Simulating the effect of the EU Recovery and Resilience Facility in NiGEM

Key points

• In July 2020, the European Commission unveiled the Next Generation EU (NGEU) initiative, a EUR 800 billion plan to revive the European economy post-pandemic.
• In this NiGEM Topical Feature, we evaluate the macroeconomic impacts of the European fiscal boost implied by the Recovery and Resilience Facility (RRF), which accounts for 100 per cent of the loans and 80 per cent of the grants under the NGEU.
• Based on the current allocation of grants and loans, NiGEM projections suggest that the RRF would imply a debt-based fiscal expansion of 0.8 per cent of GDP on average in the Euro Area over the five years between 2021 and 2026, with countries which are among the scheme’s major beneficiaries, such as Italy (2.3 per cent), benefiting more than countries which have decided not to apply for loans.
• Under a more optimistic scenario where a larger number of countries would request RRF loans, the plan would imply a stimulus of at least 1 per cent of GDP on average in the Euro Area over the five years between 2021 and 2026, particularly when the uptake is from some large Eurozone countries, such as Germany.