EN Official Journal of the European Union C 176/34

Opinion of the European Committee of the Regions — Reflection Paper on the future of EU finances

(2018/C 176/09)

Rapporteur: Marek Woźniak (PL/EPP), President of the Wielkopolska Region Reference document: Reflection Paper on the future of EU finances, European Commission

POLICY RECOMMENDATIONS

THE EUROPEAN COMMITTEE OF THE REGIONS

General comments

1. welcomes the action taken by the European Commission with a view to launching a broad debate on the future of Europe. The Reflection Paper on the future of EU finances indicates the main challenges facing the European Union after 2020, as well as the commitments to be met. It forecasts how the five scenarios set out in the white paper will impact the structure of the next multiannual financial framework (MFF) and presents the possibilities, reform options and risks for the EU's future budget;

2. notes that the EU budget faces many long-term challenges and its current level of funding is insufficient, meaning that the multiannual financial framework needs to be fundamentally revised. The future vision of the budget must correspond to the EU's new ambitions, which will require the budget to provide funding from a variety of sources after 2020. Meanwhile, EU spending should continue to provide greater European added value;

3. is convinced that the Reflection Paper's analysis demonstrates the need to change the governance rules applying to the MFF and the EU's financing system. The current situation — where the European economy is in a phase of recovery and where the United Kingdom's withdrawal from the EU should lead to an end of rebate systems — offers an unprecedented opportunity since more than 30 years for a deep reform of the EU's financing system;

4. underlines the importance of the multiannual financial framework, which should continue to have an investment-related angle and support common EU goals and policies. There is, therefore, no need for special instruments that operate outside the MFF, nor to create separate budgets for the euro area countries and the other EU countries;

5. recalls that the economic crisis highlighted the EU budget's limitations, which represents just 1 % of the EU's GNI but is used to carry out horizontal tasks that go beyond Member States' ability to tackle. The current MFF is important in terms of achieving economic, social and territorial cohesion, supporting research and development projects and transport infrastructure, and creating jobs. However, it is not flexible enough to meet the expectations and the newly emerging challenges that have meant that the current budget's maximum ceiling for appropriations has had to be reached;

6. also notes that the ‘net balance’ approach, which overlooks returns on investment for the private economy, and protracted negotiations over each euro spent as part of the annual budgetary procedure obscure real European added value and make it difficult to achieve more ambitious policies and programmes. Moreover, the levels of both expenditure and current system of own resources have proved to be sub-optimal. Calls on the European Council to act by a qualified majority on the regulation laying down the MFF as foreseen in Art. 312, paragraph 2, sub-paragraph 2 of the TFEU;

7. draws attention once again to the EU's evolving needs and the significant challenges facing the post-2020 EU budget in the following areas: (1) social justice and poverty; (2) access to public services, housing and education; (3) competitiveness and innovation; (4) job creation; (5) demographic change, migration, and citizens' safety; (6) common defence policy; (7) climate change; 8) economic, social and territorial cohesion; 9) agriculture and food safety; (10) infrastructure and mobility; (11) energy; (12) the impact of globalisation; (13) sustainable growth; (14) the particular impact that the United Kingdom's withdrawal from the EU may have in certain areas; and (15) digitalisation. The MFF must therefore focus on ensuring that there are resources to overcome these problems so as to produce tangible European added value for EU citizens;

8. notes with concern that cuts to the EU budget (including those related to Brexit) without an increase in financial means from own resources will increase the burden on Member States in the form of contributions, or will inevitably lead to constraints in terms of the policies that receive support;

9. underlines the importance of using the EU budget in a more effective manner through expanding the partnership principle to all aspects of the budget and the streamlining of Funds and their respective rules;

10. calls, therefore, for the future common financial framework to be larger so as to enable the EU to assume responsibility for fulfilling the goals in the treaties and new political priorities and the resulting duties. This should not restrict the common agricultural policy or a cohesion policy, for all Member States and regions, which should — given the scale of the challenges facing the EU, and their structural nature — continue to receive at least the same share of the EU budget;

11. considers that the scale of the challenges facing the EU, as well as the dynamic processes taking place around it, mean that the EU budget must be more functional and flexible than before, and must be more reactive to new trends and changes in policies . This principle should apply both to adverse tendencies and to emerging development opportunities. Thus there is a need to adopt an EU budget that is simpler, more transparent, fairer and more in line with democratic principles, following the recommendations of the high-level group on own resources;

12. notes that the future EU budget has to take into account areas' particular characteristics in terms of development potential and deficits as well as geographic and demographic challenges. An EU budget constituted on this basis will make it possible to take greater responsibility for the commitments made and the impact of measures at regional and local level. Thus it points out the particular role of shared management which ensures cohesive territorial development by linking EU policy with its implementation on the ground;

13. is concerned to note that the Reflection Paper — dedicated to issues that will be crucially important to Europe's structure in the coming years — does not underline the role of local and regional authorities, particularly in cases where the competencies in the areas described in point 7 are their exclusive responsibility;

14. recalls that the specific reference to the promotion and protection of regional and local authorities in the Treaty of Lisbon must be fully put into practice by respecting the principle of subsidiarity and by ensuring that local and regional authorities — notably through the CoR — can participate in the European legislative process considering that they are most often the final beneficiaries of EU policies and programmes but also that they play a determining role in the implementation of EU legislation. Furthermore, the EU budget should ensure compliance with the principle of subsidiarity, so as to adequately reflect the division of tasks between European, national and local levels;

15. reiterates its support for the seven-year programming period, as stated in its opinion on the future of cohesion policy. However, the CoR also recognises the advantages of an extended 10-year programming period (5+5) with an obligatory, full-fledged mid-term revision. Therefore suggests to support a seven-year-period for the last time before adjusting it to the electoral cycle. These scenarios would provide sufficient stability and predictability, as well as enabling strategic planning requirements to be met more effectively. Furthermore, a full-fledged mid-term revision would mean that the results from the first period of implementation would already be available and could be implemented to make the use of the EU budget more reliable and accurate. It should also be possible to apply a budgetary flexibility criterion, in order to be able to take measures in serious crisis situations or in response to changes in priorities;

16. welcomes the European Commission and European Parliament's proposed clear and ambitious timetable for procedural work towards adopting the new multiannual financial framework, enabling agreement to be reached with the Council before the 2019 European Parliament elections. The Committee is, however, deeply concerned by the Council's proposal that the final arrangements on the future MFF should be adopted only after the United Kingdom's departure from the EU. It warns against the MFF decision-making process becoming too long, as this would lead to a substantial delay in adopting the future legislative package and thereby preventing it from being implemented in a timely manner;

17. points out that the timetable still makes no provision for a follow-up framework strategy for Europe 2000. In this connection, calls on the Commission to start work as soon as possible on such a strategy, which should set out ambitious but realistic strategic objectives aimed at adapting future EU and national policies more effectively, making use of the available tools and financial resources;

18. points out that any ‘transitional provisions’, although allowed by the MFF financial regulation, will lead to serious legal and operational problems at the beginning of the next multiannual financial framework, with a detrimental impact on the operational programmes and beneficiaries, particularly in local and regional authorities. The CoR declares its willingness to contribute and support the European Parliament, European Commission and Council in the MFF negotiations;

European added value (EAV)

19. welcomes the proposed concept of European added value, which relates to treaty-based commitments — the necessary frame of reference for the debate on the MFF;

20. considers the proposed criteria for delivering public goods with a European dimension, economies of scale and spillover effects, as well as safeguarding common European values and strengthening the single market, to be appropriate. The definition of EAV that is given inspires confidence that the principles of subsidiarity and proportionality will be upheld in the case of measures taken at EU level. It is particularly important to note that reducing development disparities between — and within — EU countries is one of the preconditions for improving the competitiveness of the EU as a whole. There is, therefore, a need to emphasise the role of cohesion policy in generating European added value, which it achieves by implementing structural reforms, developing administrative capacity at all levels of governance (‘spillover effects’), and providing direct support e.g. under the ‘Lagging Regions’ initiative;

21. welcomes the Commission's call for the MFF to focus on priorities that can make a significant difference to people's lives and help restore trust in the EU added value. To this end, the EU budget should also better reflect the dialogue with the citizens, in particular via the two political assemblies with democratically elected members (the European Parliament and the European Committee of the Regions); in addition, more synergies should also be created with national and regional parliaments and regional and local assemblies;

22. also supports, in this regard, the European Parliament's call to further develop assessment methods, such as by incorporating appropriate performance indicators or by taking the impact of specific policies on regions into consideration, with the help of current cohesion policy instruments such as the Open Data Platform for the ESIF. In addition, decisions on policies to be supported should be based on a qualitative and policy-based assessment of EU priorities and should not be exclusively limited to a quantitative analysis;

23. stresses that there is a risk of taking decisions that do not promote measures with high added value for Europe, but rather those that relate to national concerns — such as net balance or the protection of specific budgetary limits — due to the influence of powerful political interests; calls on the Council to avoid MFF negotiations based on net-balance calculations, since firstly non-direct benefits (e.g. foreign company building EU-project) cannot be taken into account in these calculations and secondly these calculations contradict the European spirit of cohesion and solidarity;

Budget reform

24. is convinced of the need for a fundamental reform to abolish ineffective rules and instruments and to make the more effective ones more prominent. The Committee reiterates that the complexity of the structure of the budget — in particular its rebate and adjustment mechanisms — makes the EU's actions less clear and aggravates the crisis of public trust in EU institutions. Therefore it calls for these mechanisms to be removed, with the aim of enabling a genuine evaluation of the EU's costs and benefits. The CoR points out, in this regard, the need to ensure a broader scope for measuring the collective benefits of EU policies, economic synergies, cross-border effects and positive external outcomes;

25. calls for the MFF to be harmonised and made more transparent. The Committee points out that creating satellite instruments is not the right solution. It remains convinced, therefore, of the need to include special instruments in the structure of the MFF (e.g. the European Globalisation Adjustment Fund) and to ensure synergies with the help of a single rule book;

26. notes that the current EU budget is not large enough to enable it to exercise a stabilising effect, meaning that there is a need to make use of own resources to support the EU's post-2020 multiannual financial framework. The CoR reiterates its call to introduce new sources for own resources in the form of a package combining different taxes (European Corporate Income Tax (ECIT), CCCTB, FTT, seigniorage, taxation of profits in the digital economy, reformed VAT);

27. calls on the Council and the presidency of the Council of the EU to exert every effort to persuade the Member States to thoroughly reform the EU's own resources. The conclusions of the report of the high-level group on own resources provide an excellent basis for making this argument;

28. calls on the Member States to consider increasing their contributions to the EU budget based on their level of revenue as measured by gross national income (GNI);

29. warns that setting the level of expenditure at 1 % of the EU's GNI following the United Kingdom's departure from the EU would lead to an annual reduction in the EU budget of over EUR 23 billion. The CoR therefore calls for the future budget to be set at no less than 1,3 % of the EU's GNI, thus supporting the European Parliament's standpoint on this question;

The future budget

30. calls for the structure of the MFF to be streamlined. The main areas of funding should reflect the priorities to be supported and should be easily recognisable by citizens (e.g. cohesion policy, CAP);

31. calls for measures to ensure that the future MFF strikes a balance between the necessary flexibility and stability of financing in areas of activity that are of strategic importance to the EU. In this connection, it is necessary to create an appropriate mechanism to allocate reserves which would enable the unjustified accumulation of resources to be avoided while also setting out clear criteria for how they are to be distributed. The Committee therefore proposes the creation of a crisis reserve for situations when a new task or an unforeseen crisis comes up, and a non-programmed reserve. It also suggests strengthening the special flexibility tools that currently exist;

32. points to the need to ensure consistency between EU tools, so that all of them contribute to the achievement of EU objectives and facilitate implementation of reforms in Member States;

33. calls for all collected fines in the field of competition policy to be put in the EU budget as assigned revenue;

34. underlines the need to promote greater complementarity and to limit overlap between the EU's existing financial tools so as to ensure greater efficiency growth in the future EU budget. Such a process of consolidation would also make it possible to increase the critical mass of funding tools and help make access to these funds easier and more transparent;

35. continues to believe that the future budget should be focused on results. In relation to the link between EU resources and economic policy coordination in the EU, the CoR opposes the concept of merely subordinating cohesion policy to the ‘European Semester’ exercise instead of alignment, since cohesion policy has its own legitimacy, enshrined in the European Treaties. Moreover, if the link was to be made more effective by including cohesion policy in national reform programmes, the latter must, starting from the European level, be redesigned in a way that maintains the territorial dimension and the partnership-based, decentralised approach (1). The CoR is also convinced that in order to make the European Semester more effective and increase ownership on the ground a structured involvement of the local and regional authorities as partners in the European Semester in the light of the actual division of powers and competences across levels of government in EU Member States is a condition sine qua non (2);

Areas of future funding

36. proposes that the place-based approach to implementing EU policy be further supported by strengthening the position of the local and regional levels, as well as functional interregional areas, as key representatives in achieving EU objectives for citizens;

37. reiterates, in this regard, its call for cohesion policy to continue to be prioritised under the future budget structure for the benefit of all regions of the EU and strongly supports the #CohesionAlliance. The CoR is of the opinion that the three dimensions of cohesion (economic, social and territorial) play a key role in promoting stronger economic convergence in the EU, ensuring a more integrated Europe with a stronger social element and making it possible for all areas of the EU to benefit from the single market. Greater cohesion and territorial resilience are key determinants of the EU's competitive position on the global stage;

38. is convinced that the new budget must focus more on seeking out and creating sustainable advantages and making better use of development potential and resources. In this sense, cohesion policy is able to guarantee real and measurable results at EU and at lower levels. Therefore as a policy which generates European added value, its share of the overall EU budget should at least be maintained;

39. highlights the need to continue to provide sufficient funding and to support the internal development of all territories in the framework of the cohesion policy. At the same time, the Committee stresses that this policy should be made more flexible for local and regional authorities, which are directly and indirectly involved in spending 75 % of the EU budget;

40. calls for the current shared management of the European Structural and Investment Funds to be maintained, as this guarantees their effectiveness and enables a continuous dialogue throughout the programming period; highlights in this respect the particular importance of the European Social Fund (ESF), within the ESIF, in implementing the European Pillar of Social Rights and overcoming social disparities in the EU. It also asks that the European Globalisation Adjustment Fund (EGF) be an integral part of the future ESIF;

41. calls for the CEF instrument, COSME, LIFE, Horizon 2020, Erasmus+ and the Youth Employment Initiative to continue to receive an appropriate level of funding;

42. points to the growing need to make greater use of territorial cooperation programmes (cross-border, transnational and interregional cooperation) and macro-regional strategies to strengthen competitiveness, employment and social inclusion in Europe. These programmes and strategies also create high added value for the creation of a shared European identity;

43. notes that more should be spent on research and innovation, which have a particularly large impact on the economic growth, productivity and competitiveness of the EU;

44. calls once again for efforts to ensure a fair, sustainable and solidarity-based agricultural policy (3) with a budget that is big enough to be able to support farmers, regions, consumers and citizens. The Committee recommends regulating agricultural markets to avoid costly sectoral crises, and capping direct payments per farm, which would save funds in the first pillar of the CAP. Rejects any ideas to introduce co-financing of direct payments by the Member States; renationalising the CAP would disadvantage the agriculture of many EU Member States; the Committee is in favour of strengthening the second pillar in order to ensure that it is possible for rural areas to implement appropriate development measures, and also calls for increased possibilities so Member States can transfer funds from the first to the second pillar;

45. believes, beyond the single Common Agricultural Policy, that it is essential to consider the rural dimension in all European policies fully in line with the implementation of the objective of territorial cohesion of the EU. Indeed, as illustrated by the CoR study on the European budget devoted to rural areas, the needs of rural areas go far beyond what the CAP's rural development policy can do. Therefore, a better consideration of the rural dimension in the next generation of Structural Funds is needed and should be based on the adoption of an European ‘rural agenda’;

46. reiterates its call for measures to ensure a fiscal capacity mechanism that creates incentives for the implementation of structural reforms in the Member States, whose scope ought to be defined according to their European added value, on the one hand, and an interim capability to absorb asymmetric economic shocks, on the other. This may be in addition to cohesion policy instruments and must be closely linked to compliance with the wider EU regulatory framework and to progress towards convergence, without detracting from the resources of the cohesion policy itself. The Committee remains convinced that the fiscal capacity mechanism should be subject to joint decision-making fully involving the European Parliament, and be implemented, at the level of Economic and Monetary Union and, in keeping with the principle of voluntary participation, Member States outside the euro area should also have access to it;

47. also recalls its opposition to euro area fiscal capacity being made a euro area budget heading in the EU budget as long as the own resources ceiling remains fixed at the current level of 1,23 % of EU GNI since this proposal would either imply inadequate resources for the fiscal capacity to play a stabilising role or carry the risk of a crowding out effect on EU policy financing such as the ESIF;

48. recalls its call for including GDP-complementing measures in the setting up of a new generation of the European Structural and Investment Funds in the next multiannual financial period, which would enable the rate of co-financing by category of region to be adjusted according to the actual expense incurred when funding co-financed operations or, where appropriate, ensure that the programming framework enables activities to be funded in areas situated in more developed regions that are facing significant territorial and socio-demographic constraints; more account should be taken, on basis of additional harmonised and consistent criteria, of the demographic challenges at regional and local levels, the effects of globalisation and further special challenges (e.g. social, environmental, geographical and natural) when distributing EU funds;

49. is convinced that economic growth cannot go hand in hand with inequality and social exclusion, and points out that Article 9 TFEU calls for the EU to guarantee an adequate level of social protection across all of its policies and activities;

50. recalls that the gender perspective is far from being streamlined throughout all policy areas; calls therefore on the European Commission to apply a gender budgeting methodology to all parts of the MFF;

51. believes that more attention should be paid to development aid and the ‘refugee and migrant crisis’ in particular, which is a global issue;

Scenarios

52. reiterates its opposition to the future development scenarios (‘carrying on’, ‘doing less together’, ‘some do more’, ‘radical redesign’) which would reduce or completely eliminate the main, long-term investment policies, i.e. the cohesion policy and the common agricultural policy. There is a real need to avoid a multi-directional Europe and to carry out a prior assessment of the territorial impact of the various scenarios;

53. points out that most of the scenarios focus on boosting GDP growth rather than ensuring territorial, economic and social cohesion. This may have negative consequences for the future of the EU;

54. notes that the best of the proposed options is scenario 5 (‘doing much more together’), which is the most appealing to citizens in cities and regions. Efforts should be made so that all Member States approve a big increase in the EU budget and agree to new own resources;

Final reflections

55. stresses that the post-2020 multiannual financial framework should be both far-sighted and flexible, so that it can maintain its strategic focus and planning certainty for regional and local authorities as well as respond to any crises that emerge and prevent the creation of ad hoc funds outside the MFF;

56. appeals once again for the principles of partnership, multilevel governance and subsidiarity to be applied across all policy areas, and calls for efforts to encourage cooperation between all sectors of society, with a view to building a more democratic EU that enjoys the trust of all citizens.

Brussels, 1 February 2018. The President of the European Committee of the Regions Karl-Heinz LAMBERTZ

(1) See CoR Opinion on The future of Cohesion Policy beyond 2020 ‘For a strong and effective European cohesion policy beyond 2020’, adopted on 12 May 2017.

(2) See CoR Opinion on Improving the governance of the European Semester: a Code of Conduct for the involvement of local and regional authorities, adopted on 11 May 2017.

(3) See CoR opinion on The CAP after 2020, adopted on 12 July 2017.