EUROPEAN COMMISSION Brussels, 6.6.2018 COM(2018) 457 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS



2017 Annual Management and Performance Report for the EU Budget



Table of contents Table of contents 1 Foreword 2 Executive summary 3 Introduction 10 Section 1 Performance and results 12 Performance of the EU budget 13 2017 EU budget 14 Summary account of progress on horizontal issues 15 1.1. Competitiveness for Growth and Jobs (Budget Heading 1A) 17 1.2. Economic, Social and Territorial Cohesion (Budget Heading 1B) 27 1.3. Sustainable Growth: Natural Resources (Budget Heading 2) 34 1.4. Security and Citizenship (Budget Heading 3) 44 1.5. Global Europe (Budget Heading 4) 59 1.6. Special instruments 70 Section 2 Internal control and financial management 71 2.1. Assessment of the internal control framework 74 2.2. Management assurance and reservations 86 2.3. Protection of the EU budget: financial corrections and recoveries 91

2.4. Assurance obtained through the work of the Internal Audit Service (IAS) 94 2.5. Summary of conclusions on the work carried out by the Audit Progress Committee 96 2.6. Follow-up of discharge and external audit recommendations 98 2.7. Conclusions on internal control and financial management achievements 99 2.8. Organisational management 100 ANNEXES 103 ENDNOTES 162

Foreword While 2016 was a year of doubt for the European project, not least with the decision of the United Kingdom to leave the Union, 2017 was a year of renewed hope and perspective. The 60th anniversary of the Treaty of Rome provided the backdrop to a period of deep reflection on the future of Europe, and a chance to reaffirm our commitment to the values of the Union and define priorities for the Union of 27. The European Union was able to focus on making the economic recovery sustainable. Growth rates for the EU and the euro area beat expectations in 2017 to reach a 10-year high at 2.4 %. It also had to tackle a series of challenges, from competitiveness, migration, security to solidarity and addressing some natural disasters. The EU budget is a unique asset for the Union, helping translate ambitions into tangible results on the ground. It complements national budgets by delivering European added value in areas where a coordinated response is the most efficient and effective way to deliver on our priorities. In the Annual Management and Performance Report on the EU budget we describe the many ways in which the EU budget contributed to the achievement of our common goals in 2017. 2017 was the fourth year of implementation of the current Multiannual Financial Framework and all the financial programmes are now fully operational. At the same time, with many unexpected challenges, the importance of a flexible approach to budget implementation was once more confirmed.. Boosting investment continued to be a top priority. The European Fund for Strategic Investments, part of the Investment Plan for Europe, has already triggered more than EUR 287 billion in new investment and has helped creating more than 300 000 jobs. In December, the European Parliament and Council decided to increase and extend the fund to catalyse investments of up to EUR 500 billion by 2020. Solidarity and support was also important with e.g. EUR 1.2 billion mobilised under the EU Solidarity Fund, the highest sum ever mobilised in a single instalment, following the earthquakes of 2016 and 2017 in the Italian regions of Abruzzo, Lazio, Marche and Umbria. The EU budget also continued to underpin the comprehensive European response to the migration crisis and the management of Europe’s external borders. Financed by the EU budget, the European Border and Coast Guard Agency with its extended mandate has significantly strengthened its presence at the EU’s external borders with the aim of supporting the Member States in their border management activities and jointly implementing an integrated border management at EU level. The EU budget also allowed the Union to play a strong role beyond Europe's borders during a period of turbulence in Europe’s neighbourhood and global challenges such as climate change. An optimal performance of the Union’s budget has been a priority for the Juncker Commission from day one. We strongly support the increasing emphasis of the European Parliament, the Member States and the European Court of Auditors not only on how programmes are managed, but on whether they are delivering results in the areas that really matter for Europe’s citizens. The Annual Management and Performance Report reflects the European Commission’s dual focus on the performance of the EU budget but also on sound financial management. This Report is part of the Commission’s Integrated Financial Reporting Package and an essential part of our highly developed system of financial accountability. Through this report, we take overall political responsibility for the management of the EU budget. This is a responsibility we take extremely seriously. Looking ahead, the Commission recently tabled its proposals for the future Multiannual Financial Framework. Building on a comprehensive Spending Review of the current financial programmes, these proposals show how the future EU budget will contribute to the ambitious agenda agreed by Leaders in Bratislava and in the Rome Declaration. It is a proposal for a more modern, streamlined and flexible budget, targeting those areas where pooling resources creates real added value for all European citizens. Performance and sound financial management are at the heart of these proposals.

The Commission will continue to play its role to the full, together with the Member States, to harness the potential of the EU budget investing in growth, create jobs and tackle common challenges. Günther H. Oettinger Commissioner for Budget and Human Resources



Executive summary This Annual Management and Performance Report for the EU Budget presents the latest information on the results achieved with the EU budget (section 1) and on how the EU budget is managed and protected (section 2). This report is part of the annual Integrated Financial Reporting Package, which provides detailed information on revenue, expenditure, management and performance of the EU budget, in line with best practices for transparency and accountability. This package is also the Commission’s main contribution to the annual budgetary discharge process. Section 1 of the Annual Management and Performance Report covers the results achieved with the EU budget across all budget headings and policy areas. It explains how the EU's financial programmes have contributed to the Union's political priorities and summarises the latest evaluation results on the performance of EU programmes in the 2014-2020 period. 2017 was the fourth year of the current Multiannual Financial Framework and the third of the mandate of the current Commission. The Commission proposed a budget reflecting and supporting the political priorities set by President Juncker, in particular contributing to the greatest extent possible to jobs, growth and investment, and providing a coordinated European response to the challenges of migration management and the fight against terrorism and organised crime. Besides these two clear priorities, through the EU budget and other instruments, the Commission will continue to progress towards a connected Digital Single Market, a resilient energy union, including climate action, a social Union and a stronger EU as a global actor and in the field of defence.





Jobs, growth and investments The European economy continued to recover in 2017. Jobs are being created, public finances are on a much firmer footing, and structural reforms are laying the foundations for sustainable growth in the longer-term. Downside risks remain, for example in relation to the world economy and the volatility of global financial markets. The priority for the EU budget in 2017 was to build on the steady recovery, particularly focused on closing the European investment gap. The European Fund for Strategic Investments, part of the Investment Plan for Europe, was at the heart of these efforts. By mid-2018, the Fund has already mobilised over EUR 287 billion in new investments in the fields of transport, digital, energy, health care, research and innovation throughout the EU. This helped already to create more than 300 000 jobs. Thanks to these investments, high-speed internet access has been provided for 11 million households, renewable energy for more than 4 million households and better health care for 1 million citizens1. It is estimated that projects financed by the European Fund for Strategic Investments will generate an increase of Gross Domestic Product in the Union of 0.7 % and create 700 000 new jobs by 20202. There are also strong synergies between the European Fund for Strategic Investments and other financial instruments supported by the EU budget, for example the loan guarantee facility of the Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme (COSME). By the end of 2017, COSME provided financing to more than 275 000 small and medium sized companies (of which 50 % were startups) in 25 countries that would otherwise have struggled to secure private financing due to their high risk profile. The European Regional Development Fund has also contributed to the success of small and medium sized enterprises, providing financing to more than 457 000 small and medium sized enterprises. Around 156 000 jobs are expected to be directly created in small and medium enterprises supported by the European Regional Development Fund (projects selected by the end of 2016).





The Connecting Europe Facility is supporting targeted investments in infrastructure projects in the areas of energy, transport and digital services. 86 % of transport investment is allocated to cross-border projects that will lead to a significant improvement in European transport infrastructure and a strengthening of Europe’s Single Market. The Connecting Europe Facility contributed to: - the upgrade of an important railway section in the North-East of Poland (Białystok-Ełk) as part of the Rail-Baltica global project; - a new electricity line between Alytus (Lithuania) and the Lithuanian border with Poland which ended the energy isolation of the Baltic States; - 16 Member States using the Core Service Platform of eHealth thus facilitating cross-border patient safety and continuity of care.



Europe's flagship research and innovation programme, Horizon 2020 is key for promoting innovation and a knowledge based economy. For example, the Graphene Flagship is a striking example of the strong EU added value of Horizon 2020. Due to its unique combination of superior properties, graphene is a credible starting point for new disruptive technologies across a wide range of fields. More than 150 partners in over 20 European countries from both industry and academia are jointly developing applications in areas such as 5G mobile technologies, batteries, aerospace, medical applications, and automotive. Thanks to the EU’s research and innovation programme the first microprocessor for examining brain activity in high resolution was developed, a major boost to the fight against diseases like epilepsy. Through Marie Skłodowska-Curie Actions the programme has funded 36 000 researchers at all stages of their career, regardless of their age or nationality, contributing significantly to keeping, developing and attracting research talents in Europe. Agri-businesses also received strong support from the EU budget in 2017 through the Common Agricultural Policy. The benefits of this investment is the safeguarding of one of the EU’s greatest assets, its rural industries, which despite a declining industry size, have maintained positive growth of nearly 9 % since 2005 while cutting greenhouse gas emissions by 24 % since 1990 and reducing fertiliser use with a positive impact on water quality. By the end of 2016, Rural Development Programmes contributed to the restructuring and modernisation of almost 45 000 agricultural holdings. The emphasis on the environment, climate and the wider rural context in which farming operates has been substantially increased within this Policy. European response to the migration challenge and the fight against terrorism For 2017, tackling the refugee crisis and the migration challenge has been at the top of the Commission's agenda. The EU budget has responded to this with financial support for effective border management and the integration of refugees. The flexibility of the EU budget to mobilise funds was used to the full, providing invaluable support to Member States in an areas where a coordinated European approach is vital.



Inside the EU… The management of migratory flows within the EU is supported by the Asylum, Migration and Integration Fund and the Internal Security Fund. Between 2013 and 2017, the number of people provided with assistance (in reception and asylum systems) increased from 18 944 to 184 122. By December 2017, 26 849 people in need of international protection have been resettled and 33 151 people were relocated. Specific support from the EU budget was earmarked in support of the two relocation schemes for Italy and Greece (EUR 651 million) and of the resettlement scheme (EUR 872 million). Also in 2017 the EU budget has been mobilised to implement the 'hotspot' approach, whereby EU agencies work on the ground to swiftly identify, register and fingerprint incoming migrants. This work continued in Greece and Italy with a total capacity of around 5 600 places in Greece3 and 1 850 in Italy. At the end of 2017, over 45 000 refugees and migrants were still stranded in Greece. From mid-2016 almost 40 000 people benefitted in Greece from the Emergency Support to Integration and Accommodation programme and cash assistance scheme under the Emergency Support Instrument.

During the first semester of 2017, around 1 000 places for unaccompanied minors in dedicated shelters were covered by the Emergency Support Instrument. As of August, the Greek authorities took over the funding of these shelters through their national programme under the Asylum, Migration and Integration Fund. Effective border management is also important in response to the current migratory challenges. Frontex, the European Border and Coast Guard Agency, has become an essential actor in migration enforcement on the European level, taking on new responsibilities and tools related to returns of people who have exhausted all legal avenues to legitimise their stay within the EU. The pace of return operations organised by the Agency has continued to grow, reaching a total number of 14 271 persons returned in 2017. The European Border and Coast Guard Agency contributed to rescuing 111 000 migrants that arrived in Italy via the Central Mediterranean Route. External border control was also supported by further development of information technology systems, in particular the Visa Information System and the Schengen Information System. The Visa Information System contained information on 55 million short-stay visa applications at the beginning of 2018.

In this context, the International Security Fund contributed to the training of,8 134 law enforcement officials on cross-border-related topics (terrorism, organised crime, corruption). Also, large scale infrastructure and space projects financed by the EU budget played a role in the response to the refugee crisis. Galileo’s Search and Rescue service drastically reduces the time to detect emergency distress beacons from up to three hours to just ten minutes, greatly improving accurate localisation.



…and in partnership with our neighbours In addressing migratory challenges, fostering a coordinated and collaborative partnership with neighbouring regions and other third countries to address the root causes was vitally important. For that reason, an increasing share of the EU’s non-humanitarian aid for Syria’s neighbouring countries was provided through the EU Regional Trust Fund in Response to the Syrian crisis, the ‘‘Madad Fund’’: financing passed in 2017 the goal of EUR 1 billion.

Thanks to the Madad Fund, improved access to quality education, protection, and psycho-social support was obtained by more than 450 000 refugee and host community children and youths4. Libya remained the main country of departure towards Italy. As a response, the pace of implementation of the North of Africa window of the EU Trust Fund for Africa increased considerably with eight new programs approved for a total amount of EUR 232.5 million, as well as one cross-window program for EUR 8.6 million. By the end of 2017 almost the full EUR 3 billion allocated to the Facility for Refugees in Turkey had been committed to projects which ensure that the needs of refugees and host communities in Turkey are addressed in a comprehensive and coordinated manner. Almost two million people received access to primary healthcare services and around one million to rehabilitative mental health services thanks to the Facility for Refugees in Turkey5.



The EU budget continued to provide strong support in 2017 to many other political priorities of the Union. Besides these priorities, through EU spending programmes, the Commission has made progress in other fields as well, on for example the social Union, external action, a resilient energy union, including climate action, a connected digital single market and on defence. Social investment and youth Employment, Social Inclusion and Education was also an important priority for the 2017 budget. The Youth Employment Initiative focuses on decreasing youth unemployment throughout the Union. This programme provided support to young people living in regions where young unemployment was higher than 25 % in 2012. Its budgetary allocation was topped up in 2017 for regions with youth unemployment higher than 25 % in 2016.

Since 2014, about 790 000 people were back in employment, 820 000 had gained a qualification, 276 000 were in education or training following actions funded by the European Social Fund including the Youth Employment Initiative. As a result of all actions of the European Social Fund almost, 8 million people have been helped in their search for a job, training, or education between 2014 and 2016.

Erasmus+ celebrated its 30th anniversary in 2017. Since 2014, over 1.8 million students have taken part in mobility activities, and more than 240 000 organisations are involved in cooperation projects. The mid-term evaluation indicates that: Willingness to move abroad permanently is higher under Erasmus + participants (31 % more willingness compared to non-participants); also they identify themselves more as a EU citizen (19 % more). Volunteering supported by the Erasmus+ together with eight other EU programmes and instruments contributed to the creation of further opportunities for young people under the European Solidarity Corps. One year since its launch, more than 42 000 young people from all Member States have signed up. By the end of 2017, one year since the opening of the online registration tool, more than 2 500 placements have been offered to the young people6. External action The 2017 budget also contributed to a stronger EU as a global actor. The EU provided more than EUR 2.2 billion in Humanitarian Aid in 80 different countries7. Together with its Member States, the Union remained the largest donor of humanitarian aid in the world. EU humanitarian funding has supported the education of over 4.7 million children caught up in emergencies in over 50 countries8. In 2017, an agreement on the European Fund for Sustainable Development was reached. This Fund is part of the External Investment Plan for Europe, which is tasked with scaling up private sector involvement in socio-economic development in partner countries. The response to the call for proposals for the first two investment allocations was very positive, 30 proposals from 12 partner institutions for a total value of more than EUR 2.5 billion were received.

Climate action and environment The EU budget remained an important tool in the fight against climate change. To achieve this result, mitigation and adaptation actions are being integrated into all major EU spending programmes, in particular regional development and the Cohesion Fund, energy, transport, research and innovation, the Common Agricultural Policy as well as the EU’s development policy. In 2017 the total budget contribution to climate mainstreaming (i.e. budget spending on environmental projects) was estimated at 20.3 %. Positive developments were also seen in the field of energy efficiency in the Union. The EU has set itself a 20% energy savings target by 2020 (when compared to the projected use of energy in 2020) – this is roughly equivalent to turning off 400 power stations. More than 2 000 Megawatts of additional capacity of renewable energy production and reduction of greenhouse emissions of more than 3 million tonnes of CO2 equivalents is expected as a result of projects selected up to 2016 under the Cohesion Fund. Furthermore, a reduction of greenhouse gas emissions of 3 million tonnes of CO2 equivalents is the estimated result of projects financed under the European Regional Development Fund. Digital Single Market The European Fund for Strategic Investments has also contributed to the completion of the Digital Single Market, along with the Connecting Europe Facility. Besides this, up to the end of 2017, around 5 500 projects were selected under the Cohesion Fund to support the achievement of a connected Digital Single Market. 1 million additional households had broadband access by the end of 2016 as a result of support from the European Regional Development Fund.

Defence The launch of the European Defence Fund in 2017 marked the beginning of a new chapter in defence cooperation. This Fund will act to support Member States to spend more efficiently in joint defence capabilities, to strengthen European citizens' security and to foster a competitive and innovative industrial base.



Internal control and financial management In addition to the results achieved through EU spending, the way the EU budget is managed has a major impact on its overall performance. This is why the Commission strives to achieve the highest standards in financial management in terms of efficiency, effectiveness and cost-effectiveness. This is the focus of Section 2 of the Annual Management and Performance Report. A stronger internal control framework The Commission further strengthened its internal control framework in 2017 based on international standards and best practices. The aim is to move from a compliance-based system to a performance-based system. This will ensure robust internal control while giving Commission departments the necessary flexibility to adapt to their specific needs and circumstances. Although 2017 was a transition year, already one third of departments have reported on the effect the new principles were having on the effectiveness of their controls. Overall, all departments concluded that the internal control standards and principles were working well and implemented effectively. The new internal control framework also allows for a more nuanced assessment; some departments indicated a need to improve effectiveness in the implementation of specific principles or standards. The financial management and control systems for the EU budget have improved considerably over time. This achievement has also been recognised by the European Court of Auditors. For the first time, the European Court of Auditors in its most recent statement of assurance9, gave a qualified rather than an adverse opinion on the legality and regularity of the EU budget payments. The level of error dropped in all policy areas, continuing the downward trend in the overall level of estimated error. The level of error was below 2 % for about half of EU spending, and no material error was found in revenue. The Commission nevertheless continues to improve its control systems. Effective management and protection of the EU budget The Commission gives the highest priority to ensuring that the EU budget is well-managed and that all the necessary measures are in place to protect taxpayers' money. Although management of the budget is the ultimate responsibility of the Commission, 68 % of expenditure is executed by Member State authorities under shared management, and 8 % through entrusted entities under indirect management. The Commission has two main mechanisms for protecting the EU budget, i.e. EU spending, from undue or irregular expenditure: -preventive mechanisms (e.g. ex ante controls, interruptions and suspension of payments); and -corrective mechanisms (e.g. ex post controls; these are primarily financial corrections imposed on Member States but can also be recoveries of funds from the recipients of EU payments). While errors may be detected in any given year, they are also duly corrected in subsequent years. A multiannual analysis of those errors and corrections is thus necessary and appropriate. In the context of the Multiannual Financial Framework, the Commission's spending programmes, most control systems and management cycles are also multiannual by design. The 2017 overall amount at risk at payment is estimated to be 1.7 % of total relevant expenditure. In 2017, in terms of financial corrections and recoveries, the Commission departments’ multi-annual control systems have enabled them to detect and correct EUR 897 million before the funds were released and EUR 1 949 million after the funds were released. The forward-looking overall amount at risk at closure, i.e. once all corrections have been made, is estimated to be 0.6 % of total relevant expenditure.

This result implies that the Commission departments' multiannual control mechanisms in general ensure appropriate management of the risks relating to the legality and regularity of the transactions and that the financial corrections and recoveries made in subsequent years do protect the EU budget overall. In the meantime, further action is being taken for those programmes with persistently high levels of error to address their root causes and to prevent, detect and correct fraud10. In addition, the European Anti-Fraud Office is mandated to conduct independent investigations into fraud and corruption involving EU funds and to develop EU policies to counter fraud. Management Assurance In their 2017 Annual Activity Reports, all 50 Authorising Officers by Delegation declared that they had reasonable assurance that (i) the information contained in their report gives a true and fair view; (ii) the resources assigned to the activities have been used for their intended purpose and in accordance with the principle of sound financial management; (iii) and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions. To ensure transparency, in the Annual Activity Reports, reservations are issued for those programmes for which the residual error rate has not (yet) fallen below 2 % at the time of reporting. 30 Authorising Officers by Delegation declared unqualified assurance, while 20 declarations were qualified with a total of 38 reservations for 2017 (37 in 2016). In all cases, the Authorising Officers by Delegation concerned drew up actions that need to be taken to address the underlying weaknesses and mitigate the resulting risks. The financial impact of the reservations on management assurance has decreased to EUR 1 053 million for expenditure (EUR 1 621 million in 2016) and to EUR 431 million for revenue (EUR 517 million in 2016). The ‘legacy’ generation of the 2007-2013 programmes, which are phasing out, accounts for half of the number of reservations but only a minor share of the total amount at risk. Another area of increased transparency concerns the EU Trust Funds. Given their increasing importance, the departments responsible for the trust funds now ensure complete coverage of the funds in their management reporting. This covers: (i) accountability for the contributions from the EU budget and the European Development Fund paid into the funds; and (ii) the management of the transactions made out of the funds (i.e. including other donors' funds).

Efficient, effective and cost-effective internal control systems High standards of financial management require cost-effective measures to be in place to ensure the effective protection of the EU budget. With this in mind, measures are taken to develop synergies and seek efficiency gains, for example by simplifying rules and procedures, improving and linking financial IT systems, and further pooling financial expertise. This ultimately leads to a lower bureaucratic burden, proportionate costs for controls on beneficiaries, lower error rates, improved data quality, and shorter payment times. The average payment time of the Commission departments has steadily decreased over the years and is now below 30 days. The 2017 overall average net payment time is 20.4 days. Increasingly, Commission departments are also taking measures to ensure that their control systems remain risk-differentiated (i.e. more scrutiny and/or frequency is riskier areas, and less in low-risk areas) and cost-effective. By the end of 2017, the periodical reviews carried out by all departments to examine their control systems had concluded that these systems were cost-effective. Moreover, for the next generation of spending programmes, the departments are asked to justify (in the legislative financial statements annexed to their legislative proposals) why the proposed management mode(s), funding implementation mechanism(s) and methods of payment are considered to be the most appropriate solutions – not only in terms of the policy/programme objectives but also in terms of how they balance three of the internal control objectives, i.e. fast payments, low errors and low cost of control.



Introduction The EU budget is key for implementing European policies and priorities. Investment from the EU budget delivers results in its own right and serves as a catalyst for additional investment from other public and private sector sources. It works hand in hand with other policy instruments at European and national level to address the many challenges, and opportunities, faced by the Union today. Unlike national budgets, the EU budget is predominantly focused on investment. Its programmes are multiannual in nature, providing a stable and predictable framework which is ideally suited to supporting strategic investments over the medium to longer term. The EU budget focuses on areas where pooling resources to tackle common challenges can deliver results for all Europeans that could not be achieved as effectively or efficiently by Member States acting alone. This applies in areas as diverse as cross-border infrastructure, external border management, large-scale space projects and pan-European research. In all these areas, the EU budget is uniquely placed to deliver for all Europeans. This is the essence of ‘European added value’. It also applies to common policies such as the Common Agricultural Policy and Cohesion Policy.

The Commission plays a central role in the management of the budget, either managing programmes directly (e.g. in the areas of research or the mobility of young people) or in conjunction with Member States (for instance in Cohesion Policy). The Commission is responsible for ensuring that the EU budget is managed responsibly and in compliance with the relevant rules in order to protect taxpayers’ money. The Commission implements a robust system of governance and internal control to ensure that this is the case. The management of the EU budget is subject to external scrutiny from the European Court of Auditors. The stronger record of financial management in recent years has allowed a reinforced focus on the performance of the budget: is the EU budget being put to the best possible use to deliver tangible results for all Europeans? The Commission cannot ensure this on its own – it is a joint responsibility with the Member States, regions, non-governmental organisations, project sponsors and all those involved in implementing the EU budget. The 2017 Annual Management and Performance Report for the EU Budget brings together both management and performance aspects into a single integrated report. It presents an overview of the latest information on the performance of the budget, and contains detailed reporting on issues arising in relation to the management and protection of the EU budget. This report is the Commission’s main input to the annual 'discharge procedure' by which the European Parliament and the Council scrutinise the implementation of the EU budget. Section 1 of the report describes, with examples, how the EU budget supports the Union's political priorities and provides the latest available data on results achieved up to the end of 2017. This reporting draws on information from the programme statements that form part of the budget proposal for 2019, the 2017 Annual Activity Reports produced by all Commission departments, and other sources such as implementation reports on EU programmes. For this year’s Report, the mid-term evaluations have been a valuable additional source of performance information. Section 2 reports on developments in relation to internal control, financial management and the protection of the EU budget in 2017. This is based on the Annual Activity Reports produced by each Commission department, in which the internal control environment and related issues are described in detail. Where issues were encountered in the course of the year the report describes how Commission departments have tackled these challenges. This section summarises information on the achievement of: -internal control objectives (managing legality and regularity risks; the cost effectiveness of controls; and anti-fraud strategies); -the protection of the EU budget and; -the management assurance provided to the College of Commissioners. This assurance is based on the conclusions of the Commission's management, which are based on statistical and non-statistical indicators on control results and corrections. These conclusions are also cross-checked against opinions from independent parties, including the Commission’s Internal Audit Service (IAS) and the European Court of Auditors, as well as the conclusions of the work of the Audit Progress Committee. The management assurance received from all departments and the assurance obtained through internal audit work form the basis for this report’s overall conclusion. This conclusion enables the Commission, by adopting the report, to take overall political responsibility for the management of the 2017 EU budget. The report also incorporates the former Communication on the protection of the EU budget1 and, as last year, will be part of the broader EU budget Integrated Financial Reporting Package, which also includes the annual accounts.







Section 1

Performance and results 2017 was an active year for the Union on many fronts, with positive results in job creation being seen throughout the Union on the back of the economic recovery. This allowed the Union to focus increasingly on the efficient delivery of its political priorities in areas such as social policy, the digital single market and the completion of the Economic and Monetary Union. Work continued on the development of a comprehensive approach to the internal and external aspects of migration and on the protection of the Union’s external borders. New initiatives were launched to build up the Union’s security and defence capabilities. It was also a year for reflection on the future of the Union following the decision by the United Kingdom to leave the Union. The Commission’s White Paper on the Future of Europe launched a Europe-wide debate on what the priorities should be for the future Europe of 27. The subsequent Reflection Paper on the Future of EU Finances looked at this challenge and put the key elements for discussion on the table. In budgetary terms, 2017 was the fourth year of implementation of the current Multiannual Financial Framework. Most financial programmes are now fully operational following some initial delays and results are being seen on the ground. Investment continued to be a major focus with the continued implementation of the European Fund for Strategic Investments to bridge Europe’s investment gap. The budget was also mobilised to support the development of a comprehensive European response to the internal and external aspects of migration, and to respond to growing and diverse security threats. Being at mid-term in the implementation of current programmes, in 2017 a number of interim evaluations were finalised, providing a comprehensive analysis on the EU added value, relevance, effectiveness, efficiency and coherence of the programmes.

This section begins with a brief summary of the performance frameworks built into EU financial programmes. It then presents the latest information on results achieved with the EU budget up until the end of 2017. The type of data reported depends on the level of maturity of the programmes, ranging from input data to the results of spending from the early part of this period. Final evaluations on the impact of the programmes are not available yet, therefore definitive reporting will not be possible until a later stage. The section is structured around the headings on the current Multiannual Financial Framework. The main programmes within each heading are covered. The report also describes how these programmes contribute to the Europe 2020 objectives and to the political priorities of the Juncker Commission. It also summarises evidence on the results achieved by the financial programmes but also on the areas where performance has fallen short of expectations or shortcomings have been identified in programme design by evaluations and audit work. This information is used to inform implementation decisions on the current financial programmes but also to inform the legislators shaping the Commission’s proposals for the future Multiannual Financial Framework, which were proposed by the Commission in past weeks. This report goes therefore hand in hand with the Spending Review accompanying the Commission’s recent proposals for the future Multiannual Financial Framework11. Indeed, when formulating its proposals, the Commission has sought to draw lessons from the current and past financial frameworks in order to create high-performing programmes that will generate positive results for the European economy and society within their respective fields.

Performance of the EU budget 2014–2020 performance framework A robust performance framework for the EU budget is a prerequisite for result-oriented and well-managed EU programmes. For the 2014-2020 Multiannual Financial Framework, performance frameworks have been included as a new compulsory feature in the legal basis of all financial programmes. This has helped a stronger focus on results across the budget. These frameworks entail the definition of clear and measureable objectives and indicators, as well as the necessary monitoring, reporting and evaluation arrangements. While there is scope for improvement, the Commission considers that indicators, together with other sources of performance information such as evaluations, provide a sound basis for monitoring progress towards programme objectives. They also help to anticipate and resolve problems in programme implementation when they arise. During the early years of programme implementation, performance information is essentially based on inputs - i.e. the financial allocation to a particular programme - and, when possible, outputs. This type of information gives a good initial indication of how the EU budget is being spent and how it is contributing to the political priorities. As programme implementation progresses, information on the results and impact of spending will become available. However, it may be some time before the ultimate impact on the European economy and society can be assessed, This year is the fourth year of implementation and many programmes are starting to report on direct results; however, some programmes have long implementation cycles and indicators on achievements are not yet fully available and reported in the Programme Statements i.e. this is notably the case for shared managed programmes. Audits from the European Court of Auditors also help to improve the performance of programmes, as well as the efficiency and effectiveness of the operations, management systems and procedures of the bodies and institutions that manage EU funds. Nineteen recent reports for instance have confirmed the need to simplify rules and to strengthen or streamline the performance framework. Lessons learned from audits and the practical experience of implementation, and findings from mid-term evaluations have fed into the comprehensive Spending Review accompanying the Commission’s recent proposals for the future Multiannual Financial Framework and the accompanying sectoral programmes. Simplification and streamlining both of implementing rules and performance frameworks are an important theme of these proposals. Performance reporting In its 2016 Annual Report, the European Court of Auditors focused in particular on the quality of performance reporting in relation to the EU budget. Many of these reports are produced by the Commission. The analysis found that while the quality of performance reporting has improved considerably, there are several areas where further improvements could be made, for example: ·Data quality: in its performance reports, the Commission relies on the performance indicators that have been listed in the legal basis of the programmes and reported annually in the Programme Statements. The data is coming from a wide range of sources. The Court and the Internal Audit Service recommended disclosing those sources together with an assessment of the quality of the data collected. Acknowledging the importance of data quality, the Commission services paid particular attention this year to the quality of performance data when preparing their 2017 Annual Activity Reports. Data sources are clearly identified and any concerns regarding data quality clearly flagged. In certain cases, Commission services stopped reporting on some of the indicators where the available data was considered not sufficiently accurate or relevant. ·Balanced reporting: in its annual report of 2016 the Court recommended on the Annual Management and Performance Report of 2015 that the Commission make further efforts to ensure that performance reports provide a balanced picture, covering both programme achievements and challenges encountered. The Commission is committed to producing balanced reports and has, for example, provided extensive coverage in this report on the lessons drawn from the mid-term evaluations of financial programmes. ·Links between performance frameworks: the Court recommended that the Commission make more systematic use of cross-references between performance reports to bring out more clearly the links and complementaries between reports and between the performance framework for the EU budget (eg programme statements) and the framework for the Commission services. ·Readability: as the Court recommended, the Commission continued to improve the visual presentation of its reports, using visual aids, graphs, diagrams, charts or text boxes where appropriate to present performance data and convey key performance messages. Shared responsibility for results Approximately three quarters of the EU budget is implemented under shared management with the Member States. Although the Commission has the ultimate financial responsibility for the management of the EU budget, the responsibility for the results achieved with the EU budget is shared with a wide range of actors at European, national and regional level. All have a part to play to ensure that every euro spent with the EU budget serves efficiently and effectively its intended purposes. 2017 EU budget

Chart: 2017 EU budget per budget heading. All amounts in EUR billion. The EU budget, including amending budgets, amounted to EUR 159.8 billion in 2017. About half of this, EUR 75.4 billion, was allocated to smart and inclusive growth. Support to the European agricultural sector totalled EUR 58.6 billion. EUR 4.3 billion was spent on reinforcing the external borders of the Union and addressing the refugee crisis and irregular migration. EUR 10.7 billion was allocated to actions outside the Union and EUR 9.4 billion was spent on the administration of the EU institutions. In 2017 six amending budgets were adopted. Apart from the standard adjustments on the revenue side two draft amending budgets were adopted for the mobilisation of the European Solidarity Fund and adjustments were needed as a consequence of the adoption of the mid-term review. Outside the ceilings of the Multi-Annual Financial Framework, there are Special Instruments; the Emergency Aid Reserve , the EU Solidarity Fund , the Flexibility Instrument and the European Globalisation Adjustment Fund .



Summary account of progress on horizontal issues The EU budget and the Europe 2020 strategy The current long term budget is designed to contribute to the Europe 2020 strategy for smart, sustainable and inclusive growth. The targets are a shared responsibility of the Union and its Member States and their achievement requires the combination of multiple policy tools, including the EU and national budgets. The Europe 2020 headline targets are monitored by the Commission using nine indicators. Information on progress is regularly updated and published on Eurostat’s website12. The table below presents the latest available data for these indicators. Member States are making progress towards the goals they set eight years ago in the Europe 2020 strategy. Overall, the EU is approaching its targets on education, energy, climate and employment. 14 Member States have already achieved their national targets in reducing early school leaving and in increasing the share of tertiary educated population. 11 Member States have hit their renewable energy targets. The EU target of 75 % employment in 2020 is on track assuming the current trend continues and seven Member States have already attained their national goals. This is a remarkable achievement given the severe impact of the crisis on employment. However, the number of the people at risk of poverty or social exclusion peaked in 2012 and has since then decreased to around pre-crisis levels. As a result, the target is unlikely to be met in 2020. Likewise, the goal of 3 % of Gross Domestic Product investment in Research and Development is far from sight and will require major efforts to be met13. The contribution to Europe 2020 should not be confined within the limits of a single programme, but rather be seen as mutually reinforced contribution of the EU budget as a whole. It is estimated that 59 % of the EU budget commitments in 2017 are linked to the Europe 2020 strategy. Europe 2020 targets

for the EU 2010 data Latest available data In 2020, based on recent trends 1. Increasing the employment rate of the population aged 20-64 to at least 75% 68.6% 72.3% (Q3-2017) Target likely to be met 2. Increasing combined public and private investment in R&D to 3% of GDP 1.93% 2.03% (2016) Target unlikely to be met 3a. Reducing greenhouse gas emissions by at least 20% compared to 1990 levels 14% reduction 23% reduction (2016) Target likely to be met 3b. Increasing the share of renewable energy in final energy consumption to 20% 12.5% 17.04 (2016) Target likely to be met 3c. Moving towards a 20 % target in energy efficiency 5.7% (for primary energy consumption) 16.0% (2016) (for primary energy consumption) Target likely to be met 4a. Reducing school drop-out rates to less than 10% 13.9% 10.6 % (2017)* Target likely to be met 4b. Increasing the share of the population aged 30-34 having completed tertiary education to at least 40% 33.8% 39.9 % (2017)* Target likely to be met 5. Lifting at least 20 million people out of the risk of poverty and social exclusion 0.5 million increase (compared to the 2008 base year) 1 million increase (compared to the 2008 base year) Target unlikely to be met Table: progress towards EU2020 targets. Sources: https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-communication_en.pdf . and updates* from Eurostat : http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=t2020_40&plugin=1 ; http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=t2020_41&plugin=1



Mainstreaming of climate action and biodiversity The EU budget is also an important tool in the achievement of cross-cutting policy objectives such as climate action and biodiversity. To respond to challenges and investment needs related to climate change, the EU has decided that at least 20 % of its budget for 2014-2020 – as much as EUR 200 billion over the whole period − should be spent on climate change-related action. To achieve this result, mitigation and adaptation actions are being integrated into all major EU spending programmes, in particular regional development and the Cohesion Fund, energy, transport, research and innovation, the Common Agricultural Policy as well as the EU’s development policy. Starting from the 2014 draft budget, the estimates for climate related expenditures have been monitored on an annual basis with EU climate markers, adapted from the OECD development assistance tracking ‘‘Rio markers’’. In 2017 the amount was more than EUR 31 billion, 20.3 % of the total budget. The brings the total cumulative amount for climate mainstreaming by the end of 2017 to more than EUR 100 billion. The tracking procedure for biodiversity-related expenditure forecasted that 9.3 % of the 2016 budget and 8.1 % of the 2017 budget were allocated to limiting and reversing the decline of biodiversity in the EU, making an important contribution to the Europe 2020 sustainable growth objectives.

Chart: Mainstreaming of climate action (2014-2017). All amounts in the chart are in EUR million. Actual amount for the period 2014-2017 is EUR 109 billion; Budgetted amount for the entire period 2014-2020 is EUR 200 billion. The EU budget and Sustainable Development goals The 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs) and 169 targets, adopted by the United Nations (UN) in September 2015, have given a new impetus to global efforts to achieve sustainable development. The EU has played an important role in shaping the 2030 Agenda, through public consultations, dialogue with its partners and in-depth research. The EU is committed to playing an active role to maximise progress towards the Sustainable Development Goals, as outlined in its Communication (COM(2016) 739) ‘‘Next steps for a sustainable European future’’. The Sustainable Development Goals are firmly anchored in the European Treaties and mainstreamed in all its programmes, sectoral policies and initiatives. Each year the EU continues its efforts, via its policy and regulatory instruments, to pursue Sustainable Development Goals, and plays a key role in supporting, coordinating and complementing Member States' policies also in financial terms via the EU budget.. The 2018 Programme Statements highlighted in particular the most recent and relevant initiatives contributing to Sustainable Development Goals, although often in an indirect and not quantifiable way. These elements are provided for information purposes and do not constitute the official reporting on the EU budget contribution towards Sustainable Development Goals. As the Sustainable Development Goals are interlinked, many EU actions can contribute to several Sustainable Development Goals.



1.1.Competitiveness for Growth and Jobs (Budget Heading 1A)14 EUR 21.3 billion was allocated to the programmes for Competitiveness for Growth and Jobs (commitments in Heading 1A) in 2017, representing 13 % of total annual budget expenditure. Heading 1A consists of 23 different spending programmes. The main programmes under the budget heading ‘Competitiveness for growth and jobs’ are: Horizon 2020 Framework Programme for research and innovation, programmes for large infrastructure projects (Galileo, International Thermonuclear Experimental Reactor, Copernicus and the European Geostationary Navigation Overlay Service – EGNOS), the Erasmus+ programme funding education, training, youth and sport actions, the Connecting Europe Facility for developing trans-European networks in transport, energy and the digital sector and the European Fund for Strategic Investments, part of the Investment Plan for Europe.

Chart: Main programmes financed in 2017 under Heading 1A. Category 'Other programmes' include among others EU programme for Employment and Social Innovation (EASI), Customs and Fiscalis. All amounts in EUR million. Support to the priorities of the European Commission The programmes under this budget heading contribute mainly to the Juncker Commission priorities of ‘Jobs, Growth and Investment,’ ‘Digital Single Market,’ ‘Energy Union and Climate,’ and ‘Deeper and Fairer Economic and Monetary Union.’ They contribute to the Europe 2020 priorities of ‘smart and sustainable growth’ and to ‘inclusive growth’ mainly through the job creation and employability effects of Horizon 2020 and Erasmus+. The programmes under this budget heading also contribute to Europe 2020 by boosting research and innovation, improving skills levels and (life-long) education, fostering entrepreneurship, facilitating the use of smart networks and the digital economy, building interconnected trans-European networks, investing in pan-European infrastructures, and aiming at greater energy and resource efficiency.



The European Fund for Strategic Investments

Figure: EFSI dashboard. Source: EIB Group figures as of 15/05/2018, source: http://www.eib.org/efsi/ The overarching goal of the Investment Plan for Europe launched in 2014 was to kick start investment in Europe and, consequently, to restore EU competitiveness and boost growth and employment. The Plan is centred on the European Fund for Strategic Investments which combines an EU guarantee with European Investment Bank resources; the European Investment Advisory Hub that is a single point of entry for advisory services and technical assistance; and the European Investment Project Portal which matches project promoters with investors. The European Fund for Strategic Investments was intended to mobilise EUR 315 billion of total investment in the real economy. As of December 2017, the volume of investment mobilised by the approved European Fund for Strategic Investments operations stood at 81 % of the initial target. Cumulatively, since the launch of the fund, the projects approved amount to a total investment value EUR 287 billion distributed between the two strands: EUR 186.2 billion for the Infrastructure and Innovation Window and EUR 101.2 billion for Small and Medium-Sized Enterprises Window. Over 445 000 smaller companies are expected to benefit from this and this has helped to create more than 300 000 jobs.15. At the end of 2017 the EU formalised16 the decision to extend the duration and size of the fund to EUR 500 billion to be mobilised by 2020 with a view to further boosting investments and providing stability for project promoters. Support under the European Fund for Strategic Investments is focused on sectors of key importance for the European economy, including: -Strategic infrastructure including digital, transport and energy;

-Education, research, development and innovation; -Renewable energy and resource efficiency; -Support for small and mid-sized businesses.



These investments helped provide, for example, high speed internet access for 11 million households, renewable energy for more than 4 million households and better health care for 1 million citizens17. The Commission actively increases the visibility of the projects. At the end of 2017 there were 239 projects from 27 Member States published on the European Investment Project Portal launched18 in 2016.

Projects include: -the development of an onshore wind farm in Sweden; -research into new ways of treating Alzheimer and arterial diseases in Spain; -support to producing reusable and compostable alternatives to single use plastic bags in the Czech Republic; -expanding and improving broadband wireless access in Italy; -building social housing in Poland. The European Fund for Strategic Investments is expected to increase the Gross Domestic Product in the Union by 0.7% and to create 700 000 new jobs by 202019 The preliminary findings of the on-going evaluation highlight that despite an improvement in investments and access to finance by small and medium-sized enterprises, needs for funding persist and are still considerable. The leverage effect of the fund is clearly evidenced in this evaluation. For some projects, with high social benefits a low multiplier was achieved, due to reluctance on part of private investors. There is also scope for improving the synergies between the European Fund for Strategic Investments and other financial instruments supported by the EU budget. For instance with the financial instruments of the Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme (COSME). Also, the experience up to now with the European Fund for Strategic Investments showed that there is room for an increased contribution to address social issues; no more than 4 % of approved and signed projects concerned social infrastructure20. That is why, as part of the European Pillar of Social Rights it was agreed to pull together contributions from the European Fund for Strategic Investments with that of the Programme for Employment and Social Innovation. Horizon 2020

Horizon 2020 aims at strengthening the EU's science base, at boosting industrial leadership and innovation capability in the private sector, and at fostering the contribution of research and innovation to tackling societal challenges (such as food security or climate action). It supports EU policy priorities, as reinforced by the Sustainable Development Goals framework. In 2017, Horizon 2020 provided EUR 8.5 billion of funding, which further mobilised direct additional investments, leading to a total of EUR 10.6 billion. Some 5 000 projects were funded, ranging from grants to world-class researchers, to cutting-edge science, to supporting innovative SMEs to create new products and offer new services.21. So far, through the Marie Skłodowska-Curie Actions, Horizon 2020 has funded 36 000 researchers at all stages of their career, regardless of their age and nationality. This has contributed significantly to keeping, developing and attracting research talents to Europe. 2017 marked the 20th anniversary of the Marie Skłodowska-Curie Actions, and the 150th birthday of its namesake, the Polish French double Nobel Prize winner Marie Skłodowska-Curie, with a series of events around Europe and beyond. Two of the three 2017 researchers, who were awarded the 2017 Nobel Prize in Chemistry for optimising electron microscopes, have participated in Marie Skłodowska-Curie Actions and other EU-funded research projects, while 14 Marie Skłodowska-Curie Actions-funded doctoral candidates supported the historic detection of gravitational waves that led to the 2017 Nobel Prize in Physics.



Figure: Key figures of the Graphene Flagship, source: https://graphene-flagship.eu/SiteCollectionDocuments/EC_leaflet.pdf The Graphene Flagship is a telling example of the strong EU added value of Horizon 2020. This 10 year research initiative is one of the biggest ever funded in Europe. More than 150 partners in over 20 European countries from both industry and academia are jointly developing applications in areas such as 5G mobile technologies, batteries, aerospace, medical applications and automotive technology. Recent breakthroughs are the first microprocessor made from graphene-like material which has great potential for use in everyday objects and for applications to examine brain activity in high resolution, which can help to better understand diseases such as epilepsy. In 2017, a European Research Council funded team discovered the security flaws in computer processors, named Meltdown and Spectre, opening new paths for increased security in the design of modern computer systems. Horizon 2020 also contributed to developing and deploying integrated observatory systems across the Mediterranean Sea – Horizon 2020 has awarded EUR 8.4 million to the international ODYSSEA consortium to integrate networks of observation and forecasting systems across the Mediterranean basin. It involves 28 partners from 14 countries, mainly around the Mediterranean basin. The E-ferry project was also supported by Horizon 2020, developing and demonstrating the world’s most capable medium range electric car and passenger ferry. This project addresses an urgent need to cut CO2 emissions and air pollution from waterborne transport. It employs 56 tons of advanced Lithium Titanate batteries, high efficiency and a fast charge capability to deliver 7 trips per day, carrying 31 vehicles and almost 200 passengers over 40 km between Danish mainland and the island of Aero. E-ferry uses 50% less energy each year and cuts pollution by 2,000 tons of CO2. The recent mid-term evaluation of Horizon 2020 concluded in 201722 provided indications that the programme is producing important additional benefits compared to national and regional-level support mechanisms for research and innovation in terms of scale, speed and scope and is improving the competitive advantage of participants while, overall, it increases the EU's global attractiveness as a place to carry out research and innovation. Horizon 2020 creates an EU wide competition in research and innovation, operating transnational competitive calls for proposals, as well as identifying the most promising collaborative research and innovation projects. It also concluded that the simplification measures introduced in Horizon 2020 (such as the single reimbursement rate, the flat rate for indirect costs, or the Participant Portal) have decreased costs for participating and reduced the time-to-grant. The time-to-grant is now 192 days on average, a decrease of more than 100 days compared to the predecessor 7th Framework Programme. Compared to the previous programme, greater efforts have been made to increase the synergies between Horizon 2020 and other programmes, notably the European Structural and Investment Funds and the European Fund for Strategic Investments. Examples of increased synergies include the Seal of Excellence, i.e. the award of a European high-quality label to proposals rated above quality threshold but not funded with a view to allow them to find funding by alternative private or public funding sources. This award helps interested funding bodies willing to invest in promising proposals (including national & regional authorities through European Structural & Investment Funds) to identify these projects more easily. The Seal of Excellence however could further benefit from increased alignment among existing rules to increase funding opportunities for the projects concerned. The results of the mid-term evaluation have also identified a number of areas for improvement, notably the need for more flexibility to adapt to emerging priorities and the need for monitoring systems more adequate for measuring of progress. In addition, the evaluation pointed to the need for greater impact and more outreach to citizens. This is important for improving the communication of the contribution of research and innovation to tackling societal and technological challenges and for adopting a more impact focused, mission oriented approach in the future.

Erasmus+ Chart: Number of Erasmus participants by Member State, source: https://ec.europa.eu/commission/sites/beta-political/files/leaders-working-lunch-mobility_en.pdf 2017 celebrated the 30th anniversary of the Erasmus programme. The programme is aimed at cross-border cooperation between States through university exchanges to aid the growth of international studying. It started as a modest mobility scheme for higher education students back in 1987 – with only 3 200 students in its first year – but it has now developed into one of the most successful EU programmes, with a well-known brand name that projects a positive image of the Union, well beyond its borders. Thirty years after its launch in the field of higher education, Erasmus+ has expanded to other sectors such as schools, vocational education and training, adult learning, youth and sport. In 2017 the 'From Erasmus to Erasmus+' campaign celebrated the 30th Anniversary of Erasmus+ across the EU and beyond and more than 750 000 people took part in over 1 900 events in 44 countries to celebrate and discuss the impact of the activities supported by Erasmus and debate on its future. This programme is consistently identified by citizens as one of the three most positive results of European integration. In June 2017 the new Erasmus+ Mobile App was launched to help students, including those involved in an exchange from or to third countries outside Europe, apprentices and people involved in youth exchanges to be better prepared for their mobility. It allows them to easily keep track of their progress in the different steps before, during and after their experience abroad. Since its launch, the app has already been downloaded more than 27 000 times. The recent midterm evaluation of Erasmus+ (2018)23 showed that the programme is well on track to achieve its performance, with notably over 1.8 million individuals taking part in mobility activities, and more than 240 000 organisations involved in cooperation projects so far. Programme beneficiaries report satisfaction rates above 90 %. It fosters willingness to work or study abroad and the development of foreign language skills, encourages positive civic behaviour and a sense of feeling ‘European’ (+19 % compared to non-participants). Erasmus+ has a positive effect on the acquisition of skills and competences, thereby increasing employability and entrepreneurship and shortening the transition from education to employment (13 % faster, compared to individuals who did not take part in Erasmus+ or its predecessor programmes).In light of the outcomes delivered, the evaluation highlighted the undisputable European added value of Erasmus+. This stems from the high volume and broad scope of the activities funded, together with fair access to learning mobility, mainstreamed best practices, deeper EU integration and a clear international dimension. Other schemes funding comparable actions at national level remain significantly smaller both in volume and scope. They are unlikely to be able to substitute for Erasmus+ funding. The evaluation also noted that there is potential to introduce better-targeted actions to maximise the relevance of Jean Monnet activities, the coherence in the field of sport and the programme’s added value in the adult learning sector. It concluded that the contribution in the adult learning sector is highly fragmented due to the diverse nature of the sector; in the field of sport, resources should not be spread too thinly in order to achieve a meaningful result. Regarding Jean Monnet activities, there is a need to strengthen the youngest generation's (notably school pupils') awareness and understanding of European integration.

The European Solidarity Corps, offers young people between the ages of 18 and 30 the opportunity to take part in a wide range of solidarity activities across the EU, with the aim of having 100 000 young people taking part by the end of 2020. As well as offering volunteering, traineeships and job placements, in the future the European Solidarity Corps would also offer participants the opportunity to set up their own solidarity projects or to volunteer as a group.

Volunteering supported by the Erasmus+ together with 8 other EU programmes and instruments contributed to the creation of further opportunities for young people under the European Solidarity Corps. One year since its launch, more than 42 000 young people from all Member States have signed up. By the end of 2017, one year since the opening of the online registration tool, more than 2,500 placements have been offered to the young people24. In August 2017, 16 European Solidarity Corps volunteers arrived in Norcia, Italy, one of the towns that were hit hard by several severe earthquakes between August 2016 and January 2017. They help with the ongoing efforts to repair damage and rebuild social services for the local community. In total, by 2020, 230 volunteers will have been deployed in the Italian earthquake regions.



Competitiveness of Enterprises and Small and Medium-Sized Enterprises Programme (COSME) The Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme is a diverse programme, encompassing numerous actions for the support of small and medium-sized enterprises delivered via grants and financial instruments. The programme has four specific objectives: access to finance for SMEs, access to markets, promoting a business favourable environment and competitiveness and promoting entrepreneurship. Financial instruments operated under the Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme met the interest of financial intermediaries across the EU and non-EU countries participating in the programme, especially for the Loan Guarantee Facility. At the end of 2017, the European Investment Fund signed 87 agreements for loan guarantees for a total volume of EUR 859 million, out of which 72 agreements were backed by the European Fund for Strategic Investments. Under these agreements, more than 275 000 small and medium-sized enterprises already received over EUR 12.8 billion of financing by the end of December 2017. The programme's financing scheme has a high leverage effect turning 1 euro of the EU budget into 30 euros of financing for small and medium sized enterprises. Signing agreements for the Equity Facility for Growth took longer, as equity entails more complex due diligence and fund-raising processes. At the end of 2017, the European Investment Fund has invested through the Equity Facility for Growth in 12 funds investing around EUR 157 million into small and medium-sized enterprises in their expansion and growth phase. Two thirds (EUR 365 million) of the programme's objective for access to markets is devoted to the Enterprise Europe Network the world's largest network of business service centres. These provide a broad range of support on internationalisation and innovation management support, as well as advice and partnership services for small and medium-sized enterprises seeking to export outside their own country within the EU Single Market as well as outside Europe. Services range from information on EU matters, company visits and awareness-raising campaigns to specialised advisory services, company missions and matchmaking and technology brokerage events. Data on beneficiaries for 2017 are not available yet because of the 2-year duration of the grants, however about 254 000 small and medium-sized enterprises received support in 2016 and a similar number of beneficiaries is expected for 2017. Around 3 000 network staff have been active in local events and have provided specialised advisory services to 70 000 small and medium sized enterprises on access to finance, intellectual property rights, business and technology and resource efficiency services. About 25 000 participated in matchmaking events. Since its renewal in 2015, the Enterprise Europe Network reached 8 620 partnership agreements between small and medium-sized enterprises thanks to Network partnering services.. In 2017, the Network expanded its advisory services with dedicated Scale-up Advisors helping young innovative small and medium-sized enterprises develop their activities outside their home country. Final reporting data on the operational period 2017-2018 is due in March 2019. In 2017, Erasmus for Young Entrepreneurs has already reached the level of 5 800 exchanges between new and experienced entrepreneurs since the start of the programme. Currently the Erasmus for Young Entrepreneurs scheme is being implemented by a network of 175 local intermediary organisations in 33 countries (out of 38 participating). Preliminary results from the mid-term evaluation25 of the Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme indicate that the overall concept of the scheme proved to be successful in addressing the needs of entrepreneurs in the European market. New entrepreneurs that took part between 2014 and 2016 have created 241 new companies so far, and over 1 000 new jobs. Host entrepreneurs also confirmed the positive effects as next to over 1000 new jobs created on their side. 58% of experienced entrepreneurs participating in the COSME programme have seen an increase in turnover and 41 % in increased employment. Preliminary findings of the mid-term evaluation indicate that the Competitiveness of Enterprises and Small and Medium-sized Enterprises Programme (COSME) allows economies of scale in areas such as support to small and medium-sized enterprises abroad or to intellectual property rights enforcement by bundling of national efforts and by establishing services that would lack critical mass if provided at national level. Findings further indicate that the programme brings EU added value through for example the Enterprise Europe Network supporting European companies in enlarging their market outside the EU.

However, 20 percent of the budget is spread over a large number of relatively small actions. Without questioning the usefulness of flexible pilot actions which are by their very nature of a small scale, this fragmentation has a negative influence on the potential for cost-efficiency of these actions and may hamper the strategic direction and coordination of the programme. Connecting Europe Facility The Connecting Europe Facility is a key EU funding instrument that supports investments in infrastructure for the development of high performing, sustainable and efficiently interconnected trans-European networks in the fields of transport, energy and digital services. The programme focuses on EU projects aiming at funding cross-border sections and eliminating bottlenecks in transport, ending energy isolation and increasing security of supply in energy and by providing EU wide solutions in the digital services infrastructures that can benefit all Europeans. The extension of the core network and corridors to neighbouring countries enhances connectivity and contributes to making the EU as stronger global actor. On the basis of the on-going analysis for the third version of the Core Network Corridor work plans, the investment necessary to develop the nine Core Network Corridors until 2030 could generate some EUR 4,500 billion of cumulated GDP over that period. This would mean 1.8% additional GDP in 2030 compared to 2015. The number of job-years created by the implementation of the 9 Core Network Corridors could reach around 13 million jobs26. Major sections were completed in 2017, such as the rail links between Berlin and Munich, or between Paris and Bordeaux, that were both opened for public use. Both projects took many years to be completed and are essential sections on the Core Network Corridors.

Projects selected for the Connecting Europe Facility funding in 2017 include In the transport sector: the upgrade of the over 100 km-long Białystok-Ełk rail section in North-East of Poland as part of the Rail-Baltica project modernisation; modernisation of Air Traffic Management systems in all EU Member States; full expansion of the Karawanken road tunnel linking Slovenia and Austria; development of a high-speed electric vehicle charging network across Sweden, Denmark, Germany, France, the United Kingdom and Italy. In the energy sector: the Litpol Link Electricity line. This project connected the grids of Baltic countries to those of Western Europe (Lithuania to Poland link) for the first time, ending the energy isolation of the Baltic countries. In the digital sector, 16 Member States are using the Core Service Platform of eHealth thus facilitating cross-border patient safety and continuity of care The first blending call was launched in 2017 under the Connecting Europe Facility Transport aimed at combining the Connecting Europe Facility grants with financing from the European Investment Bank and the European Fund for Strategic Investments, as well as national promotional banks or private sector investors. The objective is to support economically viable projects using private finance by providing an EU grant to bridge the funding gap.

Under the first phase of the 2017 Blending call, the largest part of the funding was devoted to developing the European rail network (EUR 719.5 million), decarbonising and upgrading road transport (EUR 99.6 million), as well as developing maritime ports (EUR 78.9 million) and inland waterways (EUR 44.7 million). The projects under the 2017 Blending call include such initiatives as increasing the cross-border speed of the railway access line to the Fehmarnbelt tunnel between Denmark and Germany; enlarging and modernizing the Divača-Koper railway line in Slovenia to improve its capacity, safety and reliability; adapting the most important Belgian inland waterway, the Albert canal, for larger freight transport; as well as improving the capacity of the Port of Gdansk in Poland. In the area of Innovation and Alternative Fuels, several projects encompassing multiple Member States have been selected with an objective of deploying ultra-fast charging for electric vehicles. The mid-term evaluation27 of the Connecting Europe Facility found that investment needs in infrastructure development remain high and market failures persist especially in large cross-border projects where costs are present at local or national level, whereas the benefits are achieved on a European scale or when the distribution of costs and benefits in projects with multiple Member States is asymmetrical. Thus, the programme continues to be relevant and largely effective, despite many long-term projects still not being finalised. In transport, 86 % of the funds currently allocated relate to cross-border transport infrastructure, mainly focused on the development of the core network and the nine corridors that need to be completed by 2030. In the energy sector, the Connecting Europe Facility is contributing to strengthening interconnectivity, aiming at ending energy isolation and completing the internal energy market. In the digital sector, the programme has been found to contribute to the deployment of digital service infrastructures which allow administrations, citizens and businesses to benefit from cross-border online services. Awareness raising is still necessary however, to fully exploit its potential. The Connecting Europe Facility has continued to use and develop innovative financial instruments, however the evaluation highlighted that their deployment has been limited partly due to the new possibilities offered by the European Fund for Strategic Investments . Space The EU’s economy and society are increasingly dependent on space-based applications and services, with a potential disruption likely to be very costly in terms of revenues to business, and more importantly, in terms of human safety28. Copernicus is the EU’s programme for Earth observation and monitoring and as such represents one of the largest data providers in the world that provides considerable added value, especially when compared with what could be achieved at national level. Based on a system of satellites and sensors (ground stations, airborne sensors, sea-borne sensors), Copernicus provides reliable and up-to-date information through services addressing six thematic areas: land, marine, atmosphere, climate change, emergency management and security. This information supports various EU policies and applications from environmental protection to regional and local planning, agriculture, sustainable development and border surveillance.

Galileo and the European Geostationary Navigation Overlay Service are the EU’s satellite navigation programmes. Together, these programmes provide positioning and timing signals used in critical economy areas such as mobile phone networks, in-car navigation and increased precision for landing aircrafts. The Copernicus Emergency Service was activated more than 80 times in 2017 to assist civil protection and humanitarian actors in emergency activities. Disasters covered include: storms and floods in Europe, forest fires in Spain, Portugal, Greece, hurricane Ophelia in Ireland, high winds in Poland and internationally – earthquakes in Mexico and Iraq and hurricanes Harvey and Irma in the US and the Caribbean. There are 22 Galileo satellites in orbit of which 18 operational and 4, launched in December 2017, in testing phase. Also in 2017 there has been an increase in market uptake with some 75 million Galileo enabled smartphones sold. For instance the devices produced by Apple, Samsung and Sony include Galileo-enabled chipsets. According to the mid-term evaluation finalised in 201729, Copernicus is well on track and delivering its objectives although not all are being achieved to the same extent. The data provided is of good quality and reliability, which, together with the adoption of the free data policy, is one of the programme’s strengths. Nevertheless, the evaluation also showed the need to improve the distribution and access to data and strengthen the integration of space data with other sources of data and other policy areas and economic sectors to achieve an increased user uptake. Both Galileo and the European Geostationary Navigation Overlay Service are progressing well in delivering on their objectives as shown by the interim evaluation30. At the end of 2016 more than 250 airports in 20 countries were using the European Geostationary Navigation Overlay Service landing approach procedures31. From 2018, all new car models sold in the European Union will rely on the European Geostationary Navigation Overlay Service and Galileo to calculate the position of emergency calls in case of accidents32. The evaluation also identified some inefficiency issues linked to the governance set up. For example low reactivity of the decision-making process due to the number of actors involved but also due to a different governance set-up between deployment, exploitation and working arrangement between the Global Navigation Satellite System Agency and the European Space Agency. Security governance has also been identified as a source of inefficiency: the launch of initial services and the transition from the deployment to the exploitation phase have raised challenges that need to be properly addressed in order to maintain and improve the appropriate level of security. These projects also played a role in the refugee crisis. Copernicus, the EU’s Earth Observation programme provided for example imagery to help monitor ports and beaches identified as departure points for migrant vessels throughout 2015 and 2016. Galileo’s Search and Rescue service drastically reduces the time to detect emergency distress beacons from up to three hours to just ten minutes greatly improving accurate localisation. International Thermonuclear Experimental Reactor (ITER) The International Thermonuclear Experimental Reactor (ITER) aims to demonstrate fusion as a viable and sustainable source of energy, at building and operating an experimental fusion reactor, a major step towards the demonstration of fusion as a sustainable energy source. Due to its important advantages, such as the availability of large fuel reserves and the lack of CO2 emissions, fusion could greatly contribute to the long-term EU strategy of decarbonisation of the energy system in a safe, efficient and secure way. It is a unique long-term scientific collaboration project agreed internationally between seven partners (EU, United States, Russia, Japan, China, South Korea, and India). The aim is for the experimental reactor that is being built to prove the viability of fusion as a sustainable energy source. As the project involves the building of over 10 million components hundreds of contracts have been placed with European industry and research institutions. As of December 2017, 50 % of the total construction work needed for the first operational stage of ITER has been completed33. ITER requires magnets to ensure the stability of the plasma and in 2017 the most sophisticated superconducting magnet in history has been unveiled34 and is being built in Europe. This magnet is 14 meter high, 9 meter wide and weighs 110 tonnes. This is the first of the 18 Toroidal Field coils that will operate in ITER. The coils will create a powerful magnetic cage that will entrap the fusion fuel which is expected to reach 150 million degrees Celsius. The ITER toroidal field coils will generate a magnetic field that will be about 1 million times stronger than the magnetic field of the Earth. Europe will manufacture nine of them, plus one spare. The other nine will be fabricated in Japan. At least 600 people from 26 companies will be involved in the production of these magnets. First-of-a-kind products have been developed providing European companies advantage in terms of innovation and competitiveness as well as opportunities for developing knowledge, know-how and potential spin-off technologies and products. As of 30 September 2017, 601 operational procurement contracts and 322 grants for a total of EUR 3.97 billion (2008 value) were signed. Europe is also working on building part of the magnetic shell that will host the fusion reaction (the vacuum vessel). A one of a kind testing facility has also been built in Europe to test the heating systems that will be necessary in ITER35.

1.2.Economic, Social and Territorial Cohesion (Budget Heading 1B)36

EUR 54 billion was allocated to the programmes under Heading 1B for 2017, which represents 34 % of the total 2017 EU budget. Heading 1B consists of 6 different spending programmes. It covers the European Regional Development Fund, the Cohesion Fund, the European Social Fund37 — including the ‘Youth Employment Initiative’ (a specific top-up allocation), and the ‘Fund for European Aid to the Most Deprived’. All these programmes are delivered under shared management. Chart: Main programmes financed in 2017 under Heading 1B. Category 'Other programmes' include the contribution to the Connecting Europe Facility, European Aid to the Most Deprived, Outermost and Sparsely Populated Regions, Technical Assistance and Pilot Projects and Preparatory Actions. All figures in EUR million. . Support to the priorities of the European Commission Cohesion Policy interventions contribute to the attainment of several of the priorities of the Juncker Commission notably ‘Jobs, Growth and Investment,’ It is the most important EU investment instrument for the delivery of the Europe 2020 objectives supporting growth and job creation at EU level and structural reforms at national level. It has become a key part of Europe's economic governance and a key contributor to all elements of the virtuous triangle of investment, structural reforms and responsible public finances. Ex-ante conditionalities have fostered favourable legislative and structural conditions for sound investments with positive spill-over effects beyond the sole remit of Cohesion Policy. The Policy is increasingly important means of tackling the effects of the economic crisis in the short term and of enhancing the regions’ endogenous potential for development in the medium term. In addition to the Policy's macroeconomic conditionalities, which create a further stimulus for sound macroeconomic policies, the regulation governing Cohesion Policy provides for reprogramming at the discretion of the Commission if new investment relevant Country Specific Recommendations (CSRs) emerge in the annual exercise. Cohesion Policy contributes to the Investment Plan for Europe and complements the European Fund for Strategic Investments. This is being done in several ways: by leveraging public and private investment, supporting structural reforms, and improving access to funding. Funding is being strategically invested in research and innovation, support to small businesses and digital technologies, thereby contributing to the EU's smart growth objectives. It also contributes to ‘Digital Single Market’ and ‘Energy Union and Climate.’ Thanks to the largest EU budget ever allocated to investments in energy, environment, climate and sustainable transport, a significant contribution to steering Europe on the path to a low-carbon economy is being made. Cohesion Policy also contributes to the development of the internal market as well as a number of actions relating to the response to the refugee crisis and migration policy and several social issues, like moderating the effects of poverty and social exclusion of people who find themselves in situations of severe deprivation and supporting (youth) employment. The European Regional Development Fund and the Cohesion Fund aim to strengthen economic and social cohesion in the EU by reducing disparities between its regions and supporting the full integration of the less developed regions within the EU's internal market. The European Social Fund is the EU's main instrument for supporting jobs, helping people to get better jobs, ensuring fairer job opportunities for all and supporting upskilling and reskilling. The Fund for European Aid to the Most Deprived supports EU countries' actions to provide assistance to the most deprived, including food, clothing and social inclusion measures to help people out of poverty.

Cohesion policy is the EU’s main investment policy and it targets all regions and cities in the EU in order to support job creation, business competitiveness, economic growth, sustainable development, and improve citizens’ quality of life. The cohesion policy regulatory framework for 2014-2020 was adopted about six months later compared to the 2007-2013 Multiannual Financial Framework. This late adoption of the legal acts together with new requirements seeking to enhance the performance of the policy and the quality of delivery (e.g. ex-ante conditionalities, designation of programme authorities) have led to a delayed start of implementation of the 2014-2020 programmes. Despite this, looking at the first years of the 2014-2020 programmes, initial results are taking shape. While starting more slowly than in the 2007-2013 period, the rate of project selection in the current programming period has now caught up. By January 2018 673 800 projects have been selected for support by the European Regional Development Fund, the Cohesion Fund, the European Social Fund, and the Youth Employment Initiative all over Europe, amounting to EUR 260 billion or 54 % of the total financing available for the period. This level of project selection over 2014-2016 is comparable to the early years of the 2007-2013 period38 and it can reasonably be expected that implementation rates from now on will be broadly similar to those in the previous period. By the end of 2017, 99 % of the action plans for ex ante conditionalities affecting the European Social Fund, the Cohesion Fund and the European Regional Development Fund have been completed. These conditionalities were meant to provide an incentive for Member States to implement structural changes and policy reforms, including those linked to the relevant Country-specific Recommendations39. European Regional Development Fund and Cohesion Fund Chart: Implementation progress (total cost) for European Regional Development Fund – Period covered up to 31/12/2017. Source: https://cohesiondata.ec.europa.eu/funds/erdf Project selection rates have increased significantly, reaching 53 % for the European Regional Development Fund, EUR 147 billion worth of investments covering 160 000 projects (compared to 72 billion by the end of 2016) and 64.3 % for the Cohesion Fund at the end of 2017, EUR 48 billion of investments covering 8 600 projects (compared to EUR 19.6 billion by end-2016. This compares favourably to the same time frame in 2007-2013. The data at the end of 2017 showed more homogeneous progress across most of the Member States and themes. Given the specific long-term nature of the funds' investments, the level of financial execution (EU payments) in the first years of the programming period tends to be low, as was the case during the years 2014-2016 with an increase in the last programming years. This applies particularly for major projects which, due to their nature as large infrastructure investments, typically have a long life cycle and a start-up phase (planning, programming, authorisations) without significant financial execution. Payments to programmes stand at 13% for the European Regional Development Fund and 18% for the Cohesion Fund at the end of 2017. The European Regional Development Fund and the Cohesion Fund support the development of the Single Market, while also producing spill-over effects from less developed regions to the rest of Europe, notably via increased connectivity and trade flows. The average net positive impact of the 2007-2013 programmes for non-cohesion countries is estimated at 0.12 % of Gross Domestic Product by 2023.40 As regards the programmes' achievements reported by Member States up to the end of 2016, the implemented projects under the Cohesion Fund and the European Regional Development Fund have already delivered: -support to 84 579 enterprises, of which more than 36 000 are supported by financial instruments; -more than EUR 593 million of private investment leveraged, matching public support to enterprises (grants and non-grants); -10 300 jobs created along with 636 new researchers employed; -41 800 households with an improved energy consumption classification and a 14.9 million kWh/year decrease in annual primary energy consumption of public buildings;; -2.7 million people benefitting from improved health services; 156 000 additional people served by improved water supply and 73 000 served by improved waste water treatment -54 km of new Trans-European Transport Network (TENT-T) roads, 217 km of reconstructed or upgraded roads and 92 km of reconstructed or upgraded railway line. Recent data41 shows that the structural funds constitute a share of above 40% of public investment in a significant number of Member States over the period 2015-2017. Chart: Cohesion policy funding as an estimated share of public investment, 2015-2017. Source: Eurostat, DG Regio http://ec.europa.eu/regional_policy/sources/docoffic/official/reports/cohesion7/7cr.pdf As regards particularly jobs, growth and investment, projects selected up to the end of 2016 have the objective of creating 155 600 direct jobs as a result of support to small and medium-sized enterprises.

Until the end of 2017, the projects selected for financing by the European Regional Development Fund provide support to more than 450 000 small and medium sized enterprises. Amongst those projects: -more than 200 000 of those companies will be supported with advice and counselling (which corresponds to 45 % of the final target); -more than 70 000 start-ups have been selected for support (46 % of target), with projects already completed benefitting more than 16 800; -more than EUR 9.5 billion of private investment will be leveraged through projects selected up to the end of 2016, matching public support to enterprises (grants and non-grants), with EUR 0.6 billion already achieved. Support has also been granted to around 30 700 research and innovation projects by the end of 2017, thus ensuring a significant level of investment in this area and positively influencing the gross EU domestic expenditure on research and development. A wide range of interventions in the area of education (more than 16 500 investments in infrastructure) and of social inclusion have also been granted support by the European Regional Development Fund and the Cohesion Fund, thus contributing towards the achievement of the related headline targets. The contribution to the Digital Single Market delivered through the 2014-2020 programmes is also gaining steam. Up to the end of 2017, around 5 500 projects were selected to support the achievement of a connected Digital Single Market, corresponding to EUR 9.1 billion of total investment (combining European Regional Development Fund and national co-financing). Notable achievements are also expected to be delivered in the area of energy efficiency and renewables by projects selected up to the end of 2016 with more than 2 000 MW of additional capacity of renewable energy production; reduction of greenhouse emissions of more than 3 million tonnes of CO2 equivalents, thus contributing to climate change objectives. Up to the end of 2016 an estimated 1 million additional households will be covered by broadband access, which helps create the right conditions for digital networks and services to flourish, giving consumers and businesses better access to digital goods and services across Europe, in particular in rural areas. Cohesion Policy has also actively contributed to the Commission’s efforts towards the effective integration of migrants, through investments in social, health, education, housing and childcare and infrastructure, thanks to more than 3 500 projects already selected and being implemented in the area of social inclusion. In order to give further prominence and increase the focus of investments in support to migrants and refugees, a new investment priority to this effect was proposed for inclusion in the European Regional Development Fund regulation.

Evaluation evidence from the Member States on impact and output of the 2014-2020 programming period is expected to arrive starting in 2018, given that up to now mostly only data on the progress of the programmes is available. As of 2018, projects will be at a more mature stage and the first results will be assessed. The Commission also launched an evaluation of major projects supported by the European Regional Development Fund and the Cohesion Fund between 2000 and 2013. In the course of 2018 the Commission will also carry out the mid-term review of the Joint Assistance to Support Projects in European Regions (JASPERS) initiative. European Social Fund and Youth Employment Initiative The European Social Fund is the EU's main financial instrument to support structural reforms in the fields of employment, education and training, with a direct link to the priorities and headline targets of the Europe 2020 strategy in terms of employment, education and poverty. It contributes to the promotion of economic and social cohesion and social inclusion within the EU and serves as an instrument for financial solidarity and economic integration. Ample evidence demonstrates the EU added value of the policies supported by the European Social Fund, which would not have been implemented or would have been