Four Operational Programmes (Regional, Increasing Economic Competitiveness, Transport and Environment) are being investigated by European auditors. Another Operational Programme of high interest for business, dedicated to the Development of HR, is subject to an in depth audit by EU auditors and the EC’s decision is expected in the autumn. Until the Commission makes its decisions, EU payments to the Romanian authorities under all 5 programmes are suspended.
Meanwhile, we are close to the end of the current programming period 2007-2013. The European Union is in the middle of discussions concerning the new European Cohesion Policy for the period 2014 – 2020. A glimpse at the current discussions can help us better understand what will happen after 2013 and most of all, what Romania will need to do to meet the new requirements.
Context of EU funds
On 29 June 2011, the Commission adopted a proposal for the next multi-annual financial framework: “A Budget for Europe 2020. Simplification of policy delivery.” The proposal outlines the main elements of the new cohesion policy and brings new concepts intended to simplify its application.
The new Common Strategic Framework (referred to as 'CSF’) will cover the old structural instruments: the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF) and the European Agricultural Fund for Rural Development (EAFRD) as well as the future European Maritime and Fisheries Fund (EMFF). The CSF management will be shared between the Member States and the Commission.
Main changes proposed
The cohesion policy will be implemented through seven-year budget programmes. The new policy will bring a clear focus on sustainable urban development. At least 5% of the ERDF resources will be allocated for "integrated actions" for this purpose.
The Commission is considering harmonizing the eligibility rules among the various programmes, simpler reimbursement rules as well as management and control systems between the different EU funds(according to the draft regulation published on 6 October 2010 intended to replace EC Regulation 1083/2006).
The regions will continue to receive support, but within three defined categories: less developed regions, whose GDP is below 75% of the Union average, which will continue to be the top priority for the policy; more developed regions, whose GDP per capita is above 90% of the average; and a new category of transition regions, whose GDP is between 75% and 90% of the EU 27 average.
The transition regions have become more competitive during the last few years, but they still need targetted support. They will benefit from a maximum EU co-financing rate of 60%. The other maximum co-financing rates will remain unchanged: maximum 50% for the most developed regions and maximum 85 % for the less developed regions.
In 2013, each Member State will have to define its development needs and national priorities in a Partnership Contract between the Commission and the Member State. The Partnership Contract will be a firm agreement about the use of funds and performance. As a result, failure in achieving progress will lead to suspension or cancellation of funding more quickly than today.
The Partnership Contract will include mainly:
- Thematic objectives(member states can choose from 11 objectives in line with the “Europe 2020” strategy) and investment priorities for each thematic objective.
- Pre-requisite conditions to EU funding.
- Member States’ targets by the end of the programming period.
To ensure the Member State’s real commitment and to ease the assessment of results, the pre-requisite conditions and the Member State’s targets will include performance indicators.
The new topic of conditionalities appears to be the most difficult aspect of the future cohesion policy. Conditionalities have been designed to become additional filters deciding whether a certain Member State is properly prepared to benefit from EU funding. The Commission has proposed two types of conditions:
- Conditions linked to the direct implementation of the policy, including ‘ex ante’ conditions to be met before the funds are disbursed and 'ex post' conditions to allow additional funds depending on performance (to strengthen the focus on results, 5% of the cohesion budget will be allocated to the Member States and regions whose programmes have observed the milestones of the partnership contract).
- Conditions linked to macro-economic circumstances: if a Member State faces economic difficulties, the Commission may invite it to revise its strategy and programmes. Before the economic situation becomes so serious as to undermine the effectiveness of the investments under discussion, the support from the CSF will depend on the state meeting certain fiscal or economic conditions. This “conditionality” has been in place up to now, but the process of suspension of funding will become automatic for all cohesion funds.
Actions intended to overcome the slow absorption of funds
The European Commission has proposed a set of measures to simplify the absorption and disbursement of funds, such as the harmonization of eligibility rules among the different EU funds; a move towards e-cohesion (beneficiaries will be able to submit all information electronically); a wider use of “simplified costs”, including lump sums, flat rates to calculate certain categories of costs and standard scales of unit costs to lower the administrative burden; a clarification of financial instruments (such as JEREMIE or JESSICA) to cover more investment with limited resources as well as the possibility for Member States to lower the number of authorities in charge of the cohesion policy.
Some Member States including Romania face difficulties in absorbing large amounts of EU funds over a limited period of time. Some other member states have restricted the release of national co-financing funds in response to the tougher economic environment. The Commission is proposing to overcome such situations by setting a maximum possible allocation, under the cohesion policy, of only 2.5% of the Member State’s Gross National Income, as compared to 4% during the current period.
The European Commission envisages a smooth and smarter absorption process. As participants in the discussions we see ourselves forced to contemplate where Romania is as compared to the rest of Europe. Romanians have paid great efforts to understanding the EU language and to setting up our institutions, while the European Union is going much further: the EU is determined to reform and it is showing a clear direction towards competitive performance.
In spite of rumours, there are still funds out there for Romania. We do not expect that the amounts will decrease. But our task to observe the Partnership contract when implementing EU funded projects will be tougher. This summer may be a welcome break to think about better administrative structures to help us absorb the EU money beginning 2014.
Mark Gibbins, Partner, Head of Taxation services, & Cristine Barbu, Senior Manager, Tax