PromethEUs Publication: Driving Digitalization in Southern Europe. The role of National Recovery and Resilience Plans and the current EU Policy Agenda

The PromethEUs network logo with an image of the euro sign sculpture by Ottmar Hörl in Frankfurt on the background
Working Paper

The latest PromethEUs joint paper explores the digital dimension of the national Resilience and Recovery Plans (RRPs) of the four countries part of the PromethEUs network – Greece, Italy, Portugal and Spain. After expounding on the possibilities and challenges of the digital transition of each national RRP, the concluding part adopts a broader perspective and a comparative approach to the four plans.

The RRP (grants and loans) funds earmarked for the digital transition by the four southern European countries amount to €81bn, out of a total of €131.5 bn for all Member States. These four southern European countries can count on most of the available resources (61.6%) to bridge the digital divide with the more advanced Member States and improve the lives and productivity of their citizens.

Executive summary

The PromethEUs network of think tanks, made up of the Elcano Royal Institute (Spain), the Institute for Competitiveness (Italy), IOBE – the Foundation for Economic and Industrial Research (Greece) and the Institute of Public Policy – Lisbon (Portugal), is presenting a joint paper on the role of the Digital Transition in their countries’ Recovery and Resilience Plans (RRPs).

In this report, we focus on the digital dimension of the Resilience and Recovery Programme (RRP). The aims, defined when it was designed and approved (before Russia’s invasion of Ukraine), were to mitigate the economic and social impact of the pandemic and to make economies and societies more sustainable and better prepared for the green and digital transitions.

The funds potentially allocated to the RRP (including loans) amount to almost 90% of NGEU funds. According to the rules of the RRP, each Member State should allocate a minimum of 20% of their Resilience and Recovery Facility (RRF) to the digital pillar.

Contrary to the traditional funds from the EU Budget (both MFF 2014-17 and MFF 2021-27) which are earmarked but usually unconditional transfers to Member States, the RRF funds are transferred with a more performance-based orientation. This is the reason why each Member State must provide information on KPIs (Key Performance Indicators) and the Commission will monitor whether targets are being achieved or not. This means that information about these KPIs should be publicly available, comprehensive and clear, and also that there should be a clarification of each Member State’s priorities in the digital pillar in terms of the reforms and investments in the structural changes of their economies and societies.

Chapter 1 – The Greek RRP

Summary: explores the Greek RRP as a valuable opportunity to narrow the economy’s substantial investment gap and accelerate productivity enhancing reforms. The Greek Recovery and Resilience Plan (RRP) “Greece 2.0” includes a total financing envelope of €30.5bn or 17% of the country’s annual GDP, the largest in terms of percentage in the EU.

Contributors: Georgios Gatopoulos, Maria Theano Tagaraki, Aggelos Tsakanikas, Michail Vasileiadis (IOBE, Foundation for Economics & Industrial Research).

Chapter 2 – The Italian RRP

Summary: underlines out the importance of the digital dimension in the Italian RRP. Digitisation and innovation of processes, products and services are embodied in almost every policy of the Italian RRP, which amounts to about €191.5bn. The funds will be instrumental in reducing the digital gap between Italy and other European countries in general, promoting greater investment in digital technologies, infrastructure and processes.

Contributors: Stefano da Empoli, Afroditi Karidomatis, Lorenzo Principali, Daniela Suarato (I-Com, Institute for Competitiveness).

Chapter 3 – The Portuguese RRP

Summary: Focuses on the Portuguese RRP, which consists of a total budget of €16.6bn, with 22% of the total investment value being allocated to addressing the digital transition. Portugal’s RRP is designed to address some of the country’s most important bottlenecks, such as low productivity and low levels of education, an inefficient public administration and judicial system, towards lasting and sustainable growth, preparing the Portuguese economy for the challenges of the coming years.

Contributors: João Cortes, Steffen Hoernig, Paulo Trigo Pereira (IPP, Institute of Public Policy).

Chapter 4 – The Spanish RRP

Summary: analyses Spain’s RRP. With an amount of up to €69.5bn, and through 212 measures, its aim is towards a “modernisation comparable to that of Spain’s accession to the EU”. The digital transition accounts for 28% of the total of the Spanish RRP and it is present across all levers, programmes and components.

Contributors: Raquel Jorge and Andrés Ortega (Elcano Royal Institute).

Spain’s Recovery and Resilience Plan is acknowledged to aim at a “modernisation comparable to that of Spain’s accession to the EU”. The RPP contains 212 measures (110 investments and 102 reforms) which amount to up to €69.5 bn. The Spanish RRP is the second largest in the EU, only after Italy. Concretely, Spain has requested €69.5 bn in grants. No loans have been requested up to now. Its basic architecture consists of four pillars, 10 lever policies, 20 programmes, and 30 components. Green transition amounts up to the 40% of the total of funds and digital transition makes up 28% of the overall funding package. It is remarkable that Spain’s digital transition workstream is far larger than the EU target of 20% and goes beyond that of most EU Member States.

Spain has ranked well ahead of most EU countries in recent years, according to the Digital Economy and Society Index (DESI). Based on the latest results from 2021, Spain ranks 9th out of 27 countries and is six positions ahead of the EU average. However, a breakdown of the results highlights several shortcomings which are strategic for the long-term transformation of Spain’s industrial, economic, social and digital policies. While basic ICT skills are well established, Spain still lags behind in advanced skills. Only 20% of companies provide ICT training for their staff. Roughly 85% use digital technologies at a ‘low’ or ‘very low’ rate.

Three out of ten lever policies are largely devoted to the digital realm – IV(public administration), V (companies and SMEs) and VI (science, innovation, health). However, digitalisation also spreads across most of the other levers, mainly in Lever VII (education, skills, reskilling and upskilling) and Levers I and II, both touching on the green transition.

However, although the contribution of the digital transformation in all 30 components exists, there are significant differences in the amount of resources devoted to each of them, including the levers which allegedly fully address the digital transition. Only 8 out of 30 components are given 40% or more resources for their digital transformation. Another 7 components out of 30 receive between 10% and 40% of resources for digital transformation. This is especially important, because the components “Industrial Policy Spain 2030” and the “Plan for the modernisation and competitiveness of the tourism sector”, which are a part of those levers supposed to be strongly used for the digital transformation, receive less than 40%.

Spain has been the first country to receive a regular transfer from the European Commission under the Recovery and Resilience Mechanism. In 2021, the Commission disbursed € 9 bn in pre-financing and gave the green light for a first payment of €10 bn.

The RRP addresses specific policy measures, such as targeted programmes for the digitalisation of SMEs, the improvement of interoperability among state and regional public administrations, and the strengthening of digital systems in educational centres (although there are no other advanced reforms, such as the digitalisation of centres’ internal management systems which may lead to long-term positive effects).

The Spanish NRRP largely touches on the digitalisation of industry. However, it does envisage “strengthening a digital industry on its own”, called “industrialisation of digitalisation”, for intangible and tangible goods, although still insufficiently.

Spain has set out several PERTEs, which are strategic projects with a great capacity to boost economic growth, employment and the competitiveness of the Spanish economy, with a high degree of public-private collaboration and transversal to the different administrations. So far, 11 PERTEs have already been decided on or are underway. Four of them are digital-related – electric and connected vehicles, the new economy of language, the aerospace industry, and digitalisation for water use. A new PERTE was recently announced on semiconductors.

Main conclusions and challenges are as follows:

  1. Adding the “industrialisation of digitalisation” to the “digitalisation of industry”, including a Deep Tech section, would be extremely important.
  2. Reforms should have been prioritised over investments, as, while investments have a greater short-term impact as a temporary economic stimulus, reforms lead to long-term changes in the structural economic model.
  3. It is paramount to guarantee transparency in the decentralised implementation of funding across different authorities, territorial levels and public agencies.
  4. It is recommended to create a mechanism for ex post impact assessment.

Chapter 5 – The Four Plans in a European Perspective (I-Com, Institute for Competitiveness)

Summary: after briefly pointing out how some areas of intervention appear to be common across all four plans and identifying some of the regulatory proposals at EU level mostly interwoven with these fields, Chapter 5 focuses on how the four RRPs relate to the other plans of the RRF facility, as well as other funds in the digital field at EU level. The areas of intervention considered in the chapter are connectivity, digital skills, digital transformation of public administrations (also related to data strategy and cloud migration), cybersecurity and Artificial Intelligence (AI).

Contributors: Stefano da Empoli, Afroditi Karidomatis, Lorenzo Principali, Daniela Suarato (I-Com, Institute for Competitiveness).