The EU’s Recovery and Resilience Facility has become a central test case for performance-based fiscal policy. Its experience offers lessons for the design of the next Multiannual Financial Framework. This column reviews evidence on the facility’s economic impact, implementation, and use of milestones and targets. It argues that the facility has supported demand, helped advance reforms, and strengthened EU fiscal integration, but that complex plans and administrative bottlenecks have slowed disbursement. Future EU budget instruments should link reforms and investment while keeping plans focused, flexible, and aligned with implementation capacity.

As the EU debates the design of the next Multiannual Financial Framework (MFF) and whether to retain elements of the Recovery and Resilience Facility (RRF), a key question is what has worked (and what has not) during the RRF’s implementation. Agreed in mid-2020 at the height of the pandemic, the RRF was conceived as a temporary, investment-driven recovery instrument. Its objectives were twofold: first, to provide a countercyclical demand boost at a time when the economy was contracting sharply, and second, to channel that stimulus into modernising Europe’s economies — advancing the green and digital transitions, strengthening resilience, and raising future productive capacity (Verwey et al. 2021). As the central instrument of the NextGenerationEU (NGEU), the RRF combined large-scale borrowing — originally set to finance an overall envelope of around €650 billion — with performance-based disbursements that are conditional on the fulfilment of pre-agreed milestones and targets rather than on the reimbursement of eligible expenditure.

Economic impact 

The RRF affects European economies through three related channels: a short-term demand stimulus, support for sovereign debt markets through improved liquidity, and potential longer-term supply-side gains stemming from the unique combination of reforms and investments (Busse et al. 2026). These channels operate over different time horizons, with some effects materialising quickly and others only gradually.

On the demand side, spending has been concentrated in sectors with strong short-term multipliers. In 2024, about half of RRF disbursements went to the construction sector (Figure 1). Construction spending tends to generate sizeable immediate output effects because it activates a broad network of upstream and downstream industries, is labour-intensive, and relies heavily on local inputs (Acemoglu et al. 2012).¹ These features make it particularly well-suited for short-term macroeconomic stimulus, and such investments are typically front-loaded to enable rapid disbursement. 

Figure 1 EU share of total disbursements by sector, 2021-2026 (%)

Note: Dashed lines are projections. 
Sources: European Commission and IMF staff calculations. 

However, the longer-term impact depends critically on the nature of the investment. Routine maintenance and small-scale projects primarily support employment in the short run, whereas large infrastructure projects or energy efficiency upgrades can contribute more substantially to productive capacity over time by generating supply-side gains (Ramey 2021). In this respect, AI-based textual analysis of measures associated with the top 100 fund recipients in each country points to a concentration in future-oriented sectors (Figure 2) — such as research and development, infrastructure, and innovation hubs — suggesting that RRF investments are broadly aligned with longer-term growth and transformation objectives.

Figure 2 100 top projects classified by type of sectors

Sources: European Commission and IMF staff calculations

Overall, back-of-the-envelope calculations using fiscal multipliers of 0.6 (European Commission 2026) suggest that the RRF is estimated to have raised EU annual GDP growth by around 0.3 percentage points in 2025 (Figure 3).² For some member states, the impact is larger — exceeding 0.5 percentage points and, in a few cases (notably Greece, Croatia, and Latvia), surpassing one percentage point. Still, the full growth effects are expected to materialise only gradually with peak effects materialising only progressively, and in some cases, beyond the formal end of the programme. This reflects typical implementation lags — approval, execution, and time-to-build — as well as delayed disbursement and gradual absorption of funds. Whether these investments translate into sustained growth will depend critically on their ability to crowd-in private investment, which in turn hinges on institutional quality and implementation capacity. To preserve the transformative potential of the RRF, it will be critical to sustain investment beyond 2026 and ensure adequate maintenance and management of completed projects (Boeri and Perotti 2023). Moreover, the growth effects of structural reforms supported by the RRF are likely to be delayed due to the reforms’ long implementation period, with reform-driven gains likely to emerge only progressively through gradual improvements in labour markets, productivity, and the crowding-in of private investment. 

Figure 3 Growth impact of Recovery and Resilience Facility expenditure by country (percentage points)

Sources: Eurostat and IMF staff calculations.

Beyond its impact on growth, the RRF also represents a turning point in EU fiscal integration through large-scale joint borrowing. This innovation played an important stabilising role at a time of elevated uncertainty in sovereign debt markets. By creating a sizeable supply of highly rated EU-issued securities, the RRF contributed to improving market liquidity and depth, thereby supporting the attractiveness of EU bonds (see also Bletzinger et al. 2022 for a discussion). 

Performance-based conditionality 

A defining feature of the RRF is its performance-based approach, under which disbursements are tied to the successful completion of pre-agreed milestones and targets (M&Ts) covering both reforms and investments. The performance-based conditionality framework has proven effective in supporting the implementation of key structural reforms (Giavazzi and Goretti 2024). A central factor behind this success is the strong national ownership embedded in the process. Member states negotiated their Recovery and Resilience Plans (RRPs) directly with the European Commission, aligning reform agendas with domestic priorities. In some cases, this framework helped unlock long-standing reforms that had previously been difficult to implement.

Figure 4 Number of agreed milestones and targets per country

Source: European Commission.

While linking disbursements to reforms has strengthened incentives for implementation, the design and scale of national plans have also introduced important challenges. In particular, countries with large RRF allocations often adopted highly ambitious plans, encompassing extensive sets of reform and investment measures and translating into a large number of milestones and targets for each measure — sometimes exceeding 500 milestones and targets per country — adding to administrative burdens (Figure 4). More complex plans are systematically associated with slower disbursement, pointing to binding administrative and absorptive capacity constraints (Figure 5). Recognising these challenges, the European Commission and member states agreed on simplified plans, underscoring the importance of calibrating ambition to implementation capacity.

Figure 5 Plan complexity and speed of Recovery and Resilience Facility grant disbursement, 2020-2024 average

Sources: CID database, Eurostat and IMF staff calculations.

More broadly, fund absorption challenges persist. Rapid scaling-up of investment can strain absorptive capacity, especially in the presence of supply bottlenecks or weak planning, reducing the efficiency of spending (Becker et al. 2012). This is reflected in execution outcomes: by the end of 2025, member states’ accrued expenditure and related costs amounted to 63% of total grant allocations, while the European Commission had disbursed about 66% of the grant envelope (Eurostat). These constraints are not unique to the RRF. Absorption delays have long been observed under Cohesion Policy funds, reflecting structural bottlenecks in project implementation and administrative constraints. 

Lessons for the next multiannual financial framework 

Linking reforms and investments strengthens incentives but requires prioritisation.

The experience with the RRF suggests that linking reforms and investments within a single framework can create powerful incentives to implement challenging reforms. Its performance-based approach — tying disbursements to achieving milestones and targets — also strengthened accountability. These features provide a compelling case for embedding similar mechanisms in the next multiannual financial framework (Busse et al. 2025, Larch 2025). However, the design of such frameworks matters critically. Careful sequencing and prioritisation of reforms and investments — based on an ex-ante assessment of their expected payoff and their alignment with national reform agendas — are essential to strengthen ownership, enhance effectiveness, and contain administrative burdens. The RRF’s reliance on output‑based rather than results‑based conditionality helps improve verifiability and simplify monitoring, but it also entails trade-offs. When conditionality emphasises the delivery of observable outputs — such as the provision of training — rather than economic or institutional impact, it may encourage ‘check‑the‑box’ reforms (Darvas and Welslau 2023). This reliance risks shifting attention away from whether reforms deliver meaningful and lasting outcomes, thereby weakening the framework’s transformative potential.

Ambition needs to be aligned with administrative and absorptive capacity.

The experience with implementation, especially the evolution of national Recovery and Resilience Plans (RRPs), further underscores the need to align ambition with institutional capacity — plans need to remain concise, realistic, and focused on a manageable set of priorities. Future performance-based instruments — particularly large-scale, time-bound programmes — must carefully calibrate reform agendas to administrative and absorptive constraints. A smaller number of well-designed performance indicators would improve transparency, ease monitoring and reporting, and facilitate cross-country comparison, while sharpening the focus on the most critical deliverables.

Flexibility is essential to adapt programmes to changing economic conditions.

Another key lesson is the need for flexibility. As economic conditions evolve, plans inevitably require adjustment. The mid-course revisions of RRPs in 2025 demonstrate both the necessity and the feasibility of such recalibration.

In conclusion, the RRF experience strengthens the case for equipping the EU budgetary framework with tools that can deliver timely, coordinated, and credible support in response to large shocks. Although the RRF was designed as a temporary instrument, its core features — integrating reforms and investments, relying on performance-based disbursement, and mobilising common borrowing when warranted — offer valuable guidance for the future. Embedding these elements in the next MFF would help enhance the EU’s ability to foster convergence, resilience, and long-term growth, while preserving strong incentives and accountability.

Source : VOXeu