EU recovery fund will be vital for fiscal reform

Significance

Reform is needed if hard-hit, highly indebted countries are to pursue pro-growth policies over the coming years. The extent of reform will depend on a number of factors, especially the formation of the next German government and the impact of the Next Generation EU (NGEU) recovery fund.

Impacts

• Without more ambitious fiscal stimulus, Europe’s recovery will lag behind other developed regions.
• Future efforts to enhance EU fiscal powers and integration would likely face legal challenges from Germany’s constitutional court.
• Effective use of the EU’s recovery fund may force Eurosceptic parties in southern Europe to moderate their positions.