EN Official Journal of the European Union C 34/1

Opinion of the European Economic and Social Committee on ‘A performance-based EU budget and its focus on real results: the key to sound financial management’

(own-initiative opinion)

(2017/C 034/01)

Rapporteur: Mr Petr ZAHRADNÍK

Plenary Assembly decision 21/01/2016 Legal basis: Rule 29(2) of the Rules of Procedure Own-initiative opinion Section responsible Section for Economic and Monetary Union and Economic and Social Cohesion Adopted in section 05/10/2016 Adopted at plenary 19/10/2016 Plenary session No 520 Outcome of vote (for/against/abstentions) 139/0/3

1. Conclusions and recommendations

1.1. In the EESC’s view, the EU budget can constitute an essential tool in dealing with the EU’s existing challenges and structural changes. However, there needs to be a thorough analysis and evaluation of where its funds are spent, how they are spent, how the performance of the funds thus spent is evaluated and how the results achieved are communicated (1). If this is done, the EU budget can take on the EU’s key challenges and help to restore the European population’s faith in the EU, as well as reducing its volume in both absolute and relative terms.

1.2. At the same time, a prerequisite for boosting the EU budget’s performance is the establishment of clearly defined priority objectives for the benefit of EU citizens, corresponding aggregated indicators and a robust reporting system with regard to the actual activities financed by the EU budget, which would maximise value for money. Some options could be, for example, ex-ante conditionalities, financial instruments, or flexibility and the capacity to cope with unexpected challenges (2). First and foremost, the quantitative aspect of the EU budget, which the EESC also considers to be so important for defining the essential priorities and their corresponding policies, must also be complemented by its qualitative dimension.

1.3. The EESC endorses an approach that recognises that not only must EU budget expenditure comply with the rules of legality and regularity, but there must also be a targeted and systematic focus on the results and performance the budget delivers in addressing the EU’s priority areas.

1.4. The EESC agrees that adopting performance culture rules in relation to the EU budget requires maintaining close linkage between the scope and nature of expenditure, on the one hand, and a comprehensive set of aggregate performance indicators for measuring results and performance, on the other hand.

1.5. At the same time, the EESC takes the view that such a performance culture is not acquired in a single step, but through a process of development that presupposes both the appropriate legal environment and the selection of tools for encouraging key actors to adopt the desired behaviour. Forthcoming discussions and implementation of a performance-based EU budget must also specify in greater detail its substance.

1.6. The EESC is convinced that a budget conceived in these terms is able to guarantee the delivery of real results and impacts in EU priority areas that bring a clearly quantifiable added value. This means that any discussion of a performance-based EU budget is also a discussion of EU political priorities capable of bringing about the necessary structural changes.

1.7. So far, pilot tests have been carried out that measure what impact the EU budget has on how the priorities and quantified objectives of Europe 2020 are met. The EESC sees this initiative as a step in the right direction, but it needs to be taken forward in a systematic and much more comprehensive manner. Tests have revealed a high degree of inconsistency between the aims envisaged and the corresponding results, as well as numerous examples of inefficient use of EU resources and the accompanying procedural failures.

1.8. The EESC supports further, better and closer integration and linkage — through impact analysis indicators and their interpretation — of the Europe 2020 strategy and the 2014-2020 multiannual financial framework or the EU budgets for the years it covers. At the same time, the question of whether the Europe 2020 strategy does actually continue to target the EU’s real development aims in the second half of this decade needs to be examined.

1.9. The EESC also supports a move to ensure that the partnership agreements and operational programmes can effectively convey the EU’s objectives and priorities into Member State operational objectives, in the form either of improvements in shared management or of procedural improvements in the programmes managed directly by the European Commission in the Member States.

1.10. The EESC recommends encouraging Member States to ensure that their partnership agreements and operational programmes include a comparable set of quantifiable results that can be achieved with support from the EU budget and can be subsequently evaluated. All partnership agreements and programmes should include common result indicators on a cross-cutting/horizontal basis, clearly identifying the contribution of each fund and the ESIF as a whole, and designed so as to enable monitoring of progress at the level of the EU, the Member States and their various regions.

1.11. The EESC views the forthcoming mid-term revision of the 2014-2020 multiannual financial framework as an opportunity for greater deployment of a performance and results-oriented approach, which should then be fully evident in the shape of the multiannual financial framework starting in 2021.

1.12. The EESC believes that the post-2020 multiannual financial framework should act, together with a new competitiveness and development strategy and the social rights pillar currently in preparation, as a crucial medium-term strategic platform (with the same time-scale as the competitiveness strategy), with the structure and weighting of individual expenditure items adjusted to real-life needs and priorities. At the same time, it should allow for greater flexibility in addressing newly emerging needs. The EESC would also welcome an amendment to the method of handling EU budgetary resources, with the aim of achieving greater effectiveness via the wider use of repayable instruments and seeking complementarity with subsidy funds. In addition, there is still significant scope for improvement in the methods of assessing the EU budget and its effectiveness. Budgetary flexibility is an essential parameter from the point of view of the EU budget’s ability to respond to new initiatives, threats and opportunities, as well as maintaining the EU’s ability to take action (examples include the migration crisis, the need to manage economic shocks or changes to the number of EU members and the resulting effect on budget flows, and an adequate resource base for solidarity funds in the event of natural disasters). This not only concerns the volume and structure of EU budget expenditure, but also the revenue side.

1.13. The EESC recommends that identifying the corresponding EU budget revenues and their composition (finding a balanced link, based on solidarity, between Member State contributions and own budgetary resources) should also be reflected in EU budgetary policy after 2020.

1.14. The EESC agrees with further expanding the options for an active fiscal policy, such as the possibility of issuing EU bonds. To that end, the fiscal framework and procedures of the EU budget should ideally be improved, and the issue of the scope of EU fiscal policy in Eurozone countries, on the one hand, and other EU Member States, on the other, should be satisfactorily resolved.

2. Analysis and description of the problem

2.1. Basic facts

2.1.1. The EU budget constitutes a major and key tool for financing the EU’s priorities, accounting for approximately 1 % of EU GDP, and amounting to EUR 145,3 billion in 2015. The EU budget plays a fairly significant role in underpinning economic policies in individual Member States, accounting for an average 1,9 % of their public expenditure, and considerably more than 10 % in some cases.

2.2. Introduction to the issue

2.2.1. Given the volume of funds involved, it is important to make sure they are allocated not only legally and regularly, but also, while respecting these rules, in such a way as to above all achieve the aims and corresponding results and to comply with the principles of sound financial management and a performance culture. Identifying the real effects of the EU budget, as measured by relevant macroeconomic indicators and benchmarks, is an issue that today features in all political thinking about EU budget policy.

An effective budget means properly matching EU budget expenditure with the EU’s real priorities for the period in question. A performance culture is based on three pillars: strategy, simplification and budget procedure.

2.2.2. The EU budget and how it is used should adhere to the following priorities: — adopting an improved, performance-based and result-oriented approach, balancing the traditional view of compliance with rules (legality and regularity) with the adoption of new elements reflecting the current and future needs (see below) of EU finances; — a sharper focus on performance and results presupposes improvements in working with data, and the accessibility and availability of data in the form needed for assessing the real benefits — the assumption being that the impact of this outweighs the additional costs; — evaluating the quality of the regulatory framework for allocating the EU budget; — given what kind of things the EU budget supports, it is essential to view its development not from the perspective of a single isolated year, but as a continuous medium-term process in which individual years represent a development trajectory that is required to secure the results involved; — respecting the very close link between the EU budget and the new model of EU economic policy (3) and the EU’s current economic performance over the medium term; — the need for continuity in EU budget policy and the implementation and evaluation of its goals.

2.2.3. The EU budget includes some new elements related to the working of the 2014-2020 multiannual financial framework which are relevant from the perspective of a more performance-based and results-driven approach: a) thematic concentration: support from EU funds should go only to priority areas and should not be focused on just anything at all; the priorities must be clearly defined and supported by quantitative analysis and feasibility plans; the amount of priorities must be strictly limited; the justified priorities must be covered by sufficient financing to achieve real results and benefits; b) integrated and place-based approach and synergies: programmes and projects should not only yield results and benefits in themselves, but these results and benefits should mesh with those of other programmes and projects through synergies; synergies should be achieved within territorial units defined on the basis of the subsidiarity principle; for this system to work, it is important to create a management matrix to ensure appropriate conditions for integrated projects; c) conditionalities and performance reserves: the principles of sound financial management assume that EU funding is carried out under appropriate national, macroeconomic and institutional conditions that constitute a prerequisite for carrying out allocation as such; on the other hand, a performance reserve is introduced as a bonus for those that perform well; d) simplification: the EU funding system is extremely complex in all manner of ways, which makes it difficult to manage effectively and to measure its real results and benefits; e) better quantified results: it is very important to properly measure the results actually achieved and to be able to draw clear and accurate lessons from the findings with a view to setting and adapting fiscal policy; to this end, it is essential to improve the data analysis system and its management and how indicators are used.

2.2.4. The aim here is for the EU to ensure that its fiscal policy and the practical operation of its budget are better aligned with its needs by establishing a more meaningful balance between the formal and procedural sides of EU budget expenditure, on the one hand, and performance-based and results-driven approaches, on the other hand. A common perception and a common understanding of this concept are also extremely necessary with regard to performance and results.

2.2.5. Non-compliance with formal rules has long been measured by the error rate indicator. This hovers around the 4 % level (i.e. about 4 % of the EU budget is not spent in accordance with the formal rules; while this is not a bad result, it nevertheless amounts to around EUR 6 billion in absolute terms). The table below tracks the overall error rate in recent years: 2011 2012 2013 2014 3,9 % 4,8 % 4,7 % 4,4 %

2.2.6. The key principle for the EU budget is the soundness of financial flows and the actual programmes and projects funded by them, which makes it possible to gauge whether optimal use is being made of every aspect of EU resources. The EESC agrees with the current trend towards greater emphasis on performance and results, as demonstrated by the work of the European Commission (Budget Focused on Results Initiative (4)) and the European Court of Auditors (the structure of its annual report for 2014 (5) and the special chapter on performance; the passages on shared management include the initial results of the performance evaluation programme carried out as a pilot exercise).

2.2.7. The EESC supports the approach adopted during the pilot test, which is aimed at analysing the relationship and interconnection between the 2020 strategy and partnership agreements (or operational programmes), since these are key tools for implementing EU cohesion policy, itself an important component of EU budget expenditure. This test can be regarded as the germ of a comprehensive approach to evaluating the performance and results of the EU budget (6).

2.2.8. It is vital to have a process for handling, managing and sharing data and information between bodies and institutions of the EU (mainly the European Commission) and Member States if we are to achieve a rounded monitoring of the formal and performance-related characteristics of the EU budget. The process of EU budget expenditure generates huge amounts of data and information, but this is little used in practice to ensure an objective evaluation of both the error rate and, in particular, the actual results achieved by the EU budget, and establishing procedures to improve the situation.

3. Key comments

3.1. The EESC takes the view that the main purpose of the EU budget is to benefit the people of the EU while protecting the financial interests of the EU itself; the benefits take the form of support provided in line with development and operational priorities and which is compatible with the economic policy framework and actual and expected economic performance; protecting the EU’s financial interests means using its budget appropriately in accordance with the rules and without errors or fraud. The current policy approach should help to achieve full compliance and a balance between these factors.

3.2. The EESC believes that the switch to a performance-driven EU budget cannot be achieved in one go. It is crucial that the basic legal standards and objectives of the EU budget are designed with the intention of respecting quality indicators and achieving measurable results.

3.3. A performance-driven EU budget would also be helped considerably if the budget period (the current seven-year financial framework) and that of the EU’s key development strategy (the current ten-year Europe 2020 strategy) could be made to coincide. From this perspective, 2021 will offer a unique opportunity to actually achieve this and create the conditions for optimal operation of a performance-based and results-driven EU budget.

3.4. The EESC notes and respects the findings of the European Court of Auditors’ annual report for 2014, which revealed a number of problem areas where the link between the Europe 2020 strategy and partnership agreements or operational programmes does not work as well as it might. This report states that the various tools are not designed in a way that would enable the policy objectives of the Europe 2020 strategy to be systematically translated into practical operational objectives (defined by partnership agreements and operational programmes) (7).

3.5. The EESC takes the view that the potential benefits of achieving synergies between the five European structural and investment funds (ESIF) under one regulatory and management framework and the partnership agreement in each Member State have so far not materialised, while the practice of different rules applying to individual funds continues. This leads to the fragmentation of programming (rather than the necessary achievement of synergies between them).

3.6. In the EESC’s view, considerable scope for improving the performance-based and results-driven approach is offered by the existence of two new elements in the use of EU funds in the 2014-2020 period, namely conditionalities and performance reserves. It is precisely the application of macroeconomic conditionalities that should ensure that EU budget expenditure is allocated in Member States in an adequately sound macroeconomic environment, so that those that do not make efforts to remedy their macroeconomic problems are unable to make full use of these funds. The existence of the performance reserve should also adequately motivate Member States to work towards fulfilling the EU’s strategic objectives, supported by the EU budget.

3.7. The EESC believes that the pilot to test the performance-based and results-driven EU budget through links to the Europe 2020 strategy priorities should go further by adding other relevant areas to make the evaluation of such a budget truly coherent and comprehensive — attention should be paid, for instance, to the country-specific recommendations (CSRs) and their consistency with indicators based on the implementation of the European semester.

3.8. When considering the way that the EU budget operates, the EESC recommends that consideration be given to the notion of market failure, the eradication of which should be a target for EU budgetary resources; signs of market imperfections or failures can include, for example, information asymmetry or financial institutions making a commercial evaluation of return on investment that discourages financing for certain types of projects because it ignores positive externalities and wider social benefits since these are not relevant to the commercial case in question, though they are important in terms of the support given under EU funding.

3.9. The EESC agrees with the need for fundamental improvements in the areas of shared management between EU bodies and institutions (mainly the European Commission) and Member States. 76 % of all EU budget expenditure is allocated via shared management. The more Member States meet the quantified objectives of the Europe 2020 strategy, the more the EU budget will be linked to the strategy’s objectives and the better these objectives reflect the real economic, social, territorial and environmental needs of the EU, the more favourable will be the sound financial management environment we create for a seamless connection between the European Commission and the Member States.

3.10. The EESC believes that a significant indication of the increasing importance of a performance-based and results-driven EU budget is the emphasis on greater use of financial engineering instruments (FEI) — i.e. innovative financial instruments whose very essence fundamentally alters the way public resources are used in the EU and what is expected of them. Despite the undoubted potential of FEIs, only about 65 % of these funds reached final beneficiaries over the 2007-2013 period (the remaining funds were only ‘parked’ in FEIs so their use could be formally documented). The importance of this issue will increase still further after 2020, not least in connection with the need for greater complementarity with the European Fund for Strategic Investments (EFSI). This is a key strategic consideration with regard to the focus on joint EU budgetary funds from 2021 onwards.

3.11. At the same time, the EESC feels that a sharper focus on performance and results does not mean paying less attention to the legality and regularity of procedures. The importance of compliance with legal and procedural rules must not be sidelined. Given that there is a rate of error in all cases where funds should not have been released because they were not used in accordance with the rules, it is somehow automatically assumed that these rules are correct and free from internal inconsistencies or undesirable elements. This is one reason why a procedure that obeys the rules of sound financial management should include a verification of the impact of these regulations in order to test their compatibility and consistency with EU needs and objectives (8).

3.12. The EESC agrees that the practical procedures involved in EU budget expenditure are highly complex. The efforts currently being made to simplify all activities associated with the EU budget, which apply both to procedural matters and to matters of substance, also help to satisfy the requirement of sound financial management; these simplification efforts should bring about a reduction in the excessive administrative burden and limit the practice of gold-plating in individual Member States.

3.13. The EESC believes that the proposals referred to in section 1 of this opinion, leading to final conclusions and recommendations (section 1), are key elements of the considerations regarding the EU’s future budgetary policy. They can be partially applied in relation to the mid-term revision process of the 2014-2020 multiannual financial plan, but will only be fully reflected in the budgetary rules from 2021 onwards. The conceptual framework for forward planning and reform needs in relation to the budget and multiannual financial framework after 2020 can draw on — or build on — recent EESC opinions (9).

Brussels, 19 October 2016. The Presidentof the European Economic and Social Committee Georges DASSIS

(1) Georgieva Kristalina, European Commission Vice-President for the Budget and Human Resources, ‘EU Budget Focused on Results’ website.

(2) See analysis: point 2.2.3.

(3) The Europe 2020 strategy, the European semester, the six-pack, the two-pack and country-specific recommendations (CSRs), among others; one approach might be close links to country-specific recommendations as a benchmark for efficient allocation of the EU budget.

(4) The initiative was announced by European Commission Vice-President for the Budget and Human Resources Kristalina Georgieva at a conference on 22 September 2015.

(5) The annual report was published on 10 November 2015.

(6) Several resolutions of the European Parliament in the period 2013-2015 followed took a similar line, but focused on specific topics (see the Geier and Gräßle reports); the comprehensive focus on the subject in the documents of the European Parliament can be seen in the European Commission’s Discharge for 2014 and the Dlabajová report (2016).

(7) See, for example, paragraphs 3.10 to 3.12 of the European Court of Auditors 2014 Annual Report.

(8) This could be done, for example, using Regulatory Impact Assessment (RIA), which is a very effective tool for achieving genuinely sound financial management.

(9) For example EESC opinions: ‘The EU Budget Review’ (2011) (OJ C 248, 25.8.2011, p. 75), ‘2014-2020 Budget’ (2012) (OJ C 229, 31.7.2012, p. 32), ‘Completing EMU/Taxation’ (2014) (OJ C 230, 14.7.2015, p. 24), ‘Economic Governance Review’ (2015) (OJ C 268, 14.8.2015, p. 33), ‘Completing EMU — the next European legislature’ (2012) (OJ C 451, 16.12.2014, p. 10), ‘Completing EMU: The political pillar’ (2015) (OJ C 332, 8.10.2015, p. 8), ‘GDP and beyond/complementary indicators’ (2012) (OJ C 181, 21.6.2012, p. 14), ‘Financial transactions tax’ (2012) (OJ C 181, 21.6.2012, p. 55), ‘Financial transaction tax — enhanced cooperation’ (2013) (OJ C 271, 19.9.2013, p. 36), ‘Programme 2014-2020 (FISCUS)’ (2012) (OJ C 143, 22.5.2012, p. 48).