EU cohesion reform burdened by debt rules

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The European Commission has unveiled yesterday (6 October) its blueprint for the next generation of EU cohesion funds after 2013, under which it will be able to suspend funding if member states flout budget rules or breach the EU’s Stability and Growth Pact. 

Calling it a last resort action, Johannes Hahn, Commissioner in charge of regional policy, tried to counter criticism at the proposal and underlined that the effectiveness of cohesion policy in promoting growth and jobs depended significantly on countries’ sound macro-economic policies.

Taking stock of past experiences, Hahn said, the Commission felt it was necessary to establish a tighter link between EU cohesion funding and the countries’ economic and fiscal policies.

Rocky start

The move has already attracted a flurry of criticism, if not clear opposition. Leading MEPs and the Committee of Regions have immediately voiced their reservations.

Centre-right French MEP, Elisabeth Morin-Chartier, who is also in charge of drafting the report on the legislative proposal for the Parliament’s Employment Committee, expressed clear reservations saying that “we cannot impose a double penalty on countries already in difficulty.”

“It is an indirect punishment,” added Danuta Hübner, chair of the European Parliament Regional development committee, going as far as saying that “we are creating a monster.”

Hübner conceded that regional authorities will be puzzled by the proposal and member states will likely be divided, especially if they are big receiver of structural funds.  

“We are focusing too much on stability and not enough on growth,” Hübner slammed.

The EU advisory body on regional policy, the Committee of the Regions (COR), has indeed highlighted the damaging knock-on effects that the 'funding suspension' would have on the ground.

 "The current crisis has devastating effects on our regions and cities, and EU support has a crucial role to play in their economic recovery. This is why we cannot accept the proposed 'funding suspension' for countries breaching EU deficit and debt rules,” said COR president, Mercedes Bresso, adding that withdrawing EU funding from an already ailing economy will only make matters worse.

Critics underline that the measure does nothing else but punish regional and local authorities for the failures of national governments.

The case of Greece is symptomatic. Hübner stressed that suspending regional aid would damage efforts to boost growth and development in the EU's poorest countries, especially those such as Greece that are dependent on EU aid.

She said central and eastern European member states were likely to oppose the Commission’s proposal on this point.

Indeed, a number of Eastern European national chambers have already raised their concern.

The Czech Senate in a note to the European Parliament has raise its objection and said conditionality of cohesion funds in relation to meeting fiscal or macroeconomic rules can only be applied if all other expenditures of the EU budget are also subject to this conditionality.

The Romanian Senate also said it was opposed of establishing additional negative conditionalities, adding that the current regulations provide sufficient levers to ensure that funds’ objectives and programmes are implemented.

“The new cohesion policy must not include conditionalities that do not have direct connection with the implementation of interventions financed form the structural and cohesion funds,” reads a note.

Despite the rocky start, the €336 billion legislative package, aligned with the priorities of the long-term Europe 2020 strategy, does bring a few innovations that will likely gather some consensus.

Simpler rules and fewer investment priorities

In order to boost efficiency, the EU executive has come up with a single set of rules for five funds, including the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund, the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF).

This simplification comes alongside the built-up of a new regional architecture, introducing the distinction between three categories of regions: less developed regions (GDP per capita of less than 75% of EU average), transition regions (GDP per capita between 75% and 90%) and more developed regions (GDP per capita with more than 90% of EU average).

Such distinction has allowed richer countries to remain eligible for structural funds. Funds will still go to the neediest and most problem-ridden regions, but transition regions will still be able to access funds to further boost investments in innovation, energy efficiency, social cohesion and competiveness.

“The administrative and financial procedures linked to structural funds have often discouraged SMEs from profiting from funding. Today’s simplification proposals and the introduction of a core common set of rules can bring about a change of season,” commented positively Andrea Benassi, secretary-general of UEAPME, the European federation representing SMEs.  

The Commission has also streamlined the number of priorities, in line with its Europe 2020 strategy. In more developed regions, the bulk of investments will go to innovation, support of SMEs, energy efficiency and renewables, while in least developed regions these priorities are balanced 50/50 with development needs towards employment, education and poverty reduction.

Overcome funds absorption capacity

Officials in Brussels have also tried to remedy the difficulties encountered by many EU countries to absorb large volumes of EU funds over a limited period of time, especially as debt-laden countries have struggled to provide national co-financing.

The EU proposal has therefore capped the maximum allocation of EU funds at 2.5% of member state Gross National Income (GNI), as compared to 4% in the current period. A temporary increase in the co-financing rate by 10% is also proposed, in order to reduce the strain on national budgets at a time of fiscal consolidation.

Daniela Vincenti

“The package of proposals has the potential to create a modern cohesion policy in line with Europe’s policy agenda and the needs and expectations of its 20 million SMEs. We are very pleased to see that many of our suggestions were taken on board, namely when it comes to introducing the concept of ‘multilevel governance’, reducing administrative burdens and ‘ring-fencing’ funds for SMEs and for innovation”, said Andrea Benassi, Secretary-General of UEAPME, the SMEs European association.

“The ‘Partnership Contracts’ are an additional reason to rejoice, as they will ensure spending in line with Europe’s strategic objectives while at the same time enabling Member States to cater to their own specific situation.

On the negative side, UEAPME expressed concerns on some aspects of the new regulation on the European Social Fund, which seems to put social partners and non-governmental organisations on an equal footing.

Michael Schneider, EPP Group leader in the COR, said that the ongoing concern for less red tape and consistently simpler administrative procedures for the allocation, use, settlement and monitoring of financial resources from the EU structural funds has been addressed.

According to the EPP Group in the CoR, reviewing the efficiency and effectiveness of European cohesion policy has to be a priority for the next programming period, not least against the backdrop of ever-scarcer financial resources.

"Even at a time of crisis and limited public budgets, we have to ensure that projects have an appropriate financial contribution from the national and regional public budget. This is the only way to ensure their success, " he said.

“There is concern over the suggestion to establish a closer link between cohesion policy, of which the ESF is one component, and European economic governance. “This highlights the general tendency in the EU to focus on financial and fiscal orthodoxy to the detriment of the social inclusion objective within in the Europe 2020 Strategy”, said Conny Reuter, Solidar secretary-general, adding it will hurt the most vulnerable and disadvantaged.

“The people already affected by the crisis will be punished twice: by the reduction of their income through austerity measures and by being deprived of the financial support to combat poverty and social exclusion,” he said.

Green MEP and spokesperson for regional affairs Elisabeth Schroedter said the package is undermined by suggestions to cut funding for member states with high budget deficits as a punitive measure.

However, the Green MEP said the package succeeds in creating a European added-value on the one hand, while leaving the regions relatively free to decide how they reach the goals set out in the Europe 2020 Strategy on the other hand. 

The EU cohesion policy is implemented through 455 programmes, which run for the duration of the EU seven-year budget cycle until 2013.

Within the current financial framework (2007-2013), spending on regional policy amounts to an average of almost €50 billion per year, which is more than one third (35.7%) of the total EU budget.

Regional policy spending is channelled through three funds – often called 'Structural Funds'. These are the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund.

The three main objectives of the EU’s cohesion policy are at the moment: Convergence, Regional Competitiveness and Employment, and European Territorial Cooperation.

  • Dec. 2011: Commission proposal on Common Strategic Framework
  • Jan. 2012: Public consultation on Common Strategic Framework
  • 2012-2013: Agreement on the Multi-annual Financial Framework 2014-1020 and adoption of a new legislative packge
  • 2014: Entry into force and adoption of programmes

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