Lagging German regions may lose out due to rush of EU pandemic recovery money

In the wake of the European Commission rubber stamping Germany's national recovery plan, concerns are once again rising that the enticing fresh money may leave economically weak regions worse off in the long-term. EPA-EFE/MICHAEL SOHN / POOL

This article is part of our special report Cohesive recovery: where do structural funds fit in?.

Following European Commission President Ursula von der Leyen’s visit to Berlin on Tuesday (22 June), where she delivered the approved German recovery plan, concerns are emerging that the new pot of money may crowd out funding for weak regions and thwart their efforts to catch up with wealthy areas.

EU cohesion policy and its funds are meant to help the economically weaker EU regions close the gap. The lower a region’s income relative to the EU average, the more funding it would receive. The EU’s recovery and resilience facility (RRF) may change that. 

“Crowding out alternative investment projects, in particular also private ones, is a real danger when it comes to the EU’s recovery fund,” said German MP Michael Theurer, vice leader of the German liberals (FDP) in parliament. 

He pointed out that there are already bottlenecks present in project planning capacities as well as in the bureaucracy behind permitting projects. 

Theurer also warned that it could well happen that cohesion funds are replaced by reconstruction funds, thus stalling the catching-up process of economically weaker regions.

“There is a risk of even slower absorption of regular EU structural funds in 2021-2027, as well as NGEU money,” said Zolt Darvas, a senior fellow at think-tank Bruegel. He went on to add that the rush to absorb EU funds could lead to lacklustre projects receiving funding. 

Depressing absorption rates

No matter the amount of funding available, it will all be for nought without projects in place to spend the money. The percentage of EU funding that is actually used by various projects over time is referred to as absorption rate.

The EU’s cohesion funds had already been struggling with absorption prior to the pandemic, and there are fears that the more readily available funds from the RRF will exacerbate the issue.

Regional fund spending slow despite Commission claims

EU countries have been much slower to spend structural funds aimed at reducing regional and social inequalities than in the previous seven-year budgetary period, figures from the European Commission show.

Member states had by the end of last year spent 56% …

Due to the federal nature of Germany, sufficient amounts of projects will be found, said German MP Markus Töns (SPD), vice-chair of the parliamentary committee on EU affairs. 

He attributes this to the fact that RRF money will be spent by Germany’s federal government while cohesion funds are the purview of the regional authorities.

However, Germany’s complicated multi-level federal governance structure would make it extremely challenging to keep track of funding in Germany, warned Darvas.

To counter the increased difficulty in monitoring spending, regional authorities were meant to be included in the planning process, Michael Schmitz, adviser at the council for municipalities and regions, told EURACTIV.

Yet, local and regional authorities were largely bypassed due to the high degree of centralisation in the planning stage of the national RRF plans, he said. 

Insufficient value for money

Disbursing EU funding as fast as possible to jumpstart recovery and ensure adequate absorption carries another risk: It will be a huge challenge to ensure that EU funds are spent on quality projects.

The German finance ministry told EURACTIV there is a clear distinction between RRF funds and cohesion funds, derived from their divergent purposes, meaning that there will be no overlap between the two instruments. 

However, the German recovery and resilience plan (RRP) itself seems to contradict the ministry’s statement.

The rather comprehensive document of about 1,100 pages acknowledges that the aims of the recovery and structural funds largely overlap and “a preliminary general delimitation of content is neither possible nor feasible”.

Since the German government cannot and will not differentiate projects that qualify for funding both under cohesion policy and the recovery fund, the executive instead pledged to ensure that there are no overlaps by relying on regional authorities tasked with implementing EU structural funds. 

That is likely to prove a tall order, considering Germany’s complex federal structure and the sheer volume of projects that require checking.

The city of Berlin alone disbursed funds to almost 1,500 projects from the previous EU long-term budget only via the European Social Fund, one of cohesion policy’s smaller instruments.

EU lawmaker Sven Giegold (Greens) said it was a shame that the Commission had approved the German plans. “Instead of tackling serious reforms, the German government is using EU funds to plug holes in the German budget,” he said.

The German RRP foresees that about 40% of the fund will go into investments related to combating climate change, slightly above the mandated 37%. 

Giegold pointed out, however, that in the nationally funded German recovery plan, climate protection measures account for merely 21%, adding that the document prepared for the EU amounted to “cherry-picking” from the federal recovery plan in order to pass muster with the Commission. 

[Edited by Zoran Radosavljevic]

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