NGEU signals new era in public finance philosophy

Is an overhaul of how public money is spent overdue?

The Next Generation EU spending programme is pioneering a new style of accountability for the disbursement of public money. Though potentially more efficient, it will require an overhaul of monitoring systems.

Governments will be reimbursed by the European Commission for the spending they conduct under their National Recovery and Resilience Plans. But rather than reimbursing based on invoices, the European Union will reimburse governments based on achieving the outcomes set out in the plan.

Although this new style of governance is an innovation specifically for the NGEU, if successful, it may form a model that can be expanded to cover other sections of EU spending.

The hope is that this approach will mean the money is used more efficiently, helping to allay the concerns of the EU members that objected to the concept of a European Covid-19 recovery programme funded by common debt. Some countries, particularly in northern Europe, pushed back on the implementation of the NGEU, which they saw as a Trojan horse for the mutualisation of European debt. They will be particularly anxious to ensure that the money is used productively.

At an OMFIF seminar in Rome on the NGEU, several participants remarked that, if successful, the NGEU might mark the beginning of a new era in which European public goods can be financed by a common European fiscal capacity. However, this will require the Commission to be able to demonstrate success stories, particularly in the case of major recipients like Italy.

Generating these success stories will require the European Commission and the member states receiving funding to develop a reporting architecture that can give the Commission sufficient confidence, not just that the money is spent in accordance with the plan, but that the expected results are being achieved.

Beyond the need to ensure the Commission can effectively oversee the fund disbursement, an effective monitoring system — providing granular data on how the money is used and the impact it has — can become a tool to guide policy formulation. This can provide politicians and civil servants with close to real-time feedback on how their policies are being deployed.

Collecting this information is a complicated process. Public money must descend from the budget through a maze of ministries, local authorities, departments and delivery agents before it can be used for its intended purpose and hopefully deliver a measurable benefit.

Many member states have their own systems to monitor, report and control the projects financed by the NRRPs. For Italy, this is ReGiS – a single tool that manages the requests for disbursements, expenditure reporting and monitoring of milestones and targets. ReGiS gives Italy a means of centralising the governance of its NRRP and streamlines the administration and reporting that the programme requires.

But the national level is only part of the story. In order to generate those success stories across Europe, one participant at the roundtable said: ‘We need a common framework to evaluate the impact of the funding, and the sooner the better.’ The Commission must be able to take the data gathered on the use of funds at a national level and draw insights from it that apply for the whole bloc.

Participants at the roundtable discussed the possibility of blockchain solutions to this challenge. Implementing an entirely new system would be difficult and time-consuming and require the commitment of scarce resources. What is required is a system that can span the variety of enterprise resource management systems that ministries and delivery agencies use.

Time is short, however. The full programme of the NGEU’s funding must be committed by the end of 2023 (and disbursed by 2026). The earlier the monitoring framework is deployed, the more information it can offer policy-makers when deciding how to direct expenditure. Perhaps more importantly, this information will form the basis of the argument that the NGEU should be expanded beyond a crisis response tool and turned into a permanent means of financing public goods in Europe.

Lewis McLellan is Editor of the Digital Monetary Institute, OMFIF.

This is the second article in a two-part series. Read the first part here.


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