Recovery plans and structural funds: how to strengthen the link?

Briefing
February 2022

Introduction

The plan to relaunch the European economy in response to the COVID-19 crisis (also called Next Generation EU (NGEU), whose main instrument is the Recovery and Resilience Facility (RRF)) and EU cohesion policy have different objectives. The first aims to help the recovery and resilience of our economies, while the second promotes economic, social and territorial cohesion among the Member States and regions of the EU.

After the agreement on available resources at the December 2020 European Council, the EU swiftly approved the RRF-related regulation in February 2021. However, finalization of the new Common Provisions Regulation (CPR) governing cohesion policy, as well as the specific regulations, had to wait until the end of June 2021. This allowed most Member States (now 26 out of 27) to draft and submit their national recovery plans, but has inevitably delayed the new programming of structural funds.The resources made available by the NGEU to the RRF are considerable (€672 billion) and are additional to those provided by the Multiannual Financial Framework for cohesion policy (€330 billion)[1]. The question therefore arises of the use of the two resources for the digital and environmental transitions, their complementarity, and finally, the real absorption capacities of public and private beneficiaries. Why is complementarity so important? Because it is essential that the RRF plans, as well as the structural funds programmes, can be carried out and deliver the expected results on time. Wasting resources is not a good idea in times of fiscal consolidation, while the financing needs are enormous. It is necessary to ensure both good complementarity and, as far as possible, synergies between the two ‘project pipelines’. Only in this way can we put aside the initial fears about an RRF tapping into the ‘project pipeline’ of cohesion, de facto emptying it of its content.This Briefing addresses the principle of complementarity between national recovery plans and cohesion policy programmes. Are they competitors or allies? Are they on parallel tracks? What demarcations and synergies can be identified between these two instruments? What strategies can be adopted to ensure the eligibility of project expenditure? We analyse here the methods of practical implementation of this principle and discuss the concrete options available to combine (or not) use of the two funds in projects themselves.

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What are the rules and limits of the principle of complementarity?

The RRF regulations and the Common Provisions Regulation (CPR) provide only generic provisions. However, the cohesion policy authorities have a little more experience because the principle is not new and already existed in previous structural fund programming.

Article 28 of the RRF Regulation provides for complementarity, synergies and consistency between RRF resources and other national or Community financial instruments. In particular, this article requires Member States to make an optimisation effort in order to avoid the duplication of instruments and cooperation between administrations. In addition, the RRF regulation provides that consistency is one of the 11 evaluation criteria for the national plans (three Member States received a B score).The CPR Regulation, for its part, stipulates that it is the partnership agreement that must ensure complementarities[2].  In reality, the latter are relatively easy to implement vis-à-vis programmes financed by national funds as well as between operational programmes (OP) financed by the European Regional Development Fund (ERDF)/Cohesion Fund (CF) and the European Social Fund (ESF). This is mainly due to the fact that we are dealing with multi-fund programmes. Some Member States have even provided for specific incentives, such as a higher score in the selection of projects that rely on inter-fund synergies. However, synergies with other Community programmes (LIFE, ERASMUS+, EASI) are more complicated to implement. A good example is provided by the successful experiment of the Horizon 2020 programme in 2014-2020 in using the ‘Seal of Excellence’ to reinforce synergies between ERDF/ESF funds and other Community funds.Given that the structural funds programmes are, to this day, still in the development phase, it is not surprising that when presenting their recovery plans, Member States limited themselves to rather succinct descriptions of the complementarities and synergies between the RRF and cohesion policy funds[3]. The fact that the RRF funds are often managed by structures different from those which manage the structural funds naturally does not facilitate the task. However, some Member States have developed specific demarcation strategies[4].

Options for complementarity and synergies

How best to delimit the RRF and the structural funds?

The delimitation/demarcation methodology between the RRF and cohesion policy could take into account several elements. First, there could be a thematic delineation/demarcation that reserves certain areas of funding exclusively for the RRF. A first approach could be based on areas that are no longer supported by cohesion policy in 2021-2027. For example, the RRF is able to finance the modernization of public administration, whereas this is no longer possible for the structural funds since thematic objective 11 (Public administration) is no longer retained for the period 2021-2027. The ERDF/CF, in its Article 7, has excluded certain fields of intervention. The Latvian plan, for example, thus reserves support for social housing and deinstitutionalization only to the structural funds in the thematic intervention logic of strategic objective 4. In Wallonia, the RRF will provide the region with state-of-the-art training infrastructure (which the ESF cannot provide) while the support of ESF+ will be strengthened for training in very specific fields (biotechnology and health). Finally, the Czech plan foresees financing the ‘Seal of Excellence’ projects of the Horizon Europe programme exclusively through the RRF and not the ERDF.Secondly, there could be a common field of ​​intervention between the RRF and cohesion policy but with a territorial demarcation. In the French recovery plan, the RRF thus focuses on soft mobility in rural areas while the ERDF finances it in urban areas. The Portuguese plan foresees the digital transition of the national public administration with the RRF while the ERDF will support local administrations. It is useful to recall here that the RRF is not required to concentrate its resources in the less developed regions (LDR), even though this naturally remains the basic principle for the structural funds.A third way of clearly demarcating the sources of finance is to distinguish between the typologies of beneficiaries. The similarity in RRF and ERDF projects could lead to addressing the same public and private beneficiaries, but more marked distinctions could be made. When it comes to energy efficiency in buildings, for example, the RRF often targets public beneficiaries while the ERDF targets more private beneficiaries. Thus, the German plan supports the energy efficiency of residential buildings with the RRF, while support for non-residential buildings comes from the ERDF.A fourth method, which is less common, consists in using, for the same projects, first the RRF and then the structural funds. This method is based on the shorter timeframes incumbent on the RRF since the results of the projects must be able to be achieved by the end of 2026. Conversely, the eligibility horizon for the structural funds extends until the end of 2029. The Portuguese plan , for example, will support initial investments in the hydrogen sector with the RRF but intends to follow up with cohesion policy.However, the European recovery plan NGEU freed up resources known as REACT-EU for cohesion which must be used within the framework of the 2014-2020 programming and therefore spent before 2023. There is therefore an overlap between the REACT-EU calendar and that of the RRF. This could well be a first test to analyse if the two ‘project pipelines’ are well aligned.

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The same project with the support of both funds?

It is possible to increase this complementarity thanks to Article 9 of the RRF, which provides that a reform or investment financed by the recovery plan may also receive support from other Community programmes [5]. A similar provision can be found in Article 63(9) of the CPR regulation. The Italian recovery plan provides that R&D research and development projects supported by the RRF can benefit from both a tax reduction under the RRF and also from other community funds such as the ERDF. However, the tax reduction cannot refer to expenditure already supported by national or Community public funding.An important constraint is to avoid the double funding of costs. This involves ensuring sufficient coordination between administrations, a systematic separation of funding sources and cross-checks[6]. This aspect of the control and audit systems will be subject to checks by the European Commission.It is possible that projects benefiting from the principle of complementarity will be submitted to the European Commission when the plan is presented. Thus, the Austrian recovery plan includes a measure for the construction and electrification of regional railway lines – ‘Koralmbahn’. This project already benefits from the CEF (Connecting Europe Facility) programme but will receive RRF funds for additional sections. The elements provided ex ante by Austria were sufficient to ensure compliance with non-double funding. However, it is essential that the Member State put in place mechanisms and procedures to prevent double funding.This option of using several funds in the same project remains, however, quite limited because it inevitably requires aligning the schedule of the different funds, which is quite complex and requires a top-down approach.

Conclusion

Given the challenges of resource absorption, Member States need to make an effort to support complementarity and simplify implementation in order to maximize the use and thus the impact of the two funds. Complementarities and synergies can be based on a thematic or territorial delimitation, or even linked to the typology of the beneficiary or the schedule of operations. In addition, the option of a reform or an investment being supported by both funds is always possible.Although the RRF and cohesion policy operate with different management mechanisms, the RRF can often take advantage of common structures that have been operating for a long time in the structural funds. This long experience will be useful to strengthen the demarcation strategy but as well as to guide beneficiaries in the field, to simplify controls and to prevent the risk of double funding.

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[1] The last European Council agreement of December 2021 provides for a budget of €330 billion (from the MFF) devoted to cohesion policy, to which would be added €17.52 billion from the Just Transition Fund (FTJ) and €750 billion from the recovery plan (capital raised on the financial markets)
[2] Art. 5(3) of the CPR regulation.
[3] https://cpmr.org/cohesion/cpmr-presents-in-depth-analysis-on-the-national-recovery-and-resilience-plans/29175/
[4] The reforms provided for in the recovery plans will reinforce the impact on cohesion policy. In Wallonia, the reform proposed in the RRF will make it possible in particular to provide a framework for the development of innovative approaches in the fight against long-term unemployment through a pilot approach inspired by the “Zero long-term unemployed territories” scheme included in the program FSE+ Walloon.
[5] RRF funds cannot cover the co-financing of structural funds operations.
[6] Art. 18(4) of the RRF regulation.

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