The Corona recovery fund is intended to be the template for cohesion policy. But it is now clear that the states are only hesitant to collect the funds. Why?
Already during the parliamentary deliberations in 2019 – here Commission President von der Leyen speaking to the media – the fronts around the budget were hardened. This will only increase in the future.
Sean Gallup / Getty
When it comes to money in the European Union, the dimensions are automatically gigantic: 648 billion euros are in the fund with which the EU wants to cushion the economic aftermath of the corona pandemic – and now also of the Russian war of aggression against Ukraine. The budget that the Union approves for each seven-year period is as much as 1.2 trillion euros. The two pots are independent of each other, but in the future they will influence each other more than their inventors had imagined.
The magic word for the Corona Recovery Fund adopted in 2021 – technically called the Recovery and Resilience Facility (ARF) – is «future-proof»The aim of the gigantic economic stimulus package is to make European economies more environmentally friendly, digital and competitive.
To do this, the EU took out loans on the capital markets at relatively favorable conditions and is now passing these on to the member states bit by bit. To get the honeypot, the countries have to reach “milestones” and “target values” – for example, they have to decide on political reforms at the national level. Just over half of the 650 billion euros are loans, the rest are grants that do not have to be repaid.
Highly indebted
It was a turning point in the history of European integration – and, depending on your point of view, the beginning of a disastrous development. The union of states had never before taken on joint debt. It did indeed demonstrate its ability to react. But at what cost? There have long been efforts to expand the debt union to other areas, including military spending. Pandora’s box will not be closed so quickly. But with every commitment, the financial risk for the EU increases, especially since large member states such as Italy and France are running at high deficits.
Now the European Court of Auditors has taken a close look at the distribution of ARF funds and found that the pace is not keeping pace with ambition. By the end of 2023, member states had used less than a third of the funds made available. The auditors see a risk that not all projects will be completed by 2026 – the agreed end of the term.
There are many reasons for the delays: Often, countries simply lack the administrative capacity to handle the large amount of money. In some cases, the necessary reforms are delayed. And inflation is putting a damper on things because projects suddenly become more expensive.
Suspected fraud
Fraud detection is not part of the Court of Auditors’ mandate. However, this does not mean that irregularities do not occur: in 2023, the European Public Prosecutor’s Office (EPPO) over 230 investigations In April, police in various countries arrested more than twenty suspects who are said to have fraudulently obtained hundreds of millions of euros from the reconstruction fund through bogus companies.
Against this background, the Court of Auditors’ criticism can also be interpreted positively. In the sense that it is good if the EU funds are only partially collected – it proves that the control mechanisms are largely working, and at least money is not being wasted.
Auditor Ivana Maletic does not disagree, but she says that this is a departure from the fund’s actual goal. It was intended to quickly give new impetus to the European economies. There is also a risk that towards the end of the term – despite milestones being achieved – there will be bottlenecks in the implementation of projects, increasing the risk of inefficient distribution of funds. Once the money has been paid out, the EU Commission has no way of demanding it back.
This leaves the question of how necessary the largest aid fund in the history of the EU really is. Economic output in the eurozone has increased, but it will never be possible to clearly assess the extent to which the stimulus via debt was responsible for this. Johannes Lindner, co-director of the Jacques Delors Centre in Berlin, sees the glass half full: “The bottom line is that the ARF is a success. The fact that we have not experienced any massive disruptions, unlike after the financial or euro crisis, is largely thanks to the fund,” he says.
«Money for reforms»
Whatever the judgment one day will be about the recovery fund, its design is now inspiring the Commission to take new approaches. “Money for reforms” is the principle of the recovery fund – and this should now also have a greater influence on the EU budget process. “We will learn from the recovery fund. It has shown us that the budget can be linked to reforms that strengthen the rule of law,” said Commission President Ursula von der Leyen on the occasion of her programmatic Network in July.
The EU budget amounts to around 1.2 trillion euros over seven years. Roughly a third of this is spent on agriculture, another third on structural and cohesion funds, which are intended to smooth out economic and social differences within the Union. These funds are also only paid out if they are used for certain subject areas, such as research, climate protection or digitalization. In addition, the recipient states, which always co-finance the programs, must meet rule of law and macroeconomic conditions.
In contrast to the recovery funds, which are administered by national governments, the structural and cohesion programs rely heavily on regional and local actors. They know the terrain best. “Linking payments to national reforms also entails risks. Regional governments, such as the German federal states, could see this as a centralization that would not be in their interest,” says Lindner.
More needs with scarcer resources
One thing is clear: the negotiations for the financing period from 2028 to 2035 are likely to be more difficult than they have been for decades. The battle for money is coming to a head. On the one hand, the EU needs significantly more funds to be able to master the multiple challenges – defense, climate change, digitalization – to some extent. On the other hand, the financial situation of some member states is already extremely precarious. The fact that debt repayments for the Corona aid fund will begin in 2028 only makes the situation worse.
Formally, the Commission must submit a first budget proposal by the beginning of July 2025. But preparatory talks have long been underway. This also involves making cohesion funds more performance-oriented. Net recipients in Central and Eastern Europe in particular naturally have little interest in shaking up the status quo. The mood at the negotiating table is guaranteed – precisely because unanimity must prevail in the end.
