The European Commission has recently proposed a Council Regulation amending Regulation (EC) 1083/2006 concerning general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund as regards simplification of certain requirements and as regards certain provisions relating to financial management.

The European Structural and Cohesion Funds have a budget of €347 billion for the 2007-2013 period which represents more than a third of the Community budget. After several postponements, the European Commission proposed several measures aim to simplify and facilitate the use of those funds in order to accelerate co-financed investments in Member States and regions to boost the European economy.

The European Social Fund is based on the principles of co-financing thus EU financial support always goes along national public or private financing. The level of EU intervention depends on several socio-economic factors hence the co-financing may vary between 50% and 85% of the total cost of interventions. Consequently, Member States have to cover part of projects costs which varies between 15% and 50%.

The proposal to amend the Structural Funds Regulation in order to give Member States the option to not provide national co-funding during 2009 and 2010 was announced by the Commission on 3 June, in its Communication “A Shared Commitment for Employment.”

The Commission has pointed out that due to the economic crisis several Member States have little room for manoeuvre to co-fund additional ESF projects. The Commission was therefore concerned that Member States would not be able to use hundreds of millions of euros allocated to them from the EU budget. Hence, in order to speed up investments and to prevent projects from being deferred during the financial crisis due to lack of funding, the Commission has decided to allow Member States to delay co-financing.

The Commission has therefore put forward a proposal amending Council Regulation 1083/2006 in order to temporarily allow Member States to request reimbursements made by the Commission at 100% of the public costs for projects financed by the ESF during 2009 and 2010. Consequently, co-financing by EU Member States of projects under the ESF would not be required during this period.

According to the Commission neither the distribution of funds between Member States nor the annual ceiling of the EU financial framework for the payment appropriations will change. The money will come from the financial envelope for structural funds in 2007-2013. Hence, Member States that make use of 100% financing for some projects in 2009-2010 would receive less money in 2011-2013. There will be therefore a higher rate of national co-financing. The Commission has said that “(…) the maximum additional payment appropriations to be paid under the 100% reimbursement option in 2009 and 2010 for the ESF programmes would represent approximately EUR 6.6 billion” which “will be compensated by a reduced need for payment appropriations later in the programming period.”

The Commission had planned extending the possibility of 100 percent EU funding to two other funds, the regional development fund (ERDF) and cohesion fund but, taking into account the reservation of several Member States, it has backed down. Even the measure limited to the ESF would not easily get Member States endorsement. Whereas Latvia, Slovakia, Hungary and Spain strongly support the Commission’s proposal as they believe that it is essential that all co-financing of ESF projects should be stopped during 2009 and 2010 to help tackle the financial crisis, the net contributors to the EU budget such as Sweden, Germany, the UK and Denmark have been expressing strong reserves. There are fears that the money would be misspent. According to the Dutch spokesperson, suspending the co-financing rule might reduce incentives for Member States to come up with proposals for viable projects. According to the EUobserver, Swedish EU affairs minister Cecilia Malmstrom said "No country wants to use its own money on useless measures. This was an important reason why several countries said No to completely remove the requirement for member states to co-finance investment.” It is important to recall that the EU leaders, at the last June European Council, could not reach an agreement on the Commission’s proposal to relax co-financing requirements for the ESF for the years 2009 and 2010. Nevertheless, the Commission has decided to put forward its proposal.

The present proposal represents a compromise found by the European Commission President José Manuel Barroso to please the reluctant Member States as well as the European Parliament’s political groups. It is important to recall that the Socialist Group in the European Parliament has recently adopted a list of 11 demands for the European Commission’s programme for the next five years including a new Recovery Plan for Europe, the creation of a European Employment Pact setting out common actions “(…) to safeguard employment, create new and better jobs, fight mass unemployment (…).” Moreover, the socialist group in order to give its backing to Barroso reappointment is also calling for a Social Progress Pact to “make clear that neither economic freedoms, nor competition rules take priority over fundamental social rights” and to “tackle the full social consequences of the crisis, preventing a rise in poverty, inequality and exclusion.” The Liberal Group also issued a memorandum to the candidate for the Presidency of the European Commission where they stressed that “The judicious use of structural and cohesion funds, properly implemented, can also act as an important catalyst in attracting investment and economic activity to many regions which have suffered most from the global economic downturn.” It remains to be seen what will come out from the negotiations.

The Commission also proposed setting a single financial threshold for the category of ‘major project’ for which the Commission’s approval is required. Presently, the Commission's approval is required for projects where the total cost exceed € 25 million for the environment and € 50 million for other areas. The Commission has proposed a single threshold of €50 million applicable to all major projects.

Moreover, under the Commission’s proposal it would be possible to co-finance a single major project, covering different regions and objectives, by more than one programme. Hence, Member States would be allowed to merge the ERDF and Cohesion Fund support on a single project.

Furthermore, the Commission also wants to set up financial engineering instruments such as guarantee funds and loans for energy efficiency and renewable energy projects.