Audit shines light on EU’s attempt to mimic America’s celebrated MIT

José Manuel Barroso during a visit to Hungary in September 2014. [European Commission]

This article is part of our special report Innovation and entrepreneurship.

The Court of Auditors has issued a humbling review of the European Institute of Technology (EIT), tainting the legacy of José Manuel  Barroso, the former President of the European Commission, who spearheaded what was initially intended a showcase EU project.

The EIT was created in 2008 with the aim of bringing together the worlds of academia, research and business in what is known as the “innovation triangle”.

Hundreds of European start-ups have already benefitted from EIT funding in the areas of climate change, energy and information technology.

But the EU agency “is impeded in its effectiveness by a complex operational framework and management problems”, auditors said in a report, published earlier this month (14 April).

Participating businesses have complained that the partnerships established by the EIT ― so-called Knowledge and Innovation Communities, or KICs ― were driven too much by the needs of universities rather than the marketplace.

“Projects were frequently abandoned or did not lead to tangible results,” the report said.

“While the main reasons for setting up the Institute were well-founded,” the auditors concluded that “a number of important changes are needed” in order for the EIT to deliver on its objective.

The court’s tough assessment is an embarrassment for the European Commission, which obtained a spectacular increase in the EIT’s budget. From a “mere” €309 million in the EU’s previous multiannual budget (2007-2013), the EIT’s funding was multiplied eightfold to a whopping €2.35 billion in the current budgetary period, which runs from 2014 to 2020.

Vassiliou defends funding boost for EU's fledgling 'innovation factory'

The European Institute of Innovation and Technology (EIT), set up three years ago, is still in its infancy but the European Commission has already called for a €3-billion budget boost to help it reach cruising speed despite criticisms over meagre results and excessive bureaucracy.

Barroso’s brainchild

The brainchild of former Commission President José Manuel Barroso who first floated the idea in 2005, the project ran into difficulties as soon as the proposal landed on the table of national leaders.

Initially conceived as a European version of the Massachusetts Institute of Technology (MIT), complete with a campus and world-class instructors, the EIT’s ambitions had to be dramatically scaled back after sceptical EU countries watered down the proposal.

Faced with member states’ reluctance, Barroso fought tooth and nail to keep his idea alive. And as often happens with big European projects, the end result was a complex setting: A headquarter located in Budapest (after the usual bickering between national capitals), no campus, but a series of “co-location” centres for virtual networks of businesses, research institutes and universities working in so-called Knowledge and Innovation Communities (KICs) set up as autonomous entities that auditors say are subject to “unnecessarily complicated” reporting requirements.

For EU auditors, the conclusion is clear―it is the entire “design” of the EIT which needs to be reconsidered.

“If the EIT wants to become the groundbreaking, innovative institute it was originally conceived to be, significant legislative and operational adjustments are required,” said Alex Brenninkmeijer, the Member of the European Court of Auditors responsible for the report.

To be fair, a large part of those criticisms are not new and refer to the early days of the EIT.

An independent report published in 2011 had already highlighted teething problems, pointing to “inefficiencies” in the EIT’s management. “Tensions” soon emerged between the EIT and European Commission staff in charge of supervising the Budapest-based agency, leading to “misunderstanding, frustration and inefficient behaviour”.

Structural problems

However, the agency’s structural problems have remained largely unaddressed, according to the European Court of Auditors, whose mission is to ensure EU taxpayer’s money is being wisely spent.

“Seven years after its inception, the EIT is still not fully operationally independent from the European Commission,” the auditors remarked, saying “this has hampered its decision-making.”

At the centre of the report are the three Knowledge and Innovation Communities (KICs) launched in 2010 in the areas of climate change, energy and information technology. Although KICs are designed to function as autonomous entities, they have been hampered by paperwork.

The first three KICs currently comprise over 500 partners ― universities, research centres and private companies ― each of which are required to produce yearly financial activity reports to secure funding for the following year. This implies lots of red tape and less time to deliver, they complained. It also adds uncertainty for KIC partners who have no guarantee that their activities will be prolonged for more than a year.

These administrative problems are featured prominently in the auditors’ report, which recommends removing certain funding conditions imposed on KICs, and “alleviate the operational and financial reporting burden of the KIC partners”.

Commission wants ‘more efficient’ management

The European Commission, which oversees the EIT at political level, recognises weaknesses in the way KICs have been managed until now.

“The administrative capacity sometimes lags behind,” admitted Tibor Navracsics, the EU Commissioner in charge of Education, Culture, Multilingualism and Youth responsible for supervising the EIT. In an effort to address these problems, he said an expert group was set up at the end of last year to reform the agency.

The reform process has been launched and will start bearing fruit in the coming months, Navracsics promised. “I would like to see a more efficient and compact administrative centre,” he told in an interview, announcing a new management structure will soon be in place.

“I know that the initial funding period was probably a little bit slow and complicated, but now I think we are on the right track,” he claimed.

Navracsics: EIT must be ‘more visible, more transparent and more compact’

The beginnings of the European Institute of Technology (EIT), created in 2008, were “probably a little bit slow and complicated,” admits Tibor Navracsics, the Commissioner overseeing the EU’s flagship innovation agency. But things should be back on track soon, he told EURACTIV.

Auditors applauded the decision to review the EIT’s management but said promises must now be followed by “real action, not just words”.

The Budapest-based agency “still has a mountain to climb,” said Brenninkmeijer, who was appearing before the European Parliament Committee on Budgetary Control last Wednesday (20 April).

“The EIT is under-staffed and has been poorly managed. Its funding is based on a poorly defined concept; its claims to have a leverage effect are undemonstrated and implausible,” he said.  What’s more, he said, few of the five KICs already established are likely to reach financial sustainability.

The court’s harsh assessment is disputed by the EIT’s Interim Director, Martin Kern.

“Financial sustainability of the KICs was never meant to be achieved in the first few years, so we think the court’s opinion is quite premature,” Kern told EURACTIV.

Kern also pointed to issues that have already been solved, saying there is broad agreement, for example, to extend the annual budgetary cycles of the KICs. But he said that other parts of the recommendations in the auditors’ report will require passing new legislation, a process involving the European Parliament and Council which always takes time.

Until those changes are implemented, the EIT is likely to run into criticism from the European Parliament next time its budget comes to a vote. Last year, MEPs warned the agency must prove its funds were well spent before approving its accounts.

“The EIT is a long-standing administrative and financial problem,” the EPP-affiliated German MEP Ingeborg Graessle (CDU) told reporters last year, as Parliament again delayed approval of the agency’s budget.

The EIT will be subject to a review in mid-2017, spanning all aspects of its organisation.

EIT chief: 'We will be able to satisfy Parliament'

SPECIAL REPORT / The head of the European Institute of Innovation and Technology (EIT) said that concerns in Parliament about the management of funds is a historic issue. He is confident that the Budapest-based institution will be able to overcome the concerns of MEPs.

The centrepiece of the European Commission's efforts to foster research cooperation across the EU is the European Institute of Innovation and Technology, originally modelled on the US-based Massachusetts Institute of Technology (MIT).

The EIT is the brainchild of Commission President José Manuel Barroso, who first pushed the idea in February 2005.

The EIT's aim is to strengthen the European 'knowledge-triangle' of research, education and technology-transfer by providing a world-class model for teaching and research partnerships between academia and business.

In December 2009, the EIT launched its first three innovation clusters – the Knowledge and Innovation Communities (KICs) – focusing on climate change, energy and information technology.

Under the EU's Horizon 2020 research and innovation programme, the EIT’s budget will increase significantly.

The EIT was set to receive €2.35 billion for 2014-2020, 3.5% of the overall EU research and innovation budget. This represents a significant increase from the initial EIT start-up budget, which was around €300 million for 2008 to 2013. But is subject to a cut following the Commission's new investment plan (the Juncker Plan).

  • 25-26 April: InnovEIT 2016 conference in Budapest
  • Mid-2017: EIT mid-term review

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