On Tuesday 7 January, the Jacques Delors Institute and the Centre for European Policy Studies (CEPS) presented the European Parliament’s Committee on Budgetary Control with a joint report on the ability of the EU budget to cope with future crises.
Based on the EU’s responses to the Covid-19 crisis, the report proposes a number of solutions for the next post-2027 Multiannual Financial Framework (MFF) (see EUROPE 13543/16). Above all, the two think tanks point out a paradox introduced by crisis management for the EU: while its budget, “in its current form, is mostly a long-term investment budget”, crises such as Covid-19 or natural disasters impose a short-termist timetable.
A traditional pillar of the European budget, cohesion policy has logically been used to fund responses to crises (from Covid-19 to more localised climatic disasters in recent years). For example, the CRII and CRII+ instruments introduced the redeployment of 2014-2020 cohesion funds and REACT-EU made it possible to grant Member States additional funds under cohesion policy.
According to the report, the use of the Cohesion Fund, which is supposed to invest in and help the EU’s least well-off regions, should be regulated and capped. It is specified that the EU should come to the support of the Member States and not finance 100% of the projects in the event of a crisis, as was the case during the Covid-19 pandemic. The report points out that the primary responsibility for crisis management lies with the Member States.
Adapting the Cohesion Fund. The report identified four options for regulating the use of cohesion policy funds in response to crises: - establish a general system of flexibility in the event of a crisis, which would allow cohesion funds to be used once the EU Council has recognised the existence of a crisis; - a thematic flexibility scheme for natural disasters, based on the Commission’s RESTORE proposal, which would allow Member States to reallocate cohesion resources to deal with natural disasters (see EUROPE 13549/12) up to a maximum of 10% of their national cohesion envelope; - establish voluntary national crisis reserves to provide authorities with additional funds in the event of a natural disaster; - create a crisis reserve dedicated to cohesion at EU level, to be managed by the Commission and activated in the event of a serious crisis affecting the EU as a whole or a single Member State.
Set up loan and borrowing mechanisms. Should the SURE mechanism of loans granted by the EU to Member States that request them be transformed into a permanent instrument? The report agrees that the facility has been a successful response to the pandemic, but proposes to integrate its possibilities into the scope of the European Financial Stabilisation Mechanism (EFSM) in order to frame lending at EU level in a single facility.
The ‘Recovery and Resilience Facility’ model, which was deployed in response to the pandemic, has the advantage, according to the study, of aiming to “increase long-term resilience instead of immediate crisis relief”, by linking the allocation of public funds to the achievement of specific objectives, in line with the principle of performance-based budgeting.
While this budgetary approach is “likely to become increasingly used” and has the merit of being based on conditionality (reforms are to be carried out in exchange for the funds granted to the Member States), the report considers that it may not be the most appropriate in times of crisis, particularly because failure to achieve the objectives could “lead to multiple interruptions of aid” at times when it should be continuous.
Moreover, its effectiveness has been tempered by a proliferation of budgetary errors, according to the European Court of Auditors (see EUROPE 13501/15). The report explains that the use of “non-cost related funding” limits “the ability of EU audit and control authorities to monitor the use of funds managed at national level”. However, according to the Jacques Delors Institute and the CEPS, “crises often increase the likelihood of fraud and irregularities”.
Conditionality and control. According to the report, recourse to these mechanisms should neither be automatic nor activated by the Member States, but after validation by the Council of the EU and/or the European Commission. For example, financial support could be extended to all SMEs in the event of a crisis, but “with minimum conditions to be met (minimum social, employment, climate or environmental standards)”.
On the subject of responses to natural disasters, the Jacques Delors Institute and the CEPS endorse the Niinistö report’s proposal to invest at least 15% of the European Solidarity Fund (EUSF) received in reducing climate risks.
Support for the repair of damaged infrastructure should also be conditional on compliance with the ‘build back better’ principle, according to the two think tanks.
Establishing budgetary responses to crises will have to entail guarantees of budgetary control, insists the report. For example, Member States should adapt their systems to enable the use of funds to be monitored and create simple result indicators to track performance. For its part, the Commission should, according to the two think tanks, develop specific reporting tools relating to the use of the funds.
Read the report: https://aeur.eu/f/eyp (Original version in French by Florent Servia)