The EU Recovery Plan: economic rationale and insights for Belgium

Economists regard COVID-19 as a global and exogenous shock. In response, the EU set up a recovery plan consisting of grants and favourable loans to Member States over 2021-2026. The pandemic affected countries dependent on tourism more than the other countries. The recovery plan therefore involves an aspect of solidarity by providing grants and by taking into account both the initial vulnerability and the economic damage caused by COVID-19 in the Recovery and Resilience Facility allocation criteria for the grants. Thanks to these criteria, Italy and Spain are the main beneficiaries in terms of grants. Together with loans, this will boost their economic activity over the medium term more than in Germany, France and Belgium.

In exchange for EU grants and loans, all countries must submit Recovery and Resilience Plans describing the investments and reforms that they intend to carry out with a view to strengthening their economies. Belgium was expected to receive only € 5.9 billion worth of grants. This amount might even be substantially lower once the effective GDP losses for 2020 and 2020-2021 are known in spring 2022. Nevertheless, as a small open economy, Belgian GDP might benefit more from the Recovery and Resilience Plans implemented in Germany, France, Italy and Spain than from its own plan.