Regional funds to be tied to deficit targets

The European Commission provoked anger yesterday by proposing that structural funds, which are distributed to regions according to their wealth, should be conditional on member states meeting Europe-wide macroeconomic targets on – for example – the size of their public deficit.

Outlining its plans for regional policy in the next European Union budget period between 2014 and 2020, the commission said the administration of the €376bn of funds should be simplified, and targeted on a range of specific themes linked to the Europe 2020 strategy, including growth, jobs, poverty, climate and competitiveness.

The EU executive said it would allocate 5 per cent of the budget to reward member states that met specific goals set out in new Partnership Contracts. But it stoked controversy by arguing that as a last resort money – which is given mostly to the EU's poorest regions – could be withdrawn from countries that do not comply with economic governance rules, including on the size of their deficits.

That was firmly rejected by the Committee of the Regions, the EU's assembly of local representatives. President Mercedes Bresso said: "It is irritating that the commission ignored the strong opposition of the Committee of the Regions, the European Parliament and of the other concerned stakeholders on this point." Support from the EU had a "crucial role to play" in the economic recovery and withdrawing funding would "only make matters worse," she said. "This measure would punish regional and local authorities for the failures of their national governments." Bresso "broadly welcomed" the rest of the proposals.

The threat to cut off funding also angered Conny Reuter, general secretary of Solidar, a network of European non-governmental organisations. "The legislative procedure now has to make sure that it does not end up in a dead-end street of fiscal consolidation but becomes a clear commitment to invest in people," he said. The idea "highlighted the general tendency in the EU to focus on financial and fiscal orthodoxy," and Reuter cautioned that the most vulnerable and disadvantaged in society would be punished twice, first by austerity measures and then through the withdrawal of financial support. Otherwise the proposals "definitely go in the right direction," he said.

Likewise, Stephen Hughes MEP and Patrizia Toia MEP for the Progressive Alliance of Socialists and Democrats in the parliament said, in a joint statement, that linking regional policy to deficit targets would be a breach of solidarity. They warned that "EU citizens should not be punished for the difficulties of their governments in reducing public deficits". Nevertheless, they supported the approach of tying regional policy to the wider Europe 2020 strategy: "We need to focus on growth and jobs because the European economy faces the risk of recession and has a large number of unemployed and a growing number of poor people."

Commissioner for Regional Policy Johannes Hahn, presenting the plans, said: "Cohesion policy has already contributed a lot to building prosperity in the EU. But given the economic crisis, it must now become a motor for growth and competitiveness. Our proposals will make EU funds work even harder. By targeting investments on the keys to growth – small and medium sized enterprises, innovation, energy efficiency – we will achieve a greater impact. And we are modernising the policy with conditions to ensure performance and results, incentives for those who deliver most effectively, and simplified procedures."

Regional policy consists of five pots of money: the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund, which are allocated according to a region's gross domestic product. The commission proposed to simplify the rules so that all the funds are governed by a single integrated framework. Eligibility rules would be made simpler and administration moved online.

The Alliance of Liberals and Democrats said the costs of cohesion policy for member states' managing authorities should be brought down. "We need to keep administrative burdens at national levels to a minimum," said Ramona Manescu MEP. "I am proposing a standardised single audit model at all levels to avoid duplication of audits and allow for an efficient monitoring and control system." The commission was right to focus on specific long-term objectives such as growth, job creation, climate change and tackling poverty, she added.

And Greens/European Free Alliance MEP Jill Evans praised the commission for realising that the process of applying for cohesion funds needed simplifying. "This has been one of my main complaints in the past. Organisations who wanted to access the funding found it too difficult," she said. But sanctions for breaching deficit thresholds went "against the spirit" of the policy, she said, because deserving cases could miss out.

For Paul Bevan, secretary general of EUROCITIES, a network of local governments representing Europe's cities, the emphasis on urban areas was welcome. "Only investment in metropolitan Europe can lead us back into growth," he said. But he was critical of the "minimal" allocation for sustainable development and an "arbitrary" limit of 20 cities per member state to be partners in delivering on the Europe 2020 strategy.

There are now likely to be months of tough negotiations between the parliament and the European Council before proposals are adopted in late 2012. This was the "starting point of a big debate on the future of regional policy," according to Lambert van Nistelrooij MEP, a member of the centre-right European People's Party. He said the group was "very positive". And Danuta Hübner MEP, one of Hahn's predecessors as commissioner, said it was a "tailor-made investment policy that contributes to growth, job creation and competiveness."