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EU recovery fund to boost bloc's growth 1.5%-4.1% - S&P Global

Marc Jones
·2-min read
FILE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels

By Marc Jones

LONDON (Reuters) - The European Union's 750 billion euro COVID-19 recovery fund should boost the bloc's growth by between 1.5% and 4.1% over five years and support the credit ratings of some of its most indebted states, S&P Global said on Tuesday.

European capitals are working towards finalising this week the plan designed to repair the economic damage caused by the coronavirus and reset growth onto a higher and more sustainable path.

The complexity of long-term planning and reforms, while meeting requirements that 37% of the fund goes to fighting climate change and 20% to digitalising the economy, means many countries will postpone submissions for payouts from it until mid-May.

"We view the plan at the EU level as supportive of European sovereigns' creditworthiness, though national governments' ability to implement structural reforms hinges on the unwinding of economic imbalances that have worsened because of the pandemic," S&P economists and sovereign ratings analysts said in a report.

They said their 1.5% and 4.1% growth estimates relate, respectively, to low-impact and high-impact scenarios.

With a legal challenge by German eurosceptics having been thrown out, EU officials expect ratifications should be finished by June, allowing for first payments in July.

Governments that have plans approved can get 13% of their share of the recovery fund money up front. The rest will come in instalments as agreed milestones are reached.

S&P said its high-impact scenario assumed that 91% of the money made available would be used.

Under normal EU funding plans, EU red tape has meant that, on average, only 51% of money available has been absorbed. If that pattern is followed, cumulative growth would be 1.5% of GDP in 2026, "with strong differences across countries," S&P said.

Overall, the fund should help underpin ratings at a time of surging debt because "EU sovereigns have significant financial levers that can be deployed with substantial flexibility compared to traditional EU structural funds".

($1 = 0.8288 euros)

(Reporting by Marc Jones; editing by John Stonestreet)