Lawmakers strike deal on cohesion rulebook amid looming payment cuts

European Council and Parliament reached an agreement on the Common Provisions Regulation, setting out the common rulebook for the shared management funds. [Shutterstock/Angurt]

EU lawmakers reached an eleventh hour deal on Tuesday (1 December) on the legislation laying out the rule book for the structural funds that make up almost a third of the future EU budget, after two years of negotiations.

Significant delays to promised EU structural fund cheques loom, however, if European leaders are unable to resolve the political deadlock created by Hungary and Poland’s veto on the EU’s long term budget and the recovery fund due to legislation linking the disbursement of money to rule of law.

In payments “for cohesion policy, the delays will be very significant, we reckon that we would have to cut [the planned amounts] by 50% to 75%,” a senior Commission official said, and no new plans to spend money in the future, called commitments, on cohesion policy can be made.

If no solution is found, the Commission will use an emergency provisional budget referred to as “provisional twelfths”, a situation that has not occurred since 1988, which the EU executive predicts would result in €25 to €30 billion less being channelled to programs than the planned €166 billion.

“It will not be possible to honour all the existing commitments to beneficiaries without this being delayed, we simply cannot pay everything we owe beneficiaries in 2021 on account of this payment constraint,” the official added.

“Our concern is that we prepare everything that we work on stability and on pre-visibility in terms of what the rules are under which we will be managing hoping that, of course, everything will be will be solved in the short term,” EU cohesion and reform commissioner, Elisa Ferreira said.

Commissioner Ferreira added that projects will still be eligible for funding from the beginning of 2021, and those financed from a fund acting as a bridge between emergency cohesion measures and long-term structural support from February 2020.

“But it will be not for lack of the adequate legal basis or texts that the countries will be delayed in programming and organising all the procedures, so that as soon as we have this issue solved, we start using the funds,” she added.

Deal on common rulebook

Yesterday, the European Council and the Parliament managed to resolve the most controversial issue of “macroeconomic conditionality” in the the common cohesion package rulebook known as the Common Provision Regulation (CPR) that will set a legal framework for eight funds co-managed by the EU and member states.

The Commission’ initial proposal, supported by the Council, included a link between the disbursement of EU funds to countries’ fiscal health, potentially allowing the suspension of payments if a member state fails to take action to reduce its budget deficit.

MEPs opposed the criteria, fearing it may deprive economically fragile regions of much-needed support during the pandemic.

The final solution to the biggest sticking point in the negotiations kept suspension of funds for countries’ non-compliance with EU economic and employment guidelines time-limited to 2023-2025, while sanctions for breaching national economic targets by running excessive deficits cannot be applied as long as the bloc’s fiscal rules remain suspended.

In March, member states took the unprecedented step to activate the “general escape clause” of the bloc’s Stability and Growth Pact, which paused the structural adjustments that countries must implement to meet their debt and deficit targets and allow them to spend as much as they need to tackle the fallout from the pandemic.

Commission proposes unprecedented suspension of EU’s fiscal rules 

The European Commission proposed for the first time on Friday (20 March) the activation of the general escape clause that would ‘pause’ the adjustments member states have to do to meet their fiscal targets and allow them to spend “as much as they need”.

Additionally, cross-border programs and projects financed from the European Social Fund Plus cannot be suspended in any circumstances.

Younous Omarjee, chair of the Parliament’s regional development committee said “we would see this as a victory for the European Parliament, since we have seen this mechanism [of macroeconomic conditionality] weaken.”

“In reality, the Council, moved closer to the European Parliament’s position because at the outset it was completely against the idea of suspending this mechanism,” he said.

The agreement on CPR comes two weeks after the first cohesion package deal was struck on REACT-EU legislation, a €47.5 billion fund.

REACT-EU will be the first European fund to be financed from the €750 billion that will be borrowed from the markets if member states convince Hungary and Poland to lift their vetoes.

Lawmakers strike deal on first recovery funds as vetoes loom

EU lawmakers on Wednesday (18 November) reached a political agreement on REACT-EU, the €47.5 billion fund that will channel European money to prop up the bloc’s economy by supporting health services and small businesses.

The new rulebook also includes a minimum target of 30% to be spent on fighting climate change.

The co-legislators also agreed that projects in poorer regions will be financed at a higher ratio than previously proposed, at 85% co-financing rate, and built in a more explicit partnership between European, national, regional and local levels of governance, as well as reference for the respect of European Charter of Fundamental rights.

[Edited by Benjamin Fox]

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