EU budget and application of financial regulations

in Member States

Eric Paradis

Director Central Financial Service

DG Budget European Commission

Challenges of budget management

in the Republic of Croatia

December 11th 2014

Kuća Europe, Augusta Cesarca 4, Zagreb

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− The EU budget: facts and figures

− The implementation of the EU budget by Member States:

• Shared management: the structure

• The legal framework

• Mechanisms to enhance management and control

• Financial Instruments

− European Structural and Investment funds: how they work in practice

− The main headings of the EU budget:

− Cohesion policy

− Sustainable growth (Common Agricultural Policy)

− Main challenges in shared management of EU funds

EU budget and financial regulations in MS

Summary

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EU budget and financial regulations in MS

The EU budget for 2014-2020: facts and figures

Resources (Bln €)

2007-2013

2014-2020

Commitments

976

1033

Payments

926

1024

The Multi-annual Financial Framework defines the financial resources to pursue the policy priorities of the EU over the period 2014-2020

Ceilings for committments for broad categories of expenses (headings)

Ceilings for expenses ensure discipline and predictability of the annual budgets and makes programming easier

A comprehensive set of rules and figures that facilitates the agreement between the European Parliament and the Council on the annual budgets

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EU budget and financial regulations in MS

Some highlights: + 34 billion Euros than the previous MFF, to boost competitiveness and growth

In particular:

• Cohesion policy: 1/3 of the EU budget (globally unchanged)

• Research: +28%

• Education e mobility: +42%

• SMEs: +89%

• Infrastructures (transports-energy-tlc to connect Europe): +129%

Youth Employment Initiative (6 bln for regions with youth unemployment rate > 25%)

Broader use of innovative financial instruments (liquidity + multiplier effect)

Public-Private Partnerships (multiplier effect) 4

EU budget and financial regulations in MS

Shared management: the structure

Common

Provisions

Regulation

Partnership

Agreements

Operational

Programmes

Management

of

programmes/

Selection of

projects

Monitoring/

Annual

reporting

The implementation of the EU budget by Member

States/1:

EU Financial

Regulation

EU budget and financial regulations in MS

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The legal framework: the EU Financial Regulation

The Financial Regulation (FR) is the main point of reference for the principles

and procedures governing the establishment and implementation of the EU budget

and the control of the European Union finances

From 1 January 2013, a new FR applies, which is accompanied by new Rules of

Application (RAP). The RAP contain more detailed and technical rules, which are

essential for the day-to-day implementation of the FR:

• Simplification: cutting red tape, speeding up procedures, shifting the focus

from paperwork to performance

• Accountability: ensuring enhanced sound financial management and the

protection of the EU's financial interests

• Leverage: introducing financial mechanisms which will enable the mobilisation

of third-party funds as leverage on EU funds

The implementation of the EU budget by Member States/2:

EU budget and financial regulations in MS

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Financial Regulation

Member States shall fulfil the management and control obligations and assume the

resulting responsibilities laid down in FR and sector rules; they shall respect the principle of Sound Financial Management (Article 59(1) FR)

Member States shall:

Ensure correct and effective implementation

Prevent, detect and correct irregularities and fraud

Carry out ex ante and ex post controls

Recover funds unduly paid

Impose effective, dissuasive and proportionate penalties

Designate bodies responsible for management and control of EU funds

Common Provisions Regulation

Same provision as in FR (Article 74(1) CPR)

Member States shall be responsible for the management and control of programmes (Article 74(1) CPR)

Member States shall ensure compliance and effectiveness of management and

control systems (Articles 74(2) and 122(1) CPR)

The implementation of the EU budget by Member States/3: Responsibilities of MS

EU budget and financial regulations in MS

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Mechanisms to enhance management and control

National fund managers will have to issue annual management declarations that will be subject to independent audit

The Commission shall exclude from EU financing expenditure incurred in breach of EU law and interrupt or suspend payments to the Member States

The Commission may:

Check on the set up of systems through the designation procedure

Assess the effective functioning of management and control systems

Adopt a decision applying a net financial correction

The Commission supports the use of National Declarations, as a public accountability instrument between the national Governments and the national Parliaments

The implementation of the EU budget by Member States/4:

EU budget and financial regulations in MS

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Title IV of the Common Provisions Regulation

The European Structural and Investment Funds may be used to

support Financial Instruments, under one or more programmes, that:

• Address market failures

• Have added value

• May raise additional public and private resources (expected leverage effect)

Financial Instruments may be combined with grants and support from

other EU funds

Member States may use ERDF and EAFRD to provide financial

contribution to the SME initiative (debt financing for SMEs)

Phased EU payments to FIs:

• 1st payment = 25% of the total programme contribution committed

• 2nd payment = when 60% of the amount is spent

• 3rd payment= when 85% of the amount is spent

Financial Instruments

EU budget and financial regulations in MS

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European Structural and Investment Funds (ESIF): how they work in practice

Common rules for ESI Funds

• Simplified cost options

• E-governance

• Eligibility rules

• Financial instruments

• CLLD- Community –Led Local Development

European

Agriculture

Fund for Rural

Development

Cohesion Fund European

Social Fund

European

Regional

Development

Fund

European

Maritime and

Fisheries Fund

PARTNERSHIP AGREEMENT

EU budget and financial regulations in MS

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Research and Innovation

681 million

Combating climate change

501 million

Information and Commu-

nication technologies

308 million

Competitiveness of SMEs

1 917 million

Low-carbon economy

757 million

Environment and

resource efficiency

2 309 million

Sustainable transport

1 310 million

Better public

administration

191 million

Better education, training

730 million

Social inclusion

971 million

Employment and Mobility

614 million

11 thematic objectives to Croatia (2014-2020)

5

6

7

1

2

3

4

8

9

10

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EU budget and financial regulations in MS

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European Structural and Investment Funds(ESIF): how they work in practice

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The reforms agreed for the 2014-2020

period are designed to maximise the

impact of the available EU funding.

€1 082 billion

OVERALL EU 2014-2020 BUDGET

Other EU policies Agruculture

Research External

Etc.

€730.2 billion

67.5% 32.5%

€351.8 billion

COHESION POLICY

GROWTH

EU budget and financial regulations in MS

Cohesion Policy: 1/3 of the EU budget

€ 351.8bn COHESION POLICY

FUNDING

EXPECTED PUBLIC & PRIVATE NATIONAL CONTRIBUTIONS

LIKELY IMPACT OF COHESION POLICY

€ 500bn +

3 funds to invest in growth and jobs

DELIVERED THROUGH

3 FUNDS

EUROPEAN

REGIONAL

DEVELOPMENT

FUND

EUROPEAN

SOCIAL

FUND

COHESION

FUND

COHESION POLICY FUNDING

EU budget and financial regulations in MS

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Total EU allocations of cohesion policy 2014-2020 * (billion €, current prices)

0

100

200

300

400

500

600

700

800

AT BE BG CY CZ DE DK EE EL ES FI FR HR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK

* breakdown by category of allocations subject to transfers between categories at the request of the Member States

Cohesion Policy: Budget Allocation per Member State

EU budget and financial regulations in MS

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Budget allocation to Croatia for 2014-2020 - breakdown by fund

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EU budget and financial regulations in MS

TOTAL 10 675 million

European Regional Development Fund

4 321 million

European Social Fund 1 516 million

Cohesion Fund 2 559 million

European Agricultural Fund for Rural Development

2 026 million

European Maritime and Fisheries Fund * (except territorial cooperation)

252 million

Croatia : 4 Operational programmes

Operational programme

Thematic objectives covered

ESI Fund Allocation (EUR)

Competitiveness and Cohesion

1,2,3,4,5,6,7,9,10 ERDF, CF 6 881 million

Efficient Human Resources

8,9,10,11 ESF, Youth Employment Initiative

1 582 million

Rural Development

1,3,4,5,6,8,9,10 EAFRD 2 026 million

Fisheries 3,4,6,8 EMFF 252 million

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Performance reserve 6% funding allocated in 2019 to programmes and

priorities which have achieved 85% of their milestones.

Better focus on results

Monitoring

EU budget and financial regulations in MS

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Sustainable growth

1. European Agricultural Guarantee Fund (EAGF)

• Direct aids to farmers – for Croatia € 1 478 million (2014-2020). Phasing-in mechanism until 2022 provided for in the Act of Accession

• Market related expenditure

2. European Agricultural Fund for Rural Development (EAFRD)

• Rural development programmes - for Croatia € 2 026 million (2014-2020)

CAP Budget is (primarily) implemented via shared management with Member States

EU budget and financial regulations in MS

Common Agricultural Policy: How is it financed?

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Common Agricultural Policy

EU budget and financial regulations in MS

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Common Agricultural Policy: Financial management

Financial discipline (to ensure respect of MFF ceiling for EAGF)

Mechanism of reduction to direct payments (exceeding 2000 EUR, Member States fully phased-in – thus not applicable to Croatia).

Must be used every year to finance the crisis reserve.

The crisis reserve (400 million per year in 2011 prices)

To provide additional financing in case of agricultural crisis – the funding mechanism is set out in the Common Market Organisation Regulation [1308/2013]. Not applicable to the Croatian farmers.

Rural development

The Horizontal Regulation complements the Common Provisions Regulation.

EU budget and financial regulations in MS

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Common Agricultural Policy Protecting EU funds

Recoveries (Member States retrieving back from final beneficiaries)

Improved system common to EAGF and EAFRD

Clearance of accounts (EU retrieving back from Member States)

Overall system maintained but procedures are streamlined and should move faster

Financial corrections aligned with Financial Regulation – only flat rate correction if no other possibility

Suspensions and reductions

Broader scope and more flexible preventive procedure for suspending /reducing payments when errors in application by Member States

EU budget and financial regulations in MS

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Efficient implementation of ESIF co-financed programmes requires an

unprecedented administrative effort;

Preparation of national budget forecasts accurately, to allow efficient

budgetary planning at EU level;

Cooperation with private sector to ensure leverage effect and

relevance of investments (e.g. when developing public

infrastructures for innovation and SME);

Application of transparent procedures to ensure efficiency and

benefits for everyone;

Application of effective and proportionate antifraud measures (Article

325 of the TFEU );

Strengthening the evaluation culture in the 2014-2020 period

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EU budget and financial regulations in MS

Main challenges of shared management of EU funds

Thank you!

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EU budget and financial regulations in MS