# C_2015140EN.01002801.xml

| 28.4.2015 | EN | Official Journal of the European Union | C 140/28 |
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28.4.2015

EN

Official Journal of the European Union

C 140/28

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Opinion of the European Committee of the Regions — Guidelines on the application of the measures linking the effectiveness of the European Structural and Investment Funds (ESIF) to sound economic governance

(2015/C 140/06)

| Rapporteur | : | Bernard Soulage (FR/PES), Vice-president of the Rhône-Alpes Regional Council |
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| Reference document | : | Communication from the Commission on 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) 494 final |

Rapporteur

Rapporteur

:

Bernard Soulage (FR/PES), Vice-president of the Rhône-Alpes Regional Council

Reference document

Reference document

:

Communication from the Commission on 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) 494 final

I.   POLICY RECOMMENDATIONS

POLICY RECOMMENDATIONS

THE EUROPEAN COMMITTEE OF THE REGIONS

| 1. | emphasises that EU cohesion policy should continue to play a key role in the economic recovery of Europe's regions; |
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1.

emphasises that EU cohesion policy should continue to play a key role in the economic recovery of Europe's regions;

| 2. | reiterates its opposition, as set out in its opinion on the proposal for a general regulation on the funds covered by the common strategic framework (1), to the principle of applying macroeconomic conditionality to the implementation of cohesion policy and, more specifically, to any links between the effectiveness of the European Structural and Investment Funds (ESIF) and sound economic governance. This link is founded on the false premise that local and regional authorities are just as accountable for budgetary excess as the national authorities; |
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2.

reiterates its opposition, as set out in its opinion on the proposal for a general regulation on the funds covered by the common strategic framework (1), to the principle of applying macroeconomic conditionality to the implementation of cohesion policy and, more specifically, to any links between the effectiveness of the European Structural and Investment Funds (ESIF) and sound economic governance. This link is founded on the false premise that local and regional authorities are just as accountable for budgetary excess as the national authorities;

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links between the effectiveness of the European Structural and Investment Funds (ESIF) and sound economic governance

| 3. | points out, moreover, that the Committee had called for a white paper on cohesion policy, mainly in order to reopen the debate about basing the measurement of quality of life and the quality of economic growth on more than mere GDP; calls for work to be carried out on new, more reliable indicators, which better reflect public expectations; |
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3.

points out, moreover, that the Committee had called for a white paper on cohesion policy, mainly in order to reopen the debate about basing the measurement of quality of life and the quality of economic growth on more than mere GDP; calls for work to be carried out on new, more reliable indicators, which better reflect public expectations;

| 4. | further to its opposition on principle to macroeconomic conditionality, has doubts as to the added value of these guidelines, which are no more than a paraphrase of Article 23 of Regulation 1303/2013; |
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4.

further to its opposition on principle to macroeconomic conditionality, has doubts as to the added value of these guidelines, which are no more than a paraphrase of Article 23 of Regulation 1303/2013;

| 5. | believes that reprogramming would unfairly penalise local and regional authorities because they are not responsible for excessive national deficits since, more often than not, they are constitutionally bound to balance their budgets. In fact, the overall EU27 subnational debt, which corresponded to about 0,1 % of GDP in 2007, amounted to 0,8 % of GDP in 2009 and 2010. Even if there has been a considerable deterioration in subnational public finances in some countries, where the deficit rose by over 0,5 % between 2007 and 2013, there is still no comparison with the national debt (2); |
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5.

believes that reprogramming would unfairly penalise local and regional authorities because they are not responsible for excessive national deficits since, more often than not, they are constitutionally bound to balance their budgets. In fact, the overall EU27 subnational debt, which corresponded to about 0,1 % of GDP in 2007, amounted to 0,8 % of GDP in 2009 and 2010. Even if there has been a considerable deterioration in subnational public finances in some countries, where the deficit rose by over 0,5 % between 2007 and 2013, there is still no comparison with the national debt (2);

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| 6. | emphasises that a very similar situation applies to the debts of local and regional authorities since (as the Commission recognises in the sixth cohesion report) the increase in the public debt stems mainly from the activities of the central authorities. The overall debt of local authorities and regions with no legislative powers is still below 10 % of GDP in all Member States. Nevertheless, this debt remains a concern in some countries; |
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6.

emphasises that a very similar situation applies to the debts of local and regional authorities since (as the Commission recognises in the sixth cohesion report) the increase in the public debt stems mainly from the activities of the central authorities. The overall debt of local authorities and regions with no legislative powers is still below 10 % of GDP in all Member States. Nevertheless, this debt remains a concern in some countries;

| 7. | points out that, according to many studies, the effectiveness of public spending has more to do with efficiency and sound governance (3) than with macroeconomic factors. Furthermore, the quality of public sector measures plays a decisive role in the capacity of cohesion policy to bring growth. It should be noted, moreover, that the ‘six-pack’ regulations already lay down heavy penalties for non-compliance with macroeconomic stability rules. Therefore doubts the efficacy of suspending ESI funding, which would amount to penalising the same failure twice; |
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7.

points out that, according to many studies, the effectiveness of public spending has more to do with efficiency and sound governance (3) than with macroeconomic factors. Furthermore, the quality of public sector measures plays a decisive role in the capacity of cohesion policy to bring growth. It should be noted, moreover, that the ‘six-pack’ regulations already lay down heavy penalties for non-compliance with macroeconomic stability rules. Therefore doubts the efficacy of suspending ESI funding, which would amount to penalising the same failure twice;

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| 8. | also considers, in the framework of the ‘Six-Pack’, that there is a case for revising the methods for calculating structural deficit, so as to give consideration to the specific characteristics of national economies and structural differences in public spending; |
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8.

also considers, in the framework of the ‘Six-Pack’, that there is a case for revising the methods for calculating structural deficit, so as to give consideration to the specific characteristics of national economies and structural differences in public spending;

EU cohesion policy must remain an investment policy

EU cohesion policy must remain an investment policy

| 9. | has serious concerns about the risks which the planned measures for the 2014-2020 period could entail for Europe's economic growth, not to mention economic and social development projects, by creating insecurity about the ERDF and ESF programmes, as from 2015. The planning of these programmes is already under sufficient threat from programming delays that have resulted from the late completion of the negotiations on the multiannual financial framework and the difficulty Member States and local and regional authorities have in meeting ex-ante conditionality requirements; |
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9.

has serious concerns about the risks which the planned measures for the 2014-2020 period could entail for Europe's economic growth, not to mention economic and social development projects, by creating insecurity about the ERDF and ESF programmes, as from 2015. The planning of these programmes is already under sufficient threat from programming delays that have resulted from the late completion of the negotiations on the multiannual financial framework and the difficulty Member States and local and regional authorities have in meeting ex-ante conditionality requirements;

economic growth

| 10. | emphasises, in this regard, the greater and more important role played by local and regional authorities, which manage about 33 % of public expenditure, a slight increase of 2 % over the last two decades (1995-2013), i.e. 16 % of GDP. While their powers may vary according to the country, depending on their institutional organisation, they play a far more important role than central authorities in providing public services and, in particular, the type of spending that generates growth, as defined by the Commission itself (cf. the sixth cohesion report), in the areas of education, health, environmental protection, transport, R&D and energy; |
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10.

emphasises, in this regard, the greater and more important role played by local and regional authorities, which manage about 33 % of public expenditure, a slight increase of 2 % over the last two decades (1995-2013), i.e. 16 % of GDP. While their powers may vary according to the country, depending on their institutional organisation, they play a far more important role than central authorities in providing public services and, in particular, the type of spending that generates growth, as defined by the Commission itself (cf. the sixth cohesion report), in the areas of education, health, environmental protection, transport, R&D and energy;

| 11. | therefore calls for the investment clause to be reviewed so as to enable regional and national investments co-financed through EU funds (ESI or CEF funding) to be excluded from the calculation of national deficits in the framework of the European Semester; |
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11.

therefore calls for the investment clause to be reviewed so as to enable regional and national investments co-financed through EU funds (ESI or CEF funding) to be excluded from the calculation of national deficits in the framework of the European Semester;

| 12. | emphasises the inherent contradiction between macroeconomic conditionality provisions, on the one hand, and the Stability and Growth Pact's provisions, on the other, since the latter allows for flexibility in its application in exceptional and temporary circumstances defined by Regulation 1177/2011, and since, by the Commission's own evaluation, ‘the EU fiscal framework offers enough scope to balance the acknowledgement of productive public investment needs with fiscal discipline objectives’ (4); |
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12.

emphasises the inherent contradiction between macroeconomic conditionality provisions, on the one hand, and the Stability and Growth Pact's provisions, on the other, since the latter allows for flexibility in its application in exceptional and temporary circumstances defined by Regulation 1177/2011, and since, by the Commission's own evaluation, ‘the EU fiscal framework offers enough scope to balance the acknowledgement of productive public investment needs with fiscal discipline objectives’ (4);

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| 13. | therefore reiterates its concerns regarding Eurostat's new ESA 2010 accounting framework, implemented as from September 2014, which makes no distinction between expenditure and investment and which obliges local and regional authorities to apply maximum investment ceilings per year and per inhabitant. These ceilings could prevent local and regional authorities in certain Member States from providing the co-financing needed for ESIF projects. The Committee therefore urges the Commission to present a report on the implementation of ESA 2010; |
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13.

therefore reiterates its concerns regarding Eurostat's new ESA 2010 accounting framework, implemented as from September 2014, which makes no distinction between expenditure and investment and which obliges local and regional authorities to apply maximum investment ceilings per year and per inhabitant. These ceilings could prevent local and regional authorities in certain Member States from providing the co-financing needed for ESIF projects. The Committee therefore urges the Commission to present a report on the implementation of ESA 2010;

| 14. | points out that the national fiscal consolidation measures adopted to address the economic and financial crisis affected local and regional authorities in three distinct ways. Firstly, these measures seriously hindered their capacity to contribute to public investment, which was around 2,3 % of GDP between 2002 and 2007 in EU27, and fell to 1,8 % of GDP, but more importantly, shrank by 7,2 % in real terms in 2010, by 5,9 % in 2011, by 3,3 % in 2012, and by 8,6 % in 2013; |
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14.

points out that the national fiscal consolidation measures adopted to address the economic and financial crisis affected local and regional authorities in three distinct ways. Firstly, these measures seriously hindered their capacity to contribute to public investment, which was around 2,3 % of GDP between 2002 and 2007 in EU27, and fell to 1,8 % of GDP, but more importantly, shrank by 7,2 % in real terms in 2010, by 5,9 % in 2011, by 3,3 % in 2012, and by 8,6 % in 2013;

| 15. | secondly, since current transfers and capital transfers from the national authorities are the key sources of revenue for local and regional authorities in almost all EU countries, their revenues were significantly reduced, which had an immediate destabilising impact on their budgets. The situation was even worse for Spanish regions since their revenues fell by 62 % in real terms following a sharp fall in transfers from the national authorities (45 %), on the one hand, and a substantial increase in transfers from the regions to the national authorities (from barely EUR 1,4 billion to EUR 10,1 billion at 2005 prices); |
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15.

secondly, since current transfers and capital transfers from the national authorities are the key sources of revenue for local and regional authorities in almost all EU countries, their revenues were significantly reduced, which had an immediate destabilising impact on their budgets. The situation was even worse for Spanish regions since their revenues fell by 62 % in real terms following a sharp fall in transfers from the national authorities (45 %), on the one hand, and a substantial increase in transfers from the regions to the national authorities (from barely EUR 1,4 billion to EUR 10,1 billion at 2005 prices);

| 16. | thirdly, according to the OECD, fiscal consolidation measures further reduced their investment capacity so that local and regional authorities also had to cope with worse borrowing conditions; |
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16.

thirdly, according to the OECD, fiscal consolidation measures further reduced their investment capacity so that local and regional authorities also had to cope with worse borrowing conditions;

| 17. | emphasises the scale of the ESIF's contribution to public investment at a time of crisis since it rose from 11,5 % of EU public investment in terms of gross fixed capital formation (GFCF) in 2007 to 18,1 % in 2013. Its contribution amounted to over 75 % of public investment in some countries. During the 2007-2013 period, allocations under the Structural Funds and the Cohesion Fund, and associated national co-financing, amounted to an annual average of approximately 0,55 % of EU27 GDP; |
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17.

emphasises the scale of the ESIF's contribution to public investment at a time of crisis since it rose from 11,5 % of EU public investment in terms of gross fixed capital formation (GFCF) in 2007 to 18,1 % in 2013. Its contribution amounted to over 75 % of public investment in some countries. During the 2007-2013 period, allocations under the Structural Funds and the Cohesion Fund, and associated national co-financing, amounted to an annual average of approximately 0,55 % of EU27 GDP;

| 18. | therefore believes that it is illogical to threaten a Member State facing economic difficulties with the suspension of ERDF and ESF funding. Lower public expenditure does not automatically lead to lower public deficits and can have a negative social impact; |
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18.

therefore believes that it is illogical to threaten a Member State facing economic difficulties with the suspension of ERDF and ESF funding. Lower public expenditure does not automatically lead to lower public deficits and can have a negative social impact;

| 19. | has serious concerns about a potential deterioration in national and subnational public finances as a consequence of suspended payments as well as commitments. It also draws attention to the fact that the limitations of linking the Structural Funds to the sound economic governance of public deficits have already been demonstrated by its original application to the Cohesion Fund, bearing in mind that penalising deficits is more likely to aggravate the economic situation of the countries concerned; |
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19.

has serious concerns about a potential deterioration in national and subnational public finances as a consequence of suspended payments as well as commitments. It also draws attention to the fact that the limitations of linking the Structural Funds to the sound economic governance of public deficits have already been demonstrated by its original application to the Cohesion Fund, bearing in mind that penalising deficits is more likely to aggravate the economic situation of the countries concerned;

| 20. | reiterates its call for the European Commission to present a white paper setting out an EU-level typology for the quality of public investment in public accounts, on the basis of its long-term effects. If necessary, this typology could lead to a weighted evaluation of the quality of public investment in the calculation of budget deficits or to a better consideration of the actual macroeconomic cycle or context; |
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20.

reiterates its call for the European Commission to present a white paper setting out an EU-level typology for the quality of public investment in public accounts, on the basis of its long-term effects. If necessary, this typology could lead to a weighted evaluation of the quality of public investment in the calculation of budget deficits or to a better consideration of the actual macroeconomic cycle or context;

A counterproductive reprogramming of funds

A counterproductive reprogramming of funds

| 21. | doubts that the content of reprogramming and associated arrangements will systematically deliver positive outcomes, contribute to improving the country's long-term competitiveness and redirect its economic development towards the sectors of the future. An analysis of what has been accomplished since 2009 reveals that the urgency of the situation led the Commission and the Member States to give preference to ongoing projects in order to boost the uptake of appropriations and generate cash flows. These decisions made it generally possible to increase allocations for R&D and innovation, generic support for businesses, renewable energies, roads and the labour market along with measures that were more specifically geared to youth employment. However, they may also have led to the neglect of growth driving sectors such as ICT services, environmental investments, railways, education and training, and capacity building; |
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21.

doubts that the content of reprogramming and associated arrangements will systematically deliver positive outcomes, contribute to improving the country's long-term competitiveness and redirect its economic development towards the sectors of the future. An analysis of what has been accomplished since 2009 reveals that the urgency of the situation led the Commission and the Member States to give preference to ongoing projects in order to boost the uptake of appropriations and generate cash flows. These decisions made it generally possible to increase allocations for R&D and innovation, generic support for businesses, renewable energies, roads and the labour market along with measures that were more specifically geared to youth employment. However, they may also have led to the neglect of growth driving sectors such as ICT services, environmental investments, railways, education and training, and capacity building;

reprogramming

| 22. | is concerned that the legal limits of reprogramming, such as they arise from the obligation to respect the thematic priorities, the ESF-ERDF balance, etc., are somewhat impractical; |
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22.

is concerned that the legal limits of reprogramming, such as they arise from the obligation to respect the thematic priorities, the ESF-ERDF balance, etc., are somewhat impractical;

| 23. | considers the implementation of a measure that will only be applied between 2015 and 2019 to be unrealistic; |
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23.

considers the implementation of a measure that will only be applied between 2015 and 2019 to be unrealistic;

| 24. | believes that reprogramming is far from easy and quick to implement. Based on the last five years' experience, as described in the sixth cohesion report, when it led to the involvement of substantial human resources in the eight Member States concerned and the Commission, it will be extremely expensive and difficult for national, regional and local authorities to manage; |
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24.

believes that reprogramming is far from easy and quick to implement. Based on the last five years' experience, as described in the sixth cohesion report, when it led to the involvement of substantial human resources in the eight Member States concerned and the Commission, it will be extremely expensive and difficult for national, regional and local authorities to manage;

| 25. | is concerned that reprogramming will lead to more red tape since it will entail the same requirements as the preparation of a partnership agreement (performance indicators, conditions, etc.), which will mean bringing in more experts and agreeing to additional expenditure. Burdening current employees with too many additional obligations can make them less effective at work — the opposite of what is expected; |
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25.

is concerned that reprogramming will lead to more red tape since it will entail the same requirements as the preparation of a partnership agreement (performance indicators, conditions, etc.), which will mean bringing in more experts and agreeing to additional expenditure. Burdening current employees with too many additional obligations can make them less effective at work — the opposite of what is expected;

| 26. | deplores the unnecessary administrative burden that reprogramming will place not only on the EU and national authorities but also, and above all, on regions that are managing authorities, which will result in significant additional costs due to the urgency of responding to the Commission's requests and the need to take on more staff; |
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26.

deplores the unnecessary administrative burden that reprogramming will place not only on the EU and national authorities but also, and above all, on regions that are managing authorities, which will result in significant additional costs due to the urgency of responding to the Commission's requests and the need to take on more staff;

Macroconditionality is out of line with the European spirit

Macroconditionality is out of line with the European spirit

| 27. | deplores the recentralisation at national and EU level that underpins the entire measure and involves considerable interference from the Commission. The tight reprogramming deadlines will undoubtedly undermine the partnership principle and multilevel governance, which are at the heart of cohesion policy; |
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27.

deplores the recentralisation at national and EU level that underpins the entire measure and involves considerable interference from the Commission. The tight reprogramming deadlines will undoubtedly undermine the partnership principle and multilevel governance, which are at the heart of cohesion policy;

| 28. | emphasises the damage to public opinion that would be caused by such a sanction, which would undoubtedly fuel hostility towards the EU still further; |
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28.

emphasises the damage to public opinion that would be caused by such a sanction, which would undoubtedly fuel hostility towards the EU still further;

| 29. | is surprised that the European Parliament's democratic oversight of this new macroeconomic conditionality system will no longer be exercised to the full as a result of this steady technocratic drift, especially where the reprogramming of funds is concerned. As a result, the Committee issues a strong call for the Commission to restore the European Parliament's central decision-making role in the implementation of the principle of macroeconomic conditionality, in association with the European Committee of the Regions. |
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29.

is surprised that the European Parliament's democratic oversight of this new macroeconomic conditionality system will no longer be exercised to the full as a result of this steady technocratic drift, especially where the reprogramming of funds is concerned. As a result, the Committee issues a strong call for the Commission to restore the European Parliament's central decision-making role in the implementation of the principle of macroeconomic conditionality, in association with the European Committee of the Regions.

Brussels, 12 February 2015.

The president of the European Committee of the Regions

Markku MARKKULA

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(1)  CdR 4/2012 fin.

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(2)  Eurostat — DG REGIO.

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(3)  Quality of Government and Returns of Investment, OECD Regional Development Working Papers, No 2013/12.

3

Quality of Government and Returns of Investment

(4)  See European Commission, Quality of public expenditure in the EU, p. 31.

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