According to the financial ratings agency, public investment is key to economic recovery in southern European countries after the pandemic.
The DBRS Morningstar rating agency on Monday considered that public investment is key to economic recovery in southern European countries after the pandemic.
“DBRS Morningstar believes that EU resources can be particularly important to southern EU economies, which should be almost all net beneficiaries of EU funds,” it said in a note released today under the heading “Public investment is key to Covid-19 recovery in the southern EU.
According to the financial ratings agency, the south of the EU “has generally lagged behind the rest of Europe because of a combination of weak demand and weaknesses on the structural supply side”.
“For years, capital spending in the south of the EU has been reduced as governments tightened fiscal policy,” DBRS Morningstar recalls.
“Government decisions on how to allocate EU resources, the quality of new projects, and implementation capacity will be key factors in determining how effective these resources are in accelerating recovery and strengthening medium-term growth prospects”.
The Canadian agency also considers that “good new projects can not only increase demand, but increase potential output,” and stresses that “progress on reforms to accelerate the absorption rate of EU funds, along with grants, is key to the recovery facilitating fiscal consolidation in the medium term.
According to the DBRS vision, the worse performance of the southern part of the EU compared to the east of the bloc and the centre “reflects structural weaknesses and low levels of public investment in the wake of the global financial crisis and the sovereign crisis,” something aggravated by the difficulty of carrying out economic reforms in a context of “weak economic growth and limited fiscal space”.
“For example, Portugal and Greece recorded an average ratio of public investment to GDP close to 5% and 4% respectively from 2000 to 2008”, and in the following ten years it fell “to 3.6% and 2.6% of GDP” in those countries.
DBRS notes that in total the southern EU member states should receive the highest share of grants from catch-up programmes, reaching €155 billion.
“Greece and Portugal will benefit more by receiving grants of up to 9% and 6% of GDP respectively,” the agency said.