Explanatory Memorandum to COM(2017)825 - Amendment of Regulation (EU) 2017/825 to increase the financial envelope of the Structural Reform Support Programme and adapt its general objective - EU monitor

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Explanatory Memorandum to COM(2017)825 - Amendment of Regulation (EU) 2017/825 to increase the financial envelope of the Structural Reform Support Programme and adapt its general objective

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1. CONTEXT OF THE PROPOSAL

Reasons for and objectives of the proposal

The Structural Reform Support Programme for the period 2017 to 2020 has been running since 20 May 2017 with a budget of EUR 142.8 million. 1 It was established with
the objective of strengthening the capacity of Member States to prepare and implement growth-sustaining administrative and structural reforms, including through the use of assistance for the efficient and effective use of the Union funds. Support under the Programme is provided by the Commission, upon request by a Member State, and can cover a wide range of policy areas.

Since the Structural Reform Support Programme Regulation entered into force, there has been a very high take-up of the programme by Member States, with requests for support significantly exceeding the amount of funding available for its annual cycles. This is borne out by data for the 2017 cycle where, despite the late adoption of the Structural Reform Support Programme Regulation, 271 requests for support were submitted by 16 Member States for an estimated amount of over EUR 80 million in total, compared with an allocation of EUR 22.5 million for 2017. This led to a strong prioritisation effort by the Commission, resulting in several requests not being selected for funding. The situation is even more acute for the 2018 cycle, which has just been launched (the deadline for submitting requests was
31 October 2017). 444 requests for support were submittted by 24 Member States and the total estimated cost of such requests is approximatly EUR 152 million, compared with
the allocation for 2018 of EUR 30.5 million. This demonstrates clearly that the support needs on the ground and the interest for support from Member States goes well beyond the currently available financial resources of the Programme.

The experience to date has shown that many Member States have requested support under the Programme, and that requests for support are distributed across all support policy areas covered by the Programme, such as governance and public administration, revenue administration and public financial management, growth and business environment, labour market, education, health and social services, the financial sector and access to finance.

1.

As indicated by President Juncker in his Address (and annexed Letter of Intent) to

the European Parliament on 13 September 2017 on the State of the Union, 2 the euro is meant

2.

to be the single currency of the Union as a whole and, therefore, ultimately all but two Member States are required and entitled to join the euro area. There is thus a clear need

to think ahead and support non-euro area Member States in preparing for their euro accession when they so desire. In order to be able to join the euro area, Member States must meet the “Maastricht” or “convergence criteria”, which indicate that they have achieved a high degree of sustainable convergence.


The economic and financial crisis has demonstrated that, beyond nominal convergence, achieving real convergence and having resilient economies built on robust economic structures, which allow Member States to efficiently absorb shocks and swiftly recover from them, are crucial for ensuring successful participation in the euro area. This requires,
in particular, that Member States have the capacity to manage their budgets in accordance with the principles of sound public financial management and are institutionally ready to participate in the Banking Union. Beyond this, properly functioning labour and product markets, which are able to absorb external shocks, a high degree of integration in terms of trade in goods and services, and a well-functioning public administration are of prime importance for successful integration into the euro area.

Against the background of (i) the higher financing needs for the provision of support for the implementation of structural reforms, and (ii) the need to support Member States that intend to adopt the euro in accelerating the process of real convergence and developing more resilient economic and social structures to ensure their smooth participation in the Economic and Monetary Union, the Commission is committed, as a first step, to reinforcing the budget of the Structural Reform Support Programme by EUR 80 million for the period 2019-2020. This should be achieved by using the Flexibility Instrument under Article 11 of the current Multiannual Financial Framework. 3 This would bring the overall financial envelope of the Structural Reform Support Programme to EUR 222.8 million. The increase would not only allow the demand for support stemming from the non-euro area Member States, which want to adopt the euro and need to implement reforms in their economies, to be satisfied,

3.

but would also allow for the increased number and cost of requests for support for

the implementation of administrative and structural reforms to be catered for.

This additional budget would be supplemented by inviting Member States to make use of the possibility, under Article 11 of the Structural Reform Support Programme Regulation,
of transferring part of their resources from the technical assistance component of the European Structural and Investment Funds to the Structural Reform Support Programme,
for the purpose of provision of support for the implementation of reforms, including reforms linked to euro adoption. Based on current estimates of possible needs for support,

4.

this supplement would increase the total amount of the budget available for support to

EUR 300 million, thus doubling the support capacity by 2020.

The support would offer tailor-made assistance for the implementation of all policies that help the Member States achieve a high degree of sustainable convergence. The support will be offered notably in the areas of the business environment, the financial sector, labour and product markets, the public administration and public financial management. The most important reforms needed to foster sustainable real convergence will be highlighted in the context of the European Semester.

In a dedicated work stream, those Member States wishing to make progress towards joining the euro area would agree, in dialogue with the Commission, on a limited set of reform commitments that are of particular importance for successful euro area membership.
These reform commitments would also be reflected in the National Reform Programmes of the Member States concerned. The Commission through the Structural Reform Support Service would conclude a new Cooperation and Support Plan with the Member States concerned, focussing on providing technical support for the implementation of reform commitments linked to euro adoption. This arrangement would be fully voluntary and would be offered without any co-financing from the beneficiary Member States.


Consistency with existing policy provisions in the policy area

5.

The Structural Reform Support Programme is an innovative Union programme, whereby

the Commission provides support to Member States, upon their request, for the design and implementation of administrative and structural reforms. The Structural Reform Support Programme focuses on the provision of tailor-made assistance and expertise on the ground to accompany the national authorities of the requesting Member States throughout the reform process or in defined stages or different phases of this process. This is based on the most pressing country needs, as mutually agreed between the Commission and the Member State concerned in a Cooperation and Support Plan.


The Structural Reform Support Programme is complementary to existing resources for capacity building and technical assistance, which are available within other Union financing programmes under the Multiannual Financial Framework, and with technical assistance and other actions financed by Union funds. This is ensured at both the programming and implementation stages. To this effect, the Commission has set up a technical support coordination mechanism involving the services concerned, so as to ensure that the support provided under the various Union programmes and funds is consistent and avoids duplication with the measures under the Structural Reform Support Programme.


This proposal aims to increase the financial allocation of the Structural Reform Support Programme in order to allow the Commission to cater for the needs, in particular, of non-euro area Member States, which embark on structural reforms aimed at making their economies more resilient to shocks and better preparing them for euro area membership, as well as for the needs stemming from the increased number and cost of requests for support from all Member States in relation to the implementation of structural reforms.


Consistency with other Union policies

The proposal is consistent with and contributes to major Union policy initiatives such as the European Semester and the proposals made in the Reflection Paper on the Deepening of the Economic and Monetary Union, 4 and is in line with the 2017 State of the Union address (and annexed Letter of Intent) made by President Juncker to the European Parliament on
13 September 2017, in which an outline of the strengthening of the future Economic and Monetary Union was presented.


The proposal allows for more financial resources to be available for the provision of support for much needed reforms, which would make the economies of non-euro area Member States more resilient to shocks and would help these Member States to thrive once they join the euro area. In addition, the proposal allows for more resources to be available for supporting the implementation of structural reforms throughout the Union.


2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

Legal basis

The Structural Reform Support Programme is based on Articles 175(third paragraph) and 197(2) of the Treaty on the Functioning of the European Union.

This proposal sets out a legislative amendment in order to (i) indicate the contribution of the Programme to facilitating the participation in the euro area of Member States whose currency is not the euro, (ii) increase the dedicated financial envelope of the Programme (using the Flexibility Instrument of the current Multiannual Financial Framework), and (iii) adapt the general objective of the Structural Reform Support Programme in order to stress the link with the preparation for membership of the euro area. It also caters for some technical changes as regards the use of the support expenditure of the Programme. By virtue of its increased financial resources, the Structural Reform Support Programme can decisively contribute to building more resilient economic structures in the Member States and to achieving sustainable convergence in the non-euro area Member States preparing to join the euro area.


Subsidiarity (for non-exclusive competence)

The funding of the Programme's activities through the proposed amendment respects the principles of European added value and of subsidiarity. Increased funding from the Union budget is needed as regards the overall support for the implementation of structural reforms, in view of the unexpectedly high take-up of the Programme by the Member States. It is also needed in view of the objective of supporting sustainable convergence in the non-euro area Member States, which is crucial for the prosperity of the Union and, in particular, for the smooth functioning of the single currency. Neither of these objectives (support for structural reforms in general and support for euro area membership) can be achieved to a sufficient degree by the Member States acting alone (‘necessity test’), while the Union's intervention can bring additional value compared to actions of Member States on their own (‘effectiveness test’).

Indeed, the Union is in a better position than Member States to identify, mobilise and coordinate the best available expertise (be it from inside the European institutions' services, from other countries or from international organisations), and foster the exchange of good practices (as well as ensure their consistent dissemination across the Union) to assist non-euro area Member States along their path to join the single currency and to support the implementation of targeted growth-enhancing reforms in all the Member States.


Proportionality

The proposal complies with the proportionality principle in that it does not go beyond the minimum required in order to achieve the stated objective at European level and that which is necessary for that purpose.


Choice of the instrument

The proposal is an amendment to the Structural Reform Support Programme Regulation.

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

The current amendment aims to respond to an urgent need to cater for the support to non-euro area Member States that embark on structural reforms aimed at making their economies more resilient to shocks, accelerating the process of real convergence and better preparing them for euro area membership. The amendment also aims to increase the overall financial envelope in order to satisfy the much higher than expected demand for support from Member States in relation to the implementation of structural reforms.


Regulatory fitness and simplification

The proposal is not linked to the regulatory fitness and simplification exercise and does not have any costs of compliance for small and medium-sized enterprises or any other stakeholders. The Structural Reform Support Programme will soon be implemented via an electronic platform (JIRA), which will be available for the Commission services and the Member States.


Fundamental rights

The proposal has a positive effect on the preservation and development of Union fundamental rights, assuming that the Member States request and receive technical support in related areas. For example, support in areas such as migration, labour markets and social insurance, healthcare, education, the environment, property, public administration and the judicial system can support Union fundamental rights such as dignity, freedom, equality, solidarity, citizens' rights and justice.


4. BUDGETARY IMPLICATIONS

It is proposed to increase the dedicated financial envelope for the Structural Reform Support Programme from EUR 142 800 000 (current prices) to EUR 222 800 000 (current prices). This increase would be in place for 2019 and 2020. The legislative financial statement provides the appropriate explanations.

This increase should be made possible by using EUR 80 000 000 from the Flexibility Instrument under the current Multiannual Financial Framework (Article 11 of Council Regulation 1311/2013), which allows for supplementing the financing available in the general budget of the Union for the financial years 2018 and 2019 beyond the ceiling of heading 1b (cohesion).

This increased budget will be supplemented by inviting Member States to make use of the possibility, under Article 11 of the Structural Reform Support Programme Regulation,
of transferring part of their resources from the technical assistance component of the European Structural and Investment Funds to the Structural Reform Support Programme, for the purpose of the provision of support for the implementation of reforms, including reforms linked to euro adoption. Based on current estimates of possible needs for support, this supplement would increase the total amount of the budget available for support to EUR 300 million.


5. OTHER ELEMENTS

Implementation plans and monitoring, evaluation and reporting arrangements

The monitoring, evaluation and reporting requirements are adequately foreseen in the Structural Reform Support Programme Regulation. No change to this effect is foreseen.


Explanatory documents (for directives)

6.

N/A



Detailed explanation of the specific provisions of the proposal

The proposal amends Article 4 of the Structural Reform Support Programme Regulation (general objective) in order to add support for euro area membership to the goals for which the Programe provides contributions. Notably, the Programme provides support to national authorities for reforming institutions, governance, administration, economic and societal sectors in response to economic and social challenges. With the proposed amendement, it is emphasised that enhancing cohesion, competitiveness, productivity, sustainable growth and job creation should also contribute to preparations for participation in the euro area by those Member States whose currency is not the euro and that want to join the single currency.

The proposed Article 5a emphasises the contribution of the Programme in a dedicated work stream towards supporting reforms that may help Member States in their preparation to join the euro area.

The proposal amends paragraph 1 of Article 10 of the Structural Reform Support Programme Regulation, as regards the dedicated financial envelope of the Structural Reform Support Programme, in order to bring it to EUR 222.8 million in current prices.

The proposal amends paragraph 2 of Article 10 of the Structural Reform Support Programme Regulation, i.e. the provision on support expenditure of the Programme, by adding the possibility of financing supporting activities, such as quality control and monitoring of concrete support projects on the ground.