The EU’s €955 billion Recovery Fund drives advancements in AI while revealing the constraints of Europe’s economic revival

The EU recovery fund propels AI innovation in agriculture, yet concerns emerge regarding its long-term effects as funding deadlines draw near.

In Spain, sensors and drones are gathering soil data across olive groves and vineyards to fuel artificial intelligence models aimed at assisting farmers in managing their crops more effectively. 

The technology-driven initiative is being funded by the European Union’s most significant recovery program since the post-war Marshall Plan, underscoring both the potential and the constraints of the bloc’s landmark stimulus endeavor.

The initiative, focused on decarbonising and digitalising agriculture, embodies the central goal of the EU’s €955 billion “Next Generation” recovery fund, which was established six years ago following the COVID-19 pandemic and is now nearing its final payout deadlines. 

Nonetheless, the presence of skills shortages, intricate bureaucracy, and uncertainty regarding long-term funding are progressively casting doubts on the programme’s ability to achieve enduring economic transformation.

“The funding provided us with data infrastructure, shared governance, and teams equipped to operate AI on a large scale,” stated Juan Francisco Delgado, a coordinator of the agriculture project.

“What they haven’t provided us with is a business model,” he remarked, indicating that his team is currently focused on creating a financial plan to enhance the data platform, upgrade hardware, and recruit talent once the recovery funds are depleted.

The recovery fund was initiated in 2020 as EU leaders faced an extraordinary decline in gross domestic product due to the pandemic. The objective was not just to stabilize the economy, but also to implement reforms and investments that could enhance digitalization and sustainability throughout the bloc.

The effective allocation of funds has become increasingly critical, as worries about economic coercion from China and a more adversarial United States have heightened Europe’s awareness of the necessity to bolster its economic defenses.

In 2021, member states were provided with over €700 billion in grants and loans. The figure subsequently decreased to €577 billion as certain countries opted not to accept part or all of the available loans. According to calculations by Reuters based on EU data, €182 billion of allocated funds remain undisbursed five years later.

The European Commission asserts that the recovery fund has achieved its short- and long-term goals. However, officials, businesses, and economists consulted by Reuters indicate that the outcomes have varied significantly.

The programme is widely recognized for its role in mitigating the immediate economic impact of the pandemic. It also shattered a long-standing taboo by introducing joint EU borrowing, a move that has since established itself as a permanent aspect of the bloc’s policy toolkit.

Furthermore, the requirements associated with accessing the funds — which include labor market reforms in France and Spain, streamlined renewable energy licensing in Italy, Greece, and Portugal, as well as cybersecurity enhancements in Slovakia and Romania — have the potential to yield long-term benefits in productivity and growth.

Nonetheless, the slow pace of reform implementation and spending rollout has hindered any swift enhancement of economic momentum. Growth in the euro area has continued to be slow since the rebound following the pandemic, falling behind both the United States and China.

Member states are required to finalize their reforms by 31 August and to submit their final payment requests by 30 September. In December, Spain relinquished over €60 billion in designated loans, recognizing that it was unable to achieve certain necessary milestones on schedule due to supply chain challenges and unforeseen technical issues.

The Spanish government contended that its enhanced standing in capital markets, bolstered by comparatively stronger growth prospects, had diminished the appeal of borrowing through the EU, leading to a decrease in demand for the loans.

In Italy, where approximately €110 billion of its recovery funds had been utilized by last December, lawmakers and economists have cautioned that investment may decline significantly once the programme concludes, adding further pressure to the nation’s already delicate economy.

Italy’s EU Affairs Minister, Tommaso Foti, who is responsible for the recovery funds, expressed a hopeful perspective in remarks to Reuters.

“As we enter the implementation phase, the effects will become more evident,” he stated, noting that positive impacts on growth and productivity should start to show from this year.

Economy Minister Giancarlo Giorgetti has consistently stated that Italy would substitute recovery funding with alternative budgetary expenditures, although he has not offered specific details.

Spain has obtained European Commission approval to utilize €10.5 billion of its recovery loans as capital for an extra €60 billion in state-backed financing, aiming to unlock billions more in private investment and extend the life of the programme. Italy has secured EU approval to allocate €23.5 billion beyond the initial 2026 deadline.

Carsten Brzeski, an economist at ING, considers this flexibility to be a prudent strategy.
“A straightforward approach to ensure the funds benefit the economy would be to prolong the programmes by one to two years,” Brzeski stated.

“What if countries were permitted to diverge from fiscal rules, provided they undertake structural reforms that ultimately ease public finances over time?”