Regions reject linking EU funds to budget rules


Local government leaders have spoken out against plans by the European Commission to suspend the payment of EU funds to countries that fail to rein in their national budget deficits and keep a lid on public debt levels. They claim that it is unfair to punish regions for decisions taken at national level.

"Regions must not be punished for the failures of their national governments," said Mercedes Bresso, president of the Committee of the Regions, which represents local and regional governments in all the 27 member states of the EU.

Bresso was speaking directly to Johannes Hahn, the EU commissioner responsible for regional policy, at a round table event in Brussels on Tuesday (16 November).

"Freezing EU funds for countries that breach the Stability Pact is not a solution," said Bresso, who warned that such sanctions would have serious negative consequences for the regions affected, which could include some of Europe's poorest regions.

Bresso, who is a former president of the Piedmont Region in northern Italy, said that penalising regions for mistakes made by national governments would not be consistent with the principle of subsidiarity. This principle is enshrined in the EU Treaties and entails respect for the autonomy of national and regional governments.

Macroeconomic conditionality 'is not acceptable'

Bresso's concerns were echoed across the regional agora.

The Council of European Municipalities and Regions (CEMR) "is very much against the proposed conditionality related to the stability and growth pact," according to Old?ich Vlasák, its executive president, who is also a Czech member of the European Parliament. He insisted that cohesion policy should not be used as "a corrective instrument to ensure the sound financial management of member states".

The same concern is shared by Jean-Yves Le Drian, president of the Conference of Peripheral Maritime Regions. "Macroeconomic conditionality is not acceptable for us," said Le Drian, who is also president of the Regional Council of Brittany (France). He underlined that regional governments "have no direct responsibility for respecting the Stability Pact".

During the current period, which started in 2007, the EU's regional policy spending is channelled through three funds – also called 'Structural Funds'. These are the European Fund for Regional Development (EFRD), the European Social Fund (ESF) and the Cohesion Fund.

The European Fund for Regional Development (EFRD) is the largest of the structural funds, with a total budget of around €29 billion per year. The European Social Fund (ESF) provides money for employment and training schemes, with an annual budget of some €11 billion. The Cohesion Fund provides extra support to the poorest countries, with an average budget of €10 billion per year in the current period.

Commission wants link with national budgets

Under the current rules for the Cohesion Fund, published in 2006, it is possible for the EU to suspend payments to any member state that lets its national budget deficit get out of control. This is one of a range of sanctions that can be imposed on countries within the euro zone that fail to follow the rules laid down in the Stability and Growth Pact.

While the possibility exists in theory for a member state to have its funding frozen, the sanctions have not yet been applied in practice. However, in the context of concerns over sovereign debt levels in certain eurozone countries, the European Commission has come forward with proposals to expand the range of sanctions available.

In May 2010, the Commission published a set of proposals to strengthen the coordination of economic policies across the EU. Noting that the Cohesion Fund only covers a limited number of member states, it called for greater use to be made of the EU budget in order "to ensure better compliance with the rules of the Stability and Growth Pact".

More details were provided on 30 June, when the Commission proposed "a new system of financial sanctions and incentives". Such sanctions could include suspending or cancelling payments from the EU budget to member states that break the rules, including "most expenditures related to cohesion policy".

The Commission's budget review (published in October 2010) proposes that each member state should be expected to agree and sign a 'Partnership Contract', describing how EU funds would be used and fixing quantified targets. It also implies that the payment of funds should be directly linked to the achievement of these targets.

In the conclusions of its 5th Cohesion Report on regional policy, published on 10 November, the Commission refers to the concept of 'conditionality', which means that funding commitments will only be paid out when certain conditions have been met.

Commissioner seeks to allay fears

Speaking today (18 November) at an event in Brussels, Commissioner Hahn sought to reassure regional governments, which are worried about proposals to block payments of EU funds to regions in member states that break the rules laid down in the Stability and Growth Pact.

When asked by EURACTIV to comment on the proposal, Hahn pointed out that it had not yet been accepted by member states, and admitted it was unlikely the Council of Ministers would agree to impose such sanctions on a country facing serious difficulties with its national finances.

"I don't believe that at the Council there will be a majority for that," said Hahn.

The regional policy of the European Union has the overall goal of promoting economic prosperity and social cohesion throughout the 27 member states and their 271 regions.

Within the current financial framework (2007-2013), spending on regional policy amounts to an average of €50 billion per year – approximately one third of the total EU budget.

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

Over 80% of the funding is reserved for the poorest regions. These are mostly to be found in the 'new' member states (in Central and Eastern Europe) as well as Greece, Portugal, Spain and southern Italy.

On 10 November 2010, the European Commission published the 5th Cohesion Report – including a number of proposals for reforming EU regional policy before the next programmes will begin in 2014.

  • 22-23 Nov. 2010: Informal EU ministerial meeting on cohesion policy (Liège, Belgium).
  • 7 Dec. 2010: 'Cohesion in Europe: Regions take up the challenge' Conference organised by the Assembly of European Regions (AER), Brussels.
  • 31 Jan. 2011: 5th Cohesion Forum organised by the European Commission (Brussels).

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