EU COHESION POLICY IN A GLOBAL CONTEXT Recommendations on performance incentives and conditionalities Laura Polverari Conference on the Evidence-based Cohesion Policy Gdansk, 8 July 2011

Laura Polverari, European Policies Research Centre, University of Strathclyde 2 Introduction Conclusions and recommendations on conditionalities and performance incentives from study “EU Cohesion policy in a global context”, by Martin Ferry and John Bachtler Aims of the study: –Benchmarking Cohesion policy against other economic development policies that use shared management systems, with a focus on performance management across levels  commonalities, lessons, best practice examples –Undertake comparative assessment of regional development policies in selected OECD countries (covering all aspects of the programme cycle) development policy lending of selected international financial institutions, with a particular focus on conditionality –Draw policy and practical lessons for EU Cohesion policy Focus of the study: –Performance management today’s presentation will focus on this ­Assurance models Conditionalities Sanctions & incentives

3 Conditionalities Lack of consensus in literature –Key element of the relationship btw funders and recipients –Ineffective –Negative consequences –Focus on implementation problems General broadening of policy scope and complexity implications for setting conditionalities ­How can conditionalities be attached to interrelated policies - causality? ­How do you establish meaningful targets in ‘softer’ policy fields? ­How do you measure inputs from a wider range of actors? Laura Polverari, European Policies Research Centre, University of Strathclyde

Use of conditionalities – case study insights Proliferation of conditionalities amongst national regional policy systems and IFIS, defined in variety of ways and serving different functions: Macro-fiscal ­funding linked to macro-level indicators ­traditionally used by IFIs (e.g. World Bank), but recent shift to focus on medium- term institutional conditions Structural ­relationship btw specific actions and the broader socio-economic environment ­may involve commitment to related policy or institutional actions or reforms Outcome or performance-based ­reaching goals related directly to own programmes ­performance goals, tracking various indicators to measure impact and trigger funding (e.g. US ARC annual performance goals) Conditions related to governance and delivery (e.g. World Bank) Laura Polverari, European Policies Research Centre, University of Strathclyde

Use of conditionalities: CP recommendations Conditionalities already present in Cohesion policy –procedural compliance (e.g. approval of management and control systems), spending (the n+2 rule) –macro-fiscal (Cohesion Fund, although never enforced) –structural, performance, governance conditionalities also (e.g. transposition of Council Directives, investment of sufficient domestic sources, capacity building) –But ad hoc, not systematic Options for Macro-fiscal or macro-economic conditionality –operate at some ‘policy distance’ from Cohesion policy actions –impact on other areas of Cohesion policy support (e.g. austerity measures versus support for social programmes) –must avoid punishing those not responsible for macro-economic measures Laura Polverari, European Policies Research Centre, University of Strathclyde

Structural conditionality ­disbursal of funding could be conditional on the development of high quality strategies that demonstrate commitment to and ownership of reform programmes that strengthen Cohesion policy impact ­but need for clear, consensus-based criteria – what is high quality, strong commitment? ­must avoid excluding those with sufficient instititions from reward Performance-based conditionalities –increasing support for conditions that try to capture performance of an intervention against specific, realistic and measurable targets –agreed on the basis of dialogue between donors and recipients Cohesion policy conditionalities could more strongly emphasise improvements in public sector governance  Overall, need to development comprehensive, integrated and transparent system of conditionalities Laura Polverari, European Policies Research Centre, University of Strathclyde Use of conditionalities: CP recommendations (Cont’d)

Use of incentives and sanctions Use of incentives and sanctions crucial to the operation of conditionalities, to ensure adherence to the conditions set Incentives and sanctions can be –Financial –Administrative –Reputational IFIs - disbarring, cancellation of loans, generally gradual system (limited by use of ex-ante conditions) Regional policy - depends on type of intervention and division of powers ­Can be constrained in federal cases ­Use of financial or administrative sanctions very limited  no regional policy case study provided a concrete, practical example of sanctions being enforced

Use of incentives & sanctions – recommendations In comparison with IFIs and national regional policy systems, cohesion policy enforcement environment is constrained: –Automatic not discretional allocation of funding from EU to MS –Dominance of grants over loans –Limited financial significance in some MS –Political difficulties in enforcement But despite constraints, the development of strong incentives and credible sanctions is crucial if CP conditionalities have to have an impact. A hierarchy of these could be developed to match the structure of conditionalities: –Structural conditions should be attached to the development of national strategic documents or contractual arrangements (e.g. World Bank Performance Based Allocation) –Performance-based conditions to be used with ‘caution’ ­should be applied through dialogue between principals and beneficiaries (rather than introduced automatically) ­distinguish between ‘targets’ and ‘conditions’ ­use should be proportional ­Member States responsible for sanctioning underperformance Laura Polverari, European Policies Research Centre, University of Strathclyde

Commission to retain a share of funds to be allocated on a competitive basis at EU level Use of a performance reserve – though this has had mixed results in the past – emphasis on quality of targets, criteria Financial incentives for administrative staff Move towards loan funding, financial engineering would provide increased leverage – though requiring more analytical capacity from the EU side. Existing non-financial incentives could be strengthened (e.g. exchange of best-practice) Laura Polverari, European Policies Research Centre, University of Strathclyde Incentives/sanctions – recommendations (cont’d)

10 Overall conclusions & recommendations Performance management arrangements challenging to implement in shared management systems Methodological and political constraints, particularly for Cohesion policy Nevertheless, conditionalities a crucial mechanism to align Commission and Member State under European priorities - including Europe 2020 Some elements are already operational, but uneven, ad hoc A major achievement would be the development and operation of a new comprehensive, integrated framework Capacity building required, on Commission and MS sides Laura Polverari, European Policies Research Centre, University of Strathclyde