In May 2020, following the outbreak of the COVID-19 pandemic, the European Commission proposed the creation of a novel recovery instrument, the Next Generation EU, aimed at ensuring a sustainable recovery across the EU. The Recovery and Resilience Facility (RRF) constitutes the most massive area of the Next Generation EU’s resources amounting to €723.8 billion in loans (€385.8 billion) and grants (€338 billion). The RRF resources are available to Member States to support their national reforms and investments.
On 12 February 2021, the RRF Regulation was adopted, which allowed it to enter into force a week after. In a nutshell, the RRF has a double objective. First, mitigating the economic and social impact of the COVID-19 pandemic. Second, making European economies and societies more resilient, sustainable, thus better prepared for the challenges as well as opportunities of the green and digital transitions.
To make the RRF work, each EU country has to prepare its National Recovery and Resilience Plan (NRRP) and submit it to the European Commission for official endorsement, which allows making this Plan become a legally binding act. In other words, the NRRPs have to encompass reforms and investments consistent with priorities identified in the European Semester (especially, the Country Specific Recommendations 2019 and 2020), the National Reform Programmes, the Just Transition Plans, the National Energy and Climate Plans, as well as the Partnership Agreements and Operational Programmes (OPs). The last two suggest a necessity to ensure coherence between the RRF and Cohesion Policy. Does the RRF actually resembles Cohesion Policy or is it rather a ‘different kettle of fish’ than this EU’s largest investment policy? This post seeks to answer this question by juxtaposing the RRF with Cohesion Policy.
Financial allocations and payments
First of all, the RRF and Cohesion Policy differ in terms of financial allocations. As mentioned earlier, the RRF resources amount to €723.8 billion. The substantive amount of RRF resources is allocated to ‘older’ EU countries, Italy, Spain, France and Germany. Cohesion Policy resources (i.e. the Cohesion Fund, the European Regional Development Fund and the European Social Fund+) amount to €373 billion whose the biggest beneficiaries are mainly ‘newer’ EU countries.
In Cohesion Policy, there are several OPs in some Member State (e.g. France, Spain, Italy, Poland and Germany) whereas in the RRF, there is only one NRRP per each Member State. In this regard, it must be noted that the financial support in the NRRP can cover additional resources from the EU’s budget and programmes, such as Cohesion Policy Funds. However, double-financing must be avoided, implying that the same cost cannot be covered twice.
Some differences are observed in the allocation mechanism. Regarding the RRF, the resources allocation criteria encompass inverse GDP (per capita), the population, the average unemployment rate, the fall in real GDP (in 2020 and 2020 + 2021 combined). In Cohesion Policy, the allocation mechanism is broader due to encompassing also the education level, social inclusiveness, commitments to addressing climate change.
Moreover, the payments of Cohesion Policy Fund are based on reimbursement costs submitted by Member States to the Commission. Regarding the RRF, the payments are based on the performance, thus, the results achieved. Additionally, Cohesion Policy is co-financed by the EU’s budgetary resources and Member States’ national resources.
As for the RRF, there is no co-financing. Instead, to finance the RRF (along with other components under the Next Generation EU), the European Commission – on the EU – borrows on the financial markets and redistributes the resources to Member States.
How are the RRF and Cohesion Policy managed, audited and controlled?
The major difference is embedded in the type of management. Cohesion Policy is jointly implemented by the European Commission and Member States under the decentralized system, the shared management. Unlike to Cohesion Policy, the RRF is implemented under the direct management, thus, by the European Commission as specified by the Financial Regulation.
Moreover, different criteria of audits and controls apply to Cohesion Policy and the RRF respectively. In Cohesion Policy, the controls focus on checks on controls. In the RRF, the checks of achieved milestones and targets make up the centrepiece of audits and controls.
As regards both Cohesion Policy and the RRF, Member States have to ensure the protection of the EU’s financial interests via taking necessary measures to prevent, detect and correct fraud, corruption and conflict of interest. When compared to the CPR, there are no specific procedures on irregularities reporting under the RRF Regulation.
Having things considered, the RRF is indeed a “different kettle of fish” compared to Cohesion Policy as reflected by the criteria of financial allocations, the way how disbursements are made, focus on audits and controls. Despite these differences, some remaining similarities need to be considered. First, both in the RRF and Cohesion Policy, the Partnership Principle serves as the key implementation principle. Second, the strategic use of Public Procurement is necessary under RRF as well as Cohesion Policy investments. Third, Cohesion Policy and the RRF should support only these measures which comply with the “do no significant harm” principle. Fourth, both Cohesion Policy and RRF investments are committed to supporting Green and Digital Transitions.
Last but not least, similarly to Cohesion Policy post-2020, the RRF may face challenges in the absorption of its resources. Indeed, some of the EU countries with the lowest absorption rate in Cohesion Policy funding (e.g. Italy, Spain, Croatia, Slovakia) within the recent programming period shall receive substantial RRF resources.
This calls into question whether the RRF implementation may be followed by increased regional disparities. Therefore, as regards both Cohesion Policy post-2020 and the RRF, Member States need to have sufficient administrative capacities to absorb the resources timely. Importantly, the RRF serves, as a kind of ‘tantum’ for the EU – an opportunity needed to be used in the best way.
by Julia Walczyk (Stud. FASoS / Alumni FASoS)