EUROPEAN COMMISSION Brussels, 6.8.2019 COM(2019) 299 final/2 CORRIGENDUM

This document corrects document COM(2019) 299 final of 25.6.2019

Concerns only the English version.

Correction of typographical errors.

The text shall read as follows: REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS











2018 Annual Management and Performance Report for the EU Budget



Table of contents FOREWORD 3 EXECUTIVE SUMMARY 7 INTRODUCTION 21 SECTION 1 — PERFORMANCE AND RESULTS 22 1.A result-oriented EU budget 23 2.Competitiveness for growth and jobs (budget heading 1A) 32 3.Economic, social and territorial cohesion (budget heading 1B) 68 4.Sustainable growth: natural resources (budget heading 2) 81 5.Security and citizenship (budget heading 3) 97 6.Global Europe (budget heading 4) 116 7.Special instruments 140 SECTION 2 — INTERNAL CONTROL AND FINANCIAL MANAGEMENT 144 1.The EU budget is well-managed 144 2.Control systems are cost-effective 149 3.Financial corrections and recoveries show that the multiannual control cycle protects the EU budget 160 4.The Commission's anti-fraud strategy has been updated 165

5.Management provides reasonable assurance and the financial impact of reservations is limited 168 6.Assurance obtained through the work of the Internal Audit Service 174 7.Summary of conclusions on the work carried out by the Audit Progress Committee 176 8.External audit and discharge: Learning from the past to improve the future 179 9.Organisational management 181 ANNEXES Foreword It is my pleasure to present the 2018 Annual Management and Performance Report for the EU Budget. The report provides an overview of the performance, management and protection of the EU budget. It explains how the EU budget supports the EU political priorities and describes both the results achieved and the role of the Commission in ensuring the highest standards of financial management. This report is part of the Commission’s integrated financial and accountability reporting package. It fulfils our obligations under the financial regulation and is an essential part of our highly developed system of financial accountability. Despite its relatively modest size, the EU budget makes a big difference for millions of Europeans. It complements national budgets and supports political priorities in areas where it has real value and where it can deliver results in the most efficient way. My guiding principle is that the EU budget should focus on areas where it can have a bigger impact than public spending at national level. For instance, no Member State alone can finance large infrastructures or research projects that have the required scale to compete with global players such as China or the United States. Some challenges the EU faces are global. Terrorism, organised crime, climate change, natural disasters or epidemics do not have borders. These challenges are best tackled on a pan-European level with the help of the EU budget. But the EU budget, even if it proved to be flexible, is limited in size. Therefore, decision-making needs to be more informed and more evidence-based than ever, so that the money is allocated where it is the most needed. In this report, we describe the many ways in which the EU budget contributed to the achievement of our common goals in 2018. The focus of 2018 was on strengthening the economic recovery by investing in key areas promoting job creation. The European Fund for Strategic Investments, the Connecting Europe Facility and the European Structural and Investment Funds all had a major role to play in this process. I invite you to discover the stories behind many EU investments on the ‘InvestEU’ portal (https://europa.eu/investeu). The EU budget also offered strong support in other priority areas such as the EU's comprehensive approach to migration, the security union, cutting-edge research, the EU's external action, while it also helped achieving crosscutting policy objectives such as climate action and biodiversity. This report also sets out the steps we are taking to ensure that the EU budget is managed in accordance with the highest standards of sound financial management. Through this report, the Commission takes overall political responsibility for the management of the EU budget in 2018. The Commission carefully monitors the implementation of the EU budget on the ground. If Member States or final beneficiaries are found to have spent EU money incorrectly, the Commission takes immediate steps to correct these errors and recover the funds as necessary. The Commission estimates that, after corrections and recoveries, the remaining level of error for the 2018 expenditure will be under 1%, well below the materiality threshold. 2018 was a continuation of the very significant progress we have made in recent years on financial management. The EU's systems to detect and correct errors and combat fraud are mature and robust. This has been recognised by the European Court of Auditors. We will remain vigilant and will continue to ensure that the EU budget is adequately protected in future years. This is particularly important in the context of an increasingly challenging political environment. Reporting consistently and effectively increases the accountability of EU spending, and not only for the purposes of sheer legal compliance. It helps to engage with citizens and with other stakeholders, and to restore their confidence and trust in the European Union. 2018 was also the year where the Commission made its proposals for the future multiannual financial framework, in May and June 2018. . An extensive spending review ( ) was organised, analysing the performance of all programmes. My approach was to use EU added-value as a core criterion to underpin all future spending, boosting funding for new priorities, modernising existing programmes, simplifying and streamlining where possible and giving the Union a more flexible budget. I believe that the Commission has proposed a modern budget for a union that protects, empowers and defends, and which is balanced and realistic. A timely agreement on the future framework would confirm the shared commitment of the EU institutions to making the very most of every euro invested through the EU budget. Günther H. Oettinger

Commissioner for Budget and Human Resources





EXECUTIVE SUMMARY Executive summary The 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). Section 1 is structured by budget heading. It explains how the EU’s financial programmes have contributed to the EU’s political priorities. It also summarises the latest evaluation results on how these programmes have performed. 2018 was the fifth year of the current multiannual financial framework, which runs from 2014 to 2020. Due to the late adoption of the multiannual financial framework, delays were experienced at the beginning of the period. Now, the EU’s financial programmes are fully operational. They offer strong and tangible support to the EU’s political priorities in a variety of areas. Budget heading 1A — Boosting jobs, growth and investment When the Juncker Commission took office in the aftermath of the economic and financial crisis, it promised to get more people into work. Together with Member States it has delivered on that promise. More Europeans are in work than ever before, with 240,7 million people in employment. More than 12 million of those jobs have been created since the start of this Commission. Youth unemployment is at its lowest level since 2008, although it is still too high in many parts of the EU. The EU budget has been instrumental in these achievements and continues to offer a vital source of investment across Europe. More than 12 million jobs have been created since the start of the Juncker Commission. Youth unemployment decreased from 24% in 2014 to 14% in December 2018. The priority for the EU budget in 2018 was to build on the economic recovery, in particular by giving a further boost to investment. Investment has picked up significantly thanks to more than EUR 408 billion ( ) worth of investment triggered by the European Fund for Strategic Investments. This fund, launched by the Commission together with the European Investment Bank Group ( ) in 2015, attracts private funding in areas such as transport, energy, health care, small and medium-sized enterprises as well as information and communication technologies. In this way it amplifies the impact of the EU budget. The lifetime of the European Fund for Strategic Investments was extended from mid-2018 until the end of 2020 with a new investment target of EUR 500 billion ( ). It is expected that this plan will help create an estimated 1.4 million new jobs by 2020, while the EU’s gross domestic product will be boosted by an estimated 1.3%. Thanks to these investments, a further 11 million households enjoy high-speed internet access, more than 4 million households use energy from renewable sources, and 30 million Europeans benefit from better health care. As per 31 December 2018, the European Fund for Strategic Investments has mobilised over EUR 370 billion in investment across Europe since 2015, significantly more than the initial target of EUR 315 billion and is on track to reach the increased 2020 target of EUR 500 billion. The European Fund for Strategic Investments has helped finance the building of half a million affordable homes, improve health-care services for 30 million Europeans, upgrade rail and urban infrastructure for 95 million passengers and support access to finance for more than 280 000 small and medium-sized enterprises. Strategic investments have also boosted economic growth and competitiveness by financing key transport, energy or telecommunications infrastructure. These investments focus on areas where the EU enables a greater impact than public spending at national level. The Connecting Europe Facility plays an important role in developing such infrastructures, which also prepare the ground for a less carbon-intensive EU energy network. In 2018, this facility made available EUR 1.4 billion in EU grants, to be combined with financing from the European Fund for Strategic Investments and other sources. The Connecting Europe Facility partially funds a new tunnel under the 18 km-wide Fehmarn Strait, between Rødby in Denmark and Puttgarden in Germany. Travel time by car between Copenhagen and Hamburg will be reduced by around 1 hour, and by 2 hours for rail freight transport. The EU budget is also delivering thanks to space programmes such as Galileo, Copernicus and EGNOS. No single Member State acting alone could have put 26 satellites into orbit, benefiting 500 million ( ) users worldwide by the end of 2018. In 2018, four additional new Galileo satellites were launched for better monitoring of oceans, land and the atmosphere. EU space signals and data is transforming our lives with services such as enhanced navigation, precision farming, crop monitoring, responding to natural disasters, saving lives at sea, search and rescue of people equipped with distress beacons, and monitoring of vessels and oil spills. At the end of 2018, 315 airports in almost all EU countries are using the European Geostationary Navigation Overlay Service, making landing in difficult weather conditions safer and avoiding delays and re-routing. From April 2018, Galileo is integrated into every new car type sold in Europe, supporting the eCall emergency-response system. Copernicus has provided emergency maps for 80% of the floods in Europe. This helped the national emergency services with better overview of the situation and to be more effective during rescue operations. 2018 also marked a new chapter in European defence cooperation with the European Defence Fund. In 2018, EUR 40 million has been allocated to collaborative research in innovative defence technologies and products. The Commission has adopted the biennial work programmes to co-finance joint defence capability development projects in 2019-2020 with an EU contribution of EUR 500 million. The EU is investing ( ) EUR 35 million into the Ocean2020 research project. This project brings together 42 partners from 15 EU Member States to support maritime surveillance missions at sea by integrating drones and unmanned submarines into fleet operations. Supporting cutting-edge research and innovation The EU budget continued to underpin the EU’s commitment to supporting cutting-edge research and innovation, focusing on cross-country collaboration, industrial relevance and economies of scale. Horizon 2020, the EU framework programme for research and innovation, is the world’s largest transnational research-funding programme. It is also the biggest EU research and innovation programme ever, with nearly EUR 80 billion of funding available over 7 years ( ). In 2018, calls for proposals worth EUR 10 billion were launched for Horizon 2020. Using Horizon 2020 funding, the Joint Research Centre has developed and operates the only worldwide automatic tsunami alert system, which it also operates. It can quickly calculate the estimated wave height and travel time and automatically send an alert message through the global disaster alerts and coordination system.

Horizon 2020 provides a common strategic framework for the EU’s research and innovation funding. It is key to ensuring that the EU continues to produce world-class science and technology. It helps to remove barriers to innovation and makes it easier for the public and private sectors to work together in delivering solutions to major societal challenges. EU support for research and innovation stimulates cooperation between research teams across countries and between disciplines which is vital to making breakthrough discoveries. It allows the EU to deliver on priorities such as the Paris Agreement on climate change ( ). Horizon 2020 has contributed directly to the overall objective of boosting Europe’s industrial leadership and competitiveness. It has been particularly successful in stimulating innovation by small and medium-sized enterprises. The overall target of 20% participation has even been surpassed ( ). The European High-Performance Computing Joint Undertaking began operations in November 2018. It will pool EU and participating countries’ resources to build in Europe a world-class supercomputing and data infrastructure and a competitive innovation ecosystem in relevant technologies and applications in Europe. Thanks to research and partial funding from Horizon 2020 done in 2018, a 45-year-old woman in Sweden underwent surgery to receive a permanent robotic hand, which she can use on a daily basis. Supporting young Europeans The EU budget has created opportunities to study and travel abroad and helped young unemployed people to find work or enrol in training to increase their chances of finding a job. Every year, more than 3.5 million young people registered under the Youth Guarantee receive an offer of employment, education, a traineeship or apprenticeship. Since 2014, in total more than 14 million have been benefiting from this scheme. Erasmus+ is one of the main ways for Europeans to experience European identity in all its diversity. In 2018, Erasmus+ enabled around 800 000 teachers, lecturers, trainers, education staff and youth workers to acquire new skills abroad and boost their future employability. The flagship programme demonstrated its flexibility with its support for setting-up of ‘European Universitites’ and the Erasmus+ virtual exchanges. Moreover, the Commission launched a pilot initiative, DiscoverEU ( ), which gives 18-year-old young people the opportunity to travel around Europe, learn from other cultures and explore their European identity. The Commission intends to develop DiscoverEU further and has therefore included it in its proposals for the next Eramus program. The European Solidarity Corps ( )programme got its own rules and budget and enabled a large number of young people to help; explore, learn and develop, through activities like helping socially deprived, taking care of the environment or reconstructing and bringing hope to communities after a natural disaster. Since its start in 1987, more than 10 million people have participated in Erasmus. Between July and October 2018 around 15 000 young people were able to explore Europe by rail with a DiscoverEU travel pass. Another 14 500 have been selected in the November 2018 application round. By the end of December 2018, around 100 000 civic-minded young people had registered to join the European Solidarity Corps. Almost 11 000 of them had supported individuals and communities in need across Europe, mostly through volunteering activities. The EU budget’s contribution to implementing the Youth Guarantee has been substantial, by creating opportunities for young people to study and travel abroad and by helping them find work or access training to increase their chances of finding a job. Since its launch ( ), more than 3.5 million young people registered under the Youth Guarantee have received an offer of employment, continued education, a traineeship or an apprenticeship each year. Budget heading 1B — Driving job creation, sustainable growth and innovation through cohesion policy Cohesion policy, with a budget of EUR 352 billion (for 2014-2020), almost a third of the total EU budget, aims to reduce disparities and support the economic, social and territorial cohesion of the EU. The powerful contribution of this policy is evidenced by the strong catching-up of less-developed Member Sates and regions with the rest of the EU in terms of productivity and gross domestic product per head. The funds directly support the delivery of key EU priorities and the implementation of country-specific recommendations in the context of the European Semester, as well as ensure the necessary investment conditions through the follow-up of ex ante conditions set for the 2014-2020 programmes. EUR 1 of cohesion policy investments made in the period 2007-2013 is expected to generate EUR 2.74 of additional gross domestic product by 2023. During the same period, around 1.3 million jobs were created. The EU budget continued to support Member States and regions in tackling new and persistent challenges, such as harnessing globalisation, tackling unemployment, addressing industrial change, embracing innovation and digitalisation, reskilling people, managing migration in the long run and fighting climate change, including the transition to less-carbon intensive economy and transports. EU investment in transport focussed on removing bottlenecks by helping the repair and improvement of 7 500 km of old roads and the building of 3 100 km new roads (projects selected up to the end of 2018). Through cohesion policy investments, public buildings use 5.2 terrawatt hours per year less energy than they did. In addition, 748 km of new or improved tram and metro lines and close to 7 500 km of new or upgraded railway lines. By the end of 2017, over 15 million people benefited from support from the European Social Fund to find better job opportunities and develop their skills, more than 1.7 million unemployed people found a job and over 2 million people gained new qualifications.

Budget heading 2 — The EU budget helps modernise the EU agricultural sector, to ensure safe, high-quality food, and create sustainable agriculture and rural development The common agricultural policy has helped to achieve balanced territorial development and reduce the income gap between the agricultural sector and other sectors; and between Member States and regions. The policy also helps to keep the EU’s vital food production sustainable. Direct payments boost income and provide relative income stability to farmers facing significant price and production volatility. The EU budget provides the necessary means for resilient, sustainable and competitive agriculture. Some 6.5 million farmers benefited from direct payments with this support constituting 38% of their farming income. Since 2014, the European Agricultural Fund for Rural Development helped to modernise the agricultural holdings of more than 51 400 young farmers, helped to train more than 1 million participants, supported organic farming on close to 16 million hectares and invested over EUR 255 million in renewable-energy production. The European Maritime and Fisheries Fund supports environmentally sustainable, resource-efficient, innovative, competitive and knowledge-based fisheries and aquaculture. These efforts allow the EU to remain an international leader in sustainable ocean management. The EU is a global front-runner in sustainability and climate policies As part of its commitment to the fight against climate change, the EU has integrated EUR 32 billion spending on climate action across all EU programmes, in particular cohesion policy, energy, transport, research and innovation and the common agricultural policy, as well as the EU’s development policy, making the EU budget a key driver of sustainability. This represents 20.7% of the 2018 budget. The latest estimate is that it will be EUR 210 billion (19.7%) for the entire programming period. Between 2014 and 2020, the European Regional Development Fund and Cohesion Fund are investing EUR 54.8 billion ( ) targeting climate-related goals. These investments support the shift towards a low-carbon economy by promoting the production and distribution of energy derived from renewable sources, promoting energy efficiency, implementing smart distribution systems and research and innovation in low-carbon technologies; investing in adaptation to climate change, promoting investments to address specific risks, ensuring disaster resilience and developing disaster management systems. Projects supported by the European Regional Development Fund and by the Cohesion fund enable the renovation of housing for 875 000 families who will benefit from reduced energy use and connecting 3.3 million additional energy users to smart grids. Projects also supported additional capacity to produce renewable energy (7 670 megawatts). In 2018, a total of EUR 522 million was allocated to the LIFE programme. Through this programme, the EU budget supports environmental and nature conservation projects and climate action. This includes major investment in projects that will enable more plastic to be reused. Turning this waste into high-quality raw materials for the car, construction and packaging industries is one of the ways in which LIFE gives practical support to the goals of the European strategy for plastics in a circular economy. Projects supported by the LIFE programme helped to shift towards a resource-efficient, circular, low-carbon and climate-resilient economy; to halt and reverse biodiversity loss; to tackle the degradation of ecosystems by improving the quality of the environment, including air, water and soil; and to improve environmental and climate governance at all levels. Budget heading 3 — The EU budget is a vital part of the EU’s comprehensive approach to migration policy The EU budget supported the continued comprehensive European response to migration challenges and the management of the EU’s external borders. In 2018, the EU’s comprehensive approach to migration continued to operate on all fronts: deeper cooperation with partner countries; better-managed external borders; and more effective and operational tools to protect our borders and manage migration within the EU in a spirit of solidarity and responsibility. Dedicated instruments such as the Asylum, Migration and Integration Fund played an important role for immediate responses to migration issues alongside targeted support from cohesion policy for the longer-term integration of migrants and the EU’s external instruments. Work on the European agenda on migration made a positive contribution to replacing unsafe and uncontrolled migration with safe, orderly and regular migration. Under the ongoing EU resettlement scheme, 20 Member States have pledged to resettle more than 50 000 persons by October 2019. At year-end 2018, over 24 000 of these pledges have already materialised, providing persons with shelter in the EU. Following the 2015 peak in arrivals to the EU, migration flows are now back to below pre-crisis levels. Irregular border crossings into the EU fell to 150 100 in 2018. This is the lowest figure in 5 years. Since 2015, legal migration channels to the EU increased for people in need of international protection. EU resettlement programmes have offered safe and legal pathways to almost 50 000 people (as per 31 December 2018). The 2016 EU-Turkey statement and the facility for refugees in Turkey remains of paramount importance in reducing irregular and dangerous crossings to the Greek islands from the Turkish mainland, saving lives at sea and promoting the resettlement of Syrians in need of international protection. The EU has supported Turkey in its efforts to provide shelter and support for more than 4 million registered Syrian refugees. By the end of 2018, humanitarian assistance had helped 1.5 million of the most vulnerable refugees through the emergency social safety net, a social assistance safety net scheme, and supported over 410 000 students in attending school (under the conditional cash transfer for education programme). A further 600 000 children have been helped to integrate into the Turkish school system. Thanks to the facility for refugees in Turkey, 136 new schools have been built, 410 000 refugee children are now attending school and 60 000 students have joined catch-up classes. 178 health-care centres are now operational, four million primary health-care consultations have been supported and 650 000 child refugees have been vaccinated ( ). As well as in Turkey, the EU has provided substantial humanitarian support to internally displaced persons in side Syria as well as refugees and host communities in Jordan and Lebanon, as well as helping in Iraq and Egypt. Overall, the EU Regional Trust Fund in Response to the Syrian Crisis supported some 2 million Syrian refugees and hosting communities in 2018. 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. The aim is to support the Member States in their border-management activities and jointly implement integrated border management at EU level.

In 2018, the European Border and Coast Guard deployed altogether around 11 000 border guards to assist the front line Member States. This made it possible to rescue 37 000 migrants, catch almost 1 200 people smugglers and coordinate/organise the return of almost 14 000 migrants. In addition, the Fund for Asylum, Migration and Integration enabled the voluntary return of almost 39 500 persons (). The EU budget continues to help make the EU a safer place to live and work Security threats have intensified and diversified in Europe. They come in the form of terrorist attacks and new types of organised crime, as well as cybercrime. To protect the public against these threats, the EU has provided funding and supported cooperation, for instance, to fight money laundering, intercept and seize counterfeit products and combat disinformation campaigns. The Connecting Europe Facility set up a voluntary cooperation platform to strengthen preparedness and response to cyberattacks. By doing so, the EU is contributing to an EU-wide solution to a threat that does not respect national borders. The EU has shown solidarity within its borders by coordinating and financing disaster-relief efforts, supporting farmers affected by drought or employees affected by massive corporate restructuring. In light of the difficulties farmers faced during the summer drought, higher advanced payments were provided to help farmers feed their animals. In 2018, EUR 4.5 million from the European Globalisation Adjustment Fund helped 730 displaced workers in the Portuguese clothing sector. Since 2003, the EU was engaged in 163 official missions and deployed 560 experts to protect people around the globe. In 2018, a record EU civil-protection operation helped Sweden fight forest fires: over 360 firefighters, seven planes, six helicopters and 67 vehicles were mobilised. Budget heading 4 — The EU budget has helped the EU become a stronger global actor The EU budget enabled the Union to keep its focus on investing in the sustainability and resilience of our partners, in particular through the European Neighbourhood Instrument and Instrument for Pre-Accession Assistance. The EU is helping neighbouring countries to further develop stable democratic institutions and, at the same time, become more prosperous. This helped to achieve stabitlity at Europe’s borders. In 2018, the EU provided also leadership and support on the Iran nuclear deal ( ), the Paris climate-change agreement, the UN sustainable development goals, new trade agreements with a strong sustainable development component, cooperation with the African Union ( ) and relations with the United Nations. Together with its Member States, the EU is the world’s biggest donor of humanitarian aid. This allows the EU to provide life-saving support to natural disasters and man-made conflicts worldwide. In 2018 more than EUR 1.4 billion was spent on humanitarian aid in more than 90 countries. A significant part was spent on supporting conflict-affected populations in Syria and refugees in neighbouring countries. In 2018 another EUR 15 million was committed to help create the necessary conditions for the voluntary, safe and dignified return of Rohingya refugees who have fled Myanmar/Burma to Bangladesh ( ). Different instruments in the area of development cooperation support the EU in its commitment to deliver on the 2030 agenda for sustainable development in line with the European consensus on development ( ). The EU seeks to target funds to countries most in need. It also proposed a paradigm shift in relations between the EU and Africa towards building a true and fair partnership focused on mutual economic interest and fully in line with Africa’s agenda 2063 ( ) and flagship initiatives such as the African continental free trade area. As part of the external investment plan for Europe, in 2018 the EU budget supported the mobilisation of finance into Africa and the European Neighbourhood ( ). For that purpose, the European Fund for Sustainable Development is used to bring more private investments. In 2018, the Commission signed the first guarantee agreement (Nasira risk-sharing facility). This EU agreement of up to EUR 75 million is expected to mobilise investments for entrepreneurs in sub-Saharan Africa and the European Neighbourhood. It is expected to help create up to 800 000 jobs and benefit those who struggle to access affordable loans, such as internally displaced people, refugees, returnees, women and young people. The Commission gives the highest priority to ensuring that the EU budget is well-managed and protected against errors and fraud The Commission strives to achieve the highest standards in financial management in terms of effectiveness, efficiency and economy. It also seeks to ensure that audits and checks (‘controls’) are cost-effective. This is the focus of Section 2 of this report. The Commission is responsible for ensuring that EU funds are properly spent, regardless of whether these funds are implemented directly by the Commission departments or by implementing partners. 71% of expenditure is executed by Member State authorities under shared management, and 8% through entrusted entities under indirect management. To fulfil its responsibilities, the Commission has put in place an effective assurance and accountability model as well as a robust internal control framework. Within this framework — where applicable in collaboration with Member States and entrusted entities (based on their obligations to protect the EU budget) — the Commission departments take measures to prevent errors, irregularities and fraud; and, when these occur, they take action to remedy the situation. 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. 2018 also saw the adoption of the new financial regulation, which brings in particular significant simplification of financial rules for beneficiaries. The risk to the legality and regularity of financial transactions is below 2%

The Commission’s objective for the ‘risk at payment’ affecting EU revenues and expenditure, which is estimated after preventive controls have taken place but before corrective measures have been applied, is to stay below 2% — which it achieved again in 2018. On an overall basis, the ‘risk at payment’ is estimated to be 1.7% of the total relevant 2018 expenditure. Departments are undertaking action for those segments for which the risk at payment is above 2%. The multiannual nature of the EU’s financial programmes make it possible to correct errors even years after the payments were made, until the closure of the programmes. The departments have estimated the overall future corrections to be 0.9% of total relevant 2018 expenditure. During 2018, the Commission effectively clawed back EUR 3.2 billion. These financial corrections and recoveries are essential preventive and corrective measures protecting the EU budget. The Commission’s aim in managing the EU budget is to ensure that, once a programme is closed and all verifications have been carried out, the remaining ‘risk at closure’ is very low. Overall, the Commission estimates this to be only 0.8% of 2018 total relevant expenditure — i.e. below 1%. For the second year in a row, in 2018 the European Court of Auditors gave a qualified rather than a negative opinion on the legality and regularity of payments under the 2017 EU budget. This confirms that significant progress has been made and that is a clean bill of health regarding a substantial part of the EU budget.



Stepping up the fight against fraud The Commission has a firm and long-standing line of zero tolerance to fraud. The Commission’s revised and strengthened anti-fraud strategy provides a robust policy framework for the prevention, detection, investigation and response to fraud, and contributes to the good functioning of the Commission departments when protecting the financial interests of the EU. The revised anti-fraud strategy will help ensure that Commission departments are fully prepared for the implementation of the 2021-2027 multiannual financial framework. The new strategy takes into account important developments in EU anti-fraud legislation (such as the establishment of the European Public Prosecutor’s Office) as well as recent findings by the European Court of Auditors on fraud risk management in EU spending. The adoption of the revised strategy will improve further the fight against fraud. The proposals for the new financial programmes have also been subject to fraud proofing by the European Anti-Fraud Office. The new 2018 financial regulation has strengthened the treatment of conflicts of interest, and the Commission has made important proposals to protect the EU budget from generalised deficiencies in the rule of law in the Member States, including conditioning the continuation of EU payments to the respect of the rule of law principles. The early detection and exclusion system has been further enhanced. These measures will protect the EU budget even more effectively in the coming years. Management provides reasonable assurance and the Commission takes political responsibility for the management of the EU budget Based on the assurance-building blocks that support their declaration, every authorising officer by delegation provided reasonable assurance that (1) the information contained in their annual activity report gives a true and fair view; (2) the resources assigned to their activities have been used for their intended purpose and (3) the control procedures in place give the necessary guarantees concerning the legality and regularity of the underlying transactions — if needed qualified by (a) reservation(s) for full transparency and further action. 40 reservations were made — two more than last year. For every reservation, an action plan is in place to address the underlying weaknesses and mitigate the related risks. Half of the reservations concern legacy programmes for 2007-2013 and have very limited financial impact. On the basis of the declarations of assurance by the Commission’s authorising officers by delegation, the College of Commissioners takes political responsibility for the management of the EU budget. A new long-term budget for an EU that protects, empowers and defends In parallel to the budget implementation work, 2018 was also the year to kick-start the pocess towards a new multiannual financial framework for the European Union. In May 2018, the Commission presented its proposals for a new, modern long-term budget for the EU, covering the period 2021-2027. The proposals are designed to deliver on the political priorities agreed by leaders in Bratislava and Rome. Under these proposals, funding would be stepped up in a range of areas vital to Europe’s future, including the coordinated European response to the challenges of migration, the fight against terrorism and organised crime, digital transformation, climate action, programmes for young people and research and innovation, while making sure that traditional policies supporting the key union objective of solidarity are modernised and retain a meaningful level of funding, for all Member States and regions when it comes to cohesion policy. The Commission’s proposals are based on a spending review, a comprehensive assessment of the lessons learned from current and previous programmes. This made it possible for the Commission to propose essential modernisation features: ·the strong focus on European added value and the need to provide adequate support for new and pressing priorities such as research and innovation, the digital economy, young people, migration and border management, security, defence and external action; and a strengthened emphasis on sustainability including a more ambitious goal for climate mainstreaming; ·the streamlined and more transparent structure of the future budget;

·the radical reduction in the number of programmes and the creation of new integrated programmes in areas like investing in people, the single market, strategic investments, rights and values and external actions, and the increased focus on synergies between instruments; ·the simplification of funding rules to reduce red tape for beneficiaries and managing authorities, and a greater focus on performance and results; and ·a more flexible budget to be able react rapidly in a fast-changing world. Agreement was reached by the Eurogroup on the features of a budgetary instrument for convergence and competitiveness for the euro area. This will promote cohesion within the Union by strengthening the resilience of the Economic and Monetary Union. It is also widely accepted that the new mechanism to ensure that generalised deficiencies as regards the rule of law do not put the budget at risk will be an essential feature of an agreement on the future multiannual financial framework. Work has also progressed on the Commission’s proposals to modernise the revenue side of the EU budget.Securing an agreement on the future framework is a high priority for the months ahead, while continuing to work on maximising the contribution of the current financial programmes to the EU’s prosperity and security. Strengthening the Commission’s corporate governance In November 2018, the Commission adopted a set of targeted measures to strengthen corporate governance. This reform strengthens the Commission’s well-established and effective model of financial accountability, based on a clear division of responsibility between the political, corporate and departmental levels. The centrepiece of this reform is a rationalisation of corporate governance bodies under the overall authority of the senior-level Corporate Management Board, chaired by the Secretary-General. The Corporate Management Board will provide oversight and strategic guidance in areas including human resource allocation, risk management, strategic planning and programming, data protection, security and business continuity, corporate communication and anti-fraud policy. This reform also simplifies the information-technology governance and security landscape, strengthens corporate risk management and clarifies the role of the Audit Progress Committee. 2018 ANNUAL MANAGEMENT AND PERFORMANCE REPORT Introduction The 2018 Annual Management and Performance Report for the EU Budget 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. The Commission attaches great importance to ensuring that the EU budget is managed responsibly and correctly, and to working with all parties involved to make sure that it delivers tangible results on the ground. The report presents an overview of the latest information on the performance of the budget. It also contains detailed reporting on issues related to the management and protection of the EU budget. This report has the following two main sections. Section 1 describes, with examples, how the EU budget supports the EU’s political priorities. It provides the latest available data on results achieved up to the end of 2018. This reporting draws on information from the 2018 annual activity reports produced by all Commission departments, and other sources such as programme statements, evaluation reports, studies and implementation reports on EU programmes. The central question of this section is whether the EU budget is 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, beneficiaries and all those involved in implementing the EU budget. This section incorporates the evaluation ( ) of the EU’s finances based on the results achieved. Further performance information is available in the programme statements and the programme performance overview published by the Commission together with the draft annual budget. Section 2 reports on developments in relation to internal control, financial management and the protection of the EU budget. This section is also 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 them. This section summarises information on: ·managing legality and regularity risks; ·managing the cost-effectiveness of controls and revising anti-fraud strategies; ·the protection of the EU budget; and ·the management assurance provided to the College of Commissioners. The management assurance received from all departments and the assurance obtained through internal audit work form the basis for the report’s overall conclusion. This conclusion enables the Commission, by adopting the report, to take overall political responsibility for the management of the 2018 EU budget. The 2018 Annual Management and Performance Report for the EU budget is part of the broader package of integrated financial and accountability reporting ( ). This also includes the annual accounts ( ), a long-term forecast of future inflows and outflows ( ) covering the next 5 years, the report on internal audits ( ) and the report on the follow-up ( ) to the discharge. Section 1

Performance and results Generating added value from every euro spent is of key importance to the Commission. President Juncker set the tone at the beginning of his mandate: ‘It is not enough to allocate money wisely. We will have to do more, with less. We need to get the best out of the budget and spend money smartly. […] People want us to achieve results. They also want to know how we spend the tax payer’s money.’ ( )

The EU budget focuses on areas where pooling resources to tackle common challenges for all Europeans can deliver results 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. The focus on EU added value is at the heart of the Commission's proposals for the 2021-2027 multiannual financial framework. This section begins with an overview of the EU budget and its performance framework. This is followed by a summary of how the current and future long-term budget contributes to the political agenda for the EU set out by leaders in Bratislava, Rome and Sibiu, as well as to international priorities such as climate targets and the UN sustainable development goals. The section then presents the latest information on results achieved with the EU budget up until the end of 2018. This information is structured around the headings in the current multiannual financial framework. The report also describes how these programmes contribute to the political priorities of the Juncker Commission. 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 yet available, hence definitive reporting on performance will not be possible until later on. The report covers areas where performance has fallen short of expectations or where 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 and to inform the legislators shaping the future long-term budget. A result-oriented EU budget The EU budget The EU budget is a key instrument in the implementation of European policies and priorities. Unlike national budgets, the EU budget is mainly focused on supporting strategic investments over the medium to longer term and on using its leverage to catalyse investment from other public and private sources. It complements national budgets to address common challenges faced by the Member States and creating opportunities for the EU as a whole. The EU's financial programmes are managed in some cases directly by the Commission for example in the area of research or together with the Member States (shared management), such as in cohesion policy. Some two thirds of the EU budget is managed through shared management. The EU uses innovative financial instruments as a smart way to deploy EU budgetary resources. Innovative financial instruments attract funding from other public or private investors for economically viable projects in areas where there are market failures or investment gaps. Examples include sectors with high economic growth or innovative business activities. The fact that the EU invests risk capital in a certain fund or covers part of the risk associated with a certain type of projects can reassure other investors and encourage them to invest alongside the EU. The loan-guarantee facility and the equity facility for growth under the programme for the competitiveness of enterprises and small and medium-sized enterprises are prime examples of such financial instruments. Financial instruments are also used under other EU programmes, such as Horizon 2020, the EU programme for employment and social innovation, the Creative Europe programme, the Connecting Europe Facility and under the EU’s external policy programmes. The performance framework for the EU budget 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 resulted in a stronger focus on results across the budget. These frameworks entail the setting of clear and measurable objectives and indicators as well as the necessary monitoring, reporting and evaluation arrangements. The indicators in these frameworks, together with other sources of qualitative and quantitative performance information such as evaluations, provide a sound basis for assessing programme performance and with it progress towards the agreed objectives. They also help anticipate and resolve problems in programme implementation when they arise. During the early years of a programme’s implementation, performance information is based on inputs (i.e. the financial allocation to a particular programme) and, gradually, on outputs (i.e. the direct deliverables from a given project.) This type of information gives a good initial indication of how and where the EU budget is being spent. As a programme is implemented, information on the results and to a lesser extent the longer-term impact of spending will become available. To make the European structural and investment funds (ESIF) more performance oriented, a mechanism with a performance reserve has been foreseen. This reserve will be released in 2019 to programmes that had achieved their predefined milestones by the end of 2018. In the case of programmes and priorities that had not achieved their milestones, resources will be reallocated to other priorities. In addition to the performance framework, audits conducted by internal and external auditors also help 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. Audit work has also helped the Commission to improve the quality of its performance reporting. Recent recommendations from the European Court of Auditors have led to more balanced reporting in the annual activity reports, with more attention given to challenges encountered, to a stronger focus on the reliability and quality of data, and clearer explanations of how data on performance has been used to improve performance. Proposals for a new, modern and focused long-term budget, tightly geared to the political priorities The Commission services conducted a comprehensive spending review of the EU budget in 2017 and 2018 setting out the evidence and the analytical underpinning for the Commission’s proposals for the future multiannual financial framework and the accompanying sectorial programmes. The review was designed to identify the features of current programmes that have proven their worth and should be replicated or amplified in the future financial programmes. It also identified the areas where reform was needed to make full use of the potential of the EU budget. These were: i) focus on EU added value; ii) streamlining the budget and exploiting synergies between programmes; iii) simplification and sound financial management; iv) flexibility and the ability to respond to crises; v) focus on performance; and vi) coherence with main political objectives and values. In these proposals, the Commission increasinlgy focused on the European added value of EU spending. The proposals also include measures to improve the overall performance framework, for example by streamlining the number of programmes and improving how they work together, creating more flexibility and using a smaller number of higher quality indicators to monitor and report on programme performance. The EU budget reflects the EU’s commonly agreed priorities and shows how they can be delivered. The political agenda set out by leaders in Bratislava and Rome is the roadmap for the future long-term budget, which the Commission proposed ( ) in May 2018 and which covers the period 2021-2027. The proposals modernise the budget by providing a significant boost to funding in several key strategic areas. From innovation to the digital economy, from training and employment for young people to climate action and the environment, from migration and border management to security, defence and external action, the budget will invest where it really counts. The next long-term budget should also be simpler and more transparent so that stakeholders can make the most out of it. The European Parliament and the Council as well as beneficiaries, large and small, have asked for this and the Commission has been listening and proposed a radically simplified budget. The key features of the next EU budget are:

More funding for priority areas A new mechanism to protect the EU budget from financial risks linked to the rule of law A strong focus on European added value and on performance Less red tape for beneficiaries A more flexible and agile budget with a clearer and leaner architecture The EU budget and the Europe 2020 strategy The current long-term budget contributes to the Europe 2020 strategy for smart, sustainable and inclusive growth. The targets are a shared responsibility of the EU and its Member States, and their achievement requires the combination of multiple policy tools, including the EU and national budgets. The Commission uses nine indicators to monitor the Europe 2020 headline targets ( ). Information on progress is updated regularly and published on Eurostat’s website. The table below presents the latest available data for these indicators. Member States are making progress towards the goals they set 9 years ago in the Europe 2020 strategy. Overall, the EU is nearing its targets on education, energy, climate and employment. 14 Member States have already achieved their national targets of reducing early-school leaving and in increasing the share of the population with tertiary education. 11 Member States have already achieved a share of renewable energy that corresponds to their national target for 2020. The EU target of 75% employment by 2020 is on track, assuming the current trend continues, and seven Member States have already achieved their national goals. This is a remarkable achievement given the severe impact of the crisis on employment. However, the number of people at risk of poverty or social exclusion peaked in 2012 but has since fallen 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 value as investment in research and development is far off and will require major efforts if it is to be met. The contribution to Europe 2020 should not be confined within the limits to a single programme. It should be seen as a mutually reinforced contribution of the EU budget as a whole. Overall, it is estimated that 59% of the EU budget commitments in 2018 were 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% 73.5% (Q3 2018) Target likely to be met 2. Increasing combined public and private investment in research and development to 3% of gross domestic product 1.93% 2.07% (2017) Target unlikely to be met 3a. Reducing greenhouse gas emissions by at least 20% compared to 1990 levels 14.2% reduction 22% reduction Target likely to be met 3b. Increasing the share of renewable energy in final energy consumption to 20% 12.5% 17.5% (2017) Target likely to be met 3c. Moving towards a 20% target in energy efficiency () 11.8% (distance to 2020 target for primary energy consumption) 5.3% (2017) Target likely to be met 4a. Reducing the rate of early leavers from education and training (ages 18-24) 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 1.4 million increase (compared to the 2008 base year) 5.2 million decrease (compared to the 2008 base year) in 2017 Target unlikely to be met Table: Progress towards Europe 2020 targets. Source: COM(2019) 150 final, 27 February 2019. Crosscutting spending on climate action and biodiversity The EU budget is also an important tool for achieving crosscutting 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. This approach is called ‘climate mainstreaming’. 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 and the EU’s development policy. The estimates for climate-related expenditures are monitored on an annual basis with ‘EU climate markers’ adapted from the Organisation for Economic Co-operation and Development’s ‘Rio markers’. In 2018, the amount was more than EUR 32 billion, 20.7% () of the 2018 budget. The total cumulative amount for climate mainstreaming was more than EUR 141 billion by the end of 2018. The latest estimate () is that it will be EUR 210 billion (19.7%) for the entire programming period. Chart: Mainstreaming of climate action in 2018. All amounts in the chart are in EUR million. Source: European Commission. The EU is also making a concerted effort to support biodiversity. The related expenditure was more than EUR 13 billion, 8.5% ( ) of the 2018 budget. These funds aim to limit and reverse the decline of biodiversity in the EU, making an important contribution to the Europe 2020 sustainable growth objectives. The EU budget and the UN sustainable development goals The sustainable development goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, peace and justice. The UN adopted these goals in September 2015 as part of its 2030 agenda for sustainable development. This agenda gave 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 in maximising progress towards the sustainable development goals, as outlined in its communication ( ) on the ‘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 the 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 the sustainable development goals, although often in an indirect and non-quantifiable way. These elements are provided for information purposes and do not constitute the official reporting on the EU budget contribution towards the sustainable development goals. As the goals are interlinked, many EU actions can contribute to several of them. The 2018 EU budget 2018 was the fifth year of implementation of the multiannual financial framework 2014-2020. Two specific priorities were formulated for the 2018 budget. One was a European response to the new challenges deriving from the complex geopolitical environment, from migration management to the protection of the EU's external borders and the security of its citizens. The other was strategic investment and sustainable growth, to support economic cohesion, and create jobs, in particular for young people’. ( ) More detailed information on the progress made by programmes on specific indicators and objectives can be found in the programmes’ performance overview ( ), which is an extract of the programme statements attached to the draft budget. Chart: The 2018 EU budget, commitment appropriations, per budget heading. All amounts in EUR million. Source: European Commission. In 2018, the total amount of commitments implemented from the EU budget, including amending budgets, amounted to EUR 160 billion ( ). Around half of this (50% or EUR 77.5 billion) was allocated to heading 1 ‘Smart and inclusive growth’ split between heading 1A ‘Competitiveness for growth and jobs’ (28%) and heading 1B ‘Economic, social and territorial cohesion’ (72%). heading 2 ‘Sustainable growth: natural resources’ was the second largest area of the budget with EUR 58.8 billion, accounting for 37%. EUR 3.5 billion was allocated to budget heading 3 ‘security and citizenship’, including on reinforcing the external borders of the EU and addressing the refugee crisis and irregular migration. EUR 10.4 billion was allocated to actions outside the EU and EUR 9.5 billion was spent on the administration of the EU institutions. In 2018, six draft 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. This report describes the many instances where this fund supports EU countries struck by natural disasters and helps them recover quickly. Further adjustments were needed for the EU budget contribution to the facility for refugees in Turkey. This included cancelling the reserve related to the support to Turkey from the Instrument for Pre-Accession Assistance, and strengthening the European Neighbourhood Instrument to fund additional actions, for example linked to the central Mediterranean migratory route.



The EU budget helps turn political priorities into a reality. Therefore, the EU is directing money to where the needs are. The 2018 EU budget, a budget for all, created more jobs, more growth and more investments.



List of programmes covered in this report Horizon 2020 Euratom ITER European Fund for Strategic Investments Connecting Europe Facility Competitiveness of Enterprises and small and medium-sized enterprises ERASMUS+

European Solidarity Corps Employment and social innovation (EaSI) Space (Copernicus, Galileo and the European Geostationary Navigation Overlay Service) European Defence Industrial Development Programme Customs 2020 Fiscalis 2020 Hercule III Pericles 2020 Anti-fraud information system ISA2 — Interoperability solutions and common frameworks for European public administration, businesses and citizens European statistical programme Nuclear-decommissioning assistance programmes in Bulgaria, Slovakia and Lithuania European Regional Development Fund and Cohesion Fund European Social Fund Fund for European Aid to the Most Deprived European Agricultural Guarantee Fund European Agricultural Fund for Rural Development European Maritime and Fisheries Fund Regional fisheries management organisations and fisheries agreements LIFE — programme for the environment and climate action

Asylum, Migration and Integration Fund Internal Security Fund Health programme Food and feed Consumer Programme Creative Europe Rights, equality and citizenship programme Justice programme Europe for Citizens Programme EU Civil Protection Mechanism Instrument for Pre-Accession Assistance European Neighbourhood Instrument Development Cooperation Instrument (DCI) European Fund for Sustainable Development (EFSD) EU humanitarian-aid programme EU aid volunteers initiative European Instrument for Democracy and Human Rights Common Foreign and Security Policy Instrument contributing to Stability and Peace Partnership Instrument for Cooperation with Third Countries

Cooperation with Greenland Support for the Turkish Cypriot community Instrument for Nuclear Safety Cooperation Facility for refugees in Turkey Guarantee Fund for External Action EU Civil Protection Mechanism Emergency aid reserve Flexibility instrument EU Solidarity Fund European Globalisation Adjustment Fund



Competitiveness for growth and jobs (budget heading 1A) When President Juncker set out his political guidelines at the start of his mandate he said that ‘My first priority as Commission President will be to strengthen Europe’s competitiveness and to stimulate investment for the purposes of job creation.’ The Commission has delivered on its promise to get more people into work. More Europeans are in work than ever before, with 12.4 million new jobs created since 2014, unemployment down to 6.8%, and youth unemployment (14%) back to its 2008 level. Investment has almost returned to pre-crisis levels and public finances have improved in terms of debt and deficit levels. The EU budget has been instrumental in these achievements and is a vital source of investment across Europe. EUR 22 billion was allocated to the programmes on competitiveness for growth and jobs (commitments in heading 1A) in 2018, representing almost 14% of total annual budget expenditure. This report first covers the programmes for research and innovation (Horizon 2020 framework programme, Euratom and ITER). This is followed by the programmes targeting strategic investments (European Fund for Strategic Investments, the Connecting Europe Facility for developing trans-European networks in transport, energy and the digital sector) and the programmes that support the single market (competitiveness, anti-fraud, fiscal coordination). The Erasmus+, programme for education, training, youth and sport enabled around 600 000 young people and 190 000 members of staff from educational institutions and youth organisations to participate in learning activities. Chart: Main programmes financed in 2018 under heading 1A, Competitiveness for growth and jobs. All amounts in EUR million. The category ‘other programmes’ includes among other nuclear safety and decommissioning, customs, Fiscalis and anti-fraud, energy projects to aid economic recovery (EERP) decentralised agencies, Other actions and programmes, Pilot projects and preparatory actions, Actions financed under the prerogatives of the Commission and specific competences conferred to the Commission. Source: European Commission. Europe’s future prosperity depends on the investment decisions taken today. In view of the next multiannual financial framework, the Commission has proposed to step up investment in key areas such as research, strategic infrastructure and digital transformation.

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 ‘a deeper and fairer economic and monetary union’. Improving competitiveness and boosting sustainable jobs and growth are core of the discussions on the strategic agenda for the future. Horizon 2020 Programme objectives Horizon 2020, the EU framework programme for research and innovation, is the world’s largest transnational research-funding programme. It is also the biggest EU research and innovation programme ever with nearly EUR 80 billion of funding available over 7 years (2014 to 2020). In addition, Horizon 2020 has leveraged approximately EUR 13 billion of private funds and has mobilised EUR 29.6 billion via debt financing. The programme plays a central role in providing a common strategic framework for the EU’s research and innovation funding. Its goal is to ensure Europe produces world-class science and technology, to remove barriers to innovation and to make it easier for the public and private sectors to work together in delivering solutions to major challenges that our society faces. EU support for research and innovation adds value by encouraging cooperation between research teams across countries and disciplines, which is vital in making breakthrough discoveries. It allows the EU to deliver on priorities such as the Paris Agreement on climate change. The general objective of this programme is to build a society and an economy based on knowledge and innovation across the whole EU while contributing to sustainable development. The specific objectives are the following. Generating excellent science and widening participation Boosting Europe’s industrial leadership Tackling societal challenges Promoting science with and for society Implementation and latest achievements By the end of 2018, 679 Horizon 2020 calls for proposals had been concluded. Beneficiaries responded massively to these calls and submitted almost 192 000 eligible proposals, requesting a total EU financial contribution of EUR 290 billion. Out of these, 23 250 proposals were retained for funding, bringing the overall success rate of eligible full proposals in the first 5 years to 12%. A total of 21 599 grant agreements were signed by the end of December 2018, with a budget allocation of EUR 39 billion in EU funding. This allocation is expected to grow even more as some of the grants from the 2018 calls will be signed in 2019. New planets have been discovered Major progress has been made in cancer treatment 1.6 million Ebola vaccine doses are now available A battery has been developed which is 100 times more powerful than the ordinary New techniques to store energy based on hydrogen fuel cells are being tested in our cities The programme’s impact ultimately depends on the dissemination and exploitation of research and innovation data and results. This is why the work programme has been further fine-tuned to increase the availability of such data and results. Initiatives to boost marketable innovations have also been introduced in 2018, most notably the introduction of the European Innovation Council pilot, with a budget of EUR 2.7 billion. Thousands of Horizon 2020 projects have a direct tangible impact Quantum technologies Quantum technologies use the properties of quantum effects — the interactions of molecules, atoms and even smaller particles known as quantum objects — to create practical applications in many different fields. The ‘quantum flagship’ was launched in October 2018. It is one of the most ambitious long-term and large-scale research and innovation initiatives of the European Commission and involves over 5 000 researchers. It aims to place Europe’s research at the forefront of the second quantum revolution and kick-start a competitive European industry in quantum technologies, bringing transformative advances to science, industry and society. Space technology Space technology, data and services have become indispensable in the daily lives of Europeans and for Europe to pursue its strategic interests. Small, light satellites are crucial for improving space-based connectivity, internet services and Earth imaging and positioning. This is why the EU launched a EUR 10-million prize for an innovative and commercially viable solution offering low-cost launch services for light satellites. The prize will contribute to the objectives of the Commission’s space strategy for Europe , which aims at reinforcing Europe’s autonomy in accessing space and at encouraging the development of commercial markets for low-cost launch services. European public transport solutions By 2050, two thirds of the world’s population will live in cities. Road traffic pollution is a major problem in many cities but we cannot eliminate passenger vehicles altogether. Driverless vehicles will change our lives, just as steam trains and motor cars did before them. AVENUE is an EU funded project under Horizon 2020 that started on 1 May 2018. The AVENUE project demonstrates the economic, environmental and social potential of autonomous vehicles - for both companies and public commuters - while assessing the vehicle road behaviour safety. Photo: © European Union One carbon-free approach being tested in cities across Europe is a fleet of hydrogen fuel cell-powered buses. They are just like normal buses but are powered by electricity generated using fuel cell technology developed by industry with EU support. These cells only need hydrogen and air and emit harmless water vapour. The fuel cells and hydrogen joint undertaking has allocated considerable resources to the refinement of the electrolysis process, with the result that Europe is now a world leader in the key technology, the proton exchange membrane. Now green hydrogen-production sites are setting up all over Europe. In Gothenburg, Sweden, project partners demonstrated the feasibility and potential of an ‘indoor’ bus stop, which provides a welcoming interior and shelter from the weather. This means that a specific destination like a library, hospital or shopping centre could in the future act as a bus stop. Revolutionary changes in the design, operation and maintenance of buses will dramatically alter the way we use public transport. First image of a black hole The EU supported several years of research and an unprecedented international cooperation of scientists to form part of the Event Horizon Telescope Consortium. They were able to obtain the first image of a black hole using Event Horizon Telescope observations. The image shows a bright ring formed as light bends in the intense gravity around a black hole that is 6.5 billion times more massive than the Sun. This long-sought image provides the strongest evidence to date of the existence of supermassive black holes and opens a new window onto the study of black holes, their event horizons and gravity. Photo: © Event Horizon Telescope (EHT) Collaboration. Licensed under Creative Commons Attribution (CC-BY), 2018 Assessment and evaluation The 2017 interim evaluation ( ) highlighted that Horizon 2020 is a very attractive, relevant research-funding programme. This attractiveness and continued relevance has, however, resulted in large-scale oversubscription. The evaluation found a success rate of only 11.6% compared to 18.5% for its predecessor, the Seventh Framework Programme. An additional EUR 62.4 billion would be needed to fund all proposals independently evaluated above the stringent quality threshold. The opportunity cost in terms of the waste of resources for applicants submitting high quality but unsuccessful projects is estimated at EUR 636 million a year ( ). The interim evaluation also suggested that the programme could be further simplified. The European Court of Auditors acknowledged in its Special report No 28/2018 ( ) that Horizon 2020 has made great progress in terms of simplification compared to the Seventh Framework Programme. The administrative burden on those applying for and managing research grants has been reduced and further simplification suggestions have been incorporated into the new Horizon Europe programme proposal. Simplifying funding rules under the new multiannual financial framework is the major feature of the new generation of programmes. For example through ‘lump-sum funding’, would allow for payment based on the achievement of agreed targets rather than based on eligible costs. This simplification will make administration more light and will lower the risk of error. This method was tested in pilot calls in 2018 and testing will continue in 2019. In 2018, the Commission proposed a policy package for the future framework programme for research and innovation, called Horizon Europe ( ). It will help Europe remain at the forefront of global research and innovation. As highlighted in the report ( ) of the High-Level Group, chaired by Pascal Lamy, investment in research will allow the EU to compete with other developed and emerging economies, ensure a prosperous future for its citizens and preserve its unique social model. Building on the success of Horizon 2020, the new programme will continue to promote research excellence and strengthen the focus on innovation, for instance through the development of prototypes, intangible assets, knowledge and technology transfer. A new European Innovation Council will provide a one-stop shop for high potential and disruptive innovators, aiming to make Europe a front-runner in market-creating innovation. Euratom Programme objectives Nuclear and ionising radiation technologies continue to play an important role, whether this concerns energy and contributing to the security of supply, the use of radiation in medical and industrial applications or the management of spent fuel and radioactive waste. Safe and secure use of these technologies is of paramount importance and research programmes help maintain the highest standards of safety, security and safeguards in this field. The Euratom programme ( ) also focuses on the development of fusion energy, a potentially inexhaustible and climate-friendly energy source.

The programme operates through ‘indirect action’ funding to third parties and through ‘direct’ actions carried out by the Commission’s Joint Research Centre. Implementation and latest achievements Most of the fission projects selected are in the areas of nuclear safety (41%), research infrastructures (22%), waste management (15%) and radiation protection (13%). The development of a high-temperature superconductor won the 2016 Euratom Prize for Innovation in Fusion Research. It can now be fabricated in 7-metre lengths. It has also been cold tested at liquid nitrogen temperature and high current, i.e. under fusion conditions. The Joint Research Centre has been contributing to the Collaborative International Evaluated Library Organisation, an initiative which aims at the worldwide standardisation of evaluated nuclear data for harmonised safety assessments in nuclear energy. Assessment and evaluation The 2017 interim evaluation ( ) shows that a key part of the European added value of Euratom indirect actions is the EU’s ability to mobilise a wider pool of excellence, expertise and multi-disciplinarity in nuclear research than individual Member States could. Through cooperative research and innovation, the Euratom programme also enables a Europe-wide approach to the improvement of nuclear safety and radiation protection in all areas of application. This complements the Euratom directives on nuclear safety, radioactive-waste management and basic safety standards and involves demonstrable scientific and technological progress in all areas that would not have been possible without a collaborative pan-European approach. The Euratom programme also enables a much more broad-based coordination of education and training throughout Europe, the use of research infrastructures and international cooperation. This is particular beneficial for smaller Member States, which can then take advantage of economies of scale afforded by the Europe-wide pooling effect. Preparatory work for the future Euratom research and training programme included two evaluation studies, two high-level expert groups assisting the Commission, a public stakeholder consultation and contributions to the Horizon Europe impact assessment ( ). In addressing the programme’s shortcomings identified in the evaluation, the proposal for the new Euratom programme has been simplified (through, for example, a reduction in the number of objectives from 14 to four) and synergies with Horizon Europe will be better exploited (e.g. in health research and the Marie Skłodowska-Curie actions). ITER Programme objectives ITER is one of the most ambitious energy projects in the world today. The project was brought about through the collaboration of seven parties: the EU, China, India, Japan, Korea, Russia and the United States. The aim is to build and operate an experimental fusion reactor which will be used to explore and demonstrate the scientific and technological feasibility of using fusion as an energy source ( ). ITER will not produce electricity as its purpose is more of an experimental nature: resolving critical scientific and technical issues in order to take fusion to the point where industrial applications can be designed. ITER is expected to be the first fusion device in the world that generates more power than is put into it and thus will be the proof of principle opening the way for the next step: a demonstration fusion power plant ( ). Implementation and latest achievements ( ) The construction of ITER started in 2007. The EU is responsible for 45% of the construction. High-tech and advanced civil-engineering industries are involved in its development. To date, over 700 contracts and grants have been awarded to companies, including small and medium-sized enterprises, in 24 countries, for a value of almost EUR 5 billion. Construction is now progressing visibly and steadily on-site and completion as of November 2018 is at 60%. The bioshield of the Tokamak building is complete and its scaffolding was removed in February 2018. At its base the construction of the crown, a vital component under Euratom’s responsibility, was completed on schedule in August. Three United States-supplied drain tanks and four Chinese-supplied vapour suppression tanks were installed the same month. The first vacuum vessel sector, under construction in Korea, is more than 80% finished. Russia has completed its production of a poloidal field conductor for the ITER magnet system, and India has nearly completed fabrication of the cryostat lower cylinder and base on-site in Cadarache. The manufacturing of toroidal field coil winding packs, as well as cold testing and insertion into precision-fabricated cases, is well advanced in Europe and Japan. Overall, substantial progress is being made for every major ITER component, system and structure ( ). ITER is a technologically complex, first-of-a-kind, large-scale international project and as such it has faced significant challenges which have led to increased costs and delays. However, the progress made in 2018 confirmed the robustness of the actions undertaken to address these issues ( ). Assessment and evaluation The recently concluded evaluation of ITER ( ) underlined an improvement in project management. First, the European agency in charge of the EU’s contribution to ITER (fusion for energy, or F4E) improved its control and monitoring practices. A number of key performance indicators measuring project progress and cost-efficiency are now being closely monitored ( ). Second, the so-called staged approach is one of the most crucial parts of the management turnaround as it divides the work into four stages, each building towards a key goal. During each stage of the project, only activities that are critical to achieving that stage’s goal are carried out ( ). Under the next multiannual financial framework, the EU will continue its support of ITER through F4E, ensuring that the disbursement of funding is based on performance and actual delivery on the ground. European Fund for Strategic Investments

Programme objectives The investment plan for Europe, also known as ‘the Juncker Plan’, launched by President Jean-Claude Juncker in 2015, was a key response to the economic and financial crisis and its negative impact on the level of investment in the EU. The plan remained one of the main priorities for the Commission in 2018. It is composed of three pillars: the European Fund for Strategic Investments provides an EU guarantee to mobilise private investment; the European Investment Advisory Hub and the European Investment Project Portal provide technical assistance and greater visibility of investment opportunities. The third pillar aims at improving the business environment by removing regulatory barriers to investment EU wide. The European Fund for Strategic Investments, also known as ‘the Juncker Fund’, aims at mobilising by 2020 EUR 500 billion ( ) of additional public and private investment in strategic areas such as infrastructure, research and innovation, education, renewable energy and energy efficiency, environment as well as risk finance for small and medium-sized enterprises. This is achieved via an EU budgetary guarantee to the European Investment Bank Group, which allows them to increase the financing of projects with a higher-risk profile. The fund supports growth-enhancing investments, especially in the following areas:



Chart: investment by sector as of 15 May 2019. Source: European Investment Bank Group – http://www.eib.org/efsi/ Implementation and latest achievements By the end of 2018, the European Fund for Strategic Investments had successfully supported innovative and strategic projects and had helped mobilise more than EUR 370 billion () of private and public investment. This already represents almost 75% of the target for 2020. In the infrastructure and innovation window, the European Investment Bank has approved 514 projects of around EUR 244.3 billion in investment value, with financing from the European Investment Bank guaranteed by the European Fund for Strategic Investments expected to amount to EUR 52.9 billion. In the small and medium-sized enterprises window, 517 operations have been approved by the European Investment Fund for a total investment value of EUR 131.2 billion. About 858 000 small and mid-caps in all Member States are expected to benefit. Out of the 1 031 approved operations, 869 were signed in all Member States. The European Fund for Strategic Investments is well on track to deliver on its objectives. The European Fund for Strategic Investments had an aggregate multiplier effect of 13.5 ( ) of 2018, which means that every EUR 1 of the EU budget leverages EUR 14.96 of additional investment (calculation for the fund as a whole). The European Fund for Strategic Investments has also played an important role in channelling investment towards the fulfilment of the EU’s strategic objectives. One third of the European Fund’s for Strategic Investments total investments support small and medium-sized enterprises; 25% research and development; 18% support energy projects; 11% digital projects; 7% transport projects; 4% social infrastructure and 4% environment and resource efficiency (). Providing new facilities for patients in Poland ( ) Hospitals often lack funds to invest in improving their standard of health care. The Kujawsko-Pomorskie Region was the first in Poland to get a loan for a public-sector project under the European Fund for Strategic Investments. By combining a EUR 57-million European Investment Bank loan with money from its own budget and other EU financing, the region is extending Toruń’s Rydygier hospital. With a focus on research and modern technology, this project will provide residents with a full range of treatments and access to the latest medical procedures. The number of beds for patients will double, rising from 551 to 1 059. The floor space will increase from 20 000 m2 to more than 50 000 m2, and 57 000 m2 of green space will be created. The hospital will make savings by improved efficiency of the administration and by introducing environmentally friendly and energy-saving measures. The new parts of the hospital will open to patients in 2019. Upgrading energy networks in Italy ( ) The European Investment Bank is lending Dolomiti Energia EUR 100 million to renew and develop its gas and electricity distribution networks. The financing will strengthen and maintain hydroelectric plants in the province of Trento in northern Italy, where Dolomiti Energia operates and employs 1 400 people. Connecting Europe Broadband Fund ( ): broadband reaches less-populated areas of the EU ( )

The Connecting Europe Broadband Fund is the first investment platform to invest in broadband infrastructure under the Juncker plan. The fund combines financing from the European Investment Bank, the Connecting Europe Facility, national promotional banks and private investors. The new broadband fund will help the EU meet the target that all European households should have access to internet connections of 30 Megabits per second by 2020 and that all schools, transport hubs, main providers of public services and digitally intensive enterprises should have access to internet connections of 1 Gigabit per second by 2025 (European Gigabit Society objectives). It responds to the growing demand of financing of smaller-scale, higher-risk broadband projects across Europe, which currently do not have access to EU funds. The fund aims to raise EUR 500 million for broadband investment by 2020 and is expected to unlock total investments of EUR 1.0-1.7 billion. The fund’s first project was signed in January 2019 to deploy high-quality fibre-to-the-home (FTTH), open-access network for residential, business and public administration in the rural areas of the Primorje-Gorski Kotar and Istria regions (Croatia) to cover over 135 000 locations. Assessment and evaluation Evidence from the 2018 evaluation suggests clear value added in terms of the European Fund for Strategic Investments responding to unmet investment needs and supporting the need for counter-cyclical investment. From a political perspective, the fund has managed to shift the debate from austerity to investment support measures. Based on operations up until the end of 2017, the European Fund for Strategic Investments has supported more than 750 000 jobs with the figure set to rise to 1.4 million jobs by 2020. It has increased gross domestic product in the EU by 0.6% and it is set to increase EU gross domestic product by 1.3% by 2020. Although the overall picture has improved at a macro level, in terms of the scale of the financing gap and of the financing conditions (especially for small and medium-sized enterprises), there remain substantial and pressing investment needs. Evidence from the evaluation suggests that persistent market gaps holding back investment are still observed in different policy areas. The recent acceleration of investment in the EU has not yet managed to bring investment rates up to historical averages. Moreover, efforts will need to continue beyond 2020 to bring investment back to its long-term sustainable trend with particular focus on current and emerging EU policy priorities. Among the shortcomings highlighted in the 2018 evaluation is the need to focus more on EU’s long-term climate goals. This is being addressed when the European Fund for Strategic Investments was extended in 2018. A minimum 40% of European Fund for Strategic Investments infrastructure and innovation window should contribute to climate action in line with the Paris Agreement. In addition, the Commission has used its representation in the governance bodies of the European Investment Bank and of the European Investment Fund and in steering committees for these instruments to ensure that the European Investment Bank and the European Investment Fund adhere closely to EU policy objectives in implementing financial instruments, including support for social entrepreneurship, the fight against youth unemployment, the fight against climate change, the fight against tax avoidance and the promotion of international tax good governance standards. In the past, the European Fund for Strategic Investments supported only a limited number of cross-border projects which typically have a high EU value added dimension. Ensuring wide geographical coverage across the EU continues to be important, which is something that has improved over the years of the fund’s operation. In terms of consistence, there is still scope for further improving the complementarity and mutual support between the fund’s three pillars as well as mitigating potential risks of competition between the fund and other EU financial instruments. In January 2019, the European Court of Auditors published a special report (No 03/2019) on the European Fund for Strategic Investments. Although the overall conclusion of the audit is that the fund has been effective in raising finance to support substantial additional investment in the EU, the Court also raised some concerns. These include whether some fund operations have replaced other European Investment Bank operations and EU financial instruments, and whether a part of the fund support went to projects that could have been financed from other sources, albeit on different terms. The Court also emphasised the continuing need to ensure a balanced geographic spread of fund-supported investment. Under the multiannual financial framework package and building on the success of the Juncker plan and the European Fund for Strategic Investments, the Commission has proposed a new initiative to mobilise private and public investment for the 2021-2027 period — the InvestEU programme. The new programme has introduced changes tackling issues raised by the European Court of Auditors in order to make EU funding for investment projects in Europe simpler, more efficient and more flexible. The InvestEU programme is to focus on addressing the large investment gaps in key areas of the future through an EU budget guarantee of EUR 38 billion. It will thus further boost job creation and support investment and innovation in the EU. It is expected to mobilise around EUR 650 billion of private and public investment across the EU by end-2027 and provide support through four policy windows: sustainable infrastructure, research, innovation and digitisation, small and medium-sized enterprises (SMEs), and social investment and skills. Connecting Europe Facility Programme objectives In order to stimulate job creation and boost growth rates, the EU needs an up-to-date, high-performance infrastructure to help connect and integrate the EU and all its regions in the transport, telecommunications and energy sectors. Such connections are essential for the free movement of persons, goods, capital and services. The Connecting Europe Facility therefore supports investment in transport, energy and digital infrastructure through the development of trans-European networks. These networks facilitate cross-border connections and interoperability, foster greater economic, social and territorial cohesion and contribute to a more competitive social market economy. The specific objectives of the Connecting Europe Facility are the following: Connecting Europe Facility — Transport ·Removing bottlenecks, enhancing rail interoperability, bridging missing links and, in particular, improving cross-border sections. ·Ensuring sustainable and efficient transport systems in the long run with a view to preparing for expected future transport flows as well as enabling all modes of transport to be decarbonised through the transition to innovative low-carbon and energy-efficient transport technologies while optimising safety. ·Optimising the integration and interconnection of transport modes and enhancing the interoperability of transport services, while ensuring the accessibility of transport infrastructures. Connecting Europe Facility — Energy ·Increasing competitiveness by promoting the further integration of the internal energy market and the interoperability of electricity and gas networks across borders. ·Enhancing the EU security of energy supply. ·Contributing to sustainable development and protection of the environment, inter alia, by the integration of energy from renewable sources into the transmission network and by the development of smart energy networks and carbon dioxide networks. Connecting Europe Facility — Telecommunications ·Contributing to interoperability, connectivity, sustainable deployment,operation, and evolutive maintenance of trans-European digital service infrastructures, as well as coordination at European level. ·Contributing to the efficient flow of private and public investments to stimulate deployment and modernisation of broadband networks with a view to contributing to achieving the broadband targets of the digital agenda for Europe. Implementation and latest achievements The Connecting Europe Facility provides support for the development of the Trans-European Transport Network completing cross-border connections, bridging missing links and removing bottlenecks. Between 2014 and 2018, 688 projects were selected for funding under the transport strand of the Connecting Europe Facility, providing EUR 22.8 billion EU funds leveraging an investment volume of EUR 48 billion. In 2018, the Connecting Europe Facility provided EUR 1.7 billion funds leveraging an overall investment of almost EUR 7 billion for 88 transport projects focusing on Trans-European Networks (TEN). In addition, a specific call was launched to mobilise funds in favour of transport safety, digitalisation and multimodality with EUR 450 million funds available. The telecommunications strand of the Connecting Europe Facility enables the interoperability by deploying an ecosystem of trusted cross-border digital service infrastructures that are essential to trigger the digital transformation of the Member States. In terms of connectivity the Connecting Europe Facility stimulates investemnt for deploying and modernising broadband networks, and provides high-quality local wireless connectivity in local communitites (Wifi4EU). Digital service infrastructures facilitate cross-border interaction between public administrations, businesses and citisens in a wide range of areas such as cybersecurity, open data and e-health.The work programme for 2018 supported the deployment, operation and evolutive maintenance of 16 digital infrastructures, building on the investment made in previous years. In addition, three new building blocks were added to the Connecting Europe Facility ecosystem, namely eArchiving, the Context Broker, and big data Test Infrastructure ( ). The e-Identification building block addresses the challenge of cross-border recognition of nationally issued electronic identification documents. Once this is deployed in a Member State, the mutual recognition of such national identification documents becomes possible between participating Member States. This means that, for example, an EU citizen will be able to access a public service of another Member State using his or her own national means of identification. In 2018, the Connecting Europe Facility is financing an ambitious project laying the groundwork for the actual use of electronic identification documents in the Netherlands, enabling EU citizens to prove their identity electronically with their nationally issued documents when seeking access to more than 200 public services in 90 municipalities. The solution is currently available for Austrian, German and Belgian electronic identification documents holders and should progressively be extended to other countries ( ). 2018 saw the completion of the 2017 Connecting Europe Facility transport blending call that took an innovative approach, making available a total indicative budget of EUR 1.40 billion of EU grants, to be combined with financing from the European Fund for Strategic Investments, the European Investment Bank, national promotional banks or private-sector investors. Over EUR 250 million of co-funding will be dedicated to promoting alternative fuels in transport. These projects include: ·greening the maritime transport link between the Swinoujscie port in Poland and the Ystad port in Sweden;

·deploying hydrogen public transport infrastructure in Denmark, Latvia and the United Kingdom; ·building a network of bio-liquefied natural gas stations on roads connecting