# EUR-Lex - 52014DC0494 - EN

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# 52014DC0494

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Guidelines on the application of the measures linking effectiveness of the European Structural and Investment Funds to sound economic governance according to Article 23 of Regulation (EU) 1303/2013 /* COM/2014/0494 final */**

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Contents

1..... INTRODUCTION.. 3

2..... CONTEXT
OF REVISIONS OF PARTERSHIP AGREEMENTS AND PROGRAMMES UNDER ARTICLE 23. 4

3..... REVIEW
AND TYPES OF AMENDMENTS TO PARTNERSHIP AGREEMENTS AND PROGRAMMES UNDER ARTICLE
23. 5

4..... EFFECTIVE
ACTION IN RESPONSE TO A REPROGRAMMING REQUEST BY THE COMMISSION.. 8

5..... CIRCUMSTANCES
THAT MAY GIVE RISE TO A SUSPENSION OF PAYMENTS  9

6..... CRITERIA
FOR DETERMINING THE PROGRAMMES TO BE SUSPENDED AND THE LEVEL OF SUSPENSION.. 10

CONCLUSION.. 11

1. 
Introduction

In the period 2014-20, support from the
European Structural and Investment Funds (the ‘ESI funds’)[1] is closely linked to
the respect of EU economic governance. In the past, the conditions applicable
for access to fund assistance was limited to one fund — the Cohesion Fund
(Article 4 of Regulation (EC) 1084/2006),[2]
and to one economic governance procedure — the Excessive Deficit Procedure.

This linkage has been considerably
strengthened. It is built on a reinforcement and broadening of the scope of
economic governance in response to the economic and financial crisis, and on the
objective of increasing efficiency of EU spending in a context of fiscal
constraint. Article 23 of Regulation (EU) No 1303/2013, the Common Provisions
Regulation (CPR)[3]
on the five ESI funds, lays down the provisions linking the effectiveness of
the funds to sound economic governance.

Unlike the previous programming period, all
five ESI funds are now conditional on respect of economic governance procedures.
This conditionality applies through two distinct mechanisms:

· 
a first strand, covering in particular paragraphs
1 to 8 of Article 23, whereby the Commission may request a Member State to
reprogramme part of its funding when this is justified by the economic and
employment challenges identified under various economic governance procedures;
and

· 
a second strand, covering in particular
paragraphs 9 to 11 of Article 23, whereby the Commission is obliged to propose
a suspension of ESI funding when certain stages in the various economic
governance procedures are reached.

When the Regulation was adopted, the
Commission issued the following statement:

‘The Commission confirms that it
will, not later than 6 months from the entry into force of the Common
Provisions Regulation, issue guidelines in the form of a Communication of the
Commission explaining how it envisages that the provisions on measures linking
effectiveness of ESI Funds to sound economic governance in Article 23 CPR will
be applied. The guidelines will cover in particular the following elements:

in relation to paragraph 1, the notion
  of ‘review’ and the types of ‘amendments’ to Partnership Agreements and
  programmes that could be requested by the Commission as well as clarifying
  what can constitute ‘effective action’ within the meaning of paragraph 6;
 in relation to paragraph 6, an
  indication of the circumstances which may give rise to suspension of
  payments, including criteria which may be relevant in determining the
  programmes which could be suspended or in determining the level of
  suspension of payments.’[4]

This Communication follows up on the
commitment given by the Commission and provides guidelines on the application
of specific provisions of paragraphs 1 and 6 of Article 23 of the Regulation.
Therefore, its scope is limited to the first strand. The guidelines are meant
to provide further certainty on how some specific provisions of Article 23 will
be implemented.

2. 
Context
of revisions of Partnership Agreements and programmes under Article 23

In 2014, Member States are negotiating
their Partnership Agreements and programmes with the Commission. These will
determine the multiannual strategy for implementing the Member State’s allocation from the five ESI Funds over the seven years of the programming period
(2014-20). The Commission expects to approve Partnership Agreements and most programmes
in the course of 2014, in line with Articles 16 and 29 CPR.

Member States and the Commission need to focus on setting priorities right
from the beginning of the period. This requires that the challenges identified in
the relevant country specific recommendations (hereafter CSRs), in the relevant
Council recommendations or in the context of macroeconomic adjustment
programmes are adequately addressed and supported by sufficient funding levels
taking into account the financial allocation to each Member State. In the negotiations, the Commission is therefore being vigilant to ensure that the new
programmes are devised taking into account the existing relevant CSRs and
Council recommendations for every Member State and, where appropriate, the memorandum
of understanding in the case of a macroeconomic adjustment programme.

Reprogramming under
Article 23 is only possible as of 2015 and until 2019. This should only be used
in cases where it could have a higher impact than the existing allocation of
the funds in the implementation of the relevant CSRs, relevant Council
recommendations or in the economic adjustment programmes. ESI funds typically support multiannual investment strategies that require
a certain degree of certainty and permanence. Frequent reprogramming should be avoided as it would
disrupt fund management predictability and could undermine the credibility of
adopted Partnership Agreements and programmes. In addition, while CSRs are
updated annually, the underlying challenges of Member States are of long-term
nature and do not considerably change from one year to another. This is why the reprogramming powers granted to the Commission will
be used carefully and why stability should be preferred over too frequent
reprogramming.

According to Article 23(1), reprogramming
can be requested by the Commission:

to support
  the implementation of CSRs[5]
  (including those linked to the preventive arm of the macroeconomic imbalance
  procedure) and Council recommendations on the condition that these are
  relevant in the context of ESI funds;
 to support
  the implementation of relevant Council recommendations addressed to a
  Member State in the context of the corrective arm of the macroeconomic imbalance
  procedure[6],
  provided that reprogramming is deemed necessary to help correct
  macroeconomic imbalances; and
 to maximise
  the growth and competitiveness impact of ESI funds in Member States benefiting
  from financial assistance under the European Financial Stabilisation
  Mechanism[7],
  the Balance of Payments mechanism[8],
  the European Financial Stability Facility or the European Stability
  Mechanism[9].
  In the last two cases, financial assistance must be accompanied by a
  macroeconomic adjustment programme.

A reprogramming request can be made within
individual ESI funds, or across Structural Funds (i.e. ERDF and ESF). However,
in both cases there are important legal limitations to the amounts that can be
subject to a reprogramming exercise.

First, reprogramming cannot affect the
annual ceilings set by the multiannual financial framework or annual
instalments of the programmes' allocations committed in the years preceding the
one of adoption of reprogramming. Second, transfers across ESI funds can only
be made between the ERDF and ESF and must respect the ESF minimum share
(Article 92(4) CPR). Third, any reprogramming between and within funds will
have to respect the thematic concentration requirements shares set for the
various ESI funds. Reprogramming should also take into account the ambition to
devote at least 20% of the budget of the Union to climate change objectives. Fourth,
any transfer of resources within or across Structural Funds must respect the financial
allocation per category of region. Finally, Article 23 does not apply to the
programmes under the European Territorial Cooperation goal.

3. 
Review
and types of amendments to Partnership Agreements and programmes under Article
23

The regulation does not set a deadline for
the Commission to make a reprogramming request. In cases where a reprogramming
request is triggered in the context of the European Semester, it will be as
soon as possible after the adoption of the relevant CSRs by the Council and, in
any case, no later than four months after the Council’s adoption. This will be
compatible with the indicated reprogramming deadlines and avoid interference
with the subsequent round of CSRs. In case of reprogramming requests to address
Council recommendations in the context of excessive macroeconomic imbalances,
the Commission will consider similar deadlines. As for the reprogramming
requests adopted to maximise the growth and competitiveness impact of
macroeconomic adjustment programmes, the Commission will adopt them as soon as
possible after the signature of the memorandum of understanding or the
supplemental memorandum of understanding as relevant.

The Commission’s reprogramming request will
be duly motivated. It will make reference to the relevant CSR or relevant Council
recommendation (or measure of the memorandum of understanding in the case of
Member States subject to a macroeconomic adjustment programme) that triggered
the request and provide the reasons on which it is based. It will explain why
there is a need for intervention at EU level, how EU funding can contribute to
tackling the structural challenges identified and why the existing allocation
of the funds is inadequate. It will also refer to the thematic objectives and
priorities envisaged by the Common Provisions Regulation and by the relevant fund-specific
regulations.

In any reprogramming request, the
Commission will ask a Member State to review its Partnership Agreement and
programmes. This will serve to respond adequately to the economic and
employment challenges identified in the relevant CSR, relevant Council
recommendation, or memorandum of understanding (in the case of Member States
under financial assistance), in line with the substance of the reprogramming request.
The content of the reprogramming request is further specified below.

The Regulation does not specify how
detailed the request should be, i.e. whether it should mention the programmes and
priorities that would be affected positively and negatively by the
reprogramming request.

As a general rule, when the relevant CSR or
relevant Council recommendation giving rise to the reprogramming request is
best addressed through further concentration of ESI funds, the Commission will
indicate the programmes and priorities that should be reinforced. It will leave
to the discretion of the Member State those programmes and priorities that should
be reduced accordingly. However, in case of no or insufficient reaction by the Member State concerned, the Commission will define the programmes and priorities that should
be reduced. In addition, the Commission may indicate in its request the
programmes or priorities of critical importance which should be shielded from
downsizing. Moreover, the Commission may, on occasion, also indicate in its
reprogramming request the programmes and priorities that should be reduced, in
which case it will provide the underlying reasons.

In contrast, when the relevant CSR or relevant
Council recommendation triggering the reprogramming request is best addressed
through a reduced allocation of ESI funds in a specific sector, the Commission
request will clearly state the programmes and priorities that should be reduced.
It will leave to the discretion of the Member State those programmes and
priorities that should benefit from more resources. In accordance with Article
18 CPR and fund specific rules, Member States will concentrate support on
interventions bringing the greatest added value in terms of smart, sustainable
and inclusive growth taking into account inter alia the relevant
country-specific recommendations and the Council recommendations adopted under
Articles 121 (2) and 148 (4) of the Treaty on the Functioning of the European
Union.

In case the reprogramming request is
triggered by a combination of the two scenarios set out above, the Commission
request will state both the programmes and/or priorities which should be
affected positively (and thus benefit from more resources) as well as those
that should be affected negatively (and thus be reduced).

The number of programmes and priorities
subject to reprogramming should generally be kept to the strict minimum.

As regards the nature of amendments, the
Commission will indicate not only the programmes and priorities that should be
subject to reprogramming, but also the minimum content of the amendments to be
made by the Member State and the (specific) objectives to be achieved. It will
also indicate the nature and examples of interventions to be supported through the
additional resources resulting from the reprogramming.

In its reprogramming request, the
Commission will also provide an indication of the expected financial
implications. It will take into account the amounts available for
reprogramming, the stage of the programming period and the capacity of the Member State to absorb reprogrammed funds.

The Member State concerned should, in light
of the Commission’s request, conduct an in-depth examination of its Partnership
Agreement and the programmes mentioned in the request. It should assess how
these could be amended in a way that would best respond to the Commission
request. Once the Member State has carried out this examination, it should
submit amendments to its Partnership Agreement and the relevant programmes. For
the Partnership Agreement, these should include as a minimum:

for each ESI fund concerned, a revised indicative allocation of
  EU support by thematic objective at national level;
 for each ESI fund concerned, a revision of the summary of main
  results expected by thematic objective;  
 a revised list of programmes indicating by ESI fund and by year
  the revised indicative allocations taking account of the proposed amendments;
  and
 a financial table indicating by ESI Fund the revised indicative
  allocations for the amended programmes.

As regards the relevant programmes affected (positively and
negatively) by the Commission’s request, the Member State is expected to submit
amendments, as a minimum, relating to:

the strategy for the programme’s contribution to the
  achievement of the challenges identified by the relevant CSR or relevant Council
  recommendation so as to reflect the expected outcome of the modified
  programme;
  the justification for the selection of revised thematic objectives
  and priorities (which includes both those that have been reinforced and
  those that have been downsized) and how they address the relevant
  structural challenges that were the source of the reprogramming request;
 a justification of the revised financial allocations;
 the description of relevant priorities, including for each of
  the priorities affected, amendments to the specific objectives and the
  description of the revised baseline, where applicable, and expected results;
 a description of the type and examples of actions to be
  supported under the revised priorities and their expected contribution;
 the performance framework, in particular the milestones and
  targets for each indicator (financial, output and result where
  appropriate) in every priority subject to reprogramming, while
  demonstrating the respect of the requirement that the output indicators
  and key implementation steps set out in the performance framework
  correspond to more than 50% of the financial allocation to the priority;
 the programme’s financing plan.

The Commission
will make observations within one month to the initial response provided by the
  Member State if necessary. After that, the Member State will submit its
proposal to amend the Partnership Agreement and the relevant programmes within
two months following the response. In the case the Commission considers the reply
provided by the Member State to be satisfactory, it will approve the related
amendments.

4. 
Effective
action in response to a reprogramming request by the Commission

If the Member State fails to take effective
action within the deadlines set by Article 23(3) and 23(4), the Commission can
make a proposal to the Council to suspend part or all of the payments for the
programmes or priorities concerned. The Common Provisions Regulation does not
provide explicit criteria to assess effective action. The Commission will take
into account various criteria for carrying out this assessment.

The first, clear-cut case of failing to
take effective action is when a Member State simply fails to submit — within
the deadlines provided for by the Regulation — either a preliminary response or
a proposal for amendment of its Partnership Agreement and the programmes
concerned. By ignoring the Commission reprogramming request, the Member State concerned places itself in a situation of failing to take effective action.

Where a Member State has submitted the necessary
documents within the deadlines, the Commission, taking into account its reprogramming
request, will carry out a quality check of the proposed amendments. The quality
check will be based on criteria such as:

· 
Do the proposed amendments allocate more or less
funding (depending on the case) to all the programmes and priorities indicated
in the Commission request?

· 
Is the size of the increase/reduction of the
programmes and priorities in line with the Commission's assessment in its
reprogramming request?

· 
Are the reasons, specific objectives and
expected results of these amendments sufficiently explained?

· 
Are the needed modifications correctly reflected
in the relevant priorities of the programmes, and in the relevant sections of
the Partnership Agreement?

· 
Are the proposed amendments consistent? Is the
revised programme strategy consistent with the expected contribution to the
achievement of the challenges identified by the relevant CSR, relevant Council
recommendation or memorandum of understanding that gave rise to the request?

· 
Has the performance framework been revised and
is it consistent with the amendments proposed to the programmes and priorities?

· 
Are the revised programmes and priorities
coherent with the current fund-specific programming needs?

Given the rather prescriptive nature of the
reprogramming request and the possibility for the Member State to improve its
proposal during this process, the Commission will only consider that there is
effective action when the reply provided by the Member State is considered
satisfactory based on the criteria outlined above.

If a Member State fails to take effective
action, the Commission may propose to the Council a suspension of payments and will
justify its proposal. It will explain why the amendments or revision in
allocations proposed across programmes and priorities are not sufficient or not
in line to achieve the objectives set in the relevant CSR, relevant Council
recommendation or memorandum of understanding that gave rise to the request.

5. 
Circumstances
that may give rise to a suspension of payments

According to Article 23(6) the Commission
may propose to the Council to suspend part or all of the payments for the
programmes or priorities concerned where the Member State fails to take
effective action. The Regulation does not specify in which cases the Commission
should make a proposal to suspend. This section explains in which cases the
Commission would consider a suspension. Nevertheless, exceptional circumstances
of a Member State such as contraction of its real GDP for two or more
consecutive years preceding the reprogramming request may be considered, where
relevant.

The Commission
would consider proposing suspension in the case of ‘no action’, i.e. if the
Member State fails to provide any preliminary response to the Commission
request or any proposal to amend its Partnership Agreement and programmes
within the deadlines provided for by the Regulation. The Commission would not
consider proposing suspension where the Member State submits its preliminary
response within the deadline set out in Article 23(3), but the Commission
assesses that this response fails to address the reprogramming request. The Member State still has the opportunity to substantially improve the quality of its
response, based in particular on the observations that the Commission shall make,
if necessary, within one month of receipt of the preliminary response. In such
case, the Commission will only consider the possibility to propose a suspension
after undertaking a quality check of the formal amendment to the Partnership
Agreement and programmes (Article 23(4)) submitted within the deadline provided
for by the Regulation. Where the Commission finds that the proposal fails to
address its reprogramming request, or the proposed changes are not correctly
reflected in the Partnership Agreement and programmes, or they are not
ambitious enough, it may consider a suspension of payments within the
three-month period specified by Article 23 (6).

6. 
Criteria
for determining the programmes to be suspended and the level of suspension

A suspension under the first strand of
measures (Article 23(6) and 23(7) CPR) is not automatic and just concerns payments.
The immediate effect is a halt in cash flows to the Member State.

When proposing to the Council a suspension
of payments, the Commission will indicate the programmes or priorities concerned
and the amounts involved. Article 23(7) establishes the power of the Council by
setting a ceiling for the suspension at 50 % of the payments of each of
the programmes concerned. Article 23(7) provides that the level of the
suspension may be increased up to 100 % if the Member State persists in failing to take effective action within three months of the Council decision
to suspend.

In addition to the ceiling expressed as 50 %
of the payments, Article 23(7) also provides that the size of the suspension ‘shall
be proportionate and effective, and respect equality of treatment between
Member States, in particular with regard to the impact of the suspension on the
economy of the Member State concerned’.

The Commission
considers that proportionality and effectiveness mean that the suspension will
be set at the amount necessary to provide the right incentives to the Member State to comply with the Commission request, taking also into account the size of the
deviation between the latter and the proposal of the Member State. This will be assessed on a case-by-case basis.

The size of
the suspension as a share of national GDP will be taken into account to ensure
equality of treatment across Member States. This would prevent the biggest
beneficiaries of ESI funds from bearing undue impacts compared with more
developed Member States that receive less ESI funding in relation to their
population and the size of their economies.

The economic
and social circumstances of Member States will be taken into account by considering
mitigating factors similar to those envisaged in the suspensions under Article
23(9). These factors reduce suspension by a certain coefficient as stated in
Annex III CPR based on the unemployment rate, the proportion of people at risk
of poverty or social exclusion, or the contraction of GDP in the Member State concerned.

In its proposal for suspension, the
Commission will indicate the programmes or priorities concerned. As a general
rule, the Commission will propose to apply the suspension to the programmes or
priorities that should be reduced to enable further concentration on more
crucial programmes or priorities. The programmes to be reduced will, depending
on the case, be defined either by the Commission in its reprogramming request
or through observations addressed under Article 23(3), or by the Member State
in its initial response or its proposal for amendment to the Partnership
Agreements and programmes.

In cases where programmes or priorities
were singled out in the reprogramming request as needing to be increased, these
should not be affected by the suspension as these are considered critical at
the point in time when suspension is to be applied. This is also consistent
with the provisions of Annex III CPR according to which a suspension of
commitments under the second strand should not affect programmes or priorities
whose resources are to be increased as a result of a reprogramming request
under the first strand.

No specific timing is laid down for the
Commission to adopt the proposal lifting the suspension of payments after the Member State has taken effective action in accordance with Article 23(8). In any case, the
Commission will adopt the proposal immediately after the approval of the
revised Partnership Agreement and programmes.

CONCLUSION

The close linkage between
the ESI funds and the economic governance of the EU ensures that the
effectiveness of EU expenditure is underpinned by sound economic policies. EU
support can, if necessary, be redirected to address new emerging economic and
social challenges.

In 2014, the priority in the Partnership Agreements
and programmes will be to adequately address the challenges identified in the
relevant country-specific recommendations and relevant Council recommendations to
ensure full alignment with economic governance procedures from the start. This
will also limit possible reprogramming under Article 23 in the short term. Given
that the ESI funds support medium-term investment strategies, the Commission
will use its reprogramming powers as of 2015 with caution. A reprogramming
request will only be launched when a review of the Partnership Agreement and
programmes can have a better impact to address the structural challenges
identified by the relevant Council recommendations under macroeconomic
adjustment programmes.

The Commission
will duly justify any reprogramming request and provide sufficient details
regarding the programmes and priorities to be reinforced or downsized according
to the specific case, including an indication of the expected financial
implications. This is in order to address the structural challenges identified
in relevant CSR, relevant Council recommendation or measures under a
macroeconomic adjustment programme.

The action undertaken by the Member State will be assessed on the basis of objective criteria. In case of failure to
take effective action, the Commission will explain in detail why amendments
proposed by the Member State are considered to be insufficient. Any suspension
will take account of mitigating factors. The Commission will not propose any
suspension of those programmes or priorities that are to be increased as a
result of a reprogramming or considered to be of critical importance.

[1]       These are the European Regional
Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund
(CF), the European Agricultural Fund for Rural Development (EAFRD) and the
European Maritime and Fisheries Fund (EMFF).

[2]       Council
Regulation (EC) No 1084/2006 of 11 July 2006 establishing a Cohesion Fund and
repealing Regulation (EC) No 1164/94.

[3]       Regulation
(EU) No 1303/2013 laying down common provisions on the European Regional
Development Fund, the European Social Fund, the Cohesion Fund, the European
Agricultural Fund for Rural Development and the European Maritime and Fisheries
Fund and repealing Council Regulation (EC) No 1083/2006.

[4]       See OJ 2013/C
375/02.

[5]          CSRs adopted in accordance with Article
121(2) and 148(4) of the Treaty on the Functioning of the European Union.

[6]       Regulation
(EU) No 1176/2011 of the European Parliament and of the Council  of 16 November
2011 on the prevention and correction of macroeconomic imbalances (OJ L 306,
23.11.2011, p. 25).

[7]       Council
Regulation (EU) No 407/2010  of 11 May 2010  establishing a European financial
stabilisation mechanism (OJ L 118, 12.5.2010, p. 1).

[8]       Council
Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility
providing medium-term financial assistance for Member States' balances of
payments (OJ L 53, 23.2.2002, p. 1).

[9]       Regulation
(EU) No 472/2013 of the European Parliament and of the Council of 21 May 2013
on the strengthening of economic and budgetary surveillance of Member States in
the euro area experiencing or threatened with serious difficulties with respect
to their financial stability (OJ L 140, 27.05.2013, p. 1).