Beyond NGEU: investments in Europe to adapt to and survive in the new times

NGEU, with a budget of more than 800 billion euros between 2021 and 2026, is the largest stimulus programme in the European economy in recent decades. Initially, it focused on helping the most vulnerable economies and those hardest hit by COVID, through offering support for structural changes and projects related to the green and digital transition, very much in line with the subsequent recommendations of the Draghi report.1 NGEU was spearheaded by Germany and France, which, with a more robust economic position, stepped forward and created their own national economic stimulus plans after the pandemic. Subsequently, a part of the measures incorporated in the national plans shaped their respective future recovery and resilience plans (RRPs), developed under the NGEU framework. Therefore, these funds are financing only a part of the total amount of their national plans: less than 20% in the case of Germany and 40% in the case of France. This contrasts with Italy and Spain, whose national revival plans were the RRPs, and these were designed to match the volume of available NGEU funds.2

The NGEU plan seeks to improve cohesion and accelerate economic convergence between Member States, with a focus on the energy transition and digitalisation. Financed by joint debt issues, it sets an important precedent. The Draghi report recommends going beyond NGEU, proposing a similar mechanism to finance a portion of the 800 billion euros a year that the plan aims to mobilise (around 5.0% of the EU’s GDP) in key sectors such as semiconductors, AI, defence, energy and telecommunications, comprising 80% private and 20% public investment. It also suggests introducing more support measures in order to reduce disadvantages in the automotive and technology sectors vis-à-vis China.

In early 2025, the EU presented the Competitiveness Compass to implement the main recommendations of the Draghi report over the next five years.3 This plan is articulated in three pillars: innovation, competitive decarbonisation and economic security. To this end, it sets out five key strategies: simplifying regulation, integrating the single market, boosting financing with new savings-investment products, improving job skills and coordinating European instruments. It is promising to note that some of the elements that in principle generate more consensus among the member countries (regulatory simplification and the reduction of energy costs) are at the top of the schedule of measures to be implemented. Indeed, the first initiatives were already announced at the end of February (they now need to be discussed and approved by the European Council and Parliament). However, key aspects for reducing the fragmentation of the internal market have been pushed back until the beginning of next year and there is a lack of detail on how these efforts will be financed.

The NGEU funds and the national plans of France and Germany are part of a transformation process that is necessary in the current context of global changes. Europe is seeking to bolster its strategic autonomy, diversifying trade relations and promoting industrial policies that reduce its dependence on foreign actors.

However, the new Trump administration is accelerating a structural change in global geopolitics. Europe will need to increase its defence spending in order to reduce its dependence on the US for security, and this will exert greater pressure on the public accounts, right in the midst of a fiscal consolidation process.4 The challenge lies in how to reconcile this need with the development of other key areas, such as the energy transition and a new industrial policy, which were already being promoted through NGEU. The Competitiveness Compass sets out a timetable for these milestones, although the current geopolitical context may lead to a change in priorities and some of them, such as designing a new defence policy in the EU, could involve some very difficult negotiations in order for a consensus to be reached.