The European Central Bank (ECB) has released a report suggesting that European governments are not optimally utilizing the €800 billion made available by the European Union to mitigate the pandemic's economic repercussions.

According to the ECB's study, the impact of the EU's Next Generation funds on GDP growth and public debt has been downgraded due to government-induced delays.

The ECB economists indicate that while there are still significant benefits to debt-to-GDP ratios for primary beneficiaries, these effects are considerably less than initially forecasted.

Specifically, by 2031, the projected impact on public debt for Italy and Spain has been adjusted downwards from 12-14 percentage points to 7-8 points.

This adjustment reflects the delays in fund implementation, which have diminished their budgetary and GDP impacts.

The study further suggests a downward revision of potential GDP, the growth rate an economy can sustain without creating macroeconomic imbalances, fundamentally affecting long-term debt projections.

The report analyzed the implementation of the European Recovery and Resilience Mechanism (RRM), the chief fund distribution mechanism.

It noted substantial contributions to GDP in areas like renewable energies, electric vehicle charging infrastructure, the digitalization of SMEs, and artificial intelligence.

Nevertheless, delays in reforms and investments in other areas increase the risk that even by the program's end in 2026, much will remain to be done.

Critically, funds might remain unspent unless deadlines are extended or hastily invested without quality criteria.

Administrative inefficiencies in member states are cited as the primary cause for delays.

The report warns that despite not yet drawing definitive conclusions on the efficacy of investments and reforms, known as milestones, the risk of 'inefficient or incomplete' implementation has increased since 2022. Many Eurozone countries have substantial reform commitments pending, with less than 50% completion in some instances.

This situation persists despite the necessity for completion by the August 2026 deadline, as stipulated by the RRM Regulation.

Only a few countries, notably France, Spain, and Ireland, have completed more than 50% of these reforms and objectives.

The pace of investment remains an issue distinct from reforms, with execution rates being significantly lower.

The ECB outlines that the impact of these funds manifests through three primary channels: risk premium, fiscal (public debt), and structural reforms – the latter being harder to quantify.

Regarding risk premiums (the spread over the German bund at ten years), a reduction could permanently boost Eurozone output by 0.2%, with Italy and Spain reaping the most substantial benefits so far.

Regarding GDP, the funds could increase output by 0.4 to 0.9 percentage points above baseline levels by 2026, with potential gains rising to 0.8-1.2% by 2031, reflecting the structural nature of the Next Generation investment projects aimed at long-term growth of productive capacity.

These effects are particularly significant for Italy and Spain.

In terms of inflation, the study suggests a moderate impact throughout the Eurozone.

Simulations indicate a maximum divergence of 0.1 percentage points from baseline scenarios without these programs, although primary beneficiaries such as Italy and Spain could experience temporary effects reaching 0.3 percentage points.

The Next Generation budget originally allocated over €800 billion for the entire EU, with €724 billion (approximately 90%) aimed at the recovery mechanism.

Member states have requested €650 billion, yet only €320 billion has been disbursed – about half of the requested funds.

Of this, €265.4 billion has been paid following satisfactory completion of qualitative and quantitative milestones related to reforms and investments per tranche.

Consequently, roughly 60% of RRM grants and loans remain to be distributed across the EU (50% for Eurozone countries).

EU-wide large-scale borrowing will persist through late 2026, projected at €150 billion in annual issuances, with the EU having already committed nearly €500 billion to finance these spending programs.

In Spain, recent government data indicates that approximately €47.6 billion has reached the real economy, as per Spanish Economy Minister Carlos Cuerpo.

However, by the end of December, almost €77.5 billion of the Recovery Plan's funds, representing nearly the total allocation of non-repayable resources, had been called.

The distinction between calling versus disbursing funds remains contingent on administrative efficiency and project execution pace.