The (much) higher use of loans and guarantees foreseen in the MFF post-2020 will produce significant changes in the management model of EU funding, and could even herald a structural evolution in the European project as a whole, write Francesco Molica and Nikos Lampropoulos.
Francesco Molica and Nikos Lampropoulos are the founders of Cohesion Policy Observatory. Nikos Lampropoulos is the director of EURACTIV Greece.
The debate over the EU budget post-2020 bears little resemblance to previous such negotiation. Due in May, the proposal for the next Multiannual Financial Framework could see a significant shift in the management model of EU funds, and more broadly of European public investment.
While the proposed budget will remain at its current level in the best case scenario (with member states asking for a further reduction), the funds allocated to financial instruments (loans, guarantees, equity finance, etc.) will increase dramatically at the expense of grants. To what extent, it is yet to be seen, but the direction looks clear.
The European Commission openly suggested this option in the Reflection paper on the future of EU finances, where it envisages a “higher” or “much higher” use of financial instruments in all the five scenarios considered for the post-2020 European Union.
This is no surprise. After all, the current programming period has already given much more prominence to financial instruments than in the past. The establishment and later expansion of the European Fund for Strategic Investments (EFSI) epitomise such development.
In the last three years alone, the European Investment Bank has increased its workforce by 1,500 executives of different background and expertise, whereas the Commission’s staff has been constantly shrinking.
Obviously, grants will continue to represent the lion’s share of the EU investments. However, financial instruments are expected to acquire a central, unprecedented role: including in those traditional European policies, such as Cohesion and Agriculture, which expect severe cuts as a result of Brexit and the need to divert money towards new programmes.
This will produce important changes in the management model of EU funding, regardless of whether one agrees with the need to involve the private sector in public investment and the use of financial instruments to leverage funding.
First of all, the management of more EU resources will shift from regional and national authorities to the central level (centralisation at EU level). Management and consequently decision-making of a larger share of funding will be transferred from the managing authorities and the Commission to the EIB, and its own intermediaries, which are mostly banks.
Accordingly, the selection criteria of the projects will be shifting from political and/or social to purely economic.
Another direct consequence is that the ex-ante geographical distribution of resources, as well as the bottom-up approach with the involvement of national and local actors (consultations, monitoring committees etc.), will be downscaled.
A recent analysis of CPMR into the territorial dimension of EFSI found out that its distribution is geographically and sectorally highly imbalanced – admittedly, an issue the Commission is trying to fix or at least contain.
It is yet unclear what will be done with projects that are evaluated (by whom?) as necessary but cannot be considered as “bankable”. Will the reduced grants be able to cover all the needs?
One further problem is how the EIB, with its more active role in the EU budget, will cope with Brexit, given that the UK is the bank’s major contributor and is resolved to keep access to its funding even after departing from the EU.
Yet the implications stretch far beyond any budgetary consideration. The rise of financial instruments could herald a massive structural change of the European project as a whole.
Headed by its most developed countries, the EU seems to be pulling away from the values of cohesion and convergence – which have long been EU’s flagship – in order to reinforce its focus on the goals of sustainable development and competitiveness.
Even the meaning of solidarity could face a semantic shift both at an economic and development level, embracing principles such as repayment and accountability. Against this background, the political forces need to debate seriously and openly the issues that these changes are bringing about.
Decisions are to be made by June 2018 but it will already be too late after February, when the Council gathers to formulate its priorities on the next budgetary period.
If this were a chess game, it would be a Simul* game, with the Commission in the role of grand maître: The chess standings have been set up, the first countries have made their first moves and the clock is ticking. Anyone who doesn’t act now loses his turn and possibly the whole negotiation process.
*Simul game: Chess match during which an experienced chess player (eg grand maître) plays at the same time against multiple opponents.