From NGEU to REPowerEU: policy steering and budgetary innovation in the EU

ABSTRACT

European Union (EU) budgetary politics are considered a stable domain of EU policymaking. Yet, the creation of the pandemic recovery plan NextGenerationEU (NGEU) marked an important innovation. Then, in the face of Russia’s war against Ukraine and the EU’s energy crisis, member states adopted REPowerEU to accelerate the Union’s ‘green’ transition. Developing a historical institutionalist framework, we theorize the driving forces behind these new budgetary instruments. We see a double-dynamic at work: on the one hand, sudden events or crises, like a pandemic or war, create momentum for institutional and policy innovation. On the other hand, the new instruments build upon, and further stimulate, established patterns of EU budgetary politics. Empirically, we document that the concepts of ‘layering’ and ‘conversion’ capture best the EU’s financial responses to the pandemic and the energy crisis. Together, the EU’s new tools suggest gradual, though decisive, steps towards supranational policy steering through the budget.

KEYWORDS:

• EU
• budget
• NGEU
• REPowerEU
• policy steering

Introduction

On 18 May 2022, following Russia’s full-scale invasion of Ukraine, the European Commission presented a plan to rapidly reduce the European Union’s (EU) dependence on Russian fossil fuels. Termed ‘REPowerEU’, the plan seeks to fast forward the Union’s ecological (‘green’) transition through energy savings, the diversification of energy supplies, and the accelerated roll-out of renewable energies. To achieve these common objectives, the plan swiftly made available additional EU financial resources for the member states (European Commission 2022a). REPowerEU is a remarkable instrument in that it builds upon, but partly re-directs and possibly extends, a budgetary tool that was created just one year before in a different context and for supposedly different purposes. Indeed, at the heart of REPowerEU is the Recovery and Resilience Facility (RRF), which for its part forms the centerpiece of NextGenerationEU (NGEU). At the time, many policymakers framed NGEU to be a one-off and targeted tool for the fight against the economic and social consequences caused by the COVID-19 pandemic (De Witte 2021; Schramm, Krotz, and de Witte 2022). The creation of these two innovative, and interrelated, budgetary instruments in such a short period of time raises an intriguing question: Why was it possible for the EU to produce such changes in governance in the supposedly stable domain of the European budget?

Budgetary politics is at the heart of every political system. Decisions on the revenues and allocation of financial means are, indeed, crucial to implement political priorities and provide public goods. This especially holds for an emerging polity like the EU, where budgetary competences are divided between different levels of government (Laffan and Lindner 2020). Alternating long moments of continuity and few peaks of change, budgetary politics have been considered a relatively stable domain of EU policymaking. Despite their limited nature, European finances can be a matter of fierce battles between supranational institutions and member states. The reasons lie in the visibility of winners and losers in this policy field. Unlike other domains of EU policymaking, the clear indication of collected and allocated resources makes it easy to identify which countries or policy fields benefit or contribute most to the budget (Lindner 2006). It is, thus, not surprising that the EU budget emerged as a particularly conflictual policy domain, with strong resistances to change.

Moreover, the EU itself has limited financial resources, as its budget only slightly exceeds one percent of its overall economic output. The Union’s ‘own resources’, that is, its autonomous financial revenues, essentially come from levies and customs duties and a small part of a harmonized value-added tax (VAT) rate. Therefore, for the largest part, the EU depends on contributions from the member states to shape policies. Until recently, the EU’s revenue ceiling was set at 1.4% of member states’ gross national income, making major shifts in priorities and the (re-)allocation of financial resources toward specific policies unlikely (Citi 2013, 2015). The EU’s founding treaties further stipulate that the Union must not run a deficit, which means that it cannot make debts. On the expenditure side, agriculture and cohesion traditionally represent the largest shares of the Union’s budget. In the EU’s current Multiannual Financial Framework (MFF) for 2021–2027, each of these two policies still accounts for about 30% of the total sum. Therefore, to escape the constraints of its limited resources, the EU for a long time resorted to regulatory measures by transferring the costs of policies on to the member states (Majone 1992).

In light of the alleged stability of the EU budget, the creation, one after the other, of two new budgetary instruments is remarkable. NGEU and REPowerEU partially depart from established practices without, however, either altering the traditional EU budget altogether or eluding the Union’s legal framework. On the one hand, resistances persist towards a ‘normalization’ of the EU budget, which would allow it to perform the allocative, redistributive, and stabilizing functions that are typical of public budgeting (Musgrave 1959). On the other hand, the proposed reforms are fully embedded in the EU’s legal system, marking a break with previous financial crisis response instruments, such as the European Stability Mechanism (Smeets, Jaschke, and Beach 2019). What we observe, instead, is a gradual adaptation of the budgetary domain based on closer cooperation between the supranational and national levels of government. European policymakers prefer the addition or re-purposing of budgetary instruments to their radical modification. At the same time, these innovations draw from existing instruments or proposals and produce further lock-in effects with the potential to lead to more structural changes in the longer run. Thus, other than the literature on both EU budgetary rigidity and abrupt reforms might suggest, we conceptualize NGEU and REPowerEU as evidence of a general development in EU budgetary governance, shifting away from traditional forms of governance characterized by supranational regulation (Majone 1997) or the open method of coordination (Radaelli 2003). This new form of budgetary governance deploys European funds not just as a means to implement policies but also to steer policymaking.

To be sure, using financial resources for the promotion of political objectives has been a continuous part of the European integration process. The Common Agricultural Policy (Roederer-Rynning 2020) and Cohesion Policy (Bachtler and Mendez 2020) are the most prominent examples. Against this background, we argue that NGEU and REPowerEU represent a new form of budgetary governance, in several respects: first, they establish a clear and direct link for the allocation of European finances to the pursuit of common policy objectives. As we demonstrate in this article, overarching objectives of the EU’s political agenda, such as the green transition, feature prominently in these newly created budgetary instruments. Second, the supranational definition of common objectives is combined with a bottom-up approach to policymaking. Thus, while the general political priorities are set at the European level, the actual design and implementation of spending plans fall under the responsibility of national authorities. This form of ‘national ownership’ has already struck various scholars as a recent development of EU policymaking (Buti and Fabbrini 2023; Radaelli 2022). Third, ‘soft’ versions of conditionality are envisaged precisely to reconcile the intent to ensure a coherent pursuit of policy priorities at the European level with the quest for legitimation and a sufficient margin for maneuver for national actors. Rather than the ‘hard’ forms of conditionality characteristic of cohesion policy or previous financial assistance instruments (Patrin 2023), NGEU marks a shift towards earmarking and the pursuit of fairly broad policy objectives.

This article documents and explains the creation of NGEU and REPowerEU as instances of a profound evolution in EU budgetary politics. Developing arguments inspired by historical institutionalism (HI), we demonstrate how sudden events, or crises, accelerate and accentuate otherwise rather slowly evolving processes. Such short periods allow policymakers to emphasize priorities, the realization of which would have been more difficult during ‘normal’ times. However, due to the EU’s rigid legal provisions often requiring unanimity and the constellation of actors comprising 27 member states with, at times, heterogenous national interests, the new provisions are likely to build upon existing structures. Hence, we argue that NGEU und REPowerEU as new financial instruments are embedded into larger EU budgetary developments. From a HI perspective, incremental change is slow and gradual, but can be substantive from a longer-term perspective. We demonstrate the emerging new form of budgetary governance with an empirical focus on the EU’s green transition. The green transition had been high on the EU’s political agenda at least since 2019 and was a key part of the EU’s financial responses to the two crises under consideration in this article. The emerging governance form should therefore become particularly visible in this policy domain.

HI at work: bringing together gradual change, crises, and budgetary innovations

How can we theorize the emergence of new budgetary instruments within the otherwise fairly stable EU budgetary system? To capture and reflect the change and interplay between gradual processes, sudden crisis events, and budgetary innovations, we draw from a rich literature inspired by historical institutionalism. Among the theories of European integration, we deem HI the most suitable one to put political contingency in a temporal perspective and to capture the processes leading to budgetary innovations. Neofunctionalism (Haas 1968; Niemann 2006) and some of its re-elaborations (e.g. Sandholtz and Zysman 1989; Schmitter 2004) risk downplaying the relevance of political agency and entrepreneurship for institutional change. For its part, liberal intergovernmentalism (Moravcsik 1993, 1998), with its focus on big intergovernmental bargains, tends to overlook the role of time and the structuring effects of institutional arrangements.

More recent theoretical approaches to European integration, such as new intergovernmentalism (Bickerton, Hodson, and Puetter 2015; Puetter 2012) or new institutional leadership (Smeets and Beach 2022, 2023), are certainly more compatible with our arguments and claims. The former notes the rising importance of the European Council in view of a quest for integration without (further) supranationalization; the latter complements this perspective with an emphasis on the key role of technical leadership in EU policymaking provided by the Commission. As we elaborate below, we also acknowledge the interplay of various European actors, notably the European Council and the European Commission, and their respective prominence at different stages of EU crisis management and budgetary innovation. We further stress the importance of deliberation and bargaining to put, and keep, certain policies and topics on the political agenda.

Compared to these theories, however, HI allows us to put policy and institutional innovation in relation with longer-term processes (Mahoney and Thelen 2009; Pierson 2004). More specifically, it helps us to address our research question: Why did the EU manage to create NGEU and REPowerEU within a relatively short period of time? With its inherent temporal perspective, HI is particularly suitable to explain institutional continuity and change. A key argument of this theory is that the existence of institutional structures creates lock-in effects and path-dependencies, which restrict the range of possible solutions to newly arriving challenges. From time to time, however, critical shocks might open windows of opportunity for change and reform. Indeed, HI scholars have long argued that periods of relative stability and continuity are occasionally interrupted by sudden events enabling change (Mahoney and Thelen 2009). Change can either be radical, marking a decisive break with the past, or incremental, channeling the system into a development path that is not necessarily less innovative than what might result from a radical turn.

For the purposes of our analysis, we make use of the four modes of incremental change suggested by HI scholarship (Mahoney and Thelen 2009). Displacement means the removal of existing rules and the introduction of new ones. Layering implies that new rules are being added on top of or alongside existing ones. Drift means that existing rules have a different impact due to shifts in the environment. Conversion, finally, implies the strategic redeployment of existing rules. Recently, Verdun (2015) suggested a fifth mode of change, copying, which means that new institutions borrow from existing institutions. We consider some modes of change more likely and relevant for our analysis than others. First, due to the high time pressures during crises and the multitude of potential veto players, we do not expect budgetary institutions to be completely removed and replaced by others. Second, we expect political actors, rather than the environment, to shape the content and direction of budgetary innovations. Lastly, we consider copying to be an insufficiently specified category since new institutions are always likely to borrow from previous structures. We therefore propose that layering and conversion are the most adequate categories to capture and reflect the changes that the EU’s two new budgetary instruments have brought about.

In our cases of study, we consider the creation of new budgetary instruments in response to emergency situations to be rooted in an enduring evolution towards a novel form of budgetary governance. On the one hand, as the financial response to a particular crisis event, the EU adopts a budgetary instrument in the form of one of the four modes of change suggested above. We conceptualize NGEU and REPowerEU as instances of such a change. On the other hand, these new budgetary instruments are likely to reflect and consolidate longer-term budgetary priorities. The persistence and strengthening of the green transition in spite of the two crises documents this process. Indeed, in its response to the crises, the EU opted for a constructive use of funds to incentivize reforms that ultimately contribute to achieving overarching policy priorities. Unlike previous crisis responses, which resulted in diminished attention towards climate change and environmental issues (Bornemann 2022), we observe an invigorated EU commitment to the green transition.

Inspired by HI, we first theorize a chain of events before tracing the steps that led to the creation of the new budgetary instruments. Due to the constrained and path-dependent budgetary environment, we expect to observe incremental rather than radical change. At the same time, the political agency by key institutions, most notably the European Council and the European Commission, will be crucial to transform crisis events into concrete financial responses. After all, crises alone seldom produce reforms (Smeets and Beach 2023). Rather, they trigger a process of response which, if successfully promoted by policy entrepreneurs, will ultimately lead to institutional and/or policy change. In other words, political agency is necessary to suggest and realize change. In the empirical analysis, we mostly focus on the European level and consider the European Council (EUCO) and the European Commission (COM) to be the most relevant actors. The European Council, as the EU’s supreme political authority, defines the Union’s strategic objectives and issues instructions towards other EU institutions (Schramm and Wessels 2023). The European Commission, in turn, holding the monopoly for legislative initiative, drafts and seeks to realize the concrete policy plans. While occasional differences with respect to political and financial priorities became visible both between and within the European Council and the Commission, inter-institutional relations have generally been cooperative rather than conflictual (Smeets and Beach 2022). Finally, the EP and the Council of the EU adopt and might alter EU legislative acts. Where the latter two came into play, we refer to them. Otherwise, our main focus remains with the European Council and the Commission.

Table 1 illustrates our theorized chain of events. We assume a crisis event to constitute the starting point of our model. With the crisis outbreak, the need for an institutional response breaks down resistances towards change. Options which had been unviable before, such as common borrowing and financial redistribution between member states on a large scale, are brought back to the table to solve the uncertainties caused by the crisis. Faced with requests to address the crisis, the policy entrepreneurs exploit their agenda-setting power to push forward policy priorities. We theorize the institutional response to consist of three main parts: in step 1, agenda setting, the policy entrepreneurs embed the crisis response into their longer-term policy objectives. As suggested above, our empirical focus in this article lies on the EU’s green transition. Issue framing and political support for the priorities are key aspects of a successful entrepreneurial strategy. Once the priority is on the agenda, we move to step 2 of the model, analysis of possible solutions, in which the various possibilities are evaluated. The range of possible solutions includes the maintenance of the status quo; a radical, path-breaking change; and a form of more incremental change, building on and advancing budgetary provisions. Step 3 of the model, policy formulation, reflects the particular change. We argue that first the COVID-19 pandemic and then the energy emergency made the status quo untenable. At the same time, reflecting longer-term political objectives and the given institutional and political constraints, the change is likely to be incremental rather than radical. This is not a foregone path: in other scenarios of looser institutional or political constraints, for instance involving the possibility of majority voting, radical change is conceivable. Alternatively, if most actors consider the threat potential of a given situation to be low, they might prefer the status quo to any form of change. The final outcome of the process is the policy decision, which refers to the choice for one mode of change among the different options and the creation of a new budgetary instrument incorporating a green component.

Table 1. Theorized causal mechanism of institutional crisis response in the two crises.

Cause	Institutional response			Outcome
Crisis event	Agenda setting	Analysis of possible solutions	Policy formulation	Policy decision
Crisis triggers need for institutional response	EUCO + COM combine crisis response with the green transition	EUCO + COM evaluate possible solutions: status quo/radical change/incremental change	EUCO + COM opt for incremental change	Creation of new budgetary instrument with a green component

The empirical analysis rests on a broad range of primary sources including European Council conclusions, Commission legislative proposals, and national policy documents. Moreover, between March 2022 and November 2023, we altogether conducted 20 in-depth interviews with civil servants working for the European Council, the Council of the EU, and the Commission, as well as with think-tankers specialized in energy policy. To obtain relevant information, the interviewees were guaranteed confidentiality. We triangulate these primary sources with relevant secondary literature on the COVID-19 and the energy crises. In the remainder of the article, we unpack the theorized chain of events, addressing individually the crisis events that led to the creation of the respective budgetary instrument. We further highlight the common traits of these instruments as instances of a new form of budgetary governance.

NGEU and REPowerEU, we argue, share features which are progressively characterizing EU budgetary policymaking. To be sure, the evolving way in which EU financial resources are being spent in parts also becomes visible in some of the EU’s ‘traditional’ policy fields, such as the Common Agricultural Policy and Cohesion Policy. The CAP gradually transformed from a purely redistributive instrument insulating European farmers from market competition into one promoting economic and social agendas (Roederer-Rynning 2020). Similarly, while still serving mainly redistributive purposes, cohesion and regional funds today are more strictly tied to certain European policy objectives (Bachtler and Mendez 2020). The key difference between these traditional policy fields and our two objects of interest is that NGEU and REPowerEU are crisis instruments which, while being created in times of urgency, still feed into longer-term developments. At the same time, other than tools adopted for instance during the Eurozone crisis (2010–2012), such as the fiscal compact or the European Stability Mechanism (Smeets, Jaschke, and Beach 2019), these new budgetary instruments do not rely on intergovernmental treaties but operate within the Union’s legal structures and apply to all EU member states (see also Fasone and Lupo 2023). In addition, NGEU and REPowerEU display three key features which we argue characterize the new form of budgetary governance.

First, the two budgetary instruments establish a more direct link between European-level financial resources and the pursuit of common policy objectives than is known from other areas of the EU budget. While agricultural and cohesion funds are treaty-based programs with legally defined measures (Becker 2023), NGEU and REPowerEU address politically defined objectives. Their disbursement of EU funds is thus linked to the promotion of identified policy priorities, with the green transition featuring particularly prominently among them. The RRF Regulation (Regulation 2021/241) not only lists ecological objectives as the first of its six pillars of action but also includes an explicit provision for earmarking to this end 37% of the total allocations of the National Recovery and Resilience Plans (NRRPs).

Second, despite this requirement, both NGEU and REPowerEU leave considerable room for maneuver for national authorities to design and implement their plans. This represents another key difference compared to both traditional budgetary practices and previous financial crisis responses. Thus, while the common objectives are defined at the European level, the new budgetary instruments promote the principle of national ownership, stipulating close coordination between EU and national levels of government and involving a multitude of actors, first and foremost the national governments (Bocquillon, Brooks, and Maltby 2023; Bokhorst and Corti 2023). Other than the practice of national co-financing known from Cohesion Policy (Becker 2024; Patrin 2023), national ownership in the case of the new budgetary instruments means that the Commission has extensive oversight and steering powers but that member states are still in charge of the definition and implementation of their national plans.

Finally, functional to the successful interaction between EU institutions, primarily the Commission, and member states is a soft – or positive – version of conditionality (Becker 2024; Bokhorst and Corti 2023), which we identify as the third fundamental element of the new form of budgetary governance. The conditionality envisaged in the RRF and REPowerEU creates incentives for investments and reforms. It links financial assistance to the definition and implementation of national plans following the country-specific recommendations of the European Semester. This performance-based approach again differs from the supranational constraints to national spending as part of the austerity measures adopted in response to the Eurozone crisis (Fasone and Lupo 2023; Patrin 2023).

A new governance form in the making

The EU’s “green” budgetary response to the COVID-19 pandemic: NGEU

In December 2019, the new President of the European Commission, Ursula von der Leyen, announced the ‘European Green Deal’. Presenting an encompassing regulatory agenda, comprising more than 50 legislative files, she formulated the EU’s long-term growth plan to make Europe climate-neutral by 2050 (European Commission 2019). The Green Deal arguably came at a time of rising public concerns for climate change and the environmental emergency, which explains why the issue was put back on the agenda after a period of policy stagnation (Steinebach and Knill 2017). At this point, however, there were few chances to include this priority into the EU’s Multiannual Financial Framework, as it was ‘too late in the process to have significant changes in the proposal’ (interview #1).

When the COVID-19 pandemic hit Europe starting from early 2020, a window of opportunity opened for the EU to move the green transition to the core of policymaking. Some observers actually feared that climate policy might move down on the political agenda, as it was the case during the global financial and subsequent Eurozone crisis one decade earlier (Dupont, Oberthür, and von Homeyer 2020). With member states experiencing a historical recession and the shutdown of entire industrial branches, some policymakers indeed called to loosen climate targets in order not to further undermine economic activity (Dupont, Oberthür, and von Homeyer 2020; Eckert 2021). As we document in the following paragraphs, however, reflecting a contingent decision, policymakers from both the European and national levels insisted on keeping the issue among the EU’s top priorities (Bornemann 2022). As one official from the Commission noted: ‘Von der Leyen did not reinvent the wheel but built on the state of play of the [ecological] moment, while pushing for her political priorities’ (interview #19).

After some weeks of predominantly national measures, member-state governments recognized the pandemic as a common challenge requiring a common response. In late April 2020, the heads of state or government tasked the Commission to sound out options for a European recovery instrument (European Council 2020a). A few weeks later, France and Germany provided political impetus and spin when they suggested a recovery plan totaling €500 billion. With an eye to addressing the COVID-19 crisis, the Commission on 27 May 2020 presented its official proposal for a ‘Next Generation EU’ recovery plan, adding a further €250 billion of loans to the €500 billion of grants suggested by the Franco-German initiative (European Commission 2020). Commenting on the preparatory work for the leaders’ meeting on 9 June 2020, the Council Presidency affirmed that the national delegations had ‘widely approved’ the earmarking of a relevant share of the RRF to the green transition (as cited in Ludlow 2020, 10). This consensus on the fact that ‘the overall package should not just deal with the immediate crisis, but also presents an opportunity to reform our economies and help them embrace a green […] future’, was then confirmed by the European Council President, Charles Michel (Michel 2020). After some modifications to the Commission’s proposal, notably with respect to the ratio between grants and loans, the heads of state or government adopted NGEU on 17–21 July 2020 (European Council 2020b).

With a total volume of €750 billion (in 2018 prices), and linked to the EU’s next MFF, NGEU represents the single largest financial instrument in the EU’s history. For financing, the Commission, backed by member states and the EU budget, issues common debt. At the time of its creation, policymakers especially from Northern ‘frugal’ member states framed NGEU as a one-off, targeted instrument exclusively for the fight against the economic and social damages caused by the pandemic (Buti and Fabbrini 2023). However, despite its focus on the pandemic crisis, NGEU from the start had a clear ecological component since member states must spend at least 37% of their allocated funds in support of the Union’s green transition (Regulation 2021/241). The Recovery and Resilience Facility, which forms the centerpiece of NGEU, puts the emphasis on both recovery from the pandemic and building resilience in line with the EU’s ecological objectives (Schramm, Krotz, and de Witte 2022). Thus, other than the accounts stressing a path-breaking and disruptive character of NGEU might suggest (e.g. Armingeon et al. 2022; Capati 2023), the instrument was actually embedded into longer-term EU budgetary developments and policy priorities.

In terms of institutional and policy innovation, NGEU represents an instance of layering in that it is a temporary instrument that is formally located outside but closely tied to and added on top of the EU’s regular budget, the MFF. In view of the high time pressure and reluctance on the part of most member states towards the notion of common European debt, the creation of a separate fund for the issuance of ‘corona bonds’, which would have implied a more radical form of change, was not a realistic option. Irrespective of the different aspects of NGEU including, for the first time, common borrowing on a large scale, it essentially adds additional layers to the EU’s existing budgetary and economic structures: first, as already noted, the Commission raises the new debt on the financial markets. Its distribution, however, follows previously defined criteria and is subject to member states’ approval in the Council. As was prior practice already in European economic governance (Dermine 2021), we see a mixture of supranational activity on the daily and technical matters, on the one hand, and intergovernmental oversight of the final financial aspects and political decisions, on the other.

Second, to obtain the money, member states, in close collaboration with the Commission, must draft national recovery and resilience plans. These NRRPs follow six pillars and must meet, on a continuous basis, the achievement of pre-defined ‘milestones and targets’ (De Witte 2021). Climate and environmental action represent the largest of the six pillars. With member states called to spend at least 37% of their allocated money on green energies, NGEU underlines and strengthens the EU’s long-term focus on the ecological transition. At the same time, the emphasis on national ownership seeks to increase the legitimacy and prospects of success of the new reforms. As a further manifestation of layering, the performance-based nature of NGEU replicates the performance reserve known from EU cohesion policy. More recent EU plans for a reform of cohesion policy seek to further consolidate this ‘money-for-reforms model’ (Sorgi 2024).

Our perspective on NGEU, and the NRRPs in particular, speaks to but in parts also deviates from assessments made elsewhere. Ladi and Wolff (2021), for instance, see a ‘bottom-up process’, in which member states are actively involved in policymaking early on to guarantee a high level of implementation. Buti and Fabbrini (2023) find a modified institutional practice, which they call ‘constrained supranationalism’ and in which decision-making is more equally shared than before between the Commission and the member states, while the European Council exercises political supervision. We concur with these assessments but emphasize that an evaluation of the design and governance of the new budgetary instruments can, and should, be embedded in a long-term perspective. Therefore, we conceptualize NGEU and REPowerEU (see below) as recent and the most distinct expressions of the EU’s evolving budgetary order.

Interviews with policymakers and civil servants closely involved in the deliberations confirm that the new practices and governance structures resulted from previous experiences in EU economic governance, such as the European semester (see also Vanhercke and Verdun 2022). Moreover, in terms of governance, NGEU draws in parts from the ‘Budgetary Instrument on Competitiveness and Convergence’ (BICC). The BICC was agreed in 2018 as a version for a Eurozone budget but was ultimately not implemented due to the emergence of the pandemic (Schoeller 2022). Confronted with a new situation, policymakers admitted that they were drawing from existing budgetary instruments and proposals while ‘learning on the job’ (interviews #4, #5).

From the beginning, some policymakers and scholars had noted that success, especially during the first years of the enterprise, would decide whether NGEU really remained a one-time instrument limited to the COVID-19 pandemic or, alternatively, might be used again in another context (interviews #4, #5). The early stages of pandemic crisis management showed smooth rounds of Commission borrowing and a fast adoption of the NRRPs, apart from the ones of Hungary and Poland, where the Commission and other national governments raised concerns about democratic backsliding in these two member states.

The EU’s “green” budgetary response to the energy emergency: REPowerEU

When the most serious consequences of the COVID-19 pandemic subsided thanks to the agreement on the multi-billion recovery plan NGEU, as well as the widespread availability of vaccines, the next major crisis for the EU kicked in. Russia’s war of aggression against Ukraine, which started on 24 February 2022, not only marks the first inter-state military conflict on the European continent since the end of the Second World War. The war in Ukraine also had consequences for the security and supply of European energy sources (Siddi 2022). Soon, the EU’s high dependence on Russian fossil fuels became obvious, especially with respect to natural gas. According to data from the Commission, in March 2022 the EU imported 90% of its gas consumption, around 45% of which came from Russia. In addition, Russia accounted for around 25% of the EU’s oil imports and 45% of its coal imports (as cited in Redeker 2022).

Not surprisingly, President Putin used Russia’s enormous energy resources, and the EU’s high dependence on them, to exert pressure on national governments to not support Ukraine. He threatened to cut supplies and manipulate energy markets. In early summer 2022, Russia announced a full stop of energy deliveries to most EU member states. Facing the worst energy crisis in half a century, European consumers and businesses soon felt the consequences: in the first half of 2021, the price for natural gas at the TTF – the Title Transfer Facility, Europe’s main virtual trading point – was at around €25 per megawatt hour; in early September 2022, this price peaked over €350 (Tocci 2022). Similar to the pandemic crisis, different options for policies and institutional pathways were available, again suggesting a range of political choices and contingency on the way forward: in view of the high energy prices for businesses and consumers, national governments could have taken a more conciliatory and accommodating approach. This would not only have affected the EU’s relationship with Russia but also slowed down its green transition plans (Siddi 2022).

However, national governments chose a different path. While Russia was using its energy reserves as a strategic tool, the EU member states, unanimously considering that Russia was violating international law, for their part decided to end energy partnerships with that country. Already on 24 February 2022, the day of Russia’s full-scale invasion of Ukraine, the heads of state or government, during an extraordinary European Council meeting, condemned the military attack. They also invited the Commission to put forward contingency measures, including on energy (European Council 2022c). Thus, despite occasional differences among policymakers about the form and timing of sanctions, as well as their different affectedness by the energy crisis and their traditionally different attitudes towards the composition of their national energy mixes (cf. Redeker 2022), national governments and EU institutions rejected the possibility of a more accommodating approach towards Russia.

We witnessed a pattern of institutional coordination and agenda setting already known from the past in that the European Council sets the Union’s priorities and defines broad strategic guidelines, while the Commission seeks to translate these guidelines into concrete legal texts (Smeets and Beach 2022, 2023). Between February and June 2022, national governments adopted six packages of sanctions against Russia, including the boycott of Russian fossil fuels. While the adoption of sanctions related to coal happened fairly fast and smoothly, deliberations on oil and natural gas proved to be more difficult and were only concluded with some delay and exceptions for individual member states (interviews #14, #16). Overall, however, the sanctions sought phasing out energy imports from Russia. Setting the political agenda, the European Council and the Commission sticked to and accelerated the Union’s green transition.

On various occasions, the European Council requested the Commission to explore ways of reducing energy dependencies, especially regarding Russian raw materials, and of curbing rising energy prices. At their informal meeting in Versailles on 10–11 March 2022, the heads of state or government explicitly called to accelerate the EU’s green transition (European Council 2022b). National leaders thus sought to combine and integrate the immediate threat to Europe’s energy security, posed by Russia’s war, with its long-term energy objectives, such as the 2050 target of climate neutrality. In Versailles, they also agreed on a variety of measures including reducing energy dependence, diversifying supplies, accelerating the development of renewables, and improving energy efficiency. National leaders invited the Commission to propose, by the end of May, a ‘REPowerEU’ plan to make the EU independent from Russian fossil fuels (European Council 2022b). National leaders re-iterated this request at their meeting on 24–25 March, in which they called for urgent action in view of further rising energy prices (European Council 2022a).

For its part, the Commission already on 8 March 2022 had issued a communication in which it outlined measures to make the EU independent from Russian fossil fuels well before 2030, starting with gas (European Commission 2022b). On 18 May, the Commission went a step further and presented its awaited REPowerEU plan. The plan’s declared objectives were to end the EU’s dependence on Russian fossil fuels and tackle the climate crisis. Again, we find a combination of measures directly related to Russia’s war and ambitions reflecting the EU’s green transition. This double objective was to be achieved through energy savings, the diversification of energy supplies, and the accelerated roll-out of renewable energies. To do so, the Commission suggested the re-purposing of existing European-level financial resources, together with the freeing-up of additional funds (European Commission 2022a). Due to high time pressures and a general reluctance among most national governments toward another large European debt instrument, especially in view of the recently adopted NGEU and strained national public finances, a radical change to the EU’s budgetary provisions was unlikely. Instead, member states and supranational actors would make use of existing Union instruments and shift resources accordingly.

Not surprisingly, therefore, the Recovery and Resilience Facility, the centerpiece of NGEU, lies at the heart of REPowerEU. According to the Commission’s proposal, REPowerEU is to support the planning and financing of cross-border and national energy infrastructure, as well as of energy projects and reforms. For its realization, the Commission suggested to make targeted amendments to the RRF Regulation (Regulation 2021/241) to redirect resources from NGEU. It further suggested that member states would modify their national recovery and resilience plans in order to submit a dedicated energy chapter focused on REPowerEU objectives (D’Alfonso 2022). This happened against the background of the, to date, overall positive experiences within European institutions and national administrations regarding common borrowing and the adoption of the NRRPs (European Commission 2023; interviews #4, #5). At that time, €225 billion were still available under the RRF in the form of loans. In addition, the Commission proposed to increase the RRF’s financial envelope with €20 billion in grants resulting from the sale of allowances from the EU’s Emission Trading System (ETS). The use of NRRPs, together with the rather small increase in overall financial resources, documents the incremental change that REPowerEU implies for the EU’s budgetary structures.

Around the same time, on 27 June 2022, member states adopted their negotiating positions on two proposals under the ‘Fit for 55’ package (Council of the EU 2022b). Fit for 55 is a legislative package that had been presented by the Commission in July 2021 to implement the targets of the European Green Deal. Little later, in the context of REPowerEU, member states agreed on even higher targets for both renewables and energy efficiency. This again shows the reinforcement of longer-term processes and dedicated crisis responses, as well as the interplay between different levels of government. In December 2022, the Council and the EP reached a provisional agreement on the revision of the ETS, including an increase of the overall ambition of emission reductions by 2030. These agreements also show that, in parallel to the European Council and the Commission addressing the most immediate threat for Europe’s energy security, the EU’s two co-legislators adopted several measures in accordance with the EU’s longer-term ecological objectives. Emergency measures taken in view of Russia’s war against Ukraine did not disturb or delay but ran in parallel to measures adopted for the EU’s green transition (interview # 10).

Assessing REPowerEU: an adaptation of NGEU

REPowerEU seeks to end Europe’s dependence on Russian energy sources as soon as possible, but no later than by 2027. In addition, via this new budgetary instrument, the EU wants to accelerate its green transition. According to the Commission, implementing REPowerEU requires an additional investment of €210 billion between 2022 and 2027. In turn, achieving the instrument’s objectives, the EU could save up to €100 billion per year in reduced fossil-fuel imports (as cited in Tagliapietra 2022). REPowerEU thus seeks to reconcile short-term crisis measures with longer-term political objectives. It provides (additional) Union funding for the pursuit and realization of commonly defined political objectives. However, due to the EU’s limited financial means and lacking political appetite to change this, adaptations and a reshuffling of resources were necessary. As we document in greater detail in the following paragraphs, rather than introducing new financial resources, REPowerEU largely consists of existing programs.

On 14 December 2022, the Council and the EP reached a political agreement on the financing of REPowerEU. Their agreement enables member states to introduce dedicated REPowerEU chapters in their NRRPs (Council of the EU 2022a). Next to the €225 billion, which were already available in loans, the RRF’s financial envelope was increased by €20 billion in new grants. These grants are financed through the frontloaded sale of ETS allowances and resources from the EU’s Innovation Fund. Moreover, the agreement includes the possibility to transfer €5.4 billion from the Brexit Adjustment Reserve and up to €17.9 billion from the EU’s cohesion funds. Thus, based on the Commission proposal, the EU’s two co-legislators decided to stimulate the green transition through the allocation of financial resources which were not yet used or had been earmarked for other programs. This represents a conversion in the sense that financial resources, which had originally been foreseen or mobilized in the context of the COVID-19 pandemic, were now strategically re-deployed for the EU’s response to the energy emergency. The continuity that we theorized in EU budgetary politics thus concerns less the absolute size of NGEU and REPowerEU. Rather, it relates to the mobilization and further development of the initial budgetary instrument. Governance structures and funding schemes, which had been developed and used in a different context, were thus confirmed at the occasion of another crisis.

Following practices established within the framework of NGEU and the NRRPs, member states were given the possibility to request a pre-financing for their planned energy projects and reforms. More specifically, they could request up to 20% of the funds allocated to their REPowerEU chapters, payable in a maximum of two tranches. We again see a direct link between the mobilization of European-level resources and the pursuit of commonly defined policy objectives (Council of the EU 2022a). Moreover, in line with the previously established principles of soft conditionality, the subsequent disbursement of money depends on the fulfillment of milestones and targets. In this respect, policymakers and institutions built on their experience from the EU’s response to the COVID-19 pandemic. NGEU and the national chapters have proven to be flexible and adaptable. Facing new circumstances, they allow to devote even more financial resources to the green transition. However, this happens mainly via an internal reshuffling of resources, while the EU’s overall financial means were only slightly increased.

Finally, in another continuity to NGEU and the EU’s response to the COVID-19 pandemic, member states remain in charge of realizing REPowerEU. Most of the proposed measures require national implementation and close coordination between member states. For instance, REPowerEU sets new targets for energy efficiency, such as in buildings and the transport sector. Yet, it is national governments and administrations that will have to take the necessary measures for effective energy saving (Tagliapietra 2022). The principle of national ownership has thus been confirmed. As a consequence, as with the original NRRPs, member states will primarily determine the success (or not) of REPowerEU. Putting the empirical findings in our theorized chain of events, Table 2 gives a summary of the preceding sections.

Table 2. Empirical manifestations of institutional crisis response.

Cause	Institutional response			Outcome
Crisis event	Agenda setting	Analysis of possible solutions	Policy formulation	New budgetary instrument
Covid-19	EUCO and COM stress green transition, despite record economic recession	Incremental change due to time pressure and constellation of political actors/interests	Layering: new recovery plan on top of regular EU budget	NGEU enables recovery and resilience, especially in view of green transition
Energy emergency	EUCO and COM accelerate green transition, despite high energy prices	Incremental change due to time pressure and member states’ reluctance towards new large EU debt	Conversion: strategic re-deployment of NGEU financial resources	REPowerEU enables additional emphasis of NRRPs towards green transition

Conclusions

This article assesses the creation and governance structures of two recent EU budgetary instruments, NGEU and REPowerEU. The latter represents the EU’s most important internal and financial response to Russia’s war against Ukraine with its implications for European energy security. It builds on the rationale and experiences of the NGEU recovery plan and the Recovery and Resilience Facility in particular, which were established to fight the economic and social consequences caused by the COVID-19 pandemic. REPowerEU gives member states the possibility to draft national energy chapters and ingrate them into their recovery and resilience plans in order to finance energy projects that are in line with the EU’s long-term ecological objectives.

To capture and reflect EU budgetary dynamics at work, we draw from a rich literature on historical institutionalism emphasizing gradual and longer-term processes in combination with sudden shocks. As we document, the establishment of NGEU can be considered a case of layering in the sense that the COVID-19 recovery plan was added on top of the EU’s Multiannual Financial Framework. In turn, the creation of REPowerEU is best seen as conversion in that parts of the original supranational governance structures and financial resources are now being used for purposes different from the original ones. This provides an answer to our research question, namely, to explain why the EU managed to adopt NGEU and REPowerEU in such a short period of time. The possibility to introduce additional or repurposed instruments, instead of a complete overhaul of the budgetary domain, was key to the form and speed of the process. Putting the EU’s most recent financial crisis instruments into a longer-term perspective suggests evolving but increasingly distinct patterns of deploying EU budgetary resources to steer policymaking.

One consequence of this new form of budgetary governance is that it helped the EU to keep the ecological transition, embodied by the Green Deal, high on the political agenda. A pandemic hitting the Union, followed by a war in its immediate neighborhood with strong distributive implications for energy supply security, might have suggested a shift towards national measures and/or a stronger focus on economic policies at the expense of climate action. However, the Green Deal, together with the underlying budgetary structures, has proven resilient. Occasional differences on aspects of economic, foreign and energy policy notwithstanding (cf. Siddi 2022), policymakers in both the European Council and the European Commission, who were suggesting that there was no alternative to the ecological transition and the budgetary means supporting it, kept the upper hand.

With more financial resources, which were originally generated in the context of the pandemic, now devoted to the ecological transition, measures to promote recovery and resilience have confirmed the Green Deal rationale. REPowerEU represents yet another instrument in the Union’s evolving budgetary system while, at the same time, targeting EU funds towards objectives other than the ones previously earmarked. Since little additional funding is involved, we consider REPowerEU as another instance of continuity and gradual change, rather than a great leap in European integration. In the longer run, however, both NGEU and REPowerEU point towards the emergence of a supranational, fairly flexible budgetary order (see also Fasone and Lupo 2023). This budgetary order seeks to combine the funding of commonly defined EU policy objectives with the principle of national ownership and a soft version of conditionality.

Ethics approval statement

All necessary consent was obtained from the interviewees.

List of cited interviews

#1 Commission official, in Brussels, 1 March 2022

#2 Commission official, in Brussels, 2 March 2022

#3 Commission official, via phone, 29 March 2022

#4 senior official of the Council of the EU, in Brussels, 25 April 2022

#5 senior Commission official, in Brussels, 26 April 2022

#6 Commission official, in Brussels, 28 April 2022

#7 senior official, French Prime Minister Services, via phone, 14 September 2022

#8 energy policy expert based in Berlin, via Zoom, 14 September 2022

#9 official working for the French Presidency of the Council of the EU, 15 September 2022

#10 official working for the French Presidency of the Council of the EU, 16 September 2022

#11 senior member, Cabinet of the President of the European Council, in Brussels, 21 September 2022

#12 senior official, German Chancellery, via phone, 15 October 2022

#13 energy policy expert based in Paris, via phone, 1 December 2022

#14 energy expert based in Brussels, via Zoom, 2 December 2022

#15 energy expert based in Paris, via Zoom, 19 January 2023

#16 senior official, German Chancellery, via phone, 25 January 2023

#17 former senior advisor to the French President, via phone, 31 March 2023

#18 energy policy expert based in Berlin, via phone, 27 April 2023

#19 Commission official, in Brussels, 8 November 2023

#20 Commission official, in Brussels, 8 November 2023

Acknowledgments

For very helpful comments, we would like to thank the two anonymous reviewers of JEI, as well as the editor of JEI, Anna Herranz-Surrallés. Previous versions of this article were presented at online seminars at Maastricht University, the Otto von Guericke University Magdeburg, and the ECPR Standing Group on the European Union. For their feedback and suggestions, we would like to thank, in particular, David Bokhorst, Uwe Puetter, and Jonathan Zeitlin.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Anonymized data are available from the authors on request.

Additional information

Funding

The authors reported there is no funding associated with the work featured in this article.