Politico: EU floats radical change to how it funds members. The discussion was influenced by Ukraine and the Western Balkans

The European Union is considering a model under which EU countries may have to meet targets in exchange for their share of a significant portion of the EU budget. Such far-reaching plans drawn up by the European Commission were reported by Politico, noting that reform has arisen on the agenda because deep down EU officials are preparing for the bloc's possible expansion into Ukraine and the Western Balkans, UNN writes.

Details

So far, the bulk of the so-called cohesion funding, which amounts to 392 billion euros over the period 2021-2027, has been paid out according to agreed criteria rather than as a "carrot" for meeting targets. and aimed at helping to boost economic growth in the poorer regions of Europe, has been paid out according to agreed criteria rather than as a carrot for meeting targets.

But in a document signed by the bloc's 27 European commissioners on Wednesday, the EU executive for the first time raised the issue of imposing obligations to obtain funding in general, the publication notes.

"There is broad support for results-based financing," the European Commission said.

A formal proposal, as indicated, is still to come. Once that happens, governments will have their say, the publication writes.

Cohesion funding makes up a large part of the EU's seven-year budget of €1.2 trillion and is aimed at narrowing the gap between richer and poorer regions. All of the EU's poorest countries, from Portugal in the west to Hungary and Bulgaria in the east, have benefited enormously from the funding, which is mainly focused on the environment and transport infrastructure, such as building new highways.

Reform is on the agenda because deep down EU officials are preparing for the bloc's possible expansion into Ukraine and the Western Balkan countries, where much of the money would be used to help them catch up economically with existing members

In recent years, the EU has struggled to persuade some countries, especially Hungary and Poland, to adhere to democratic standards and has suspended some funding, but to a very limited extent, as indicated. Making cohesion funding conditional on reforms from the outset of a country's membership could make it easier to keep governments on the straight and narrow, the publication writes.

And he immediately notes: achieving this will not be easy.

"In principle, it (conditionality) could be a cure, but in practice it is very difficult," said Zsolt Darvas of Brussels-based think tank Bruegel, adding that previous systems linking cash payments to specific targets have been lax.

Economies, mostly from Northern Europe, have long argued that current cohesion spending, which is now heavily skewed towards Southern, Central and Eastern European regions, is inefficient, he said.

The model would extend a format similar to the rules of the EU's post-pandemic fund, which was agreed in 2020 to mitigate the economic impact of Covid-19, the publication points out. Under that scheme, Brussels linked cash transfers to domestic reforms.

There may be some backlash, however, as it has been heavily criticized by some governments. The disbursement of money from the reconstruction fund was riddled with red tape because of strict checks and controls, Darvas said.

Current cohesion programs include some spending tied to targets, but member states have been reluctant to participate, the EU official said.

In its report, the European Commission wrote that the cash-for-reforms model has the potential to "accelerate financial implementation and increase the results orientation of policies.

The EU executive said the post-pandemic fund's results-based approach has encouraged EU states to undertake reforms and "be rewarded for progress along the way.

But the EU does not want to copy the recovery fund model exactly. The document encourages greater involvement of local communities and stakeholders, something critics say is lacking in the post-pandemic fund, the publication says.

The text also emphasizes the need for strong audit and control systems. The EU Audit Office criticized the recovery fund for its allegedly weak anti-fraud checks.

"The report will be part of an upcoming discussion on the composition of the EU's seven-year budget, which will come into force in 2028. Before that, the European Commission will make a formal proposal, which must be unanimously approved by the capitals of the countries," the publication notes.

Addendum

In February, experts from the German Economic Institute (IW) calculated the financial implications of Ukraine's full membership in the EU in the then current multi-year budget (MFF) for 2021-2027, naming an amount between 130 and 190 billion euros.