Briefing Paper N.1

Introduction

In response to the COVID-19 pandemic and its economic fallout, the European Union (EU) adopted the ‘Next Generation EU’ (NGEU) funding programme, the centrepiece of which was the Recovery and Resilience Facility (RRF) to support reforms and investments in EU countries. Indeed, two of the key proponents of the RRF, French President Emmanuel Macron and German Chancellor Angela Merkel jointly stated that ‘This recovery support … will be based on a clear commitment of member States to follow sound economic policies and an ambitious reform agenda’ (18 May 2020, our emphasis in italics)1. In order to access this funding, EU member states had to submit National Recovery and Resilience Plans (NRRPs) prepared in consultation with the European Commission and eventually endorsed by the Council of Ministers. 

Analysis

This briefing paper carries out a comparative analysis of the ‘reform agendas’ of selected NRRPs. By reform agendas, we mean: the numbers, diversity, scope and timing of the proposed reforms included in NRRPs; and their EU origin, namely, the extent to which these reforms incorporate Countries-Specific Recommendations (CSRs) previously adopted by the EU. The paper engages in a comparison of four country studies – France, Germany, Italy and Spain. These case studies were selected for several reasons. On the one hand, they are the largest EU member states and the main euro area economies - making up more than half of the EU’s entire economic output - so they are intrinsically important. In absolute terms, they are also the top beneficiaries of RRF grants, receiving well over half of the total amount of funds projected for the recovery package. The success of the Next Generation EU, therefore, depends to a considerable extent on the formulation and implementation of their plans. On the other hand, these countries present different domestic socio-economic and political institutions and thus provide an optimal empirical setting to better understand the factors shaping the reform component of NRRPs.

Rather than comparing the proposed reforms across different plans to identify commonalities, their depth, and anticipated impact, we are interested in capturing the composition of the overall reform agenda in each document. As a result, we built a multidimensional index measuring the size of the reform agenda (measured as the absolute number of reforms), its diversity (while one plan might put forward reforms in just a few areas, another might distribute them more evenly across sectors),2 its scope (the combination of ‘horizontal’ reforms, i.e. those affecting the entire state machinery, and sectoral reforms, i.e. those concerning specific sector)3, its timing (frontloading or backloading over the period 2021-26), and its EU origin (the extent it incorporates the CSRs issued by the EU in 2019 and 2020 as part of the so-called European Semester). Figures 1 to 4 provide data about each of these indicators.

De facto, most of the reforms considered are ‘regulatory reforms’. That is to say, they involve the issuing of legislative and regulatory acts designed to modernise domestic institutions (such as public administration, justice, tax, pension, education and research systems) and policies (for instance, in the labour market or competition policy) so as to increase efficiency and boost competitiveness. For ease of comparability across countries, we consider the reforms indicated as such in the Annexes to the Council Implementing Decisions on the approval of the assessment of the recovery and resilience plans (July 2021). 

Reforms overview

What follows is an overview of the various dimensions of the reform agendas included in the NRRPs of the four countries under scrutiny.

These data suggest that the reform agendas of the selected member states vary considerably (for an overview see Table 1). The Italian and Spanish NRRPs feature a comparatively large number of reforms (60 and 102, respectively) most of which are frontloaded (Figure 3). In contrast, the German NRRP presents fewer reforms (15) with backloaded timelines. The French NRRP (21 reforms) fell somewhere in between. The reforms envisaged in the NRRPs of the two southern member states are also deeper and more comprehensive than those of France and Germany (Figure 1), where governments engaged mainly in sectoral reforms4. The wide-ranging nature of the agendas put forward by Italy and Spain is evident when looking at their distribution across sectors (Figure 4), as the two countries consistently occupy the top spots in those policy areas associated with the functioning of the state machine, such as “macroeconomics” and “government operations”. Finally, whereas all the NRRPs analyzed appear to meet a significant subset of the 2019 and 2020 Country-Specific Recommendations (CSRs) (Figure 2), France and Germany failed to address some important structural challenges, while Italy and Spain incorporated all CSRs (albeit with varying degrees of satisfaction).

Therefore, the NRRPs of the four countries under scrutiny can be placed along a continuum, ranging from more reformist (Italy and Spain, in this specific order) to less reformist (France and Germany, in this particular order) (see Figure 5). An important caveat is however necessary to qualify these findings. We examine reforms ‘on paper’, that is to say, those included in the formulation NRRPs, not those de facto implemented afterward. In that respect, there is going to be considerable variation and, we suspect, considerable mock compliance or partial compliance in the countries that have included a large number of wide-ranging reforms. 

Explaining the formulation of NRRPs’ reform agenda

The cursory review provided in the previous section shows significant variation in the reform ambitions of the four NRRPs analyzed. What explains these differences? Given the expected implications that the adoption of the RRF has for the future landscape of European economic governance, tackling this question bears considerable relevance (e.g., Fabbrini (2022), Miró, Natili, and Schelkle (2023)). On the one hand, it will provide valuable insights into the Commission’s ability to constrain and/or incentivize member states to align with EU directives and guidelines. On the other hand, it will help shed light on whether and to what extent national executives can mediate between domestic political agendas and EU-imposed constraints.

A first-cut explanation of the different extent of national reform commitments would focus on the asymmetric bargaining power of member states in EU-level negotiations due to their different national vulnerability to market pressures and expected costs and benefits of the prospective EU deal (e.g., Armingeon et al. (2022); Zeitlin, Bokhorst, and Eihmanis (2023)). We can fairly infer that countries that relied heavily on EU financial assistance or received a significant share of EU funding had more limited room for manoeuvre in formulating their plans. The Commission could thus press them to engage in more ambitious reforms when designing their NRRPs. We concisely evaluate this explanation against the empirical record. A cursory count of the number of reforms included in national plans shows indeed a strong positive correlation with the amount of grants received by each member state (cor = 0.80, p < 0.01) (Figure 6)5. Yet not all reforms are the same. When we distinguish them by their scope and focus on the share of horizontal reforms out of the total, the relation between the two dimensions becomes negative and it is no longer significant (cor = -0.12, p = 0.67) (Figure 7). That tells us that, while EU fund allotment appears to be a key driver in the formulation of NRRPs, it does not account for all the variation among the reform components.