EUROPEAN COMMISSION Brussels, 31.5.2018 SWD(2018) 310 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document PROPOSAL FOR A REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the establishment of the Reform Support Programme {COM(2018) 391 final}

{SEC(2018) 280 final}

{SWD(2018) 311 final}



Contents 1.INTRODUCTION: POLITICAL AND LEGAL CONTEXT 1.1.Scope and context 1.2.Lessons learned from previous programmes 2.THE OBJECTIVES 2.1.Baseline - existing Commission's instruments to support implementation of reforms 2.2.Challenges for the Programme of the next MFF - problem definition 2.3.Drivers of the problem 2.4.Main conclusions on the challenges 2.5.Objectives of the programmes of the next MFF 3.PROGRAMME STRUCTURE AND PRIORITIES 3.1.Legal basis, subsidiarity and proportionality 3.2.Underlying principles behind the objectives of the new MFF proposal 3.3.Complementarity with other Union programmes 3.4.Critical mass 4.DELIVERY MECHANISMS OF THE INTENDED FUNDING 4.1.Possible delivery mechanisms 4.2.Detailed structure of the instruments 4.3.Moral hazard

4.4.Governance arrangements 4.5.Possible impacts of the preferred delivery mechanism 5.How the performance will be monitored and evaluated? 5.1.Monitoring 5.2.Impact indicators of the Programme 5.3.Evaluation ANNEX I 6.Lead DG(s), Decide Planning/CWP references 7.Organisation and timing 8.Consultation of the RSB 9.Evidence, sources and quality 10.Results of the open public consultation 11.Feedback from the Member States on the current SRSP 12.Feedback from the workshops in Member States on the reform delivery tool ANNEX II ANNEX III Glossary Term or acronym Meaning or definition AGS Annual Growth Survey AWP Annual Work Programme CPR Common Provisions Regulation CSP Cooperation and Support Plan CSRs Country-Specific Recommendations ECA European Court of Auditors ECB European Central Bank EFSM European Financial Stabilisation Mechanism EMU Economic and Monetary Union ERDF European Regional Development Fund ESF European Social Fund ESM European Stability Mechanism ESIF European Structural and Investment Funds EU European Union GDP Gross Domestic Product GNI Gross National Income IA Impact Assessment MFF Multiannual Financial Framework MIP Macro-economic Imbalances Procedure MS Member State NRP National Reform Programme RSB Regulatory Scrutiny Board SGCY Support Group for Cyprus SGP Stability and Growth Pact SRSS Structural Reform Support Service SRSP Structural Reform Support Programme TA Technical Assistance TFEU Treaty on the Functioning of the EU TFGR Task Force for Greece TO Thematic Objective 1.INTRODUCTION: POLITICAL AND LEGAL CONTEXT

1.1.Scope and context On 2 May 2018, the European Commission adopted its proposals for a new Multiannual Financial Framework (MFF) for 2021-2027. Under these proposals, the Reform Support Programme (the Programme) will have a budget of EUR 25 billion over this period. The proposal to establish the Reform Support Programme includes three instruments: a reform delivery tool, a technical support instrument (the successor of the existing 2017-2020 Structural Reform Support Programme (SRSP); and a convergence facility (technical and financial support for non-euro-area Member States, to help them prepare for euro-area membership). This impact assessment report is in line with the MFF proposals and focuses on the changes and policy choices, which are specific to this Programme. Structural reforms are defined as changes that modify in a lasting way the structure of economy and the institutional and regulatory framework in which businesses and people operate. Structural reforms aim to tackle obstacles to the operation of the drivers of growth by, for example, reorganising labour, products, services and financial markets, and thereby encouraging job creation, investment and productivity. They can also aim to improve the efficiency and quality of the public administration and of the services and benefits offered by the State to its citizens. Structural reforms can accelerate the process of economic and social convergence among the Member States, both inside and outside the euro area, and strengthen the resilience of their economies. This will lead to greater prosperity and ensure smooth functioning of the Economic and Monetary Union (EMU) as a whole. Effective implementation of structural reforms is also necessary to enhance cohesion and competitiveness, raise productivity, and encourage growth and employment. Available research on the impact of reforms on growth suggests important potential gains from the implementation of structural reforms. Under certain assumptions, quantitative model-based assessments of the potential impacts of structural reforms show, for example, that euro-area Gross Domestic Product (GDP) could increase by up to 6% in ten years if Member States were to adopt measures to halve the gap vis-à-vis the average of the three best-performing Member States in each of the reform areas assessed (labour and product markets). There would also be positive cross-country spillovers from structural reforms, adding up to 10% to the gains in output in the long run – by boosting imports, supporting trade partners' growth, or leading to significant improvements in fiscal positions. Moreover, again under certain assumptions, overall GDP could increase by up to 1.8% if all Member States implemented and enforced Single Market legislation in line with the best-performing Member States. Implementation of reforms enables Member States to acquire resilient economic and social structures. The economic and financial crises exposed the vulnerabilities of Member States' economic and social structures, which were not sufficiently resilient to absorb shocks smoothly or to reallocate resources effectively. As argued in the Commission's Reflection paper on the deepening of the Economic and Monetary Union (EMU), after the years of crisis, the euro area economies need to get on a stronger path of growth and prosperity, which requires structural reforms to modernise economies and make them more resilient to shocks. This should go together with — and will benefit from — a sustained re-convergence across countries, to amplify the benefits of the euro for all citizens and businesses. The crisis showed that having resilient economic and social structures is particularly important for euro-area Member States, which cannot use exchange rate and monetary policies as a way of adjusting to country-specific shocks. Thus, the implementation of structural reforms is important not only for the euro area, but also for Member States whose currency is not the euro and which are taking effective steps towards adopting the single currency within a given time-frame. Structural reforms will help them to further foster resilience in their economies and to prepare well for a successful transition to and participation in the euro area. Due to the strong interconnections between the economies of the EU, insufficient reform efforts outside the euro area cannot be seen as a purely national problem. During the crisis, macroeconomic issues arising in one Member State had economic and social repercussions in other Member States. This is particularly true for those Member States that are sharing or about to be sharing the common currency. Therefore, implementation of reforms by non-euro-area Member States aspiring to adopt the euro within a specific time-frame deserves particular attention. The implementation of reforms has been advancing slowly and unevenly across Member States, and it has not been satisfactory across all policy areas, leading to negative impacts on cohesion, convergence and resilience of the economies of the EU Member States and therefore of the Union as a whole (the problem is detailed in section 2.2). One of the reasons for the slow implementation of reforms is uneven administrative capacity. Another reason is that the benefits often materialise only over the long term, while their economic, social and political costs are often incurred in the short term. National governments might therefore refrain from embarking on the implementation of some reforms for different reasons such as the insufficient administrative capacity to conduct reforms, high political costs in the short term (e.g. pensions reforms) and/or to adverse effects on some segments of the population (e.g. adverse effects on employment in the coal mining sector as a consequence of transition to a low-carbon economy). Governments that do embark on reforms sometimes find it difficult to see the reforms through to the end because the duration of an electoral cycle is often shorter than the time needed for the implementation of "major" reforms. As a consequence, necessary reform efforts may be delayed, abandoned or even reversed (drivers of the low rate of implementation of reforms is further analysed in section 2.3). The EU institutions have pressed on numerous occasions for faster implementation of reforms. In its conclusions of January 2018 on macroeconomic and fiscal guidance for the Member States, the Council of the EU stated that reform implementation remains uneven across the EU and that pressing economic and social priorities require decisive progress in implementing reforms to tackle the EU's structural challenge. Better coordination of the implementation of structural reforms (in the euro area), in particular those prescribed in the country-specific recommendations, can create positive spillovers in Member States and strengthen their positive effects. Also, the European Parliament acknowledges that further progress on the implementation of structural reform is needed to deliver on growth and jobs, and to carry on the fight against those inequalities that hamper economic growth. Implementation of growth-enhancing structural reforms is essential to cope with macroeconomic shocks and to increase the competitiveness and stability of Member-State economies. The Juncker Commission, building upon the vision set out in the Five Presidents' Report, focussed the Commission's priorities in the European Semester process of economic governance on the "virtuous triangle" of boosting investment, pursuing structural reforms, and ensuring responsible fiscal policies. The Commission currently disposes of a number of instruments to support the implementation of structural reforms (see Box 1). However, for the moment, the Commission does not have at its disposal a tool to provide direct financial contributions for the implementation of reforms, nor does it have a tool to provide targeted support for reforms in non-euro-area Member States, which have taken demonstrable steps towards adopting the single currency within a given time-frame. Moreover, in the absence of a new proposal, the technical support provided under the Structural Reform Support Programme will end in 2020. Box 1: Instruments supporting the implementation of structural reforms available at EU level Several instruments are available at EU level, which support the implementation of structural reforms: ·The European Semester provides a framework for the coordination of economic policies across the European Union. Policy recommendations provided by the Union under the European Semester help to identify reform priorities and to reach agreement on these with Member States; ·Flexibility rules within the Stability and Growth Pact (SGP) allow for the direct short-term fiscal costs of reforms to be taken into account, enabling European Union (EU) Member States implementing structural reforms to delay fiscal adjustment compared with the SGP benchmark requirement; ·EU support has also increasingly taken the form of technical support. With the establishment in 2015 of the Structural Reform Support Service (SRSS) and the adoption of the Structural Reform Support Programme (SRSP) in 2017, the Commission expanded its technical support by creating a dedicated tool, the SRSP, and is helping Member States, upon their request, to carry out reforms in key policy areas and to strengthen their public administrations and administrative capacities; ·European Structural and Investment Funds (ESIF) can finance investment project-related components of structural reforms in the ESIF policy areas and thereby provide accompanying measures for the implementation of reforms. A greater link between the priorities of the European Semester and the ESIF was established by introducing ex-ante and macroeconomic conditionalities; oEx-ante conditionalities ensure that the necessary conditions for the effective and efficient use of the ESIF are in place. These conditions are linked to: §policy and strategic frameworks, to ensure that the strategic documents at national and regional levels, which underpin ESIF investments are of high quality and in line with standards commonly agreed by Member States at EU level; §regulatory frameworks, to ensure that implementation of operations co-financed by ESIF complies with the EU acquis; §sufficient administrative and institutional capacities of public administration and stakeholders implementing the ESIF. oMacroeconomic conditionality under ESIF allows the Commission to invite countries facing economic difficulties, or facing certain challenges under relevant economic governance procedures, to revise their national ESIF strategic and operational documents. The European Commission would subsequently be able to suspend ESIF payments if a Member State does not sufficiently modify its national ESIF strategic and operational documents. However, the existing instruments at EU level have not managed to provide sufficient incentives to substantially accelerate the undertaking and pace of implementation of structural reforms and accordingly have not managed to reduce the vulnerability to shocks. Section 2.1 discusses this in more detail. The Commission's Reflection paper on the deepening of the Economic and Monetary Union highlighted the mismatch in terms of instruments at the Commission's disposal for achieving its goal: strong fiscal rules leading to possible sanctions on one hand and, on the other hand, soft economic guidance provided through a process of coordination of economic policies under the European Semester. It concluded that "such a governance construct has too often contributed to a lack of progress in very much needed structural reforms and investment''. The Commission's Reflection papers on the deepening of the EMU and the future of EU finances suggested a dedicated instrument to provide further incentives to Member States to carry out reforms. Achieving more convergence towards resilient economic structures was also highlighted as being equally important for those Member States on their way to joining the euro area. These political orientations materialised in a Commission Communication on new budgetary instruments for a stable euro area within the Union framework (6 December 2017), which proposed to: 1.Amend the SRSP Regulation to increase its budget for the period 2019-2020 by EUR 80 million and create a dedicated work stream for Member States that intend to adopt the euro to help them acquire resilient economic structures and prepare them for euro-area membership (under negotiation at present); 2.Amend the Common Provisions Regulation (CPR) to introduce a possibility for Member States to use all or part of the performance reserve in the current European Structural and Investment Funds (ESIF) to provide financial incentives for the implementation of agreed reform commitments – a pilot of the future reform delivery tool (under negotiation at present); and 3.Create a follow-up programme to the SRSP under the post-2020 Multiannual Financial Framework (MFF), also integrating a dedicated convergence facility to support preparation for euro-area membership and a new reform delivery tool to support the implementation of reforms identified in the context of the European Semester (present proposal). In the Communication on new budgetary instruments for a stable euro area within the Union framework, the Commission also committed to continue strengthening the link between investment, structural reforms and fiscal responsibility by making the best use of the flexibility built into the existing rules of the Stability and Growth Pact.The Commission's communication on a new, modern MFF post-2020, prepared ahead of the Informal Leaders' meeting of 23 February 2018, confirmed the announcement in the Communication on new budgetary instruments by announcing that the reform delivery tool and the convergence facility would need to provide strong support and incentives for a broad range of reforms across Member States, and indicating a budget line for all instruments in the order of at least EUR 25 billion over a seven-year period.

The proposal for a Reform Support Programme post-2020 thus integrates three instruments into one Programme: the technical support instrument (the former SRSP), a reform delivery tool and a convergence facility for non-euro-area Member States. The Reform Support Programme aims to support Member States' authorities in their efforts to design and implement growth-sustaining structural reforms by providing both technical and financial support. The Programme aims to contribute to the overall objective of enhancing cohesion, competitiveness, productivity, growth and employment. For that purpose, it provides financial incentives to Member States to overcome political hesitation to undertake reforms (which could be partly related to financial or political short-term costs), and technical support to Member States to strengthen their administrative capacities in relation to challenges faced by institutions, governance, public administration, and economic and social sectors. Additional financial and technical support will be made available through the convergence facility to those Member States whose currency is not the euro and which have taken demonstrable steps towards adopting the single currency within a given time-frame. Participation in the programme is purely voluntary: technical support will only be provided at the request of a Member State; and the basis for financial contributions through the Reform Delivery Tool is a voluntary reform proposals put forward by a Member State. While participation in the Programme is voluntary, Member States experiencing excessive imbalances will be particularly encouraged to come forward with reform proposals under the Reform Delivery Tool. This impact assessment examines the proposal for the Reform Support Programme post-2020. It presents the objectives and the structure of the Programme, considers different delivery mechanisms and assesses the impacts of the new instrument. This impact assessment also satisfies the requirements set in Financial Regulation currently in force and the provisions of the revised Regulation, which will enter in force in July 2018. 1.2.Lessons learned from previous programmes The Regulation setting up the Reform Support Programme for the period 2021 to 2027 proposes to continue with the provision of technical support as defined by the SRSP Regulation 2017/825 without substantive changes, and to add two new instruments to the Commission's toolbox to support the implementation of reform – a reform delivery tool and a convergence facility. 1.2.1 Lessons learned on technical support provision The Commission has a long experience in the provision of technical support to developing countries and to accession countries. The fundamental lesson from this experience (as well as experience from other institutions) is the importance of ownership, dialogue, results orientation, and sound implementation arrangements. Experience has shown time and again that, if the reforms are not "owned" by the recipient, the technical support is unlikely to lead to sustainable reforms. For this reason, it is of paramount importance that technical support is demand driven and tailored to the need of the recipient. This important lesson has already been incorporated in the SRSP and will continue to be the guiding principle under the new programme. Experience with technical support for structural and administrative reforms within the EU is more recent. The Commission gained important experience through the provision of technical support through the Taskforce for Greece (TFGR) and the Support Group for Cyprus (SGCY). Both (ad-hoc) structures were integrated in the SRSS. The technical support for structural reforms provided to Greece by the Commission services and coordinated by the TFGR was subject to both internal and external evaluations, which provided useful lessons for the design of the future Reform Support Programme. The SRSS is currently also carrying out an ex-post external evaluation of the technical support delivered to Greece by the TFGR. An evaluation was carried out by an independent consultancy in July 2014. Overall, it concluded that, in the areas covered by the evaluation, the technical assistance delivered and coordinated by the TFGR contributed significantly to the implementation of the reform programme in Greece. This conclusion was based on an assessment of the effectiveness, efficiency, relevance and sustainability of the assistance delivered and was largely confirmed by the responses of most of the stakeholders involved. They indicated that, in the absence of technical assistance delivered by the TFGR, the reforms undertaken would not have materialised. Other important conclusions of the evaluation included: ·Continuity of technical assistance is an essential factor if a reform is to be sustainable; ·Clear leadership, structure and funding models are required for the future; ·Technical assistance should be provided not only when an EU country is in crisis - it should be a normal activity within the EU; ·The European Commission can work with Member States to establish a permanent structure with a dedicated budget to enable co-operation and exchange of expertise between Member States and co-ordinate the provision of technical assistance to all Member States to enable sharing and adoption of best practices; ·Exchanging best practice, not just ideas but also implementation of those ideas, was highlighted as being important; and ·Provision of technical support should be based on the commitment from the authorities concerned to use the technical support to implement reforms. In addition, an audit of the TFGR was conducted in 2015 by the European Court of Auditors (ECA) to assess how effectively the assistance to Greece had been managed and whether it had contributed positively to the process of reform implementation in Greece (limited to the economic adjustment programme). The contribution of technical support to the implementation of reforms was confirmed by the ECA evaluation of the TFGR. The ECA concluded that, overall, the TFGR had been successful in achieving its mandate – providing relevant technical assistance in areas covering almost the entire spectrum of public policy, which was largely in line with the conditions of the economic adjustment programme. Some shortcomings identified by the ECA, notably the lack of a dedicated budget, the lack of a comprehensive strategy and the lack of systematic monitoring of the results, were subsequently addressed within the SRSS and in the design of the 2017-2020 SRSP. The Structural Reform Support Programme (SRSP) entered into force on 20 May 2017. It incorporated a number of important lessons from the experience with technical support inside and outside of the EU. The SRSP is fully demand driven; it is accessible for all Member States, whether they are in crisis or not; and it focuses on results/implementation. The implementation of the SRSP began following the adoption of the 2017 Annual Work Programme (AWP) of September 2017 and has continued with the adoption of the 2018 AWP in March 2018. In accordance with Article 16 of the SRSP Regulation, the Commission will provide the European Parliament and the Council with an annual monitoring report on the implementation of the Programme and an independent evaluation report by mid-2019. So far, the SRSS has completed two selection rounds of SRSP requests. In the 2017 cycle, 271 requests for support were submitted by 16 Member States for an estimated amount equal to 4 times the available annual SRSP 2017 budget of EUR 22.5 million. In the 2018 cycle, despite the close proximity of the two rounds (due to the late adoption of the SRSP), 444 requests were submitted by 24 Member States for an estimated amount equal to 5 times the available annual SRSP 2018 budget of EUR 30.5 million. It can thus be observed that, since the SRSP entered into force, there has been a very high take-up of the Programme by Member States, with requests for support significantly exceeding the amount of funding available for its annual cycles. Box 2: Added value of the technical support provided by the SRSS to date Since the SRSP has been in operation only since May 2017 and as structural reforms take time to be completed, it is not yet possible to evaluate the impact of the SRSP on reform implementation; however, some useful lessons can still be drawn from the experience so far. The proposal to continue with technical support is based on the overall positive experience gained since 2011 with the provision of technical support, first in the context of the Task Force for Greece (TFGR) and Support Group for Cyprus (SGCY) and later by the SRSS (section 1.2). Even though the technical support provided by the TFGR and the SGCY to Greece and Cyprus was linked to their economic adjustment programmes, which constitute a different context than for the new tool, very relevant lessons and conclusions can be drawn from these two experiences, notably in relation to the impact of technical support and on its operational modalities. In addition, while several requests for support to TFGR and SGCY were linked to conditionalities of the macroeconomic adjustment programme, technical support was also provided outside of the scope of the adjustment programme. Furthermore, Cyprus, for example, has continued to request a substantial amount of technical support even though it exited the economic adjustment programme. Cyprus is in fact one of the Member States that has submitted the highest number of requests under the SRSP. In addition, the very high demand for support under the two selection rounds of the SRSP implies that there is a clear demand for technical support, even in the absence of a macroeconomic adjustment programme. Since 2015, the SRSS has been handling around 500 projects (SRSP, Preparatory Action and projects coordinated by the TFGR and the SGCY), out of which: around 20% have already been completed; 65% are currently being implemented on the ground; and the remainder are still in the preparation phase (projects selected only recently through the SRSP 2018 selection round). The distribution across the policy areas covered is as follows: ·35% business environment and growth; ·22% labour market, health, education and social services; ·14% governance and public administration; ·18% revenue administration and public financial management; and ·11% financial services and access to finance. Results of projects completed so far show that the support delivered by the SRSS is crucial for achieving the objectives set in the different intervention areas due to the specific expertise that the support provides, the exchange of the existing good practices across the Member States and the centralised coordination of the various support activities. The feedback received from Member States benefiting from SRSS support or from participants in the workshops organised to present the proposal for a pilot phase of the reform delivery tool, which took place in spring 2018 (see Annex 2), confirmed the added value of the support that the SRSS technical support may bring and the high appreciation by the Member States of the support provided. Projects are currently ongoing in 24 Member States in all policy areas of the economy. While the SRSP can address individual stages of the reforms, the experience so far shows that Member States are asking for a more comprehensive approach, addressing preparation, design and implementation of reforms. Reforms supported by the SRSS through the technical support projects cover a wide range of areas: reforms in tax administrations, education, healthcare, judicial systems, labour market, pension systems, reforms in the field of climate action and energy, reforms in the customs law, restructuring of state-owned enterprises, enforcement of competition legislation, review of transport infrastructure, human-resources management, development of internal audit procedures, improvement of regulatory frameworks (e.g. regulated professions), strengthening of insolvency frameworks, financial supervision, digital transformation, medical assistance for disability, development of capital markets, fight against corruption and money laundering, management of non-performing loans, or reforms of statistical and budgetary systems. Examples of support provided by the SRSS (SRSP and pre-SRSP) The Cypriot authorities received support to enhance the entrepreneurial ecosystem. A governance body of representatives from the public and private sectors was created to help implement the national strategy on entrepreneurship (National Policy Statement on Enhancing the Entrepreneurial Ecosystem) and over 50% of all actions in this statement have been implemented. The provision of technical support contributed to preparing a law on social entrepreneurship. In the last few years, the number of new business and employees in the SME sector has increased substantially. The SRSS supports national authorities in Latvia and Slovenia in their efforts to develop and implement frameworks for assessing the performance of their health systems. The project is ongoing, with the aim of improving the quality and effectiveness of health care and, therefore, the well-being of the population. The SRSS provided technical support to the Bulgarian authorities by carrying out an independent analysis of the structure and independence of the Public Prosecutors' Office with the objective of contributing to the implementation of a strategy for judicial reform. In response to the recommendations prepared through the support from the SRSS, the authorities set out a joint roadmap covering both organisational and potential legislative measures. The roadmap is currently being implemented. For several years, the Greek authorities received support to establish an independent agency for public revenue, which was created in January 2017. A variety of work streams came as a follow-up to the creation of this agency and support was provided for the core functions of the tax administration: debt collection, taxpayer audit, dispute resolution, customs reorganisation, fuel and tobacco smuggling, IT, property revaluation and taxpayer services. Additional support measures helped the authorities to establish new processes to improve the national tax collection system. In the last few years, the rate of tax and debt collection increased markedly. The SRSS is supporting Estonia, Latvia and Lithuania in their efforts to improve regional capital markets in the Baltic States with the introduction of a pan-Baltic covered bond framework. The support measures are ongoing and the projects are expected to contribute towards well-functioning and larger capital markets in the region; open up long-term funding options for banks, allowing them to increase lending to regional economies and ultimately, increase the resilience and competitiveness of the Baltic economies in the face of external shocks.

Besides the oversubscription for the amounts available under the SRSP, based on the feedback received from the Member States and preliminary observations from the implementation of initial SRSP projects on the ground, the European added value of the SRSP can so far be described as follows: ·The Programme fills a gap in the implementation of structural reforms by supporting the Member States at various stages of the reform process: preparation, design, implementation, and monitoring of reforms; ·Member States appreciate the fact that support is provided without any co-financing from national budgets; ·Participation entails a rather low administrative burden compared to other Union programmes, and the support can be delivered relatively rapidly; ·The SRSP contributes strongly to consistent implementation of strategic Union priorities. Around 90% of the projects selected for funding in 2017 and 2018 directly contribute to either EU economic governance, Union priorities, Union law, or the economic adjustment programme; and around 10% contribute to Member States' own priorities; ·The SRSP actions often contribute to the development and implementation of solutions that address cross-border issues and Union-wide challenges; ·In some cases, the support has also enabled funding to be leveraged from other Union programmes, e.g. by helping to better prepare or integrate projects under the ESIF; ·Member States seem to especially appreciate the sharing of expertise with other Member States or experts; ·The voluntary character of the participation in the Programme and the consensual nature of the cooperation throughout the entire support process help to develop mutual trust and promote cooperation. The first internal assessment and the results of the relevant parts of the stakeholder consultation allow a number of key conclusions from the first two rounds to be drawn: 1.The high number of requests for support submitted by the Member States in the two rounds indicates that there is a high demand for the specific support provided by the SRSP and thus a need for support for reform design and implementation. The importance of the implementation of structural reforms was also highlighted in the open public consultation – a total of 63% respondents consider sound economic governance and implementation of reforms to be very important; 2.The quality of the requests submitted by the Member States has been increasing over the years as a consequence of the learning process and thanks to the interaction and discussions between the SRSS and the Member States prior to the submission of requests. It can thus be assumed that submission of relevant requests for support will continue to grow in the coming years; 3.A number of good quality requests, which had met the criteria defined by the SRSP Regulation (worth almost EUR 100 million), could not be selected due to the budgetary constraints. Only 13% of the requests submitted were considered to be not mature enough to be financed by the SRSP immediately in 2018; 4.The experience on the ground so far has shown that tailor-made support, which may consist of analysis of the problems, development of action plans, guidance and other outputs to be used for the successful implementation of the reform, is effective in delivering the expected results; 5.During the first two SRSP rounds, Member States, whose currency is not the euro and which have publicly announced their wish to adopt the single currency (Bulgaria, Croatia, and Romania), submitted requests for support, of which around 50% could be considered relevant for preparation for future accession to the euro area. Due to the budgetary constraints, the current SRSP has not been able to adequately satisfy all of these requests. In summary, the experience with the provision of technical support to Member States is positive. In Member States where the SRSS has been active for a longer period of time, notably Greece and Cyprus, some very important and tangible results have been achieved. In addition to the lessons from this experience, the SRSP had already incorporated some very important lessons from the Commission’s experience in providing technical support to non-EU countries. The key lesson from this experience is the importance of country ownership of reforms. This is a central element in the design of SRSP, which will be retained in the new programme. The main bottleneck at present appears to be the limited size of the available amounts within the SRSP. In addition, it is important to ensure that Member States follow up on the technical support and carry on with implementation of the reforms. This underlines once again the importance of full ownership of reforms. 1.2.2.Relevant lessons for the future provision of financial support While technical support provides crucial support to Member States for the preparation, design and implementation of reforms, it does not always offer sufficient incentives to start and/or accelerate and/or complete the reforms. Effectiveness of the support depends on the Member State's commitment to actually use the support provided, as well as the Member State's ownership of the reforms. Some challenges identified by the previous evaluations and the ECA still remain. Therefore, having an additional tool to strengthen the ownership of and the commitment by the Member States to implement reforms to use the outputs of the technical support could help to make this programme more effective and even more result-oriented. The Commission has significant experience with budget support to countries outside the EU. Evaluations have pointed to significant developmental results of budget support arrangements. These include important contributions to economic growth, improved financial management and expansion of service delivery to the population. Positive aspects of budget support include that: it is results-based; it is non-distortive since it is an integral part of a country's policy-making, planning, budgeting and execution cycle; and it is a relatively cost-effective way of delivering support. Budget support has also proven to be an effective way to deepen the policy dialogue. As it is directly linked to reforms, it implies the existence or the building of effective country systems to collect information and statistics on results in order to monitor progress and evaluate impact. Clarity on the choices of indicators, realistic targets, resource requirements and institutional set-up are all important elements for the effectiveness and reliability of the system.

Evaluations of budget support instruments also point to the fact that the impacts of this instrument are positively correlated with the administrative capacity of the recipient and indicate that the combination of financial and non-financial (technical support) inputs is expected to have reciprocal effects, increasing the effectiveness of both financial and non-financial elements. Given that on average the administrative capacity in the EU is higher than that of the typical recipient of budget support outside of the EU, this bodes well for the future reform delivery tool. It also means that, in case of administrative shortcomings, it would be important to complement the provision of financial support with technical support. Despite important differences in the type of support, some lessons can also be learned from the Commission's experience with macroeconomic adjustment programmes in the EU. Under a macroeconomic adjustment programme, Member States receive financing from either the ESM or the Balance of Payments (BoP) assistance or the EFSM, conditional on implementing reforms. A clear difference is that under the proposed reform delivery tool, the initiative for the reform proposal lies with the Member State. However, in terms of the definition of the planned reforms, the formulation of targets, milestones and the arrangements for monitoring, a similar level of detail will be required. The European Structural and Investment Funds (ESIF) provide limited incentives for reforms. Under the current MFF, the link between the ESIF and structural reforms has been strengthened. The main instrument to incentivise reforms through the ESIF is the so-called ex-ante conditionalities (now called enabling conditions). The ex-ante conditionalities specify the conditions that must be fulfilled before the programme implementation is launched. The European Court of Auditors (ECA) concluded that whereas the ex-ante conditionalities provided a consistent framework for assessing the Member States readiness to implement EU funds, the extent to which it has effectively led to changes on the ground is still unclear. A number of shortcomings of the ESIF were identified by ECA, some of which are inherent to the ESIF instruments. It was noted that the Commission has not made use of the possibility to stop ESIF payments even though some Member States failed to fulfil the applicable ex-ante conditionalities. In addition, it was noted that the monitoring framework did not extend beyond 2016. Lastly, it was highlighted that the scope of the ex-ante conditionalities is by definition rather limited. In addition, the Court pointed to a number of issues that are also highly relevant for the design of the reform delivery tool. This applies in particular to the need for specific and clear assessment criteria for instruments such as the ex-ante conditionalities and to the need to ensure consistency with the analysis in the European Semester. Macroeconomic conditionality under ESIF allows the Commission to invite countries facing economic difficulties, or facing certain challenges under relevant economic governance procedures, to revise their national ESIF strategic and operational documents. The European Commission would subsequently be able to suspend ESIF payments if a Member State does not sufficiently modify its national ESIF strategic and operational documents. However, given that macroeconomic conditionality is an instrument of last resort, it is by its very nature not well-suited to promote reforms in good times. Studies and evaluations show that the ESIF can finance actions and can provide support to the investment components of some structural challenges (implementation costs and related investment measures). On the other hand, in the case of reforms that are mostly regulatory, with no implementation or investment costs that could be eligible for ESIF financing, the relevance of the ESIF is very limited. Whereas the ESIF can help to finance some actions related to reforms, they have not been very effective in promoting the design and implementation of structural reforms in their entirety. To gather ideas on the design of the future reform delivery tool, the Commission organised a number of technical workshops in each Member State. The main feedback from Member States can be summarised as follows: ·There is a need to clearly define potentially eligible reforms and how these would be assessed, evaluated and monitored; ·All EU Member States should be able to benefit from the tool; ·Concentration of funds on a limited number of Member States should be avoided; ·Complementarity with the other instruments (especially the ESIF and the SRSP) must be ensured; ·The tool should be designed so as to avoid "strategic delays" (moral hazard); ·The scope of reforms covered by the future instrument should be broader than the Country-Specific Recommendations; and ·The European Semester should be the right vehicle to monitor the implementation of reform commitments under the future reform delivery tool, even though some Member States were concerned that the European Semester process could become too complex and burdensome after integrating the future reform delivery tool. In summary, the Commission's experience with budget support to countries outside of the EU and experience with ESIF funds suggest that a reform delivery tool can be a very valuable additional tool to promote the necessary reforms in Member States. Whereas the ESIF can finance some of the investment-related costs of reforms, the ESIF have only a limited relevance for structural reforms. This is not surprising given that the mission and goals of the ESIF are defined in terms of investment. As is well known from the field of economics, promoting two objectives with a single instrument is unlikely to be effective, because inconsistencies between the objectives may and typically do arise. This phenomenon is captured by the Tinbergen rule. The possibility of suspending payments under ESIF – for example if ex-ante conditionalities are not met – is a case in point. The possibility to suspend may have a positive impact on the prospects for reform implementation. At the same time, it risks to undermine – at least in the short run – the investment agenda. By adding a dedicated policy instrument – i.e. the reform delivery tool – this tension is resolved. In the design and application of the instrument, a number of important lessons will need to be heeded. These include the importance of country ownership, and the need for clear assessment criteria and appropriate monitoring arrangements. 1.2.3.Lessons learned from past experience related to euro-area membership and convergence According to a Commission internal study, the majority of non-euro-area Member States, which entered the EU in 2004 and 2007, achieved significant real convergence vis-à-vis the original euro area members after 2004, but a convergence gap remains. Average real GDP growth in these Member States was strong prior to the global financial crisis; it declined considerably in the post-crisis period, and picked up recently. A sizeable real convergence gap, in terms of average GDP per capita in purchasing power standards thus still exists between the majority of the non-euro-area Member States that joined EU in 2004-2007 and the rest of the euro area. In addition, dispersion of real GDP per capita of the countries that were members of the euro area before 2007 shows a broadly stable path in the first ten years of EMU, but the dispersion increased over 2009-2012, when the crisis hit, and has broadly stabilised at a higher level thereafter. Membership in a monetary area is therefore not a sufficient condition to ensure real conversion amongst the countries. Figure 1: Dispersion of real GDP per capita (coefficient of variation, in 2010 purchasing power standards), 1960-2018

As multiple euro-area experiences and available data suggest, fulfilling the formal convergence criteria does not necessarily lead to the long-term sustainable economic performance needed for a well-functioning monetary union. Factors such as lack of competitiveness, poorly performing labour market, inefficient public administration or weaknesses of banking sector, which are not tackled before membership, can impede and complicate adjustment in crisis situations and their effects spill over rapidly once a country joins the euro area. Therefore, as already emphasised by the European Central Bank and European Commission in their Convergence Reports, in addition to the formal convergence criteria, it is also important to look at non-euro-area Member States in terms of their overall competitiveness and institutional capacities. Box 3: Convergence criteria In order to adopt the euro and join the euro area, Member States must meet certain conditions known as 'convergence criteria' and they have a duty to align their legal framework concerning their national banks. Agreed in Maastricht by the Member States in 1991 as part of the preparations for introducing the euro, the convergence criteria are formally defined in terms of a set of macroeconomic indicators which measure: ·Price stability, to show that inflation is under control; ·Soundness and sustainability of public finances, through limits on government borrowing and national debt to avoid excessive deficits; ·Exchange-rate stability, through participation in the Exchange Rate Mechanism (ERM II) for at least two years without strong deviations from the ERM II central rate. Currently, only Denmark participates in ERM II; and ·Long-term interest rates, to assess the durability of the convergence achieved by fulfilling the other criteria. The European Semester plays an important role in identifying necessary reforms and in following up on their implementation. On top of that, there is a lot of know-how in the Commission services and in other Member States, which can be offered to non-euro-area Member States in designing their national reforms, which may help foster economic and legal convergence, thus helping them on their way to adopting the single currency. A targeted instrument to facilitate practical preparation and convergence, without interfering with the convergence criteria in place for accession to the euro, could prove particularly beneficial. Such an instrument would provide additional technical and financial support for reforms that are of particular relevance for Member States, which will relinquish the exchange rate instrument. In summary, experience related to previous examples of accession of Member States to the euro area and to the convergence with euro-area standards achieved so far by prospective euro-area members has shown that implementation of structural reforms is especially important for Member States on their way to adopting the euro. For this reason there is a strong argument for providing additional technical and financial support to those Member States that confirm that they want to adopt the euro within a specific time-frame. This support should be targeted to reforms that are most relevant for their economies to function successfully within the euro area. 1.2.4.Conclusions on lessons learned Based on the lessons described above, there appears to be a need not only to continue, but also to complement the technical support for the completion of reforms with a dedicated tool, which provides financial incentives for the implementation of reforms in all Member States and helps to strengthen the national ownership of reforms. Given the importance of reform implementation prior to euro adoption, special support is warranted to encourage the implementation of reforms in Member States that would like to adopt the euro within a given time-frame. Technical support can help Member States with the design and implementation of reforms but cannot replace the ownership of their implementation itself. Providing additional incentives for the completion of reforms would complement investments under the ESIF, which can finance the implementation of certain investments accompanying reforms. A well-designed tool incentivising needed structural reforms in EU Member States would have the potential not only to significantly boost economic growth in the Member States concerned but also to deliver significant positive spillover effects within the EMU. This new instrument should help bridge the gap between the need for and the willingness to complete structural reforms, focusing on those reforms that enhance cohesion and competitiveness, raise productivity, encourage growth and employment and improve the resilience of the EU economies. As highlighted in the evaluation of technical assistance provided by the TFGR, the new Reform Support Programme should be based on a commitment coming from the national authorities concerned and its goal should be to further stimulate the implementation of structural reforms in the EU Member States by providing financial incentives and offering complementary technical support to help in the implementation of the reforms. As acknowledged in the Reflection paper on the deepening of the EMU and other studies, structural reforms may have economic, financial or political costs in the short term (some of them due to the need to implement flanking measures), which can create political hesitation to undertake the reforms and therefore prevent or slowdown their implementation. The provision of a financial incentive can help overcome such barriers. Those incentives would have to be offered in conjunction with the possibility for Member States to follow up on the technical support and carry out the full implementation of the reforms. Given the specific needs of those non-euro-area Member States that wish to join the single currency within a given time-frame, a targeted instrument appears to be needed also for non-euro-area Member States to help them better prepare for euro-area membership. For example, such targeted instrument would help strengthen competitiveness, labour markets, administration or tackle weaknesses in the banking sector. This would strengthen the resilience of their economies, help them to withstand shocks during crisis periods and quickly recover from such shocks, and thereby, ultimately, better protecting the euro area as a whole from external shocks. 2.THE OBJECTIVES 2.1.Baseline - existing Commission's instruments to support implementation of reforms Under an unchanged SRSP and with the current instruments at EU's disposal described in Box 1 – the baseline – the EU would continue to have a limited capacity to incentivise the implementation of structural reforms and improve the uneven reform implementation across Member States and policy areas – the main challenge to be addressed by this policy proposal. 2.1.1.European Semester continues to be the main vehicle for monitoring reform implementation The European Semester is an effective soft law tool for outlining challenges and reform needs and for keeping track of responses from Member States to meet those needs. It provides a framework for the coordination of economic policies across the European Union and allows Member States to discuss their economic and budgetary plans with the Commission and the Council. The Commission monitors progress made by the Member States at specific times throughout the year. The European Semester process identifies, inter alia, the need for structural reform in Member States. The adoption of country-specific recommendations by the Council promotes ownership and peer pressure.

However, the European Semester mechanism itself has no enforcement arm and no tool to provide an actual incentive for reform. The nature of CSRs is such that while they are a very good tool for outlining challenges and reform needs and keeping track of responses from Member States for meeting those needs, they do not provide an actual incentive for reform. Apart from this framework and peer pressure, there is no specific governance mechanism in the European Semester process to ensure compliance with recommendations related to structural reforms; therefore, non-implementation of CSRs or lack of sufficient progress towards reform implementation in principle has no direct implication for the Member States concerned. Evidence from the CeSaR database confirms that reform implementation remains uneven and takes longer than expected given, inter alia, that the CSRs are proposed and repeated across the years (section 2.2.1). In addition, results of the post-mortem exercise in the Economic and Financial Committee (EFC) testify that peer pressure seems to be lacking among the Member States, despite an increase in thematic discussions on reform implementation at the EU level. The Stability and Growth Pact and the Macro-economic Imbalance Procedure contain provisions that allows for the imposition of sanctions on non-compliant Member States. Whereas these provisions could be useful as a last resort option, there are clear limits to their effectiveness, in particular when it comes to the promotion of implementation of structural reforms. A major problem is effectively distinguishing between "bad policy" and "bad luck". Given the punitive nature of sanctions, there is a natural inclination to give Member States the benefit of the doubt. As a result, the barrier to imposing sanctions is very high and, in practice, sanctions have never been imposed. In addition, the concept of sanctions is diametrically opposed to the concept of ownership. Whereas a (real) threat of sanctions may lead to a temporary adjustment in behaviour, it is unlikely to result in sustainable reforms. 2.1.2.The SRSP continues in its present form In the absence of a new legislative proposal, the SRSP would end in 2020. This would lead to an immediate gap in the provision of technical support to Member States for the identification, design and implementation of structural and administrative reforms. Nevertheless, the baseline of the current proposal assumes that the ongoing programme will continue in the post-2020 period in its current form. The SRSP would continue to provide technical support to the Member States under the current limited financial resources. By extrapolating the financial envelope of EUR 142.8 million available for the SRSP for the period 2017-2020, the SRSP under the post-2020 MFF would reach EUR 250 million over a 7-year period. Already during the first two years of operation, the SRSP was faced with an important excess demand. The available budget for SRSP was four times oversubscribed in 2017 and five times oversubscribed in 2018. Given that the quality and quantity of requests submitted by the Member States is increasing as Member State become more familiar with the SRSP, it is assumed that a large majority of the excess in demand in the coming years will qualify for the support from the SRSS. At the time of the preparation of this impact assessment, an amendment to the SRSP Regulation was being negotiated in the European Parliament and the Council. Successful adoption of the proposed amendment – an increase of EUR 80 million – would enable the excess demand to be partially addressed in the current MFF. However, based on the projections of future demand under current trends, future demand might well exceed even this increased amount. With no further budgetary increase, the selection for funding would need to be highly selective and it might not be sufficient to provide all the support required for important structural reforms in the Member States requesting technical support, including reforms relevant for the European Semester and the Union priorities. Preliminary indications from the first two rounds of selection of requests thus show that under the baseline, the budgetary capacity of the instrument is likely to be insufficient. At the same time, while the SRSP provides technical support to Member States for the preparation, design and implementation of reforms, it does not have sufficient capacity to ensure that technical support will be used further – it does not always generate sufficient incentives to start, accelerate and/or complete the reforms. The challenge that remains in respect to the current SRSP is the need to ensure commitments by Member States to use technical support to implement reforms. This applies not only to the euro-area Member States, but also to non-euro-area Member States seeking to adopt the euro. 2.1.3.ESIF investments continue in their present form In the absence of targeted financial support for Member States, the ESIFs would continue to provide financing for the investment components of some structural reforms. In addition, the ESIF would continue to provide encouragement to some reforms, notably through the application of ex-ante conditionalities. Whilst progress has been made in establishing a closer link between the European Semester and the ESIF through ex-ante conditionalities and macroeconomic governance, in practice, the impact on the framework conditions under which economic agents operate has been rather limited and it is also highly likely that important limitations will persist under the next MFF: ·The ESIF can finance the investment project-related components of structural reforms in the ESIF policy areas and thereby provide accompanying measures for the implementation of reforms. However, while those actions are instrumental for achieving the cohesion policy objectives, they are however not sufficient to address the obstacles to a more rapid implementation of structural reforms; ·The ESIF are not well-suited for incentivising reforms, notably those that are largely regulatory (legislative) in nature, reforms that require a complex mix of policy actions and legislation, improvements in the governance of institutions and systems, and reforms that entail high short-term political costs; ·The annual character of the European Semester process is not easily applicable to the ESIF given their scope and multi-annual implementation cycle; ·Some reform areas are not covered by the ESIF's ex-ante conditionalities. These include, in particular, reforms of a regulatory/legislative nature, which may or may not have a direct link to ESIF investments but are covered by CSRs. Among such reforms, many may have important spillover effects within the EMU; ·The process inherent to the definition of applicable ex-ante conditionalities in the context of the ESIF operational programmes is limited in terms of efficiency, due to a lack of measurable targets and the limitations of the ESIF legal framework in terms of securing implementation over time; ·Macroeconomic conditionalities are difficult to use as they can lead to a halt in investment if the suspension mechanism is triggered. More fundamentally, the objectives of the ESIF are very different from those of the proposed Reform Support Programme. Article 4 (2) of the new Common Provisions Regulation defines the goals of the ESIF as follows: The ERDF, the ESF+ and the Cohesion Fund shall contribute to the actions of the Union leading to strengthening of its economic, social and territorial cohesion in accordance with Article 174 TFEU by pursuing the following goals: i) Investment for growth and jobs in Member States and regions, to be supported by the ERDF, the ESF+ and the Cohesion Fund; and ii) European territorial cooperation (Interreg), to be supported by the ERDF.

The proposed Reform Support Programme will be fully complementary to the goals of the ESIF. Whereas the Reform Support Programme is concerned with support for the creation of the right regulatory and institutional framework conditions, the primary goal of the ESIF is investments. In support of its primary objective, the ESIF can provide support for capacity building and some sectoral reforms, but only to the extent that those reforms are necessary for the fulfilment of the objectives of the Funds. Such support should always be complementary to and well-coordinated with technical and financial support provided under the Reform Support Programme. To this end, the Commission will further strengthen the coordination mechanism that was created at the time of the launch of the Structural Reform Support Programme. Figure 2: The EU budget and the Economic and Monetary Union 2.1.4.No targeted support for non-euro-area Member States Under the baseline, ongoing Commission's programmes would continue in the post-2020 period in its current form. There would be no instrument to provide specific and targeted support to non-euro-area Member States wishing to join the euro area, which could accelerate the process of convergence in those countries and have positive spillovers on the euro area. 2.1.5.Conclusions as regards the no-policy-change scenario In the absence of a Reform Support Programme, the Commission would have insufficient instruments to facilitate and promote the needed structural and administrative reforms in the EU Member States. Without this proposal, the SRSP would stop at the end of this MFF period, leaving a gap in the provision of technical support for the identification, design and implementation of structural reforms. Even a continuation of the technical support at the current level would fall far short of actual needs. Whereas the ESIF could provide some incentives for reforms, it should be acknowledged that the goals and intervention logic of the ESIF are geared toward investment rather than reform. The reform delivery tool would provide additional financial incentives for Member States to pursue reforms and ensure that tensions that may arise as a result of conflicting policy goals within one instrument are avoided (see also the comment in section 1.2.2. on the so-called Tinbergen rule). The experience of the euro-area crisis has demonstrated that it is of paramount importance that Member States make the necessary reforms before adopting the euro. Whereas this is primarily the responsibility of the Member States concerned, the additional support is warranted given the common interest throughout the EU in a well-functioning Economic and Monetary Union. 2.2.Challenges for the Programme of the next MFF - problem definition Structural reforms are needed to enhance cohesion and competitiveness, raise productivity, and encourage growth and employment. Europe’s economy is growing at its fastest pace in a decade, supported by record high employment, recovering investment and improved public finances. The current favourable EU-wide economic situation provides a window of opportunity to put in place much needed reforms. However, even with the instruments at the disposal of the European Commission, the implementation of reforms has been advancing slowly and unevenly across Member States both inside and outside the euro area, leading to negative impacts on cohesion, convergence and resilience of the economies of the EU Member States and therefore of the Union as a whole. 2.2.1.Slow and uneven implementation of structural reforms Even with the European Semester process and support through the ESIF and the SRSP, progress towards more competitive economic structures and improved institutional capacity has slowed down in the recent years. This could potentially have adverse effects on growth and competitiveness in the euro area and the EU as a whole. Experience with the European Semester has confirmed that the implementation of reforms needed to address the CSRs has so far been uneven across Member States. Even though reform implementation has increased slightly overall compared to May 2017, reforms often take longer to implement than anticipated. From a multiannual perspective, the latest Commission assessment of the progress in the implementation of structural reforms indicates that Member States have made most progress in financial services, fiscal policy and fiscal governance. This continues to reflect the priority that was given to the stabilisation of public finances and of the financial sector, following the economic and financial crises. Significant progress has also been made in addressing access to finance, employment protection legislation and frameworks for labour contracts. However, more modest progress has been made in areas like broadening tax bases or in the field of transport. In many Member States, progress has been slow in addressing the important challenges related to the long-term sustainability of public finances, including pension systems. Regulatory reforms have improved the business environment especially in those Member States that needed them most. These reforms have reduced administrative barriers to the creation of new business. However, entrepreneurship remains weak in many Member States. Access to bank credit and loans have improved for SMEs but availability of venture capital is still insufficient in many parts of the Union. Significant progress can also be reported in public procurement. The pace of reform in services markets is slow, in particular in business services, construction and real estate. Analyses based on CeSaR database confirm that reform implementation often takes longer than expected given that the CSRs are proposed and repeated across the years (see Figure 2 below). Overall, the implementation of structural reforms has decelerated following the reform impetus at the peak of the financial crisis as the aftermath of the economic and financial crisis may be characterised by a certain quest for stability and reform fatigue. Possible specific drivers of the problem of low/suboptimal implementation of reforms are discussed in the following section. Figure 3: CSR implementation comparing the annual and multiannual perspectives Source: Commission internal data source 2.2.2.Slow and uneven implementation of structural reforms in non-euro-area Member States, which have taken demonstrable steps towards adopting the single currency within a given time-frame

Limited progress with the implementation of structural reforms can undermine the efficient and smooth adjustment of economies to shocks, weaken the economic resilience of Member States in the face of shocks and delay economic and social convergence among Member States. This applies to both euro-area and non-euro-area Member States. Analyses based on the CeSaR database confirm that reform implementation often takes longer than expected also for non-euro-area Member States, which are obliged by the Treaties to join the euro area (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Sweden) (see Figure 3 below). On the basis of the latest available data (2017), it seems that implementation of reforms in these 7 non-euro-area Member States is even slower than in the EU as a whole. Figure 4: CSR implementation comparing the annual and multiannual perspectives for 7 non-euro-area Member States Implementation of reforms in prospective euro-area members deserves particular attention. The financial crisis has shown that within the euro area, having resilient economic and social structures, meaning structures that are sufficiently responsive in case of shocks in order to limit economic or social distress, is of particular importance because euro-area Member States cannot use exchange rate and monetary policies as a way of adjusting to country-specific shocks. Due to the strong interconnections between the economies of the EU, insufficient reform efforts outside the euro area cannot be seen as a purely national problem. During the crisis, macroeconomic issues occurring in one Member State had economic and social repercussions in other Member States. Failure to address reform before euro adoption may have an adverse effects on the smooth functioning of the euro area as a whole. 2.3.Drivers of the problem Lack of administrative capacity, short-term political cost of reforms, and lack of political ownership have been identified as the main drivers of the suboptimal implementation of structural reforms. These drivers apply to both euro-area and non-euro-area Member States and they constitute challenges for action at EU level. 2.3.1.Uneven administrative and institutional capacity for implementing structural reforms Effective reforms require more than just passing legislation. Reforms need to be well-designed and carefully planned and they also require effective and efficient implementation. Having well-functioning and competent administrations is crucial for Member States to be able to implement reforms. Institutions and well-functioning administrations play a fundamental role in setting the right incentives, lowering uncertainty and paving the way for prosperity in the long run. Weaknesses in the functioning of public administration can create obstacles for the functioning of the internal market, for investment at regional and local levels, and for innovation. Finally, some recent reports demonstrate that a weak government can undermine the wider human capital through waste of public resources, stimulation of emigration, and limited investments in education and innovation. Assessments show that serious differences in quality and capacity of public administration remain, with many Southern and Eastern European countries still demonstrating important weaknesses. New divergent trends are expected to emerge due to slow adaptation to technological change, low civic engagement and limited evidence-based policy-making practices. Lagging compliance with Single Market legislation in some countries is also a cause for concern. In many Member States, prolonged and intensive administrative restructuring has led to general reform fatigue; for example, Member States that joined the EU after 2004 carried out substantial administrative reforms as part of their preparation for EU membership. Several years after accession, however, the reform momentum was lost. To date, despite the significant investment provided through EU funding under the ESIF and the support provided under the current SRSP, many aspects of administrative adjustment remain fragile and fragmented. Sustainability can often be compromised by a lack of political consensus, a failure to tackle political divisions, or weak, unstable core government institutions. Member States often lack practical advice on the implementation of reforms, which is often available in other Member States having faced similar reform challenges. 2.3.2.Short-term economic, social and political costs of reforms While structural reforms are designed to boost an economy's competitiveness, potential growth and economic and social resilience, their benefits often materialise only over the long term, while their economic, social and political costs are often incurred in the short term. In particular, the redistributive effect of a number of reforms and their impact on certain economic or social actors can increase the difficulty of implementing reforms and lead to the need for transitional and/or compensatory measures. These measures have a cost, which can be a barrier to reforms. National governments might therefore refrain from embarking on the implementation of some reforms. For example, in the case of skill-enhancing reforms in general, and for education and training reforms in particular, reform implementation is characterised by short-term reform costs, while most benefits and outcomes will materialize over the long term; this is not well-aligned with the political cycle. While the EU is able to provide technical support to kick start the process of reform and contribute to investment costs through the ESIF, in the current setting, there are no instruments which provide incentives for the implementation of structural reforms. 2.3.3.Lack of ownership and commitment of national governments Implementation of structural reform can be also hindered by the lack political commitment to reforms at national level. This can be linked to the time horizon of governments (i.e. linked to the electoral cycle), which is often too short to be able capitalise politically on the long-term benefits of reforms. In this context, the short-term economic or political costs of structural reforms can be considered too high. Delays in reform implementation can also be related to changing political priorities and/or change of government, with both outgoing and new governments taking more time to execute or initiate recommended reforms, and also with changes in government sometimes leading to reform reversals. Peer pressure seems to be lacking between Member States, despite increased thematic discussions on reform implementation at the EU level and despite the recent acknowledgement that insufficient attention is given to positive spillovers between Member States. Political-economic trade-offs may have tilted the balance against initiating new reforms as the economic recovery continued to gather momentum. Far-reaching reforms require time to prepare, to implement, and to involve stakeholders in line with national practices. Therefore, they often take place more incrementally and over a longer period of time. In this respect, better incentives could accelerate reform implementation, including by enabling suitable reform packaging and reform sequencing and by supporting flanking measures if necessary. This would allow for the creation of short-term political benefits to counterbalance the long-term character of economic benefits. 2.4.Main conclusions on the challenges Results of evaluations have shown that even though the ESIF can finance some actions related to the reforms (investments accompanying reforms), they do not cover all types of reforms, nor do they promote the design and implementation of structural reforms in their entirety. While the evaluation of provision of technical support prior to the adoption of the SRSP has confirmed the need for a permanent structure with a dedicated budget to support the preparation, design and implementation of reforms in EU Member States, the analysis of instruments for the implementation of reforms currently at Commission's disposal has shown that the current framework is not sufficient to tackle the drivers of the slow and uneven reform implementation outlined above. The challenge that remains in respect to the current SRSP is the need to ensure the commitment of Member States to use technical support to implement reforms. This applies not only to the euro-area Member States, but also to non-euro-area Member States on their way to joining the euro. To tackle these challenges, on 2 May 2018, the Commission confirmed its intention to propose a targeted instrument providing financial support for the implementation of reforms and a targeted instrument to support the implementation of reforms in non-euro-area Member States. This would enable incentives to be provided to overcome political hesitation towards undertaking reforms, which has multiple causes, some of which are closely related to economic and social, but also political, costs of these reforms. Table 1: Addressing challenges related to the slow/uneven implementation of reforms Challenge The current SRSP Regulation 2017/825 Post-2020 MFF Ensure Member States' commitment to use technical support to implement reforms Not sufficiently addressed Establishment of a reform delivery tool to provide incentives to Member States to implement reforms Uneven administrative capacity to implement reforms The establishment of the SRSP Regulation as a dedicated programme for technical support Continuation of the SRSP Regulation Short-term economic, social and political costs Not sufficiently addressed Establishment of a reform delivery tool (and financial support component of the convergence facility) to provide incentives to Member States to implement reforms Lack of ownership and commitment of national governments Not sufficiently addressed Establishment of a reform delivery tool (and financial support component of the convergence facility) to provide incentives to Member States to implement reforms Targeted support to non-euro-area Member States Amendment of the SRSP Regulation 2017/825 establishing a dedicated work stream providing targeted technical support to non-euro-area Member States Permanent convergence facility providing targeted financial and technical support to non-euro-area Member States

The future reform delivery tool will also need to address a number of challenges identified by the Member States during the workshops on the reform delivery tool (moral hazard, identification of the appropriate reforms, involvement of the European Semester process, etc.). These are detailed in section 4.2 (structure of the Programme) and 4.3 (moral hazard). 2.5.Objectives of the programmes of the next MFF The objectives of the proposed instrument (the Reform Support Programme) are designed to tackle the underlying drivers of the main challenge, the slow and uneven implementation of structural reforms. 2.5.1.General objectives A continued effort is needed to ensure that the EU and its Member States implement structural reforms. Such reforms are needed to remove structural weaknesses and to enable Member States to cope with future challenges facing their economies. The proposal for the post-2020 Reform Support Programme aims to address the factors that hinder the implementation of structural reforms in EU Member States, as identified in the problem definition, while taking into account the lessons learned from previous programmes. In light of this, the general objectives of the programme will be the following: a)contribute to addressing national reform challenges of a structural nature, aiming at improving the performance of the national economies and at promoting resilient economic and social structures in the Member States, thereby contributing to cohesion, competitiveness, productivity, growth and employment; and b)contribute to strengthening the administrative capacity of the Member States in relation to challenges faced by institutions, governance, public administration, and economic and social sectors. 2.5.2.Specific objectives To achieve the general objective, the new Programme will be composed of three separate but complementary instruments. The Programme will aim to ensure the highest efficiency of EU action in supporting the implementation of structural reforms and help to address the drivers of the related challenges facing Member States through the following specific objectives: As regards the technical support instrument (ex-SRSP): ·the Programme shall support the efforts of the national authorities in improving their administrative capacity to design, develop and implement reforms, including through exchange of good practices, appropriate processes and methodologies and a more effective and efficient human resources management. The instrument will address the lack of administrative capacity by assisting national authorities in their endeavours to design and implement reforms on the ground, and by taking into account good practices and lessons learned from peers. The objective is to strengthen the administrative and institutional capacity for implementing structural reforms, which is one of the underlying drivers of the slow implementation of reforms. As regards the reform delivery tool: ·the Programme shall provide Member States with financial incentives with a view to achieving the milestones and targets of the structural reforms as set out in the Member State reform commitments entered into with the Commission. The completion of reform commitments will trigger the release of the financial incentives, which will help overcome political hesitation or reluctance to undertake the reform per se. Financial rewards could be considered by some Member States sufficient for undertaking the reform. In addition, the competition for funds, which the instrument would generate, and the fact that the instrument could help mitigate some of the short-term economic, social and/or political costs associated with the reforms may provide additional incentives and help to stimulate the drivers of reforms. These specific objectives should be pursued in all Member States, including – in the context of the convergence facility – those whose currency is not the euro and which have taken demonstrable steps towards adopting the single currency within a given time-frame. As regards the convergence facility for euro-area membership preparation, the specific objectives are:

·to provide financial incentives to eligible Member States to help them achieve the milestones and targets of reforms, which are relevant for preparation for euro-area participation, as set out in the Member States reform commitments entered into with the Commission, and ·to support the efforts of national authorities of eligible Member States in improving their administrative capacity to design, develop and implement reforms relevant for preparation for euro-area participation, including through exchange of good practices, appropriate processes and methodologies and more effective and efficient human resources management. Figure 5: Intervention logic of the Reform Support Programme ·Technical support instrument addressing the lack of administrative capacity; ·Reform delivery tool addressing short-term costs political costs of reforms and lack of ownership by national governments; ·Convergence facility addressing all three drivers with a specific focus on the implementation of reforms in non-euro-area Member States on their way to joining the euro area. 3.PROGRAMME STRUCTURE AND PRIORITIES The post-2020 Reform Support Programme will provide two different types of support – technical support and financial support in the form of incentives through three coherent and complementary instruments. The support is voluntary and not linked to costs of the reforms. The technical support instrument will continue to provide Member States with on demand, hands-on technical support in a wide range of areas for the preparation, design and implementation of structural reforms. The reform delivery tool will provide an additional financial incentive (financial contributions) to Member States to implement key structural reforms, which strengthen the resilience of their domestic economies and that of the Union as a whole. Participation in the instrument is voluntary. The technical support instrument and the new reform delivery tool will be complementary. Member States will also be able to request technical support for the design and implementation of reforms that fall under the reform delivery tool. While participation in the Programme is voluntary, Member States experiencing excessive imbalances will be particularly encouraged to come forward with reform proposals under the reform delivery tool. The dedicated convergence facility combines technical and financial support to support the implementation of reforms that will help non-euro-area Member States, which wish to adopt the single currency, to acquire resilient economic and social structures to better prepare for their participation in the euro area. The scope of reforms covered under the Reform Support Programme is applicable to all three instruments. It covers a wide range of policy areas (areas related to public financial and asset management, institutional and administrative reform, business environment, labour markets, education and training, sustainable development, public health, social welfare and the financial sector). However, the definition of eligible reforms differs by instrument. The definition of an eligible reform is narrower for the reform delivery tool than for the technical support instrument. The reform delivery tool can only be requested for the implementation of reforms identified in the context of the European Semester (including but not limited to those challenges raised in country-specific recommendations), while the technical support instrument can provide support for reforms undertaken: a)at Member States' own initiatives; b)in the context of economic adjustment programmes for Member States that receive financial assistance under existing programmes; or c)for the implementation of reforms in the context of the economic governance process, in particular CSRs issued under the European Semester, but also for actions related to the implementation of Union law. The conditions for the eligibility of reforms under the convergence facility are similar to those for the two other instruments, provided that the reform commitments and requests for technical support are relevant for the preparation for participation in the euro area. The main reason for this difference in eligibility is the fact that the amounts per action under the reform delivery tool are far bigger than the amounts per action under the technical support instruments. This justifies an additional safeguard to ensure that the most pressing reform needs are addressed with the reform delivery tool. The strong link with the European Semester helps to ensure this. At the same time, a high degree of ownership on the part of the beneficiary Member State will be ensured. For this reason, the proposals for reform commitments will come from the Member States. 3.1.Legal basis, subsidiarity and proportionality

The legal basis for the proposal establishing the Reform Support Programme is the same as for the current SRSP, namely the third paragraph of Article 175 TFEU and Article 197(2) TFEU. The Programme is expected to strengthen the Union's economic, social and territorial cohesion and at the same time to improve Member States’ institutional and administrative capacity in a wider range of policy areas. Subsidiarity In accordance with the principles of subsidiarity, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local levels, but can rather be better achieved at Union level. The principle of subsidiarity is fully respected. The implementation of reforms remains a national competence and the Member States are involved throughout the whole process in the reform delivery tool. Support under the Reform Support Programme is such that it is provided on a voluntary basis, which ensures that the Member State itself decides whether action at EU level is necessary, in light of the possibilities available at national, regional or local level. As mentioned in section 1.1 of the report, the implementation of structural reforms is a matter of common interest for the EU and the euro area, as reforms help to strengthen not only the resilience of the economies concerned but also that of the EU and the euro area as a whole. This is particularly true for the Economic and Monetary Union. The Reform Support Programme, including its three instruments, complies with the principle of subsidiarity in the following way: a) for the technical support instrument (the current SRSP), the Commission benefits from disposing of an EU-wide database of expertise, is in the best place to enable sharing of best practices between Member State; it can create synergies in addressing reform efforts in various Member States and address cross-country challenges. The coordination of the support provided by the Commission ensures comprehensive provision of expertise, sharing of good practices and support at various stages of the reform process; b) for the reform delivery tool, the Commission benefits from comprehensive country-specific knowledge about reform implementation in most EU Member States and has the expertise to determine, together with the Member States, the important reforms that need to be addressed. The agreement on reform packages between the Commission and the Member State (as endorsed in an appropriate implementing act) will enhance national ownership as the proposal will originate in the Member State concerned and will be a "home-grown", country-driven product. This instrument also implies continuous policy dialogue between the Commission and the Member States. The creation of this instrument ensures continuity over the whole of the next programming period, so that Member States can decide on the appropriate time for applying for the support instrument; and c) the convergence facility aims to increase resilience of non-euro-area economies and to foster real convergence. This is crucial for the prosperity of the Union and, in particular, for the smooth transition to and functioning of the euro area. Action at Union level is thus necessary to achieve the objective. Proportionality The proposal complies with the proportionality principle in that it does not go beyond the minimum required in order to achieve the stated objective at European level and what is necessary for that purpose. The assistance to be provided under the three instruments integrated in the Reform Support Programme for the period 2021 to 2027 is to be based on a voluntary request stemming from the Member State itself. The voluntary character of the Programme and the consensual nature of the cooperation throughout the entire process constitute a guarantee of the respect of the proportionality principle. 3.2.Underlying principles behind the objectives of the new MFF proposal The Reform Support Programme post-2020 aims to address the slow, sub-optimal, implementation of national reforms by strengthening the administrative and institutional capacity across Member States and by providing an instrument, which could help short-term costs to be mitigated and political hesitation to be overcome. In addition to the challenges identified above, the proposal for the Reform Support Programme post-2020 is also based on some overarching principles, common to a modern and effective EU budget, to ensure that procedures are simple, that every euro is spent in the most efficient way and that results are quickly felt on the ground. These principles include simplification, European added value and complementarity. Simplification The proposal for the Reform Support Programme post-2020 subscribes to the principle of simplification – the SRSP (i.e. technical support instrument) will continue in its present form with a rather low administrative burden. No new programme will be created, but two new instruments (financial support and convergence support) will be integrated with an existing programme, the SRSP (i.e. technical support) to form a new programme. This structure responds to the feedback received from Member States during the workshops on the pilot reform delivery tool, where Member States pointed to the need for simplification and low administrative burden. European Added Value The new Reform Support Programme will offer a unique combination of instruments to all EU Member States, thus maximising the impact at EU level. Its main added value consists of its voluntary character and promotion of ownership of reforms by the Member States. The reform delivery tool is a direct response to the weak implementation of the structural reforms at national level and to a gap identified in the current system of EU economic governance. While the implementation of structural reforms in Member States remains a national competence, action at EU level will provide an impetus to help to overcome political hesitation to undertake reforms (which could be partly related to financial or political short-term costs). The new Programme also aims to provide concrete financial support for the implementation of reforms identified in the European Semester process, while respecting the principles of subsidiarity. The new post-2020 technical support instrument (the current SRSP) continues to ensure European added value. Many of the structural challenges that Member States are facing cannot be addressed solely through investments or strict technical implementation of a programme, but may require a complex mix of policy actions and legislation, investments and improvements in the governance of institutions and systems. In-depth dialogue between the Commission and the competent national authorities (which could also benefit from peer review and external expertise), may help and encourage Member States in designing and implementing a complex set of reform requirements. The technical support instrument (the current SRSP) has so far proven capable of delivering high added value to Member States, going beyond the simple delivery of technical support at national level. For example, the SRSP:

·Manages to provide rapid and a coherent solutions for Member-State challenges; ·Provides support in a coordinated manner with a Member-State focus, across different policy areas; ·Delivers action at the EU level, which allows cross-border or Union-wide challenges to be addressed, and promotes sharing of good practices. The technical support instrument helps to address national reforms challenges of a structural nature, which may have positive spillover effects on other Member States and may be conducive to growth and employment. Member States often face similar challenges and need to address similar practical challenges related to the implementation of reforms. The technical support instrument will continue to strengthen the administrative capacities of Member States through a Union-wide network of expertise to the benefit of all Member States that request support and will promote mutual trust and further cooperation between Member States and the Commission. The reform delivery tool, open to all Member States, and a convergence Facility, targeted to Member States that have taken demonstrable steps towards adopting the single currency within a given time-frame, will aim at strengthening resilience, enabling positive cross-border effects and/or positive spillover effects for the euro area and Union as a whole. In particular, the convergence facility will bring additional added value by strengthening the resilience of non-euro-area economies on their way to joining the euro area and the resilience of the euro area as a whole. 3.3.Complementarity with other Union programmes The Reform Support Programme provides for complementarity and synergies with other Union programmes and policies at regional, national, Union and international levels, notably by complementing the policy guidance provided under the European Semester and by helping to leverage the use of the ESIF. As mentioned in previous sections (1.2.2 and 2.1.3) the goals and mission of the ESIF are very different from those of the new Reform Support Programme. The mission and goals of the ESIF are not aimed at incentivising structural reforms but at providing financing for investments needed to reach the objectives of the European Structural and Investment Funds. The future reform delivery tool will aim at incentivising structural reforms and thereby improving the framework conditions for investment. If managed well, the ESIF and the Reform Support Programme will be mutually reinforcing. The impact of investments can be greatly enhanced by creating the right framework conditions. At the same time, investments under the ESIF can be supportive of a particular reform (see also Figure 2). The Commission will ensure that the actions proposed for implementation under the Programme are complementary to and do not overlap with other Union programmes and funds (the ESIF in particular). Coordination will continue to be ensured within the internal working arrangements, like the already-existing coordination mechanism involving representatives of the services most concerned. An internal technical support coordination mechanism has been put in place when the SRSS was established in order to ensure the complementarities within the technical support provided by the Commission to Member States under various Union programmes and funds. All relevant Commission services, providing technical support meet on a regular basis in horizontal (High Level Steering Committee and Technical Support Working Group) and country-specific formations. These Technical Support Country Teams are closely linked to the European Semester Country Teams. In the country teams, requests for technical support from Member States are discussed in a more strategic way (e.g. whether they address challenges highlighted in the European Semester process and whether other EU instruments support those challenges). When Member States submit requests for support, all relevant Commission services are consulted extensively on the links of the requests submitted with Commission priorities, the risk of actual overlaps and possible synergies or complementarities that the additional technical support can bring to other Commission programmes and instruments. The opinion of all relevant Commission services is taken into account in the selection of the requests for support. Decisions to provide support to a Member State would, inter alia, take into account the existing actions and measures financed by the Union funds and programmes. Within the coordination mechanism, prior to the approval of individual projects, the SRSS checks with the ESIF Directorate-Generals (DGs) for overlaps and similar verification is also carried out with the Managing Authorities in individual Member States to avoid risks of overlaps. In case overlaps are identified within the coordination mechanism, the Commission has the possibility to indicate this to Member States, which may then wish to reformulate their request for technical support or proposal for reform commitments. For the purpose of simplicity a