Commission has approved Portugal's recovery and resilience plan worth around €16 billion despite serious questions

On Wednesday (16 June), Portugal became the first EU country to have its recovery plan rubber-stamped by the EU. Crucially, the Portuguese national recovery plan, as with others, will need to satisfy certain EU demands. These include meeting the landmark targets of at least 37% spending on the Green Deal and 20% on digitisation. Sustainable structural reforms in line with the country-specific recommendations are also a key assessment criterion.

The plans should describe how the proposed investments and reforms contribute to the main goals of RRF, which include green and digital transformations, smart, sustainable and inclusive growth, social and territorial cohesion, health and resilience, and policies for the next generation.

Amid the fanfare surrounding Wednesday’s announcement the big question now is: how effectively will Portugal spend the huge pot of money?

German MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group, told this website: "In principle, the European recovery fund is a great success.”

But he went on: “Now it is a matter of implementation whether the fund’s potential is fully exploited. In the case of Portugal, for a significant part of the measures it is not yet foreseeable whether they will have a positive or negative impact.”

The deputy concedes: “Important details on the implementation of some of the measures planned are still missing.”

Specifically, he asks, for example, whether the construction of new housing in Portugal will contribute to the achievement of the European climate targets.

The answer, he argues, will depend decisively on the building materials used and the energy efficiency of the planned buildings.

Giegold said: “It is important that the Commission continuously accompanies the implementation of national plans and verifies their compliance with the spending objective and the do no significant harm principle.

“We call on the Commission to make the negotiations with the Member States transparent. The European Parliament and civil society must be involved as provided for in the EU regulation.”

Toni Roldan, head of research at the Esade Centre for Economic Policy (EsadeEcPol) in Madrid, says that since the eurozone debt crisis began in 2011, Lisbon has often been in the firing line of Europe's more "frugal" members frustrated at having to fork out money to subsidise spending in what they have seen as the somewhat less fiscally virtuous south.

Although some of the conditions attached to the stimulus packages remain vague, he says Portugal could have shown "greater reformist ambition" in using the money, particularly in the area of education.

The CIP, Confederation of Portuguese Industries, is also lukewarm (at best) over what the ‘cash bazooka’ will actually mean to those that need it most in Portugal.

 None of these concerns stopped Ursula von der Leyen, the commission president,from travelling to Lisbon on Wednesday to mark the Portuguese plans’ approval in what is scheduled to be a series of visits to EU capitals.

 The Commission says it has adopted a positive assessment of Portugal's recovery and resilience plan, an important step towards the EU disbursing €13.9 billion in grants and €2.7 billion in loans under the Recovery and Resilience Facility (RRF) over the period 2021-2026. This financing will support the implementation of the crucial investment and reform measures outlined in Portugal's recovery and resilience plan.

The Commission, a spokesman  told this website, had assessed Portugal's plan based on the criteria set out in the RRF Regulation. The Commission's analysis considered, in particular, whether the investments and reforms contained in Portugal's plan support the green and digital transitions; contribute to effectively addressing challenges identified in the European Semester; and strengthen its growth potential, job creation and economic and social resilience.

The Commission's assessment finds that Portugal's plan devotes 38% of its total allocation to measures that support climate objectives. This includes investments to finance a large-scale renovation programme to increase the energy efficiency of buildings or the promotion of energy efficiency and the use of alternative energy sources in industrial processes.

The Portugal's plan devotes 22% of its total allocation to measures that support the digital transition. This includes efforts to digitalise the public administration and to modernise the computer systems of the National Health Service, as well as technological laboratories in secondary schools and professional training centres.

“The Commission considers that Portugal's plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Portugal,” said the spokesman.

It includes measures in the areas of accessibility and resilience of social services and the health system, labour market, education and skills, R&D and innovation, climate and digital transition, business environment, quality and sustainability of public finances and efficiency of the justice system.

Portugal's plan proposes projects in six European flagship areas. For instance, Portugal has proposed to provide €610 million to renovate public and private buildings to improve their energy performance. This, hopes the commission, will result in Portugal reducing its energy bill, greenhouse gas emissions and energy dependence, as well as reducing energy poverty.

“The control systems put in place by Portugal are considered adequate to protect the financial interests of the Union. The plan provides sufficient details on how national authorities will prevent, detect and correct instances of conflict of interest, corruption and fraud relating to the use of funds.”

For some, this is the key point and, in particular, Portugal’s ability to effectively manage and spend these new EU funds.

Having sound mechanisms in place to protect the bloc’s financial interests against any maladministration is, says the commission spokesman, one of the elements prioritised by the Commission in the negotiations with national governments to finalise the recovery plans. 

But, in the past, Portugal has been blamed for having a notoriously slow judiciary system. Portugal, in fact, has one of the worst records in processing court cases and its administrative and tax courts in particular have been severely criticised by foreign investors and the EU.

This resulted in the European council identifying reform of the administrative and tax courts as one of the priorities in Portugal´s economic reform.

Some of the cases affected by the backlog are those put forward by a group of international investors, following the resolution of Banco Espirito Santo in 2015, who challenged the losses imposed on the €2.2 billion of bonds they held.

The scandal surrounding the Banco Espirito Santo (BES), the second largest private financial institution in Portugal but which collapsed in 2014 under a mountain of debt, is often cited as an example of why Portuguese courts need reform.

Despite improvements “the efficiency of the justice system continues to face challenges”, said the Commission in its first Rule of Law report about the country in 2020.

The commission addressed this issue in the country-specific recommendations, calling on Lisbon to improve the efficiency in tax and administrative courts 

Portugal has found itself at the centre of allegations about misspending EU funds over several years, including criticism from the Court of Auditors – the EU spending watchdog body – that investigated spending in the field of fisheries. It found that Portugal had not fulfilled its obligation under the Common Fisheries Policy of putting in place effective measures to match fishing capacity to fishing opportunities.

Elsewhere, last February last year, the authorities dismantled a transnational network  based in Portugal where the suspects were engaged in fraud and illegal EU fundraising.

In addition to the Recovery Fund fortune, Portugal has reaped the fruits of the more than €100 billion of Cohesion Policy funds invested in the country since its accession to the European Union and Portugal will receive significant support from the EU under the 2021-2027 Cohesion Policy, with a proposed envelope of €23.8bn.

Paolo Gentiloni, Commissioner for Economy, says “it is fitting that the first plan to be assessed positively is Portugal's: not only because it was the first to be submitted, but also because the Portuguese Presidency played such a key role in putting in place the legal and financial framework for this unprecedented common European endeavour.”

So, with the spending spotlight firmly on Portugal many are now looking to see exactly how – and if - Lisbon will fulfil its duties with its new “pot of gold”.

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