The seven tests of European funds management

Spain has not managed European funds adequately in recent years. Now, the arrival of Next Generation EU (NGEU), together with the funds from the new 2021-27 Multiannual Financial Framework (MFF), represents an unprecedented challenge that requires an updated analysis of the possible bottlenecks that need to be removed to improve implementation.

Building on the first analysis we published in a Policy Brief last October, and taking into account the specific progress made by the Recovery Plan and the new rules for managing funds, we set out here seven tests that should guide the proper implementation of the funds.

→ To date, the allocation of funds has not followed any prior analysis of investment needs at national or regional level (test #1). It is also necessary to extend this exercise to the distribution of funds within the different regions and local authorities, following well-designed economic and social policy strategies that are not conditioned, as is often the case, by political balances (test #2).

→ Funds are often distributed on the basis of meeting budget constraint targets rather than on their economic or social return. Project design should start from economic policy criteria and not exclusively budget execution criteria, even though the latter sets necessary operational limits (test #3). Finally, decisions on allocation to specific projects should be guided by the criterion of investment need, avoiding operational biases that can end up creating new bottlenecks (test #4); for example, by overloading certain work units.

→ The rules governing the implementation and certification of European funds are much more demanding than those for other funds. This regulatory imbalance explains part of the difficulty in implementing them, as civil servants clearly prefer to manage non-European funds. Regulatory efforts should narrow this gap (test #5).

→ Oversight of implementation is oversized in terms of the administrations and bodies involved, but understaffed in terms of personnel and capacity. This could be causing enormous uncertainty and inconsistent interpretation of criteria during implementation, which can lead to projects being cancelled or halted. We would therefore recommend resizing oversight and aligning it with evaluation objectives focused on effectiveness (test #6).

→ Finally, the technical managers in charge of implementing European funds should have the right incentives and capabilities to focus on long-term goals decoupled from the short-term political cycle (test #7).