, only Hungary (62.4%) and Poland (60.5%) had absorbed more than 60% of EU funds under the 2014-2020 Multiannual Financial Framework. However, the possibility of using the funds from the financial envelope until 2023 (n+3 rule) leads us to a conclusion of faster absorption as the financial envelope approaches its maturity. Namely, the EC data from August 2023 show Poland (93%) and Slovenia (90%) as so far being the most successful in withdrawing funds, while Slovakia and Croatia, with 76% and 78% respectively, are at the bottom of the scale. Therefore, the question arises whether the six-year NGEU horizon will be sufficient for stronger absorption.

Summary: EU funds – supposed to be one of the key drivers of growth…

However, despite all the obstacles on the NGEU roadmap, investments that mostly rely on EU funds are supposed to be one of the key drivers of growth this year as well as in the years ahead. This can be read clearly already from the 2023 available economic indicators, but also from the projections of CEE countries for the upcoming period. Nevertheless, it is worth emphasizing that the generous resources available through the funds are not only an opportunity for the CEE countries but also for a lot of foreign companies which operate in the CEE markets.

*This text was first published as part of the publication: Two and half years after its adoption, is NGEU on track? (

Comments are closed.