How Next Generation EU is reshaping the future EU budget

First off, though, we need acknowledge that Europe faces a new fiscal reality. From 2028 onwards, the EU budget will need to accommodate the repayment of common debt issued to finance the recovery of post-pandemic European economies, while investment needs linked to climate transition, competitiveness, social inclusion, security, and strategic autonomy continue to grow.

The scale of these challenges is considerable. The 2021–2027 Multiannual Financial Framework amounts to around 1.1% of EU Gross National Income (GNI), equivalent to roughly 1% of EU GDP. Including the temporary NextGenerationEU recovery instrument, the overall financial package reaches approximately 1.8–1.9% of EU GNI, or around 1.7–1.8% of EU GDP. While this represented an unprecedented expansion of the Union's fiscal capacity, it remains significantly below the scale of investment needs identified across climate transition, competitiveness, digital transformation, defence, and social inclusion. Mario Draghi's 2024 report, for example, estimated that Europe faces an annual investment gap of between 4% and 5% of GDP.

The challenge for the next MFF is therefore not simply how to allocate public resources, but how to use them strategically to mobilise significantly larger volumes of capital around common European priorities. It reflects an evolution in how Europe thinks about public investment itself.

The direction of travel is becoming increasingly clear: a stronger focus on strategic priorities, greater national ownership, performance-based approaches, and more effective mobilisation of capital around common European goals. The question is no longer whether Europe should move towards a more investment-oriented model, but how to ensure that this transition delivers lasting economic and social benefits across the Union.

The Recovery and Resilience Facility changed the rules

As stated before, inspiration can be found in the NextGenerationEU (NGEU) legacy. Initially a temporary response to the pandemic, NGEU effectively demonstrated the European Union's capacity to act collectively, mobilise resources at scale, and support reforms aligned with common strategic objectives. 

At the heart of NGEU lies the Recovery and Resilience Facility (RRF), which introduced three innovations that are now shaping the future of EU spending.

• First, joint borrowing created an unprecedented fiscal capacity at European level. For the first time, the Union mobilised common resources at a scale capable of addressing major economic shocks and financing shared priorities. This represented a significant evolution from the traditional redistributive logic of the EU budget towards a more integrated approach to economic resilience and transformation.
• Second, performance-based funding changed the logic of disbursement. Resources became linked to reforms and milestones rather than simply reimbursing expenditure. This strengthened the connection between financial support and policy outcomes while reinforcing coordination through the European Semester.
• Third, investments were explicitly aligned with strategic priorities. Green transition, digital transformation, and social resilience became central organising principles of national recovery plans, creating stronger coherence between European ambitions and domestic reforms.

Taken together, these changes amount to more than a temporary crisis response. They represent a new investment paradigm: one that is strategic, outcome-oriented, and increasingly integrated across different levels of governance.

Encouragingly, many of these principles are already visible in discussions around the next MFF. Greater reliance on national and regional partnership plans, combined with stronger alignment with European priorities, suggests that the innovations introduced through the RRF are becoming structural features of EU economic governance rather than exceptional measures.

A model that delivers, albeit unevenly

Let us take a look at the actual results of this approach. Early evidence suggests that the RRF is already reshaping investment patterns across Europe.

Public investment has increased significantly in renewable energy, digital infrastructure, skills development, and labour market reforms. Climate-related projects have received substantial support, while digital investments are contributing to connectivity, public administration modernisation, and the transformation of small and medium-sized enterprises.

Yet these results are not evenly distributed across the Union.

This was largely intentional. The facility was designed to channel greater resources towards countries with more significant structural needs and investment gaps.

The contrast is striking. Greece received RRF allocations equivalent to nearly 16% of GDP, Croatia almost 13%, Italy over 9%, and Portugal more than 8%. By comparison, Germany received allocations amounting to 0.7% of GDP, France 1.4%, and the Netherlands 0.5%.

 

Table: The Recovery and Resilience Scoreboard data

These differences do not indicate that the system is failing. Quite the opposite: they reflect the underlying logic of the instrument, which sought to concentrate investment in regions where the economic consequences of the pandemic and existing structural challenges were greatest.

The relevant question is therefore whether these investments are being implemented effectively and translated into long-term economic convergence.

This distinction is particularly important as policymakers consider the future architecture of the EU budget. Financial resources alone do not guarantee successful outcomes. Institutional capacity, implementation mechanisms, and stakeholder engagement remain equally important determinants of impact.

Implementation matters as much as funding

The experience of the RRF illustrates a broader lesson for European investment policy: governance matters.

According to the European Parliament's Recovery and Resilience Dialogue briefing, by January 2026 approximately 66% of grants and 77% of loans had been formally disbursed. However, these headline figures require careful interpretation. The loan figures partly reflect decisions by several Member States to reduce their loan components rather than purely faster implementation.

More importantly, Commission disbursements to national governments do not necessarily indicate that funds have reached final beneficiaries on the ground. The European Court of Auditors has repeatedly highlighted the distinction between transfers to national treasuries and the actual deployment of resources to projects, enterprises, and communities.

Implementation capacity therefore becomes a critical factor.

Seventeen Member States had completed more than half of their milestones and targets by early 2026, with France leading at 83% and Italy achieving 64% among the largest beneficiaries. Other countries have progressed more slowly, illustrating that administrative capability and institutional quality remain essential components of successful investment strategies.

The lesson is straightforward: public investment is only as effective as the governance systems that support it.

Why governance and conditionality still matter

The Hungarian experience offers perhaps the clearest illustration of this principle.

With 27 rule-of-law milestones still unmet, substantial portions of Hungary's RRF allocation remained inaccessible, demonstrating both the risks associated with weak institutional oversight and the leverage that performance-based conditionality can create.

The significance of this case extends beyond one Member State. It highlights a broader challenge facing the next MFF: how to combine greater national ownership with robust mechanisms for accountability, transparency, and democratic oversight.

Conditionality, while politically sensitive, has proved to be an important instrument for ensuring that European resources remain aligned with shared values and common objectives.

The future success of decentralised investment frameworks will depend not only on financial allocations, but also on the strength of the accountability ecosystems surrounding them. Independent civil society organisations, representative intermediaries, and effective monitoring mechanisms all play an essential role in ensuring that public resources generate meaningful and lasting impact.

A more decentralised, but also more strategic, budget

Current discussions on the next MFF point towards greater national and regional ownership through integrated partnership plans and increased flexibility for Member States.

This reflects legitimate demands for simplification and local responsiveness. Investment strategies are often more effective when they are tailored to territorial realities and supported by actors who understand local needs and opportunities.

For social economy organisations in particular, this shift presents significant opportunities. Proximity to communities, strong local networks, and deep understanding of social challenges are among the comparative advantages that these actors bring to public investment.

Yet decentralisation should not be mistaken for renationalisation.

The challenge for the next MFF is to preserve a coherent European investment logic while allowing greater flexibility in implementation. Shared priorities around climate, competitiveness, social cohesion, and innovation must remain the foundation upon which national strategies are built.

The experience of the RRF suggests that this balance is achievable, but only if governance, transparency, and accountability remain strong.

A new phase of European economic governance

The broader significance of NextGenerationEU lies in the fact that it has changed expectations about what the EU budget can achieve.

Public investment is increasingly understood not as a collection of isolated funding programmes, but as a strategic instrument capable of shaping markets, guiding reforms, and supporting long-term economic transformation.

The next MFF is already moving in this direction.

This evolution presents both opportunities and responsibilities. It requires stronger coordination between European priorities and national implementation, greater attention to institutional capacity, and more systematic engagement with the actors and ecosystems that ultimately deliver impact on the ground.

The challenge is no longer whether Europe should adopt a more strategic and investment-driven approach, but how to ensure that this model works effectively across different political, economic, and territorial contexts.

In our next article, we explore one of the most important implications of this transition: why the future EU budget must increasingly act as a catalyst for private, philanthropic, and impact capital, rather than relying on public funding alone.