Reformed Cohesion Policy: Background and Development

Summary

The European Structural and Investment Funds (ESI Funds) have moved far beyond redistributive regional funding following significant reforms of the Unions Cohesion policy. The consolidation of an overarching policy based in law on the common values and solidarity of the Union presents significant potential to ensure investment is smart, sustainable and inclusive. Member States have an unprecedented opportunity to end institutional forms of care that are a violation of human rights and that decades worth of research evidence poor economic, social and human outcomes. The Commission and other institutions of the Union recognise the profound negative effects and significant harm caused to children, persons with disabilities including mental health problems and older persons who are placed in segregated living and service arrangements.

This informative paper gives a brief background of the Unions Cohesion policy in order to set the reforms of the 2014-2020 legislative framework governing the ESI Funds in context. The paper provides a road map of key Union instruments, policies and strategies that have developed and refined through each funding period. Learning what works and what does not work, current Union policy adopts a multidimensional approach (smart, sustainable and inclusive) toward growth and development. While there is room for improvement, the 2014-2020 reformed Cohesion policy marks an important shift in tying its investment policy closer to the values of the Union and the fundamental rights of its citizens and residents.

Table of Contents

Community Living for Europe: Structural Funds Watch.............2Setting the scene: The Structural Funds in the Union...............2The Development of EU Cohesion Policy...................................5A new era: smart, sustainable and inclusive growth and development............................................................................................11The European Semester.........................................................12The Unions Social Investment Approach.................................13

Community Living for Europe: Structural Funds Watch

Community Living for Europe: Structural Funds Watch is an independent pan-European monitoring and evaluation initiative concerned with whether and how the ESI Funds are being spent to ensure a right to community living for all.  The initiative is funded by LUMOS and based in the Centre for Disability Law and Policy at the National University of Ireland Galway. It is guided by a Steering Committee comprised of LUMOS, the Centre for Disability Law and Policy, European Disability Forum, European Foundation Centre, the Equal Rights Trust, Age-Platform Europe and the European Expert Group on the Transition from Institutional to Community-based Care.

The legislative framework for the 2014-2020 programming period is the result of concerted advocacy over many years on the part of these and many other organisations across Europe pointing to a historic change on paper. On the basis of hard evidence we advocate for the continual improvement in the application and monitoring of the Funds, particularly the European Regional Development Fund and the European Social Fund.

Setting the Scene: The Structural Funds in the Union

All Member States are to share in the benefits of the Union namely, a strong single market founded on the four fundamental freedoms and the common values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights1.

Article 174 of the Treaty on the Functioning of the European Union (TFEU) states that the Union shall develop and pursue its actions leading to the strengthening of its economic, social and territorial cohesion. In particular the Union aims to reduce the differences between the levels of development of the various regions and the backwardness of the least favoured regions2. The pursuit of economic, social and territorial cohesion is an area of shared competence between the Member States and the Union3. This means that both the Member States and the Union are tasked with achieving this goal. The Member States must conduct and coordinate their economic policies to achieve this objective while the formulation and implementation of Union's policies, actions and the implementation of the internal market shall contribute to this achievement4. Article 175 TFEU specifies the Union shall support the achievement of economic, social and territorial cohesion by the action it takes through the Structural Funds, the European Investment Bank and the other existing Financial Instruments. The particular attention to the development and growth of less developed regions demonstrates that the concept of equality is closely bound to the use of the Funds and the pursuit of cohesion5.

The European Structural and Investment Funds (ESI funds) deliver a critical mass of investment for the achievement of Union goals.  Promoting economic, social and territorial cohesion and combatting poverty, social exclusion and discrimination are fundamental objectives of the Union identified in Treaty based law6. These objectives inform the Europe 2020 strategy that is the Unions ten-year plan for smart, sustainable and inclusive growth. Europe 2020 sets five targets on employment, innovation, education, social inclusion and climate action. One of the social inclusion targets of the Union is to lift at least 20 million people out of poverty and social exclusion by 20207. €351.8 billion of 1 Article 2 Treaty on the European Union (TEU)2 Article 174 Treaty on the Functioning of the European Union (TFEU)3 Article 4 TFEU4 Article 175 TFEU5 Andrew Evans, The EU Structural Funds (OUP, 1998) 16 Article 3 TEU7 Communication from the Commission, Europe 2020 – A strategy for smart, sustainable and inclusive growth, COM (2010) 2020 of 3 March 2010; European Council Conclusions of 17 June 2010

the Unions budget is allocated to Cohesion Policy 2014-2020 that is to be the principle investment tool for delivering the Europe 2020 targets. €62.5 Billion is allocated specifically to measures that promote social inclusion, combat poverty and any discrimination8. These available funds represent a historic opportunity to transform the landscape of the EU and benefit many millions of citizens and residents into the future. In order to help Member States reach their inclusive growth target the Union launched the European Platform Against Poverty and Social Exclusion. This flagship initiative is based on five area’s of action that include the need to make better use of EU funds to support social inclusion9. Further to this specific action area, a minimum amount of funding from the European Social Fund has been earmarked for measures supporting social inclusion in each Member State10. All Member States have translated the Europe 2020 goals into National targets11.  These individual efforts need to be coordinated in order to achieve the desired impact on growth and better cohesion which is to be supported by and monitored in the framework of the European Semester. The European Semester is the yearly cycle of economic policy coordination that provides the framework for steering and monitoring Member States economic and social reforms to reach the Europe 2020 targets. Such reforms explicitly include the shift to community based care and integrated housing policies among other complementary policy areas12.  Key documents in the European Semester cycle inform the current and future focus of the Structural Funds and are therefore a vital driving force in supporting a harmonized and coordinated approach to achieving the Europe 2020 targets.

As one of the two major funding policies in the EU, cohesion policy funding represents a third of the entire EU budget13. In global terms, cohesion policy can be described as one of the world’s largest development programmes that exists under a single comprehensive policy architecture14. The 2014-2020 period reforms represent a cumulative change in thinking about growth and development. This change is centered on trying to understand ways of thinking about policies that respond to the integrated nature of growth and development and how they best operate and function in a market of regional globalisation and significant demographic changes. The multidimensional nature of growth and development has lead to the recognition of the need to target all aspects of growth; the smart, the sustainable and the inclusive. This approach is not unique to Europe. The United States adopts a forward facing approach to 8 European Structural and Investment Funds open data portal https://cohesiondata.ec.europa.eu/themes/9 9 http://ec.europa.eu/social/main.jsp?catId=961&langId=en 10 The minimum amount of 20% of the European Social Fund in each Member State is specified in Article 4(2) Regulation (EU) No 1304/2013 on the European Social Fund. 11 Annex 2 – Overview of Europe 2020 Targets as set out in the European Semester National Reform Programmes in April 2015 available http://ec.europa.eu/europe2020/pdf/annexii_en.pdf12 Communication from the Commission ‘Towards Social Investment for Growth and Cohesion-Including Implementing the European Social Fund 2014-2020’ COM(2013) 83 final (Brussels, 20.2.2013) 1613 European Commission Directorate General for the Budget ‘Multiannual Financial Framework 2014-2020 and EU budget 2014: The Figures’ ISBN: 978-92-79-34348-3 (2013) 1114 Philip McCann ‘Redesigning the worlds largest development programme: EU cohesion policy’ (London School of Economics and Political Science, 12th January 2012) https://www.youtube.com/watch?v=6bhQ5Mxkw4w

growth and development promoting innovation, research and development, sustainability and human capacity as “essential to achieving broad-based economic growth, building strong, sustainable communities and promoting social well-being”15. The Organisation for Economic Co-ordination and Development (OECD) growth strategy aims for a ‘stonger, cleaner and fairer global economy’ particularly through adopting a global response to moving beyond the economic crisis through the sharing of policy experiences16. In China, rapid economic growth over the past three decades has resulted in significant regional disparities and therefore new thinking that “economic growth depends on balanced development between urban and rural area’s and among regions”17.

What is unique in the European case is that Cohesion policy as a growth and development strategy for Europe has moved far beyond a redistributive funding tool operating at regional level. The consolidation of an overarching policy that is based in law on the common values and solidarity of the Union provides targeted support for innovation and the reform of economic and social policy systems. A brief background is given below in order to contextualize the rationale and development of cohesion policy and the adoption of multidimensional policy approaches to growth and development in the Union.The Development of EU Cohesion Policy

Regional policy was first introduced in the preamble of the Treaty of Rome in 1957 that established the European Economic Community under the aim of “reducing the differences existing between the various regions and the backwardness of the less favoured regions”. Article 2 of the Treaty advised that the Community was tasked with promoting a “harmonious development of economic activities” and “a continuous and balanced expansion” of the area. It is important to place regional policy in the context of economic policy thinking of the time that did not favour an overarching European community level policy. Consequently, it was held that the creation of the common market would solve the regional differences between and within the Member States that would in turn lead to harmonious development and a balanced expansion18. Any losses encountered in the transition toward the common market were to be compensated through specific sectoral policies including assistance to farmers through the common agricultural policy_ and to workers through the European Social Fund. Lacking a specific treaty basis, regional policy remained at what can be termed a compensatory level throughout the 1970s and 1980s.

The accession of Greece, Portugal and Spain as three large countries with lower GDPs in the 1980s boosted a ‘new era’ of major reforms of EU funding under the European Commission President Jacques Delors. Regional policy was 15 http://www.state.gov/e/oes/sus/releases/176863.htm16 Remarks by Angel Gurria, OECD Secretary-General, delivered at the China Development Forum, Beijing, 21 March 2009 available http://www.oecd.org/economy/beyondthecrisisforastrongercleanerfairerworldeconomy.htm 17 Zhao Chen and Ming Lu, Towards Balanced Growth with Economic Agglomeration: Empirical Studies of China’s Urban-Rural and Interregional Development (Springer, 2015) 13518 Andrew Evans The EU Structural Funds (OUP, 1999) 36

transformed under a Cohesion agenda supporting “structural conversion and adjustment projects in regions in difficulty”19. The Single European Act of 1987 introduced a specific title on Economic and Social Cohesion thereby addressing the lack of a legal basis that had plagued earlier development efforts. While cohesion is not specifically defined in the Treaty its requirements are to promote the “overall harmonious development” of the Community and “strengthening economic and social cohesion”, particularly by “reducing disparities between the various regions and the backwardness of the least favoured regions”20. The Treaty goes on to state “the community shall support the achievement of these objectives by the action it takes through the structural funds”21. The particular attention given to less developed regions indicate the “pursuit of cohesion and, therefore, the operations of the Union funds are bound up with the concept of equality”22. The Single European Act shifted the use of the Funds from that of a compensatory redistributive mechanism toward a focus on the pursuit of genuine development strategies. The key policy instruments for delivering this agenda were the three Structural Funds (the European Regional Development Fund, the European Agricultural Guidance and Guarantee Fund-Guidance Section and the European Social Fund). Four major principles were to inform the implementation of cohesion policy in the 1988-1992 funding period all of which remain to the present day. A geographic concentration on ‘Objective 1’ regions whose development was lagging behind23, the use of multi-annual programmes to be drawn up by the Member State and approved by the Commission in line with Union objectives, Partnership that required the involvement of regional and local authorities in program formation and implementation and, the principle of additionality to ensure Union funds add to, rather than replace national expenditure24.

A multi-governance approach toward growth and development had emerged, this new thinking coincided with efforts toward decentralization, moving away from state centralized policy making. The 1994-1999 funding period was characterised by a major Treaty revision resulting in the Treaty on European Union (TEU), also known as the Maastricht Treaty. The completion of the internal market provided for the establishment of the Economic and Monetary Union (EMU) and made economic and social cohesion a core EU objective alongside the single market. The Cohesion policy budget significantly increased in this period from €64 billion to €168 billion25. The TEU introduced three novelties supporting multi level governance and expanding European solidarity through cohesion policy. First, the subsidiarity principle that aims to ensure decisions are taken as closely as possible to the citizen26. Where competence in 19 Programme of the Commission for 1985, Bulletin of the European Communities, Supplement 4/85, at point 1520 Single European Act 1985 Article 130(a)21 Single European Act 1985 Article 130(b)22 Andrew Evans, The EU Structural Funds (OUP, 1998) 123 Greece, Ireland, Portugal, Spain and Southern Italy24 Gian Paolo Manzella and Carlos Mendez ‘The Turning Points of EU Cohesion Policy’ (2009) working paper written in the context of the report ‘An Agenda for a reformed Cohesion Policy’ 1525 Commission of the European Communities (2000) From the Single Act to Maastricht and beyond: the means to match our ambitions, COM (92) 2000 final, Brussels.26 Article 5 TEU

certain policy areas are shared between the Union and the Member States, action should not be taken at the EU level unless it is more effective than action taken at national, regional or local level. Subsidiarity is closely bound up with the principles of proportionality and necessity, meaning that any action by the Union should not go beyond what is necessary to achieve the objectives of the Treaty. Secondly, the Committee of the Regions was established as an assembly of regional and local representatives with the aim of bringing European citizens closer to the EU. Lastly, the Treaty established the Cohesion Fund for less developed regions focusing on environmental and trans-European network projects and, since 2007 sustainable development projects including energy efficiency and renewable energy27.

The 2000-2006 funding period took its lead from the European Council adoption of the Lisbon strategy that set out a challenging programme for building knowledge infrastructures, enhancing innovation and economic reform, and modernising social welfare and education systems. The ten year strategy aimed to make the EU "become the most dynamic and competitive knowledge-based economy in the world by 2010 capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment"28. In 2004, ten new countries joined the EU expanding the European population by 20%, but its GDP by only 5%29. The Cohesion Policy budget increased to €213 billion of which €39.6 billion was allocated to the new member countries between 2004-200630. The Lisbon strategy reforms had four main aims, fleshed out in a new set of Regulations31. In order to focus support from the funds, three priority objectives were chosen. Objective 1 ‘promoting the development and structural adjustment of regions whose development is lagging behind’, Objective 2 ‘supporting the economic and social conversion of areas facing structural difficulties’ and Objective 3 ‘supporting the adaptation and modernisation of policies and systems of education, training and employment’32.

Implementation was decentralized from the EU to the national level, Member States now had core responsibility for programme content, management, monitoring, evaluation and control. The Regulations required Member States to designate a Managing Authority for each programme to be in charge of managing and implementing cohesion policy funding. The third aim of reform

27 Article 177(2) TFEU28 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, Brussels (2.2.2010) 229 Included eight Central and Eastern European countries the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia and, two Mediterranean countries Malta and Cyprus in 2004 followed by Bulgaria and Romania in 2007.30 Gian Paolo Manzella and Carlos Mendez ‘The Turning Points of EU Cohesion Policy’ (2009) working paper written in the context of the report ‘An Agenda for a reformed Cohesion Policy’ 1631 Council Regulation (EC) No 1263/1999 of 21 June 1999; Council Regulation (EC) No 1257/1999 of 17 May 1999; Council Regulation (EC) No 1260/1999 of 21 June 1999; Regulation (EC) No 1783/1999 of the European Parliament and of the Council of 12 July 1999; Regulation (EC) No 1784/1999 of the European Parliament and of the Council of 12 July 1999 (OJ L213, 13 August 1999).32 Council Regulation (EC) No 1260/1999 of 21 June 1999, Article 1

was the simplification of programmes and implementation. The Regulations introduced a focus on priority axes that would represent the strategic priorities for investment decisions to be made during the programming period33. Each axes was based on a specific strategy with specific objectives translated into specific final aims and, in order to quantify the objectives, key indicators were formulated, guaranteeing that the data would be representative, measurable and manageable. The policy articulation into priority axes sought to concentrate actions in areas likely to have the most significant impact on economic growth. Finally, under the principle of efficiency, greater control and effectiveness of investment were sought. More precise rules and instructions for monitoring and reporting were introduced together with ex ante, mid term and subsequent evaluations. A ‘performance reserve’ was introduced where 4% of funding would be held back and awarded mid way through the programme, on evidence of performance. The regulations also introduced the n+2 rule that required committed EU funding to be spent within 2 years by the Member States34. Failing the n+2 rule meant funding would be ‘decommitted’ and returned to the Commission.

Disparities between regions were particularly pronounced following the 2004 enlargement and the EU economy was performing poorly therefore, implementation of the 2000-2006 programmes experienced serious difficulties. The Lisbon strategy had become overly complex with multiple objectives and unclear divisions of responsibility between the EU and National levels35. In light of this, calls for better use of cohesion policy funding to reflect EU objectives and greater attention to jobs and growth were made36. These calls resulted in a re-launching of the Lisbon strategy in 2005 subsequently laying the groundwork for the next funding period. While the Lisbon strategy of 2000 focused on the correct structural reforms, surveillance of the Member State economies were carried out largely in parallel to the Lisbon strategy therefore macro economic imbalances were not adequately accounted for37. The economic crisis demonstrated that greater coordination of Member State economic and social policies were needed. The renewed Lisbon strategy sought greater governance and closer attention to the economies of each Member State by introducing several instruments. The Integrated Guidelines were adopted by the Council in 2005 and updated in 2008 to provide multi-annual general guidance and policy orientations38. The twenty-four guidelines were designed as an instrument of coordination and laid the foundations for the National Reform Programmes, outlining the key macro-economic, micro-economic and labour market reform priorities for the EU as a 33 ibid Article 934 Article 31(2) Council Regulation (EC) No 1260/1999 of 21 June 199935 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, Brussels (2.2.2010)36 Facing the challenge, the Lisbon Strategy for growth and employment, Report from the High Level Group chaired by Wim Kok, November 2004.37 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, Brussels (2.2.2010) 438 Communication from the Commission ‘Integrated guidelines for growth and jobs (2005-2008)’ COM(2005) 141 final (Brussels, 12.4.2005)

whole. The National Reform Programmes (NRPs) were documents to be prepared by each Member State for a three year cycle to indicate what instruments they would use to realise their economic policy objectives. The NRPs were to be followed by annual updates called Implementation Reports. Country Specific Recommendations were introduced as policy recommendations based on Articles 99(2) and 128(4) of the Lisbon Treaty and issued on the basis of the Commission's assessment of Member States' progress towards achieving the objectives set out in their NRPs and formally adopted by the Council. On the basis of the Commission recommendations, the Council adopted the first annual Country Specific Recommendations in 200739. These recommendations were a major innovation as for the first time, policy advise covering “the entire field of economic and employment policy was submitted to the European Council and the Council on a country-specific basis, resulting in politically (if not legally) binding guidelines addressed each year to the Member States”40. In many Member States the recommendations proved a primary mechanism for supporting and focusing reform efforts toward the Lisbon agenda however, several Member States regarded the recommendations as low priority policy advise. While the quality of recommendations have evolved, a lack of coordination with other instruments designed to support reforms and monitor progress such as the Stability and Growth pact, resulted in parallel and often “single-strand” advise failing to address the multidimensional nature of policy challenges at the National level41.An annual progress report from the Commission was introduced to act as an assessment of progress made in the implementation of the Lisbon Strategy accompanied by policy proposals for the European Council. Lastly, the Open Method of Coordination (OMC) was strengthened, simplified and tied closer to the Lisbon Strategy42. The OMC, also known as the Social OMC, is an intergovernmental method of ‘soft coordination’ by which Member States are evaluated by one another with the Commission's role being one of surveillance. The OMC is a framework designed to support cooperation in policy area’s that are the responsibility of Member States and which receive EU funding such as employment, social protection, social inclusion, education, youth and training43. National policies can be directed towards jointly identified objectives, establishing measurement instruments (indicators and guidelines) and, comparing performance and the exchange of best practices. Exchanges between Member States through the OMC framework have produced policy learning, reform and innovation in pensions, health care, skills and budget management. The OMC demonstrates on evidence that policy learning is greater where there are “clear and measurable objectives, an involvement of 39 Council Recommendation of 27 March 200740 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, Brussels (2.2.2010) 2141 ibid42 Communication from the Commission of 22 December 2005 ‘A new framework for the open coordination of social protection and inclusion policies’ COM(2005) 706 – Not published in the Official Journal43 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, (Brussels, 2.2.2010) 21

technical experts (to adapt policies) and the political level (to facilitate implementation)”44. The 2007-2013 funding period was characterized as a strategic turn in cohesion policy toward growth and jobs. The cohesion policy budget was set at €347 billion with three new objectives of convergence, territorial cooperation and regional competitiveness and employment. 25% of the cohesion policy budget was earmarked for research and innovation and 30% to environmental infrastructure and measures to combat climate change. Resources were focused on Convergence objectives particularly for the less developed regions with a GDP below 75% of the EU average. The legislative package for 2007-201345 aimed for a more strategic approach to achieving the Lisbon agenda through a new planning framework. The objectives of cohesion policy were identified in Community Strategic Guidelines46, while the Member States set out national objectives in line with the Community Strategic Guidelines in a National Strategic Reference Framework (NSRF). The Community Strategic Guidelines and the NSRFs provided the design basis for programmes thereby bringing the Objectives of the Lisbon strategy closer to national level implementation. Mid term evaluations of programme implementation were made optional to make way for evaluations on a rolling needs basis in order to adapt programming to external changes47. Programme structures were radically simplified and streamlined, the Cohesion Fund was integrated into programming and increased obligations in terms of audit and control were introduced. The Regulations required Member States to designate an audit authority responsible for designing an audit strategy and reporting on compliance, management and control of cohesion policy funding. The Lisbon Treaty, signed in 2007 and entering into force in 2009 broadened the scope of cohesion policy by adding a territorial dimension to economic and social cohesion. The inclusion of territorial cohesion is one of the clearest signals of new thinking toward growth and development exemplified through the “growing awareness of the need to frame development strategies around the particular assets of territories, their physical, human and social capital as well as their natural resources”48. Three of the 2007-2013 Regulations provided a framework for the Member States to use the funds in the pursuit of community based living and services for all49. The General Regulation introduced a general non-discrimination principle prohibiting the use of the Structural Funds for any investment that discriminates 44 ibid 745 Council Regulation (EC) 1083/2006 of 11 July 2006; Council Regulation (EC) No 1084/2006 of 11 July 2006; Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006; Regulation (EC) No 1081/2006 of the European Parliament and of the Council of 5 July 2006; Regulation (EC) No 1082/2006 of the European Parliament and of the Council of 5 July 2006 (OJ L210, 31 July 2006). 46 Communication from the Commission, Cohesion Policy in Support of Growth and Jobs: Community Strategic Guidelines, 2007-2013 COM(2005) 0299, Brussels 05.07.200547 Gian Paolo Manzella and Carlos Mendez ‘The Turning Points of EU Cohesion Policy’ (2009) working paper written in the context of the report ‘An Agenda for a reformed Cohesion Policy’ 2048 Communication from the Commission, Green Paper on Territorial Cohesion Turning territorial diversity into strength COM(2008) 616 final, Brussels (6.10.2008)49 Council Regulation EC No 1083/2006(General Regulation); Regulation EC No 1080/2006(ERDF Regulation); Regulation EC No 1081/2006 (ESF Regulation).

on the basis of gender, race or ethnic origin, religion or belief, disability, age or sexual orientation50. Supported actions under the European Social Fund (ESF) were to include ‘reinforcing the inclusion of disadvantaged people with a view to their sustainable integration in employment and combating all forms of discrimination in the labour market’51. For regions under the convergence objective with a GDP below 75% of the EU average, support was to strengthen ‘institutional capacity and the efficiency of public administrations and public services’ in the ‘social field’52. The European Regional Development Fund (ERDF) under the convergence objective was to support ‘investments in health and social infrastructure which contribute to regional and local development and increasing the quality of life’53. Children, persons with disabilities and older persons living in institutions are clearly in a disadvantaged position in need of and having a right to benefit from ESF and ERDF funding. The positive goals of the Regulations clearly “encourage the use of Structural Funds to develop accessible services in the community that will support the social inclusion of different groups”54. Despite this the Structural Funds were used in the 2007-2013 funding period to refurbish and build new institutions perpetuating segregated living and service arrangements55. The 2007-2013 period also evidenced serious problems in the way Member States were spending their allocated funding as found by the European Court of Auditors56. The Auditors detail serious public procurement errors in the awarding of €349 billion of EU funds.   The European Court of Auditors is one of the seven institutions of the Union that is tasked with checking whether EU funds are used correctly and to improve the financial management of the Union. The Commission is empowered to make financial corrections and reductions on its own findings or those of the European Court of Auditors on evidence of ‘serious deficiency in the effective functioning of the management and control systems’57. The new legislative framework has introduced conditions that must be fulfilled by the Member States in order to spend their allocated funding58. One of these conditions requires the effective application of Union public procurement law that at the end of 2015 was assessed as unfulfilled in several Member States59. Efforts of the Commission and the Member States to ensure sound public procurement procedures for the 2014-2020 period are ongoing and explained in more detail in Section 2 and 4 of this paper.50 Article 16 Council Regulation EC No 1083/2006 (General Regulation)51 Article 3.1(c) Council Regulation (EC) No 1081/2006 (ESF Regulation)52 Article 3.2(b) Council Regulation (EC) No 1081/2006 (ESF Regulation)53 Article 4.11 Council Regulation (EC) No 1080/2006 (ERDF Regulation)54 European Expert Group on the Transition from Institutional to Community-based Care ‘Toolkit on the use of European Union Funds for the Transition from Institutional to Community-based Care’ November 201255 European Coalition for Community Living (2010) ‘Wasted Time, Wasted Money, Wasted Lives … A Wasted Opportunity?’ 56 European Court of Auditors Special Report 10/2015   ‘Efforts to address problems with public procurement in EU cohesion expenditure should be intensified’ (Luxembourg: Publications Office of the European Union, 2015)57 Article 145(7) Common Provision Regulation 1303/201358 ex ante conditionalities Annex XI Part 1 and Part 2 Common Provision Regulation (EU) No. 1303/201359 European Court of Auditors Special Report 10/2015, 47

A new era: smart, sustainable and inclusive growth and development

In 2010 the Europe 2020 growth strategy was adopted with the aim of making the EU a smart, sustainable and inclusive economy60. The smart agenda includes targets on innovation, education and digital society, the sustainable on climate, energy and mobility and the inclusive on employment, skills, fighting poverty and social exclusion. These three facets of growth are mutually reinforcing and jointly to deliver high levels of employment, productivity and social cohesion. The strategy sets out five common objectives on employment, innovation, education, social inclusion and climate action to be reached by 2020. Target five is under the heading of fighting poverty and social exclusion aiming for 20 million fewer persons to be in or at risk of poverty and social exclusion by 2020. Each Member State has adopted its own national targets in each of these areas61, the progress of which are reported on through the European Semester. The Europe 2020 strategy was adopted on the basis of wide public consultations62 and builds on the achievements and lessons that have been learned from the Lisbon Strategy63. In light of these lessons the strategy adopts stronger governance through regular and transparent monitoring as well as high-level political leadership through the European Council. The European Council is the main political institution of the EU that determines the general political direction and priorities of the EU. Before 2014 this was done through adopting conclusions that would identify specific issues of concern for the EU and outline particular actions to take or goals to reach. In 2014, the European Council adopted a ‘strategic agenda’ for the next five years containing five priority areas for longer term EU action and focus64. This overarching strategic agenda will be used to plan the work of the European Council and also acts as a basis for the work programmes of other EU institutions. The five priorities align with the Europe 2020 strategy thereby creating a high level political basis for the achievement of Europe 2020 targets. One of these priority areas is ‘a Union that empowers and protects all citizens’ to be achieved through the development of skills, unlocking of talent and life chances for all, guarantee of fairness and, help ensure all societies have safety nets in place to accompany change and reverse inequalities’. Supporting the approach of the Commission the European Council advance the need for ‘efficient, fair and fit for the future’ social protection systems as “investing into human capital and the social fabric is also key to the long-term prosperity prospects for the European economy”65. 60 COM(2010) 2020 final (Brussels, 3.3.2010)61 Annex 2 – Overview of Europe 2020 Targets as set out in the European Semester National Reform Programmes in April 2015 available http://ec.europa.eu/europe2020/pdf/annexii_en.pdf62 European Commission ‘Public Consultation on the Europe 2020 strategy’ available http://ec.europa.eu/dgs/secretariat_general/eu2020/consultation_en.htm63 Commission Staff Working Document Lisbon Strategy evaluation document SEC (2010) 114 final, (Brussels, 2.2.2010)64 ‘Strategic Agenda for the Union in Times of Change’ EUCO 79/14 (Conclusions – 26/27 June 2014) http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2079%202014%20INIT#page=15 65 ‘Strategic Agenda for the Union in Times of Change’ EUCO 79/14(Conclusions – 26/27 June 2014) 18 http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2079%202014%20INIT#page=15

The European Semester

The Europe 2020 strategy introduced closer economic policy coordination through new arrangements for the European Semester. National governments have to submit reports on economic reform, stability and convergence at the same time to ensure solid funding for their reform programmes. The Commission can therefore give policy guidance and make recommendations to the governments before national budgets are finalised. This helps the Member States coordinate their economic policies better, benefiting from a shared EU economic agenda while still tailoring policy for their national situation. Under the new Commission President Jean-Claude Juncker who took office on the 1st

November 2014, the European Semester underwent further streamlining following the Annual Growth Survey of 201566. The Annual Growth Survey sets out what more can be done at EU level to help Member States return to higher growth levels and kicks off the European Semester cycle in November each year. To strengthen and sustain the recovery, the Juncker Commission is to pursue an integrated approach to economic policy built around three main pillars, all of which must act together – boosting investment, accelerating structural reforms and pursuing responsible growth friendly fiscal consolidation. The 2015 Annual Growth Survey aimed to increase political ownership, accountability and acceptance of the process, to strengthening its credibility and comparability across Member States and to improve the implementation of the country-specific recommendations. The 2016 Annual Growth Survey consolidates the three main pillars while also increasing attention on social fairness in the European Semester agenda. In order to better integrate the euro area and national dimensions of the EU economic governance, the 2016 Annual Growth Survey is now accompanied by a set of recommendations for the euro area67. This is an important change from the previous Semester cycles where the euro area recommendations were proposed along with the country-specific recommendations towards the end of the Semester. By including recommendations alongside the Annual Growth Survey Member States immediately have economic and social policy guidance and are therefore able to coordinate their national efforts in preparation of their National Reform Programmes that are published in April each year.

The Commission has urged the Member States to “better reflect social investment in the allocation of resources and the general architecture of social policy”68. Specifically the Commission advised a greater focus should be placed on childcare, education, training, active labour market policies, housing support, rehabilitation and health services advising that “progress (in these areas) should be reported on in National Reform Programmes”69. Following fact finding missions in each of the Member States over December 2015 to January 2016, the Commission released the annual Country Reports together with an In-Depth 66 COM(2014) 902 of 28 November 201467 Communication from the Commission ‘Investing in Jobs and Growth – maximising the contribution of European Structural and investment Funds’ COM(2015) 692 of 26th November 201568 COM(2013) 83 final (Brussels, 20.2.2013) 969 ibid

Review on Member States identified in the Alert Mechanism Report as experiencing macroeconomic imbalances. Two of the country reports specifically mention deinstitutionalisation as a structural issue requiring further and continuing action on the part of the Member States70.

The Unions Social Investment Approach

Challenges faced by the Member States in terms of the effects on poverty and social exclusion from the economic crisis and the changing demographic in Europe have resulted in the Commission adopting a strong social investment approach. This approach prioritises investment in people in order to lay the foundation for long-term productivity, innovation, growth and competitiveness. A primary tool of the Commission that is to face the negative effects of poverty and unemployment from the economic crisis and adjust to demographic changes is the Social Investment Package71. This package contains several policy responses to these problems by guiding EU countries in how to use their social budgets more effectively to ensure adequate social protection. The framework for doing this is the Europe 2020 strategy and the reinforced open method of coordination for social protection and social inclusion (OMC)72. The OMC supports the definition, implementation and evaluation of Member States social policies. It is a tool of governance structured in three-year cycles leading to national reports that are incorporated into a joint report by the Commission and the Council. The conduct of the OMC process is periodically reviewed by the Social Protection Committee in partnership with representatives of civil society and the social partners. Through the OMC the EU provides a framework for national strategy development for social protection and social investment while coordinating policies in poverty and social exclusion, health care, long-term care and pensions between the Member States. The social investment approach focuses on integrated packages and preventive benefits and services that are accessible to all throughout the lifecourse for long-term positive social outcomes.

An important part of the social investment package is a focus on investing in children and young people by breaking the cycle of disadvantage and ensuring wellbeing and equal opportunities73. The approach of the Commission is community orientated by promoting the need to mobilise “a range of policies,

70 Commission Staff Working Document ‘Country Report Bulgaria 2016: Including an In-Depth Review on the prevention and correction of macroeconomic imbalances’ SWD(2016) 72 final (Brussels, 26.2.2016) 46; Commission Staff Working Document ‘Country Report Romania 2016: Including an In-Depth Review on the prevention and correction of macroeconomic imbalances’ SWD(2016) 91 final (Brussels, 26.2.2016) 61 71 Communication from the Commission ‘Towards Social Investment for Growth and Cohesion-Including Implementing the European Social Fund 2014-2020’ COM(2013) 83 final (Brussels, 20.2.2013)72 ‘Reinforcing the Open Method of Coordination for social protection and social inclusion’ COM(2008) 418 final – not published in the Official journal, available http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:em001173 Commission Recommendation – Investing in Children – Breaking the Cycle of Disadvantage C(2013) 778 (OJ L59/5, 20th February 2013)

supporting children themselves, but also their families and communities”74. The Commission recommends that the expansion of institutional care settings for children must stop and instead, the promotion of quality, community-based care, and foster care within family settings, where children’s voice is given due consideration, is to be pursued by the Member States75. The Recommendation goes on to state that the mobilization of EU funds are to support the transition from institutional to community based services and care as a specific policy priority to be achieved76.

Support for the healthy and active aging of older persons is also emphasized in the package highlighting the need for adapted housing opportunities and support to remain in ones home77. Demographic changes have heightened the need for flexible, sustainable and inclusive policy responses as “over the next five decades, the number of Europeans aged 80+, and at particular risk of developing a need for long term care, is set to triple”78. Several Member States have undeveloped formal long term care while other Member States with extensive formal provision struggle to meet demand. While long-term care services differ markedly between the Member States, the Commission has emphasized the benefits of EU level coordination in the area particularly in research, development and sharing of best practice. ESI funding presents significant opportunities in this regard for supporting reform and innovative community projects tailored to the specific needs of Member States that are to be inclusive of older peoples needs and rights.

While recovery from the economic crisis is stable, progress toward the Europe 2020 targets are uneven as many Member States are struggling to meet their employment and poverty targets in particular79. The 2014-2020 period reforms are tailored to these challenges and move clearly toward more focused policy approaches, a strong results orientation, fostering investment conditions, better coordination of funding and improved links to EU targets and territorial needs80.

74 Communication from the Commission ‘Towards Social Investment for Growth and Cohesion-Including Implementing the European Social Fund 2014-2020’ COM(2013) 83 final (Brussels, 20.2.2013) 1475 Commission Recommendation – Investing in Children – Breaking the Cycle of Disadvantage C(2013) 778 (OJ L59/5, 20th February 2013) 976 Commission Recommendation – Investing in Children – Breaking the Cycle of Disadvantage C(2013) 778 (OJ L59/5, 20th February 2013) 1177 Commission Staff Working Document – Long-term Care in Aging Societies – Challenges and Policy Options SWD(2013) 41.78 Commission Staff Working Document – Long-term Care in Aging Societies – Challenges and Policy Options SWD(2013) 479 COM(2015) 639 final 14th December 2015, 3-480 COM(2015) 639 final 14th December 2015, 5

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