Friday

2nd Dec 2022

EU gears up to roll out recovery funds - but not before summer

  • Each EU member state national plan to access the funds needs to include a minimum of 37 percent of expenditure related to climate: decarbonised transport and charging stations are some of the ideas (Photo: Yadid Levy / Nordic Council)

The European Parliament is set to give the green light on Tuesday (9 February) to the rules for paying out €672.5bn to member states under the EU's recovery fund aimed to alleviate the economic impact of Covid-19.

But the disbursement of the funds will still take months to start.

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EU officials on Monday said that no decision on releasing the funds can be taken before the so-called "own resources" decision is approved by EU countries.

The new own-resources limit, agreed by EU governments last year, allows the EU Commission to raise funds on the financial markets to finance the recovery fund.

The commission is likely to go to markets in "late spring" to finance pre-payments for the recovery fund, economic commissioner Paolo Gentiloni has said previously.

So far, only six countries have ratified the own resources decision - out of the 27 member states.

In the meantime, EU governments need to put forward their own domestic plans on how they plan to use the funds.

The plans will be assessed by the commission, before a decision by the council of member states on approving the funds for them.

Financially more conservative member states, who are also net contributors to the EU budget, wanted to have a say in the approval of the funds, to keep an eye on countries that have been sluggish in reforming their economies.

Under the fund, €312.5bn is available in free grants and €360bn in loans for member states: the grants will be committed until the end of 2022, and loans can be requested until August 2023.

Payments will be made after a country fulfills targets in their reform and investment plans. However, they can request up to 13 percent pre-financing for their plans.

Measures by EU governments being implemented from February 2020 until August 2026 can be taken into account, when asking for financing from the recovery fund.

End of April

EU officials said the aim is to help all EU countries submit their plans by the end of April.

The plans need to include a minimum of 37 percent of expenditure on climate action, and at least 20 percent on digitalisation.

The EU's aim is that the investment and reforms have a lasting impact on EU economies by making them more resilient, digital and greener.

So far, 18 member states have a draft plan, six countries shared elements of their plans with the commission, and three countries have only engaged in "general discussion", EU officials said.

One of those three is the Netherlands - which will hold a general election on 17 March, allowing the new government to finalise plans.

Hungary warned on fraud

The assessment of existing draft plans has already started.

The commission told Hungary to reform its public procurement law to curb systematic fraud in the country before it can access the recovery funds, Reuters reported.

The commission listed legal changes in order to have more transparency, real competition between bidders and accountability in public procurement, as Hungary had one of the highest 'single-bidder' rates in the EU, and conflict-of-interest laws marred by loopholes.

Hungary, which has already locked horns with the EU over rule of law, had irregularities in almost four percent in its spending of EU funds, a first among member states, according to the EU's anti-fraud agency, OLAF.

The country has also seen the sharpest drop among EU countries in the annual corruption index compiled by Transparency International (TI), a global NGO.

"Competition in public procurement is insufficient in practice," said an internal commission document, seen by Reuters.

It added that it was linked to "systemic irregularities" that "led to the highest financial correction in the history of (EU) structural funds in 2019".

"The commission has been pushing for a better analysis and control of public procurement risks for many years," the document read.

"But there seems to be political opposition at the highest level. These measures are simple to implement from a technical perspective and fit into the digitalisation objectives," the commission document was quoted by Reuters.

EU links access to recovery fund to economic advice

Most EU countries are now breach the common fiscal rules, as governments tackle the economic fallout of the coronavirus pandemic. The commission plans to link recovery funds to countries following its budgetary advice - but sanctions seem to be few.

EU leaders agree corona recovery after epic summit

After gruelling five-day talks, EU leaders agreed on €390bn in grants and €360bn in low-interest loans to hardest-hit member states - after much opposition from the Dutch-led 'frugal' bloc of countries.

Recovery plan slammed for failing to tackle climate crisis

EU leaders agreed that about a third of the €750bn recovery package and the €1.074 trillion seven-year budget will be invested in projects contributing to climate action. However, environmental activists said that the package falls short on climate safeguards.

Commission waiting on 10 states for recovery bonds

Budget commissioner Johannes Hahn said Germany, Estonia, Austria, Poland, Hungary, Finland, the Netherlands, Romania, Ireland, and Lithuania have not yet ratified the necessary domestic legislation.

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