Iliana Ivanova: The aim is EU spending to be geared towards performance

We were given the opportunity to provide our opinion on the draft rules for cohesion policy expenditure for the next programme period post-2020

Iliana Ivanova

The debate about performance orientation of cohesion policy is not new and involved through the years many different stakeholders that had sometimes contradictory views. With our briefing paper we aim at contributing to this debate by providing relevant and focused information to all those involved in tackling the difficult political and practical challenges on how to improve performance orientation for the future, says Iliana Ivanova, Member of the ECA in an interview to Europost.

Ms Ivanova, on your radar last year was the topic of how the EU allocates funds for its cohesion policy. Is it effective enough in closing the gap between rich and poor regions, and what are the main challenges identified?

Indeed, last year we published a Rapid case review on the process of allocating cohesion policy funds to Member States for the next programme period 2021-2027. The European Commission proposed that the EU spends €373bn in that area. In this context, it is important to know how these funds are allocated between the different regions and Member States.

The table with the amounts per Member State published by the Commission is the outcome of a big machinery of complex processes, which may seem sometimes un-transparent. But to be fair, this time, the Commission was much more open when publishing its proposal and provided all the main elements relating to the methodological aspects already in the proposed Regulation.

During our review, we observe that the allocation process proposed for 2021-2027 follows the model used for previous periods. While climate change and migration have been brought into some parts of the process, the effect is limited; the most significant factor for allocation of the funds remains relative wealth, with 75% of the funding going, as in previous periods, to less developed regions.

What could be improved for the future in this policy area?

Cohesion policy evolved a lot during the last three decades. The Commission together with the European Parliament and Council made many improvements in terms of its design in order to achieve a more performance-oriented policy. However, these design improvements have not always been matched by improvements in the implementation phase, mainly in the Member States.

We should be ambitious and always strive to achieve more with the available financial resources. We were given the opportunity to give our opinion on the draft rules for the cohesion policy spending for the next programme period post-2020. It shows that the Commission's proposal has succeeded in simplifying the text, but the focus on value for money has not been increased and the accountability arrangements have in part been significantly weakened. In this context, we make around sixty proposals to legislators and the Commission to consider, which could lead to a more effective and efficient cohesion policy.

I hope that the legislators, who are currently discussing the final texts, will be able to come to an agreement as soon as possible. This is crucial for avoiding any important delays when it comes to the implementation of the policy for the next seven years.

In its briefing paper, ECA urged that performance in EU cohesion spending should be strengthened. How exactly could it happen?

The debate about performance orientation of cohesion policy is not new and involved through the years many different stakeholders that had sometimes contradictory views. With our briefing paper we aim at contributing to this debate by providing relevant and focused information to all those involved in tackling the difficult political and practical challenges on how to improve performance orientation for the future.

With our analysis, we identified 14 guiding principles relating to the different stages of the policy cycle and assessed them for the three programme periods - 2007-2013, 2014-2020 and the design of 2021-2027. We believe that they are key to making sure that EU spending is geared towards performance.

For example, our first principle refers to the need for a clear and consistent vision of what the EU wants to achieve with cohesion policy funds. We see that there is such a vision for the current programme period contained in the EU 2020 strategy. However, we lack the clarity and coherence for the next period.

The Commission proposed cohesion spending for 2021-2027 which is 10% less than in the previous seven years. Which countries will be harmed from the cuts and which will not be affected?

For the first time, the Commission has included in its draft legislation the amounts allocated to each Member State resulting from the methodology. I believe that this is a step in the right direction. The allocation process is broadly similar to the previous period. In addition, there are caps and safety nets designed to limit significant variations between periods. However, differences in individual Member States' allocations range from a reduction of 24% to an increase of 8% with an average reduction of 10%. A significant factor for these variations is the changed prosperity level of many regions, which led to reclassification of their status.

Is it a step in the right direction, the inclusion of migration and greenhouse gas emissions among the criteria for financing from the cohesion policy funds?

Greenhouse gas emissions and migration are issues that are high on the European political agenda. It is therefore logical to see them also featuring in the criteria used for the allocations of cohesion policy. We see however that these additional elements have limited effect on the allocations. While regions can also benefit from additional funds relating to socio-economic and environmental factors - unemployment, particularly youth unemployment, educational attainment, greenhouse gas emissions and migration - we observe that the main criterion determining cohesion policy allocations remains relative prosperity.

What are the risks of shifting additional responsibility for managing and controlling EU funds to the Member States?

It makes sense, and we welcome the fact that the Commission proposes to build on the achievements that have been made in the past in terms of strengthened internal control and transfer those elements which function well to the new programme period.

On the other hand, we have concerns that the proposed legislation tends to shift additional responsibilities for the management and control of EU funds to the Member States national authorities. In our document we stress that limiting, or even eliminating, the Commission's supervision of how Member States spend EU funds could jeopardise the progress made in recent years in reducing the level of irregular and ineffective spending in the area of cohesion.

In its 2018 annual report, published two months ago, the ECA has found that great level of errors remain in high-risk spending areas such as rural development and cohesion. What is the reason for this and how can it be limited?

For a third year in a row, we issued a qualified opinion on the regularity of financial transactions, which is good news. This reflects the fact that significant part of the EU expenditure for 2018 was not materially affected by errors. However, we see that high-risk spending areas such as cohesion and rural development remain prone to error. In these areas, payments from the EU budget are made to reimburse beneficiaries for the costs they have incurred. These spending areas are subject to complex rules and eligibility criteria, which may lead to more errors.

Our 2018 audit results confirm our findings for 2016 and 2017, namely the way expenditure is disbursed has an impact on the risk of error. In contrast to cost reimbursements, which are high-risk, we observe that entitlement-based payments are low-risk expenditure and were below our materiality threshold for the financial year 2018.

Where does Bulgaria stand in the annual report for 2018 - are there errors detected?

The Court's annual report provides no ranking per Member State or assessments per Member State. It provides, however, information on the audited transactions. The good news this year is that we see that for the financial year 2018, out of 19 transactions checked in Bulgaria in the area of agriculture and cohesion, no quantifiable errors have been detected. In addition, no examples of errors relating to Bulgaria have been presented in the report.

What trends does the audit preview on European Roads show?

Let me underline that this performance audit aims at assessing the actions undertaken by the European Commission on roads connecting European regions.

Transport is one of the most important sectors of the EU economy and contributes to economic growth while it has a vital role in enabling both movement of people and of goods. The Commission has initiated a number of actions to support the development of a core network by 2030 and a comprehensive network by 2050 while around €82bn have been allocated to roads for the 2007-2020 period. The major beneficiaries of funding are central and eastern European Member States. This special report is expected to be published next year and at this stage, it would be premature to provide any conclusions or recommendations, as the audit work is still ongoing.

The Court has announced recently the start of a performance audit on the topic of urban mobility in the European cities. What are the main challenges that you have identified during your work on that topic?

Inefficient travel networks in urban areas cost Member State economies an estimated €110bn per year, while road transport is responsible for a significant part of air pollution and environmental noise in the European cities. We should also not forget that research shows that in highly congested regions, free-flowing traffic could mean productivity gains of up to 30%.

In recent years, the EU has put in place a range of policies to help Member States and their cities to address this issue, including €60bn from the EU budget.

With our audit, we will assess the effectiveness of the Commission measures as well as the use of EU funding. Another important aspect would be the progress made during the 2014-2020 period in terms of making urban transport more sustainable. We expect to publish our report in spring next year.

Digital transformation is another topic high on the European agenda. Currently the Court of Auditors is carrying out an audit on that topic. Could you tell us a bit more about it?

Indeed, we are currently carrying out our second audit in that area. Last year we published our first report focusing on the broadband infrastructure in the EU. We are currently auditing the European Commission initiative “Digitising European Industry”, and we foresee a third audit focusing on digital skills.

Today, the EU has many competitors at the global arena and the digital transformation is seen as one of the ways to make the EU economy more competitive.

In April 2016, the Commission launched the “Digitising European Industry” initiative, which includes the objective of mobilising over €50bn of investment between 2016 and 2020. This initiative includes support for Digital Innovation Hubs, revision of the legal framework in line with the digital age, and a European platform of national initiatives to digitise industry.

We are currently assessing the effectiveness of the initiative and we hope to come with practical and useful recommendations that will make the EU actions more successful.

  

Close-up:

Iliana Ivanova has been a member of the European Court of Auditors since January 2013. In 2016, she was elected Dean of Chamber II, responsible for Cohesion, social inclusion and growth, and she has been responsible for a number of special reports in the area of employment, digitalisation and transport. Prior to assuming the position, she served as Bulgarian MEP from the Group of EPP/GERB, vice-chair of the Committee on Budgetary Control, member of the Committee on the Internal Market and Consumer Protection and vice-chair of the Delegation for relations with the People's Republic of China. Iliana Ivanova has a Master's degree in international economic relations from the University of Economics, Varna, and a Master of Business Administration in global management from Thunderbird University, Arizona, US.

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