EU recovery fund under pressure as Spain and Italy confront spending shortfalls

A half-decade after EU leaders approved a large-scale recovery package to rebuild growth and accelerate digital and green transitions, implementation has produced mixed results across member states. In southern Europe, pilot projects from precision agriculture to municipal robotics demonstrate the programme's technical ambition, yet many initiatives confront skills shortages, complex compliance steps and fragile funding models that risk stalling once grants and loans end. Disbursement patterns show substantial inertia: a sizeable portion of allocated support remains undrawn or has been declined by governments unable or unwilling to meet loan conditions. Italy and Spain illustrate contrasting dynamics — Italy has reported large outlays but repeatedly revised its plan, while Spain has renounced sizeable loan tranches and repurposed some facilities to mobilise private capital. Administrative hurdles and lengthy negotiations have frequently delayed payments and reduced uptake by smaller firms that lack capacity to meet demanding application and reporting requirements. The recovery instrument did deliver a political and financial innovation by normalising joint borrowing and attaching structural reform conditions, which may pay off over time in improved regulatory settings for renewables and cybersecurity. However, the short-term macro effect on growth has been muted relative to peers such as the United States and China, in part because execution lags blunt stimulus potency. Recent EU approvals that allow spending beyond original deadlines, and mechanisms converting loans into leverage for additional financing, buy breathing space but do not solve the underlying problems of talent scarcity and missing commercial pathways for data and digital infrastructure. National officials and economists diverge on whether fiscal backstops in domestic budgets can replace the recovery flows without eroding medium-term priorities. If capacity constraints and red tape persist, the bloc risks an investment cliff when external funding tails off, limiting durable productivity gains. To convert deployed technology into sustainable economic change, countries will need clearer accountability for outcomes, targeted support to scale viable platforms and incentives to retain or attract the technical workforce required to run them. The coming year will be decisive: extensions and ad hoc workarounds can smooth the handover, but only systemic fixes to procurement, permitting and skills policy will secure the fund’s long-term legacy.