Changes from report parliamentary committee draft to plenary report

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Removed71. Recalls that Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council (the ‘Conditionality Regulation’) establishes a mechanism and measures to protect the Union Budget from breaches of the rule of law when other procedures set out in Union legislation would not protect the budget more efficiently; recalls that this mechanism was activated on 15 December 2022 in the case of Hungary over concerns related to its system of public procurement, resulting in a temporary suspension of 55 % of budgetary commitments for three cohesion policy programmes; recalls that the same regulation, in line with Article 6 of Council Regulation (EU, Euratom) 2020/2093 (the ‘MFF Regulation’), stipulates that suspended commitments of 2022 (year n), may not be re-entered into the budget beyond 2024 (year n+2) and that therefore 55 % of commitments from 2022, around EUR 1 billion, was decommitted in December 2024; notes that no other procedures under the Conditionality Regulation are ongoing;

Added89. Expresses deep concern over the findings in the 2023 Rule of Law Report regarding the rule of law situation in Hungary, particularly the persistent and systemic challenges in the judiciary and the media sectors; notes with alarm the increasing pressure on judicial independence, including concerns over the selection and promotion of judges, and recent reports of intimidation and interference in judicial decisions, as exemplified by the resignations of judges in protest against political influence; notes with concern in the same vein that the head of the Hungarian Integrity Authority, a key institution established as a condition set by the Commission for the release of Union funds under the Rule of Law Conditionality Regulation, is facing increasing pressure from the Hungarian government; calls on the Commission to ensure a coordinated and holistic approach across all relevant Union funds and legislative tools, emphasizing that Union funds must not be allocated to activities undermining democracy or reinforcing authoritarianism;

Added90. Recalls that the Conditionality Regulation establishes a mechanism and measures to protect the Union Budget from breaches of the rule of law when other procedures set out in Union legislation would not protect the budget more efficiently; recalls that this mechanism was activated on 15 December 2022 in the case of Hungary over concerns related to its system of public procurement, resulting in a temporary suspension of 55 % of budgetary commitments for three cohesion policy programmes; recalls that the same regulation, in line with Article 6 of Council Regulation (EU, Euratom) 2020/2093 (the ‘MFF Regulation’), stipulates that suspended commitments of 2022 (year n), may not be re-entered into the budget beyond 2024 (year n+2) and that therefore 55 % of commitments from 2022, around EUR 1 billion, were decommitted in December 2024; notes that no other procedures under the Conditionality Regulation are ongoing;

Added91. Notes that the Commission allocated an equivalent of five full-time staff members to the implementation of the Conditionality Regulation and reiterates the European Court of Auditor’s concerns raised in its Special Report 03/2024 that current staff numbers appear to be insufficient to ensure a strict and coherent application of the Regulation;

92. Reiterates the need to treat as a single, integral package all the measures required for the release of Union funding under the Conditionality Regulation, the CPR and Regulation (EU) 2021/241 of the European Parliament and of the Council (the ‘RRF Regulation’); stresses the importance of the protection of the Union financial interests also for disbursement of pre-financing;

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Changed73. Is further concerned about93. theNotes re-packagingthat ofsome investments which would have been eligible for financing under cohesion toare included in the National Recovery and Resilience Plans,Plans; thusrecalls castingthat doubtsthe aboutgeneral objective of the realRRF addedenshrined valuein Article 4 of the RRF;RRF furtherRegulation drawsis to promote the attentionUnion’s economic, social and territorial cohesion, and that one of its six pillars is specifically dedicated to this purpose; acknowledges that the increasingwide scope of the RRF results in limited overlap with other Union funding programmes, as intended by the co-legislators when establishing the Article 9 of the RRF Regulation, which establishes additionality and complementarity funding as key principles; draws attention, however, to the risks of double funding emerging from such situations;

94. Expresses its preoccupation about the visible delays in implementation of cohesion policy in Member States and the lack of capacity of national administrations to deal in parallel with different spending programmes (e.g. cohesion programmes and RRF programmes) covering complementary or even similar objectives; calls on the Commission to ensure that sufficient technical assistance is provided to Member States facing difficulties in order to address existing delays in the implementation of cohesion programmes;

Change 49

Added95. Recognises the disproportionate impact of the Russian war of aggression against Ukraine on eastern regions of the Union bordering Russia and Belarus; draws attention to the costs borne by these regions and Member States as a result of their shared border with hostile neighbouring countries, notably their need to increasingly direct public funding into security, defence and preparedness, while facing dramatically reduced resources due to a disruption in economic activities, cross-border trade and other exchanges, and in cohesion programmes, particularly Interreg programmes; notes the measures taken by the European Commission to support these regions, notably through flexibilities provided under cohesion policy; welcomes that providing support to eastern border regions most affected by Russia’s aggression is included in the mission letter of the Executive Vice President for Cohesion and Reforms; calls on the Commission to ensure the provision of adequate support for eastern regions of the Union bordering Russia and Belarus to cope with the disproportionate consequences of the Russian war of aggression, both in the short-term through the 2026 draft budget and in the medium-term through the Commission’s proposal for the next MFF;

Added96. Stresses the importance of ESF+ which aims to achieve high employment, fair social protection, a skilled and resilient workforce, and inclusive/cohesive societies as key in eradicating poverty; expresses the need to provide it with the continued financial and political support of the Union, national and regional institutions in the delivery of its objectives and targets in the years to come; underlines the importance of closely involving regional actors, in particular civil society organisations and social partners working on the ground in the implementation of ESF+ funded activities;

Added97. Welcomes the frontloading of EUR 100 million from the 2027 budget of Erasmus+ to the 2023 budget of Erasmus+, which enabled continued support to pupils, students, teachers and qualified staff fleeing from Ukraine, and the extra EUR 20 million awarded to Erasmus+ in 2023 as a result of Parliament’s insistence; stresses that frontloading must remain an exception to rapid response to unforeseen acute crisis situations; underlines that any frontloading of Erasmus+ cannot result in cuts for the programme at the end of current MFF; emphasises that every effort must be made to respond to such situations preferentially with additional funding;

Added98. Emphasises the need for strict oversight of the allocation of funds to prevent misuse within the Erasmus programme; asks the Commission to gather evidence to investigate any case of fraudulent or suspicious recipients, in accordance with its duties outlined in the Financial Regulation and Erasmus+ grant agreements; calls for adequate safeguarding of the programme from abuse by organizations whose activities are not aligned with the fundamental values of the Union (human dignity, freedom, democracy, equality, rule of law, human rights); recalls that the Commission is legally bound to ensure that programme beneficiaries commit to and ensure the respect of these values and do not commit professional misconduct;

Added99. Notes that in 2023, the budget of the EU4Health programme, the main financial instrument to support Union health initiatives, was EUR 735 million, mainly managed by Directorate-General for Health and Food Safety and the Health Emergency Preparedness and Response Authority (HERA) and implemented through the European Health and Digital Executive Agency; acknowledges the progress of initiatives funded under this programme, notably in the areas of health emergency preparedness, the Beating Cancer Plan, the Pharmaceutical Strategy for Europe and in the implementation of Union health legislation;

Recommendations

100. Calls on the Commission to:

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Changed(i) re-consider the practice of 100 % EUUnion funding in EUUnion crisis response instruments, where increasing pre-financing might provide faster availability of funds, while maintaining a shared financial budgetary control responsibility in implementation of the funds by maintaining financial involvement from both national and Union level;

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Changed(ii) ensure selection of qualitatively good projects with cohesion policy funds by favouring long-term investments, and duly justifying 100 % EUUnion funding while limiting its application;

(iii) address the systemic issue of non-detection of errors at Member State level in cohesion policy spending with an action plan, aimed at reporting an accurate error rate in assurance packages, and detection of errors at the first lines of defence by making available more, and/or better targeting existing resources and increase detection capacity at Member State and Commission level;

(iv) calculate and report to the discharge authority the cost of control for all expenditure handled by national authorities concerning cohesion policy funds, and NGEU, and compare these figures with the cost of control when only Cohesion policy funds were handled by the same authorities;

(v) address the recurrent issue of insufficient documentation at beneficiary, programme authority and audit authority level, not only through checks, awareness raising and information on requirements, but also through increased digitalisation and where possible, through financial incentives to penalise non-respect of the requirements for sound financial management;

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Changed(vi) consider expandingexpand the scope of its desk review of assurance packages to review more quality criteria in addition to consistency to make a reliable estimate of the residual error rate for the assurance package under review, as well as of the risk at payment as a whole;

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Changed(vii) step-upstep up its monitoring of the horizontal and thematic enabling conditions in all Member States to identify potential threats for the protection of the Union Budget;Budget and ensure enhanced transparency and stakeholder participation in the application of this tool;

(viii) closely align the rule of law report with the Conditionality Regulation and report in more detail on the breaches of the principles of the rule of law that can be used as input to trigger the Conditionality Regulation;

Change 54

Removed(ix) provide Member States with increased technical assistance in order to address delays in the implementation of national programmes;

Added(ix) continuously monitor the implementation by the Hungarian Government of measures foreseen in Council Implementing Decision (EU) 2022/2506 of 15 December 2022; assess to what extent the situation has improved or worsened, including in relation to the challenges faced by the Hungarian Integrity Authority, and take all necessary actions in accordance with the Conditionality Regulation;

Removed(x) closely monitor and mitigate the risk of double funding between cohesion programmes and RRF funding and address any such occurrences without delay;

Added(x) provide Member States with increased technical assistance in order to address delays in the implementation of national programmes in order to increase the absorption rate;

Added(xi) closely monitor and mitigate the increasing risk of double funding between Cohesion programmes and RRF funding and address any such occurrences without delay;

(xii) further enhance simplification in the implementation of cohesion programmes and work closely with Member States to identify best practices regarding the digitalisation of practices and procedures;

(xiii) take all necessary measures to bring down the error rate in close cooperation with the Court of Auditors;

Change 55

Added(xiv) ensure the provision of adequate support for eastern regions of the Union bordering Russia and Belarus to cope with the disproportionate consequences of the Russian war of aggression against Ukraine, both in the short-term and in the medium-term;

Natural resources

101. Notes that the budget for the programmes under MFF heading 3 ‘Natural resources’ was EUR 59,5 billion (31,1 % of the Union budget) distributed as follows: 65,0 % for direct payments under the European Agricultural Guarantee fund (EAGF), 27,6 % for the Agricultural Fund for Rural Development (EAFRD), 4,2 % for market-related expenditure under the European Agricultural Guarantee Fund (EAGF), 1,9 % for Maritime and Fisheries, 0,9 % for Environment and Climate (LIFE), and 0,4 % for other areas;

102. Notes that the Court has examined a sample of 218 transactions covering the full range of spending under this MFF heading; notes that the Court also examined the regularity information given in the annual activity reports of the Directorate-General for Agriculture and Rural Development (DG AGRI) and the Directorate-General for Climate Action (DG CLIMA), as well as selected systems in 20 Member States and the United Kingdom; notes that the Court estimates the level of error for ‘Natural Resources’ to be 2,2 % (2,2 % in 2022) and that the majority of the errors found affected rural development transactions;

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Added103. Points out, however, that this is partly due to the complexity of environmental schemes in rural development programmes and the recognized negative issue of “gold plating” at national level;

Added104. Notes, in this context, the lower-than-expected implementation rate of EAFRD funding for the period 2023-2027, with an absorption rate of only 1 % at the end of 2023, with payments amounting to EUR 0.7 billion, and expects the absorption rate to increase significantly in the course of the next reporting period;

105. Notes that the Court found 16 quantifiable errors in rural development, 15 in direct payments, three in expenditure related to market measures, and three in non-CAP expenditure; is reassured by the Commission’s assessment that most errors concern clerical mistakes and by the actions taken by the Commission to prevent errors in the future;

106. Notes the categorisation of errors by the Court, with ineligible claims accounting for 35 % of the errors, and administrative errors and inaccurate information on areas or animals for 21 % and 20 % respectively; notes with concern, that as in previous years, that the Court found in several cases that the Member State authorities and the Commission had sufficient information to prevent, or to detect and correct the error before accepting the expenditure and that, had the Member State authorities and the Commission made proper use of all the information at their disposal, the estimated level of error for this chapter would have been 1.0 percentage point lower;

107. Notes that 2023 was the first year of the CAP 2023-2027 new delivery model, which integrates performance elements, agreed with the Member States in Strategic Plans, as basis for payments; notes that 2023 was a modest start of the new delivery model, EUR 63,65 million declared on the basis of generated outputs and therefore subject to a ‘performance clearance’ by DG AGRI out of EUR 215,52 million declared under the CAP Strategic plans under sectoral interventions and rural development; notes that in 2024 payments under the new delivery model will have increased substantially; notes the Court’s observations as regards processing performance data for the Annual Performance Reports where Member States are in the process of setting-up systems and procedures and at times manually aggregate data, with associated risks for the reliability of data;

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Changed81.108. Recalls the farmers’ protests across Europe towards the end of 2023 and early 2024 and the Commission’s response aimed at simplification, in particular for small farmers, and increasing discretionary powers for Member States; commendsstresses that simplification should go hand in hand with sound financial management and take into account the CommissionUnion’s forclimate itscommitments; welcomes the Commission’s targeted approach, especially concerning the distinction between farm size in terms of agricultural land and number of farms; cautions that discretion given to Member States should also be accompanied by thorough oversight by the Commission;

109. Recalls that both the Commission and Member States are responsible for addressing fraud in CAP spending; welcomes in that regard the work done in terms of anti-fraud risk assessments and the update of its anti-fraud strategy by DG AGRI;

110. Notes the Court’s Special Report 07/2024 on the Commission’s systems for recovering irregular expenditure, and the Commission’s reply; notes the Court’s observation that recoveries concerning agricultural expenditure have been relatively successful, attributed in part to the so-called 50-50 rule that incentivised Member States to recover funds; notes that this rule has not been retained in the 2023-2027 CAP and the Court’s warning that this might lead to a deterioration of the rate of recovery for agricultural expenditure;

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Changed84.111. Notes the Court’s Special Report 20/2024 on Common Agriculture Policy Plans and the Commission’s reply; notes the Court’s conclusion that the Plans for 2023-2027 are greener than instresses the previous CAP period; isimportance howeverof concernedensuring that all key elements for assessing green performance are missing;provided; considers that plans need to account for specific situations in specific Member States and that therefore a certain level of divergence is even desirable, is however worried that divergence in ambitions may mean that there is no level playing field for farmers across Member States; is further disappointed by the Court’s finding that although the new monitoring framework has been simplified, the CAP objectives lack clarity and indicators focus on outputs rather than results, and that important result indicators are missing; considers thisnotes athat commonthe problemCourt withrecommends the ongoing effortsCommission to introducepromote performance-basedexchange instrumentsof bybest practices in the Commission;plans and strengthening the future CAP monitoring framework;

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Changed85.112. Notes the Court’s Special Report 19/2024 on Organic farming in the EU, and the Commission’s reply; is once more worried by the Court’s finding that a weak strategic framework and data constraints prevent the measurement of the impact of the policy; considers that the increased focus on performance and definition of targets and indicators, and the related monitoring of results across EUUnion policies needs to be supported by an equal increase of the Commission’s capacity to define performance frameworks and monitor performance;

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Removed86. Expresses its deep concern on several grant agreements concerning operating grants between the Commission’s Climate, Infrastructure and Environment Executive Agency (CINEA) and civil society organisations, including NGOs, and networks of non-profit making entities under the LIFE programme; notes that some of these agreements include in their description of proposed activities advocacy actions or lobbying (such as providing voting recommendations), towards Commission services and/or (Members of) the European Parliament and other EU Institutions or their representatives; considers that this practice gives the impression that the Commission explicitly pays these entities and organisations to influence decision making and may contradict the principle of separation of powers between EU Institutions;

Added113. Welcomes the increased competitiveness achieved through market measures in the wine sector and encourages the Commission and Member States to persevere in their efforts to replicate this success in other sectors;

Removed87. Notes the actions taken by the Commission to address the concerns raised by the discharge authority, that include the issuance of guidance for Commission services and a requirement to screen their contract portfolios to determine which agreements are not in line with the guidance; is deeply concerned about the time delay between the moment the CONT Committee made the Commission aware of the issue in February 2024 and the moment when action was finally taken; considers that the measures adopted so far by the Commission are not sufficient to mitigate the risks outlined by the discharge authority since the guidance issued by the Commission does not prevent beneficiaries to use EU funds to lobby or influence the Union legislative process; notes that the guidance mentions a non-exhaustive list of activities that can be performed by supported entities; notes that the Commission considers that these activities should not be included in grant agreements to indicate that beneficiaries are required to undertake specifically more detailed activities directed at EU Institutions and some of their representatives as that may entail a reputational risk; believes that the explicit exclusion of certain activities from grant agreements does not necessarily mean that such activities will not be performed with the support of EU funds;

Added114. Recalls that democracy and pluralism are fundamental values of the Union enshrined in Article 2 TEU; further recalls that, in line with Article 11 TEU, Union institutions shall give citizens and representative associations the opportunity to make known and publicly exchange their views in all areas of Union action in order to maintain an open, transparent and regular dialogue; underlines that separation of powers between the institutions as laid down in Article 13 TEU must always be respected and that Union institutions shall practice mutual sincere cooperation;

Removed88. Notes that the Commission has performed a legal analysis of the problematic grant agreements identified by the CONT Committee, which concluded that there was no evidence that the entities concerned had breached their contractual or code of conduct obligations; considers that the actions undertaken by the Commission are indeed focused on mitigation of the reputational risk, but do not address the overall issues outlined by the Parliament; notes reports in the media that several entities have been approached by the Commission to make amendments to the grant agreements that contain the specific provisions that create a reputational risk, but believes that the mere amendments of such agreements do not mitigate the risks of continued use of EU funds for lobbying activities directed at the European Parliament;

Added115. Recognises the importance of the LIFE programme; recalls the provisions of the LIFE+ Regulation, including those related to operating grants, the eligibility conditions, the award criteria, the overall allocation for 2021-2027 and the distribution of funds within the programme;

Removed89. Expresses concern about the decision making structure including the evaluation board within CINEA for deciding on contracts between the Commission and NGOs; urges the Commission to change the decision-making structure of CINEA for deciding on contracts to be awarded including clear accountability, clear responsibilities and a practical structure;

Added116. Notes that some members of the Budgetary Control committee requested access to a series of grant agreements under the LIFE programme, as well as other Union funding programmes, and after scrutinising them expressed concerns on the content of several of the programmes in February 2024; notes that the Commission, including the Internal Audit Service (IAS), was initially not aware of any issue, but adopted a series of measures with the aim of addressing the concerns; recalls the discharge written questions and hearings with the Secretary-General of the Commission on 5 November 2024, the responsible Commissioners for MFF Heading 3 on 12 November, and the Commissioner responsible for Budget and administration on 9 December 2024 where the concerns and the Commission’s response were discussed;

Removed90. Expresses deep concern that the content of the problematic contracts between the Directorate-General for Environment (DG ENV) and some NGOs were not uncovered by the internal audit capacity of DG ENV and also not noticed by the Internal Audit Service (IAS) of the Commission;

Added117. Notes the concerns expressed by some members of the Budgetary Control Committee that certain grant agreements between the European Union Climate, Infrastructure and Environment Executive Agency (CINEA) and beneficiaries, such as CSOs and private companies, under the LIFE Programme include ‘work plans’ containing detailed advocacy actions towards Union institutions or their representatives, as well as other actions directed towards certain trade agreements which the Union was negotiating, or litigation measures to be pursued by the respective entities; acknowledges that this could be potentially interpreted as interfering with internal decision making in Union institutions; notes that the Commission has performed a legal analysis of the grant agreements that raised concerns of some Members of the CONT Committee, which concluded that there was no evidence that the entities concerned had breached their contractual or code of conduct obligations, yet the Commission asked some beneficiaries to make amendments to the grant agreements that contained the specific provisions that potentially entailed a reputational risk; further notes that all grant agreements include a disclaimer stating that 'views of the beneficiary do not in any way represent views of the EU and that granting authority cannot be held responsible for them’;

Removed91. Notes reports in the media that the President of the Commission hired a paid special adviser to deliver a report on the “Strategic Dialogue on the Future of EU Agriculture” who received a salary equal to a Director-General in the Commission; is concerned by the remuneration of special advisers and the discretion the Commission has in deciding their remuneration, which creates arbitrary inequalities;

Added118. Underlines that Union financing should not contribute to undermining the rule of law, nor the values on which the Union is founded; recalls the provisions of Article 163 of the Financial Regulation; considers it crucial that there should be no funding without traceability of funds;

Added119. Notes the actions taken by the Commission to address the allegations which included the issuance of guidance for Commission services on funding activities related to the development, implementation, monitoring and enforcement of Union legislation and policy and screening of their contract portfolios to determine which agreements were not in line with the guidance; takes note of the measures adopted so far by the Commission while awaiting the results of the screening of the grant agreements with all the beneficiaries, which was requested by the Commission’s Corporate Management Board;

Added120. Notes the decision-making structure, including the evaluation board within CINEA, for deciding on contracts between the Commission and beneficiaries; urges the Commission to ensure that the decision-making structure of CINEA for deciding on contracts to be awarded features clear accountability, clear responsibilities and a practical structure;

Added121. Notes that the executive agency conducts annual bottom-up risk management exercises and that these bottom-up risk management exercises did not identify any critical risks; notes that irrespective of the financing programme, evaluation procedures should be constantly reviewed and adapted if needed;

Added122. Notes reports in the media that the President of the Commission hired a paid special adviser to deliver a report on the “Strategic Dialogue on the Future of EU Agriculture” who received a salary equal to a Director-General in the Commission; is concerned by the remuneration of all the special advisers and the discretion the Commission has in deciding their remuneration, which creates arbitrary inequalities;

Recommendations