# EUR-Lex - 52011PC0481 - EN

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# 52011PC0481

**Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Regulation (EC) No 1698/2005 as regards certain provisions relating to financial management for certain Members States experiencing or threatened with serious difficulties with respect to their financial stability /* COM/2011/0481 final - 2011/0209 (COD) */**

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EXPLANATORY MEMORANDUM

1.           background
to the proposal

· Reasons and objectives for the proposal

The sustained financial and economic crisis is
increasing the pressure on national financial resources, as Member States are
reducing their budgets. In this context ensuring a smooth implementation of
rural development programmes is of particular importance as a tool for
providing financial assistance to the real economy.

Nonetheless, the implementation of the
programmes is often challenging as a result of the liquidity problems resulting
from budget constraints. This is particularly the case for those Member States
which have been most affected by the crisis and have received financial
assistance under a programme from the Balance of Payments (BoP) mechanism for
non EURO countries or from the European Financial Stabilisation Mechanism
(EFSM) for the EURO countries. To date, six countries have requested financial
assistance under these mechanisms and have agreed with the Commission a
macro-economic adjustment programme. Hungary has received financial assistance
from 2009 but has exited the support mechanism in 2010. The remaining five
countries are Romania and Latvia under the BoP and Portugal, Greece, and
Ireland under the EFSM, hereafter called "programme countries.

In order to help these Member States to
continue the implementation of the programmes on the ground and disburse funds
to projects, the current proposal contains provisions that allow the EAFRD
contribution rate applicable to the rural development programmes of these MS to
be increased up to a maximum
of 95% of eligible public expenditure in the regions
eligible under the Convergence objective, the outermost regions and the smaller
Aegean Islands and 85% of eligible public expenditure in other regions as long
as they are under the support mechanisms. This will provide additional
financial resources to the Member States and will facilitate the continuation
of the implementation of the programmes on the ground.

·
General context

The deepening of the financial crisis in some
of the Member States is undoubtedly affecting substantially the real economy
due to the amount of debt and the difficulties encountered by the Governments
to borrow money from the market.

The Commission has been very active in putting
forward proposals on how best to react to the current financial crisis and to
its socio-economic consequences. In particular in the framework of its recovery
package, the Commission proposed in December 2008 a number of regulatory
changes to increase the EAFRD contribution rate applicable to the expenditure
incurred by the rural development programmes within the year 2009. Greece,
Latvia and Hungary among the countries above indicated, benefited of this
facility.

·
Provisions in force in the policy sphere of
the proposal

Council Regulation (CE) No 1698/2005 on support
for rural development by the European agriculture Fund for Rural Development
(EAFRD) defines the common rules applicable to the programming process as well
as arrangements for programme management, monitoring, and evaluation of
projects.

Rural development programmes shall be
re-examined and adapted for the remainder of the programming period, in case
this would be neccesary to ensure consistency with the Community strategic
guidelines, the national strategy plan and Regulation (CE) No 1698/2005, in
line with Articles 18 and 19 of that Regulation.

Article 26(1) of Council Regulation (EC) 1290/2005
provides that the interim payments shall be calculated by applying the
co-financing rate for each priority to the certified public expenditure
pertaining to it.

·
Consistency with other policies and
objectives of the Union

Not applicable.

2.           CONSULTATION OF INTEREST PARTIES AND
IMPACT ANALYSIS

·
Consultation of interested parties

The proposal is consistent with other proposals
and intitiatives adopted by the European Commission as a response to the
financial crisis .

·
Procurement and use of expertise

Use of external expertise has not been
necessary.

·
Impact analysis

The proposal will allow the Commission to
approve higher EAFRD contribution rates for the countries concerned, for as
long as they are under the support mechanisms.

There is no need for an additional budget as
the total financial allocation from the Funds for the countries and the
programmes over the 2007-2013 programming period will not change.

3.           Legal elements of the proposal

·
Summary of the proposal

· It is proposed to modify article 70 of Council Regulation 1698/2005
in order to allow the EAFRD contribution rate applicable to the rural
development programmes of the MS concerned to be increased up to 95% of
eligible public expenditure in the regions eligible under the Convergence
objective, the outermost regions and the smaller Aegean Islands and 85% of
eligible public expenditure in other regions, for as long as they are under the
support mechanisms.

Following the adoption of a Council decision
granting assistance to a Member State under the support mechanisms, the MS will
submit to the Commission a proposal of modification of its rural development
programme increasing the EAFRD co-financing rates. Payments submitted after
approval of this modification will benefit of the higher support. This will be
a temporary measure which will be terminated once the Member State exits the
support mechanism.

In accordance with the general principles
applicable under Regulation (EC) No 1698/2005, the
increased co-financing rates may only apply for payments to be made after the
respective rural development programmes, including the new financial plans,
have been approved by the Commission.

·
Legal basis

Council Regulation (CE) No 1698/2005 of 20
September 2005 on support for rural development by the European agriculture
Fund for Rural Development (EAFRD) defines the common rules applicable to the
programming process as well as arrangements for programme management,
monitoring, and evaluation of projects. The proposal to modify Regulation (CE)
No 1698/2005 should be based on Articles 42 and 43 of the Treaty on the
Functioning of the European Union.

·
Subsidiarity principle

The proposal complies within the subsidiarity
principle to the extent that it seeks to provide increased support through the
EAFRD for certain Member States which experience serious difficulties or are
threatened with such difficulties notably with problems in their economic
growth and financial stability and with a deterioration in their deficit and
debt position, also due to the international economic and financial
environment. In this context, it is necessary to establish at the European
Union level a temporary mechanism which allows the European Commission to
reimburse certified expenditure under the EAFRD, using a higher co-financing
rate.

·
Proportionality principle

The proposal conforms to the proportionality
principle:

The current proposal is indeed proportionate
since it goes a long way in providing increased support from the EAFRD to the
Member States in difficulties or threatened with severe difficulties caused by
exceptional occurrences going beyond its control and falling under the
conditions of Council Regulation (EU) 407/2010 (establishing the European
financial stabilization mechanism), or in difficulties or seriously threatened
with difficulties as regards its balance of payments and falling under the
conditions of Council Regulation (EC) 332/2002. For Greece, the Inter-creditor
Agreement concluded together with the Euro Area Loan Facility Act entered into
force on 11 May 2010. It foresees that the availability period would expire on
the third anniversary of the date of the agreement.

·
Choice of instruments

Proposed instrument: regulation.

Other instruments would not be appropriate for
the following reasons:

The Commission has explored the scope for
manoeuvre provided by the legal framework and considers necessary, in the light
of the experience up to now, to propose modifications to the Council Regulation
1698/2005. The objective of this revision is to further facilitate the
co-financing of projects thereby accelerating both their implementation and the
impact of such investments on the real economy.

4.           Budgetary impact

There is no impact on commitment appropriations
since no modification is proposed to the maximum amounts of EAFRD financing
provided for in the Operational Programmes for the programming period
2007-2013. For the period in question, the Commission will be reimbursing
certified expenditure at a higher co-financing rate. This will immediately
translate in additional payments to the Member States concerned for the
expenditure declared to the Commission from the date of entry into force of
this Regulation, following the revision of the rural development programmes.

On the basis of the forecasts of expenditure
sent to the Commission to date by the Member States concerned, an additional
EUR 90 million from the 2011 budget if the proposal is approved in time, and
EUR 470 million from the 2012 budget might be necessary to be paid out in case
the Member States decide to use the maximum co-finance rate allowed.

In the light of Member State's request to
benefit from the action and taking into account the evolution in regard to the
submission of interim payments, the Commission will in 2012 review the need for
additional payment appropriations and if necessary propose the relevant actions
to the Budgetary Authority.

2011/0209 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

amending Council Regulation (EC) No
1698/2005 as regards certain provisions relating to financial management for
certain Members States experiencing or threatened with serious difficulties
with respect to their financial stability

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 42, 43 and
thereof,

Having regard to the proposal from the European
Commission,

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Economic and Social Committee[1],

Having regard to the opinion of the
Committee of the Regions[2],

Acting in accordance with the ordinary
legislative procedure

Whereas:

(1)
The unprecedented global financial crisis and
economic downturn have seriously damanged economic growth and financial
stability and provoked a strong deterioration of financial and economic
conditions of several Member States. In particular, certain Member States
experience serious difficulties or are threatened with such difficulties,
notably with problems in their economic growth and financial stability and with
a deterioration in their deficit and debt position, also due to the
international economic and financial environment.

(2)
Whilst important actions to counterbalance the
negative effects of the crisis have already been taken, including amendments of
the legislative framework, the impact of the financial crisis on the real
economy, the labour market and the citizens is being widely felt. The pressure
on national financial resources is increasing and further steps should be taken
to alleviate that pressure through the maximum and optimal use of the funding
from the European Agricultural Fund for Rural Development (hereinafter the
"EAFRD").

(3)
Based on Article 122(2) of the Treaty providing the
possibility of granting Union financial assistance to a Member State in
difficulties or seriously threatened with severe difficulties caused by
exceptional occurences beyond its control, Council Regulation (EU) No 407/2010
of 11 May 2010 establishing a European financial stabilisation
mechanism[3]
has established such mechanism with a view to preserving the financial
stability of the Union.

(4)
By Council Implementing Decisions 2011/77/EU of
7 December 2010[4]
and 2011/344/EU of 30 May 2011[5]
Ireland and Portugal were granted such Union financial assistance. Greece was
experiencing serious difficulties with respect to its financial stability
before the entry into force of Regulation (EU) No 407/2010 and received
financial assistance inter alia from other euro area Member States.

(5)
Council Regulation (EC) No 332/2002 of 18 February
2002 establishing a facility providing medium-term financial assistance for
Member States' balances of payments[6]
has established an instrument providing that the
Council will grant mutual assistance where a Member State which has not adopted
the euro is in difficulties or is seriously threatened with difficulties as
regards its balance of payments.

(6)
By Council Decisions 2009/102/EC of 4 November 2008[7], 2009/290/EC of 20 January 2009[8] and 2009/459/EC of 26 June 2009[9] Hungary, Latvia and Romania
were granted such financial assistance.

(7)
The period during which the assistance is
available to Ireland, Hungary, Latvia, Portugal and Romania is set out in the
respective Council Decisions. Assistance to Hungary expired on 4 November 2010.

(8)
For Greece, the
Inter-creditor Agreement concluded together with the
Euro Area Loan Facility Act entered into force on 11 May 2010. It foresees that
the availability period would expire on the third anniversary of the date of
the agreement.

(9)
On 11 July 2011, finance ministers of the 17
euro-area Member States signed the Treaty establishing the European Stability
Mechanism (ESM). The Treaty follows the European Council decision of 25 March
2011. It is foreseen that by 2013, the ESM will assume the tasks currently
fulfilled by the European Financial Stability Facility (EFSF) and the European
Financial Stabilisation Mechanism (EFSM).

(10)
The European Council conclusions of 23 and 24
July 2011 welcome the Commission's intention to enhance the synergies between
the loan programme for Greece and the Union funds, supporting efforts to
increase Greece's capacity to absorb Union funds in order to stimulate growth
and employment by refocusing on improving competitiveness and employment
creation. Moreover, the conclusions welcome and support the preparation by the
Commission, together with the Member States, of a comprehensive programme of
technical assistance to Greece. This Regulation contributes to these synergy
efforts.

(11)
In order to facilitate the management of Union
funding, to help accelerate the investments in Member States and regions
concerned and to increase the impact of the funding on the economy it is
necessary to allow the increase of the EAFRD contribution rate up to a 95% of eligible public expenditure in the regions eligible under the
Convergence objective and 85% of eligible public expenditure in other regions which are facing serious difficulties with respect to their financial
stability.

(12)
In accordance with the general principles
applicable under Regulation (EC) No 1698/2005, the
increased co-financing rates may only apply for payments to be made after the
respective rural development programmes, including the new financial plans,
have been approved by the Commission. It is therefore also
necessary to determine the procedure under which the
Member States may use that possibility as well as the mechanism through which
it will be ensured.

(13)
Council Regulation
(EC) No 1698/2005 of 11 July 2006 on support for rural
development by the Agricultural Fund for Rural development EAFRD,[10]should therefore be amended accordingly.

HAVE ADOPTED THIS REGULATION:

Article 1

In Article 70 of Regulation (EC) No
1698/2005 the following paragraph 4c is inserted after paragraph 4b:

"4c.        By way of derogation from the
ceilings set out in paragraphs 3, 4 and 5, the EAFRD contribution may be
increased up to a maximum of 95% of eligible public expenditure in the regions
eligible under the Convergence objective and the outermost regions and the
smaller Aegean Islands, and 85% of eligible public expenditure in other regions.
These rates shall apply to the eligible expenditure newly declared in each
certified declaration of expenditure submitted during
the period in which a Member State complies with one of the following
conditions:

(a)     Financial assistance is made available
to it under Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a
European financial stabilisation mechanism* or, is made available by other
euro-area Member States before the entry into force of that Regulation, ;

(b)     medium-term financial assistance is
made available to it in accordance with Council Regulation (EC) No 332/2002 of
18 February 2002 establishing a facility providing medium-term financial
assistance for Member States' balances of payments**;

(c)     financial assistance is made available
to it in accordance with the Treaty establishing the European Stability
Mechanism.

A Member State wishing to make use of the
derogation provided in the first subparagraph shall submit a request to the
Commission to modify its rural development programme accordingly. The
derogation shall apply as of the approval, by the Commission, of the
modification of the programme, and shall cease to apply once the Member State does
no longer meet in any of the conditions set out in points (a), (b) or (c) of
the first subparagraph. The Member State shall then send the Commission a
proposal for modification of the programme including a new financing plan in
conformity with the maximum rates applicable before the derogation.

If a Member State does not submit to the
Commission a proposal for modifying its rural development programme, including
a new financing plan on the date it does no longer meet any of the conditions
set out in points (a), (b) or (c) of the first subparagraph of this paragraph,
or if the financing plan notified is not in conformity with the maximum rates laid
down in paragraphs 3, 4 and 5 of this Article, those rates shall become
automatically applicable as from that date.

*          OJ L 118,
12.5.2010, p. 1.

**        OJ L 53,
23.2.2002, p. 1."

Article 2

This Regulation shall enter into force on the
day of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its
entirety and directly applicable in all Member States.

Done at Brussels,

For the European Parliament                       For
the Council

The President                                                 The
President

LEGISLATIVE FINANCIAL STATEMENT

FINANCIAL STATEMENT || AGRI/I1/Ares/2011/880294 Rev 1 (JGS/dz) 6.20.2011.6

|| DATE: 26/07/2011

1. || BUDGET HEADING: 05 04 05 01 || APPROPRIATIONS 2011: CA: EUR 14 407 971 311 PA: EUR 11 900 560 340

2. || TITLE: Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) as regards the financial contribution by the Fund for certain Member States

3. || LEGAL BASIS: -

4. || AIMS: To modify the Regulation 1698/2005 to allow in certain Member States facing serious difficulties with respect to their financial stability the increase of the EAFRD contribution rate up to a maximum of 95% of the eligible public expenditure.

5. || FINANCIAL IMPLICATIONS (1) || 12 MONTH PERIOD (EUR million) || CURRENT FINANCIAL YEAR 2011 (EUR million) || FOLLOWING FINANCIAL YEAR 2012 (EUR million)

5.0 || EXPENDITURE - CHARGED TO THE EC BUDGET (current prices) - NATIONAL AUTHORITIES -               OTHER || - || CA: - PA: + 90 || CA: - PA: + 470

5.1 || REVENUE -               OWN RESOURCES OF THE EC (LEVIES/CUSTOMS DUTIES) -               NATIONAL || - || - || -

|| || 2011 || 2012 || 2013

5.0.1 || ESTIMATED EXPENDITURE (current prices) CA PA || - +90 || - +470 || - -

5.1.1 || ESTIMATED REVENUE || - || - || -

5.2 || METHOD OF CALCULATION:-

6.0 || CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE RELEVANT CHAPTER OF THE CURRENT BUDGET? || YES NO

6.1 || CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE CURRENT BUDGET? || YES NO

6.2 || WILL A SUPPLEMENTARY BUDGET BE NECESSARY? || YES NO

6.3 || WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS? || YES NO

6.4 || OTHER ||

OBSERVATIONS: (1) As regards commitment appropriations, the modification of Regulation 1698/2005 will not have any financial impact as the global envelope for rural development remains unchanged as well as its annual breakdown. For payments, the increase of the co-financing rate can result in higher reimbursements to the MS concerned. In the event that the proposal is approved in time to apply the new rate to the payment requests relating to the third quarter 2011, the additional payment appropriations necessary in this year can be estimated at EUR 90 million. For 2011, the situation if needed will be handled in the Global Transfer. The estimate of additional payments to be made in 2012 amounts to EUR 470 million. In the light of Member State's requests to benefit from the action and taking into account the evolution regarding the submission of interim payments, the Commission will in 2012 review the need for additional payment appropriations and if necessary propose the relevant actions to the Budgetary Authority. No estimate has been calculated for year 2013 since, in the event that exceptional circumstances continue to justify increased co-financing rates, the consequences would be taken into account in the budget procedure. As the total envelope of the EARDF does not change, additional payments in 2011 and 2012 will lead to an equivalent reduction of payments at the end of the period

[1]               OJ L , , p. .

[2]               OJ L , , p. .

[3]               OJ L 118, 12.5.2010, p. 1.

[4]               OJ L 30, 4.2.2011, p. 34.

[5]               OJ L 159, 176.2011, p. 88.

[6]               OJ L 53, 23.2.2002, p. 1.

[7]               OJ L 37, 6.2.2009, p. 5.

[8]               OJ L 79, 25.3.2009, p. 39.

[9]               OJ L 150, 13.6.2009, p. 8.

[10]             OJ L 210, 31.7.2006, p. 25.