EUROPEAN COMMISSION

Brussels, 27.6.2016

COM(2016) 418 final

2016/0193(COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) N° 1303/2013 as regards certain provisions relating to financial management for certain Member States experiencing or threatened with serious difficulties with respect to their financial stability

EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

Reasons for and objectives of the proposal

The sustained financial and economic crisis has put national financial resources under pressure as Member States pursue necessary policies of fiscal consolidation. In this context, ensuring a smooth implementation of programmes supported by the European Structural and Investment Funds (ESIF) is of particular importance for investment in growth and jobs.

Programme implementation is often challenging, not least as a result of the liquidity problems resulting from fiscal consolidation. This is particularly the case for those Member States which have been most affected by the crisis and have received financial assistance under an adjustment programme.

To ensure that these Member States continue to implement ESIF programmes on the ground and disburse funds to projects, Article 24 of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 1 allows the Commission to make increased payments ('top-up') from 1 January 2014 to 30 June 2016 to those countries which benefitted from financial asistance after 21 December 2013.

Five countries were eligible for the top-up provision in the aformentioned period, namely Cyprus, Greece, Ireland Portugal and Romania.

In addition, Article 120 of Regulation (EU) No 1303/2013 provides that from 1 January 2014 to 30 June 2017, the maximum co-financing rate at the level of each priority for all operational programmes supported by the ERDF and ESF in Cyprus shall be 85% instead of 50% applicable to more developed regions 2 . This exceptional co-financing rate has been provided to Cyprus given the fragile situation of its economy. It helps bridging a period of high public investment needs on the one hand, and sustained fiscal consolidation efforts on the other, by increasing the necessary fiscal space for investments supported by Cohesion policy funding.

Article 24(3) and Article 120(3) of Regulation (EU) No 1303/2013 require the Commission to review these two financial provisions and make, if necessary, a legislative proposal before 30 June 2016 with a view to their possible extension.

The current proposal would allow the Commission to continue making increased payments to any Member State which will benefit from financial assistance after 30 June 2016 for the period it will be under this support mechanism, without modifying the overall ESIF allocation in 2014-2020. Moreover, the proposal would allow Cyprus to apply the maximum co-financing rate of 85% for Cyprus until programme closure.

The measures would provide additional financial resources or the necessary budgetary flexibility facilitating the implementation of ESIF programmes on the ground.

General context and provisions in force in the policy sphere of the proposal

Article 24 of Regulation (EU) No 1303/2013 provides that on the request of a Member State with temporary budgetary difficulties, i.e. those countries which have received financial assistance under an adjustment programme after 21 December 2013, interim payments may be increased by 10 percentage points above the co-fianancing rate applicable to each priority for the ERDF, ESF, and the Cohesion Fund or to each measure for the EAFRD and the EMFF, provided the Member State submits a corresponding request. This provision currently applies until 30 June 2016.

Article 120(3) of Regulation (EU) No 1303/2013 provides that from 1 January 2014 to 30 June 2017, the maximum co-financing rate at the level of each priority for all operational programmes supported by the ERDF and ESF in Cyprus shall be 85% instead of 50% applicable to more developed regions.

Consistency with other Union policies

The proposal is consistent with other proposals and intitiatives adopted by the European Commission as a response to the financial crisis.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

Legal basis

Regulation (EU) No 1303/2013 defines the common rules applicable to the ESI Funds. Based on the principle of shared management between the Commission and the Member States, this Regulation includes provisions for the programming process as well as arrangements for programme (including financial) management, monitoring, financial control and evaluation of projects.

Article 24(3) and Article 120(3) of Regulation (EU) No 1303/2013 require the Commission to review the two aforementioned financial provisions and make, if necessary, a legislative proposal before 30 June 2016 with a view to their possible extension.

Subsidiarity (for non-exclusive competence)

The proposal complies within the subsidiarity principle to the extent that it provides continued increased support through ESIF for certain Member States which experience serious difficulties, notably with problems in their economic growth and financial stability and with a deterioration in their deficit and debt position, also due to the international economic and financial environment. In this context, it is necessary to establish at the European Union level a temporary mechanism which allows the European Commission to increase the reimbursement on the basis of the certified expenditure under ESIF and to provide a higher co-financing rate for all operational programmes supported by the ERDF and ESF in Cyprus.

Proportionality

The proposal conforms to the proportionality principle:

The extension of the period during which the increased interim payments are due is proportional in relation to the sustained economic crisis and to the other efforts undertaken to help Member States in budgetary difficulties benefiting from financial assistance under an adjustment programme.

The extension of the application of the increased co-financing rate for Cyprus is proportional in relation to the fragile situation of the Cypriot economy. It will help bridging a period of high public investment needs in Cyprus on the one hand, and sustained fiscal consolidation efforts on the other, by increasing the necessary fiscal space for investments.

Choice of the instrument

Proposed instrument: amendment of the current regulation.

The Commission has explored the scope for manoeuvre provided by the legal framework and considers it necessary, in the light of experience up to now, to propose modifications to the General Regulation.

3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

Ex-post evaluations/fitness checks of existing legislation

There was no ex-post evaluation/or fitness checks of the existing legislation.

Stakeholder consultations

There was no consultation of external stakeholders

Collection and use of expertise

Use of external expertise has not been necessary.

Impact assessment

The proposal would allow the Commission to top up payments to a Member State under an adjustment programme after 30 June 2016. It would cover the period until 30 June of the year following the calendar year in which the Member State stops receiving financial assistance. This approach is in line with the ESI Funds accounting year which covers the period from 1 July to 30 June. It would extend the period of eligibility up to maximum18 months.

The increase will be an amount calculated by applying ten percentage points top-up to the co-financing rates applicable to the priorities (under ERDF, ESF and the Cohesion Fund) or measures (under EAFRD and EMFF) of the programmes to the certified expenditure submitted during the period in question until the ceiling for payments is reached.

Moreover, the proposal would allow the Commission to extend the exceptional co-financing rate of 85% for the ERDF and ESF in Cyprus until programme closure.

The total financial allocation for the period from the Funds to the countries and the programmes in question will not change.

Regulatory fitness and simplification

This is not an initiative within the Regulatory Fitness Programme (REFIT).

Fundamental rights

The proposal has no consequences for the protection of fundamental rights.

4.BUDGETARY IMPLICATIONS

There is no impact on commitment appropriations since no modification is proposed to the maximum amounts of ESIF financing provided for in the operational programmes for the programming period 2014-2020.

For payment appropriations related to the extension of the top-up provision according to Article 24, the proposal can result in a higher reimburserment to the Member States concerned. The additional payment appropriations for this proposal may imply a temporary increase of payment appropriations, which would be compensated by lower payments at the end of the life cycle of the 2014-2020 programmes. It should be noted that the proposed modification does not imply any changes in the Multiannual Financial Framework annual ceilings for commitments and payments, which are set out in Annex I of Regulation (EU) No 1311/2013.

5.OTHER ELEMENTS

Implementation plans and monitoring, evaluation and reporting arrangements

Not applicable. The existing delivery systems of the ESIF can be used to monitor the implementation of this proposal.

Explanatory documents (for directives)

Not applicable

Detailed explanation of the specific provisions of the proposal

Given that Greece, Cyprus, Ireland, Romania and Portugal were under an adjustment programme after 21 December 2013 as defined in Article 24(1) of Regulation (EU) No 1303/2013, five countries were eligible for the 10% top-up on interim payments submitted before 30 June 2016. Since then the financial assistance programmes for Cyprus, Ireland, Portugal and Romania have expired. This means that Greece is the only country under an adjustment programme on 30 June 2016.

A further revision of eligibility for the top-up in 2014-2020 would not appear necessary as countries subject to adjustment programmes need to have certainty about the timing and level of EU payments.

Given that Cyprus signed an adjustment programme with the EU in March 2013, Article 120(3) of Regulation (EU) No 1303/2013 provides an exceptional co- financing rate of 85% for all operational programmes supported by the ERDF and ESF in Cyprus from 1 January 2014 until 30 June 2017.

Cyprus exited its adjustment programme at the end of March 2016. However, the economic situation of Cyprus is still fragile as reflected by its sluggish growth rate, declining investment, high unemployment and stressed financial sector.

To ease the pressure on the national budget and accelerate much-needed investments, it is proposed to extend the co-financing rate of 85% for all operational programmes supported by the ERDF and ESF in Cyprus until programme closure.

2016/0193 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Regulation (EU) N° 1303/2013 as regards certain provisions relating to financial management for certain Member States experiencing or threatened with serious difficulties with respect to their financial stability

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 177 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee 3 ,

Having regard to the opinion of the Committee of the Regions 4 ,

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1)Article 24(3) of Regulation (EU) No 1303/2013 provides that the Commission is to examine the increase of interim payments from the ESIF by an amount corresponding to ten percentage points above the actual co-financing rate for each priority/measure for Member States which were under an adjustment programme after 21 December 2013 and have requested to benefit from this measure until 30 June 2016 provided for in that provision and to submit to the European Parliament and the Council a report 5 with its assessment and, if necessary, a legislative proposal before 30 June 2016.

(2)Five Member States were eligible for an increased payment under Article 24 of Regulation (EU) No 1303/2013, namely Romania, Ireland, Portugal, Cyprus and Greece. Romania, Ireland, Portugal and Cyprus completed their respective economic adjustment programmes. Only Greece is still under an adjustment programme and benefits from related financial assistance until the third quarter of 2018. Given that Greece still faces serious difficulties with respect to its financial stability, the duration of the application of an increase in payments for Member States with temporary budgetary difficulties should be extended.

(3)However, the possibility for increased payment should end on 30 June of the year following the calendar year in which a given Member State stops receiving financial assistance under an adjustment programme.

(4)Article 120(3) of Regulation (EU) No 1303/2013 requires the Commission to carry out a review to assess the justification for maintaining a maximum co-financing rate of 85% at the level of each priority for all operational programmes supported by the ERDF and ESF in Cyprus after 30 June 2017 and to make, if necessary, legislative proposal before 30 June 2016.

(5)Cyprus exited its adjustment programme in March 2016. However, the economic situation of Cyprus is still fragile as reflected by its low growth rate, declining investment, high unemployment and stressed financial sector. To ease the pressure on the national budget and accelerate much-needed investments, the co-financing rate of 85% for all operational programmes supported by the ERDF and ESF in Cyprus should therefore be extended until programme closure.

(6)In order to allow for the prompt application of the measures provided for in this Regulation, this Regulation should enter into force on the day following that of its publication in the Official Journal of the European Union,

HAVE ADOPTED THIS REGULATION:

Article 1

Regulation (EU) No 1303/2013 is amended as follows:

1.Article 24 is replaced by the following :

"Increase in payments for Member State with temporary budgetary difficulties

1. On the request of a Member State, interim payments may be increased by 10 percentage points above the co-financing rate applicable to each priority for the ERDF, ESF and the Cohesion Fund or to each measure for the EAFRD and the EMFF.

If a Member State meets one of the following conditions after 21 December 2013, the increased rate, which may not exceed 100 %, shall apply to its payment applications for the period until 30 June 2016:

(a) where the Member State concerned receives a loan from the Union under Council Regulation (EU) No 407/2010;

(b) where the Member State concerned receives medium-term financial assistance in accordance with Regulation (EC) No 332/2002 conditional on the implementation of a macro-economic adjustment programme;

(c) where financial assistance is made available to the Member State concerned conditional on the implementation of a macroeconomic adjustment programme as specified in Regulation (EU) No 472/2013.

If a Member State meets one of the conditions set out in the second subparagraph after 30 June 2016, the increased rate shall apply to its payment applications for the period until 30 June of the year following the calendar year in which the related financial assistance comes to an end.

This paragraph shall not apply to programmes under the ETC Regulation.

2. Notwithstanding paragraph 1, Union support through interim payments and payments of the final balance shall not be higher than the public expenditure or the maximum amount of support from the ESI Funds for each priority for the ERDF, ESF and the Cohesion Fund, or for each measure for the EAFRD and the EMFF, as laid down in the decision of the Commission approving the programme, whichever is lower.";

2.Article 120(3) is amended as follows:

The second sub-paragraph is replaced by the following:

"For the period from 1 January 2014 until programme closure the co-financing rate at the level of each priority for all operational programmes in Cyprus shall be not higher than 85 %.".

Article 2

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

LEGISLATIVE FINANCIAL STATEMENT

1.NAME OF THE PROPOSAL:

Proposal for a Regulation of the European Parliament and of the Council amending amending Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards certain provisions relating to financial management for certain Member States experiencing or threatened with serious difficulties with respect to their financial stability.

2.ABM / ABB FRAMEWORK

Policy Area(s) concerned and associated Activity/Activities:

Regional Policy; ABB activity 13.03

Employment and Social Affairs; ABB activity 04.02

Cohesion Fund, ABB 13.04

Rural Development, ABB activity 05.04

Fisheries, ABB activity 11.06

3.BUDGET LINES

3.1.Budget lines (operational lines and related technical and administrative assistance lines (ex- B.A lines)):

The proposed new action will be implemented on the following budget lines:

13.036000 Less developed regions (ERDF)

13.036100 Transition regions (ERDF)

13.036200 More developed regions (ERDF)

13.036300 Additional allocation for outermost and sparsely populated regions (ERDF)

13.046000 Cohesion Fund

04.026000 Less developed regions (ESF)

04.026100 Transition regions (ESF)

04.026200 More developed regions (ESF)

04.026400 Youth Employment Initiative (ESF)

05.046001 Rural development (EAFRD)

11.066000 Fisheries and aquaculture (EMFF)

3.2.Duration of the action and of the financial impact:

3.3.    Budgetary characteristics:

4.SUMMARY OF RESOURCES

4.1.Financial Resources

4.1.1.Summary of commitment appropriations (CA) and payment appropriations (PA)

The following tables show the estimated impact of the proposed measures in 2016 to 2020. Since no new financial resources are proposed for commitment appropriations, no figures are inserted in the tables but n.a. (non-applicable) is indicated. The proposal is therefore in line with the multi-annual financial framework for 2014-2020.

For payments, the proposal can result in a higher reimbursment to the Member States concerned.

For payments, the proposal can result in a higher reimbursment to the Member States concerned. Based on the payment forecast from Member States revised by the Commission and the payment appropriations included in the 2016 budget and in the 2017 Draft Budget, the need for payment appropriations are estimated to amount to approximately EUR 544 million. The additional payment appropriations for this proposal will imply an increase of payment appropriations in 2016 and 2017 which will be compensated by the end of the life cycle. The proposed modification does not imply any changes in the Multiannual Financial Framework annual ceilings for commitments and payments, which are set out in Annex I of Regulation (EU) No 1311/2013.

In the light of Member State's request to benefit from the action and taking into account the evolution in regard to the submission of interim payments, the Commission will in 2016 and 2017 review the need for additional payment credits and if necessary propose the necessary actions to the Budgetary Authority.

No estimate has been calculated for the years from 2018 onwards and any consequences would be taken int o the budget procedures for the years concerned.

EUR million (to 3 decimal places)

Total indicative financial cost of intervention

Co-financing details

EUR million (to 3 decimal places)

4.1.2.Compatibility with Financial Programming

Proposal is compatible with existing financial programming.

◻    Proposal will entail reprogramming of the relevant heading in the financial perspective.

◻    Proposal may require application of the provisions of the Interinstitutional Agreement 9 (i.e. flexibility instrument or revision of the financial perspective).

4.1.3.Financial impact on Revenue

⌧    Proposal has no financial implications on revenue

◻    Proposal has financial impact – the effect on revenue is as follows:

EUR million (to one decimal place)

(Please specify each revenue budget line involved, adding the appropriate number of rows to the table if there is an effect on more than one budget line.)

4.2.Human Resources FTE (including officials, temporary and external staff) – see detail under point 8.2.1.

5.CHARACTERISTICS AND OBJECTIVES

5.1.Need to be met in the short or long term

The sustained financial and economic crisis is increasing the pressure on national financial resources, as Member States are reducing their budgets. In this context ensuring a smooth implementation of ESIF programmes is of particular importance as a tool for injecting funds into the economy. In order to ensure that these Member States continue implementing the ESIF programmes and disburse funds to projects, the proposal allows the Commission to increase payments to Member States as long as they benefit from financial assistance under an adjustment programme.

5.2.Value-added of Community involvement and coherence of the proposal with other financial instruments and possible synergy

The proposal will allow the continuation of the implementation of the programmes, injecting money into the economy while at the same time help reduce the burden on public expenditure.

5.3.Objectives, expected results and related indicators of the proposal in the context of the ABM framework

The objective is to help those Member States mostly affected by the financial crisis to be able to continue with the implementation of the programmes on the ground, hence injecting funds into the economy.

5.4.Method of Implementation (indicative)

Show below the method(s) chosen for the implementation of the action.

With Member States

6.MONITORING AND EVALUATION

6.1.Monitoring system

Not needed as it falls under the established monitoring of European Structural and Investment Funds.

6.2.Evaluation

6.2.1.Ex-ante evaluation

N/A

6.2.2.Measures taken following an intermediate/ex-post evaluation (lessons learned from similar experiences in the past)

N/A

6.2.3.Terms and frequency of future evaluation

N/A

7.ANTI-FRAUD MEASURES

N.A.

8.DETAILS OF RESOURCES

8.1.Objectives of the proposal in terms of their financial cost

Commitment appropriations in EUR million (to 3 decimal places)

8.2.Administrative Expenditure

8.2.1.Number and type of human resources

8.2.2.Description of tasks deriving from the action

N/A

8.2.3.Sources of human resources (statutory)

(When more than one source is stated, please indicate the number of posts originating from each of the sources)

◻    Posts currently allocated to the management of the programme to be replaced or extended

◻    Posts pre-allocated within the APS/PDB exercise for year n

◻    Posts to be requested in the next APS/PDB procedure

◻    Posts to be redeployed using existing resources within the managing service (internal redeployment)

◻    Posts required for year n although not foreseen in the APS/PDB exercise of the year in question

8.2.4.Other Administrative expenditure included in reference amount (XX 01 04/05 – Expenditure on administrative management)

EUR million (to 3 decimal places)

8.2.5.Financial cost of human resources and associated costs not included in the reference amount

EUR million (to 3 decimal places)

8.2.6.Other administrative expenditure not included in reference amount

(1) Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on 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 and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, OJ L 347, 20.12.2013, p. 320.

(2) See Article 120(3)(e) of Regulation (EU) No 1303/2013. Cyprus is classified as a more developed region for the programming period 2014-2020. See: Annex III to Commission Implementing Decision of 18 February 2014 setting out the list of regions eligible for funding from the European Regional Development Fund and the European Social Fund and of Member States eligible for funding from the Cohesion Fund for the period 2014-2020 (notified under document C(2014) 974), OJ L 50, 20.2.2014, p. 22.

(3) OJ C , , p. .

(4) OJ C , , p. .

(5) COM (2016) 414 final

(6) Expenditure that does not fall under Chapter xx 01 of the Title xx concerned

(7) Expenditure within article xx 01 04 of Title xx.

(8) Expenditure within chapter xx 01 other than articles xx 01 04 or xx 01 05.

(9) See points 19 and 24 of the Inter-institutional agreement.

(10) Additional columns should be added if necessary i.e. if the duration of the action exceeds 6 years