YOU are the Next Generation: French and Luxembourg Recovery and Resilience Plans

Article written by: Teresa Cappelli and Giacomo Gherri

European countries have been among the most hit by the health, economic and social crisis brought about by the COVID-19 pandemic. The European Union, through the Recovery and Resilience Facility (RRF), commits a total of €1.8 trillion to sustain the post-pandemic recovery and to improve the long-term prospects of Europe and its citizens. NextGenerationEU (also branded Recovery Fund) was agreed upon on 21 July 2020, becoming the largest stimulus package ever financed through the EU budget. By submitting a comprehensive national plan, every Member State is eligible to obtain RRF funds to enhance resilience, mitigate impacts of the crisis, as well as support the green and digital transitions.

European Generation believes in the historical significance of this project, and realizes how big of an opportunity this is. Hence, we believe it is crucial, for all European citizens, to understand what national and European leaders are doing to seize such an opportunity. This is the final aim of this series of articles, which we have entitled “YOU are the Next Generation” as to underline the direct impact the decisions taken in the Recovery and Resilience Plans will have especially on younger generations, as well as the responsibility each and every one of us has in shaping the present and the future of Europe.

Plan pour la reprise et la résilience du Luxembourg

Source: Pixabay

The Luxembourg plan sets for a total spending of 93 millions €. The funds are, according to the Commission’s directives, divided into three main items of expenditure: sustainability and green transition, innovation and digitalization and social cohesion.

Sustainability and green transition

With regards to green transition, Luxembourg has set as objective the decarbonisation of transports, public buildings and the production of electricity. Moreover, investments to support communes in protecting the environment and biodiversity have been predisposed. To this regard, it should be noted that - as reported by the European Environment Agency - the economic development of Luxembourg, which led to an increase of the resident population and, consequently, of urbanization, negatively impacted on biodiversity and on water quality. According to the Agency report: “While the overall status of biodiversity is still difficult to assess, national red lists, landscape statistics and monitoring of selected species often show negative trends. For instance, 74% of the species under the "Habitat" Directive are reported in the unfavourable or bad clusters, whereas this percentage is 59% for the species under the "Birds" Directive.” On a positive note, the plan seems to take into account all these issues.

Innovation and digitalization

Being Luxembourg’s economy significantly dependent on financial and banking services, innovation and digitalization have always been on the spotlight of the country’s policies. As a result, the country already benefits from a modern infrastructure and a vibrant tech ecosystem, which the Government aims at enhancing not only through the PRRL, but also through other policy plans, namely the “National Research and Innovation Strategy for Luxembourg” and the “Artificial Intelligence: A Strategic Vision for Luxembourg”.

In this field of intervention, the recovery plan sets out two proposals: first, the development of ultra-secured communication’s infrastructures through quantum technology. For instance, the protection of data is also one of the focus of the aforementioned documents. Second, the recovery plan allocates funds for the digitalization of the public administration with the aim of ensuring its efficiency and effectiveness.

Cohesion, resilience and values

The recovery plan of the Luxembourg Government, with respect to the pillar of cohesion and resilience, focuses on three issues: in the first place, the plan sets out proposals for the enhancement of the IT skills of workers as to ensure their competitiveness on the job market. Secondly, the Luxembourg Government aims at strengthening the healthcare national system through digitalization initiatives. Third, the plan sets out objectives with regards to social housing as to ensure its affordability and durability. Interestingly, investments in public housing are the largest item of expenditure in the plan. This may be due to the fact that the growth of housing costs in Luxembourg - the highest in the European Union, according to Eurostat – has not stopped during the pandemic, pushing citizens to demand for the intervention of the Government.

Lastly, the plan provides for intervention in the field of governance, stressing the need for a stronger action against tax elusion, money laundering and the financing of terrorism.

France Relance

Source: “La Tour Eiffel vue de la Tour Saint-Jacques, Paris” by Yann Caradec is licensed under CC BY-SA 2.0

France was one of the countries most affected by the COVID crisis, with a decline in GDP of roughly -8.3% in 2020. Thus, the opportunity offered by the new financial instruments approved in Brussels is something Macron’s presidency cannot afford to lose.

France was one of the first countries to submit the plan for the facility of NextGenerationEU in September 2020. The plan consists of €100 billion divided between €40 billion from the funds of NextGenerationEU and €60 billion from the budget for the years 2021-2022. France Relance represents the first step towards the France of 2030, relancing the country as one of the main economic powers of the continent, and with the ambitious objective of being the first great nation to be carbon neutral before 2050, the date in which all Europe should reach carbon neutrality.

The plan is structured in three pillars: Ecology with €30 billion of euros invested, Competitiveness with €34 billion to this voice and the remaining €36 billion dedicated to Social Cohesion as it is showed in the following graph made by the French Economic Ministry

Source: tresor.economie.gouv.fr

Sustainability and Green Transition

In the first pillar, Ecology, France Relance sets the funds to advance in the green transition. This goal is pursued through the following channels:

• Energetic Renewal of private buildings (such as Schools, Universities or public offices). On the private side the plan consists of fiscal incentives through which the State will provide a contribution to the costs carried out by the private actors. These two aspects try to tackle the energetic consumption of buildings, one of the main sources of carbon consumption in the country.

• Decarbonization of Industry. This objective is pursued through three main channels: public economic support for the firms that propose investments in decarbonization (up to now there have been 16 winners in this public announcement), the implementation of a mechanism to compensate firms from carbon-based energy sources’ price fluctuations and to incentive the use of less carbon-based energy sources, and the implementation of a platform to ease the access to such funds by firms.

• Green-cars. The plan has also a part dedicated to incentives for buyers of electric cars and to the installment of new fast electrical chargers on the main roads across the country.

In addition to the aforementioned points the plan focuses also on incentivizing the research on green hydrogen, improving the mobility of public transportations, investment in the agricultural sector, and investments in railroads to better connect the rural areas with the urban ones. The latter point is particularly important since one of the reasons why the gilet jaunes protested was their necessity to use the car to go to urban areas where they worked. Nevertheless, many NGOs, such as Greenpeace and Green Recovery Tracker, have found France’s proposals inadequate to achieve the goal of carbon neutrality. On the one hand, the choice of providing for unconditional tax reductions in favour of enterprises is considered a wasted occasion to incentive more sustainable behaviours on their behalf. On the other hand, it is claimed that the plan is not as ambitious as the Government has presented it due to the fact that about 25% of the measures were already announced before Covid-19.

Innovation and digitalization

France Relance explicitly sets the objective of “shaping the future through innovation”. To achieve this, the plan provides, first of all, for investment in innovative startups and in strategic digital technologies. Moreover, it focuses on the digitalization of the public administration, which was already - according to the United Nations’ E-Government Survey - ranked second in the world for the quality and accessibility of public online services. Furthermore, funds are allocated also to support professional training in digital professions. Lastly, 11bn€ are dedicated to investments in key technologies through the Programme d’investissements d’avenir (PIA).

SMEs are also the focus of two additional tools: “Industrie du future” and “France Num”, both of them foster the adoption of new technologies and administrative growth. Through these tools, the plan aims at encouraging SMEs to invest in the automation of production lines, in the implementation of virtual reality initiatives, and in the modernization of computers used for complex calculus.

Source: gouvernement.fr

Cohesion, resilience and values

Another important part of the French plan (receiving almost a third of the total amount of funds for an amount of 34 billion euros) will be competitiveness which is composed by several voices.

This part of the plan focuses on several aspects aiming at promoting and maintaining France as the main destination of foreign investments in Europe, a position it recently obtained surpassing both Germany and the UK with 1,197 foreign investment projects in 2019. In order to do so, France plans to give fiscal incentives to locate the production facilities in the country, in particular for the sectors considered as strategic (health, inputs, electronics, agrifood industry, industrial 5G applications). These incentives amount to 5,7 bn euros and the beneficiaries are 1348 (85% Small/Medium Enterprises).

The second important aspect to help competitiveness is a plan to help the capital needs of firms. In particular to this aspect 14,1 bn euros are divided in three parts:

• A label “France Relance” assigned to investment funds to direct the savings toward SMEs and firms with medium capitalization.

• The state will guarantee, by paying the investors in case of problems, also equity or quasi-equity investments, up to €1 billion. The objective is to attract and mobilize the savings of French people using a model already tested for joint public-private investment plans such as the Juncker Plan.

• Increasing the Funds managed by the regions to allow them to invest in local enterprises for 250 million euros.

France Relance also provides for export firms through the volontaries internationaux en Entreprises (VIE) and the “Assurance Prospection”'. The first involves the support to civic service workers in French firms operating abroad. The second aims at helping SMEs and medium-capital enterprises to export abroad.

Moreover, a cut of corporate taxation from 33% to 25% is introduced to improve French competitiveness, as France is among the countries with the highest corporate tax rate among the OECD members. In addition, France Relance launches a flat tax for capital revenue at 30% and it promotes a competitive taxation for R&D (10% for intellectual property and 30% for R&D expenditures). These operations will cost 20 bn euros in 2021-2022 and then 10 bn each year.

In the chapter on Social Cohesion, the plan tries to prepare the population to satisfy the new demands of the job market. To achieve this goal, the plan allocates a significant amount of funds to support the young workers as they enter the job market, by subsidizing the firms hiring them (€6.7 billion in contribution for those who hire an under 26-years old and 80% of the salary covered by the State for R&D personnel in public laboratories). In addition, France Relance aims at improving the skills of the workers through training. This aid will be substantial and will cover more than 223,000 young people. Finally, the plan puts funds also to financially help new shops to open in the downtowns.

Lastly, since one of the sectors most severely affected by the Covid-19 crisis has been tourism, the plan reserves also part of its funds to the restoration of the historical and artistic patrimony.

As it was possible to see from this brief summary the plan focuses primarily on the productive sector of the society. Indeed, one of the main characteristics of France Relance is that it focuses primarily on the supply side rather than the demand side. Relating to this, many important French economists, such as Thomas Piketty, stated that the plan could miss the opportunity to answer to the growing demand of social justice in the country, his main point being the absence of increases in the salary of the workers or of new recruitment in the public sector. Moreover, the unions argued that companies are the main, if not solely, substantial beneficiary of the plan, while workers have been neglected. Another interesting aspect is the fact that the plan expects an extremely short implementation phase, since the great majority of projects is concentrated in the first two years (2021-2022).