Cohesion policy makes baby steps towards simplification

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While EU officials in Brussels boast about the proposed simplification of the bloc's cohesion policy, regional representatives contend that managing EU funds is still very complicated in practice.

As heads of state prepare to outline the EU's budget for 2014-2020 by the end of this year, regions are hurrying to safeguard their interests in the reformed cohesion policy.

The original aim of cohesion policy - redistributing funds to the EU's poorer regions – is evolving under proposed reforms tabled by the European Commission.

Conditionality

In its proposal last year, the European Commission asked for €336 billion to be injected into the bloc's regions from 2014 to 2020. But poorer countries will find it harder to secure funding as the reformed policy introduces a new category for "transition regions" - those that are statistically too rich to receive EU funds but still relatively deprived.

The Commission indicated that it would concentrate funding on a smaller number of priorities linked to the five headline objectives of the 'Europe 2020' strategy for sustainable growth, adopted in 2010. As a result, the new strategy is expected to better focus on results and monitoring progress towards agreed objectives.

At the insistence of Germany, the reform also introduces the concept of "macro-conditionality", which allows the Commission to suspend regional payments in case a member state fails to correct the kinds of macroeconomic imbalances that fuelled the sovereign debt crisis in the eurozone.

Simplification

In exchange for these tougher rules, regions were promised a simplification in the administration of regional funds whose bureaucratic structure have been heavily criticised.

In its 2011 proposal for the simplification of the Cohesion Policy, the European Commission said: "The EU budget should be used to finance EU public goods, actions that Member States and regions cannot finance themselves, or where it can secure better results".

Whilst this may appear clear at a first glance, it is not easy to put into practice, claimed local representatives attending the Commission's week-long 'Open Days' regional networking event in Brussels. Regions are hoping that a reformed cohesion policy will untangle them from the red tape they have encountered so far. 

Local actions to cut red tape

Keeping a better track record of spending is a first major aspect that regional beneficiaries are looking at, as spending needs to be justified to auditors at the national and EU level.

Some regions have found individual solutions that work well for them.

In the Flemish region of Belgium, the European Social Fund Agency, which manages EU funds, has voluntarily been introducing various initiatives to help with the complex accounting. Since 2007, the agency has been using a flat rate to calculate indirect costs related to the administration of EU projects and counting as real costs staff salaries and direct costs.

"We did this because we wanted to simply everybody’s life, beneficiaries as well as auditors," Louis Vervloet, director of the Flanders agency said, speaking at a conference during the 'Open Days' event in Brussels.

Flat costs are something embraced by most regions - 21 regions in Italy have signed a deal to simplify the applications for EU social funds. The regions are part of a network called TECNO Struttura, meant to facilitate the exchange of good practices and experiences. Also, local authorities or individuals can consult others' cost methodologies, which are archived together with other historical data.

"We are trying to find common solutions to common problems," said Gabriele Grondoni, of the Tuscany region in Italy and a coordinator of the network.

Similarly, Italian Minister for Territorial Cohesion Fabrizio Barca has just inaugurated a web portal based on open data on the implementation of cohesion policy. Called OpenCoesione, this online tool was created to encourage a more active participation of citizens in the programming, allowing a form of social control on how collective resources are used.

Need for legal certainty

Fixed rates do not apply only to the European Social Fund, which has a minimum overall share of 25% of the budget allocated to cohesion, or €84 billion. Now the fixed rate method is being extended to cover funds allocated under the European Regional Development Fund (ERDF).

"The flat rate is beneficial for indirect costs, which are necessary for running the projects, but are not easy to bill, like direct costs are," said Eva Jonker of the Commission's regional policy unit.

Danish regions say that cohesion policy needs to be simplified in order to attract more investors.  Susanne Kirkegaard Brodersen is an adviser to the Danish Business Authority, an organisation that part of the Danish Business and Growth ministry, which set itself the aim to create "the world's most effective business framework". Their focus is to ease administrative burdens related to EU funds.

Kirkegaard Brodersen is concerned about the complexity of EU accounting and advocates flat rates for indirect costs. "There’s an enormous legal certainty if you take out most different types of expenditures such as indirect costs," Kirkegaard Brodersen said.

"This will help you avoid scenarios in which the beneficiary passes one audit in one year and then after several years, faces a new audit which is not in line with the previous one and asks back the money that has already been spent meanwhile," she told regional representatives at the Open Days event.

Vervloet, of the Belgian Flemish region, agreed: "Since there is no legal certainty, you have to be sure before you launch a project."

However, the Commission warned that the flip side of legal certainty is rigidity in implementing  operational programmes.

"The difficulty in giving this legal certainty is that it is tempting to try to have this guarantee, but this comes at a cost," said Laurent Sens, administrator at the Commission's employment directorate. "With it, regions lose flexibility".

Methodologies across Europe vary considerable, with flat rates ranging from 5% in some countries to 20% and even 40% in others.

"If you have examples that some flat rates can be 5%, then why have the rate at 40%?" Sens said. "Flat rate means the European Commission staying at a low rate which will not necessarily bring something good for authorities and regions.”

Sens further argued that there is not enough data at the moment to create an overall flat rate for costs. "If you want to use it tailored to your circumstances, you need to generate data now, need to be certain of the quality of that data and to structure it properly," he said.

But Gandroni, of the Italian region of Tuscany, insisted that audits can take a very long time and can be very complicated. Whilst he thinks "flexibility is good", he says "we need a set of fixed rules". 

"The request for a fixed rate is a challenge. But we need it," Gandroni said.

The current efforts are just baby steps, Gandroni admitted, adding: "We have to keep going, and in coming years we will see the benefits of such simplifications."

Timeline: 
  • October, November: EU summit to discuss MFF
  • 13 December: EU summit to reach agreement on MFF.
  • 31 Dec. 2012: Negotiations on the EU's next seven-year budget expected to wrap up
  • 1 Jan. 2013: Ireland takes over presidency of the EU
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