According to the Court of Auditors’ report, the estimated error rate in European expenditure has increased from 2.7 percent in 2019 to 3 percent in 2021 to 5.6 percent in 2023. The increase can largely be attributed to cohesion policy, where the error rate increased up to 9.3 percent. It forces European auditors to issue an adverse opinion on expenditure for the fifth year in a row.
“We see a number of reasons,” observes Belgian member Annemie Turtelboom, who is responsible for controlling cohesion budgets. “At the end of the multi-year budget, there is a certain absorption pressure among the Member States. More flexibility has also been granted in reprogramming funds, and more flexibility means more creativity. Finally, corona made it more difficult to carry out checks and verifications.”
Errors with subsidies
The error rate is not an indicator of fraud or waste. The Court of Audit refers to an error when an amount should not have been paid because the money was not used in accordance with European or national rules. Classics are errors with public procurement, violations of state aid rules or the granting of subsidies to projects that were not actually eligible for subsidies. Last year, the Court of Audit reported 20 cases of possible fraud to the competent Olaf department.
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A large part of the budget is managed jointly by the European Commission and the Member States. They often experience difficulties in using up the funds reserved for them in a timely manner. For example, almost 10 percent of the 492.6 billion euros in structural and investment funds from the 2014-2020 multi-annual budget had still not been paid at the end of last year. Belgium still had to receive 356 million euros, which equates to an absorption rate of 88 percent. The EU average is 91 percent.
“Money rolls slower”
European expenditure last year totaled 191.2 billion euros. In addition, the EU also provided the member states with 48 billion euros from the recovery fund that was set up in response to the corona pandemic. Although that fund was marketed as a more flexible model, there also appears to be an absorption problem here. At the end of last year, 141 billion had been paid out from the pot of 356 billion euros in subsidies. Member States still have until the end of 2026 to withdraw their money.
The problem of outstanding financial commitments is gradually spiraling out of control. “That is not good for the economy, because money flows more slowly, but it is also not good financial management,” says Turtelboom. By the end of last year, these commitments had risen to a record amount of 543 billion euros. “There are almost three annual budgets of commitments outstanding that have not yet been paid. This could lead to liquidity problems, as occurred in 2014,” she warns.
Growing mountain of debt
The rapidly growing debt mountain is also a concern for the Court of Audit. The EU turned to the financial markets to secure support for Ukraine, but it is mainly to finance the recovery fund that large-scale borrowing is taking place for the first time. The EU has now become one of the largest debt issuers in Europe. Total debt rose to 458.5 billion euros last year, twice as high as in 2021. The total budget exposure rose to almost 300 billion euros.
“The Commission is proposing new own revenues to repay the loans for the recovery fund, but it is not clear to us whether these will be sufficient to cover the debts, and at the end of the day the Member States are ultimately responsible,” concludes Turtelboom.