COVID recovery euros slow down EU structural fund planning

EU Commissioner for Cohesion and Reforms Elisa Ferreira (L) and Slovenian Minister for Development and European Cohesion Policy Zvonko Cernac talk at the start of a European Union General Affairs Council on Cohesion Policy in Brussels, Belgium, 18 November 2021. Ministers in charge of Cohesion Policy hold a policy debate on the contribution of cohesion policy programmes to the recovery, the green and digital transitions, and economic, social and territorial cohesion. [EPA-EFE/OLIVIER HOSLET]

As predicted, recovery money planning has maxed out administrative capacity in many member states at the expense of the EU’s long-standing structural investment program, which now faces delays.

EU countries are often fast to tout the importance of the bloc’s cohesion policy, the main instrument for European investment that aims to bring all countries and regions up to the same level of development.

“By reducing development disparities between regions, cohesion policy builds a stronger unity and at the same time fulfils the strategic and substantive goals of sustainable, social and high-tech development in Europe,” said Slovenian development minister Zvonko Černač, whose country’s holds the rotating presidency of the EU Council.

“As such, cohesion policy is one of the Union’s most recognisable and important policies, also playing an important role in responding to the COVID-19 health crisis,” he added after the meeting of cohesion ministers on Thursday (18 November).

However, warnings sounded by stakeholders that implementing the EU’s 672.5 billion recovery fund (RRF) on top of the regular €299 billion in structural spending would be challenging, are coming true.

Regions warn of bottleneck risks, double spending with EU recovery funds

Implementing the EU’s €750 billion recovery plan in addition to regular regional spending at European level is likely to prove a challenge, the bloc’s politicians admitted at an informal meeting of EU cohesion ministers in Lisbon on Tuesday (18 May).

“I urged everybody today to make every effort to sharply accelerate the programming process and prepare the way for rapid delivery of projects on the ground”, the EU Commission chief responsible for cohesion Elisa Ferreira said after the meeting.

Describing the EU’s recovery money as a “competitive fund”, the head of the Commission’s department responsible for the policy Marc Lemaître said in his view, the RRF has “very clearly … monopolised attention and the administrative capacity in most member states.”

Lemaître said some EU countries, such as Spain, have prioritised recovery fund spending. The country pushed back the submission of its main cohesion reference document to mid-2022, so it could plan for the €69.5 billion in COVID grants.

“Spain has at least shown that it cannot do two things at the same time and that the absolute priority is, for it, the RRF,” Lemaître said.

Greece ahead

There is no deadline for submitting the partnership agreement, the basic framework document for cohesion spending, or specific programmes that detail EU money investment plans over the next budgetary period.

While the Commission is in informal negotiations with all EU countries about the next structural investment period, just Greece, Austria and Germany have submitted their PAs so far. Only Athens’ document has formally been approved, and while the Polish submission is expected soon, no others are foreseen imminently.

The EU executive “in the best case scenario” only expects to see drafts for one-fifth of the programmes by the end of the year, Lemaître warned.

“Quality of programming respecting the principle of partnership should be put first, which means Member States need time to prepare programmes,” one EU diplomat told EURACTIV.

So far, there have not been any cohesion payments from EU coffers to countries under the new 2021-27 budget period, despite eligibility as of 1 January 2021.

EURACTIV understands there might be projects spending money already on the assumption they will be funded from future cohesion programmes, as long as they comply with their rules and objectives. However, it remains to be seen how well that will work, considering none of those programmes have been approved yet by the Commission.

From a ‘tortoise’ to a sloth

Furthermore, the entire timetable is behind schedule, even for the last investment period, 2014-2020. Last year, member states spent 8% less money than in the same period of the previous budgetary cycle, and the difference is increasing year on year.

This has now sped up thanks to the loosened cohesion rules, called the CRII and CRII+ emergency packages. They were introduced during the first wave of the pandemic and allowed countries to re-budget leftover cohesion money under the label of EU-backed COVID support.

With loosened cohesion rules, EU money channelled away from climate action

EU countries have reallocated €3.8 billion of EU structural funds away from climate action while increasing “generic support” for small and medium-sized firms as well as health measures. This was made possible by loosened rules to enable a rapid response to the crisis but the European Commission hopes that the incoming fresh cash will reverse that trend.

Initially describing 2014-2020 as a “tortoise” period, Lemaître told MEPs in the European Parliament’s regional development committee on Monday (15 November) that “with the crisis adjustments introduced into cohesion policy we have been fully vindicated and fully successful together”.

This, however, is likely to spell further trouble for the next financial period.

One of the explanations for the slow spending in the last seven years was the delayed adoption of the cohesion rule book, the Common Provisions Regulation (CPR), which came six months later during the 2014-2020 budgetary period.

The new iteration of the CPR was adopted with a six-month delay compared to the 2013 legislation, almost a whole year later than in 2006.

In other words, unless a similar loosening of requirements comes at the end of this budgetary period, the Commission is likely to have a hard time closing its budget at the end of this decade.

Alternatively, EU countries may lose out on a lot of cash.

A “perverse” incentive

Lemaître remains confident that not only will all funds from the previous period be spent, but the next period will be jump-started as long as the cohesion will “continue to run at full throttle for the coming two years in order to be fully implemented by the member states.”

EU countries are currently not too worried about the delay since the closing of this budgetary period will not happen until 2029 because of the EU’s spend it or lose it policy, the so-called “n+” rule.

Member states are given a deadline of three years to spend the money budgeted year on year for projects, except for the last year of the current seven-year period, 2027, where they must spend the money in two years, by 2029.

Moreover, since no detailed spending plans (programmes) will be adopted in 2021, according to bloc law, the EU support meant for 2021 will be spread evenly across the next four years, from 2022-2025.

Lemaître emphasised that this is “a strong incentive not to be too fast” for EU countries.

“Because it will mean that the first rendezvous for demonstrating absorption will be 2022 plus three, meaning the end of 2025,” he told lawmakers.

EU countries: no need to rush

The combination of the massive administrative burden resulting from the closing of the post-COVID investment and the kicking off of the next budgetary period (2028-2034) is likely to make the end of the 2020s challenging for EU countries’ bureaucracies.

While acknowledging the slow start of 2014-2020, minister Černač said, “we need to be very intelligent in the way we invest and use about 40% of available funds by 2023.”

“According to my assessment, there is no need to rush, but there’s also no need to wait with our programmes and with our decisions,” he added.

Černač said that EU countries plan to finalise their programmes next year, which will allow them to use 2021-27 funds “as of 2023 onwards.”

Commissioner Ferreira said that after the emergency responses, “now we have got to plan something more structural, more long term, which is an adequate answer to the divergent trends that exist in after any crisis, it existed after 2008, and they exist now.”

[Edited by Alice Taylor]

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