Cohesion & NextGenerationEU: Europe’s double‑act for recovery?
By Andrey Novakov, Member of the European Parliament
When the pandemic hit the European Union in early 2020, it also affected and endangered the economic and social convergence process supported by the various EU funds in the cohesion area. The NextGenerationEu initiative (NGEU) is intended to address the pandemic’s economic consequences and restore convergence. But how best to do this in harmony with the cohesion instruments that already exist? Andrey Novakov has been a Member of the European Parliament since 2014. As a member of the Parliament’s Committee on Regional Development (REGI), he was rapporteur for the Common Provisions Regulation, which sets out the common rules for EU shared management funds. Below he makes the case for several practical measures that could be taken to avoid competition between cohesion and the NGEU, instead ensuring, through complementarity and synergies, that optimal use is made of the sizeable volume of EU funds available.
Cohesion & NextGenerationEu in the context of COVID‑19 and the Russian war on Ukraine
The COVID‑19 pandemic was an unprecedented and unexpected event that caused a major shock to society, affecting people, businesses and national, regional and local public authorities (1). The EU needed to act fast, and it needed to act effectively. Cohesion policy played a major role during the pandemic, allowing Member States great flexibility in their use of billions in EU funding for recovery. So cohesion funding was the first EU response, but it was not the only one. NextGenerationEu entered the mix with a package of over €800 billion for recovery and repairs to the socioeconomic fallout from the pandemic. Then a new crisis in the history of the EU emerged with the Russian war on Ukraine. The flood of Ukrainian refugees and the economic impact of the war led to the Cohesion’s Action for Refugees in Europe (CARE) and CARE+ proposals. However, implementing all that funding has turned out to be a headache.
The paradox: delays in the flow of EU money just when it is most needed
There has been unprecedented delay in deploying cohesion policy programmes. So far the Commission has received for approval only 13 cohesion partnership agreements and not many more than 100 draft cohesion programmes (2). Technically speaking, the programmes should have been in operation as of 1 January 2021. Fifteen months later, none of the 2021‑2027 cohesion policy budget has yet been implemented. In essence, the Member States missed the opportunity to invest €49 billion from the EU budget under the Common Provisions Regulation (CPR) — the EU’s entire cohesion policy allocation for 2021. The Commission was therefore obliged to propose a correction to the multiannual financial framework (MFF) allocations to cohesion policy, aiming to redistribute the unused amount in four equal parts over the next four years (3). This internal reshuffling is not a serious issue for the moment, but it might be in the context of the €392 billion in CPR funding which has to be absorbed by Member States and regions before the end of 2027. All these carryovers do is postpone the solution to the problem. Adding one quarter of the €49 billion to the 2022 allocation will only make matters worse. Moreover, if the Member States ended up not using their 2022 cohesion allocations, that money would be gone for good.
The bottom line is that delays are affecting the ability of national governments, regions, cities and villages to implement cohesion projects of great significance for local people, the economy and the environment. The worst is yet to come, as potential losses in cohesion funding due to an inability to make financial commitments mean that projects will not happen at all or, if they do, will have to be charged to central, regional and municipal budgets. Doing that would further exacerbate existing budget deficits.
The unprecedented delay was the reason why, through the Committee on Regional Development (REGI), I initiated a request for a debate during the European Parliament plenary in March 2022. During that debate (4), for the first time in the 2021‑2027 programming period, we voiced our concerns about the slow pace of implementation. It is significant that the debate took place as war was raging in Ukraine and millions of refugees were fleeing to the EU. Refugee support is one possibility covered by the CPR; it cannot be overlooked that, if cohesion programmes had been in place, we could have invested billions of euros in integration measures. Instead, the lack of the necessary funding forced the Commission to come up with extra flexibility under the CARE (5) and CARE+ proposals (6) , which loosen the previous cohesion rules and mobilise the Recovery Assistance for Cohesion and the Territories of Europe (REACT‑EU) resource that was originally promised to Member States for tackling the impacts of COVID‑19.
Cohesion and NextGenerationEu: frenemies and coopetition
To put the situation in context, it is important to understand that, at this very moment, the Member States are closing the 2014‑2020 programming period, trying to launch their 2021‑2027 programmes, investing their REACT‑EU allocations and doing their best to make sure they absorb all the funding available from the Recovery and Resilience Facility (RRF) through their national recovery and resilience plans. The truth is that there is simply too much funding to deal with simultaneously, and the Member States do not have the administrative capacity to handle the challenge. Attempting to carry out all of the above tasks in parallel could lead to under‑implementation, because Member States have to prioritise funding instruments by their eligibility deadline. The choice is obvious: start with REACT‑EU, go on to the RRF, and focus only then on the 2021‑2027 cohesion programmes.
It appears, therefore, that NextGenerationEu is competing directly with the 2021‑2027 cohesion policy. Things were never intended to be like this, and there is a real problem. Not only as regards the use of budgets, but also as regards outcomes. Cohesion policy and the RRF were supposed to be the new budgetary tandem, two sides of the same coin, complementing one another and working in synergy. The rules of the RRF and cohesion policy explicitly tackle concerns about demarcation, complementarity and synergies. However, it seems the solutions only exist on paper.
The consequence of delayed implementation will be to slow down achievement of the EU’s climate targets. Decarbonisation, energy transition, climate resilience and sustainability will all suffer.
Apart from the issues of budgets and outcomes, there are the problems of quality, transparency and accountability. The race to absorb funding fully may increase the risk of irregularities, including fraud. Statistically speaking, the more is spent, the higher the risk of irregularities. Pressure to absorb will only amplify the risk to the EU budget and compel greater efforts to protect the EU’s financial interests.
According to the Commission, the delays were caused by the need to react to the COVID‑19 pandemic through the Coronavirus Response Investment Initiative (CRII), REACT‑EU and the RRF (7), with the late adoption of the 2021‑2027 MFF as another factor not to be disregarded (8). However, one could question this conclusion. Looking at the implementation deadlines, it is objectively difficult to believe that such an enormous amount of financing could be effectively implemented by 2026 as required by the RRF Regulation.
The Member States face an extremely heavy workload, but if we stop urging them on we risk losing momentum. Unless there are synergies between cohesion funding and the RRF (the largest instrument in the NGEU package), with coherence, convergence and coordination between the two, neither one will be successfully implemented.
Finding solutions in the context of the current crisis
The March 2022 plenary debate on the delayed implementation of cohesion policy was followed by a European Parliament resolution that was adopted during the April session in Strasbourg. Again, my team and I were behind the idea of a debate because we needed to publicise concrete ideas. I am glad that the REGI Committee backed this initiative. The adopted document underlines the issue of the late start but also proposes solutions.
For example, it calls on the Member States, instead of prioritising the implementation of national recovery and resilience plans over that of cohesion programmes, to regard the RRF and cohesion policy as a budgetary and operational tandem. Another solution provided for in the resolution would be for the Commission to take full advantage of the possibilities offered by the new CPR for the faster approval of partnership agreements and programmes. The resolution also calls on the Commission to put forward a contingency plan to mitigate the risk of under‑implementation and decommitments due to the late start of cohesion programmes; this would be done by means of a legislative proposal at the mid‑term review and, if necessary, a corresponding revision of the MFF.
We welcome the CARE and CARE+ proposals, which Parliament adopted through the emergency procedure. However, as noted in the resolution, Parliament does not think that these proposals would be enough to tackle the fallout of Russia’s aggression on Ukraine, which includes serious implications for the EU. Therefore, we called for the mobilisation of 2022 cohesion policy allocations (these are currently at risk of decommitment) for use as an urgent reaction to the energy and supply crisis and the flood of Ukrainian refugees entering the EU.
Only recently, my team and I developed an additional proposal for addressing the stall in EU‑funded infrastructure projects because of the hike in the price of building and raw materials. Inflation [may be] the single biggest risk to current and future infrastructure projects, whose budgets use pre‑inflation prices that are now outdated. Many projects may not be finished owing to the highly inflated cost of materials. We are calling for the establishment of a compensation mechanism, to be known as ‘Construct‑EU’ (EPP Group economic relief package, Group of the European People’s Party, April 2022 ), that would mobilise €11.6 billion to cover inflation in the cost of infrastructure projects (transport, energy, social and digital). This measure would be voluntary, and it would cover costs retroactively (back to 1 January 2021). By supporting projects through to completion, it would promote employment and consumption, save contractors from bankruptcy and dampen the effects of any recession. The money would come from the €46.4 billion of cohesion appropriations that the Member States did not use in 2021 due to the huge delay in the deployment of cohesion programmes.
The future of cohesion policy will be tackled by the EPP Cohesion Monitoring Group
Last year my team and I came up with the idea of establishing a forum in which Members of the European Parliament would be able to discuss and resolve cohesion policy issues. The idea was triggered by the obvious delays in the implementation of cohesion policy and the competition between cohesion and the RRF. On 8 March 2022, our idea became reality. We launched the Cohesion Monitoring Group (CMG), an official structure of the Group of the European People’s Party in the European Parliament. This is a cross‑committee forum open to all EPP MEPs who are interested in how approximately one third of the EU budget is channelled towards investments that deliver the EU’s political priorities and strengthen economic, social and territorial cohesion.
Our focus areas are the visibility of cohesion policy results and their impact on EU citizens, businesses and regions, tracking the closure of the 2014‑2020 cohesion policy and the implementation of its successor for 2021‑2027, and shaping the future of cohesion beyond 2027. The CMG will operate in various formats to accommodate invited Commission representatives, representatives of regional and national authorities, mayors, managing authorities, beneficiaries and other stakeholders. It will be a platform for presenting cohesion policy success stories and organising study visits to Member States, regions, cities and specific projects.
As early as 2024, we will take the first steps towards defining the future of cohesion. Our goal is to be the first to propose a fully‑fledged concept for the future of this traditional but still vital policy!
This article was first published on the 1/2022 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.