• Silvia Naydenova

Funding the recovery from COVID-19 and the lack of accountability


Saving the economy

You are likely among the many people experiencing or witnessing the devastating effects of COVID-19 on your financial situation, your job or your whole way of life. However, the COVID-19 crisis is not only leaving a deep mark on people’s individual lives, but also on the European economy. More importantly, it once more draws your attention to key principles of the EU, such as transparency and accountability, which always seem to come up when the EU finds itself in another crisis. Why are these concepts so important, especially in the context of COVID-19?

The Coronavirus pandemic has become synonymous with grim numbers - approximately 14 million cases and more than half a million deaths around the world.[i] Figures within Europe are equally staggering, but also stress the grave effect on the European economy. According to a recent analysis by the European Commission, the economy of Europe is expected to contract by a record 7,5 % (far more than the financial crisis of 2009) and international trade will ‘collapse unprecedentedly’,[ii] not counting the calamitous effect on unemployment and the pressure this will exert on states’ social security policies. The severity of the pandemic, coupled with the grim effect on the economy, shows the need for exceptional and rapid measures on the part of the EU.

As an answer to this unparallel crisis, the European Union quickly introduced the ‘Recovery Plan for Europe’.[iii] The plan is meant to contain and resolve the economic and social damage generated by the COVID-19 pandemic, but also to establish long term courses for further recovery and preparedness for future crises of similar or bigger proportions.

Under this ambitious Recovery Plan, the EU would be able to harness up to 1.85 trillion euro within the span of its 2021-2027 Budget. However, its most immediate and most decisive measure is the European Union Recovery Instrument (otherwise termed Next Generation EU), which states that the Union will be able to borrow up to 750 billion euro and utilize them towards various types of grants and loans for the social and economic recovery of Member states.[iv] This is surely a timely and appropriate reaction to the severity of the economic challenges faced by the Member states. However, behind the expressions of ‘exceptional temporary measures’,[v] many fundamental concerns arise.

At the expanse of what?

One of the biggest of these concerns is the question of how the European Commission, the body ultimately responsible for managing the EU budget, will be able to spend and distribute these funds in the quickest, but also most appropriate, transparent and accountable way. The answer is that, under the provisions of its own laws, the Commission is obliged to be transparent and accountable, but in the case of COVID-19 it would be extremely difficult to ensure that.[vi] The European Commission’s Financial Regulation, the document which sets the rules and procedures for the management of EU funds, states that the Commission must ensure that citizens have access to the published budget where all recipients of funds are listed in detail.[vii] This ensures the transparency of the budget to the citizens of the EU but also adds to the awareness that the EU shall be democratically accountable to the civil society about how it manages its most crucial policy tool – its budget.

This view was echoed by the European Court of Auditors, which published an opinion in May 2020 recognising that the EU is attempting to strike a balance between flexibility (funds are made available to Member states with no delay) and proper accountability of the financial stimuli.[viii] Despite this, the Court of Auditors emphasises that the Commission has not put in place explicit monitoring requirements, which means that some of the information on ‘fund spending in response to the COVID-19 outbreak would not be readily available to the Commission or the legislators, potentially affecting accountability to EU citizens concerning the use of funds’. Moreover, within the mentioned European Union Recovery Instrument, although the Commission states that ‘maximum transparency and proper monitoring of the use of the EU financial resources are required and that ‘reporting obligations for the Member States and the Commission will apply’, the Commission is expected to publish its first report on the use of funds as late as 31st March 2023. This compromise between rapid deployment of funds for reviving the economy and accountability may lead to a rise in corruption and fraud, according to Laura Kovesi, the head of the EU’s newly created Public Prosecutor’s Office.[ix]

In reality

Take for example Bulgaria. The country is infamous for being one of the most corrupt member states, with longstanding problems with the lack of rule of law, corruption, and judicial reform. Despite the progress made, according to the EU’s specifically designed in 2007 Cooperation and Verification Mechanism, for battling these issues, the country is no closer to solving them. However, the member state is one of the poorest in Europe and it would, therefore, be hardest for it to compensate the losses to its economy as a result of COVID-19. Consequently, it is interesting to see how one could track the funds targeted towards economic recovery from COVID-19 and how they are accounted for. Is the European Commission truly making sure transparency is guaranteed and the funds are not mismanaged?

The first thing we need to mention is that there is no uniform system or instrument in which a citizen of the EU can gain proper and full access to all the information regarding the management of EU financial resources. According to an analysis on the topic,[x] the budget is set out by the Commission, but all relevant information on how it is being spent can be found on the respective websites of the EU Commission’s various Directorate-Generals and Agencies. This makes the information much harder to come about. In the case of Bulgaria, there is no unique managing authority responsible for the allocation, management, and monitoring of the spending of EU funds. The task is distributed within the various ministries or under the different Operational Programs.

Secondly, in most cases, the information is presented on the website in Bulgarian and there is no translation in English. According to my research, information on the funds allocated to Bulgaria is publicly accessible, in Bulgarian, but the scrutiny of the information is the nation’s responsibility, not the Commission’s. The reason for this is that, in cases where the Commission establishes shared management of funds, as in the situation of COVID-19 financial support,[xi] member states have primary responsibility for the management, control and audit of EU expenditure.[xii] In turn, the Commission, when exercising any auditory or evaluative functions over Member states, take decisions based on the information provided by the national management authorities responsible.[xiii] If everything is okay on paper, who can prove otherwise?

Through the European Regional Development Fund, Bulgaria has been allocated 565.5 million euro for supporting small and medium-sized enterprises (SMEs) and another 130 million for temporary employment and subsidised employment.[xiv] We have thus far implemented approximately 175 million euro towards the economic and social recovery form COVID-19 under the EU funding instruments. Bear in mind that this information was very hard to acquire because it is very difficult to track what part of the Bulgarian spending comes from which exact EU funding scheme. One of the most popular funding plans in Bulgaria, however, is the ‘60/40’ wage subsidy aid scheme, which allows the Bulgarian authorities to finance 60% of the wage costs of companies who would otherwise lay off personnel. The funding system is financed by the State aid Temporary Framework adopted by the Commission on 19 March 2020.[xv] However, quickly after the funding began to be distributed among member states, information began circulating in Bulgaria of corruption and fraud with EU funding.

Journalistic investigations showed that the first companies which directly benefitted from the funds had direct ties to corrupt oligarchs or politicians in the country.[xvi] For example, one of these companies, Academica See Palace, is an investor in the tourism sector, which became famous in 2003 after a very conflictual privatization deal,[xvii] where the government entered with a non-monetary contribution of 72 acres which was estimated at a price three times lower than its market evaluation. In 2010 the state audit authority made several significant accusations relating to fraud within this deal.[xviii] Moreover, 80 % of the company is owned by the brother of the at-the-time Minister of Finance of Bulgaria.[xix] The second company to receive benefits is a tourist agency, whose owner is a legal associate of the owner of Academica See Palace. According to the Bulgarian Prosecutor’s Office, there is still an ongoing investigation into the latter and its business activities.[xx]

The case of Bulgaria is merely an example of the possible negative side effects of disregarding the importance of sound financial management, transparency and accountability of EU funding. The biggest reason is that being a crucial policy instrument, the EU budget needs to be properly implemented to be effective, to serve the goals of the EU and to adequately benefit European citizens and the economy. Without a doubt, the Coronavirus pandemic has significantly challenged normal budgetary procedures of the Commission and requires strenuous efforts. However, lifting the economy from the ground is reliant not only on the volume of funds deployed but, more importantly, on focused, effective, transparent and impactful utilization of these urgently needed funds.

[i] “Coronavirus Update (Live): 14,667,659 Cases and 609,508 Deaths from COVID-19 Virus Pandemic - Worldometer.” Accessed July 20, 2020. https://www.worldometers.info/coronavirus/?utm_campaign=homeAdUOA?Si%3Ca%20href=.

[ii] European Commission, 2020, European Economic Forecast spring 2020, European Economy, Institutional Paper 125

[iii] European Council. “A Recovery Plan for Europe.” Accessed July 20, 2020. https://www.consilium.europa.eu/en/policies/eu-recovery-plan/.

[iv] Council Regulation COM(2020) 441 final/2 establishing a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 pandemic, 28.5.2020, p.1

[v] Council Regulation COM(2020) 441 final/2 establishing a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 pandemic, 28.5.2020, p.3

[vi] COVID-19 is an exceptional case where funds must be distributed in the quickest possible way and this challenges normal procedures. However, the EU Commission has had problems with the management and transparency of funds even before the pandemic. For example, even in the case of COVID-19 funding, as the Commission states, normal procedures for budgetary management apply. Therefore, some of the pre-existing issues with these procedures may be exacerbated during the emergency distribution of COVID-19 funding. This is why the Commission must be extremely thorough and transparent as to ensure that COVID-19 spending goes where needed the most and won’t be subject to corruption or fraud.

[vii] Council Regulation (EU, Euratom) 2018/1046 (See Art. 38) OJ-L 193/30.07.2018, p.82

[viii] Court Of Auditors, OPINION No 3/2020 on the proposal 2020/0054(COD) for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1303/2013 and Regulation (EU) No 1301/2013 as regards specific measures to provide exceptional flexibility for the use of the European Structural and Investments Funds in response to the COVID-19 outbreak (8 May 2020) Official Journal of the European Union

[ix]Baker, Luke. “Virus Response Opens Way for Corruption: EU Chief Prosecutor.” Reuters, May 12, 2020. https://www.reuters.com/article/us-health-coronavirus-eu-corruption-inte/virus-response-opens-way-for-corruption-eu-chief-prosecutor-idUSKBN22O1SG.

[x] “How Transparent Is the EU Budget?” Accessed July 20, 2020. https://community.openspending.org/resources/eu/transparency/

[xi] Council Regulation COM(2020) 441 final/2 establishing a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 pandemic, 28.5.2020, p.16

[xii] Council Regulation (EU, Euratom) 2018/1046, see Art. 53b(1), p. 104

[xiii] Council Regulation (Eu) No 1303/2013 (see Art.79) (2013) Official Journal of the European Union

[xiv]“The Coronavirus Response Investment Initiative in Bulgaria.” Accessed July 20, 2020. https://ec.europa.eu/regional_policy/index.cfm?action=publications.details&languageCode=en&publicationId=1365.

[xv] “State aid: Commission approves €770 million Bulgarian employment aid scheme for preserving jobs in sectors most affected by the coronavirus outbreak” Accessed July 20, 2020. https://ec.europa.eu/commission/presscorner/detail/en/IP_20_661

[xvi] “List of employers to whom compensations under the Council of Ministers № 55 of 2020 have been paid”. Accessed July 20, 2020. https://www.noi.bg/aboutbg/accinformation/416-pms552020/5909-pms552020 Information on the first beneficiaries of the 60/40 funding scheme under the EU Temporary Framework. The information is available only in Bulgarian.

[xvii]https://www.bulnao.government.bg/bg/search?q=%D0%B0%D0%BA%D0%B0%D0%B4%D0%B5%D0%BC%D0%B8%D0%BA%D0%B0+&article_id=&child_article_id=&file_category_id=&file_type_id=&date_from=&date_to= Accessed July 20, 2020. Information on the audit of the company form the Bulgarian Audit Office. Information is available only in Bulgarian.

[xviii]Leshtarska, Desislava. "The National Audit Office Found Violations in the Management of 'Academica 2000' - Mediapool.Bg." Mediapool.bg. Accessed July 20, 2020. https://www.mediapool.bg/smetnata-palata-otkri-narusheniya-v-stopanisvaneto-na-akademika-2000-news192790.html.

[xix] Sokolova, Tsvetelina. "The luxury hotels of Velchev and 'Shishedjam' are the first to take money under the scheme 60/40 - Mediapool.Bg." Mediapool.bg. Accessed July 20, 2020. https://www.mediapool.bg/lukshotelite-na-velchev-i-shishedzham-parvi-vzimat-pari-po-shemata-6040-news306267.html.

[xx] "Chief Prosecutor Ivan Geshev assigned to DANS a full inspection of the entire privatization process." February 12, 2020. https://www.prb.bg/bg/news/aktualno/39873-glavnijat-prokuror-ivan-geshev-vyzloji-na-dans-94.

Featured Posts
Recent Posts
Archive
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

Institute for a Greater Europe 

Contact Us © All Rights Reserved

Privacy Policy

Youth Association for a Greater Europe  © All Rights Reserved