Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Regulation (EC) No 1698/2005 as regards certain provisions relating to financial management for certain Members States experiencing or threatened with serious difficulties with respect to their financial stability
Date: 2011-08-01
Institutions: European Commission
Subjects: EU Member State, balance of payments assistance, development plan, economic recession, economic stabilisation, financial management, rural development

EUROPEAN COMMISSION 

Brussels, 1.8.2011 
COM(2011) 481 final 

2011/0209 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Council Regulation (EC) No 1698/2005 as regards certain provisions relating 
to financial management for certain Members States experiencing or threatened with 
serious difficulties with respect to their financial stability 

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

BACKGROUND TO THE PROPOSAL 

•  Reasons and objectives for the proposal 

The  sustained  financial  and  economic  crisis  is  increasing  the  pressure  on  national 
financial  resources,  as  Member  States  are  reducing  their  budgets.  In  this  context 
ensuring a smooth implementation of rural development programmes is of particular 
importance as a tool for providing financial assistance to the real economy.  

Nonetheless, the implementation of the programmes is often challenging as a result 
of  the  liquidity  problems  resulting  from  budget  constraints.  This  is  particularly  the 
case for those Member States which have been most affected by the crisis and have 
received  financial  assistance  under  a  programme  from  the  Balance  of  Payments 
(BoP)  mechanism  for  non  EURO  countries  or  from  the  European  Financial 
Stabilisation  Mechanism  (EFSM)  for  the  EURO  countries.  To  date,  six  countries 
have requested financial assistance under these mechanisms and have agreed with the 
Commission  a  macro-economic  adjustment  programme.  Hungary  has  received 
financial  assistance  from  2009  but  has  exited  the  support  mechanism  in  2010.  The 
remaining  five  countries  are  Romania  and  Latvia  under  the  BoP  and  Portugal, 
Greece, and Ireland under the EFSM, hereafter called "programme countries. 

In  order  to  help  these  Member  States  to  continue  the  implementation  of  the 
programmes  on  the  ground  and  disburse  funds  to  projects,  the  current  proposal 
contains  provisions  that  allow  the  EAFRD  contribution  rate  applicable  to  the  rural 
development programmes of these MS to be increased up to a maximum of 95% of 
eligible public expenditure in the regions eligible under the Convergence objective, 
the  outermost  regions  and  the  smaller  Aegean  Islands  and  85%  of  eligible  public 
expenditure in other regions as long as they are under the support mechanisms. This 
will  provide  additional  financial  resources  to  the  Member  States  and  will  facilitate 
the continuation of the implementation of the programmes on the ground.  

•  General context 

The  deepening  of  the financial  crisis  in some of the Member States is undoubtedly 
affecting substantially the real economy due to the amount of debt and the difficulties 
encountered by the Governments to borrow money from the market. 

The  Commission has been  very active  in putting  forward  proposals on how best to 
react  to  the  current  financial  crisis  and  to  its  socio-economic  consequences.  In 
particular  in  the  framework  of  its  recovery  package,  the  Commission  proposed  in 
December 2008 a number of regulatory changes to increase the EAFRD contribution 
rate  applicable  to  the  expenditure  incurred  by  the  rural  development  programmes 
within  the  year  2009.  Greece,  Latvia  and  Hungary  among  the  countries  above 
indicated, benefited of this facility.  

•  Provisions in force in the policy sphere of the proposal 

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Council  Regulation  (CE)  No  1698/2005  on  support  for  rural  development  by  the 
European  agriculture  Fund  for  Rural  Development  (EAFRD)  defines  the  common 
rules applicable to the programming process as well as arrangements for programme 
management, monitoring, and evaluation of projects. 

Rural development programmes shall be re-examined and adapted for the remainder 
of  the  programming  period,  in  case  this  would  be  neccesary  to  ensure  consistency 
with  the  Community  strategic  guidelines,  the  national  strategy  plan  and  Regulation 
(CE) No 1698/2005, in line with Articles 18 and 19 of that Regulation.  

Article  26(1)  of  Council  Regulation  (EC)  1290/2005  provides  that  the  interim 
payments shall be calculated by applying the co-financing rate for each priority to the 
certified public expenditure pertaining to it.  

•  Consistency with other policies and objectives of the Union 

Not applicable. 

2. 

CONSULTATION OF INTEREST PARTIES AND IMPACT ANALYSIS 

•  Consultation of interested parties 

The  proposal  is  consistent  with  other  proposals  and  intitiatives  adopted  by  the 
European Commission as a response to the financial crisis . 

•  Procurement and use of expertise 

Use of external expertise has not been necessary. 

•  Impact analysis 

The  proposal  will  allow  the  Commission  to  approve  higher  EAFRD  contribution 
rates  for  the  countries  concerned,  for  as  long  as  they  are  under  the  support 
mechanisms.  

There  is  no  need  for  an  additional  budget  as  the  total  financial  allocation  from  the 
Funds for the countries and the programmes over the 2007-2013 programming period 
will not change.  

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposal 

•  It  is  proposed  to  modify  article  70  of  Council  Regulation  1698/2005  in  order  to 
allow  the  EAFRD  contribution  rate  applicable  to  the  rural  development 
programmes  of  the  MS  concerned  to  be  increased  up  to  95%  of  eligible  public 
expenditure in the regions eligible under the Convergence objective, the outermost 

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regions and the smaller Aegean Islands and 85% of eligible public expenditure in 
other regions, for as long as they are under the support mechanisms. 

Following the adoption of a Council decision granting assistance to a Member State 
under the support mechanisms, the MS will submit to the Commission a proposal of 
modification  of  its  rural  development  programme  increasing  the  EAFRD  co-
financing rates. Payments submitted after approval of this modification will benefit 
of  the  higher  support.  This  will  be  a  temporary  measure  which  will  be  terminated 
once the Member State exits the support mechanism.  

In  accordance  with  the  general  principles  applicable  under  Regulation  (EC)  No 
1698/2005, the increased co-financing rates may only apply for payments to be made 
after  the  respective  rural  development  programmes,  including  the  new  financial 
plans, have been approved by the Commission. 

•  Legal basis 

Council Regulation (CE) No 1698/2005 of 20 September 2005 on support for rural 
development  by  the  European  agriculture  Fund  for  Rural  Development  (EAFRD) 
defines  the  common  rules  applicable  to  the  programming  process  as  well  as 
arrangements  for  programme  management,  monitoring,  and  evaluation  of  projects. 
The proposal to modify Regulation (CE) No 1698/2005 should be based on Articles 
42 and 43 of the Treaty on the Functioning of the European Union. 

•  Subsidiarity principle 

The proposal complies within the subsidiarity principle to the extent that it seeks to 
provide  increased  support  through  the  EAFRD  for  certain  Member  States  which 
experience  serious  difficulties  or  are  threatened  with  such  difficulties  notably  with 
problems in their economic growth and financial stability and with a deterioration in 
their  deficit  and  debt  position,  also  due  to  the  international  economic  and  financial 
environment. In this context, it is necessary to establish at the European Union level 
a  temporary  mechanism  which  allows  the  European  Commission  to  reimburse 
certified expenditure under the EAFRD, using a higher co-financing rate.  

•  Proportionality principle 

The proposal conforms to the proportionality principle: 

The  current  proposal  is  indeed  proportionate  since  it  goes  a  long  way  in  providing 
increased support from the EAFRD to the Member States in difficulties or threatened 
with severe difficulties caused by exceptional occurrences going beyond its control 
and falling under the conditions of Council Regulation (EU) 407/2010 (establishing 
the  European  financial  stabilization  mechanism),  or  in  difficulties  or  seriously 
threatened with difficulties as regards its balance of payments and falling under the 
conditions  of  Council  Regulation  (EC)  332/2002.  For  Greece,  the  Inter-creditor 
Agreement  concluded  together  with  the  Euro  Area  Loan  Facility  Act  entered  into 
force  on  11  May  2010.  It  foresees  that  the  availability  period  would  expire  on  the 
third anniversary of the date of the agreement. 

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•  Choice of instruments 

Proposed instrument: regulation. 

Other instruments would not be appropriate for the following reasons: 

The  Commission  has  explored  the  scope  for  manoeuvre  provided  by  the  legal 
framework  and  considers  necessary,  in  the  light  of  the  experience  up  to  now,  to 
propose  modifications  to  the  Council  Regulation  1698/2005.  The  objective  of  this 
revision is to further facilitate the co-financing of projects thereby accelerating both 
their implementation and the impact of such investments on the real economy. 

4. 

BUDGETARY IMPACT 

There is no impact on commitment appropriations since no modification is proposed 
to  the  maximum  amounts  of  EAFRD  financing  provided  for  in  the  Operational 
Programmes for the programming period 2007-2013. For the period in question, the 
Commission will be reimbursing certified expenditure at a higher co-financing rate. 
This  will  immediately  translate  in  additional  payments  to  the  Member  States 
concerned for the expenditure declared to the Commission from the date of entry into 
force  of  this  Regulation,  following  the  revision  of  the  rural  development 
programmes.  

On  the  basis  of  the  forecasts  of  expenditure  sent  to  the  Commission  to  date  by  the 
Member States concerned, an additional EUR 90 million from the 2011 budget if the 
proposal is approved in time, and EUR 470 million from the 2012 budget might be 
necessary to be paid out in case the Member States decide to use the maximum co-
finance rate allowed. 

In  the  light  of  Member  State's  request  to  benefit  from  the  action  and  taking  into 
account  the  evolution  in  regard  to  the  submission  of  interim  payments,  the 
Commission will in 2012 review the need for additional payment appropriations and 
if necessary propose the relevant actions to the Budgetary Authority. 

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2011/0209 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Council Regulation (EC) No 1698/2005 as regards certain provisions relating 
to financial management for certain Members States experiencing or threatened with 
serious difficulties with respect to their financial stability 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 42, 43 and thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Economic and Social Committee1, 

Having regard to the opinion of the Committee of the Regions2, 

Acting in accordance with the ordinary legislative procedure 

Whereas: 

(1) 

The  unprecedented  global  financial  crisis  and  economic  downturn  have  seriously 
damanged economic growth and financial stability and provoked a strong deterioration 
of financial and economic conditions of several Member States. In particular, certain 
Member States experience serious difficulties or are threatened with such difficulties, 
notably  with  problems  in  their  economic  growth  and  financial  stability  and  with  a 
deterioration in their deficit and debt position, also due to the international economic 
and financial environment. 

(2)  Whilst  important  actions  to  counterbalance  the  negative  effects  of  the  crisis  have 
already been taken, including amendments of the legislative framework, the impact of 
the  financial  crisis  on  the  real  economy,  the  labour  market  and  the  citizens  is  being 
widely felt. The pressure on national financial resources is increasing and further steps 
should be taken to alleviate that pressure through the maximum and optimal use of the 
funding from the European Agricultural Fund for Rural Development (hereinafter the 
"EAFRD").  

(3) 

Based  on  Article  122(2)  of  the  Treaty  providing  the  possibility  of  granting  Union 
financial  assistance  to  a  Member  State  in  difficulties  or  seriously  threatened  with 

1 
2 

OJ L , , p. . 
OJ L , , p. . 

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6 

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severe  difficulties  caused  by  exceptional  occurences  beyond  its  control,  Council 
Regulation  (EU)  No  407/2010  of  11  May  2010  establishing  a  European  financial 
stabilisation  mechanism3  has  established  such  mechanism  with  a  view  to  preserving 
the financial stability of the Union. 

By  Council  Implementing  Decisions  2011/77/EU  of  7  December  20104  and 
2011/344/EU of 30 May 20115 Ireland and Portugal were granted such Union financial 
assistance.  Greece  was  experiencing  serious  difficulties  with  respect  to  its  financial 
stability  before  the  entry  into  force  of  Regulation  (EU)  No  407/2010  and  received 
financial assistance inter alia from other euro area Member States. 

Council  Regulation  (EC)  No  332/2002  of  18  February  2002  establishing  a  facility 
providing medium-term financial assistance for Member States' balances of payments6 
has established an instrument providing that the Council will grant mutual assistance 
where a Member State which has not adopted the euro is in difficulties or is seriously 
threatened with difficulties as regards its balance of payments. 

By Council Decisions 2009/102/EC of 4 November 20087, 2009/290/EC of 20 January 
20098 and 2009/459/EC of 26 June 20099 Hungary, Latvia and Romania were granted 
such financial assistance.  

The  period  during  which  the  assistance  is  available  to  Ireland,  Hungary,  Latvia, 
Portugal  and  Romania  is  set  out  in  the  respective  Council  Decisions.  Assistance  to 
Hungary expired on 4 November 2010.  

For Greece, the Inter-creditor Agreement concluded together with the Euro Area Loan 
Facility Act entered into force on 11 May 2010. It foresees that the availability period 
would expire on the third anniversary of the date of the agreement.  

On  11  July  2011,  finance  ministers  of  the  17  euro-area  Member  States  signed  the 
Treaty establishing the European Stability Mechanism (ESM). The Treaty follows the 
European  Council  decision  of  25  March  2011.  It  is  foreseen  that  by  2013,  the  ESM 
will  assume  the  tasks  currently  fulfilled  by  the  European  Financial  Stability  Facility 
(EFSF) and the European Financial Stabilisation Mechanism (EFSM). 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10)  The European Council conclusions of 23 and 24 July 2011 welcome the Commission's 
intention  to  enhance  the  synergies  between  the  loan  programme  for  Greece  and  the 
Union funds, supporting efforts to increase Greece's capacity to absorb Union funds in 
improving 
order 
competitiveness  and  employment  creation.  Moreover,  the  conclusions  welcome  and 
support  the  preparation  by  the  Commission,  together  with  the  Member  States,  of  a 
comprehensive  programme  of  technical  assistance  to  Greece.  This  Regulation 
contributes to these synergy efforts. 

to  stimulate  growth  and  employment  by 

refocusing  on 

3 
4 
5 
6 
7 
8 
9 

OJ L 118, 12.5.2010, p. 1. 
OJ L 30, 4.2.2011, p. 34. 
OJ L 159, 176.2011, p. 88. 
OJ L 53, 23.2.2002, p. 1. 
OJ L 37, 6.2.2009, p. 5. 
OJ L 79, 25.3.2009, p. 39. 
OJ L 150, 13.6.2009, p. 8. 

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(11) 

(12) 

In  order  to  facilitate  the  management  of  Union  funding,  to  help  accelerate  the 
investments in Member States and regions concerned and to increase the impact of the 
funding  on  the  economy  it  is  necessary  to  allow  the  increase  of  the  EAFRD 
contribution  rate  up  to  a  95%  of  eligible  public  expenditure  in  the  regions  eligible 
under  the  Convergence  objective  and  85%  of  eligible  public  expenditure  in  other 
regions which are facing serious difficulties with respect to their financial stability.  

In  accordance  with  the  general  principles  applicable  under  Regulation  (EC)  No 
1698/2005, the increased co-financing rates may only apply for payments to be made 
after the respective rural development programmes, including the new financial plans, 
have been approved by the Commission. It is therefore also necessary to determine the 
procedure  under  which  the  Member  States  may  use  that  possibility  as  well  as  the 
mechanism through which it will be ensured.  

(13)  Council  Regulation  (EC)  No  1698/2005  of  11  July  2006  on  support  for  rural 
development  by  the  Agricultural  Fund  for  Rural  development  EAFRD,10should 
therefore be amended accordingly. 

10 

OJ L 210, 31.7.2006, p. 25. 

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HAVE ADOPTED THIS REGULATION: 

Article 1 

In Article 70 of Regulation (EC) No 1698/2005 the following paragraph 4c is inserted after 
paragraph 4b: 

"4c. 

By way of derogation from the ceilings set out in paragraphs 3, 4 and 5, the EAFRD 
contribution  may  be  increased  up  to  a  maximum  of  95%  of  eligible  public 
expenditure  in  the  regions  eligible  under  the  Convergence  objective  and  the 
outermost  regions  and  the  smaller  Aegean  Islands,  and  85%  of  eligible  public 
expenditure  in  other  regions.  These  rates  shall  apply  to  the  eligible  expenditure 
newly  declared  in  each  certified  declaration  of  expenditure  submitted  during  the 
period in which a Member State complies with one of the following conditions: 

(a)  Financial assistance is made available to it under Council Regulation (EU) No 
407/2010  of  11  May  2010  establishing  a  European  financial  stabilisation 
mechanism* or, is made available by other euro-area Member States before the 
entry into force of that Regulation, ; 

(b)  medium-term  financial  assistance  is  made  available  to  it  in  accordance  with 
Council  Regulation  (EC)  No  332/2002  of  18  February  2002  establishing  a 
facility  providing  medium-term  financial  assistance  for  Member  States' 
balances of payments**; 

(c) 

financial  assistance  is  made  available  to  it  in  accordance  with  the  Treaty 
establishing the European Stability Mechanism. 

A  Member  State  wishing  to  make  use  of  the  derogation  provided  in  the  first 
subparagraph  shall  submit  a  request  to  the  Commission  to  modify  its  rural 
development programme accordingly. The derogation shall apply as of the approval, 
by the Commission, of the modification of the programme, and shall cease to apply 
once the Member State does no longer meet in any of the conditions set out in points 
(a),  (b)  or  (c)  of  the  first  subparagraph.  The  Member  State  shall  then  send  the 
Commission  a  proposal  for  modification  of  the  programme  including  a  new 
financing  plan  in  conformity  with  the  maximum  rates  applicable  before  the 
derogation.  

If a Member State does not submit to the Commission a proposal for modifying its 
rural development programme, including a new financing plan on the date it does no 
longer  meet  any  of  the  conditions  set  out  in  points  (a),  (b)  or  (c)  of  the  first 
subparagraph of this paragraph, or if the financing plan notified is not in conformity 
with  the  maximum  rates  laid  down  in  paragraphs  3,  4  and  5  of  this  Article,  those 
rates shall become automatically applicable as from that date. 

* 

OJ L 118, 12.5.2010, p. 1. 

** 

OJ L 53, 23.2.2002, p. 1." 

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Article 2 

This Regulation shall enter into force on the day of its publication in the Official Journal of 
the European Union.  

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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1. 

2. 

3. 
4. 

5. 

5.0 

5.1 

LEGISLATIVE FINANCIAL STATEMENT 

FINANCIAL STATEMENT 

BUDGET HEADING: 
05 04 05 01  

AGRI/I1/Ares/2011/880294 Rev 1 
(JGS/dz) 
6.20.2011.6 
DATE: 26/07/2011 
APPROPRIATIONS 2011: 
CA: EUR 14 407 971 311 
PA: EUR 11 900 560 340 

TITLE: 
Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation 
(EC) No 1698/2005 on support for rural development by the European Agricultural Fund for Rural 
Development (EAFRD) as regards the financial contribution by the Fund for certain Member States  
LEGAL BASIS: -  
AIMS: 
To modify the Regulation 1698/2005 to allow in certain Member States facing serious difficulties with 
respect to their financial stability the increase of the EAFRD contribution rate up to a maximum of 
95% of the eligible public expenditure.  
FINANCIAL IMPLICATIONS (1)  

EXPENDITURE 
- CHARGED TO THE EC BUDGET 
(current prices) 
- NATIONAL AUTHORITIES 
- 
REVENUE 
- 
(LEVIES/CUSTOMS DUTIES) 
NATIONAL 
- 

OTHER 

OWN RESOURCES OF THE EC  

5.0.1  ESTIMATED EXPENDITURE (current prices) 

CA 
PA 

5.1.1  ESTIMATED REVENUE 
5.2  METHOD OF CALCULATION:- 
6.0 

12 MONTH 
PERIOD 

(EUR million) 
- 

CURRENT 
FINANCIAL 
YEAR 
2011 
(EUR million) 

CA: -  
PA: + 90 

FOLLOWING 
FINANCIAL 
YEAR 
2012 
(EUR million) 
CA: -  
PA: + 470 

- 

- 

- 

2011 

- 
+90 
- 

2012 

- 
+470 
- 

2013 

- 
- 
- 

YES NO  

YES NO 
YES NO 
YES NO 

CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE 
RELEVANT CHAPTER OF THE CURRENT BUDGET? 
CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE 
CURRENT BUDGET? 

6.1 

OTHER 

6.2  WILL A SUPPLEMENTARY BUDGET BE NECESSARY? 
6.3  WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS? 
6.4 
OBSERVATIONS: 
(1)  As  regards  commitment  appropriations,  the  modification  of  Regulation  1698/2005  will  not  have  any 
financial  impact  as  the  global  envelope  for  rural  development  remains  unchanged  as  well  as  its  annual 
breakdown.  
For payments, the increase of the co-financing rate can result in higher reimbursements to the MS concerned. 
In the event that the proposal is approved in time to apply the new rate to the payment requests relating to the 
third quarter 2011, the additional payment appropriations necessary in this year can be estimated at EUR 90 
million. For 2011, the situation if needed will be handled in the Global Transfer.  
The estimate of additional payments to be made in 2012 amounts to EUR 470 million. In the light of Member 
State's requests to benefit from the action and taking into account the evolution regarding the submission of 
interim payments, the Commission will in 2012 review the need for additional payment appropriations and if 
necessary propose the relevant actions to the Budgetary Authority.  
No estimate has been calculated for year 2013 since, in the event that exceptional circumstances continue to 
justify increased co-financing rates, the consequences would be taken into account in the budget procedure. As 
the  total  envelope  of  the  EARDF  does  not  change,  additional  payments  in  2011  and  2012  will  lead  to  an 

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equivalent reduction of payments at the end of the period 

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