An Interesting Battlefield : Planning for the Recovery

Ivan Tosics

By Ivan Tosics, on November 19th, 2020

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Since March, we have almost forgotten what personal meetings mean – almost everything went online. It was only between June and August that the pandemic seemed to soften, thus even larger meetings could be organised. So it happened that the leaders of the 27 EU Member States could meet in Brussels. To be more precise: they spent five days together, in a series of large plenaries and small multi-lateral meetings, until they managed to reach a very important agreement – not only on the 2021-2027 EU budget (Multi-Annual Financial Framework), but also on the additional extraordinary interventions to address the pandemic, in order to achieve recovery and resilience.

What is the EU plan to deal with the Covid-19 recovery?

Although the game is far from being over, as the European Parliament has to agree and all Member States have to ratify it (which will be a painful process), the deal has been struck. Probably the most important element of the deal is the Resilience and Recovery Facility (RRF). The RRF is a large amount of money (€ 360 billion in loans and € 312,5 billion in grants) and a highly ambitious, mission-oriented programme for transformation, in which the European Green Deal is the ‘motor’ for EU recovery, together with technological innovations and digital services.

How will the RRF work? Member States have to prepare Recovery and Resilience Plans (RRP) that set out a coherent package of reforms and public investment projects, which have to be implemented by 2026. These plans have to address challenges identified in the European Semester, particularly the country-specific recommendations adopted by the Council, and each plan has to include a minimum of 37% of expenditures related to climate and a minimum of 20% of expenditures to foster the digital transition.

What does this mean in practice? Member States are currently preparing their RRPs, which have to be sent to the Commission before the end of April 2021. These national plans will be assessed by the Commission within two months, on the basis of which the Council makes a decision. Member States could theoretically block disbursement from the RRF to a Member State if they feel there was not enough progress with reforms.

All this sounds very logical, suggesting that this time the EU made a brave decision and countries will get substantial financial help to mitigate their problems relatively quickly. Moreover, countries suffering more from the pandemic will get more support, as the allocation crucially involves also the observed loss in real GDP over 2020 and the observed cumulative loss in real GDP over the period 2020-2021.

How are city authorities involved in the planned response?

However, the situation is not that rosy. The RRF regulation refers only to the Member States, there is no obligation or requirement for sub-national authorities to be involved regarding the planning and implementation of the recovery fund (see an initial assessment of the recovery plan by the European Policies Research Centre, Glasgow and Delft).

This contradicts the fact that across Europe large urban areas have been the hardest hit by the pandemic. Local communities suffer greatly from the economic and social consequences of the crisis and local policies have to be developed to tackle these impacts. The finances of municipalities are severely threatened by the crisis – the scissor effect (growing tasks while decreasing revenues) jeopardises their ability to provide public services.

Additionally, it is the cities that are the drivers of the green, digital and just transitions that Europe needs for recovery. Cities are the place where decarbonisation strategies for energy, transport, buildings and even industry and agriculture coexist and intersect. As highlighted by the 100 climate-neutral cities initiative, the climate emergency must be tackled within cities and by engaging citizens who are not only political actors in a governance structure, but also users, producers, consumers and owners.

The local answer to the complex challenges is even stronger if developed on the level of the Functional Urban Area (FUA). The added value of FUAs and metropolitan areas is well known, including through: integrated thinking across administrative boundaries; efficiently fighting the silo effect of separated economic sectors; and better assuring the economies of scale. Many of these issues were set out in the recent URBACT article on metropolitan areas under the pandemic.

To sum up: there are many arguments why local and metropolitan authorities have to be included in the planning and implementation of the RRPs. In reality, however, this rarely happens. There are only a few examples known from EU countries (e.g. Finland and Italy) where national governments involve representatives of the local level in discussions about the RRP. In some countries, such as France, Spain and Poland, the national level consults at least the regions. With these exceptions, the dominant pattern among Member States is centralised planning: the RRP is prepared exclusively by ministries, with the total exclusion of the sub-national level.

What risks does this bring?

There are huge risks of this selfish behaviour of the national level. Independent analysts are increasingly sceptical that the high ambitions of the EU will really be followed by Member States. On the one hand there is a risk of ’pork-barrel’ spending, in which money is used to help specific groups for political purposes, rather than leading to new investments in truly worthwhile projects for the benefit of the country as a whole.

On the other hand, there is a risk of problems with absorption capacity and good governance criteria. If adding RRF and MFF together for the next 6 years, the EU money to be spent represents 30% of GNI for Bulgaria and Croatia, and over 20% of GNI for another nine countries (see the EPC interview with Marc Lemaître, Director General of DG Regio). This means that projects have to be prepared in the magnitude of 3-4% of GNI each year – which is an enormous task. Under such conditions, many analysts foresee huge problems during the implementation: the risk of poor execution (including fraud and corruption) and serious absorption difficulties.

Both types of risks are real and are threatening the achievement of the goals of the EU – either because the additional money will be diverted from the strategic goals, or it will be used in corrupt way or parts of it will not be used at all.

There seems to be a broad agreement between analysts that in order to minimise these risks, sub-national governments must be fully involved in the development and implementation of national recovery plans. Moreover, municipalities and metropolitan areas have to be granted easier and direct access to at least part of the funds.

The campaign of Europe’s cities and metropolitan areas

These demands are at the centre of the lobbying activity of large EU cities (initiated by the capital cities of the Visegrád-4 countries and supported by Eurocities). Their core request as set out in a Letter from European Mayors on the EU’s Recovery and Resilience Facility is as follows: “…we urge the European institutions to recognise municipalities as key allies in our joint fight for a resilient future. First, we urge the EU to mandate Member State governments to better engage cities when shaping country-level recovery plans. Second, we find it crucial that the EU opens up parts of the Recovery and Resilience Fund directly to local governments. With regards to the latter, we specifically urge the European institutions to adopt the proposed amendment in the European Parliament to earmark at least 10% of the RRF to the local level.”

The association of European Metropolitan Authorities (EMA) agrees with that, adding that all results to be achieved in favour of cities in the modifications of EU regulations should also be valid for metropolitan areas, providing that the municipalities of these areas agree to act together and the area has a strong, well-institutionalised metropolitan government structure.

The first results of the lobbying of large cities are already visible – many of their proposed amendments were accepted in the European Parliament on 9 November. It is still an open question how this will influence the ongoing national planning process of the RRPs, but at least Member States can feel now an increasing threat that their RRPs will not be accepted by the European Commission if developed without fair social and stakeholder consultations.

So, this is the current state of affairs – an interesting battlefield in each country, with an urgency for municipalities and metropolitan areas to lobby their national governments to be involved in a meaningful way in the RRP process.

I would be really interested in your responses to the following questions: What is the situation in your country? How is your national government working on the RPP, what is the position and activity of the regions? How are cities lobbying? Can you hear any voice of metropolitan areas? Is there any information shared through international channels? Are there lobbying groups organised?

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Photo credit: Schuman Associates

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