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.