Southern Europe’s impressive post-Covid performance: What impact are European recovery funds having on the recovery momentum

In response to the massive economic shock caused by the Covid-19 pandemic, the European Council launched the NextGenerationEU (NGEU) recovery programme in July 2020.

The centrepiece of this programme, the Recovery and Resilience Facility (RRF), has a budget of €577 billion (comprising €360 billion in grants and €217 billion in loans)1 to be mobilised, in principle, by August 2026.

The economic recovery following the Covid-19 pandemic has been particularly robust in the four southern European economies (Italy, Spain, Greece and Portugal), which are also among the main beneficiaries of the RRF in terms of their GDP. Although there is “no causal link”, the correlation between these variables raises questions about the contribution of the RRF to these outcomes, when compared with the average performance observed across the EU or in certain Central and Eastern European countries – such as Poland and Romania – which have also received very generous funding.

This note begins by reviewing the main characteristics of the RRF (objectives, allocation and channels of intervention) before examining the post-crisis economic performance of the four southern countries mentioned above.

The final section, looking beyond the cyclical impact of this unprecedented EU programme, examines its capacity to trigger a sustainable growth dynamic.