The EU Member States are supposed to implement country-specific recommendations when they receive funding under the €650 billion Recovery and Resilience Facility (RRF) but a new audit report by the European Court of Auditors (ECA) shows shortcomings in tackling key labour market challenges.
In this first ECA audit of the effectiveness of RRF reforms, the auditors examined whether the labour market reforms included in the national plans contributed to addressing the challenges that were raised in particular in the 2019 and 2020 recommendations (CSRs). According to the RRF Regulation, the reforms and investments in the national plans must contribute to addressing a significant subset of the CSRs.
For four member states (Belgium, Greece, Spain and Portugal), the auditors also checked whether the completed reforms achieved results and contributed to the implementation of their CSRs. The sample includes countries with a comparatively high number of both labour-market related sub-CSRs and RRF reforms with labour market relevance, which had to be completed by 2023.
In their recovery plans, Member States included almost 100 labour market reforms of varied scope and ambition. In the report, published last week (26 March), the auditors found that the labour market reforms addressed 40 % of the Council’s recommendations fully or largely and another 26 % marginally. The remaining 34 % were not addressed by any reforms.
ECA summarized that over 60 % of the recommendations were not or only partially addressed (‘glass half empty’) while the Commission in its reply to the audit commented that two thirds of the recommendations has been fully or marginally addressed (‘glass half full’).
The auditors concluded that none of the 26 Member States that had received labour market recommendations before or after the COVID crisis had fully addressed them with RRF reforms. Four member states (Greece, Spain, Croatia and Finland) had largely addressed them, and 18 member states did so only to a marginal extent.
Four member states did not make use of reforms at all to address the recommendations they received: Denmark and Ireland, because they did not include any labour market reforms in their plans, Hungary and Slovakia because the only labour market reform they included did not address any of the recommendations they had received.
The remaining member state (Sweden) had not received any labour market - related sub-CSR in 2019 and 2020, but received sub-CSRs in 2022 and 2023 related to the shortage of teachers and the integration of people with a migrant background into the labour market. These new sub-CSRs have not been addressed by any measure included in the revised Swedish RRP in August 2023.
Focus on reforms
ECA focused the audit on reforms rather than investments because most CSRs are more likely to be addressed by reforms than investments but also because of the new approach of disbursing funding in exchange for a Member State’s commitment to carry out reforms.
“Brussels uses RRF funds as an incentive for EU countries to undertake important structural reforms and make their economies more resilient,” said Ivana Maletić, the Croatian ECA Member in charge of the report and a former MEP. “However, in the area of labour market policies, the reforms bypassed some structural issues that are of particular importance for EU citizens.”
In some countries, certain structural challenges have remained unaddressed, including discrimination, labour market integration of vulnerable groups, unemployment insurance, early retirements and the tax burden on labour.
On a positive note, the reforms generally delivered their expected outputs, which basically means that new laws were adopted according to the auditors. However, for about half of the reforms – e.g. in the areas of life-long learning, support for jobseekers and improvement of unemployment assistance – the respective member states were unable to provide any evidence of results.
Also, it is difficult to assess the reforms’ impact on the ground, because there are often no suitable indicators in place. It is also a matter of timing. RRF implementation is still ongoing and many labour market reforms are yet to be completed, meaning that it may be too early for results and impacts of the reforms to emerge.
Agreement to disagree
While welcoming the audit report, the European Commission argued in its reply that the labour market reforms represented only 5 of 37 CSR policy areas and that the RRF regulation does not require the Member States to address each policy area. The Commission said that it has identified more reforms that could also have an impact on labour market CSRs and but were not included in ECA’s analysis.
Recognising the time dimension, the Commission stressed that the RRF legal text explicitly foresaw that milestones and targets should not focus on results, but rather measure progress of the implementation of a specific reform or investment.
“Our reading of the audit report is quite positive,” a Commission spokesperson told The Brussels Times. “It was never the ambition that one instrument, such as the RRF, should address all policy areas in the CSRs.”
Asked if the Member States still have time to revise their plans, he replied that the duration of the RRF ends by 2026. “We are in a period where some countries are about to revise the plans but it remains to be seen if they will address the CSRs. The Commission encourages them to take into account the CSRs every year but the RRF is only one of the instruments by which they can do that.”
The auditors call on the Commission to set out a framework to assess the results, ensure that Member States cover key challenges properly, and check that milestones and targets comprise all essential parts of the reforms. The Commission rejected one sub-recommendation, accepted another one and partially accepted the others.
“We therefore don’t consider this to be particularly negative or even confrontational response,” an ECA spokesperson commented. “Our auditees normally agree to most of our recommendations, but the audit procedure also allows us to agree to disagree. Sometimes we see that if the auditees do not accept our recommendations, they still implement them in the end.”
“While it is correct that the initiative for revising the national recovery plans lies with the Member States, it is the Commission’s responsibility to ensure compliance with the RRF regulation, which clearly states that the RRPs should address all or a significant sub-set of the CSRs. This is in particular the case when assessing the revised plans.”
ECA plans to publish an all-round assessment of the RRF so that the co-legislators can draw lessons from it ahead of the MFF discussions on the future of EU spending in next Multiannual Financial Framework (MFF).
M. Apelblat
The Brussels Times
