Countries face losing out on billions with EU set to reject Covid recovery fund extension

BRUSSELS — Several countries run the risk of losing out on huge amounts of free cash because the European Commission is set to quash governments' hopes that its €650 billion post-pandemic recovery fund will be extended beyond 2026.

The decision, expected to be announced on June 4, will dismay major beneficiaries of the scheme, notably Italy, Spain, Portugal and Poland — all of which were pushing for a delay to the expiration date.

Some countries are still trying to maximize the use of the free grants from the program, the Recovery and Resilience Facility. It constitutes a €650 billion money pot created in 2021 to finance Europe’s post-Covid recovery.

The Commission will however say there are no legal grounds to extend its expiration date, several officials told POLITICO. They, like others cited in this story, were granted anonymity to discuss sensitive details.

The EU executive doles out the money only after assessing countries have fulfilled a set of requirements and targets. These, however, have been hard for many countries to match, contributing to the delays.

The energy crisis and the spike in inflation after Russia's full-scale invasion of Ukraine in Feb. 2022 prompted many countries to adjust their plans along the way, further delaying the payment requests.

To maximize takeup, the EU executive may now focus on helping countries jump through the required hoops before the deadline strikes.

“Member states need to urgently review their plans and remove any measures that are no longer feasible,” Economy Commissioner Valdis Dombrovskis said earlier this month.

Dombrovskis oversees the recovery fund with Cohesion Commissioner Raffaele Fitto, who hails from Italian Prime Minister Giorgia Meloni's right-wing Brothers of Italy party. The Italian government, notably Finance Minister Giancarlo Giorgetti, is particularly keen to extend the post-Covid scheme.

Despite the pressure, the EU’s legal service has recently dismissed attempts to postpone the expiration date without formally changing the rules of the scheme agreed in 2021, several officials with knowledge of the proceedings said.

Changing the rules would require unanimity among EU countries — a political quagmire given the long-standing opposition of Northern countries, such as Germany and the Netherlands, to a delay.

Under the current rules, countries must request payments before an Aug. 31, 2026 cutoff date. That leaves enough time for the Commission to give a green light to the requests and distribute the cash before Dec. 31, 2026.

The Commission has so far disbursed around €315 billion out of €648 billion in grants and loans, according to its own figures.

How to spend it

Faced with the real risk of losing EU funding, however, countries are devising workarounds to secure the money ahead of the deadline.

The Commission has already approved a request from Poland this week to shift almost €6 billion from green project loans, where there is little demand, to more popular defense initiatives.

While the money can’t be used to buy weapons directly, it can still, according to the original rules, be channeled into “dual-use” projects such as building roads for tanks, and shelters.

Under the workaround, the money will be handled by a special fund linked to the Polish development bank Gospodarstwa Krajowego.

The Polish government will still have a say over how money is spent, but drawing in the development bank helps create a holding bay for the funds beyond the 2026 deadline.

The EU is also set to give Poland and other countries extra time to claim the funds, said Jan Szyszko, a state secretary at the Polish Ministry of Funds and Regional Policy.

This concession “would extend the moment when Commission officials look at whether the deliverables have been met,” from August to November 2026, Szyszko told POLITICO.

The move would practically give countries more time to claim their payments, without changing the rules.

In a further sign of goodwill, the Commission is also expected to assess whether the requirements have been met more rapidly, several national government officials said.

National capitals have long complained that Brussels’ complex rules were slowing down payments. But with the EU under pressure to prove the success of its program, the Commission will be inclined to release as high a share of funds as possible.