Rule of law: MEPs call on Commission to defend EU funds
Portugal is one of 27 member states receiving their share of the EU’s post-pandemic ‘pot of gold’. written Colin stevens.
Under the Recovery and Resilience Mechanism (FRR), Portugal will receive € 13.9 billion in grants and € 2.7 billion.
This is the good news.
But what exactly happens if Portugal (or any other Member State) does not meet the strict spending criteria required by the RRF? How far can the Commission go to ensure that the money is spent on real reform projects in Portugal?
On this point, Portugal was mentioned, but not singled out, by the European Commission.
Portugal, which has just handed over the EU Presidency to Slovenia, has made much of its so-called reforms, but the reality of Portuguese politics, sadly, is far more convoluted than its brilliant image of “Poster boy”.
In recent years, various scandals and events have brought to light a range of issues ranging from corruption and judicial reform to the banking system and how the government has handled the coronavirus.
Other questions remain to be addressed, in particular the investment climate and the situation of the rule of law in Portugal.
Overall, the RRF will provide up to € 672.5 billion to support investments and reforms (at 2018 prices). It breaks down into € 312.5 billion in grants and € 360 billion in loans.
The first pre-financing payments to Portugal will start this month.
But crucially, RRF payments will be linked to performance and this is where all eyes will be (among others) on Portugal.
The Commission will authorize disbursements on the basis of the satisfactory achievement of a set of “milestones and objectives” reflecting the progress of the reforms and investments of the Portuguese plan. Since disbursements can take place a maximum of twice a year, there can be no more than two groups of milestones and targets per year.
The Commission will prepare an assessment within two months and ask its Economic and Financial Committee for its opinion on the satisfactory achievement of the relevant Portuguese milestones and targets.
A Commission spokesperson told this website: ‘Where one or more Member States consider that there are serious deviations from the satisfactory achievement of the relevant milestones and targets of another Member State, they may request that the President of the European Council refer the matter to the next European Council.
But what if the milestones and goals associated with a payment request are not all met?
Well, if the Board finds that all of the milestones and goals associated with a payout are not being met satisfactorily, it can only make a partial payout. The rest of the down payment (whether loan or scholarship) will be suspended.
The Member State in question may continue to implement the rest of the plan.
After submitting its observations, the Member State concerned then has six months to take the necessary measures to ensure the satisfactory achievement of the milestones and objectives. If this has not been done within six months, the Commission may reduce the overall amount of the financial contribution.
In order for a payment to be made by the Commission, none of the previously achieved milestones or objectives can be canceled.
If the milestones and targets are no longer achievable under objective circumstances, the Member State has the option of submitting an amended plan to the Commission.
The European Parliament also has a role to play in all of this and is invited to provide an overview of the Commission’s preliminary findings on the achievement of milestones and targets related to payment requests and disbursement decisions.
The key question for some is that the money is proven to be well spent.
So, in the case of Portugal, for example, how will the financial interests of the EU be protected?
Well, it will have to ensure compliance with Union and national laws, including the effective prevention, detection and remediation of conflicts of interest, corruption and fraud, and the prevention of double funding.
Given Portugal’s relatively poor record in disbursing EU funds in the past, some question its ability to handle such a large amount of money today.
But the Commission warned that it would carry out on-the-spot checks, covering all countries, including Portugal.
The Commission spokesperson said: “Even if the milestones and targets have been met, when the Commission finds serious irregularities (i.e. fraud, conflict of interest, corruption), double funding or serious breach of obligations resulting from the financing agreements and Member States fail to take appropriate measures in good time to correct these irregularities and recover the corresponding funds, the Commission will recover a proportionate amount and / or, to the extent applicable, request an early repayment all or part of the support in the form of a loan.
OLAF, the Court of Auditors, the European Public Prosecutor’s Office and the Commission itself can access relevant data and investigate the use of funds if necessary.
Portugal’s plan was the first to be approved by the Commission and it is worth remembering how the Commission actually assessed Portugal’s recovery and resilience plan.
Portugal had to meet no less than 11 criteria to know if:
- Its RRF measures have a lasting impact;
- the measures respond to the challenges identified in the country;
- the milestones and targets for monitoring the progress of reforms and investments are clear and realistic;
- plans meet the 37% climate spending target and 20% digital spending target;
- the Portuguese plans respect the principle of the absence of significant damage, and;
- its plans provide an adequate control and audit mechanism and “establish the plausibility of cost information”.
Portugal, which is important in its case, has also had to show that its plan includes reforms that tackle long-lasting bottlenecks in the business environment (licenses and regulated professions) and that aim to modernize and improve increase the efficiency of the justice system.
Of course, the EU partially financed its massive stimulus package by borrowing on the financial markets.
Therefore, it (the EU) must also demonstrate to international institutional investors that it will treat them fairly and equitably.
A banking scandal in Portugal – the collapse of Banco Espirito Santo (BES), Portugal’s second largest bank in 2015 – suggests that Lisbon will struggle to meet this particular demand.
The demise of BES gave birth to Recover Portugal, a group that represents a group of European financial institutions holding Novo Banco bonds. They have invested in the reform and revival of the Portuguese economy and are taking action against the illegal retransfer of Novo Banco banknotes in 2015.
This still unresolved case is raising real concerns among some international institutional investors about the risks of lending the EU 750 billion euros to finance its RRF.
Portugal has also been hit by rule of law scandals and has come under fire for its hugely controversial appointment by Lisbon to the post of European Public Prosecutor’s Office.
The Commission also underlined the slowness of administrative and fiscal justice in Portugal and demanded reforms that the Portuguese government must undertake.
The hard truth, clearly, is that a series of events in recent years suggest that, behind the reform headlines, a particularly flawed governance culture persists in Portugal.