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The European Council agreed on the financial arrangements for the €5 billion for the European economic recovery plan

The European Commission’s Recovery Plan called for a co-ordinated fiscal stimulus of €200 billion equivalent to 1.5% of the EU’s GDP. The Commission has recommended the allocation of €5 billion of unspent money from the EU budget to be invested in European energy inter-connections and broadband infrastructure projects.

Last December, the Commission presented a Draft Decision amending the Interinstitutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the Multiannual Financial Framework, to fund the above-mentioned projects. Re-opening, again, the Financial Perspective 2007–2013 in order to fund such projects, ridicules the process of negotiations of the Financial Perspectives. The EU Member States agreed unanimously on budgetary priorities that should not subsequently be revised through qualified majority. It should be recall that in 2007, the Financial Perspectives were revised to fund the Galileo satellite. The Member States issued, at the time, a declaration stating they had set no precedent for future revisions of the EU's financial Perspectives. Nevertheless, the Commission has said that “In the context of an economic crisis of an unprecedented dimension it suggests (…) to use amounts available within the ceilings of the financial framework which otherwise will remain unspent.”

The Commission has proposed to increase the annual ceilings for commitment appropriations under heading 1A "Competitiveness for Growth and Employment" by €3,000 million for 2009 and by €2,000 million for 2010 which would be offset by a decrease of the annual ceilings for commitment appropriations under heading 2 "Preservation and Management of Natural Resources" by € 3,500 million for 2008 and €1,500 million for 2009.

Several Member States believe that unused money should be given back to them, proportionally to their contributions. Moreover, they have shown, at the last December European Council, their concern with the lack of indications from the Commission on which projects the money would be spent.

Hence, in the framework of the European Economic Recovery Plan, the Commission has adopted a Communication entitled “Investing today for tomorrow's Europe” where it presented a breakdown of how the €5 billion would be divided between energy and broadband projects as well as projects related to the new challenges identified under the Common Agricultural Policy (CAP) Health Check.

The Commission adopted a proposal for a Regulation establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy, covering interconnections, offshore wind, and carbon capture and storage. A financial envelope of €3,500 million was proposed for the three sub-programmes. The Commission proposed to use €1.75 billion for gas and electricity interconnection, €500 million would be allocated for offshore wind projects and €1250 million would go for carbon capture and storage. The main volume of payments was foreseen to be made between 2009 and 2012 with the last payments, notably for carbon capture and storage projects, foreseen for 2014/2015.

In order to fund the energy projects, the Commission has proposed to transfer the margin for 2008 of heading 2 of the 2007-2013 financial perspective to heading 1A amounting to €1,5 billion in 2009 and €2 billion in 2010.

In order to improve broadband internet access in rural areas, the European Commission has proposed to mobilize through the existing EU Rural Development Funds €1 billion. The Government supports the Commission’s proposal to fund projects to improve broadband access in rural areas. However, the allocation between Member States would be based on historic allocations under the EAFRD, therefore the UK’s share would be very small and, consequently, not enough to make a considerable impact. According to the Minister for the Natural and Marine Environment, Wildlife and Rural Affairs at the Department for Environment, Food and Rural Affairs, Huw Irranca-Davies, the proposal would entail substantial net costs, the UK would contribute around 15% of the additional financing involved.

The Commission has also proposed to devote €500 million to help farmers to tackle the “new challenges” identified in the CAP health check such as restructuring of the dairy sector, climate change, renewable energy, water management and biodiversity.

According to Commission €1.5 billion could be made available to all Member States via the European Agricultural Fund for Rural Development for high-speed internet in rural areas and for the new challenges under the CAP. The Commission has proposed to use the margin under the ceiling of heading 2 for 2009 of the financial perspective.

The Commission would decide the investment available in each Member State on the basis of the current distribution key for the European Agricultural Fund for Rural Development. Hence, whereas Germany is entitled to 10% of all spending from the rural development budget the UK is entitled to 2.5%.

According to the Council legal service the money is legally unavailable since there is no possibility of retroactively reviewing the 2008 allocations. Hence, the €3.5 billion margin from the 2008 budget cannot be used but the €1.5 billion may be used since it belongs to the 2009 budget of heading 2. The Commission spokesman, Johannes Laitenberger, has said “We have been aware of this legal position for some time” however "We don't agree with it. In our view, this is not primarily a legal question. It is a question of political will."

Several Member States have raised concerns and asked the Commission to review its proposal. Moreover, they would like to see the money return to their budgets. There are differences between EU Member States, particularly on how to distribute the €3.5 billion allocated for energy projects. Some Member States are not interested in the projects at all. For instances, Germany prefers the Nord Stream pipeline instead of the Nabucco pipeline and the UK does not want to transfer funds aimed at rural development projects to help EU dairy farmers.

Moreover, Germany, the UK, Sweden, the Netherlands, Austria and France were opposed to use the 2008 budget margin and raised concerns with the proposal to revise the Financial Framework.

There was a deep division among Member States which has led to the list of projects being revised by the Commission for the Energy Council in February. The UK Government has called on the Commission to propose reprioritisation and redeployment of existing resources within both Headings 1a and 2.

The Commission has proposed to allocate €3.75 billion instead of the original €3.5 billion. Under the new proposal €2.1 billion would be allocated for gas and electricity interconnection projects, €1.15 billion for carbon capture and storage and €500 million for offshore wind projects. Under the revised plans there was a reduction of funding from €250 million to 200 million in each of five carbon dioxide capture and storage sites.

As regards broadband internet infrastructure and projects on climate change, renewable energy, water management, biodiversity and dairy restructuring in rural communities the Commission has proposed to allocate €1.25 billion. The Government opposed to this revised proposal because it still drew on the 2008 margin to finance the package.

The Commission was trying with its amends to the sums to reduce the blocking minority of dissatisfied Member States. The Commission has claimed that most member states are pleased with the new list of energy projects. However, the revised list of projects was criticized by several Member States including Greece, Portugal and Spain who deemed it unfair. These Member States have argued that the Commission’s proposed projects affect Northern and Eastern European Member States therefore not much money has been devoted to Southern countries.

The General Affairs and External Relations Council has failed to reach an agreement on how to fund the €5 billion included in the European Commission’s economic recovery plan as well as on the final list of projects to be financed. The EU Foreign Ministers could not agree on the content of the proposals as well as on how to finance them.

The Council concluded that the use of the margin under the 2008 ceilings of the EU's 2007-13 financial framework is not possible. The Ministers have therefore agreed that the money could not come from the EU's budget for 2008 however they could not agree on alternative sources of funding.

Obviously, each Member State is trying to get more money for its projects. The list of projects has been amended in order to address the concerns of several Member States which believe they are not getting enough funding for their projects.

The Member States have also been discussing the time scale for projects. Whereas the UK would prefer to spread spending over a longer period of time because of the CSS projects Germany favours quickly implementation of the projects with spending spread over 2009 and 2010. Angela Merkel has made clear that she would not approve the €5 billion recovery plan except the funding is only available for projects in 2009-2010.

On 20 March, the European Council reached an agreement on the deployment of €5 billion of EU funds for projects in the field of energy and broadband internet as well as CAP Health Check related measures. A deal could not be reached without accepting Germany demands that the funding will only be available for two years therefore the projects which are not ready to begin by the end of 2010 are not entitled to fund. EU leaders specified that the money should be spent within two years in order to ensure that it provides a genuine economic stimulus. The Presidency compromise proposal for financing of the infrastructure projects put forward by the Commission as part of the European Economic Recovery Plan stressed that “It shall be made clear in the text of the Regulation that, due to the urgent need for the stimulus, all legal commitments implementing the budgetary commitments made in 2009 and 2010 should be made before the end of 2010.”

Germany the largest net contributor to EU budget was keen to introduce tight conditions on the use of the fund such as it should be spent by the end of 2010, it should only be available to projects which are already reasonably advanced. Hence, under the compromise text the Commission in assessing the proposals for funding will have to take into account the projects maturity, described as reaching the investment stage as well as the degree up to which lack of access to finance is holding back the implementation of the action.

According to the Presidency compromise proposal €3.98 billion would be allocated for projects in the field of energy which will be spread over two years, €2.0bn will be available in 2009 whilst €1.98 billion will be available in 2010. However, the Presidency proposed amendment of Article 3 of the draft Regulation establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy reads “The financial envelope for the implementation of the EEPR for 2009 and 2010 shall be EUR 4,000 million, allocated as follows: gas and electricity infrastructure projects: EUR 2,295 million, offshore wind energy projects: EUR 505 million, projects for carbon capture and storage: EUR 1,200 million.” Moreover, according to the new list of eligible projects, annexed to the compromise proposal, €1,440 will be spent on gas interconnectors, €910m on electricity interconnectors, €565m for offshore wind projects and €1,050 million for carbon capture and storage projects.

Under the abovementioned list, the gas interconnector Bulgaria-Greece will get €45m instead of €20m. France will get €200m instead of €150 for the Reiforcement of FR gas network on the Africa-Spain-France axis. Germany will get €100m instead of €50m for the Halle/Saale – Schweinfurt electricity interconnector. The electricity interconnection France-Spain New 380 KV AC submarine cable between Sicily- Continental Italy will get €225m instead of the initial allocated €150m. The interconnection Republic of Ireland-Wales will get €110m instead of €100m. The North Sea Grid of offshore wind energy will get €165m instead of €150m. Germany will get €200m for the offshore wind project – Borkum West II.

Angela Merkel has been arguing that no public money should be spent on a project in which Germany has no interest. Angela Merkel has been opposed to fund the Nabucco gas pipeline project with European money. However, there are several Member States, such as Romania, Austria, Poland and Slovakia which have demanded the Nabucco pipeline to be on the projects list. The Nabucco pipeline was included in the list. According to Mark Mardell “In return the Germans get a form of words that suggests German Telecom may get preferential, indeed protectionist, treatment in providing internet connections to rural areas.” The Nabucco pipeline is earmarked to get €200 million.

There was a decrease on the sum allocated to five carbon storage projects which is now €180 million instead of €250m.

According to Gordon Brown “(…) the agreement provides for at least 220 million euros of additional investment in UK carbon capture and storage and off-shore wind projects.”

Moreover, €1.02 billion will be for broadband internet and for measures under the CAP “health check.” Of this sum, €600 million will be taken from margins under Heading 2 in 2009 and €420 million from margins under Heading 2 in 2010. According to the agreement “In order to take into account the requests expressed by majority of Member States, flexibility between the two strands would be allowed.”

According to the compromise text “The financing of all projects would be guaranteed by a political agreement between the European Parliament, the Council and the Commission in the form of a Declaration annexed to the IIA.” Moreover, the compromise text reads “When the political agreement is reached, the 2009 ceiling of Heading 1a would be increased by the amount of EUR 2 000 mil., offset by a decrease of the 2009 ceiling of Heading 2 by the same amount. This would leave a margin of more than EUR 900 mil. under the 2009 ceiling of Heading 2.” Hence, in 2009, €2 billion will come from a transfer of funds from Heading 2 to Heading 1a. In order to such transfers to take place the multiannual financial framework for 2007-2013 will have to be revised. Given that the sums concerned represent less than 0.03% of the Union’s gross domestic product unanimity is not required but merely qualified majority.

The remaining €2 400m would be funded through a “compensation Mechanism” to be defined. At the conciliation of the 2010 and 2011 budgetary procedure, the European Parliament, the Council and the Commission will examine all available sources that could provide for the compensation of funds. However, the €420m for the broadband internet and CAP Health Check related measures in 2010 will be committed first, before the use of the available amount within Heading 2 is considered. According to the compromise text one of the options to compensate the €1.98 billion could be to use all margins left in the different headings at the end of 2009. Moreover, it states that margins left in 2010 and 2011 could be used if necessary.

José Manuel Barroso has stressed that if the €5 billion were not spent within the time limits, the unspent funds would go back to the member states’ except the budget authority decides otherwise.

The compromise text was endorsed by the EU leaders but it still has to be accepted by the Council. The Presidency has a formal mandate to discuss the source of financing with the European Parliament. The deal has now to be accepted by the European Parliament, the second branch of the budget authority. However, according to Claude Turmes, the Socialists, the Liberals and the Greens may form a bloc against the plan.

The European Council has called on the Presidency to speed up contacts with the European Parliament so that the Council and the European Parliament reach agreement before the parliamentary recess. Because of the “urgency” the Commission’s has provided no impact assessment on the projects. Obviously, the behind closed doors meetings would be fully used at the expense of a proper debate and analysis of the proposals.

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Now that an agreement on the release of €5 billion was reached among the EU Member States, the behind closed doors informal negotiations between the Czech Council Presidency and the European Parliament have started.

The EU institutions are in a hurry to reach an agreement before the European Parliament vote in early May in order to the deal be sealed ahead of June elections.

Last March, the European Parliament Industry Committee has amended the European Energy Programme for Recovery. It voted for funds not legally committed by 1 September 2010 to be invested in energy efficiency other than offshore wind and "smart city" projects.

According to the MEPs if a project does not reach the investment phase the funds allocated for this project should "immediately be redirected to projects in the field of energy efficiency and renewable energies.”

The Council has stated that “all legal commitments implementing the budgetary commitments made in 2009 and 2010 should be made before the end of 2010.”

Whereas the EU Member States are expecting unspent funds to be returned to their budgets, the European Parliament’s Industry Committee has voted for uncommitted funds to be invested in renewables and energy savings.

The Committee has called on the Commission to present its proposal on the eligibility and selection criteria that apply for the energy efficiency and renewable energy projects by September 2009.

In record time, on 16 April, negotiators from the Czech EU Presidency, the European Parliament and the Commission have reached an agreement on the European Energy Programme for Recovery.

The Czech EU Presidency and the European Parliament's negotiators endorsed the list of projects agreed by the European Council last March.

The MEPs have threatened to delay the agreement as the EU Member States have failed to include energy efficiency and smart cities in the plans.

Under the political agreement reached between MEPs and the Czech Presidency unspent funds of the EU economic recovery plan could be used for energy efficiency and renewable energy projects. Hence, funds not committed by 1 September 2010 could be used for energy efficiency and renewable energy projects instead of returning to the Member State’s coffers.

There is a new declaration annexed to the EERP Regulation which commits the Commission to propose amendments to the eligibility criteria, so as to allow for the financing of projects in the area of energy efficiency and renewable energy sources.

In March 2010, the Commission should issue a report on the implementation of the Regulation. If such report concludes that there is a «serious risk» of non-implementation of gas and electricity infrastructure, offshore wind energy or carbon capture and storage projects, that it would not be possible to commit, by the end of 2010, a part of the funds foreseen for the above projects, the Commission should propose additional projects, including energy efficiency and renewable energy projects.

Member states are set to give their endorsement to the agreement at a Coreper meeting on 23 April.

The informal compromise still needs to be approved by the whole Parliament and the Council of Ministers. The European Parliament will vote on the package at its 4-7 May plenary session.

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ABOUT BILL CASH MP

Bill Cash has been the Conservative Member of Parliament for Stone since 1997 and an MP since 1984.

He is currently the Chair of the European Scrutiny Committee and the founder member of the European Foundation...

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