Dec 20, 2022
‘The mere creation of the RRF is a sign of resilience [in itself]’
Interview with Valdis Dombrovskis, Executive Vice President of the European Commission for an Economy that Works for People
While the Recovery and Resilience Facility covers many policy areas, ranging from greening requirements to education and skills policies, for many people its main aim is to mitigate the economic and social impact of the COVID-19 pandemic and make European economies more resilient to future shocks. When the RRF was presented in summer 2020 as the centrepiece of the NextGenerationEU initiative, it was clear that those responsible for financial and economic issues at the European Commission would play a substantial role in setting it up and carrying it out. This has proved to be the case. Valdis Dombrovskis is Executive Vice President of the European Commission, chairing the Commissioners’ group on an Economy that Works for People, and also Commissioner for Trade. Putting the RRF into effect falls within his responsibilities. As he explains, this task not only has economic and social aspects, but also requires flexibility and stamina to meet commitments and anticipate developments in current affairs in order to bring about recovery and strengthen resilience.
By Gaston Moonen
Assessments done, implementation on track
If you look at Valdis Dombrovskis’ portfolio on the European Commission website, you will see a long list of tasks for which he is responsible. So as well as being very busy, he is also active at many different meetings. Valdis Dombrovskis drily acknowledges that there is a lot of work going on at the moment. ‘I would say that with the Russian aggression against Ukraine and dealing with the various elements related to that, things have even become busier. But that’s how the work is organised in the European Commission — the executive vice presidents have broad policy areas to cover. And for me this also includes responsibilities regarding the Recovery and Resilience Facility, the RRF.’
Setting up the RRF was a rather challenging task, he says: ‘Challenging but also very interesting to create, in many ways, such a coordinated European response to the COVID-19 crisis, including for the first time doing large-scale EU common borrowing to finance such a common response. And an instrument that is totally performance-based, linking reforms and investments. I am glad that we managed to set up the RRF and now it’s already — one can say — up and running and our focus is now on the implementation.’
Part of his role as coordinator was to present the RRF with the related national recovery and resilience plans (NRRPs), to the College of Commissioners. But that was far from all: ‘Also, I was the one doing the trilogues [with the European Parliament and the Council] during the legislative phase on setting up the RRF Regulation. Regarding the organisation of work within the Commission on individual plans, there is a steering board with the President of the Commission, myself and the other two Executive Vice Presidents, Commissioner for the Economy Paolo Gentiloni, and the two Directors-General of ECFIN and RECOVER. In this steering board, we discussed matters and also divided responsibilities for individual Member States. So each member of the steering board had a certain number of Member States to deal with, with “more hands on.” But all in a flexible way, because often enough it happened that a minister from a Member State wanted to talk with me or with the Commissioner for Economic Affairs.’
All in all, Valdis Dombrovskis sees the RRF assessments and implementation as moving forward at a good pace. ‘As the European Commission, we have already positively assessed 26 out of 27 NRRPs. The only outstanding one is from Hungary, where the work continues. Now we have already endorsement of 26 plans by the Council, the latest one being the Dutch NRRP. We have disbursed pre-financing to a number of Member States and have received by this time 14 payment requests. So, all in all, we have already disbursed — by end of October 2022 — €115.5 billion, out of this overall RRF envelope of €723.8 billion at current prices.’ He concludes that the implementation is on track and progressing well.
He adds that he has not seen any major setbacks regarding the RRF. ‘Of course, no misunderstanding here: it’s a challenge. There is a lot of work with the Member States, first on setting up the plans and now on checking that the milestones and targets are met before doing disbursements.’ He explains that a new stage will be coming when many Member States will prepare ‘adjusted plans’. ‘A number of Member States are receiving additional grant allocations and we need to see how those allocations are going to be used. And we have also proposed this REPowerEU initiative, our plan to rapidly reduce dependence on Russian fossil fuels. If it is adopted, it would mean that Member States would also need to prepare dedicated REPowerEU chapters in their recovery and resilience plan to address the immediate security of energy supply issues in Member States related to Russia’s war against Ukraine and disruptions in Russia’s fossil fuel supplies.’
Besides external factors, internal and more nationally related factors might also trigger changes, or at least change a Member State’s commitment to executing the plan. When asked whether, for example, a change of government in a Member State — as we recently saw in Italy — might be a good reason to change an NRRP, Valdis Dombrovskis is not convinced. ‘What we emphasised a lot to Member States is that, once the recovery and resilience plans are approved, it’s important to focus on their implementation. Of course, there is the possibility, as we discussed previously, for Member States to come with addendums to the plans — if the grant allocation has changed or there is work to be done to focus on REPowerEU elements. But we do not expect that those addendums should lower the overall ambition of the plans, also in terms of structural reforms.’
As he explains, the RRF regulation allows Member States to submit amendments to their plans, provided they can justify that certain milestones and targets are no longer achievable due to objective circumstances. ‘But we will be assessing also very carefully whether they are really objective circumstances which actually prevent Member States from implementing relevant reforms and investments.’ So, he does not consider a mere change of government as grounds for completely re-working an NRRP. ‘In such a case, the whole process starts anew and, given the tight implementation deadlines, it would not be very practical. We really strongly advise Member States to focus on implementation and delivering reforms and investments foreseen in these plans.
Audit and control procedures embedded in various RRF stages
The Commission has said that it has a residual responsibility regarding the implementation phase of the RRF. When discussing what this means regarding the protection of the EU’s financial interests, the Executive Vice President points out that all NRRPs contain assurances on the robustness of national control and audit systems. ‘These assurances, that is something the Commission is considering and has been considering when giving assessment of the plans. As the Commission, we need to come to the conclusion that relevant control and audit systems are adequate before we can provide positive assessment. So that’s already one check.’ He refers to the actual audits that the Commission then carries out regarding the structure, function and capabilities in the Member States. ‘So: review the control and audit systems and the data management systems of authorities in charge of the NRRP implementation. Furthermore, the performance-based nature of the RRF means that disbursements are only possible upon satisfactory fulfilment of milestones and targets, again something which we are checking.’
Another important check relates to assessing the payment request. ‘This includes a check on the summary of audits carried out nationally and a management declaration made by national authorities on the absence of conflict of interest, prevention of fraud, corruption and double funding.’ To clarify, Valdis Dombrovskis says that these checks continue after the payment has been made. ‘The Commission also carries out dedicated audits on achieved milestones and targets. I would say there is a quite strong system of control, of audit to ensure that the financial interests of the Union are protected.’
For the Commission, the management declarations are an important factor in its decisions on RRF payment requests from Member States. ‘If there is fraud taking place and this has led to a milestone or target not being met, we would issue a negative assessment of this milestone or target.’ Valdis Dombrovskis refers to where these checks normally start: with the Member State. ‘So if authorities in a Member State are detecting irregularities, they themselves must take action, they must investigate the situation and they must take corrective measures. This can mean recovering funds, cancelling relevant contracts, then informing the Commission of those irregularities in their management declarations and also in their summary audits.’ If Member States themselves do not act, he says, then the Commission will recover the funds instead of the Member States. ‘We think that with the way the system is structured, there is a clear incentive for a Member State to ensure that all irregularities are corrected.’
In the event that a Member State does not report irregularities, the Executive Vice President explains that the Commission also carries out system audits as part of the RRF audit strategy. ‘In these audits, we also focus on the measures national authorities are taking to prevent, detect and correct any irregularities. This is done by the Commission. But there is also the EU’s anti-fraud office — OLAF, the European Public Prosecutor’s Office, but also the ECA — all having in some way the right to look into any possible irregularities and take action as needed.’
Clear and measurable milestones and targets
One of the key elements that distinguishes the RRF from other EU instruments relating to (most of) cohesion policy or agriculture is its focus on performance as a key criterion for EU disbursement. As Valdis Dombrovskis explains, from the start of the discussions on the NRRPs, this performance-based approach translated into a focus on milestones and targets. ‘When we were discussing with Member States the NRRPs drafted by them, we were putting a lot of attention on having clear and measurable milestones and targets. We have also operational arrangements to further clarify all those elements. Therefore our assessment of performance is whether Member States have been meeting the relevant milestones and targets.’
He clarifies how this works in practice. ‘We, as the Commission, actually do the assessment for whether those milestones and targets are satisfactorily fulfilled. This assessment is the basis for the decisions to provide financing. So it was therefore very important for us to make sure that these milestones and targets are clear and measurable, so that there is a clear basis for the decisions we take. But also for Member States themselves, when they are submitting the payment request.’ He points out that Member States have some flexibility regarding when they submit their payment requests. ‘We really encouraged Member States to submit the payment request only when the relevant milestones and targets for that payment request are clearly met.’
In its special report 21/2022, published last September, the ECA reviewed the Commission’s assessment of the NRRPs and found the assessment to be generally appropriate. One of the ECA’s concerns related to the comparability between the NRRPs regarding, for example, the number of milestones and targets to be achieved for each instalment — some NRRPs showed a strong correlation between instalment level and milestones to be reached, while others did not. The Executive Vice President explains that when the Commission was deciding how to distribute the payments, it also took the planned fulfilment of milestones and targets into account. ‘Here indeed, one can say some Member States’ plans are more front-loaded, especially in terms of reform parts. And some plans are more back-loaded. Generally speaking, we were encouraging Member States to do more front-loaded plans, also, so that if there are any slippages, they are not falling behind implementation deadlines.’
Measures might continue beyond 2026, even if the milestones and targets could only be met before then. Valdis Dombrovskis indicates that this is natural, since large-scale investments can take time to be implemented and Member States often use own funding in addition to the RRF funds. ‘But we were careful in designing these last milestones and targets to provide sufficient assurance that implementation of the relevant measure is indeed on track and will indeed take place.’
As for implementing milestones and targets, Valdis Dombrovskis reported the Commission’s findings to the European Parliament on 12 September 2022. More than 280 milestones and targets had been fulfilled, and the Commission had received 13 payment requests and made payments for eight of them. When discussing whether the Commission had found issues with milestones and targets that should have been met but were not, he says that this was not the case, mainly for two reasons. ‘We are constantly working with Member States, as I indicated, also when they are preparing their payment requests. Generally, our advice to Member States is, in a sense, not to put forward a payment request unless milestones and targets are fully fulfilled — because that then gives us a basis for arriving at a positive assessment of the payment request and making the payment.’
The second reason that he identifies relates to where we are in the process. ‘As to not meeting milestones and targets at this stage, I think we are still in the early stages of implementation. I think the crunch time on this could be more towards the end of the implementation period because currently if the milestone target is not met, a Member State can delay and come back later with a payment request. But once we approach our RRF-related deadlines, that option will not be there.’
The reflection of RRF reforms: country-specific recommendations
Executive Vice President Dombrovskis is also responsible for various economic issues, including leading the work on deepening the Economic and Monetary Union. When discussing how well the RRF plans reconcile with the principles and objectives of the internal market and warrant a continued level playing field between Member States, he points out that this reconciliation was very much a part of designing and assessing the NRRPs. ‘The good functioning of the internal market is very prominent in the RRF scope! Within the RRF, we have the six pillars structuring how the plans are to be organised. In those pillars, the internal market is referred to in one way or another. In the third pillar — on smart, sustainable and inclusive growth — it is specified, saying “a well-functioning internal market with strong SMEs.” So it is explicitly there in Pillar 3 of the RRF.’
He explains that when the Commission assesses measures that Member States are carrying out, it makes sure that the plans are compatible and do not disrupt the functioning of the internal market. ‘Actually, we think that there are a number of specific projects that contribute to the better functioning of the single market, for example reducing the regulatory burden, improving business requirements or public procurement. Or containing investments to support key industry sectors, also tourism and SMEs.’ The EU’s state aid rules also apply under the RRF, he points out. ‘So clearly, also from the angle of state aid, we are watching that there are no distortions to the internal market.’
Another key element of the RRF that might help improve the functioning of the internal market is its focus on reforms. For Valdis Dombrovskis, these reforms are clearly linked to country-specific recommendations (CSRs), which are part of the European Semester — and an important element of the RRF. ‘Because these CSRs form one of the 11 assessment criteria — I think it is the second criterion — when we are assessing the NRRPs. One of the assessment criteria is exactly whether the country is addressing all or a significant subset of relevant CSRs. So it’s very much there.’
As to why such a criterion is based on the CSRs, the Executive Vice President explains that there is a clear logic. ‘Because CSRs have been there as a part of the European Semester and are recommendations which the Council, upon a proposal from the Commission which is based on an assessment of Member States’ national reform programmes, their stability and convergence programmes, is providing to Member States. Clearly that was a basis for us also to use them in the case of the RRF. Discussions were held on how to better link reforms with EU financing, long before the RRF was set up: ‘Actually, the RRF is providing this link in very direct way because Member States need to address all or some subset of CSRs to be able to benefit from EU refinancing.’
Rule-of-law conditionality present in old and new EU legislation
While it is not among the 11 assessment criteria, another issue that has received a lot of attention in relation to the RRF is the General Conditionality Regulation, which aims to protect the EU budget if there are breaches of the rule of law. There have been discussions on whether the Commission has made sufficient use of this regulation; the Executive Vice President thinks it does — and explains why.
‘As is well known, the Commission has a responsibility to protect the EU budget and enforce this overall conditionality, assessing all cases in an objective, impartial and fair manner. The Commission can also start a procedure under this General Conditionality Regulation, as we, by the way, did last September. That is, if the Commission considers that other procedures set out in Union legislation do not allow more effective protection of the Union’s budget.’
Valdis Dombrovskis points out that, regarding the rule of law, the Commission looks at other elements too. ‘There is already Union financial legislation, there are applicable sector-specific rules, there are many procedures already available, protecting the Union’s budget. In a sense, the General Conditionality Regulation is something which comes on top, more like a last resort. Under this procedure, the Commission may propose to the Council to adopt measures like interrupting or suspending payments or making financial corrections.’ All this is already covered by existing financial rules, he says: ‘But now, in addition, there is this conditionality regulation and, as I said, we are also using it.’
As to the ECA’s role regarding this new conditionality regulation, the Executive Vice President welcomes a future audit from the ECA on the rule of law in the EU. ‘So the ECA may then examine whether this new general regime of conditionality is an effective tool to protect the EU’s financial interests if the rule of law is breached. It must be said that currently we are only at an early stage, with a first case under that conditionality regulation ongoing.’ He observes that it will probably require some time to take stock of how it is working and what lessons can be learned. ‘But in any case, we are also looking forward to the ECA’s audit findings in this regard.’
Enhancing institutional ownership for reform at various levels to stimulate future resilience
Recently the Executive Vice President announced that he would soon offer some new ideas to strengthen the EU’s economic governance, including on strengthening democratic accountability, and highlighted two elements. ‘One important point that we outlined is simplification. So basically, simpler rules that all can follow.’ He observes that the rules are now very complex and require experts to dive deep to take account of all the nuances. ‘Having a simpler rule framework will help with transparency and make it easier — for citizens, for EU and national institutions — to scrutinise the operation of economic governance framework. We also think that the national public opinion will feel more involved in a way to protect citizens against the consequences of unsustainable fiscal policies.’
On the second element, he refers to the fiscal policy guidance for 2023: the subject of a Commission communication in early 2022. ‘We consider moving towards an approach that would provide more leeway for Member States to set their adjustment path. This will then give Member States’ institutions a stronger role in setting their commitments for meeting the requirements of the EU government framework.’ He adds that reforms could also envisage a stronger role for national fiscal institutions, ‘For example, for monitoring a Member State’s compliance with their fiscal adjustment path. And this would also help towards a more inclusive and active debate on these issues at national level.’
Finally, on the RRF, Valdis Dombrovskis concludes that ‘the mere creation of the RRF as such is a sign of resilience in itself. The very fact that we had a coordinated response to the COVID-19 pandemic — created together in a spirit of European solidarity — actually helped us to emerge stronger from the crisis.’ Before Russia invaded Ukraine, the EU was seeing strong economic recovery, he says, with economies already exceeding pre-crisis levels. ‘I think that the very fact that we had this response helped in this regard and it provided Member States with strong tools to have additional investments now and to undertake the necessary structural reforms to strengthen their resilience.’
For now and the upcoming period, he identifies a new urgent aspect that needs to be addressed. ‘One could call it the resilience of our energy supply, starting with the strategic decision to move away from supplies of Russian fossil fuels. It is no secret that Russia is using its supplies as a weapon of blackmail and manipulation. Also there, the RRF and the new REPowerEU — once adopted, of course — will help to strengthen the resilience of our economies and our society as a whole.’
This article was first published on the 2/2022 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.
