Article written by: Federico Lucchi and Julia Galusiakowska
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.
Germany’s recipe for long-term prosperity
Germany plays by the rules: the first draft of the German Recovery and Resilience Plan (GRRP) was submitted to the European Commission (EC) in December 2020 and officially approved by the Bundestag on 25 March 2021. The plan takes into account country-specific recommendations (CSRs) issued in the context of the European Semester. With an object to force the biggest European economy out of recession, the German government prepared a multidimensional GRRP: the plan covers a broad spectrum of issues, ranging from green transition to digitalization, to strengthening social values, cohesion, and resilience. Yet, digital transformation and climate change remain the main challenges in the current environment.
Focus Area 1: Sustainability and Green Transition
The GRRP addresses the significance of large-scale reorganization of energy sources in grinding to a halt human contribution to global warming. Consequently, it strives to accomplish the Sustainable Development Goals and the Paris Agreement’s targets. By joining forces, the German government and the EU aim to achieve net-zero greenhouse gas emissions by 2050. In effect, 40% of the total budget has been allocated to decarbonization using renewable hydrogen, climate-friendly mobility, and climate-friendly construction.
The main component of the green transition project includes the National Hydrogen Strategy, responsible for undertaking research and fostering innovation to decarbonize the economy and society. Using sustainable CO2-free hydrogen produced with renewable energy is supposed to make Germany an industry leader; at the same time, it requires massive investments in manufacturing, infrastructure, R&D, and technology. Within the framework of an IPCEI (Important Project of Common European Interest) for Hydrogen, Germany plans on undertaking various concrete projects. For instance, the government formulated a plan to build large-scale electrolysis capacity to produce and use sustainable hydrogen, to eventually develop a European value-added chain for fuel cell systems for vehicle drive systems. The build-up of infrastructure will be necessary to transport hydrogen, being key to pursue the overall aim of establishing a European market for green hydrogen. The energy system transformation will involve mainly small and medium-sized enterprises (SMEs) that produce high amounts of carbon, local authorities, and urban regions.
In planning their energy transition, Germany specifically emphasized climate-friendly mobility, centering on the sustainable transport and implementation of the EU flagship initiative Recharge and Refuel. Subsidies for infrastructure are to promote the market ramp-up of battery- and hydrogen-based electric vehicles, such as buses with alternative drives and alternative drives in rail transport. As a part of the National Hydrogen Strategy, heavy goods vehicles are to be supplied with hydrogen and fuel cell technology. Eventually, Germany established the Hydrogen Technology and Innovation Centre for improving the value-added chain of hydrogen and fuel cell technologies for mobile applications with a focus on fuel cell systems. The center would focus on SMEs and start-ups, allowing them to compete internationally.
Equally, energy transition is expected to involve climate-friendly construction and renovation, introducing living labs - open ecosystems based on a user co-creation method. Local authorities - regarded as role models in climate action - will be responsible for bringing into effect sustainable construction projects. The project targets specifically large-scale implementation projects with a particular focus on the involvement of SMEs.
On the other hand, by establishing the federal funding for energy-efficient buildings, the federal officials aim to redirect the funding for energy sustainability. Consequently, Germany plays according to the Climate Action Programme 2030 and the funding strategy Energy Efficiency and Heat from Renewable Energies. Subsidies and loans will flow to the residential buildings at the “efficiency house” level, namely whose energy needs and CO2 emissions will be well below the legal requirements. Germany plans to reduce greenhouse gas emissions from buildings to 70 million tons of CO2 equivalents by 2030, thereby satisfying national and European targets by 2030.
With more extreme weather events and a rising rate of bark beetle infestations, the forests across the country suffer major losses. The sustainability of the forestry and timber sector is based on the growth of domestic sales markets for timber. Hence, Germany plans to accelerate the introduction and dissemination of modern technologies. By keeping timber companies competitive, the government can ensure adequate economic growth and high employment rates, focusing specifically on climate-friendly timber construction. Apart from the technological changes, the GRRP promotes advisory services accelerating the use of timber as a building material. All of those have supposedly positive effects on the future challenges of digitalization, resource efficiency, and climate action.
Focus area 2: Innovation and Digitalization
Since Germany lags behind the other European countries in terms of digital services and internet infrastructure networks, GRRP promotes large-scale digitalization. Focusing on three macro areas of intervention, Germany plans on pursuing data as the raw material of the future, digitalizing economy, and digitally modernizing education. Overall, more than forty percent of the resources available under Germany’s recovery and resilience plan will be devoted to digitalization, thus doubling the European Commission’s target level set at twenty percent. As the pandemic revealed widespread digital illiteracy, Germany realized the importance of adequate Internet access to modernize its economy and enhance the long-term German competitiveness.
The German approach towards data economy and data-driven decision-making is highly dependent on networking and pooling domestic skills. In this way, the country can develop effective solutions for a wide array of issues, such as security and privacy, among many others. However, according to Reuters, Germany is currently struggling to fully enter the Digital Age. The absence of high-speed internet and the inability of firms to move beyond traditional production schemes, as well as cultural and historical factors, lead to a generalized suspicion of data-sharing. To overcome this reluctance, the plan assumes ad-hoc measures targeting the development of practices of anonymization and depersonalization of data by setting up research networks and establishing “data custodians” to fairly and securely collect data. In effect, the federal government has decided to launch a contest of ideas. Through budgeting funds in order to explore multiple data custodian models, they grasped all the benefits of the Data Age.
Besides, by partnering with France, Italy, and Spain, Germany pursued the path of digital sovereignty allocating resources to edge-cloud infrastructure. According to Digital Compass, this project of relevant European interest incorporates the highest security and sustainability standards. Concurrently, it facilitates the collection, storage, and analysis of data closer to the user, thus also under European jurisdiction. In the long term, the domestic and regulated cloud system will supposedly make it possible to comprehend the economic value of European firms and households.
Furthermore, a significant share of resources has been allocated to strengthen the country's position in the fields of microelectronic components and communication technologies, such as processors and 6G networks. Consequently, to catch up in those sectors in which Europe has been largely dependent on imports, Germany and France plan to set up a domestic system for patents, development, and production of microelectronic components.
Within the framework of its economic digitalization strategy, Germany has carefully analyzed its automotive industry, addressing not only final producers but also suppliers and the rail industry. With the object of future-proofing the affected sector, the government plans on investing in emergent technologies, processes, and facilities. Besides, support for the R&D of innovative materials, automated and connected driving, and digital ecosystems are in the works. To smooth the aforementioned R&D process and enhance the availability of digital economic innovations as a whole, Germany aspires to leverage its domestic competencies by channeling resources into the Digitalization and Technology Research Centre.
In the light of the current pandemic, digital education assumed higher significance. Yet, the German population lacked the adequate competencies and tools to competently handle new challenges. Effectively, the government decided to set up a national education platform, ensuring data protection and high-quality learning complemented by strengthened internet communication facilities. Consequently, Germany aims at providing access to teaching and learning services, thereby reducing social exclusion. Also, a significant amount of resources is allocated to the purchase of new digital teaching devices, allowing teachers to organize more effectively and follow up online courses.
Focus Area 3: Cohesion, Resilience, and Values
Under the collective displacement induced by the pandemic, some social groups require additional governmental support. That, in turn, drastically increases the importance of social inclusion and labor market policies as today’s challenges. Hence, Germany plans on expanding existing programs for the provision of short-time work benefits, basic income support, bonuses for families, and tax credits. Concurrently, following its CSRs, it aims at achieving future gains by matching the growth of wages and productivity, thereby indirectly securing the sustainability of the welfare state, namely pension schemes. In a move to accomplish these two objectives, the federal government prepares a large-scale expansion of the investment program for Child Daycare.
The funds are to be invested in the extension, reconversion, and refurbishment of existing buildings, as well as the purchase of additional equipment. The availability of childcare facilities will not only benefit socially disadvantaged children by enhancing learning capacities but will also enable their parents to more actively participate in the labor market, thus increasing the overall income of the families. Finally, to prevent the emergence of the Covid-19 Generation, the German government aspires to provide financial support to SMEs that offer additional trainee positions. The line-up also involves the reform of the Trainee Support, guaranteeing trainees to receive governmental bridge support in case of temporary interruptions of their training path.
Although the German healthcare system has managed the first Covid-19 wave, the pandemic has uncovered many structural issues. Effectively, the federal government has budgeted € 3 billion, complemented by additional resources from both Länder and Hospital operators, to strengthen the healthcare system. The Programme to Future-Proof Hospitals will provide necessary investments in modern equipment and digital infrastructure with the aim to improve emergency management capacities. Moreover, the plan is to promote broader digitalization of healthcare, particularly in the sphere of infectious disease control. Through DEMIS, an information system for controlling and reporting infections, Germany plans on establishing an efficient mechanism of control.
Besides, among the CSRs listed by the European Commission, the backwardness and digital illiteracy in the sphere of public administration dominate the German landscape of key economic weaknesses. Designing a flexible and reliable public administration model that can keep pace with the economic growth remains one of the main challenges for both Germany and other European economies. Thus, with the object to digitalize administrative services by targeting user-friendliness and legality, Germany has committed € 3 billion to implement the Online Access Act. The plan additionally assumes a cross-register identification management system and a relevant authority to smooth the transition process. Along the same line goes the European Open Identity Ecosystem, which enables identities to be established online without assistance from major platforms, allowing users to sign to multiple websites without a need to create new passwords.
However, for the private resources to be effectively channeled into investment projects, an efficient public apparatus is required. Thus, GRRP additionally included a few reforms in the context of public-private cooperation. In effect, new consultancy branches are to be added to the existing Facility for Supporting Public Administration Decision-Making. Besides, to reduce administrative barriers and the costs of the red tape, the Programme For an Efficient Public Administration That Benefits Citizens and Businesses will be rolled out. The program’s main priorities include speeding up administrative procedures and reducing compliance costs.
The series of stimulus measures brought into effect by Germany is considered a lynchpin of the post-pandemic reality and the more sustainable and modern Europe. Although it is yet to be seen whether Germany’s recovery and resilience plan will succeed, the country’s effort to ease structural digital deficiencies and the strategic approach to the green transition can set a model for other member states. Moreover, by reviving the European value chain and designing brand new economic sectors, the GRRP is likely to positively impact the economy of the entire continent.