EU funds

The Recovery Files: scrutinising the billions from Brussels

The EU has set up a 723.8 billion euro recovery fund to help member states boost their post-pandemic economy. But there is a lack of democratic oversight on how those European billions will be spent. National parliaments have had limited involvement in the reform plans required to unlock the funds, a pan-European investigation reveals. Recovery Files is an investigative alliance between European investigative journalists and newsrooms (including led by the independent Dutch platform Follow the Money. It will investigate the largest fund ever made available by ‘Brussels’: the 672 billion euro EU Recovery Fund.

Compared to the summer of 2020, the world looked completely different when European Commission President Ursula von der Leyen travelled to Rome in June 2021 to discuss the Italian national reform and spending plan. A year earlier, the country was in the grips of Covid-19. The pandemic was ravaging across the continent, with no end in sight.

But in the summer of 2021, economies were opening up again. Von der Leyen could report that the vaccination campaign was ‘progressing, as well as the Squadra Azzurra’ – a quip referring to the Italian football team: just two days before Von der Leyen’s visit, they had emerged as group winner in the postponed Euro 2020 championship. Meanwhile, the European Union had set up a 723.8 billion euro fund to help its member states recover from the economic crisis caused by the pandemic.

Von der Leyen came bearing good news: the Commission had given Italy’s ‘recovery and resilience plan’ the green light. That is an intermediate step towards full approval by all member states, which is necessary to unlock Italy’s share. The Commission has reserved 191 billion euros for Italy, making it the largest recipient of the recovery fund’s grants and loans.

Italy’s plan not only included details on how the money will be spent but also which reforms it would carry out to make its economy more robust.‘These are reforms the Italians have been wanting for years,’ said Von der Leyen. But there was one thing she probably did not know.

In a joint press conference with Von der Leyen, Italian Prime Minister Mario Draghi said several times that a majority of Italy’s Parliament had approved of the plan. However, the Investigative Reporting Project Italy (IRPI) revealed that MPs had voted on a plan that differed from the one sent to Brussels.

Without Italy’s chosen representatives knowing about it, some 400 million euros earmarked for ‘digitisation’ projects had been reallocated to ‘green transition and sustainable mobility’. Before sending the plan to Brussels, Draghi had also changed details on tax reforms, the reform of public administration payments plus a judicial reform.

Follow the Money asked the European Commission whether it knew that the version of the plan it had received – which Von der Leyen had praised as being ‘ambitious’ and ‘far-sighted’ when she was in Rome – was not the one that the MPs had debated. The spokesperson replied with a rather evasive answer: ‘The Commission provides its assessment of recovery plans presented to it by national authorities. The process by which the plans are approved prior to their presentation to the Commission for assessment – and the role of national parliaments in this process – is a national competence.’

The version that the Italian MPs had voted on was sent to them mere days before the debate, giving them hardly any time to read the nearly 300-page document. More than a week after MPs had given their approval, they received a 2,487-page document in English with never-before-seen details of the plan and annexes containing macroeconomic scenarios, timetables and other ‘technical’ aspects.

What happened in Italy is not unique, as research by a team of European journalists led by Follow the Money shows.

Several parliaments across Europe hardly had any say in the drafting of the plans or had little opportunity to propose amendments. This is alarming because it shows a lack of democratic control of how and where these billions will be spent and especially troubling because the payment of the recovery money is conditional on potentially controversial reforms.

The Recovery Files

This article marks the launch of the Recovery Files, a pan-European research project that will investigate the recovery fund for the months to come. For this investigation, Follow the Money joined forces with journalists across Europe. This investigative project is important because of the massive amount of money concerned – almost 725 billion euros – and the worrying lack of involvement of national parliaments. How this enormous pile of cash will be spent is obviously a matter of great interest to the European citizenry.

Meet the team:

  • Attila Biro from Romania, RISE
  • Marie Charrel from France, Le Monde
  • Staffan Dahllöf from Denmark/Sweden,
  • Anuska Delic/Matej Zwitter from Slovenia, Ostro
  • Gabi Horn from Hungary, Atlatszo
  • Piotr Maciej Kaczynski from Poland,
  • Remy Koens, data journalist, Follow the Money
  • Giulio Rubino, from Italy, IRPI
  • Atanas Tchobanov from Bulgaria,
  • Peter Teffer from The Netherlands, Follow the Money
  • Hans-Martin Tillack from Germany, Die Welt
  • Kamiel Vermeylen from Belgium, Knack
  • Petr Vodsedalek from Czech Republic, Denik
  • Lise Witteman, EU-journalist in Brussels, Follow the Money

The President of the European Court of Auditors (ECA), Klaus-Heiner Lehne, recently stressed the importance of being ‘vigilant about the financial soundness of the EU’. In a statement accompanying the watchdog’s annual review of the EU’s spending, Lehne said that the decision to finance the recovery programme by issuing public debt marked ‘a major shift in EU finances. It entails an obvious need for effective checks on how EU money is spent and whether the intended results are achieved.’

But a senior ECA official, who wants to remain anonymous, told Follow the Money that the EU’s spendings watchdog does not have sufficient staff and resources to adequately inspect the spending of the Covid recovery funds. The EU’s anti-fraud agency OLAF recently warned there was a ‘big risk’ that parts of the money could be abused.

Grants or loans? In the end, both

The projected long-term economic effects of the Covid-19 pandemic led Germany and France to launch a revised version of their proposal from a few years earlier. Their 2018 plan for a common eurozone budget evolved into a 500 billion euro recovery fund to help EU member states recover from the effects of lockdowns and other measures on their economy.

The novelty introduced in this recovery fund was that the European Commission would borrow money on the financial markets and distribute cash among member states as grants or loans. Like the French president Emmanuel Macron, some leaders insisted on providing grants, while others, like the Austrian, Dutch, Danish and Swedish governments, wanted to oblige member states to repay the money; hence, they insisted on loans. As is often the case in EU politics, the end result was a compromise: the EU’s recovery and resilience fund now consists of 385.8 billion euros in low-interest loans and 338 billion in grants – a total of 723.8 billion euros.

To meet the concerns of the most outspokenly reluctant member states, who got nicknamed the frugal four, the EU leaders agreed that member states would only receive funds after handing in a detailed ‘recovery and resilience plan’, which had to include specific milestones on planned reforms. If those milestones were not met, the Commission could halt payment.

Additionally, if the Commission itself did not take action on missed milestones, any member state could raise a red flag and request a suspension of payments. The adoption of this ‘emergency brake’ convinced reluctant states to accept the compromise.

National or European scrutiny?

During the European negotiations on the recovery fund, David Bokhorst worked as a non-partisan EU adviser on financial affairs for the Dutch House of Representatives. Currently, he is a research fellow at the European University Institute in Florence. Bokhorst warns that the milestone system could devalue the power of national parliaments.

What might be a negative consequence of this scrutiny is that parliaments of member states might feel forced to agree with the milestones set in their national plans because their country needs the money,’ Bokhorst says. ‘This means that the controls from the EU are tightened, and the executive power of the national governments over their parliaments are strengthened. This is especially true for countries that can receive large sums of money from the fund, such as the poorer countries. But, we will see how these power dynamics play out.

The French recovery plan, for instance, includes a cursory reference to a highly controversial national issue – pension reform – but only as a distant objective. It remains to be seen whether Macron is re-elected in April 2022 and, if not, whether his successor will carry out the reforms as promised.

Last year, Bruegel fellow Jean Pisani-Ferry predicted ‘heated controversies’ if the European Commission actually ‘does its job’; that is: if it rejects ineffective plans or postpones payments when milestones are not met. ‘The risk is that the process ends up in a bureaucratic squabble that the public cannot decipher but provides ammunition to populists,’ he warned.

No vote necessary

Earlier this year, there were already signs that national parliaments were not properly involved or informed, which the European Parliament ‘deplored’, as it said in June. It emphasised that the involvement of national parliaments, local and regional authorities, social partners, NGOs and civil society was ‘decisive in the success of the national plans’.

However, research by our pan-European team has established that in at least Germany, Belgium, the Czech Republic, Slovenia, Poland, Romania and Denmark, the government has adopted plans without taking a formal vote in parliament.

‘The plan doesn’t need to pass Parliament, it is a project of the government. [..] It is something we can do, but it does not have to go through the Parliament, there is no need for any vote, there is no need for debate,’ Romanian Prime Minister Florin Cîțu said, in May 2021.

In the Czech Republic, transparency watchdogs complained that the draft plan was kept confidential for months. ‘Due to the current secrecy, there could be no national debate on important priorities,’ Transparency International lawyer Jan Dupák said in March 2021. Czech deputy Prime Minister Karel Havlíček rebutted critics, claiming that the national recovery plan had been discussed in ‘not dozens, but hundreds, hundreds of meetings with individual unions, platforms, citizens, etc.’

But when former opposition MP František Kopřiva (Pirate Party) requested a list of all stakeholders with whom the draft plan had been discussed, he did not receive such a list or even an answer. Moreover, the Czech Chamber of Deputies could not discuss the final plan before it was sent to Brussels in May.

In Hungary, where the governing Fidesz party holds a two-thirds majority in the National Assembly, criticism on the drafting process came mainly from outside the Parliament. In June, Budapest mayor Gergely Karácsony sent Commission President Von der Leyen a letter, informing her that ‘a genuine consultation process about the government’s plans had never taken place’. According to Karácsony, the Hungarian government released the draft plan only two weeks before submitting it to Brussels. There was even an amendment to that plan that ‘was never published or put forward for consultation before being submitted to the European Union’. The Hungarian government did not respond to questions regarding the lack of involvement of Parliament or the broader consultation process.

Slovenia’s national plan was classified for a long time, as was the transcript of a parliamentary discussion about it that took place on 29 January. The transcript was finally released in October, and ironically, it revealed that opposition MPs had argued that this debate ought to be accessible to the public. The Slovenian government boasted that it had involved more than 2,000 organisations, although, for at least 1,300 of them, that only meant that they could watch an online presentation of the plan. Several organisations told the media that they were invited to send proposals, but had never received any feedback.

The Polish government also ran a social consultation process. This resulted in more than 5,500 comments on the first draft. Many of those came from regions and local governments that were dissatisfied with the government initially not involving them. Opposition MP Michał Szczerba (Civic Platform) stated that ‘there was no final compromise between the government and local governments’. However, political alliance Lewica (the Left) managed to convince the government to increase the share of financial resources that were to be allocated to the regions and local governments.

The Polish Parliament never ratified the national recovery plan. The government’s plan was proposed soon after the ratification of the EU’s so-called Own Resources Decision, legislation that provides the EU with its budget. This coincidence created confusion among political parties, which subsequently did not request Parliament to ratify the national plan. Opposition MP Szczerba fears a lack of control of how the money will be spent. ‘All this happened while the government refused to let Poland join the European Prosecutor’s Office because it fears anybody looking at their kleptomaniac practices.’

In France, the situation is a bit different. According to the French Minister of Economy and Finance Bruno Le Maire, the reforms in the national plan are in line with President Emmanuel Macron’s France Relance strategy. ‘The Commission will not impose new reforms on us; they have already been validated by the French people,’ he said in April during a parliamentary hearing, referring to the parliamentary vote on the France Relance plan in late 2020.

In the Netherlands, Parliament has not been involved for a different reason: neither the outgoing Dutch government nor the political parties discussing a new coalition since the March 2021 elections have begun drafting a national recovery plan.

The limited influence that national parliaments have had is all the more worrying because the European Parliament has no real say either. This is the result of the negotiations between Parliament and the member states about the EU regulation that covers the governing process of the fund.

In November 2020, the European Parliament proposed that it would be able to veto national plans. Three months later, however, when a compromise was reached on the recovery fund, Parliament had dropped that request. ‘In the end, the pressure came from the national governments. Their argument was: we need the programmes, this has to be ready before Christmas,’ said MEP Markus Ferber (CSU, European People’s Party).

The regulation now merely grants the European Parliament the power to ‘invite the Commission every two months’ to discuss the plans. The Commission is only required to ‘take into account’ Parliament’s views, which it ‘may express [..] in resolutions’. German MEP Damian Boeselager (Volt; member of the Greens group) is worried about this outcome: ‘There is a threat to transparency and democratic legitimacy.’

MEPs are specifically worried about how the funds are spent in Hungary and Poland. The Commission’s assessment of their national plans takes place within the context of ongoing legal antagonism.

In July, the European Court of Justice ordered Poland to discontinue its politically appointed Disciplinary Chamber of the Supreme Court. By 27 October, Poland had still not implemented the ruling, and the Court proceeded to order the highest penalty in its history – one million euros per day. This fine was issued one week after Commission President Ursula von der Leyen stated in Parliament that Poland would have to meet two other pre-conditions before the Commission would accept the Polish recovery package: independent judiciary and reinstituting judges who had been punished for being too independent.

Scrutinise thy neighbour?

In several member states, involvement by national parliaments in their own country’s plans has thus been curtailed. Do MPs have any idea what the plans of other member states entail?

If a member of parliament wanted to read all national recovery & resilience plans, she would have to read 21,532 pages.

In Germany, in February 2021, the liberal FDP tried to increase parliamentary influence over the approval process of national plans, which happens in the Council of the EU. The party proposed that the German government consult the Bundestag’’s budget committee before voting on member states’ plans; if the budget committee issued a negative opinion, Germany would have to vote against it in Brussels. However, the FDP lost the vote in the Bundestag, with the coalition parties CDU/CSU and SPD, the Greens and the far-right Alternative für Deutschland voting against it.

In the Netherlands, despite the government initially focusing on the importance of an ‘emergency brake’, actual scrutiny has not been implemented. On 17 June 2021, the House of Representatives called upon the government to assess the compatibility of national recovery plans with the rule of law and democratic principles. However, the Dutch government decided it would not necessarily look at the recovery plans itself but would send MPs its assessment of what the Commission thinks of those plans. Dutch finance Minister Wopke Hoekstra (CDA) said as much at a meeting with MPs on 8 September 2021 when referring to the Italian recovery plan. Hoekstra said the Dutch were positive about the Italian plan, ‘without having looked at everything in depth’.

This did not raise any comments from MPs. In fact, they have shown limited interest in discussing other member states’ recovery plans. On 8 July, the committee of finance MPs was supposed to discuss the upcoming ministerial meeting during which twelve recovery plans would be approved. Instead, a majority of Dutch MPs agreed to settle the issue via a written procedure – which means, in practice, that the minister can choose to ignore the tough questions.

Later that month, Dutch MPs didn’t even consider the upcoming EU vote on the Cypriot, Croatian, Lithuanian and Slovenian recovery plans important enough for a written procedure, let alone an actual debate.

It remains to be seen whether the ‘emergency brake’ will ever be pulled. While EU leaders agreed on such a mechanism in principle during their June 2020 summit, the authors of an expert paper from the EU department of the Bundestag administration called the legal effectiveness of the brake mechanism ‘questionable’. Summit conclusions are political, so the emergency brake needed to be translated into legal provisions. The Bundestag experts stressed that the emergency brake is only mentioned in the preamble of the EU regulation that governs the recovery fund, not in the actual provisions.

Recovery Files is an investigative alliance between European investigative journalists and newsrooms led by the independent Dutch platform Follow the Money. It will investigate the largest fund ever made available by ‘Brussels’: the 672 billion euro EU Recovery Fund.

Photo: Simon Planje and Lisa van Casand. Data visualisation: Remy Koens.

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