Calling it a last resort action, Johannes Hahn, Commissioner in charge of regional policy, tried to counter criticism at the proposal and underlined that the effectiveness of cohesion policy in promoting growth and jobs depended significantly on countries’ sound macro-economic policies.
Taking stock of past experiences, Hahn said, the Commission felt it was necessary to establish a tighter link between EU cohesion funding and the countries’ economic and fiscal policies.
The move has already attracted a flurry of criticism, if not clear opposition. Leading MEPs and the Committee of Regions have immediately voiced their reservations.
Centre-right French MEP, Elisabeth Morin-Chartier, who is also in charge of drafting the report on the legislative proposal for the Parliament’s Employment Committee, expressed clear reservations saying that “we cannot impose a double penalty on countries already in difficulty.”
“It is an indirect punishment,” added Danuta Hübner, chair of the European Parliament Regional development committee, going as far as saying that “we are creating a monster.”
Hübner conceded that regional authorities will be puzzled by the proposal and member states will likely be divided, especially if they are big receiver of structural funds.
“We are focusing too much on stability and not enough on growth,” Hübner slammed.
The EU advisory body on regional policy, the Committee of the Regions (COR), has indeed highlighted the damaging knock-on effects that the 'funding suspension' would have on the ground.
"The current crisis has devastating effects on our regions and cities, and EU support has a crucial role to play in their economic recovery. This is why we cannot accept the proposed 'funding suspension' for countries breaching EU deficit and debt rules,” said COR president, Mercedes Bresso, adding that withdrawing EU funding from an already ailing economy will only make matters worse.
Critics underline that the measure does nothing else but punish regional and local authorities for the failures of national governments.
The case of Greece is symptomatic. Hübner stressed that suspending regional aid would damage efforts to boost growth and development in the EU's poorest countries, especially those such as Greece that are dependent on EU aid.
She said central and eastern European member states were likely to oppose the Commission’s proposal on this point.
Indeed, a number of Eastern European national chambers have already raised their concern.
The Czech Senate in a note to the European Parliament has raise its objection and said conditionality of cohesion funds in relation to meeting fiscal or macroeconomic rules can only be applied if all other expenditures of the EU budget are also subject to this conditionality.
The Romanian Senate also said it was opposed of establishing additional negative conditionalities, adding that the current regulations provide sufficient levers to ensure that funds’ objectives and programmes are implemented.
“The new cohesion policy must not include conditionalities that do not have direct connection with the implementation of interventions financed form the structural and cohesion funds,” reads a note.
Despite the rocky start, the €336 billion legislative package, aligned with the priorities of the long-term Europe 2020 strategy, does bring a few innovations that will likely gather some consensus.
Simpler rules and fewer investment priorities
In order to boost efficiency, the EU executive has come up with a single set of rules for five funds, including the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund, the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF).
This simplification comes alongside the built-up of a new regional architecture, introducing the distinction between three categories of regions: less developed regions (GDP per capita of less than 75% of EU average), transition regions (GDP per capita between 75% and 90%) and more developed regions (GDP per capita with more than 90% of EU average).
Such distinction has allowed richer countries to remain eligible for structural funds. Funds will still go to the neediest and most problem-ridden regions, but transition regions will still be able to access funds to further boost investments in innovation, energy efficiency, social cohesion and competiveness.
“The administrative and financial procedures linked to structural funds have often discouraged SMEs from profiting from funding. Today’s simplification proposals and the introduction of a core common set of rules can bring about a change of season,” commented positively Andrea Benassi, secretary-general of UEAPME, the European federation representing SMEs.
The Commission has also streamlined the number of priorities, in line with its Europe 2020 strategy. In more developed regions, the bulk of investments will go to innovation, support of SMEs, energy efficiency and renewables, while in least developed regions these priorities are balanced 50/50 with development needs towards employment, education and poverty reduction.
Overcome funds absorption capacity
Officials in Brussels have also tried to remedy the difficulties encountered by many EU countries to absorb large volumes of EU funds over a limited period of time, especially as debt-laden countries have struggled to provide national co-financing.
The EU proposal has therefore capped the maximum allocation of EU funds at 2.5% of member state Gross National Income (GNI), as compared to 4% in the current period. A temporary increase in the co-financing rate by 10% is also proposed, in order to reduce the strain on national budgets at a time of fiscal consolidation.