REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL containing the assessment required under Articles 24(3) and 120(3) third sub-paragraph of Regulation (EU) N° 1303/2013
Date: 2016-06-27
Institutions: Directorate-General for Regional and Urban Policy, European Commission
Subjects: Cohesion Fund, EAFRD, EU programme, European Regional Development Fund, European Social Fund, FIFG, co-financing, distribution of EU funding, economic and social cohesion, financial aid

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   EN 

   EUROPEAN COMMISSION  Brussels, 27.6.2016  COM(2016) 414 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL containing the assessment required under Articles 24(3) and 120(3) third sub-paragraph of Regulation (EU) N° 1303/2013  
 
 
INTRODUCTION  
Regulation  (EU)  No  1303/20131  of  the  European  Parliament  and  of  the  Council  of 
17 December  2013  (hereafter  'CPR')  requires  the  Commission  to  carry  out  a  review  of  two 
financial provisions before 30 June 2016, namely the increase in payments for Member States 
with temporary budgetary difficulties according to Article 24 (hereafter, the 'top-up') and the 
maximum EU co-financing rate of 85% applicable to all operational programmes in Cyprus 
according to Article 120(3). 

EXTENSION OF THE TOP-UP (ARTICLE 24 CPR) 

The  top-up  was  introduced  in  2010  for  Member  States  with  the  greatest  budgetary 
difficulties2.  

These were the countries under adjustment programmes or having been subject to adjustment 
programmes  during  any  time  period  from  2007  onwards.  Upon  request,  eligible  countries 
received  additional  payments  of  10%  on  all  their  declared  expenditure  and  continued 
receiving payments at 10 percentage points above the maximum co-financing rate as long as 
they  were  under  the  programme.  The  top-up  had  to  be  requested  per  programme  and  was 
granted even retroactively in all cases.  

The provision enabled bringing forward EU payments compared to the original financial plan 
and  thus  resulted  in  an  immediate  easing  of  budgetary  pressure,  provided  liquidity  and 
reduced the level of the necessary national match-funding in cohesion policy. The consequent 
increase  in  absorption  also  contributed  to  reducing  the  risk  of  losing  funds  for  a  number  of 
countries. However, the application of the measure led to a reduction in the overall financial 
volume of the programme, a possible reason for some countries not, or only partially, taking 
advantage of the provision.  

Countries  eligible  for  the  top-up  have  benefited  from  the  financial  provision  to  a  variable 
extent  in  terms  of  amounts  depending  on  the  level  of  certified  expenditure  for  the  period 
where  they  were  under  an  adjustment  programme.  The  top-up  resulted  in  the  Commission 
paying  over  EUR  3  billion  (ERDF,  ESF  and  Cohesion  Fund  contribution  taken  together) 
earlier than planned for Cyprus, Greece, Hungary, Ireland, Portugal and Romania from 2011 
up until the end of 2015. The biggest beneficiary in financial terms was Greece (EU payments 
exceeding EUR 1.3 billion). Some countries (e.g. Latvia) did not make use of the provision at 
all,  others  requested  the  provision  to  be  applied  for  certain  programmes  only  (i.e.  Cyprus, 
Ireland, Portugal).  

2014-2020 programmes 

In  2014-2020,  the  mechanism  is  maintained  under  Article  24(1)  CPR  and  is  applicable  to 
EAFRD  and  EMFF  as  well.  It  provides  for  interim  payments  from  the  Commission  being 

1 

2 

Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying 
down common provisions on the European Regional Development Fund (ERDF), the European Social 
Fund (ESF), the Cohesion Fund (CF), the European Agricultural Fund for Rural Development (EAFRD) 
and the European Maritime and Fisheries Fund (EMFF) and laying down general provisions on the 
European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European 
Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, 
p. 320. 
Regulation (EU) No 1311/2011 of the European Parliament and of the Council of 13 December 2011 
amending Council Regulation (EC) No 1083/2006 as regards certain provisions relating to financial 
management for certain Member States experiencing or threatened with serious difficulties with respect to 
their financial stability, OJ L 337, 20.12.2011, p. 5. 

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increased by 10 percentage points ("10% top-up") above the maximum co-financing rate for 
Member States with temporary budgetary difficulties until 30 June 2016.  

Greece, Cyprus, Ireland, Romania and Portugal are currently eligible for the 10% top-up on 
interim  payments  for  the  2014-2020  programmes  for  payment  claims  submitted  before  30 
June  20163  because  these  countries  fulfilled  the  conditions  set  out  in  Article  24(1)  CPR 
receiving  financial  assistance  after  21  December  2013.  Since  that  time,  the  financial 
assistance programmes for Cyprus, Ireland, Portugal and Romania have expired. 

This means that Greece will be the only country which has a financial assistance programme 
in place on 30 June 2016. 

Issues at stake and way forward 

Two issues need to be considered when modifying Article 24 CPR, namely (i) the scope of 
eligible countries and (ii) the timing through which the provision applies. 

As  regards  the  scope  of  eligible  countries,  the  inclusion  of  a  mid-term  review  in  2016 
suggests that those Member States which are no longer receiving financial assistance should 
no longer be eligible for the top-up. This is further supported by the legislator establishing a 
direct link  between the adjustment programmes  and  the  ESI  Funds in  Article  24 CPR.  This 
direct link should be maintained. It would enable Greece and any other country falling under 
an adjustment programme in the future to be supported through the top-up mechanism. The 
legislative  proposal  is  drafted  in  a  way  to  apply  also  to  any  other  country  falling  under  an 
adjustment programme in the future. 

A  further  revision  of  eligibility  for  the  top-up  in  the  2014-2020  period  does  not  appear 
necessary.  Countries  subject  to  adjustment  programmes  need  to  have  certainty  about  the 
timing and level of EU payments which also have an effect on the size of their programmes 
and the necessary national match funding.  

Regarding the timing of the provision, eligibility for the top-up of the 2007-2013 period ended 
on  the  day  the  country  stopped  receiving  financial  assistance.  However,  with  regard  to  the 
2014-2020 period, eligibility for the top-up was aligned with the end of the accounting year, 
which currently runs from 1 July until 30 June, i.e. 30 June 20164. This system even applies to 
a Member State which stopped receiving financial assistance at the beginning of 2014. 

The  Commission  proposes  to  continue  eligibility  until  30  June  of  the  year  following  the 
calendar  year  in  which  the  Member  State  stops  receiving  financial  assistance  under  an 
adjustment  programme.  This  approach  follows  the  ESI  Funds  accounting  year  and  would 
extend the period of eligibility by up to maximum18 months. It will provide financial security 
for  the  Member  State  concerned  in  planning  the  necessary  national  match  funding  to  draw 
down ESI Funds. It will also reduce the risk of losing funds once eligibility for the top-up has 
expired. 

 EXTENSION OF THE MAXIMUM EU CO-FINANCING RATE OF 85% FOR CYPRUS 

Article  120(3)  CPR  foresees  an  exceptional  EU  co-financing  rate  for  all  programmes  in 
Cyprus of maximum 85% for the period of 1 January 2014 to 30 June 2017. This provision is 
only relevant for the ERDF, ESF and Cohesion Fund, but not for the EAFRD and EMFF For 2014-

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4 

The top-up related to the 2014-2020 programmes has not been used so far. This is due to the efforts of 
national administrations to successfully complete the 2007-2013 programmes and the low level of 
payments related to the 2014-2020 programming period. 
Article 2 point 29 CPR. 

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2020,  Cyprus  is  classified  as  a  more  developed  region  for  Structural  Funds  support.  More 
developed regions normally benefit from a maximum EU co-financing rate of 50%.  

Given that Cyprus signed an economic adjustment programme  with  the EU in  March 2013, 
the  CPR  provided  for  Cyprus  to  benefit  from  an  exceptional  EU  co-financing  rate  of  85% 
until 30 June 2017.  

Given that the economic adjustment programme of Cyprus has expired at the end of March 
2016, the question arises whether the country should continue to benefit from this rate after 
30 June 2017.  

Option (1): If the preferential EU co-financing rate for Cyprus were to end on 30 June 2017, 
the minimum national co-financing required for the rest of the programming period would be 
ca. EUR 144 million.  

Option  (2):  If  the  85%  EU  co-financing  rate  were  to  be  applied  throughout  the  whole 
programming period, the required national co-financing from 1 July 2017 onwards would be 
ca.  EUR  45  million,  i.e.  ca.  EUR  99  million  less  than  under  option  (1).  The  difference  in 
national  co-financing  in  Cyprus  for  the  second  half  of  the  programming  period  would  be 
significant and correspond to ca. 0.16% of Cypriot GDP on an annual basis. 

A closer look at key macroeconomic indicators shows that the economic situation of Cyprus 
is still very fragile. Table 1 below shows that Cyprus and Greece are the only two Member 
States with negative economic growth and declining investment. Both countries also feature 
high unemployment rates and the most stressed financial sectors as non-performing debts are 
around or above 30% of the total.  

Given  the  deterioration  of  the  economic  situation  of  Cyprus,  the  country  will  also  become 
fully eligible for the Cohesion Fund in the context of the mid-term review in 2016 according 
to Article 90(5)CPR.  

Against this background, the Commission proposes to extend the maximum EU co-financing 
rate of 85% for Cyprus until programme closure. This measure will help bridging a period of 
high  public investment  needs  in  Cyprus  on  the one  hand,  and  sustained  fiscal  consolidation 
efforts  on  the  other,  by  increasing  the  necessary  fiscal  space  for  investments.  It  will  also 
leverage investments of the private sector, which still has difficulties to obtain credits given 
the fragile state of the banking system and the financial sector. 

Overall,  the  Commission  expects  the  extension  of  the  85%  EU  co-financing  rate  to  have  a 
positive  impact  on  the  Cypriot  economy  by  increasing  its  long  term  growth  potential  and 
improving the capacity of the economy to sustain its debt service and repay public debt.  

Table 1: Key macroeconomic indicators in Member States eligible for top-up for 2014-2020 
operational programmes until 30 June 2016 

Source:  AMECO,  data  for 2015  are  taken from  the  winter  forecast  and will  be  updated  when new forecast  or 
historical data are available. Data on non-performing debt are taken from the European Central Bank and refer to 
the average in 2013-14. 

4 

 Average     2014-15GDP growthGDP per capita growth Investment growthPublic Debt growthUnemployment rateNon-performing debt                      (% of total debt)Cyprus-0.7-0.3-7.90.115.936.3Greece-0.4-0.2-6.52.926.129.1Portugal1.31.94.22.213.410.3Romania3.33.54.46.76.816.9Ireland5.65.215.6-2.610.417.3EU1.71.32.84.19.95.3