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)
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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
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