EU Budget & Public Investment

The EU faces the challenge to combine large and sustained investments to promote the transition towards a green, digital, and competitive Europe while maintaining fiscal sustainability. Based on a comprehensive literature review on the effects of fiscal rules and investment clauses on public finances, this in-depth analysis provides some guidance how higher public investments can be achieved by a targeted golden rule without harming fiscal sustainability in the EU fiscal framework. The study also discusses the role of investments in the current proposals of the European Commission on the reform of the EU Economic Governance.

The war in Ukraine is not over yet. Nevertheless, a possible roadmap and proposals for post-war reconstruction strategies are currently being discussed. They should be accompanied by economic and political reforms in the country. To finance this project, Ukraine will need to tap a variety of sources and institutions. This is because it will require investments in the hundreds of billions ‒ perhaps even trillions ‒ of US dollars. The EU, the US and other Western countries have signaled their willingness to provide further financial support for postwar reconstruction. Also potentially involved could be bilateral donors, multilateral banks, private investors, and the Russian state with reparations.

Persistently low interest rates on government debt over past decades have prompted some economists to question the wisdom of fiscal policies that restrict the use of deficits to finance government spending. In the new EconPol Policy Brief Bev Dahlby and Ergete Ferede argue that the widely held view that there is no, or only a low, fiscal cost from debt-financed increases in program spending can be misleading.

This paper conducts an in-depth analysis of the National Recovery and Resilience Plans (NRRPs) of Austria, Belgium, and Germany. Exploiting a detailed database that covers all the investments and reforms included in the NRRPs and building on insights from semi-structured expert interviews, we study their alignment with EU objectives, the additionality of the spending, and the cross-border effects. We find that all three NRRPs are well aligned with the objectives defined in the RRF Regulation but differ greatly in terms of additionality. Cross-border projects are only of limited importance. We finally highlight some missed opportunities for other cross-border projects.