EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

On 29 May 2018, the European Commission adopted its legislative proposals governing the use of cohesion policy funding for the period 2021-2027, framing the support of the Funds around a few critical EU policy priorities.

Early this year, the European economy faced a profound and unprecedented exogenous symmetrical shock with the COVID-19 pandemic. The immediate pressure on the health systems, with terrible human casualties, has been followed by sudden and severe social and economic consequences.

This will cause considerable decline in economic outputs, a reduction in number of economic operators and sharp increase in unemployment and poverty. It will also pose significant challenges for public finances and debt management in the years to come, which in turn may limit public investment necessary for economic recovery and development.

As an immediate response, the currently available cohesion policy instruments under the 2014-2020 programmes, have already been adapted. A first amendment of Regulation (EU) No 1303/2013 has been carried out in this regard, in order to strengthen the health systems of Member States through increased investments and to support economic operators and workers. This amendment has been followed by a second, aiming at providing exceptional flexibility to Member States for managing and amending their programmes, when required to address the crisis situation.

Furthermore, the Commission is proposing to harness the full power of the EU budget to mobilise investment and frontload financial support in the crucial first years of recovery. These proposals are based on two pillars. On the one hand, an emergency European Recovery Instrument which will temporarily boost the financial firepower of the EU budget by using the headroom in the EU budget to raise additional financing on the financial markets. On the other hand, a reinforced multiannual financial framework for 2021-2027. The Commission is proposing to strengthen key programmes through the European Recovery Instrument to channel investment quickly to where it is needed most, reinforce the single market, step up cooperation in areas such as health and crisis management, and equip the Union with a budget tailor-made to drive the long-term transition to a more resilient, greener, and digital Europe while supporting the principles of the European Pillar of Social Rights.

The present proposal belongs to the second pillar mentioned above. Cohesion policy investments in the period 2021-2027 will need to play their long-term role as growth and convergence enhancing instruments from 2021 onwards, when the EU economy will be expectedly starting to bounce back from the severe recession.

In this regard, the pertinence of the design of the cohesion policy for 2021-2027, shaped on future-proof growth strategies, notably through the thematic concentration focusing on economic competitiveness, the Green Deal agenda and the promotion of the European Pillar of Social Rights, is clearly substantiated. It is crucial to ensure favourable circumstances to a swift recovery paving the way for economic development of the EU, while fulfilling the Treaty objective of promoting convergence and reducing disparities. When providing support, particular emphasis needs to be put on the regions most affected by the crisis and which are less equipped to bounce back.

On the other hand, the sudden and largely unexpected occurrence of the pandemic shows the need for higher flexibility and reactivity of cohesion policy. In particular, additional flexibility needs to be granted to Member States, for transferring resources among the Funds, at any point in time of the programming period.

It is also imperative that the legal framework for cohesion policy provides for mechanisms that can be quickly invoked should further shocks strike the Union in the coming years. Correspondingly, measures for the use of the Funds are proposed in response to exceptional and unusual circumstances to ensure that under such circumstances, for which criteria are laid out, derogations to certain rules may be provided to facilitate response to such circumstances. In this context, the Commission should be empowered to adopt implementing acts, in order to provide for temporary measures, to help address exceptional and unusual circumstances.

Lastly, the COVID-19 pandemic has undermined the capacity of beneficiaries to complete in time operations supported under the 2014–2020 programmes, following implementation delays and shortcomings. Due to the budgetary consequences of the crisis, beneficiaries may not be in a position to finance the completion of the concerned operations before the closure deadline. In this respect, further flexibility should be granted to enable phasing of operations.