Across olive groves and vineyards in Spain, sensors and drones purchased with money from one of the European Union’s largest stimulus packages are collecting soil and crop data intended to feed AI tools for smarter farm management. That project - intended to decarbonise and digitalise an important economic sector - captures the essence of the bloc’s Next Generation recovery fund: large-scale ambition aimed at structural change.
Yet the programme, valued at around $955 billion and agreed six years ago, is confronting a familiar set of obstacles as countries rush toward final payout deadlines. Skills shortages, complex administrative requirements and doubts about financing after grant periods end are recurring themes raised by project coordinators, government officials and economists assessing progress.
"The funds left us with data infrastructure, common governance and teams capable of operating AI at scale," said Juan Francisco Delgado, coordinator of the agricultural project in Spain. "What they haven’t left us with is a business model." He added that his team is working on a financing plan to sustain the data platform, upgrade hardware and recruit talent once the recovery money is exhausted.
Goals and early outcomes
When the fund was launched during the pandemic, policy makers set a dual objective: provide an urgent macroeconomic buffer while directing investments and reforms toward digitalisation and sustainability. The programme also marked a major political shift, normalising joint borrowing at EU level.
Initially more than 700 billion euros were earmarked as grants and loans in 2021, but that total later fell to 577 billion after some countries opted not to take up loan offers. Today, several years into implementation, a substantive portion of allocated resources remains undisbursed - a total of 182 billion euros has yet to be paid out from allocated envelopes.
Officials point to achievements from immediate crisis relief to policy shifts such as labour market and administrative reforms, streamlined rules for renewables permitting, and strengthened cybersecurity frameworks in some member states. Yet multiple interviewees described a patchwork of results rather than a uniform success story.
Delays, revisions and trade-offs
Complex plan revisions and the need to negotiate detailed conditions have contributed to slowed spending. Italy, for example, revised its 194-billion-euro plan six times, with one revision taking nearly a year to settle. Critics say that post-negotiation changes have sometimes undermined the ability of measures to reach intended beneficiaries quickly.
Marco Leonardi, an economics professor and a former senior government official, described one 2023 revision as particularly damaging. He said that billions were shifted away from local authorities to underwrite over 6 billion euros in tax credits for companies investing in energy-saving equipment. Those companies, Leonardi said, then struggled to apply for the credits because of cumbersome bureaucracy.
Under time pressure, Italy also scaled back non-financial targets that were intended to have social and labour-market effects. Targets for new childcare nurseries - a measure seen as important to raise female labour participation - were reduced from 264,000 to 150,480.
Local concerns: cosmetic projects and access barriers
Opposition voices in Spain and Italy have criticised portions of spending as superficial, pointing to projects such as hiking path signage and cosmetic repairs in tourist areas as examples of low-impact uses of funds. "Italy is full of cities and villages with squares, railway stations, cycle paths and even cemeteries built or renovated by using EU funds," said Luigi Marattin, an economics professor and head of the Italian Liberal-Democratic opposition party.
Other observers flagged the tension between broad geographic distribution and depth of impact. Spanish think-tank analysis argued that the drive to allocate funds evenly sometimes diluted their transformative potential. Small and medium enterprises (SMEs) accounted for just over 40% of Spain’s allocation, but complex and time-consuming application procedures discouraged numerous small businesses from applying, according to Juan Manuel Martinez, head of Spain’s transport association AET.
Local administrators noted that ambitious reform requirements demand administrative architecture and expertise to implement them. "The criteria and reforms are demanding. You need the architecture and systems to manage them," said Laia Claverol Torres, manager at Barcelona city council, which has overseen a mix of projects from biodiversity refuges to robotic assistants for the elderly.
Spending timelines and financial decisions
Member states face hard deadlines: reforms must be implemented by August 31 and final payment requests must be submitted by September 30. Those timelines have forced difficult choices. Spain in December renounced more than 60 billion euros in allocated loans after acknowledging it would be unable to meet some milestones on time, citing supply chain constraints and unexpected technical challenges. Spanish officials also argued their improved access to capital markets and comparatively stronger growth prospects reduced the appeal of taking on EU-backed loans.
Italy reported having spent 110 billion euros of its package by last December, according to government estimates. Yet lawmakers and economists there warn that public investment could slump once the recovery money is exhausted, potentially undermining the nation’s already modest growth.
Italy’s EU Affairs Minister Tommaso Foti expressed optimism, saying that the implementation phase will start to produce more visible benefits this year. "Now that we are in the implementation phase, the effects will be more tangible," he said.
Economy Minister Giancarlo Giorgetti has said Italy will replace recovery spending with other budgetary items, though he has not provided specifics on how that substitution will be achieved.
Extensions and alternative financing
Recognising the challenges of meeting the original timetable, some member states won approvals to extend spending windows or to repurpose funds. Spain obtained authorization to use 10.5 billion euros of its loan allocation as capital to leverage an additional 60 billion euros in state-backed financing, with the aim of catalysing further private investment. Italy secured approval to spend an extra 23.5 billion euros beyond 2026.
Economists have called such extensions sensible. Carsten Brzeski, an economist at ING, recommended that allowing countries an additional one to two years to implement programmes would help ensure the money actually reaches the economy. He also suggested that deviations from fiscal rules could be justified if countries implement structural reforms that improve public finances in the long run.
Practical sustainability concerns
Beyond approvals and timelines, a central question remains whether projects funded under the Next Generation programme can be sustained after the funding window closes. The agricultural AI project coordinator’s concern about the absence of a business model illustrates that many initiatives currently rely on grant funding for core components - from data platforms and hardware to specialised staffing.
Skills shortages are recurring in interviews with project teams and local administrators. Hiring and retaining talent capable of operating advanced digital systems is expensive and competitive. Without clear revenue models or recurrent public financing, some projects risk faltering once initial investment runs out.
Outlook
The recovery fund has indisputably provided emergency support and introduced policy tools at EU level that may pay dividends over time. At the same time, the uneven implementation record, ongoing disbursement gaps and questions about long-term financing highlight how difficult it is to translate historic fiscal firepower into durable structural change.
How member states manage the transition from grant-backed pilots to sustainable operations - whether through private investment, budget reallocation or extended EU-backed facilities - will determine whether the fund’s promise to accelerate digitalisation and sustainability is ultimately fulfilled.