Reform and growth, or spray and pray?

This Monday, the European Parliament’s Foreign Affairs Committee will debate the draft Regulation on the Western Balkans Reform and Growth Facility, made up of EUR 2 billion in grants and EUR 4 billion in loans for the 2024 – 2027 period.

The fund is modelled on the EU’s Recovery and Resilience Facility, making disbursements conditional on reforms agreed between the Commission and governments. 

The idea is reasonable in principle. But there is also a threat that the Facility replicates the downsides of the EU recovery funds. Adopted in a hurry, with extremely tight deadlines, public participation and transparency were sorely lacking during planning and monitoring in many countries, in some cases resulting in damaging projects being funded. 

Never mind the procedures 

The new Western Balkans Facility hasn’t started well. With a haste that has become all too common, the Commission failed to carry out an impact assessment, due to ‘the political urgency of the proposal’.

This is a rather lame excuse. The European Court of Auditors (ECA) has previously found that EU funding in the Western Balkans through the Instrument for Pre-accession has had ‘little overall impact on fundamental rule of law reforms’, despite the rule of law being one of the priority sectors, so there is every reason to be cautious. 

In February, the ECA’s opinion on the new Facility identified several flaws, but the lack of impact assessment limited its ability to issue a fully informed opinion.  

Now a public consultation on the draft Regulation is ongoing, but the proposal is in the Parliament already, rendering the consultation rather pointless. Not exactly the example that the EU should be setting to accession countries.

Part of a strategy or instead of a strategy?

New ideas on how to drive forward fundamental reforms in the Western Balkans are welcome. But a dose of realism is needed on what EUR 6 billion can achieve. Such sums can at most complement proactive and consistent EU action in the region. 

The Commission must send much clearer public messages and impose penalties for governments which do not follow the rule of law or implement the EU acquis, with clearer rewards for those who do. The EU’s overly diplomatic approach in the region currently gives most governments the impression that they can do whatever they like. 

Unless it forms part of a wider and clearer strategy, a new fund looks like a substitute for real progress with EU enlargement in the region instead of a contribution to it.    

What is the money actually for?

How the Facility will lead to fundamental reforms is far from clear. The proposals concentrate on gross domestic product growth much more than rule of law or human wellbeing, and the process of agreeing priorities with the governments is untransparent. 

The Commission’s Communication has seven ‘Priority Actions for Integration into the EU’s single market’, but no explanation of how they were chosen. And the draft Regulation doesn’t explain what their role is in the process. 

In any case, they need to be changed. There are too many of them, they are too wide and they can only achieve tangible results if they are narrowed down. 

Fundamental reforms, or just roads and mines?

Two of the priorities are also entirely inappropriate for a fund that should improve rule of law and ‘do no significant harm’.

We might be in a rapidly accelerating global climate emergency, but, shockingly, one of the Communication’s priorities is ‘facilitation of road transport’. 

The EU and its public banks have pumped billions of euros into motorways in the Western Balkans in the last two decades – see e.g. Corridor Vc – leaving its rail network in a parlous state. And their focus on cross-border networks leaves urban public transport neglected, despite its potential to improve the lives of millions of people on a daily basis. If the EU wants to fund transport under this Facility, it really needs to prioritise rail and urban mobility.

Another priority, on ‘integration into industrial supply chains’, also rings alarm bells. Although part of it is important – relating to critical medicines – it also includes critical raw materials, including mining. This entails a major risk of the Western Balkan countries mining strategic raw materials for the EU while failing to apply EU environmental standards or achieving appropriate community benefits.

This should be adjusted to cover only critical medicines and processing/recycling of raw materials. Using EU money for extraction and exploration in the region is not currently appropriate with such low levels of environmental governance.

Public participation and the partnership principle are key to proper use of funds

The draft Regulation contains no requirements for public consultations on the Reform Agendas that are to be submitted to the Commission by Western Balkan governments, nor for civil society involvement in the monitoring of funds. 

The Reform Agendas must be publicly consulted. And this must be a clear condition for Commission approval. Where they entail significant impacts, Strategic Environmental Assessments (SEAs) must be carried out as well. Yet only three months are proposed for the countries to submit their drafts. This is insufficient for even a basic public consultation.

The Partnership Principle must also be extended to all EU funds, including in the Western Balkans, in order to ensure appropriate monitoring, including by civil society. 

Do no significant harm and leave no-one behind – but how will this be ensured?

The Facility is to mainstream climate change mitigation and adaptation, biodiversity and environmental protection, human rights, democracy, avoid stranded assets, and be guided by the principles of ‘do no harm’ and of ‘leaving no one behind’. This is welcome, however the draft Regulation must specify how this will be ensured.

A positive feature of the draft is its clear exclusion of fossil fuels and other activities or measures that cause significant adverse effects on the environment or the climate. This is very welcome and crucial to specify from the outset.

But the experience from the EU Recovery and Resilience Facility shows that the do no significant harm (DNSH) assessment has often been done as a superficial tick-box exercise behind closed doors, with no public input. It has often taken place before the exact nature of the measures has been established, making it hard to assess their impacts.

And ‘leave no-one behind’ is even less clear, as no such assessment is applied even within the EU. This could have been mitigated somewhat by stipulating the use of part of the funds for just transition of carbon-intensive regions, but this is not one of the priorities named in the Communication, despite the obvious needs.

Biodiversity target must be separate

Another relatively positive aspect is that at least 37 per cent of the grant component should contribute to climate objectives. However, the experience from the EU Recovery and Resilience Facility shows that biodiversity funding needs to have a separate allocation percentage, otherwise it is crowded out by other sectors’ climate action funding.

Excessively concessional terms may encourage irresponsibility

The loans are to have a maximum duration of 40 years and the background text states that repayment starts in 2034. This seems designed to encourage irresponsible borrowing, as most of the governments in the region will no longer be in power by that time.

Clearer transparency and disclosure requirements needed 

It needs to be clear to the public what is planned, what has been spent and what is still to spend, who is responsible for publishing this information, and in what format. This is not currently the case with any EU funds in the region, which are extremely difficult to track and as a result, the public does not have confidence that they are being used to the best effect.

The EU’s financial interests are not adequately protected

The draft Regulation relies excessively on the beneficiaries to self-report fraud and corruption, and is very laissez-faire about the Commission’s monitoring and enforcement obligations. This is part of a worrying wider trend of an under-resourced Commission trying to offload its responsibilities, hoping that countries will adhere to EU law by themselves. 

The recipient countries are also only obliged to report irregularities to the Commission after a primary administrative or judicial finding. This can take many years, and is much too late. 

Major overhaul needed 

Members of the European Parliament have already put forward amendments to the draft Regulation, which could help increase transparency, public participation, and oversight.

But it remains to define more clearly how the money is to be used, how priorities will be set, and what the exact goals of the Facility are. It is unclear whether this can be done effectively through parliamentary amendments. It might be wiser to suspend the process until an impact assessment has been done and the public consultation has been completed. 

Obviously the Commission is in a hurry, but without clearer goals and oversight, there is a major risk of EU public money once again having ‘little overall impact on fundamental rule of law reforms’ in the Western Balkans.