An important shift from local to EU objectives

The debate on net balances originates from a time when the freedom of Member States to allocate the funding to purely national and local priorities was much greater than today. The EU budget transfer was mainly a tool to beef up the national budget with little requirement for the

‘European’ nature of the expenditure.

Since the 1980s, however, the nature of EU expenditures in Member States has radically changed.

The Cohesion, Structural and Rural Development Funds have increasingly become instruments to achieve EU objectives in important areas, such as energy and transport, environmental protection and innovation. Member State programming now entails a minimum reallocation of funds to different EU priority objectives, considerably stricter strategic planning and a process that requires Member States to link almost all actions to Europe 2020 objectives. Indeed, the EU Structural and Cohesion Funds are now tools to ensure the implementation of the EU acquis and the growing EU-level objectives. Many of the environmental and energy objectives of the EU have been designed and led by countries with high standards, which tend to be the largest contributors to the EU budget.

The restriction of the strategic freedom of Member States has reached a new height with the creation of 11 thematic objectives, and complex, strategic planning requirements. EU regional and rural funding is being used to achieve common objectives, such as reducing greenhouse gas emissions and attaining high levels of environmental protection. EU standards often exceed the rules that countries with a lower level of GDP would have adopted. The EU budget de facto partially compensates countries for stringent standards that they would not have adopted at their state of economic development. At the same time, EU support also requires co-financing, which creates opportunity costs by directing limited public funds to achieve EU objectives that then cannot be used elsewhere.

Over the years, net contributors have requested that the EU budget focuses more on EU added value. By so doing, these Member States have admitted that expenditures where added value is higher are worth undertaking regardless of their location. An example would be reducing emissions from power stations or from cities. It would follow logic to conclude that interventions, regardless of the budget line, that aim at EU added value should be excluded from net balance considerations. That is not the case, however. Not even centrally planned funds, such as those for research or the Connecting Europe Facility, are excluded from net balance calculations and the corrections arising from them.

3.2.1 Brief overview of the increasing EU added value

The Common Provisions Regulation (No 1303/2013) for the European Structural and Investment Funds (ESIF)¹¹ are much more dirigiste than past fund provisions. Member States benefiting from the funds have to develop strategies that are in line with higher-level EU objectives. The requirements can be summarised as follows:

 a more coherent use of available funds, aligned with national reform programmes; 


 a menu of 11 thematic objectives in the Structural Funds’ strategy programmes;

 the need for a comprehensive investment strategy aligned with Europe 2020 objectives;

 the development, where appropriate, of integrated packages of actions at the local, regional and national levels, leading to better coordination between Cohesion Policy, research and development, rural development, maritime and fisheries funds; 


 orientation towards results using relevant objectives and indicators to measure progress towards Europe 2020 targets; 


 effectiveness supported by a new performance framework; 


 a strengthening of administrative capacity and a reduction of red tape; and

 a strengthening of territorial cohesion.

These requirements are not negligible and represent a strong departure from the past. The reforms started with the 2007–13 MFF and have been consolidated for the present framework.

The required actions emanating from the 11 thematic objectives are listed in Table 3-1. The expectations are considerable for all of the objectives if the thematic guidance provided by the European Commission¹² is followed. For each objective, there are specific targets and requirements for each fund (European Regional Development Fund (ERDF), Cohesion Fund (CF), European Agricultural Fund for Rural Development (EAFRD), and the European Maritime and Fisheries Fund (EMFF)). The first thematic objective is also linked to a national, coordinated, Smart Specialisation Strategy, which incorporates the Horizon 2020 programmes. In fact, the new rules also encourage the mix of support measures to reach new, higher impact levels, and include the combination with the European Fund for Strategic Investments (EFSI).

11 Regulation (EU) No 1303/2013 of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund 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, OJ L 347/320

12 See the “Guidance on European Structural and Investment funds 2014–2020”

(http://ec.europa.eu/regional_policy/en/information/legislation/guidance/).

Table 3-1. Thematic objectives for the ESIF, 2014–20 Thematic objectives

1) Strengthening research, technological development and innovation;

2) Enhancing access to, and use and quality of ICT;

3) Enhancing the competitiveness of small and medium-sized enterprises, the agricultural sector (for the EAFRD) and the fisheries and aquaculture sector (for the European Maritime and Fisheries Fund);

4) Supporting the shift towards a low-carbon economy in all sectors;

5) Promoting climate change adaptation, risk prevention and management;

6) Protecting the environment and promoting resource efficiency;

7) Promoting sustainable transport and removing bottlenecks in key network infrastructures;

8) Promoting employment and supporting labour mobility;

9) Promoting social inclusion and combating poverty;

10) Investing in education, skills & lifelong learning; and

11) Enhancing institutional capacity building & efficient public administrations.

Source: Art. 9 Common Provision Regulation (EU) No 1303/2013

Consequently, it is important that Member States abstract themselves from considering transfers to other countries as exclusively benefiting the recipients.

It is also worth pointing out that EU support generates demand for technical knowhow and technologies from contributing Member States. Developing the economies of poorer Member States brings benefits to the Union as a whole, and more than just financially. Avoiding the formation of backward regions within the EU generates political stability, and reduces social tensions and internal migration.

3.2.2 Reinforcing EU added value

This section states that EU budget support has an EU added value that can be defended.

However, all is not in order, and there is a need for further reflection. As Heinemann (2015) points out, the EU budget is still financing too many projects with questionable EU added value.

Some of these may well be ‘compatible’ with the thematic objectives or other EU objectives. This is partially due to path dependency. Cohesion Policy, like the CAP, was originally developed in response to a number of national requests. The policies responded to local needs, and not to EU-level objectives. The goal of regional convergence was perfectly compatible with investments focusing on local benefits without a link to a wider EU objective. The need to link investment to

‘European’ added value is recent. The EU budget also thought to ‘compensate’ Member States for the possible negative impacts of integration on specific groups in society. As a consequence, for many years the European Commission has been adding as permissible actions those that are questionable from the point of view of the fiscal division of powers in a multi-level governance framework.

Therefore, this report includes a recommendation for how to combine an in-depth review and phased modifications of EU budget policies. Reforming the EU own resources could theoretically be done independently of reforms at the expenditure level. At the same time, good reforms are unlikely without a new deal that better targets EU added value, and a new deal on the financial responsibilities of Member States in policy areas with more local added value. A phased approach taking into account transitional reform agreements is needed. This report proposes some options in light of the political realities associated with the EU budget and phasing in own resources reforms connected with agreed improvements to the expenditure policies. While the

report does not propose specific reforms on the expenditure side, which would require an exhaustive analysis, it proposes methods to approach the review of the budget in Part II.