Blending funds will be the new way to finance EU projects

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

This article is part of our special report Efficient EU budget 2014-2020.

With less money at hand, the EU will have to become more efficient and innovative in the way it seeks to finance new initiatives and blend funds from different sources, but will actors be able to quickly align to this new way of thinking, asks Mercedes Sánchez Varela.

Mercedes Sánchez Varela is a partner and head of EU office at KPMG, the global network of professional auditing, advisory and tax firms.

Smart solutions to boost growth; the creation of sustainable infrastructure; actions to reduce youth unemployment and increase of social inclusion; innovation, partnerships and result orientation: these are the keywords that we hear every day in EU context and especially when discussing our ambitious goals for the next seven years.  

The mix of priorities, as set in the agenda for Europe 2020 enables resources to cover new areas which might challenge the extent to which we apply the subsidiarity principle in different areas. This is the driving idea sustaining the pursuit of efficient spending.

One of the new target areas is the Youth Employment Initiative, which represents 0,06% of the multi-annual financial framework (MFF), the long-term budget. This seems rather marginal. On the other hand, further measures address employment issues directly or indirectly in other transversal EU funds, whose amounts have increased compared to the last framework, 2007-2013. 

The question to ask is whether we have carefully assessed to what extent a common EU initiative fits better this purpose than national responses that can be adapted to the specifics of the labour market.

The 'Digital Agenda' was the biggest victim as member states slashed the amount by 89%, from  €8 billion to €1bn, under the heading of the 'Connecting Europe Facility', even if further ICT investments will be possible under the 'Horizon 2020' innovation programme.

At the same time, the 'Europe 2020 Competitiveness Report’ points out that EU cohesion policy should better focus on main competitiveness weaknesses, including support for innovation, information and communications technology development.

The ‘Social change and innovation’ heading is targeted at reducing unemployment, poverty, social exclusion and to tackle issues arising from an ageing population. However, the amounts dedicated may be perceived as low. In 2011, a staggering 16.9% of the population in the then EU-27 was at risk of income poverty.

Looking at all these priorities, it is clear that the principle of ‘subsidiarity’ is being tested. Now that we are engaging in a new seven-year budget period should we not delineate which policies are better dealt with at the European level?

In such a crucial time when we are anticipating a gradual economic recovery but knowing that things will not be the same as before this crisis, we can grasp the opportunity to better anticipate common problems and challenges together.

Increased integration of the banking sector, for example, has become more of an EU issue than it was before, we see that it was needed and it makes sense. However, it was reactive. Here I am suggesting that we can approach things in a proactive, forward-looking way.  Are there therefore any specific policies, such as migration, that could be more efficiently targeted from an EU perspective, and other areas that should be redirected to the national level?

If at the EU level, strategic developments are driven by Europe 2020, how much of these EU priorities are really set as national priorities and thus leveraging and sparking a multiplier effect across Europe?

Efficiency and Effectiveness

A major change for the next period is that unused funds will be reallocated to ensure that the total amount budgeted for 2014–2020 will be spent on EU priorities. Budgets will thus be more flexible and this is welcome.

Does this also mean that the EU budget will become more effective? Let’s not only focus on numbers. The goal is to no longer 'just' spend the money, but to spend it wisely. I consider it as one of the main achievements of the last years that policy makers and public authorities started to change their focus from absorption to impacts achieved. This also relates to the current financial crisis, with taxpayers needing the EU to be accountable in spending public money.

Some areas are exclusively governed by the national authorities. The pensions system is one example, an area where certain systemic inefficiencies are inevitable. As the EU has fewer such tasks, EU spending is under pressure to be even more efficient.

Going back to the point on effectiveness, it is interesting to see that the focus on results is also visible in the auditing of EU Funds, to assess and review the performance instead of focusing only on compliance matters. This is a valid approach especially in times of austerity, when efficient spending becomes even more important than before.

Of course this will mean new challenges and an ambitious, interesting role for all those managing and verifying EU funds. All members states, authorities, even private firms such as KPMG, need to follow these new trends and be innovative in terms of tools and methodologies that reflect a new type of angle and also blending funds from different sources of financing. But will all actors be able to quickly master this new thinking and align their practices accordingly? Will Europe be ready?

Innovative financing

The same argument can be put forward for the so-called new financing mechanisms, which are arguably not new, strictly-speaking. We might be at a crossroads where we are considering their potential and surely planned regulations changes might help them to be used better and more frequently by all parties. Already, some evidence shows that loans provided to SMEs with favourable conditions are in many cases more effective than grants.

The Commission has chosen the right direction to go towards innovative financing solutions, and it will be important not to lose track of efficiency at the same time. Now that a window of innovative opportunities is available for those that are capable of understanding and using them, there is new potential to have higher impact with lower levels of investment.

But are the actors involved in shared management, as well as beneficiaries ready to take advantage of these new opportunities? Are member states ready to apply all new rules to reach ambitious plans whether we talk about strategic planning, multi-level partnerships, evaluation, application of innovative financing tools; or will the lack of preparedness prevent countries to use these opportunities at the right levels?

So for the coming years the importance of ‘coherence’ is unquestionable. Let’s see whether all the priorities and new prospects will be coherent with the amounts of the MFF, with the requirements laid down for EU countries and even for the final beneficiaries.

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