Explanatory Memorandum to COM(2008)803 - Amendment of Regulation (EC) No 1083/2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund concerning certain provisions relating to financial management - Main contents
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| dossier | COM(2008)803 - Amendment of Regulation (EC) No 1083/2006 on the European Regional Development Fund, the European Social Fund and the ... |
|---|---|
| source | COM(2008)803  |
| date | 26-11-2008 |
· Reasons and objectives for the proposal
The unprecedented crisis besetting the international financial markets has created major challenges for the European Union and requires a rapid response in order to counter the impacts on the economy as whole. It is in this context that the Commission wishes, together with the Member States, to act to strengthen investment with a view to generating renewed growth and job creation. This is the purpose of the Commission Communication entitled 'From financial crisis to recovery: a European framework for action' adopted on 29 October 2008.
· General context
There are real fears that the financial crisis is substantially affecting the real economy due to the difficulties encountered by the banks and the tightening of credit (raising of interest rates, greater selectivity in borrowers) which could reduce household consumption as well as business investment, support to innovation, technological and industrial development with negative concomitant effects on GDP and employment.
The Commission's most recent economic forecasts predict a marked reduction of growth in the European Union - which would fall to 1,4 % in 2008 (half of that achieved in 2007), 0,2 % in 2009 and 1,1 % in 2010. These poor economic prospects will probably weigh heavily on public finances. Assuming unchanged policies, budget deficits could increase from 1 % of GDP in 2007 to 2,6 % in 2010. Reliable forecasting on public finances - and particularly in the area of debt - is difficult, however, on account of the uncertainty surrounding the budgetary impacts of emergency measures already taken by governments.
In order to combat the effects of the crisis, the Member States have acted both individually and though concerted actions agreed at European and international levels. In the United States, the government agreed to nationalise – on a case by case basis – companies in difficulty; this followed the agreement in early October for the State to buy $700 billion of assets at risk. In Europe different national plans announced at the same time total some €1.700 billion, comprising both refinancing guarantees and recapitalisation / nationalisation measures.
It is in this context that the Commission has endeavoured to contribute to the debate currently taking place within the Union and with its international partners on how best to react to the current financial crisis and to its socio-economic consequences. In particular the Commission has examined together with Member States the possibility of accelerating investment projects and payments to Member States.
To do this, cohesion policy represents the most powerful and relevant lever for assisting the real economy. With total financial resources of €347 billion for the 2007-2013 period and €250 billion of this envelope earmarked for Lisbon-related investment, cohesion policy provides a powerful support for both budgetary stability and public investment in the Member States and the regions of the European Union.
· Provisions in force in the policy sphere of the proposal
The serious economic repercussions suffered by the European economy will include the reduction of growth perspectives over the medium term and the marked slow-down in real growth in 2009 and 2010. According to the latest available forecasts, several national economies will be in recession. These poor economic prospects will have considerable negative impacts on the public finances of the Member States. Moreover the basic conditions for implementing cohesion policy – which requires public match-funding in order to mobilise Structural Funds – risk being seriously disrupted.
In such a situation, certain regulatory provisions presently in force should be adapted in order to accelerate the implementation of investment projects and the making available of Community financial resources for the benefit of the Member States and the regions of the European Union. These provisions include those relating to pre-financing, those concerning expenditure declarations – more specifically, on the one hand, the reimbursement of advances paid to beneficiaries within the framework of State Aids in the meaning of Article 87 of the Treaty and, on the other, major projects and finally those relating to the eligibility of expenditure and financial engineering instruments.
· Consistency with other policies and objectives of the Union
Not applicable.
· Consultation of interested parties
The effectiveness of actions undertaken by public authorities to counteract the negative effects of the financial crisis on the real economy requires rapid intervention. The urgency of the situation has not allowed prior consultation of the Member States. Thus, although these measures seek to accelerate the implementation of programmes, some of them are also simplifying in nature. In this connection the Member States have stated on several occasions that the work on the revision of Article 55 of the General Regulation should be continued. Additionally the European Parliament and the European Court of Auditors have repeatedly expressed their wish to simplify the regulations governing the Funds.
· Procurement and use of expertise
Use of external expertise has not been necessary.
· Impact analysis
All options for the acceleration of implementation, including the simplification of certain administrative procedures, have been discussed. The present proposal completes a series of non-regulatory adjustments which seek to ensure that Member States can fully exploit the existing scope for flexibility including, where necessary, the possibility of modifying or simplifying programmes in order to adapt them to new requirements. Equally the Commission calls on Member States to finalise the description of their system of their management and control systems in order to accelerate their acceptance, thus permitting quicker handling of interim financial transactions while respecting the rules of sound financial management.
This willingness to simplify the management of the Funds will undeniably have a positive impact on the pace of programme implementation, particularly in terms of providing greater levels of liquidity resource at the start-up stage.
Accelerated implementation of operational programmes will also represent an effective contribution hastening a return to normal economic conditions once the crisis is over. In fact an increase in advances to beneficiaries within the framework of already approved programmes will actually provide additional liquidity at all territorial levels. Equally these advances will help strengthen the impact of cohesion policy on the real economy.
Contents
· Summary of the proposed measures
The proposed modifications to Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund seek to counteract the negative effects of the economic crisis in its totality, in order to accelerate in the short term the implementation of the Funds for the benefit of the real economy, notably through strengthened support to SMEs.
The proposed modifications are concentrated on four principal areas:
· extending the scope of application of Article 44 relating to financial engineering instruments for the intervention of the EIB and EIF in support of Member States for the preparation and implementation of operational programmes;
· an amendment to Article 56 relating to the eligibility of expenditure with a view to clarifying the possibility of payment of overheads on the basis of flat rates and to introduce the possibility of in-kind contributions being considered as eligible expenditure at the time of establishing - or contributing to – funds;
· A modification of the dispositions relating to expenditure declarations: (i) for major projects with the removal of the prohibition from including incurred expenditures for such projects in interim payment requests before major project approval by the Commission and (ii) for State Aids within the meaning of Article 87 of the Treaty through the removal of the 35 % limit hitherto attaching to advances paid to beneficiaries by the body granting the aid, thus permitting advance payments of up to 100 %, other conditions remaining unchanged;
· An increase in the third pre-financing instalment (2009) of 2 % for Structural Funds for those Member States that acceded to the European Union on or after 1 May 2004, the creation of a third instalment (2009) of 2,5 % for Structural Funds for all those Member States which had acceded to the European Union as constituted before 1 May 2004, in terms of the territorial co-operation objective, if the programme contains at least one participating Member State which acceded to the European Union on or after 1 May 2004, it is attributed an additional percentage advance of 2% in 2009. These additional resources which should be made available at the beginning of the year should be rapidly transferred to beneficiaries, taking due account of the rules of sound financial management.
· Legal base
Council Regulation (CE) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 defines the common rules applicable to the three Funds. Based on the principle of shared management between the Commission and the Member States, this regulation includes provisions for a new programming process as well as new arrangements for programme (including financial) management, monitoring, financial control and evaluation of projects.
· Subsidiarity principle
The proposal complies within the subsidiarity principle to the extent that it seeks to provide flanking support to the Member States in their combat against the effects of the present financial crisis through changes strengthening their role within the framework of shared management of the Funds.
· Proportionality principle
The proposal conforms to the proportionality principle for the following reasons.
On account of its being limited to five articles of the General Regulation, it allows discussion to be focussed on a few provisions of relatively technical nature and thus creates the conditions for a rapid (legislative) revision, the only means of guaranteeing legal uncertainty which is strictly limited in terms of time and a rapid contribution towards the revival of economic activity in the European Union.
Moreover, by reason of the principles of equality of treatment and legal security, only the amendment relating to Article 56.2 should apply retrospectively from 1 August 2006, the date of coming into force of Regulation (CE) No 1083/2006.
Thanks to the proposed simplifications, the financial and administrative burden on the Member States will be reduced.
· 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 Funds Regulations to accelerate investment projects and the commitment of Community resources for the benefit of the Member State economies and the regions of the EU. Alongside the non-regulatory modifications presented in the Communication of 26 November 2008, the Commission proposes modifications to the General Regulation which are limited to five Articles. The objective of these revisions is to facilitate the mobilisation of Community resources for the start-up of projects thereby accelerating both their implementation and the impact of such investments on the real economy.
The amount of additional advance payments foreseen in 2009 on the basis of the proposal totals €6,3 billion. Other proposed amendments may increase the speed of interim payments.