Disbursement of EU funds in the face of rising raw material prices and inflation

Subject: Disbursement of EU funds in the face of rising raw material prices and inflation

In recent months, Europe has been seeing the prices of many raw materials rise and a general uptick in inflation. Multiple factors are at play here, including the considerable upturn in economic activity since the COVID-19 pandemic, the war in Ukraine and increasing demand.

These rising prices are, however, having negative repercussions on the economy. Often, price increases are introduced very suddenly, making it very difficult to source production materials on the market.

In view of these widespread increases, EU funds are a useful tool with which to support economic sectors. However, where public or private bodies do receive full or partial funding for a project, it is possible that price surges will occur, rendering the project for which funds were disbursed obsolete and the investment in vain.

In the light of this:

1. Has the Commission accounted for these dynamics in its economic and financial plans for 2021- 2027?

2. What action will it take to make EU funding effective in the face of general cost increases?

Answer given by Mr Hahn on behalf of the European Commission

(17 August 2022)

The ceilings of the Multiannual Financial Framework (MFF) for 2021-2027 are expressed in 2018 prices. As stipulated in Article 4(2) of the MFF Regulation (1), the adjustment to current prices is done on the basis of a fixed annual deflator of 2%.

This long-standing mechanism provides predictability for the EU programme resources over the period of the MFF, which is important for regional authorities, partners and beneficiaries for mid to long term investments supported by the EU.

However, when inflation is significantly above 2% for a sustained period, this affects the purchasing power of the EU budget. It is therefore likely that some projects might not be implementable as originally planned. A possible remedy here would be a higher national co-financing contribution.

Any modification to the deflator mechanism would require a revision of the MFF Regulation in accordance with the special legislative procedure set out in Article 312 of the Treaty on the Functioning of the European Union. However, such an amendment would not apply retroactively.

Russia’s invasion of Ukraine is exacerbating inflationary pressures, by exerting further upward pressures on commodity prices and causing renewed supply disruptions, on top of increasing uncertainty. The Commission’s Summer Economic Forecast (2) expects EU inflation to reach 8.3% in 2022 and 4.6% in 2023.

In light of these, the Commission has proposed various amendments to cohesion policy legislation with the Cohesion’s Action for Refugees in Europe (CARE) (3), and on the increased pre-financing from REACT-EU resources (4). Both proposals were adopted and entered into force in April 2022; Member States and regions can make now use of the new possibilities offered.

On June 29 2022, the Commission proposed FAST-CARE (5) to enhance support to member states facing delays in the implementation of Cohesion Policy because of the war in Ukraine. It offers further flexibility for the implementation of Cohesion Policy funding. This will help optimise the use of the remaining 2014-2020 resources and start 2021-2027 programmes.

⋅1∙ Council Regulation (EU, Euratom) 2020/2093 of 17 December 2020 laying down the multiannual financial framework for the years 2021 to 2027 OJ L 433I ,

22.12.2020, p. 11; https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.LI.2020.433.01.0011.01.ENG&toc=OJ%3AL%3A2020%3A433I%3ATOC ⋅2∙ https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/summer-2022-economic-forecast-russias-war-worsens-outlook_en ⋅3∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0109&qid=1648481247407 ⋅4∙ https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0145&qid=1648481331329 , amended on 31 March 2022; https://eur-

lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0162&qid=1650470654953 ⋅5∙ COM(2022) 324 final.










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