Introduction

1. EU COHESION POLICY IN A GLOBAL CONTEXT Recommendations on performance incentives and conditionalities Laura PolverariConference on the Evidence-based Cohesion PolicyGdansk, 8 July 2011

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

4. 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

5. 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 2014-2020 • 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

6. Use of conditionalities: CP recommendations (Cont’d) • 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

7. 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

8. 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 conditionsto 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

9. Incentives/sanctions – recommendations (cont’d) • 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

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 10 Laura Polverari, European Policies Research Centre, University of Strathclyde