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Explainer: Next Generation EU – Legal Construction

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The proposed architecture of the exceptional financing is based on three pillars:

  • The Own Resources Decision authorises the full amount of the borrowing, to be used for exceptional expenditure and for loans to Member States. Those amounts are not entered into the Union budget. It also organises the repayment of the amounts used for expenditure under the future MFF. The repayment will be entered into the Union budget in the year it takes place (as of 2028, until 2058).
  • The Recovery Instrument based on Article 122 TFEU identifies recovery measures and allocates the borrowed funds to various Union programmes to that effect.
  • The Union programmes receive the resources and lay down the rules for their implementation.

The major innovation, the borrowing for spending, is compliant with the Treaties.

1)    Under the current circumstances, borrowing is a justified means to attain the Union’s objectives

  • The Union is allowed to provide itself with the means necessary to attain its objectives [Article 311, first paragraph TFEU]. A highly competitive social market economy, aiming at full employment, the promotion of economic, social and territorial cohesion and solidarity among Member States is an objective of the Union [Article 3(3) TEU].
  • The financial means of the Union come predominantly, but not exclusively, from own resources [Article 311, second paragraph TFEU]. Therefore, the Union enjoys some discretion as to the choice of the means necessary, as long as it respects the financial rules of the Treaty.
  • Borrowing constitutes such a means. Under the current circumstances, it is necessary. Tackling the exceptional consequences of the crisis requires large resources in short period of time, without increasing national debt in the short to medium term.
  • Borrowing creates a financial liability for the Union. However, financial operations involving liability of the Union are not extraordinary. The Treaties do not prohibit the Union from taking liabilities. The Union is already now taking liabilities e.g. from loans for financial assistance to Member States and third countries or budgetary guarantees, inclusive for market operations (e.g. European Fund for Strategic Investments). Borrowing used for crisis spending would simply be a new type of a liability operation.

2)    Borrowing must respect the principle of budgetary discipline. For that reason, provisions are needed in the Own Resources Decision

  • According to the principle of budgetary discipline [Article 310(4) TFEU], the Union’s actions can be financed within the limits of the multiannual financial framework (MFF) and own resources. The Treaty also obliges the Union institutions to ensure that the Union can satisfy its financial obligations towards third parties [Article 323 TFEU].
  • Therefore, liability from borrowing is only permissible if the Union is able to repay the debt including interest. This requires that the own resources ceiling be sufficiently high to ensure each year sufficient financial space for the full coverage of the Union’s liability. It also requires a mechanism ensuring availability of resources in all circumstances.
  • The proposed amendment to the proposal for the new Own Resources Decision makes sure that these pre-requisites of budgetary discipline are fulfilled:

o   A dedicated and temporary increase of the Own resources ceilings will create sufficient budgetary space. That space is available (i) for the contingent liabilities from loans to Member States and (ii) for the repayment of the debt from borrowed funds used for spending programmes in the future (2028 to 2058);

o   An additional rule will allow the Union to call on resources from the Member States where, on a given year, the authorised appropriations entered in the budget are not sufficient for the Union to comply with its obligations resulting from borrowing.

  • The Own Resources Decision will go one-step further. It will determine the maximum amount that may be borrowed and will set the parameters for its repayment, in particular the start date for repayment (2028) and the end date for repayment (2058). This can be done under the Own Resources decision for the following reasons:

o   Those provisions are a corollary of the dedicated increase of the own resources ceiling. The size and the modalities of the repayment delimit the maximum amounts of future own resources revenue, which will be needed for that purpose. They may, therefore, be considered as an integral part of the establishment of the system of own resources [Article 311, third paragraph TFEU].

o   When defining the amounts of the needed revenue in the own resources decision, it is normal for the legislator to take into account related expenditure. E.g. the UK rebates were calculated in function of the total allocated expenditure in favour of the UK.

o   Moreover, the Own Resources Decision is of quasi-constitutional nature. It only enters into force after approval by all Member States in accordance with their national constitutional requirements. The authorisation of the borrowing will need the approval of all Member States, and, depending on national procedures, of their national parliaments. This provides for the necessary democratic legitimacy of that innovative proposal necessary to fulfil the Union’s objectives.

o   At the same time, the approval by all Member States will constitute a clear commitment to bear the liability from the borrowing

3)    Allocation of the funds to Union spending programmes, Article 122 TFEU

Article 122 TFEU allows for targeted derogations from standard rules in exceptional crisis situations. On that basis, the Recovery Instrument will provide for the financing, by reference to the authorisation to borrow provided by the own resources decision, and will assign those funds to the various spending programmes, as so-called “external assigned revenues”, for the purposes of recovery and resilience. [Article 21(5), Financial Regulation]

The borrowed funds will remain additional to the annual budget. They will not be part of the MFF and of the annual budgetary procedure.

Such way to proceed for large amounts diverges from the standard practice for the establishment of the budget and financing of the Union [point 1, requirement of principal financing of Union policies from own resources]. It is justified as a temporary and exceptional solution in the context of the current crisis.

Q&A:

Is the mechanism compatible with the principle of budgetary balance?

The principle of budgetary balance [Article 310(1), 3rd sub-paragraph, TFEU] requires equilibrium between revenue and expenditure of the annual budget. The borrowed funds are exceptional and one-off amounts coming in addition to the annual budget as external assigned revenue (for the spending part), they do not form part neither of revenue nor of expenditure under the annual budget.

The borrowing does not mean that the Union engages in deficit spending in a manner comparable to a Member State. Budgetary deficit occurring in the Member States budgets relies on future income from revenue (taxes), which the Member State can impose as a sovereign.

The Union does not have that option. It has to rely on the own resources previously authorised in the own resources decision and can act only within such limits, in accordance with the principle of budgetary discipline. The borrowing will constitute an operation respecting those constraints because the Own Resources Decision will already guarantee the financial means needed for the repayment. In substance, the Member States agree to make financial resources available to the Union, but, having limited immediately available fiscal space, “defer” or “delay” the making available.The budgetary space thus created will allow the Union to engage into extraordinary and one-off borrowing operation, permitting the immediate adoption of the recovery measures.

Why do we need a Recovery Instrument based on Article 122 TFEU? Why could the resources not go directly from the own resources decision to the spending programmes?

  • The Recovery Instrument is based on Article 122 TFEU, which allows for extraordinary measures in situations of crisis as an expression of solidarity among Member States.
  • Recourse to that legal basis is necessary for derogating from standard Treaty rules, which would not allow the financing of such large amounts in addition to the Union’s budget and outside of the annual budgetary procedure. This is justified only in the circumstances of the current crisis.

Can the borrowed funds be considered “external assigned revenue” provided for by the Recovery Instrument in accordance with Article 122 TFEU, while the empowerment to borrow and the repayment of the borrowing are embedded in the own resources decision?

  • The borrowing and use of the funds involve three steps:

o   Empowerment to borrow, including the determination of the maximum amount;

o   Receipt of the borrowed funds and their assignment to particular items of expenditure;

o   Repayment of the borrowing in the future, including the determination of the end date.

  • The Own Resources Decision provides the legal basis for the first and third steps, whereas the Recovery Instrument constitutes the legal basis for the second step, in accordance with Article 21(5) of the Financial Regulation.
  • This architecture is the result of a policy choice, while respecting legal constraints.
  • It is legally possible to determine the maximum amount of liability in the Own Resources Decision. Article 311(3) TFEU has two functions, which are closely interlinked: it determines the revenue attributed to the Union and it contains the Member States’ commitment to provide such revenue. The determination of the overall amount of funds that may be borrowed and of the modalities of repayment provides legal certainty concerning the revenue needed by the Union in the future and the obligations of the Member States to provide for it.
  • However, the borrowed funds will not constitute own resources but a new category of ‘other revenue'[Article 311(2) TFEU]. Such revenue comes in addition to the Union’s budget and is intended to finance particular items of expenditure.
  • Concerning the second step mentioned above, Article 122 TFEU constitutes the appropriate legal basis for receiving the borrowed funds and attributing them to particular items of expenditure. The choice of the legal basis for a Union act must be based on objective factors which are amenable to judicial review and which include, in particular, the aim and content of the measure. In the present case, the content is the provision of additional financing by derogation to certain rules; the objective is the recovery and resilience of the Union in an unprecedented crisis situation.
  • To conclude, the three steps mentioned above are interlinked, but given the political and legal constraints, they may be regulated in two separate legal acts based on different legal bases.

The Own Resources Decision is an act establishing the revenue of the Union, the own resources. How can it constitute legal basis for expenditure (repayment of the borrowing)?

Article 310(3) TFEU provides that the “implementation of expenditure shown in the budget shall require the prior adoption of a legally binding Union act providing a legal basis for its action and for the implementation of the corresponding expenditure in accordance with the [financial] regulation”. The Own Resources Decision is a “legally binding Union act” as defined by Article 2(4) of the Financial Regulation. As long as it can validly authorise the borrowing and its repayment (see previous question), the necessary consequence is that it will constitute a basic act for the expenditure intrinsically linked to the borrowing, i.e. the instalments of the borrowing. Therefore, this aspect belongs to the ‘system of own resources of the Union’ [Article 311(3) TFEU].

Do the borrowed amounts constitute own resources?

No:

  • The amounts are one-off additional reinforcement of Union’s actions, as ‘other revenue’ expressly provided for by Article 311(2) TFEU. Own resources are regular income of the Union.
  • The amounts need to be repaid by the Union, while own resources are a final revenue that is not repaid.

The borrowing can be authorised based on the third paragraph of Article 311TFEU. The determination of the maximum Union’s liability and the modalities of repayment are intrinsically linked to the determination of the additional own resources ceilings.

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EU Cohesion policy: Commission announces the winners of the REGIOSTARS Awards 2021

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Today, the European Commission has announced the winners of the 2021 edition of the REGIOSTARS Awards that reward the best Cohesion policy projects in the whole EU. This year’s REGIOSTARS competition received a record 214 applications and 14,156 people voted in the public choice’s category.

Commissioner for Cohesion and Reforms, Elisa Ferreira, commented: “My warm congratulations to the 10 winners of the EU Cohesion policy projects of 2021. They are role models for everyone who wishes to better the life of people with the use of EU funds. I hope they will inspire many others across the continent. For sure, with REGIOSTARS we have learnt that excellence and innovation are everywhere in Europe. You just need to look for them and highlight them as they deserve. We will keep looking for them and we will keep supporting them.”

The awards cover five categories and a public choice prize:

For ‘SMART Europe: Increasing the competitiveness of local businesses in a digital world’ (1st category) the award went to Integration 3D metal printing from Belgium. The project supports the implementation of the 3D metal printing technology in small and medium-sized companies (SMEs) through a very innovative integrated approach to knowledge and technology. The idea is easily transferable to other contexts with industrial tradition.

For ‘GREEN Europe: Green and resilient communities in urban and rural setting’ (2nd category) the award was given to ICCARUS (Gent knapt op) for providing a unique housing renovation financial scheme for 100 vulnerable homeowners in Ghent, Belgium. This project has a strong social component and is easily transferable, both to other places, including to less developed regions, and other sectors.

The award for ‘FAIR Europe: Fostering inclusion and anti-discrimination’ (3rd category) went to TREE – Training for integrating Refugees in the Euregion, which facilitates the integration of refugees through the  development of a needs-based training programme for practitioners working with refugees and migrants, and a qualification programme for social interpreters. The winners are from the Netherlands, Germany, and Belgium.

Travelling Solidary Cannery received the award in the 4th category, ‘URBAN Europe: Promoting green, sustainable and circular food systems in functional urban areas’. The project provides the disadvantaged access to healthy and fair food at affordable prices all year round. At the same time, it develops a new range of professions centred on the production, valorisation, logistics and marketing of local products, but also of unsold products from supermarkets or surplus harvests. The winner is from Belgium.

Under the topic of the year: ‘Enhancing green mobility in the regions – European Year of Rail 2021’ (5th category) the winner is North-West Multimodal Transport Hub from the United Kingdom and Ireland. This project provides an increased rail capacity, a strong balance of services for cycling, public transport and active travel users in Londonderry and an encouraging modal shift from car to public transport.

Finally, the ‘Public Choice Award’ goes to BEGIN, a project that unites cities, citizens, and stakeholders through the co-creation of blue and green infrastructure projects in 10 EU cities in the Netherlands, the United Kingdom, Sweden, Belgium, Norway and Germany. The project aims at reducing flood risk by up to 30% and improving livability. Other public favorites were Balkan Road (under the 1st category), Baltazar (3rd category), Digital Farming Specialist (4th category) and Transporte A Pedido (5th category).

Background

The REGIOSTARS Awards are the yearly competition organised by the Commission since 2008: it has become Europe’s label of excellence for EU-funded projects under Cohesion policy that demonstrate innovative and inclusive approaches to regional development.

Each year, hundreds of projects compete in five categories: ‘Smart Europe’, ‘Green Europe’, ‘Fair Europe’, ‘Urban Europe’, and the topic of the year. The public can participate by voting for their favourite project among all finalists for the public choice award.

By bringing about solutions to common challenges and tapping into the biggest opportunities, the REGIOSTARS have inspired regions to deliver evermore-impactful EU Cohesion policy.

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Commission proposes to strengthen coordination of safe travel in the EU

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European Commission has proposed to update the rules on coordination of safe and free movement in the EU, which were put in place in response to the COVID-19 pandemic.

Since the summer, vaccine uptake has increased significantly and the EU Digital COVID Certificate has been rolled out successfully, with more than 650 million certificates issued to date. At the same time, the epidemiological situation in the EU continues to develop with some Member States taking additional public health measures, including administering booster vaccines. Taking into account all those factors, the Commission is proposing a stronger focus on a ‘person-based’ approach to travel measures and a standard acceptance period for vaccination certificates of 9 months since the primary vaccination series. The 9 month period takes into account the guidance of the European Centre for Disease Prevention and Control (ECDC) on the administration of booster doses as of 6 months, and provides for an additional period of 3 months to ensure that national vaccination campaigns can adjust and citizens can have access to boosters.

The Commission is also proposing updates to the EU traffic light map; as well as a simplified ‘emergency brake’ procedure. 

The Commission is also proposing today to update the rules on external travel to the EU [press release available as of 14:15].

Didier Reynders, Commissioner for Justice, said: “Since the start of the pandemic, the Commission has been fully active in finding solutions to guarantee the safe free movement of people in a coordinated manner. In light of the latest developments and scientific evidence, we are proposing a new recommendation to be adopted by the Council. Based on our common tool, the EU Digital COVID Certificate, which has become a real standard, we are moving to a ‘person-based’ approach. Our main objective is avoid diverging measures throughout the EU. This also applies to the question of boosters, which will be essential to fight the virus. Among other measures, we propose today that the Council agrees on a standard validity period for vaccination certificates issued following the primary series. Agreeing on this proposal will be crucial for the months ahead and the protection of the safe free movement for citizens.”

Stella Kyriakides, Commissioner for Health and Food Safety added:  “The EU Digital COVID Certificate and our coordinated approach to travel measures have greatly contributed to safe free movement, with the protection of public health as our priority. We have vaccinated over 65% of the total EU population, but this is not enough. There are still too many people who are not protected. For everyone to travel and live as safely as possible, we need to reach significantly higher vaccination rates – urgently. We also need to reinforce our immunity with booster vaccines. Taking into account the guidance from ECDC, and to allow Member States to adjust their vaccination campaigns and for citizens to have access to boosters, we propose a standard acceptance period for vaccination certificates. At the same time, we have to continue to strongly encouraging everyone to continue to respect public health measures. Our masks need to stay on.”

Key updates to the common approach to travel measures within the EU proposed by the Commission are:

Focus on a ‘person-based approach’: a person who has a valid EU Digital COVID Certificate should in principle not be subject to additional restrictions, such as tests or quarantine, regardless of their place of departure in the EU. Persons without an EU Digital COVID Certificate could be required to undergo a test carried out prior to or after arrival.

Standard validity of vaccination certificates: To avoid diverging and disruptive approaches, the Commission proposes a standard acceptance period of 9-month for vaccination certificates issued following the completion of the primary vaccination series. The 9 month period takes into account the guidance of the European Centre for Disease Prevention and Control (ECDC) on the administration of booster doses as of 6 months, and provides for an additional period of 3 months to ensure that national vaccination campaigns can adjust and citizens can have access to boosters. This means that, in the context of travel, Member States should not refuse a vaccination certificate that has been issued less than 9 months since the administration of the last dose of the primary vaccination. Member States should immediately take all necessary steps to ensure access to vaccination for those population groups whose previously issued vaccination certificates approach the 9-month limit.

Booster shots: As of yet, there are no studies expressly addressing the effectiveness of boosters on transmission of COVID-19 and therefore it is not possible to determine an acceptance period for boosters. However, given the emerging data it can be expected that protection from booster vaccinations may last longer than that resulting from the primary vaccination series. The Commission will closely monitor newly emerging scientific evidence on this issue. On the basis of such evidence, the Commission may, if needed, propose an appropriate acceptance period also for vaccination certificates issued following a booster.

The EU traffic light map is adapted: combining new cases with a region’s vaccine uptake. The map would be mainly for information purposes, but would also serve to coordinate measures for areas with particularly low (‘green’) or particularly high level (‘dark red’) of circulation of the virus. For these areas, specific rules would apply by derogation from the ‘persons-based approach’. For travellers from ‘green’ areas, no restrictions should be applied. Travel to and from ‘dark red’ areas should be discouraged, given the high number of new infections there, and persons who are neither vaccinated nor have recovered from the virus should be required to undergo a pre-departure test and quarantine after arrival (with special rules for essential travelers and children under 12 years old).

Exemptions from certain travel measures: should apply for cross-border commuters, children under 12 and essential travellers. The list of essential travellers should be reduced as many travellers included in the current list have had the opportunity to be vaccinated in the meantime.

Simplified ‘emergency brake’ procedure: the emergency procedure intended to delay the spread of possible new COVID-19 variants or address particularly serious situations should be simplified and more operational. It would include a Member State notification to the Commission and the Council and a roundtable at the Council’s Integrated Political Crisis Response (IPCR).

To allow for sufficient time for the coordinated approach to be implemented, the Commission proposes that these updates apply as of 10 January 2022.

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EU: new laws on political advertising, electoral rights and party funding

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The European Commission has today presented a proposal on transparency and targeting of political advertising, as part of measures aimed at protecting election integrity and open democratic debate.  The proposed rules would require any political advert to be clearly labelled as such and include information such as who paid for it and how much. Political targeting and amplification techniques would need to be explained publicly in unprecedented detail and, would be banned when using sensitive personal data without explicit consent of the individual. The Commission also proposes to update the current EU rules concerning EU “mobile citizens” and their right to vote in European and municipal elections as well as on European political parties and foundations.

Vice-President for Values and Transparency, Vera Jourová said: “Elections must not be a competition of opaque and non-transparent methods. People must know why they are seeing an ad, who paid for it, how much, what micro-targeting criteria were used. New technologies should be tools for emancipation, not for manipulation. This ambitious proposal will bring unprecedented level of transparency to political campaigning and limit the opaque targeting techniques.”

Commissioner for Justice, Didier Reynders, said: “Fair and transparent elections are an integral part of a vibrant and functioning society. That is why we need to support inclusive and equal participation in the 2024 elections to the European Parliament and in municipal elections across the EU. With the proposal on political advertising, we are securing the use of personal data in context of political targeting, protecting the democratic process. Together, we are making progress with our common work for democracy.”

Clear rules on transparency and targeting of political advertising

With the digital transition under way, people must be able to easily distinguish whether they are looking at paid political content – offline and online, and be able to participate in open debates, free from disinformation, interference and manipulation. People should be able to clearly see who sponsored a political advert and why. The main measures set out in the proposed Regulation on transparency and targeting of political adverts include:

Scope: Political ads will cover ads by, for or on behalf of a political actor as well as so called issue-based ads which are liable to influence the outcome of an election or referendum, a legislative or regulatory process or voting behaviour.

Transparency labels: Paid political advertising must be clearly labelled and provide a set of key information. This includes the name of the sponsor prominently displayed and an easily retrievable transparency notice with (1) the amount spent on the political advertisement, (2) the sources of the funds used and (3) a link between the advertisement and the relevant elections or referenda.

Strict conditions for targeting and amplification: Political targeting and amplification techniques, which use or infer sensitive personal data, such as ethnic origin, religious beliefs or sexual orientation, will be banned. Such techniques will be allowed only after an explicit consent from a person concerned. Targeting could also be allowed in the context of legitimate activities of foundations, associations or not-for-profit bodies with a political, philosophical, religious or trade union aim, when it targets their own members. For the first time it will be mandatory to include into the ads’ clear information on what basis the person is targeted and to publish which groups of individuals were targeted, on the basis of which criteria and with what amplification tools or methods, among others. Organisations making use of political targeting and amplification will need to adopt, apply and make public an internal policy on the use of such techniques. If all transparency requirements cannot be met, a political add cannot be published.

Fines for breaches: Member States will be required to introduce effective, proportionate and dissuasive fines when the rules on transparency of political advertising are breached. Under the proposed Regulation, National Data Protection Authorities will monitor specifically the use of personal data in political targeting and have the power to impose fines in line with EU data protection rules.

Update of EU rules on EU political parties and foundations and on electoral rights

The Commission has also proposed to revise the EU rules on funding of European political parties and foundations. The current framework had a number of loopholes, preventing the parties and foundations from operating and fulfilling their mission to represent the voice of EU citizens. The updates to the Regulation seek to facilitate European political parties interactions with their national member parties and across borders, increase transparency, in particular in relation to political advertisement and donations, cut excessive administrative burden and increase the financial viability of European political parties and foundations.

Finally, the Commission has proposed to update the current rules on European elections and municipal for EU citizens who reside in a different Member State to their state of nationality (“mobile EU citizens”). While there are around 13.5 million such citizens, very few exercise their right to vote in European and municipal elections. In order to ensure inclusive participation ahead of European elections in 2024, the Commission proposes targeted amendments to the existing Directives on electoral rights including, among others, obligation to inform such citizens proactively of their electoral rights, use standardised templates for registration as voters or candidates as well as use of language broadly spoken by the mobile EU citizens residing at the territory. The proposal also includes safeguards for EU mobile citizens not to be de-registered from electoral roll in the country of their origin.

Next Steps

The proposals will now be discussed by the European Parliament and the Council. To ensure that the 2024 elections to the European Parliament take place under the highest democratic standards, the aim is for the new rules to enter into force and be fully implemented by Member States by spring 2023, i.e. one year before the elections.

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