Explanatory Memorandum to COM(2018)372 - European Regional Development Fund and on the Cohesion Fund - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2018)372 - European Regional Development Fund and on the Cohesion Fund. |
|---|---|
| source | COM(2018)372  |
| date | 29-05-2018 |
1. CONTEXT OF THE PROPOSAL
On 2 May 2018, the Commission adopted a proposal for the next multi-annual financial framework for the period 2021-2027 1 . This includes the European Regional Development Fund ('ERDF') and the Cohesion Fund.
Administrative simplification has been defined as a key objective in reflection paper on EU finances as well as the ex post evaluation and the public consultation. Experience suggests that the rules are overcomplex and fragmented, leading to an unnecessary burden on programme managers and final beneficiaries.
To enable consistency 2 with other EU policies under shared management, the rules on delivery and implementation of ERDF and the Cohesion Fund are governed as far as possible by the Common Provisions Regulation ('CPR'). This sets out common provisions for seven shared management funds at the EU level:
·CF: Cohesion Fund
·EMFF: European Maritime and Fisheries Fund 3
·ERDF: European Regional Development Fund
·ESF+: European Social Fund Plus 4
·AMIF: Asylum and Migration Fund 5
·ISF: Internal Security Fund 6
·BMVI: Border Management and Visa Instrument 7
To enable consistency with Horizon Europe, this latter will focus on 'European excellence' (the generation and exploitation of new knowledge) while ERDF will focus on 'regional relevance' (diffusion of existing knowledge and technology to places that need it, embedding it locally via smart specialization strategies).
To enable consistency with the Connecting Europe Facility (CEF), there is enhanced synergy and complementarity where the CEF will focus in particular on the 'core network' while the the ERDF and the Cohesion Fund will also provide support for the 'comprehensive network', including ensuring regional and local access thereto as well as transport connections within urban areas.
To simplify and clarify the legislation, this Regulation defines provisions applicable to both ERDF and Cohesion Fund intervening under the 'Investment for jobs and growth' goal and, with regard to the ERDF, under the 'European territorial cooperation' goal (Interreg).
However, due to the specific nature of programmes under the 'European territorial cooperation' goal (Interreg) which involve several Member States and third countries, a specific regulation on the 'European territorial cooperation' goal (Interreg) Regulation sets out specific rules additional to the Common Provisions Regulation and this Regulation.
This proposal provides for a date of application as of 1 January 2021 and are presented for a Union of 27 Member States, in line with the notification by the United Kingdom of its intention to withdraw from the European Union and Euratom based on Article 50 of the Treaty on European Union received by the European Council on 29 March 2017.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
EU action is justified by Article 174 of The Treaty on the Functioning of the European Union ('TFEU'): 'The Union shall develop and pursue its actions leading to the strengthening of its economic, social and territorial cohesion. In particular, the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions'.
The aims of the ERDF are set out in Article 176 TFEU: 'The European Regional Development Fund is intended to help to redress the main regional imbalances in the Union through participation in the development and structural adjustment of regions whose development is lagging behind and in the conversion of declining industrial regions'.
The aims of the Cohesion Fund are set out in Article 177 TFEU: 'A Cohesion Fund set up in accordance with the same procedure shall provide a financial contribution to projects in the fields of environment and trans-European networks in the area of transport infrastructure'.
In addition, Article 174 TFEU mandates particular attention to rural areas, areas affected by industrial transition, and regions which suffer from severe and permanent natural or demographic handicaps such as the northernmost regions with very low population density and island, cross-border and mountain regions.
Article 349 TFEU mandates specific measures to take account of the structural social and economic situation of the outermost regions, which is compounded by certain specific features that severely restrain their development.
Contents
The impact assessment 8 identified various reasons why action at EU level adds value to action at national level. These include:
·In many countries, the ERDF and the Cohesion Fund represent at least 50% of public investment – these Member States would not otherwise have the financial capacity to make such investments.
·There are significant potential spillovers across national and regional boundaries, for example for investments in innovation and SMEs. The EU level has an important role in delivering these spillovers and preventing underinvestment. Moreover, investments need to be designed to maximise spillovers.
·In most regions, including more developed ones, smart specialisation strategies (RIS3) represent a consistent strategic framework for investments and bring about high added value. These were triggered by the strategic programming requirement for ERDF support and the corresponding pre-condition. In fact, the benefits of such strategies tend to be highest in the most developed regions (particularly in the Nordic countries, Austria, Germany, Benelux and France).
·Promotion of EU priorities, including structural reforms of labour market, transport, environment, climate change adaptation and mitigation, energy, education and social policies and programmes, as well as administrative modernisation.
·The ERDF and the Cohesion Fund deliver tangible results in areas which matter to European citizens - 'The EU budget helps to deliver on the things that matter for Europeans' 9 . Helping regions adapt to the challenge of globalisation, creating 420,000 jobs and supporting 1.1 million SMEs 10 , tackling urban poverty – all these are priorities for Europeans. It is noteworthy that many of these results are particularly evident outside the cohesion countries.
Moreover, the policy choices in the Regulation are proportionate, for reasons including:
·Shared management: programmes are not managed directly by the European Commission, but instead implemented in partnership with the Member States.
·The combined rules (the associated CPR plus this Regulation) are substantially simpler and consolidated compared to the previous period.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
In terms of the strategy, priorities and impact of the policy, the ex post evaluation noted:
·Support to SMEs has high potential impact. However, support should focus more on helping dynamic SMEs grow, on smart specialisation strategies and facilitating regions to move up the economic chain, rather than trying to maintain the economy of the past.
·Certain activities tend to have low impact, such as support to large enterprises (the most effective strategy to attract large enterprises is not through financial incentives but by improving local conditions such as the local business environment, etc.). Similarly, airport investments have tended to perform poorly – only in the outermost regions can a strong case be made.
·High added value contributions in themes such as the low carbon economy, sustainable urban development and regional co-operation.
These issues have been taken on board in the present ERDF and the Cohesion Fund Regulation which:
·Maintains thematic concentration, with the top priorities: support to innovation, digital economy and SMEs delivered through a smart specialisation strategy; the low carbon and circular economy in line with the overall 25 % commitment for the climate objective.
·Makes a list of activities not to be supported, including direct support to large enterprises, airport infrastructure (outside the outermost regions) and some waste management operations (e.g. landfills).
·Further develops regional cooperation and sustainable urban development.
In addition, the ex post evaluation had various lessons for the delivery system (including simplification, flexibility, financial instruments). These are taken on board in the CPR.
An online public consultation took place between 10 January and 9 March 2018. The consultation covered cohesion policy, i.e. ERDF and the Cohesion Fund combined with ESF.
·In terms of the most important challenges, the largest proportion (94% of respondents) identified ‘reducing regional disparities’ as very important or rather important, followed by ‘reducing unemployment, quality jobs and labour mobility’ and ‘promoting social inclusion and combating poverty’ (91%).
·On the challenges, ‘Fostering research and innovation’ was regarded as the most successfully addressed (by 61%), followed by ‘territorial cooperation’ (59%).
·Some 76% of respondents considered that the funds add value to a large or fairly large extent and under 2% that they have no added-value at all.
·For preventing the achievement of objectives, complex procedures were seen by a long way as the most important obstacle (86%), followed by audit and control procedures (68%), and lack of flexibility to react to unforeseen circumstances (60%).
·For simplification, the most frequent choice was ‘fewer, clearer, shorter rules’ (90%), followed by ‘alignment of rules between EU funds’ (79%) and ‘increased flexibility’, in terms of allocating resources both to and within a programme area (76-77%).
In answering the open questions, respondents on balance strongly supported:
·Cohesion policy for all regions (though with a continued focus on the less developed).
·Policy innovation, including smart specialisation strategies and smart investment more generally.
·The continuation and development of thematic concentration.
·A focus on local challenges (especially sustainable urban development).
·Interregional cooperation, both cross-border and across Europe. Co-operation at the EU level is essential for smart specialisation – innovation in high tech sectors often depends on exchanges and spill-overs from cooperation between clusters or knowledge hubs across Europe.
These issues are addressed in the ERDF and the Cohesion Fund Regulation which:
·Continues to focus on tackling regional disparities and the challenges facing regions across Europe.
·Continues and enhances thematic concentration on smart growth via smart specialisation strategies and on the low-carbon and circular economy.
·Maintains support for inter-regional cooperation, extending this to smart specialisation.
·Promotes local development based on integrated territorial and local strategies and encourages sustainable urban development as well as capacity building in this field.
In addition, the CPR Regulation will provide a framework for the ERDF and the Cohesion Fund to:
·Simplify the complex procedures associated with the ERDF and Cohesion Fund.
·Increase flexibility to respond to emerging challenges.
·Align rules between the various EU funds covered.
This proposal is supported by an impact assessment. However, the main options and preferred option can only be finalised and the economic impacts assessed once the financial envelopes and allocation mechanism are decided.
The options deal with a 7% reduction in the budget by:
·Option 1: A cut across the board
·Option 2: Reducing the contribution to the more developed regions.
·Option 3: Maintaining support in key areas (thematic concentration) and reduction in other themes.
Option 3 is the preferred option, for reasons including:
·To maintain a focus on the themes of highest EU added value, where evaluation evidence suggests the policy has had the highest impact.
·Many of the greatest challenges (globalisation and economic transformation, transition to the low carbon and circular economy, environmental challenges, migration and pockets of urban poverty) increasingly affect many regions across the EU, including more developed ones. EU investment is both necessary and a sign of solidarity.
·Maintaining critical mass - investments in the more developed regions are already small in per capita terms.
·A vast majority of stakeholders in the public consultation support ERDF in all regions. This scenario ensures also better visibility of cohesion policy funds in all Member States.
The report was submitted twice to the Regulatory Scrutiny Board and received the following comments:
| RSB opinion | How addressed |
| Round 1: Negative opinion The report does not consider implications of reducing ERDF and CF funding capacities. The report does not explain how changed objectives and allocation criteria would redirect the programme. It does not consider possible (sub-) options for geographic coverage, regional eligibility and means for financial allocations under the ERDF/CF. The report does not sufficiently explore implications of changes to the delivery mechanisms. | A 10% cut in funding is now modelled in section 3.2, using three different options. The text and graphs of section 3.2 show how the programme would be redirected under the various options. Three options for geographic and thematic allocations are outlined in section 3.2, with indications of the main line of redirection. The chapter on delivery mechanisms has been developed along the lines requested by the RSB (see section on comment 8 below). |
| Round 2: positive opinion, with the following reservations: The content and the implications of the preferred option (thematic concentration) are not sufficiently clear. The revised report does not provide sufficient evidence that thematic concentration will contribute to reducing regional and national disparities. The report does not spell out future modalities for the implementation of the Berlin method for financial allocation and reasons for not considering alternative options. The report does not describe the scope and the potential impacts of a European cross-border mechanism. The report does not clarify the consistency/complementarity between the ERDF/CF and the new Reform Support Programme. | The content of all options is now spelled out on pages 28-29 and compared in tabular form in table 7. Figure 5 considers the thematic impact of the preferred option by Member State. The impacts of the various options on regional and national growth rates are examined and compared by the QUEST macroeconomic model in the text on pages 30-31 as well as in the numbers in table 9 and figures 6 and 7. The Berlin method is now described in a box on page 29, along with the reasons for retaining this method and not considering alternative options. The cross-border mechanism is described on pages 41-42. A report on potential impacts is quoted and the source footnoted. The relationship with the reform support programme is now detailed on page 60. |
There is evidence of substantial administrative costs associated with the ERDF and the Cohesion Fund, estimated in a recent study 11 at 3% of average programme costs for the ERDF and 2.2% for the Cohesion Fund. The administrative burden on beneficiaries (including SMEs) are higher.
Most of the measures simplifying ERDF and Cohesion Fund will be created by the CPR. Many are difficult to quantify financially in advance, but the study estimated that:
·Greater use of simplified cost options (or payments based on conditions) for the ERDF and the Cohesion Fund could substantially reduce total administrative costs – by 20-25% if these options are applied across the board.
·The more proportionate approach to control and audits would imply a major reduction in the number of verifications and the audit burden for low risk programmes. This would reduce total administrative costs of the ERDF and the Cohesion Fund by 2-3% and costs for affected programmes by a much greater amount.
The 2014-2020 programmes required a system of electronic data exchange between beneficiaries and managing authorities as well as between different authorities of the management and control system. This Regulation builds on this and develops further certain aspects in terms of gathering data. All data necessary for monitoring progress in implementation including results and performance of programmes will now be transmitted electronically and every two months, meaning the open data platform will be updated in almost real time.
Beneficiary and operations data will similarly be made public in electronic form, on a website run by the managing authority.
4. BUDGETARY IMPLICATIONS
The Commission's proposal for a multi-annual financial framework foresees an amount of EUR 273 billion for the ERDF and the Cohesion Fund for the period 2021-2027.
| ERDF and CF total | 241 978 |
| European Regional Development Fund (ERDF) | 200 629 |
| ·Investment for jobs and growth | 190 752 |
| ·European territorial cooperation | 8 430 |
| ·Outermost regions and sparsely populated areas | 1 447 |
| Cohesion Fund (CF) | 41 349 |
| ·of which contribution to CEF Transport | 10 000 |
5. SUMMARY OF THE CONTENT OF THE REGULATION
Much of the delivery and implementation of the ERDF and the Cohesion Fund is covered in the CPR. This Regulation should therefore be seen in that context and the main focus is on key strategic issues, notably:
·The main priorities and themes targeted.
·The indicator framework to track this.
·The approach to specific territories, including sustainable urban development, as well as the outermost regions.
Chapter I – Common provisions
The ERDF and the Cohesion Fund Regulation takes the policy objectives set in the CPR and develops them into specific objectives of relevance to the ERDF and the Cohesion Fund, which can be tracked with appropriate indicators.
It also defines a limited list of non-eligible activities that fall outside the intervention scope of the Funds. The scope of the Funds and the list of non-eligible activities aim to ensure that investment support is consistent with evaluation evidence and with the political and sustainability objectives of the European Union: landfills, airport infrastructure, the tobacco industry, decommissioning of nuclear facilities will not be supported.
In order to ensure that, in a context of budget reduction, there is still a critical mass of investment, the ERDF and the Cohesion Fund Regulation maintains requirements for thematic concentration. The majority (65% to 85%) of resources will be concentrated on contributing to the policy objectives which evaluation evidence and the impact assessment suggest have the highest added value, as well as the greatest contribution to EU priorities:
·PO1:"a smarter Europe by promoting innovative and smart economic transformation";
·PO2: 'a greener, low-carbon Europe by promoting clean and fair energy transition, green and blue investment, the circular economy, climate adaptation and risk prevention and management'.
In order to enable flexibility, thematic concentration criteria will apply at national level.
| For countries with: | minimum % 'PO1' | minimum % 'PO2' |
| GNI below 75% | 35% | 30% |
| GNI 75-100% | 45% | 30% |
| GNI above 100% | 60% | not applicable PO1 and PO2 min. 85% |
In order to ensure consistent monitoring of progress towards performance the Regulation also maintains and refines the common set of output indicators, while adding for the first time a common set of results indicators. These latter enable reporting results in real time on the Open Data Platform and comparison across programmes and Member States. They will also feed into discussions on performance and successful evaluations and facilitate tracking for obligations related to EU legislation.
Evaluations will be carried out in line with paragraphs 22 and 23 of the Interinstitutional Agreement of 13 April 2016 12 , where the three institutions confirmed that evaluations of existing legislation and policy should provide the basis for impact assessments of options for further action. The evaluations will assess programme effects on the ground based on the programme indicators/targets and a detailed analysis of the degree to which the programme is relevant, effective, efficient, provides EU added value and is coherent with other EU policies. Evaluations will include lessons learned, problems and opportunities to further improve the actions and their impacts.
Chapter II – Specific provisions on the treatment of particular territorial features
The Regulation also provides for an increased focus on sustainable urban development by dedicating 6% of ERDF resources to this area, delivered through territorial instruments. Integrated territorial and local development strategies are expected to ensure coherence in interventions. In order to facilitate and support capacity building of actors, innovative actions, knowledge, policy development and communication in the area of sustainable urban development, the Regulation also provides for the setting up of a European Urban Initiative to be managed by the Commission.
All urban tools are combined in a single programme (the European Urban Initiative) implemented under direct or indirect management to provide a coherent product to cities. This includes exchanges, capacity building, pilot actions, and communication.
The Regulation also sets out special measures to accommodate the specific situation of outermost regions. These include schemes to offset transport costs and investments. The thematic concentration requirements are also less stringent for these regions than the nationally applicable rates would suggest.