BRUSSELS — The European Commission will allow European Union countries to spend funds more rapidly provided they agree to align with the bloc’s competitiveness mantra.
The policy shift aims to mobilize the EU’s largely unspent regional funds to build European industrial champions and narrow the widening gap with the U.S.
“They’re trying to kill two birds with one stone,” an EU official told POLITICO of the measures. The official was granted anonymity to speak freely.
Faced with a flagging economy and heightened competition with the United States, Commission President Ursula von der Leyen is trying to harness the EU’s €1.2 trillion common cash pot to boost the bloc’s autonomy in a bid to make Europe economically strong again.
To ram through her economic vision, von der Leyen has suggested steering billions of regional funding away from traditional allocations, such as for building schools and bridges, and toward new priorities such as technological innovation, military buildup and housing.
In a further concession, the EU executive floated a workaround that would allow countries to request their separate post-Covid recovery funds beyond an August 2026 deadline.
The Commission invited countries to divert these funds toward strategic investments through the EU’s lending arm — the European Investment Bank — which would allow them to push beyond 2026.
While these new priorities are a sea change for EU budget veterans, they may be only a taster of more dramatic changes to come.
Von der Leyen has said she wants to use public funding under the next budget from 2028-2034 to pressure countries to implement key economic reforms that will make them more competitive.
On Friday, the EU’s 27 commissioners will hold their first informal discussion on how to structure the new common fund.
Freeing up cash
For the time being, the Commission has suggested freeing billions held up in red tape under the current seven-year budget that expires in 2027.
Currently, only 30.6 percent of cohesion funds have been earmarked, according to a Commission spokesperson, while expenditure is much lower than that.
The Commission argues that these figures are not worrying because governments are prioritizing their post-Covid funding, and cohesion spending generally tends to pick up in the later years of the cycle.
“This delay was due to the pandemic, the late adoption of the legal texts and to the need for member states to absorb the extra funds allocated under the Next Generation EU,” said the Commission spokesperson.
But with the 2028-2034 budget negotiations looming, the EU’s Cohesion Commissioner Raffaele Fitto is keen to boost expenditure to show skeptical countries from Northern Europe that regional cash is bearing fruit.
“[We need to] accelerate the implementation of the current programs,” Fitto said in a speech in Krakow, Poland on Thursday. Since taking office in December he has been touring EU capitals to negotiate midterm changes to their cohesion plans, due before March 31.
“[The midterm review] is a golden opportunity to ensure that funding is absorbed more rapidly, to take the next step in adapting the policy to emerging needs.” Fitto added.
But Brussels’ offer of greater flexibility comes with strings attached. According to the EU’s freshly published Competitiveness Compass — which contains several proposals to reboot the bloc’s economy — countries are now being offered the possibility to channel more of the regional funding they receive into strategic sectors.
In practice, this change would allow big businesses to take advantage of more cohesion funds for project funding, according to an EU diplomat. This was not allowed under the previous rules, which were designed to favor small and medium-sized enterprises with local roots.
However, the tweak is welcome relief for hard-up governments seeking to mobilize additional defense spending in the years to come.
While cohesion cash can’t fund weapons purchases, it can finance auxiliary goods such as drones and border infrastructure that have both military and civilian uses.
“Security is one of those many important European challenges,” said Céline Gauer, a high-ranking official who leads the Commission task force in charge of the post-Covid recovery fund.
“Does cohesion policy belong to the answer? I think it really does.”
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