COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS The EU economy after COVID-19: implications for economic governance
Date: 2021-10-19
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: climate change policy, coronavirus disease, digitisation, economic policy, economic recovery, epidemic, fiscal policy, macroeconomics, stability pact, stability programme

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  EN 

   EUROPEAN COMMISSION  Strasbourg, 19.10.2021  COM(2021) 662 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS The EU economy after COVID-19: implications for economic governance  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE 
EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF 
THE REGIONS 

The EU economy after COVID-19: implications for economic governance 

1.  Introduction 

The Commission presented a Communication on the EU economic governance review in 
February 2020. (1, 2) The Communication highlighted a number of strengths and weaknesses 
facing the economic governance framework (Box 1) and opened a public debate on the basis 
of its findings. This debate was put on hold shortly afterwards due to the need to focus on the 
immediate  challenges  posed  by  the  outbreak  of  COVID-19.  The  Commission  pledged  to 
relaunch the debate once the recovery took hold. (3) In the meantime, reports on the review 
were  adopted  by:  the  European  Economic  and  Social  Committee  in  September  2020;  the 
Committee of Regions in December 2020; and the European Parliament in July 2021. (4) The 
European Court of Auditors also published two special reports on the implementation of the 
EU fiscal rules. (5)   

This  Communication  assesses  the  implications  of  the  changed  circumstances  for 
economic governance following  the COVID-19 crisis  and relaunches  the public debate 
on  the  review  of  the  framework.  This  Communication  complements  the  assessment 
published  in  February  2020  and  follows  President  von  der  Leyen’s  announcement  of  the 
relaunch of the public debate  in  her State of the European Union address on 15 September 
2021. The aim of the public debate is to build a consensus on the way forward well in time 
for 2023.  

2.  Medium to long-term economic trends in the EU  

The  EU  economy  already  faced  several  long-term  structural  challenges  before  the 
COVID-19 crisis. First, despite pre-pandemic improvements in labour market performance, 
a  rapidly-ageing  population  threatened  to  eventually  reduce  labour  supply  and  thus  EU 
growth potential. Second, weak productivity growth acted as a drag on economic growth and 
the  EU  was  lagging  behind  China  and  the  United  States  in  the  process  of  digital 
transformation.  Third,  the  very  substantial  socio-economic  costs  of  climate  change  were 

(1)   A comprehensive framework governs EU economic policy coordination. It consists of the EU fiscal policy framework 
(the  Stability  and  Growth  Pact,  the  European  Semester,  and  requirements  for  national  fiscal  frameworks),  the 
Macroeconomic Imbalances Procedure, and the framework for macroeconomic financial assistance programmes. 

(2)   European Commission (2020), ‘Economic governance review’, COM(2020) 55 final of 5 February 2020.  
(3)  European  Commission  (2021),  ‘One  year  since  the  outbreak  of  COVID-19:  fiscal  policy  response’,  COM(2021)  105 

final of 3 March 2021.  

(4 )  Opinion of the European Economic and Social Committee on the economic governance review, OJ C 429, 11.12.2020, p. 
227; Opinion of the European Committee of the Regions on the economic governance review, OJ C 37, 2.2.2021, p. 28;  
European Parliament resolution of 8 July 2021 on the review of the macroeconomic legislative framework for a better 
impact on Europe’s real economy and improved transparency of decision-making and democratic accountability. 

(5)   European  Court  of  Auditors  (2016),  ‘Special  report  No  10/2016:  Further  improvements  needed  to  ensure  effective 
implementation of the excessive deficit procedure’; and European Court of Auditors (2018), ‘Special report no 18/2018: 
Is the main objective of the preventive arm of the Stability and Growth Pact delivered?’  

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manifesting themselves with increasing clarity and urgency. Fourth, rising income and wealth 
inequality,  territorial  disparities  within  and  among  Member  States,  and  unequal  access  to 
education  and  skills,  were  holding  back  economic  growth  and  creating  strain  in  the  EU’s 
social fabric.  

Climate  challenges  and  environmental  degradation  require  forceful  and  swift  action. 
Climate change and the deterioration of the environment are materialising. Temperatures are 
rising and countries around the world are enduring catastrophic weather-related events with 
an  alarming  frequency.  The  goal  of  the  Paris  Agreement  to  limit  global  warming  to  well 
below 2 degrees Celsius and pursue efforts to limit the temperature increase to 1.5 degrees, 
compared  to  pre-industrial  levels,  is  at  risk  unless  greenhouse  emissions  are  reduced 
drastically. (6) About 1 million species are threatened with extinction, many within the next 
few decades. (7) These trends can become a source of systemic risks if left unaddressed. This 
requires sustained private and public investment to support the green transition (Box 2) and to 
cushion its impact on the most vulnerable.  

Digital transformation is  already happening but should be accelerated. The COVID-19 
crisis has accelerated the digitalisation of our economies and societies. The lockdowns have 
boosted  online  services  and  e-commerce.  EU  citizens  have  experienced  first-hand  how 
teleworking,  telemedicine,  online  shopping  and  digitalised  administrative  services  have  the 
potential to improve the quality of life and economic outcomes. However, a significant share 
of  the  population  has  weak  digital  skills  and  faced  difficulties  in  accessing  the  new  digital 
environment,  with  risks  of  widening  social  divides.  The  crisis  has  also  exposed  the  divide 
between digitally-apt businesses and those yet to adopt digital solutions, and highlighted the 
gap between well-connected urban areas and rural or remote areas. Meanwhile, the growing 
shortage of digital skills, the limitations of digital infrastructures, delays in adoption of new 
technologies  by  governments  and  businesses,  and  dependencies  in  a  number  of  key 
technologies  such  as  semiconductors  have  brought  to  the  fore  significant  challenges  to  the 
EU’s digital ambitions. The EU has to take urgent and ambitious action.  

Boosting  socio-economic  resilience  is  essential  to  improve  Europe’s  growth  potential 
and  job  creation  and  to  reach  the  Sustainable  Development  Goals.  Resilience  is  the 
ability  to  withstand  and  cope  not  only  with  challenges  but  also  to  undergo  transitions  in  a 
sustainable, fair and democratic manner. Less resilient Member States, territories and sectors 
found it harder to withstand and respond to the crisis. (8) Differences in resilience across the 
EU also have a bearing on social, economic and territorial cohesion, as well as convergence 
within the euro area and the effectiveness of the single monetary policy. Effective and well-
designed active labour market policies and social protection systems, investment in education 
and skills, and sound public finances can strengthen resilience and increase potential growth. 
Member  States  focused  on  implementing  such  necessary  reforms  in  the  aftermath  of  the 

(6)   Intergovernmental Panel on Climate Change (2021), ‘Climate Change 2021: The Physical Science Basis’. Contribution 

of WG I to the Sixth Assessment Report.  

(7)   Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (2019), ‘Summary for policymakers 

of the global assessment report on biodiversity and ecosystem services’. 

(8)  European Commission (2020), ‘2020 Strategic Foresight Report, Charting the course towards a more resilient Europe’, 

COM(2020) 493 final of 9 September 2020.  

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global  financial  crisis  but  the  momentum  faded  over  time,  with  progress  becoming  uneven 
across Member States and policy areas. The strong interdependencies between our economies 
within  the  Single  Market  and  Economic  and  Monetary  Union  underline  the  need  to 
coordinate  national  policies.  Full  implementation  of  the  2030  Agenda  for  Sustainable 
Development  remains  a  key  factor  in  strengthening  resilience  and  delivering  on  the  twin 
transitions.  

The  COVID-19  crisis  has  made  these  challenges  more  visible  and  more  urgent. 
Addressing them offers transformative opportunities but also requires major investments and 
reforms.  Investment spending and reform momentum will need to increase compared to  the 
pre-COVID period, when public investment dropped below levels needed to keep the stock of 
public  capital  stable  as  a  share  of  GDP  and  a  wide  range  of  reforms  remained  to  be 
implemented.  

The  firepower  of  EUR  2  trillion  of  the  new  Multi-annual  Financial  Framework  and 
Next Generation EU, and in particular the Recovery and Resilience Facility (RRF), will 
help  Member States  address  these  challenges.  The RRF  is  providing EUR 338 billion in 
non-repayable  support  and  up  to  EUR  386  billion  in  loans  (in  current  prices)  to  support 
investments and structural reforms until 2026, on top of about EUR 500 billion provided for 
by other EU funds. (9) This large-scale funding will help bring Member States on a recovery 
path,  while making their  economies and societies more resilient and better prepared for the 
future  by  supporting  the  green  and  digital  transitions.  This  effort  was  supplemented  by 
REACT-EU, financed under Next Generation EU.  (10) 

(9)   This figure includes national co-financing. The implementation of cohesion policy spans up to 2029. 
(10)  REACT-EU provided a further EUR 50.6 billion to strengthen cohesion policy funds in 2021 and 2022 for  crisis repair 

measures and as a bridge to the long-term recovery plan under the RRF. 

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3.  Impact and implications of the COVID-19 crisis 

3.1. Impact of the crisis  

A significant economic contraction followed by a stronger-than-expected but uneven recovery 

The COVID-19 pandemic led to a severe economic downturn but the recovery has taken 
hold.  The  pandemic  resulted  in  an  unprecedented  contraction  in  EU  economic  activity  in 
2020.  However,  thanks  to  strong  policy  support,  accelerated  vaccine  rollout  and,  where 
possible,  the  gradual  easing  of  pandemic-related  restrictions,  growth  resumed  forcefully  in 
spring  2021.  Economic  developments  over  the  summer  suggest  that  the  third  quarter  will 
register  continued  robust  growth,  not  least  thanks  to  the  re-opening  of  our  societies  and 
resumption  of  travel.  Economic  activity  is  then  expected  to  remain  sustained  for  several 
quarters ahead, pushing the EU economy from recovery into expansion. At least 19 Member 
States are expected to reach their 2019 levels of GDP this year, while all others are expected 
to  reach  that  level  in  the  course  of  next  year.  Similarly,  EU  trade  in  goods  with  non-EU 
countries  recovered  strongly  in  the  first  half  of  2021.  Nonetheless,  uncertainty  and  risks 
surrounding  the  outlook  remain  high,  in  particular  linked  to  uncertainty  about  the  future 
trajectory  of  the  pandemic,  inflation,  energy  prices,  shortages  in  the  labour  market,  and 
bottlenecks in international supply chains.  

The labour market impact has been cushioned by policy support measures. Employment 
contracted mildly compared with the recorded loss in output. Thanks to the widespread use of 
short-time  work  and  other  job  retention  schemes  –  backed  by  the  new  EU  instrument  for 
temporary support to mitigate unemployment risks in an emergency (SURE) – the adjustment 
was  largely  confined  to  a  reduction  in  hours  worked.  As  the  economy  recovers, 
unemployment rates have started to decline across the EU and the unemployment rate is now 
just  ½  pp.  above  the  pre-crisis  level.  However,  employment  gaps  compared  with  the  pre-
crisis  period  remain  significant  in  some  regions  and  sectors  across  the  EU  while  labour 
shortages  have  started  to  re-emerge  in  others.  Moving  forward,  transitions  between  jobs, 
firms  and  sectors  may  generate  some  frictions  as  newly-created  jobs  often  have  higher  or 
different skills requirements than the jobs that have been lost, which calls for adequate labour 
market policy interventions to ease adjustments. 

Pandemic-related  disruptions  increased  pre-existing  economic,  social  and  territorial 
divergences,  and  made  the  achievement  of  the  Sustainable  Development  Goals  even 
more challenging. (11) The economic impact of the pandemic varied across Member States 
and  across  economic  activities  (12)  due  to  the  differing  severity  of  the  health  situation,  the 
stringency  and  duration  of  mitigation  measures  put  in  place,  and  differences  in  economic 
structures.  Countries  with  sizeable  cross-border  tourism  sectors  were  especially  affected  by 
travel restrictions. Within countries, low-skilled workers and young people, as well as regions 
dependent  on  tourism  and  other  personal  contact  services  were  the  most  affected.  Overall, 

(11)  European  Commission  (2021),  ‘Sustainable  development  in  the  European  Union  —  Monitoring  report  on  progress 

towards the SDGs in an EU context — 2021 edition.’   

(12) Online services and e-commerce have been boosted by the lockdowns, while other industries, such as manufacturing of 
durable  goods  and  freight  transport,  experienced  only  short-lived  reductions  in  turnover  or  even  saw  their  activity 
increase. At the same time, contact-intensive industries suffered significant losses and are recovering more slowly. 

4 

 
 
                                                 
while  less  severe  than  initially  expected,  divergences  between  Member  States,  regions, 
sectors and generations have increased. The crisis highlighted the essential need to uphold the 
free movement of persons, goods, services and capital in the Single Market and the need to 
work together to strengthen its resilience to disruptions. 

The necessary fiscal response has led to higher and more heterogeneous debt levels 

Public  finances  took  a  considerable  hit  as  a  result  of  the  severe  recession  and  the 
necessary  policy  response,  with  increased  fiscal  divergence  between  Member  States. 
Deficits  and  debt  ratios  have  soared  in  all  Member  States,  with  the  EU  headline  deficit 
increasing to about 7% of GDP in 2020 from 0.5% of GDP in 2019, and the aggregate debt 
ratio jumping by 13 pps. of GDP to 92% of GDP at the end of 2020. (13) Deficits and debt 
ratios are expected to remain above pre-pandemic levels in the coming years. Member States 
with high levels of public debt have been among those most affected by the economic fallout 
of  the  COVID-19  crisis  because  of  the  severity  of  the  health  situation,  the  measures  put  in 
place to shore up public health as well as the structure of their economies, including sizeable 
cross-border tourism sectors. As a result, these Member States recorded some of the steepest 
increases in debt ratios. On top of direct fiscal stimulus, governments also provided private-
sector  liquidity  support  of  nearly  20%  of  GDP,  mostly  in  the  form  of  public  guarantees  to 
companies and tax deferrals. (14) The take-up of those public guarantees varied significantly 
across Member States. Any possible impact  on  public finances  depends  on the extent these 
guarantees will be called. 

While public debt ratios have increased, measures of the Recovery and Resilience Plans 
to  increase  growth  potential  will  support  fiscal  sustainability.  High  debt  ratios  are 
expected to persist, remaining above pre-pandemic levels in about a third of Member States 
over the next decade. (15) They will increase further if COVID-related guarantees are called 
or  interest  rates  increase.  In  the  longer  term,  spending  related  to  population  ageing  and 
climate  change  may  also  impact  fiscal  sustainability.  At  the  same  time,  several  factors  can 
support fiscal sustainability: longer debt maturities; relatively stable financing sources with a 
diversified and large investor base; and favourable interest-growth differentials. Importantly, 
the successful implementation of fiscal and growth-enhancing reforms and investments under 
the  RRF  and  cohesion  policy  funds,  supported  by  the  Commission  through  the  Technical 
Support Instrument, is expected to support potential growth, contributing to improving fiscal 
sustainability and maintaining favourable financing conditions. 

Investment needs are pressing  

Investment needs are substantial and the RRF will help to address them until 2026. The 
EU’s commitment to the twin transitions, enshrined in the EU Green Deal and the EU digital 

(13)   Figures taken from the Commission 2021 spring forecast. 
(14)  These measures prevented liquidity shortages from turning into solvency problems, facilitated the continued provision of 
credit to the economy by the banking sector, and enabled an efficient pass-through of favourable financing conditions to 
all economic sectors. 

(15)  Nearly  two  thirds  of  Member  States  face  medium  or  high  sustainability  risks  in  the  medium  term,  according  to  the 
conventional Commission classification, compared with only a third before the crisis. See European Commission (2021), 
‘The 2021 Stability and Convergence Programmes: an Overview, with an Assessment of the Euro Area Fiscal Stance.’ 

5 

 
 
                                                 
strategy,  will  require  additional  annual  private  and  public  investment  of  about  EUR  650 
billion  over  the  next  decade  (Box  2).  (16)  The  investment  needed  to  support  the  digital 
transition  and  the  EU’s  open  strategic  autonomy (17)  has  become  more  evident  during  the 
pandemic,  highlighting  the  need  for  secure  and  fast  internet  connectivity,  access  to  digital 
services,  the  importance  of  digital  education  and  skills  across  society,  and  addressing  the 
EU’s  dependencies  with  respect  to  key  digital  capacities.  Additional  investment  is  also 
needed  to  improve  the  EU’s  economic  and  social  resilience,  including  in  healthcare, 
education  and  training,  research  and  development,  innovation,  and  transport.  While  the 
cohesion policy funds will continue to help Member States address these needs, the RRF will 
also support these efforts through a mix of non-repayable support and loan financing but this 
funding  is  temporary.  Ultimately,  ensuring  economic  and  social  resilience  and  meeting  the 
goals of the twin transitions will require a persistent and sizeable increase in both public and 
private  investment  in  Member  States  that  is  sustained  beyond  2026.  In  general,  addressing 
these pressing needs will also require further efforts to promote private investment, including 
through  the  completion  of  capital  markets  union.  Furthermore,  the  EU  taxonomy  for 
sustainable activities will help  shift  private  investment  to  where  it  is  most  needed from  the 
climate and environmental action perspective.  

Post-pandemic fiscal adjustment should go hand-in-hand with improving the quality of 
public finances. RRF support will contribute to the recovery and lift potential growth only if 
it  finances  additional  productive  and  high-quality  investment.  That  is,  public  investment 
funded  by  the  RRF  should  come  on  top  of  sustained  nationally-financed  investment. 
Therefore, promoting nationally-financed investment for the twin transition and strengthening 
economic and social resilience will be  critical.  If RRF support does not  result in  additional 
investment, it will temporarily reduce deficits and debt ratios but without a positive effect on 
potential  growth  in  the  medium  to  long  term,  thus  leading  to  a  deterioration  in  the 
composition of public spending. Where debt ratios are very elevated,  promoting nationally-
financed  investment  will  require  clear  prioritisation  of  expenditures  and  efforts  to  improve 
the overall composition and quality of public finances. 

The ongoing correction of macroeconomic imbalances has encountered a setback 

The crisis has had an uneven impact across households and corporates but supportive 
policy action has cushioned the shock, including on the banking sector. First,  while the 
number of job losses has overall been limited, they have been more frequent among low- and 
medium-skilled  workers.  Similarly,  young  workers  and  other  new  entrants  to  the  labour 
market  have been most affected.  These trends  can  increase inequalities in our societies and 
call  for  further  policy  action  to  re-skill  and  up-skill.  The  Porto  Declaration  of  8  May  2021 
reaffirmed EU Leaders’ commitment to the European Pillar of Social Rights as a fundamental 
element  of the recovery.  Second, while corporates  have had to  resort to  additional  credit to 
meet  working  capital  needs,  the  COVID-19  crisis  has  overall  not  resulted  in  an  increase  in 

(16)  Estimated  investment  needs  are  based  on  the  Impact  Assessment  for  the  revision  of  the  Renewable  Energy  Directive 
(SWD(2021) 621) and the Staff Working Document accompanying the Next Generation EU package (SWD(2020) 98). 
(17)  European  Commission  (2021),  “2021  Strategic  Foresight  Report,  The  EU’s  capacity  and  freedom  to  act,” 

COM(2021) 750 final of 8 September 2021.   

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insolvencies. (18)The  increased  targeting  of  support  measures  is  ongoing.  In  view  of  the 
remaining  vulnerabilities,  the  phasing  out  of  support  programs  should  be  done  gradually. 
Third, thanks to their strong capital ratios and high liquidity buffers, banks were able to keep 
providing credit to the economy. The suspension of dividend payments and some temporary 
regulatory relief also provided a breathing space for banks. The increase in non-performing 
loans  has  been  contained  but  asset  quality  should  be  closely  monitored.  Fourth,  dynamic 
house and financial asset prices entail additional risks. 

The  COVID-19  crisis  has  aggravated  a  number  of  pre-existing  vulnerabilities.  Internal 
imbalances related to high government and private debt have increased, driven by the drop in 
GDP  in  2020  and  measures  taken  to  address  the  COVID-19  crisis.  Pre-pandemic  dynamic 
house  price  trends  persisted  and  mortgage  debt  continued  to  grow  significantly  in  some 
countries. Current account deficits widened in  countries dependent on tourism revenues. At 
the same time, the correction of current account surpluses has stalled. Moving forward, new 
imbalances may emerge as a result of structural transformations accelerated by the COVID-
19 crisis. Labour shortages, global value chain bottlenecks and strategic dependencies could 
have an impact on relative prices and competitiveness. The accelerated digital transition and 
shifts in consumption patterns could lead to skills mismatches and frictional unemployment 
coexisting with labour shortages. 

3.2. Response to the crisis  

National policy response and the full use of flexibility within EU regulatory frameworks 

The  unprecedented  and  coordinated  policy  response  to  the  COVID-19  crisis  has  been 
successful in cushioning the impact of the crisis. The response to the crisis was carried out 
forcefully  at  both  the  national  and  EU  levels.  This  was  done  in  a  coordinated  manner  and 
took  various  complementary  forms.  The  activation  of  the  general  escape  clause  of  the 
Stability and Growth Pact, agreement on the State Aid Temporary Framework (subsequently 
amended  several  times  to  take  account  of  the  evolution  of  the  situation  and  the  needs  of 
businesses),  the  Coronavirus  Response  Investment  Initiatives  (which  provided  exceptional 
flexibility to redirect cohesion policy funds where most needed), and the set-up of emergency 
instruments such as SURE happened quickly. (19) Subsequent actions by the Commission and 
recommendations from the Council reflected the need for close economic policy coordination 
throughout  the  pandemic.  Decisive  EU-level  action  ensured  the  development,  speedy 
procurement and coordinated distribution of COVID-19 vaccines. Beyond efforts to mitigate 
the impact of the crisis, dedicated temporary EU instruments have helped foster the recovery, 
and  promote  sustainable  and  inclusive  growth.  In  this  context,  the  Commission’s 

(18) Certain companies, including small and medium enterprises, have increased their leverage as a result of the 

crisis, making them more vulnerable and potentially in need of recapitalisation. 

(19)  OJ  L  99,  31.3.2020,  p.  5–8.  In  April  2020,  the  Coronavirus  Response  Investment  Initiative  gave  Member  States  an 
upfront cash injection of over EUR 20 billion from the EU cohesion policy funds extending the scope of support of the 
funds, providing immediate liquidity and giving flexibility in programme amendments. This allowed the mobilisation of 
more than EUR 23 billion for emergency support to the health and education systems, small and medium firms, and to 
the protection of jobs and the most vulnerable groups. See https://cohesiondata.ec.europa.eu/stories/s/4e2z-pw8r. 

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commitment to the 2030 Agenda and the Sustainable Development Goals provided a compass 
to ‘building back better’ and leaving no one behind.  

Faced  with  severe  public  health  and  economic  crises,  Member  States  quickly  adopted 
wide-ranging fiscal support measures. The national policy responses was facilitated by the 
timely use of existing flexibilities within relevant EU frameworks. The total fiscal response 
of EU Member States – including automatic stabilisers triggered by strong social safety nets – 
is  estimated  at  almost  19%  of  GDP  in  2020-2022. (20)  On  top  of  this,  EU  Member  States 
provided  substantial  liquidity  supports  to  firms,  in  the  form  of  state  guarantees  and  tax 
deferrals.  Monetary  policy  complemented  fiscal  policy  efforts.  This  joint  and  coordinated 
policy  response  was  successful  as  the  impact  of  the  COVID-19  crisis  on  unemployment, 
economic and social divergences, corporate insolvencies, and non-performing loans has been 
far less severe than originally anticipated. 

New EU instruments mitigated the impact of the crisis 

SURE  has  been  essential  to  support  European  labour  markets.  This  rapidly-created 
safety net is providing cheap loans to Member States allowing them to support workers and 
firms during the crisis. It is also supporting the recovery and limiting scarring in the labour 
market.  The  EU  has  so  far  approved  over  EUR  94  billion  in  SURE  loans  to  19  requesting 
Member  States,  of  which  almost  EUR  90  billion  has  already  been  disbursed.  SURE  has 
helped  to  protect  over  31  million  people  (including  8½  million  self-employed  workers) 
against  unemployment  risks  and  supported  over  2½  million  firms  during  the  pandemic. 
SURE-supported  national  labour  market  measures  have  helped  prevent  unemployment  for 
about 1½ million people in 2020 and are contributing to the recovery. (21)  

The European Central Bank has implemented a broad set of monetary policy measures, 
which  also  supported  the  transmission  of  fiscal  policy  measures.  The  monetary  policy 
response  has  consisted  mainly  of  additional  asset  purchases  and  liquidity-provision 
operations  to  euro  area  banks.  To  enhance  banks’  access  to  these  operations,  the  European 
Central Bank also took a number of measures to ease collateral requirements. These measures 
have contributed to preserving favourable financing conditions for all sectors of the economy, 
including  governments,  throughout  the  pandemic,  underpinning  economic  activity  and 
safeguarding  medium-term  price  stability.  The  mutually-reinforcing  effects  of  fiscal  and 
monetary policies have been crucial for alleviating the impact of the crisis and is supporting 
the recovery. 

Other  instruments  created  at  EU  and  euro  area  level  have  also  played  their  part.  The 
Pan-European Guarantee Fund, created by the European Investment Bank Group, is expected 
to mobilise up to EUR 200 billion (1.4% of EU GDP) of additional financing to support to 
small  and  medium  companies.  As  of  31  August  2021,  the  financing  volume  approved 
amounted to EUR 18 billion, which is expected to mobilise investments amounting to some 
EUR 144 billion. The European Stability Mechanism’s Pandemic Crisis Support instrument, 

(20)  The  estimates  are  based  on  the  cumulative  changes  in  primary  budget  balances  in  2020-2022  relative  to  2019,  and 

include a conservative estimate of the impact of RRF non-repayable support.  

(21)  European Commission (2021), ‘SURE: One year on’, COM(2021) 596 final of 22 September 2021.   

8 

 
 
                                                 
worth  up  to  EUR  240  billion  (2.0%  of  euro  area  GDP),  remains  available  and  has  also 
contributed to anchor confidence in the EU policy response.  

Exiting the crisis and preparing for the future 

The  RRF  will  promote  an  investment-rich  recovery  and  growth-enhancing  reforms, 
increase potential growth, and mitigate fiscal challenges. Its effective implementation will 
make the EU economy more sustainable, inclusive, resilient and better prepared for the twin 
transitions  while  helping  mitigate  the  risk  of  socio-economic  divergences. (22)  Measures 
financed by the RRF with  non-repayable support will make it possible to fund high-quality 
investment projects and cover costs of productivity-enhancing reforms without giving rise to 
higher  deficits  and  debt.  RRF  financing  will  thus  contribute  to  Member  States’  efforts  to 
support  the  economic  recovery,  fostering  higher  potential  growth  and  gradually  improving 
underlying  fiscal  positions.  RRF  non-repayable  support  and  other  sources  of  EU  financing 
notably  the  cohesion  policy  funds,  will  provide  support  of  about  0.5%  of  GDP  per  year  in 
2021 and 2022. Overall, public investment, financed by both national sources and the RRF, is 
forecast to increase to 3.5% of GDP in both 2021 and 2022.  

3.3. Implications for the economic governance review  

The  COVID-19  crisis  has  further  underlined  the  challenges  facing  the  economic 
governance framework. Almost two years after the Commission published its review of the 
economic governance framework, the main conclusions remain valid (Box 1). The crisis has 
made  many  of  them  even  more  relevant.  First,  public  debt  ratios  have  increased  further, 
highlighting  the  challenge  of  a  gradual,  sustained  and  growth-friendly  reduction  to  prudent 
debt  levels.  Second,  public  investment  will  need  to  be  sustained  at  high  levels  for  years  to 
come,  highlighting  the  importance  of  a  good  composition  and  quality  of  public  finances  to 
ensure  sustainable  and  inclusive  growth.  Third,  counter-cyclical  discretionary  fiscal  policy, 
together  with  temporary  EU  fiscal  support  tools,  has  proved  highly  effective  in  cushioning 
the  impact  of  this  exceptional  crisis  in  a  timely  and  efficient  manner,  highlighting  the 
importance of creating fiscal room in normal times for deployment in times of crisis. Fourth, 
the effective policy response has underscored the importance of  strong policy coordination, 
including  between  different  policy  and  funding  tools,  and  between  the  EU  and  national 
levels. Fifth, the rapid evolution of the crisis illustrated the difficulties associated with using 
indicators  that  are  not  observable  and  attempting  to  design  rules  that  seek  to  cater  for  all 
possible  circumstances.  Sixth,  the  correction  of  macroeconomic  imbalances  has  been 
interrupted and new vulnerabilities are emerging, highlighting the importance  of preventing 
and addressing risks and divergences in a timely way. The relaunched review should combine 
the Commission’s earlier findings, as set out in the February 2020 Communication, with the 
lessons from the crisis. This will allow for reflection on an economic governance framework 
that can fully support Member States in tackling post-COVID macroeconomic challenges.  

(22)  The  allocation of  the  RRF non-repayable  support  is  commensurate  to  the  actual  needs of  Member  States,  with  higher 
contributions  for  Member  States with  a  relatively  low  GDP per  capita  and  those hit  hardest  by  the  crisis.  Due  to pre-
existing challenges, such as higher-than-average unemployment, these Member States face higher risks of not being able 
to recover rapidly from the crisis.  

9 

 
 
                                                 
EU fiscal rules 

Reducing  high  and  divergent  public  debt  ratios  in  a  sustainable,  growth-friendly 
manner will be a key post-crisis challenge. When economic conditions allow, resuming a 
path of reduction in public debt-to-GDP ratios will be essential for maintaining sound public 
finances, avoiding persistent fiscal divergence between Member States, preserving favourable 
financing  conditions  for  the  public  and  private  sectors,  and  preventing  episodes  of  market 
stress  that  would  result  in  costly  spillovers.  A  strong  economic  recovery  and  sustained 
economic  growth  are  essential  for  successful,  continuous  and  sustainable  reduction  in  debt 
ratios. While an overly-large upfront reduction in debt-ratios would entail a high social and 
economic cost and be counter-productive, in particular against the background of constrained 
monetary  policy  and  the  risk  of  economic  scarring,  a  realistic,  gradual  and  sustained 
reduction of public debt remains important also to rebuild buffers before the next downturn. 

The stabilisation role of coordinated discretionary fiscal policy has proved to be crucial 
in the COVID-19 crisis. The COVID-19 crisis has highlighted the positive role that counter-
cyclical discretionary fiscal policy and European coordination can play in responding to large 
economic shocks, and containing their social fallout. Complemented by the monetary policy 
actions taken by the ECB and national central banks, and facilitated by the activation of the 
general escape clause of the SGP, the coordinated and consensual fiscal policy response has 
been effective in addressing the immediate challenge of a sizeable economic shock, instilling 
confidence  and  reducing  the  risk  of  scarring.  This  also  reflects  the  effectiveness  of  the 
stabilisation  role  of  fiscal  policy  in  the  current  context  of  low  interest  rates.  However,  the 
ability to provide fiscal stimulus in bad times requires building fiscal buffers in good times. 
Reinforcing  counter-cyclicality  in  the  EU  fiscal  framework  could  strengthen  the  medium-
term  dimension of fiscal  policy  and, thus,  the  ability of  national  fiscal  policy to  respond to 
economic fluctuations.  

A  growth-friendly  composition  of  public  finances  should  promote  investment  and 
support  sustained,  sustainable  and  inclusive  growth.  National  budgets  will  have  to  play 
their role, with substantial though temporary support from the RRF. At the same time, public 
funding  should  not  replace  or  crowd  out  private  investment  when  no  market  failure  exists. 
Overall,  this  underlines  the  importance  of  quality  and  composition  of  public  finances.  This 
should  include  a  reflection  on  what  is  the  appropriate  role  of  the  economic  governance 
framework  to  incentivise  national  investment  and  reforms.  Promoting  green,  digital  and 
resilience-enhancing  public  investment  deserves  special  attention,  given  the  long-term 
challenges facing our economy.  

Achieving  the  overarching  goals  of simplification,  stronger  national  ownership  and 
better  enforcement  remains  highly  relevant.  Whereas  the  current  fiscal  framework  has 
included  elements  of  flexibility  and  discretion  through  a  complex  set  of  interpretative 
provisions, an effective application of economic judgement within a rules-based framework 
needs to be done in a transparent manner. This calls for simpler fiscal rules using observable 
indicators  for  measuring  compliance.  It  also  includes  considering  whether  a  clear  focus  on 
‘gross  policy  errors’,  as  set  out  in  the  Treaty,  based  on  clearly  defined  objectives  and  a 
stronger  involvement  of  national  institutions,  could  contribute  to  a  more  effective 

10 

 
 
implementation of the surveillance framework. These goals are interconnected. In particular, 
a  simpler  framework  contributes  to  increased  ownership,  better  communication,  and  lower 
political costs for enforcement and compliance.  

Strong  national  fiscal  frameworks  can  contribute  to  an  effective  economic  governance 
framework.  During  the  COVID-19  crisis,  national  fiscal  frameworks,  including  national 
independent  fiscal  institutions,  were  able  to  swiftly  adjust  to  the  changing  circumstances. 
This  suggests  that  a  possible  strengthening  of  their  roles  is  worth  considering.  At  the  same 
time, the wide diversity  in  independent  fiscal  institutions’ legal  mandates, performance  and 
resources  calls  for  an  alignment  with  best  practices  across  Member  States  with  due 
consideration  of  differences  in  national  institutional  settings.  Other  issues  that  need  to  be 
considered  include  strategies  to  promote  medium-term  and  green  budgeting,  public 
investment  management,  and  ways  to  better  reflect  risks  from  climate  change  in  budgetary 
planning.  

Macroeconomic Imbalances Procedure  

Returning to a path of convergence between Member States is essential. Preventing and 
correcting macroeconomic imbalances enhances Member States’ ability to respond to shocks 
and  supports  economic  convergence.  Unwinding  the  build-up  of  internal  and  external 
vulnerabilities  will  help  consolidate  the  recovery  and  strengthen  long-term  growth.  The 
asymmetric  impact  of  the  crisis  and  heightened  divergences  (albeit  less  than  expected) 
highlight  the  importance  of  reducing  both  current  account  deficits  and  persistent  and  large 
current  account  surpluses.  Reducing  external  imbalances  will  also  be  crucial  to  create 
positive demand spillovers across Member States, in particular within the euro area under a 
constrained monetary policy.  

A well-functioning  Macroeconomic Imbalance Procedure (MIP) can help. The possible 
emergence  of  new  imbalances  as  a  result  of  structural  transformations  accelerated  by  the 
COVID-19  crisis  stresses  the  importance  for  the  MIP  surveillance  framework  to  timely 
identify the build-up of imbalances so that they can be addressed early on. The MIP can also 
foster multilateral dialogue on macroeconomic challenges and support policy coordination, as 
experienced  in  the  swift  and  aligned  response  of  Member  States  to  the  COVID-19  crisis. 
Multilateral dialogue enhances the national ownership of policy actions needed to address the 
identified vulnerabilities. Since the introduction of the MIP, many Member States have been 
effective in reducing the severity of their imbalances over time. Nevertheless, the persistence 
of  imbalances  in  some  cases  warrants  further  reflection  on  how  the  implementation  and 
design  of  the  MIP,  including  the  Excessive  Imbalance  Procedure,  could  foster  national 
ownership and enhance its political traction. 

Multiple surveillance streams partially overlap but the links have not always been fully 
exploited.  While  the  integration  of  the  MIP  and  the  SGP  within  the  framework  of  the 
European  Semester  has  helped  to  strengthen  the  interaction  between  those  surveillance 
strands,  there  is  further  scope  to  make  them  work  better  together  while  avoiding  overlaps 
between  them  when  addressing  at  the  same  time  macroeconomic  imbalances,  potential 
growth  challenges  and  risks  to  fiscal  sustainability.  MIP  surveillance  may  also  have  so  far 

11 

 
 
insufficiently  taken  account  of  interactions  between  new  emerging  economic  challenges, 
notably related to climate change and other environmental pressures. 

Lessons from the RRF 

Lessons from the successful EU policy response to the crisis, and in particular the RRF 
framework and its governance, can be useful for the review of the economic governance 
framework.  The  Parliament  and  the  Council,  based  on  a  proposal  from  the  Commission, 
agreed  on  a  policy  and  governance  framework  for  the  RRF  that  aims  to  have  common  EU 
objectives reflected in coordinated action at Member State level. (23) Member States designed 
their  national  Recovery  and  Resilience  Plans,  covering  investment  and  reforms,  addressing 
country-specific  challenges  and  EU  policy  priorities.  On  the  basis  of  those  plans,  the 
Commission  engaged  in  constructive  and  intense  policy  dialogues  with  Member  States, 
leading  to  an  improved  mutual  understanding  of  the  challenges  and  policy  priorities  at 
national  and  EU  levels.  These  dialogues  have  helped  to  build  trust  and  ownership,  and  are 
intended to deliver transformative reforms and investments. The outcome of that dialogue has 
been  reflected  in  a  Commission  proposal  for  a  Council  Implementing  Decision,  setting  out 
the agreed reforms and investments, which is subsequently endorsed by the Council. 

A  transparent  assessment  and  monitoring  framework  enhanced  mutual  trust  and  will 
underpin the implementation of the RRF. Implementation will be monitored and assessed 
against specific milestones and targets proposed by the Member State, assessed and approved 
by  the  Commission,  and  endorsed  by  the  Council.  With  its  performance-based  nature  and 
close monitoring and scrutiny mechanisms, the RRF provides a consistent strategy to support 
reforms  and  public  investment,  and  boost  potential  growth  to  address  the  twin  transition 
needs. Each national plan has to devote a minimum of 37% of the allocated funds to climate 
action and 20% to digital. (24) Monitoring of these targets provides credibility to the RRF’s 
climate and digital objectives. The Facility will also contribute to the implementation of the 
European  Pillar  of  Social  Rights  thanks  to  the  funding  devoted  to  employment  and  social 
measures, and promoting equal opportunities for all. 

The  RRF’s  commitment-based  approach  to  policy  coordination,  with  strong  national 
ownership  of  policy  design  and  outcomes,  is  expected  to  support  implementation  of 
agreed  reforms  and  investments.  This  approach  takes  into  account  the  complexities  that 
arise  from  the  simultaneous  pursuit  of  various  national  and  EU  objectives,  in  a  context  of 
differences in socioeconomic structures and national preferences. It underpins ownership and 
trust.  Rapidly-evolving  developments  since  the  start  of  the  pandemic  (and  even  before  it) 
have illustrated the difficulty of designing comprehensive rules that are able to cater for all 
possible  circumstances.  The  same  issues  are  relevant  in  the  broader  context  of  economic 
governance.  For  instance,  in  the  fiscal  domain,  preserving  the  credibility  of  the  framework 

(23)  The  EU  policy  priorities  are  represented by  six  policy  pillars  that  should  guide  the  implementation  of  the  RRF:  green 
transition; digital transformation; smart, sustainable and inclusive growth, productivity and competitiveness; social and 
territorial  cohesion; health,  economic,  social  and  institutional  resilience;  and  policies  for  the  next  generation,  children 
and the youth. 

(24)  In addition to the climate target, individual measures need to respect the ‘do no significant harm principle’ in relation to 
the  environmental  objectives,  demonstrated  through  an  assessment  as  set  out  in  a  technical  guidance  published  by  the 
Commission. 

12 

 
 
                                                 
requires  that  the  objectives  of  fiscal  sustainability,  macroeconomic  stabilisation  and  the 
quality of public finances are all appropriately addressed already at the planning stage, thus 
resulting in well-defined adjustment paths. Taking into account the lessons from the RRF, the 
economic  governance  review  should  consider  how  national  ownership,  mutual  trust,  the 
effective delivery of the framework on its key objectives, and the interplay between economic 
and fiscal dimensions can be best ensured. 

Going  forward,  the  European  Semester  will  remain  the  reference  framework  for 
conducting  integrated  surveillance  and  the  coordination  of  economic  and  employment 
policies  in  the  EU.  The  European  Semester  has  shown  its  merits  in  improving  the 
coordination of economic and employment policies. However, it will need to  be adapted to 
new  challenges  arising  from  the  green  and  digital  transitions  and  to  the  need  for  stronger 
resilience.  The  European  Semester,  with 
the 
implementation of the Recovery and Resilience  Plans, which set the reform and investment 
agenda for the years to come. The two processes will be intrinsically linked, making the best 
use of the existing synergies and without creating overlaps. 

its  broader  scope,  will  complement 

Issues for debate 

There are eleven key questions for the public debate, as reflected in the updated online 
survey.  Taking  into  account  the  experience  with  the  existing  legal  framework  prior  to  the 
COVID-19 outbreak (Box 1), the impact of the crisis and the challenges described above, the 
9 questions guiding the public debate included in the Communication of February 2020 (25) 
have been complemented by  two  additional questions, while one question has  been slightly 
reformulated, as follows: 

New question: In what respects can the design, governance and operation of the RRF provide 
useful insights in terms of economic governance through improved ownership, mutual trust, 
enforcement and interplay between the economic and fiscal dimensions? 

New question: Considering how the COVID-19 crisis has reshaped our economies, are there 
any other challenges that the economic governance framework should factor in beyond those 
identified so far? 

Reformulated question: In light of the wide-ranging impact of the COVID-19 crisis and the 
new temporary policy tools that have been launched in response to it, how can the framework 
–  including  the  Stability  and  Growth  Pact,  the  Macroeconomic  Imbalances  Procedure  and, 
more  broadly,  the  European  Semester  –  best  ensure  an  adequate  and  coordinated  policy 
response at the EU and national levels? 

4.  Conclusions 

The  Commission  invites  the  other  institutions  and  all  stakeholders  to  engage  in  the 
public debate on the economic governance review. The Commission looks forward to an 
inclusive  debate  with  the  European  Parliament,  the  Council,  the  European  Economic  and 
Social  Committee,  the  Committee  of  the  Regions,  the  European  Central  Bank,  national 

(25)  European Commission (2020), ‘Economic governance review’, COM(2020) 55 final of 5 February 2020.  

13 

 
 
                                                 
central banks, national governments and parliaments as well as a wide range of stakeholders, 
including social partners, academia, civil society organisations, independent fiscal institutions 
and national productivity boards. The debate will take place through various fora, including 
dedicated meetings, seminars, workshops and an online survey. The online survey has been 
relaunched today and citizens, organisations and public authorities are invited to submit their 
contributions by 31 December 2021. (26) The Commission’s dedicated economic governance 
website  will  serve  as  a  hub  for  information  on  the  various  listening  events  that  the 
Commission will organise. (27) The Commission will also evaluate information and feedback 
gathered during other events organised by stakeholders across the EU.  

A wide-ranging and inclusive engagement with all stakeholders is necessary to build  a 
broad-based  consensus.  The  effective  functioning  of  the  surveillance  framework  is  the 
collective  responsibility  of  all  Member  States,  EU  institutions  and  key  stakeholders.  The 
public debate will help to build consensus amongst all. This is important for the effectiveness 
of economic surveillance in the Union. Through its initiatives, the Commission will promote 
dialogue and mutual understanding among stakeholders, with the objective of formulating a 
widely-shared approach on the way forward.  

The Commission will consider all views expressed during the public debate.  In the first 
quarter of 2022, the Commission will provide guidance for fiscal policy for the period ahead, 
with  the  purpose  of  facilitating  the  coordination  of  fiscal  policies  and  the  preparation  of 
Member States’ Stability and Convergence Programmes. The guidance will reflect the global 
economic  situation,  the  specific  situation  of  each  Member  State  and  the  discussion  on  the 
economic  governance  framework.  The  Commission  will  provide  orientations  on  possible 
changes  to  the  economic  governance  framework  with  the  objective  of  achieving  a  broad-
based consensus on the way forward well in time for 2023. 

(26)  Please  use  the  following  link:  https://ec.europa.eu/eusurvey/runner/Public-debate-on-the-review-of-the-EU-economic-

governance 

(27)  See: 

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-

governance-monitoring-prevention-correction/economic-governance-review_en 

14 

 
 
 
                                                 
Box  1:  Summary  of  the  February  2020  Communication  on  the  economic  governance 
review 

The  February  2020  Communication  assessed  the  effectiveness  of  the  economic  governance 
framework  in  achieving  its  key  objectives.  These  objectives  are:  (i)  ensuring  sustainable 
government finances and growth, and avoiding macroeconomic imbalances; (ii) providing an 
integrated  surveillance  framework  that  supports  coordination  of  economic  policies,  in 
particular in the euro area; and (iii) promoting the macroeconomic convergence in the EU.  

The Communication found that the economic governance framework had been successful in 
reducing  public  debt  levels,  correcting  existing  macroeconomic  imbalances,  supporting  a 
gradual convergence of Member States’ economic performances, and a better coordination of 
economic policies. The Communication also pointed to issues related to Member States’ low 
potential growth, persistently low inflation, and continually high public debt levels in certain 
Member States.  Furthermore, the Communication  reasoned  that the surveillance framework 
should  help  tackle  today’s  and  tomorrow’s  most  pressing  economic,  demographic  and 
environmental challenges. 

The fiscal framework  

The  fiscal  surveillance  framework  had  been  successful  in  encouraging  Member  States  to 
return  to  sound  budgetary  positions  by  reducing  their  deficits  and  putting  debt  ratios  on  a 
downward path. However, the preventive arm of the framework had been less effective than 
the  corrective  arm.  While  the  aggregate  debt-to-GDP  ratio  began  to  decline  in  2015,  debt 
dynamics  had  widely  diverged  across  Member  States.  The  framework  did  not  ensure  a 
sufficient  differentiation  between  Member  States  with  markedly  different  fiscal  positions, 
sustainability risks and other vulnerabilities.  

The  Communication  emphasised  that  Member  States’  fiscal  policies  remained  pro-cyclical. 
The ability to  steer the  euro area  fiscal  stance  had been  limited, in  the absence of  a central 
fiscal capacity with stabilisation features. Moreover, the fiscal framework had not sufficiently 
preserved the level of public investment during periods of fiscal consolidation, while public 
finances  had  not  become  growth-friendlier.  The  Communication  also  highlighted  the 
complexity of the EU fiscal rules, including the multiplicity of indicators and the reliance on 
unobservable  variables.  The  framework  lacked  transparency  and  its  complexity  hampered 
ownership  and  predictability.  Finally,  the  development  of  national  fiscal  frameworks  and 
independent  fiscal  institutions  had  increased  national  ownership  of  fiscal  discipline. 
However, the effectiveness of national frameworks differed across Member States. 

The Macroeconomic Imbalance Procedure  

The MIP widened the scope of the surveillance framework but the interplay between the MIP 
and  the  SGP  had  been  insufficient.  For  example,  the  link  between  fiscal  sustainability  and 
macroeconomic imbalances could have been further developed. Moreover, MIP surveillance 
had  not  sufficiently  taken  into  account  interactions  with  emerging  economic  challenges, 
notably  relating  to  climate  change  and  other  environmental  pressures.  While  the  MIP  had 
helped to raise awareness of macroeconomic imbalances, it had not led to sustained reforms 
in Member States where imbalances persist. The MIP had been more successful in reducing 
current  account  deficits  than  it  had  been  in  reducing  persistent  and  large  current  account 
surpluses.  Finally,  since  the  MIP  was  introduced  in  a  context  of  existing  imbalances,  its 
effectiveness  in  preventing  the  accumulation  of  new  imbalances,  vulnerabilities  and  risks 
remained to be tested. 

15 

 
 
Euro-area Member States experiencing, or threatened with, serious difficulties with financial 
stability  

Mechanisms providing financial support to euro-area Member States experiencing difficulties 
related to financial stability were developed starting in 2010, leading to the establishment of 
the European Stability Mechanism. While all euro-area Member States that received financial 
assistance successfully returned to markets at reasonable financing rates, more attention could 
be  given to the national  ownership of programmes in  the future, as  well  as to  transparency 
and accountability.  

16 

 
 
Box 2: Green and digital investment needs  

The additional private and public investment needs in relation to the twin transitions and their 
policy  objectives  are  estimated  at  nearly  EUR  650  billion  per  year  until  2030.  (1) The  green 
transition accounts for EUR 520 billion each year, or 80% of these needs, with nearly 60% of 
the total for climate and energy policy. 

Green transition  

The  climate  transition  will  inevitably  lead  to  an  accelerated  obsolescence  of  certain  existing 
capital stock. This does not necessarily mean that growth will decline but is likely to lead to a 
change in the composition of growth  as more resources will have to be devoted to investment 
and less to consumption. (2) 

The increase in investment needs in the energy and transport sectors is estimated to be around 
EUR 390 billion per year. (3) The increase of more than 50% compared to the historical trend is 
mostly driven by climate and energy policies to decarbonise our economy but it also reflects the 
energy and transport needs of an expanding economy. (4) On average, this represents an increase 
of  around  2.1  percentage  points  of  the  share  of  energy  and  transport  investment  in  GDP 
compared  to  the  historical  trend.  It  includes  investment  in  the  power  grid,  power  plants, 
industrial boilers and new fuels production and distribution, as well as investments in building 
insulation,  energy  renovation  and  vehicle  purchasing  costs  and  other  transport  sector 
investments.  (5)  Infrastructure  investment  needs  for  transport  are  partly  included.  (6)  These 
estimates  do  not  factor  in  future  climate  adaptation  needs  such  as  investments  dedicated  to 
making existing assets more resilient to climate change or increased costs due to more frequent 
extreme weather events. 

For  the  other  environmental  areas,  the  investment  gap  to  achieve  the  policy  objectives  is 
estimated to be around EUR 130 billion per year. This estimate reflects the investment needs for 
environmental  policy  areas  such  as  environmental  protection,  including  biodiversity,  resource 
management and circular economy. (7)  

Whereas  a  substantial  share  of  the  investment  will  be  borne  by  the  private  sector,  public 
investment will have to increase as well.  

Digital transformation  

The overall investment gaps to deliver on a digital transformation in the EU is estimated to be 
about  EUR  125  billion  per  year. (8)  This  figure  includes  investment  gaps  in  communication 
networks,  digital  skills  development  and  the  development  of  key  digital  capacities  and 
technologies,  such  as  cloud,  semiconductors  and  artificial  intelligence  but  does  not  cover  the 
digitalisation of public services and some other dimensions.  
_________________________ 
(1)  The investment needs for the various policies come from different sources and reflects different approaches (see footnotes 

3, 7 and 8), and provide an order of magnitude. 

(2)  Pisani-Ferry, J. (2021), ‘Climate Policy is Macroeconomic Policy, and the Implications Will Be Significant’,  PIIE Policy 

Brief 21-20, August 2021. 

(3)  See  the  Impact  Assessments  for  the  55%  policy  proposals,  among  others  the  Impact  Assessment  for  the  revision  of  the 

Renewable Energy Directive (SWD(2021) 621 final). 

(4)  Around  EUR  1  trillion  is  required  to be  invested  annually  in  the  energy  and  transport  sectors  for  the  2021-2030 period. 
These estimates reflect investment needs to meet the economy’s energy and transport needs as well as increased investment 
needs  due  to  higher  climate  and  energy  policy  ambitions.  These  estimates  include  lower  projected  costs  for  energy  and 
transport technologies such as renewable energy and battery costs. EUR 650 billion stems from the transport sector, mainly 
representing  the  purchasing  cost  of  vehicles.  This  includes  vehicles  bought  by  private  households,  which  are  normally 
accounted as a durable good in national accounts, not an investment. 

(5)  The  investment  needs  are  derived  from  a  partial  equilibrium  model  of  the  energy  and  transport  system.  Figures  include 
investment in new assets or capacity, including the replacement of existing assets at the end of their economic lifetime. The 
replacement  of  existing  assets  can  be  accelerated  due  to  policy  choices,  for  instance  the  phase-out  of  fossil  fuel-based 
power generation capacity, or because of changing market conditions that make their operation uneconomic. 

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(6)  They  include  investment  in  recharging  or  refuelling  stations  but  do  not  include  for  example  investments  in  rail  or  road 

infrastructure. 

(7)  European Commission (2020), ‘Staff Working Document accompanying the Next Generation EU package’, SWD (2020) 

98. 
Ibid. 

(8) 

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