Economic crisis – opportunity or threat?

The economic crisis and the EU funds
In November 2008, José Manuel Barroso, president of the European Commission, announced the European Economic Recovery Plan (EERP) as a prompt EU-wide response to the economic crisis. The EERP proposed an enlarged new role for the EU funds and the EIB to support investments in the real economies of member states via more flexibility in EU financing that it is hoped would result in increased liquidity and ensure that more funds will be spent faster. The EU budget is planned to contribute € 30bn to the EU Recovery plan. The EERP was extensively promoted as a measure that could stimulate a future 'green economy' and green jobs. We want to see a guarantee, however, that existing financial resources for interventions and projects will bring about win-win solutions for the economy, our environment and people living across Europe.   

Acceleration and advance payments for major projects
The Directorate General for Regional Policy has put forward a proposal for changes in the Regulations that guide the provisions for EU funds in relation to the economic crisis. The changes involve boosting the support from the EIB and the European Investment Fund, as well as simplifying the eligibility for EU funds spending. Another change envisages increases in pre-financing of EU funding through the European Regional Development Fund (ERDF) and the European Social Fund towards member states during 2009 and 2010. The changes were voted by the European Parliament on April 2 and will enter into force after their final approval by the Council of the European Union which is expected in the end of April.The countries from the CEE region will receive an additional 2% (on top of the 2% already foreseen before the recovery plan in 2009, equivalent to €4.6 billion .

Also foreseen is the acceleration of payments of costs for major projects incurred prior to their approval by the European Commission, as well as the option of up to 100% advances in the case of state aid beneficiaries. Most of the new member states have already been discussing or even adopting national rescue packages which focus largely on speeding up EU funds for infrastructure. The majority of the projects in this map have been under preparation in the last two years and many of them may be put forward for accelerated absorption of EU funding despite the environmental, climate, social and economic controversies detailed in this map.

Boosting public private partnerships
The EERP partly entails the enhanced utilisation of public private partnerships (PPPs), especially for road construction. However, experience with PPPs in CEE so far has been mixed, with unknown long-term budget burdens caused by their use, and poor value for money for the public sector. Due to high transaction costs, PPP structures are likely to offer very low stimulus effects for economic recovery. IMF economists have noted that money received by private corporations in the current setting is more likely to be hoarded than reinvested. The drying up of private finance also means that financing PPPs is likely to be very difficult during the current crisis. State-led investment programmes can not only deliver higher economic stimulus effects, but can also help ensure that investments fulfill ambitious environmental and social aims.

Smart spending for a low carbon future
Instead of restricting CEE countries by providing easy money to dubious and climate intensive projects, the economic crisis offers an opportunity for the EU to demonstrate leadership that can ensure progressive decisions on EU spending – this can get the new member states onto a more sustainable development path in the medium term. In November last year, President Barroso called for “smart spending” in energy efficiency (EE), renewable energy sources (RES) and integrated urban developments as a way out of the crisis towards a low carbon future. EU funds regulations will now allow that all member states can use up to 4% of the ERDF for EE/RES in housing. The EIB is also set to increase such investments by up to €6 billion per year for the next two years.

Member states should seize this opportunity and reshuffle EU funds allocations towards direct support for clean and efficient energy and transport and also guarantee horizontal efficiency measures in other programmes and projects – rapid, positive effects for the economy, employment and climate will result. 

In the Czech Republic, for instance, the Ministry of Environment is set to reallocate €470 million towards EE/RES this year. In Latvia, EU funds support will increase from €20 million to €73 million for the improvement of heat insulation in multi-apartment residential buildings. Other countries make a step further by contemplating additional 'high-value' stimulus measures – in Poland, the government has proposed €333 million for wind turbines and highly effective co-generation energy facilities. Slovakia will allocate more funds for EE/RES from the Bohunice Nuclear Power Plant International Decommissioning Support Fund and will develop soft measures such as a new programme in support of EE.

Tapping into the job creation potential of green investment
Nicholas Stern, the former chief economist of the World Bank, predicts that the global economy is likely to shrink by between 5% and 20% or more every year, not because of subprime or toxic funds but because of economic impacts of climate change. “Green” recovery is therefore not an option but the only option for moving out of the current economic crisis. Green investments stand up economically on their own merits too. They create new business niches and new job opportunities both for technology-skilled and low skilled labour. Currently, 3.4 million people in the EU have green jobs. 

In CEE countries, there is huge long-term job creation potential especially in sectors such as EE and RES, the separation and recycling of waste, water supply and sanitation, sustainable transport, research and consulting services – and support from EU funding is essential especially during a deep recession. The European Social Fund should also be utilised to promote “green-collar” jobs, achievable by increased support for training and the pre-qualification of workers towards green services and products in various sectors. Furthermore, many sectors can have an indirect job creation effect – for instance, jobs can be created not only around the actual retrofitting and insulation for energy efficiency but also for trainers for pre-qualification of workers and consultancies. 

Our demands

  • Increased transparency of and public scrutiny over major projects is more essential than ever in light of the increased flexibility that now accompanies the financial rules
  • The European Commission should establish clear criteria for what constitutes a “green” investment project, and good practice should be multiplied across all the new member states.
  • The economic crisis should not be used as a reason for deploying EU money for environmentally unsound, socially unacceptable and economically dubious projects.
  • Assessment of alternative solutions and stringent compliance with the EU's environmental impact assessment legislation must be ensured in all cases.
  • It has to be ensured that member states revise their operational programmes and significantly increase their support for clean and efficient energy and transport. The horizontal integration of environmental and climate measures should figure centrally in EU funded projects.
  • A mid-term assessment of the changes in the EU funds regulations should be undertaken and set against multiple criteria that take in economic, social and environmental considerations.