From Sanctions to Incentives: the Impact of NextGeneration EU on the European Semester

Abstract

Whereas the European Union has been effective in designing ex ante conditionality for accession and Euro adoption, it has struggled to induce domestic reforms once membership is secured. Soft coordination instruments, notably the European Semester, have therefore been widely regarded as weak. In response to the Covid-19 crisis, NextGenerationEU introduced an incentive-based model of conditionality, moving beyond the Semester’s largely ineffective sanction-driven enforcement. Using binary logistic regression models and newly released data, this article shows that Country-Specific Recommendations benefiting from NGEU incentives display higher implementation rates than those issued before or after. Based on multi-annual evaluations, the analysis revisits critiques of the Semester’s limited impact and examines how legal-institutional, macroeconomic, domestic-political, and sectoral factors shape reform compliance. Overall, the evidence favours incentive-based over sanction-driven conditionality, suggesting that the NGEU experiment offers a credible lesson for recasting EU economic governance, with broader implications for theories of supranational compliance.