National recovery plans in the V4: An uneasy exercise

2021-01-28

The process of drafting of national recovery plans under a difficult time constraints seems to be a handful for all of the Visegrad countries. The stakeholder involvement, streamlining their requests and transparency pose particular problems.

By Ondřej Plevák (EURACTIV.cz), Joanna Jakubowska (EURACTIV.pl), Patrik Szicherle (Political Capital), Zuzana Gabrižová (EURACTIV.sk)

The Recovery and Resilience Facility (RRF) is the main component and comprises the biggest budget in the post-pandemic EU Recovery plan called the Next Generation EU. Member states are currently working on their national recovery plans outlining their priorities for financing. This process, which should be inclusive and done in consultation with the European Commission, should conclude in April 2021, when the national plans should be submitted to Brussels for final evaluation.

The RRF would finance both, reforms and investment which have the potential to bring a long-lasting structural change for the member states economies. As much as 37 percent of the funds should be used for climate and 20 percent for digital transition. The spending should also  mind the environmental “do no harm” principle as well as the European Taxonomy of sustainable finance.

The focus of the V4 countries is currently on the grant financing of which Poland will get €23,1 bn, Slovakia €5,8 bn, Hungary €4,3 bn and Czechia €6,6 bn. Low interest loans, which are also part of the package may well be left alone. Slovakia and Czech Republic have already made it clear they do not plan on using them, and will finance their needs elsewhere, where the conditions are even more favourable and less strings are attached. Poland and Hungary remain ambiguous as far as their intentions to make use of the RRF loans.

As for the drafting process, the countries work to design the right mix of measures - often amid differing political considerations - as well s to find the way to make the process more inclusive, which is one of the key requirements for the national recovery plans.

Czech Republic: Clear vision or patching up ministries´ budgets?

The first “pilot version” of the national recovery plan, not even approved by the whole government, was given to the European Commission in the middle of October. The negotiations have begun at the end of the same month. According to Czech weekly Respekt, the EC returned the draft to the Czech Republic “after a few weeks”, saying the plan does not represent a way to modernize the country.

As MPO informed, discussions between Czech and EC representatives have from the beginning focused especially on “green and digital labelling” of investments and reforms, setting milestones and goals, pricing individual activities, or the macroeconomic and social impacts of the NRP. The negotiations take place twice a week and should be finished at the end of January, Minister of Industry and Trade Karel Havlíček (ANO) said.

The national debate about the NRP was almost non-existent before October, many stakeholders have criticised the lack of involvement or insufficient time limits for proposing amendments. Even Social Democrats (ČSSD), who are together with ANO a part of the government coalition, expressed dissatisfaction with the draft.

Later on, the process got more inclusive and “a significant number of institutions and organizations were involved in the creation of NRP,” Marek Vošahlík from the ministry’s press office told EURACTIV.cz. Based on their comments the plan is being reworked, he added.

“Based on criticism from many parties (including tripartite partners), the MPO opened the process and organized a total of six round tables for a more detailed discussion about the individual pillars of the plan. Owners of individual components were also open to the dialogue, although the willingness to change already proposed investments is low,” the director of an ecological non-profit organization Hnutí DUHA (the Rainbow Movement) Anna Kárníková said.

Confederation of Industry of the Czech Republic has confirmed that its representatives regularly negotiate with the Ministry of Industry and Trade about the entire plan and its conditions, as well as about areas important to industry. “The document is constantly evolving and we are waiting for the final consideration of our amendments,” the Economic Affairs department's director Bohuslav Čížek told EURACTIV.cz.

However, the debate is still not as inclusive as in other countries. For example, Committee on European Affairs in the lower house of the Parliament, the Chamber of Deputies, still criticises the lack of involvement. The public does not seem to be part of this process at all.

As far as the contents of the early national recovery plan draft go, by far the biggest sum (€4,5 bn) is supposed to go to a pillar called “Physical infrastructure and green transition”, which includes transport or transition to a low carbon economy. Other pillars focus on support for businesses in crisis, digitisation, education, health or research and innovations.

The main criticism coming from stakeholders, as well as Social Democrats, was that Czechia does not plan to use the sources for recovery adequately, does not have a clear vision and want to “only patch up holes in the budgets of the ministries”.

As Kárníková mentioned, the government for example wanted to use the available funds for noise barriers, road bypasses and investments in the regular heating industry, but after negative signals from the Commission the plans were scratched. This shows the rather traditional approach of “cohesion-focused” Czechia, which very often wants to use the European funds for “concrete” instead of “people”.

Confederation of Industry says the NRP must first and foremost help to ensure the recovery and resilience of the economy to future crises. Support for specific investment projects must be simple, fast and without the complex constraints often present in other programs, the confederation stated.

The Chamber of Commerce's main criticisms of the first version of the document were the absence of a more detailed clarification of the implementation rules or the expected distribution of the funds for the business sector and the public sector.

“The material also lacked deeper interconnectedness, completely neglected the issue of regional development and did not sufficiently take into account the dynamically evolving debate on the Green Deal at EU level,” the lead analyst of the Chamber of Commerce Karina Kubelková pointed out. As she added, the support should as well cover recovery and strengthening of resilience in the sectors most affected by the coronavirus crisis, but this was not the case in the first draft.

Hnutí DUHA has proposed investments in landscape improvement, “which is necessary to solve the catastrophic problems of erosion, loss of biodiversity and the disintegration of the landscape structure.” As Kárníková said, the Ministry of Agriculture proposes to invest only a minimum in this area and the Ministry of the Environment has not applied for these investments at all, despite claiming it is a priority.

The government seems to be going (in the early draft) against its own plans in more areas, or at least against statements of the prime minister Andrej Babiš (ANO). In July he declared that among other areas Czechia should use the money from the recovery fund to support automotive industry. However, the plan does not contain any significant tools for helping this industry. The funds are not supposed to go directly to manufacturers, but exclusively to building infrastructure, supporting the purchase of alternative propulsion vehicles for companies and the public sector, and investment in biomethane.

The minister Havlíček wants to submit the second version of the national recovery plan to the government for approval at the end of February. According to him, funds could start to be drawn in the summer.

Poland: Cleaner air opportunity

Zofia Wetmańska, an expert from the Polish think-tank, WiseEuropa points out that the “access to funds from the EU´s RRF means doubling the scale of funds available for low-emission investments in Poland. Those funds may act as a lever that will significantly accelerate the zero-emission transformation of the economy”.

Minister of Development Funds and Regional Policy Małgorzata Jarosińska-Jedynak, who is responsible for the preparation of the national recovery plan declared that “projects implemented under the plan (Krajowy Plan Odbudowy – KPO) aims to bring lasting and long-term effects consistent with the European Green Deal”.

Yet, the overall situation with the national recovery plan in Poland is still very unclear. It has not been yet submitted even though initially it was supposed to be done by the end of the last year.

The analysis of the process of the implementation reveals that it is highly scattered, uncoordinated and inconsistently carried out, without clearly defined goals. What is more, among one of the biggest criticisms is its utter lack of transparency. The Ministry of Development Funds and Regional Policy was selecting projects submitted by regions and ministries. The Ministry and some Voivodships have made their lists of submitted projects public, but the complete list of all proposals is unknown. The selection criteria nor the composition of the so-called working groups that are responsible for the selection of projects are known to the public.

However, there is hope for some improvements. On January 27th Małgorzata Jarosińska-Jedynak officially announced that within two weeks the KPO will be sent for public consultations, allowing local governments and other non-state actors to highlight their priorities. Piotr Borawski, Deputy Mayor of the City of Gdańsk, underlined that “money for the economic recovery after the pandemic should go to people: cities and towns, entrepreneurs, micro and small companies that have the ability to make quick investments, including pro-climate investments”. He also appealed “for dialogue and cooperation between the government and the local government to use the potential of the national recovery plan”.

As the financial situation of small cities and villages is not getting any better, local government officials are impatiently waiting for the economic life and investments at the regional level to get back on track, possibly enhanced by the funds coming from Brussels. Will this money be spent in line with their needs? Upcoming weeks should in-part answer this question.

Among the main priorities for local governments mentioned by Piotr Borawski are buildings insulation, replacement of furnaces, electromobility and the support for public transport. Numerous Voivodeships already submitted applications to the KPO for the purchase of hybrid vehicles or hydrogen trains.

The Deputy Minister of Funds and Regional Policy Waldemar Buda listed also other projects on which the government intends to focus: “flood protection and water retention, the transition to a closed-loop economy or the development of renewable energy and improvement of energy efficiency".

Environmental organizations call upon the Polish government to cover all sectors of the economy to ensure consistency of all policies with the objective of the transition to climate neutrality. WWF Poland lists some recommendations in its “Zero Emission Poland 2050” report. It highlights the necessity of sufficient reforms also in the agriculture sector which is responsible for approx. 8 percent of emissions in Poland, with a slightly increasing trend.

The head of the Council for Agriculture and Rural Areas at the President of the Republic of Poland, Jan Krzysztof Ardanowski announced on the 18 January that the national recovery plan should also include the agriculture sector. However, with the lack of transparency, it is difficult to say whether the government will follow the guidelines of including agriculture into the broader strategy for climate-neutral Poland.

Another pressing issue for Poland that could be addressed with the help of RRF is the quality of air in Poland, which is still the worst on the continent. Andrzej Guła, leader of the Polish Smog Alert pointed out that “without support from the Recovery plan, it will be difficult to achieve the goals of the government's Clean Air program, which provides for the modernization of 3 million houses by 2029 and exceeds PLN 100 bn”.

“We hope that these funds will be released as soon as possible and support the replacement of old heat sources and the improvement of the energy efficiency of Polish homes” - he added.

Izabela Zygmunt from the CEE Bankwatch underlines that the social dialog and the adjustment of the level of ambition to the scale of challenges is one of the focal necessities on the way to green recovery. With the time that is running out and many points of mentioned-above criticism, the national recovery plan still requires substantial changes to provide necessary recovery for the Polish economy.

Changing focus: Hungary seems to move from infrastructure to innovation

The Hungarian national recovery plan and the descriptions of the seven Operative Programs (OP) guiding how the resources would be spent are all available online, where citizens, business or civil society organizations are able to assess them. However, considering that a government that has launched a series of expensive communication campaigns against immigrants or American philanthropist George Soros, the existence of these consultations is kept under comparatively tight wraps. However, the problems surrounding the consultation might be deeper than that. Petra Reszkető, a researcher at the Budapest Institute think tank, told Political Capital that the government had not published summaries of OP-level priorities and financial tables. She believes that these practices breach the principles of transparency and predictability, and lag far behind of best practices in the EU.  

Márton Gyöngyösi, an MEP for Jobbik, said that the ongoing consultation is for “show” only, “not even the satellite organizations selected for consultation by the government received enough time to make recommendations.” He added that “this process has not been effective at any time since we joined the European Union,” as governments should have adopted a cross-governing cycle approach as early as Hungary’s pre-accession period. According to him, such an approach could have helped the Hungarian economy to develop at the pace shown by Ireland’s in the past decades.

István Hegedűs, chairman of the Hungarian Europe Society, underlined to Political Capital that several elements that would constitute a solid public debate are missing: discussions in the National Assembly, and events and campaigns that would involve the widest possible layer of Hungarian society. “Hungarian public opinion does not know about the government’s swiftly-developed plans” – he concluded. 

In contrast, the press office of the Ministry for the Prime Minister’s Office told Political Capital that they had recently launched Google adverts aimed at business decision-makers, entrepreneurs, civil society organizations and others, hoping to get them involved in the process. The press office noted that already in 2020 the Ministry had held over 150 online consultations regarding the 2021-2027 plans with the participation of nearly 15,000 experts. They pledged to continue holding such discussions in the next planning phases, as the government has already received “professional and detailed” recommendations that help joint thinking.  

Overall, the national recovery plan consists of nine components, such as demographics, education, green policies, circular economy, and digitalization. The seven OPs line up closely with these priorities. Between 2021 and 2027, the state will seek to improve birth rates by, for instance, increasing available places in kindergartens. The Recovery Plan foresees improvements to access to general practitioners. Economically, the main focus will be on improving the competitiveness of SMEs, the quality and accessibility of education, and innovation. These, the plan says, are essential to put the country back on the path of economic growth.

Education-wise, the government will aim to improve both general and higher education, as well as the performance of the scientific sector. One of the main education initiatives will be digitalizing the sector, making home schooling – which has become all too familiar during the pandemic – more feasible. State Secretary in charge of European Union development projects at the Ministry for Innovation and Technology, Szabolcs Ágostházy noted back in November that despite debates around the rule of law mechanism and the EU budget, the recovery plan was developed in close cooperation with Commission officials.

The Ministry of the Prime Minister’s Office told Political Capital the Hungarian cabinet and decision-makers in the Commission held seven rounds of negotiations on all nine key areas based on preliminary feedback and questions from the European body. The press office highlighted that they have also been receiving continuous feedback from EU authorities since then, which “we incorporate into the given program if it fits the cabinet’s development policy aims.”

Márton Gyöngyösi highlighted that EU funds should be spent on improving competitiveness and living standards instead of financing infrastructural projects serving as spectacles. According to András Radnóti, the managing director of Millenium Emerging Europe, there are multiple developments pushing Hungarian development policy in this direction. He noted regarding the cabinet’s plans that the European Union’s criteria for EU subsidies have become stricter, restricting government’s space for manoeuvre. For instance, 37% of subsidies in the Recovery and Resilience Facility has to be spent on climate, while 20% must be set aside for digitalization, which in itself guarantees that less would be spent on spectacle projects. Moreover, the recently approved rule of law mechanism could lead to sanctions if member states do not spend subsidies along the set of rules laid down in regulations, which is also likely to bring an end to the overabundance of these infrastructural investments. Petra Reszkető warns that remedying structural problems via EU funds is “only a necessary, but insufficient prerequisite for fast economic growth and EU convergence.” She warns that without focusing EU subsidies on more comprehensive structural reforms instead of project-based investments, their beneficial effects will remain temporary.

The Jobbik-affiliated MEP believes that cohesion funds must help modernizing education, help R&D activities, and support the healthcare sector. However, he added, the state has more to do: it should offer state support to Hungarian SMEs instead of large companies, while developing partnerships with foreign investors to bring high value-added production to the country. The way he sees it, a development strategy focusing on slashing the gap between Hungarian and Western wages is the interest of both Hungary and the EU, as it would ensure that the aims of European cooperation cannot be undermined. This strategy, however, requires additional efforts.  

András Radnóti emphasized that encouraging high-value added production is key to sustainable development, as Hungary’s advantage in wages is already vanishing gradually. This change in approach requires encouragement to R&D activities, digitalization and innovation. “These areas often overlap with each other, so they have to be treated as one, creating a strategy that exploits synergies” – he noted.

The Ministry of Prime Minister’s Office told Political Capital that negotiations with the Commission on the recovery plans are constructive. The decisions on which Hungarian reforms are included in the RFF “are decided based on their compliance with RRF criteria” – they said – adding that “When the Commission indicated that an element of a program did not suit the goals of NextGenerationEU, we moved them into the plans for other financing tools.”

Overall, it seems like governmental strategies and stricter EU criteria are both pushing Hungary to use European subsidies with a different approach focusing on research, innovation and education instead of expensive infrastructural projects.    

Slovakia: Absorption capacity challenge

In October 2020, the Ministry of Finance, in charge of the preparation of the national recovery plan, published a working document called Modern and Successful Slovakia.

Prepared by experts and without broad public discussion previously promised by the prime minister Igor Matovič (OĽaNO), the document offered a “reform menu” pooling reforms and investments in eight areas worth €15 bn, much more than €5,8 bn available for Slovakia in the RRF.

Very quickly it became clear that there is no political agreement in the governing coalition as to which reforms and investments should make it into the document that will actually be sent to Brussels as a basis for further debates. Three junior coalition parties (SaS, Sme rodina, Za ľudí) have subsequently all presented their own versions of the recovery plans.

Beyond differing priorities, the biggest concern raised by many politicians and experts in relation to the RRF was whether Slovakia be actually able to absorb the extra money. For Slovakia, the RRF would mean 25 % increase of public investment in the years ahead. Until 2020 Slovakia was only capable to draw 40 % of the 2014-2020 EU budget allocation. The need to speed up the absorption now coincides with the need to allocate extra funds from REACT-EU and Just Transition Fund as well as with the preparations for the next programming period 2021-2027.

“When you asked me what I am most afraid of it’s the ability to use this money, so that it does not end as another operation programme that would be extremely rigidly managed thanks to the Slovak and Brussels bureaucracy,” said top analysts of the Ministry of Finance and one of the main people beyond Slovak national reform plan Štefan Kiss in an interview.

His team of state analysts prepared a more realistic draft of national reform plan which Slovakia managed to sent to the European Commission in late December 2020. The 400-pages long document has not been made public officially in its entirety, only 15-page long summary has been published. However, an leaked version appeared on the internet on 28 January. Apparently there was a basic political understanding on the priorities reflected in the text, but until the final text is agreed, the negotiations are still ongoing.

The plan covers five areas, with “Green Slovakia” accounting for the biggest part of the budget with €1,9 bn (measures that directly contribute to cutting emissions as opposed to other environmental priorities) followed by healthcare with €1,4 bn earmarked. Public administration and digitalisation will be supported with €945 million euro, education will see a boost of €850 million and the allocation for innovation and competitiveness is €700 million. Healthcare and education count as the biggest long-term reform deficits of Slovakia, both of which extend beyond what the RFF can cover. 

Divided by ministries, the picture looks rather different. The Ministry of Healthcare (OĽaNO) should get the biggest portion, followed by the Ministry of Education (SaS) and the Ministry of Economy (SaS). Ministry of Environment (OĽaNO) on the other hand, only gets a small slice compared to others as it will only cover the agenda of green renovation of buildings.

According to Dennik N, Prime Minister Igor Matovič now insists, the distribution of funds to ministries better reflects the electoral gains from the election. That would mean more to the OĽaNO controlled ministries and less to SaS ministers. There is an ongoing political feud between Matovič and leader of SaS and economy minister Richard Sulík.

For example, the minister of environment Ján Budaj (OĽaNO) hoped for more than what had made it so fat to the draft plan. Besides resources to tackle environmental burdens, one of his priorities, he also hoped “that plan will include buying out lands in national parks form private owners. Even this has not qualified, but not all is lost, yet“, minister Budaj commented.  

NGOs are also concerned with the limited scope of the environmental projects in the recovery plan, especial when it comes to lacking adaptation measures and biodiversity. It remains unclear to what extent this is due to the methodology and guidelines provided by the European Commission to the member states, which apparently favours emissions-related measures.

There are also other stakeholders who feel they were left behind. Agriculture is one the areas despite assurances by the minister of agriculture Ján Mičovský (OĽaNO) this will not happen. “The fact that agriculture is not part of the recovery plan is a huge disappointment for us,“ the chairmen of the biggest agriculture lobby group SPPK Emil Macho said.

The Ministry of Finance argues that agriculture is not covered in the country specific recommendations within the European Semester, which the national plans must take into account. The sector will be provided with financing though other means, namely CAP and rural development, the finance ministry explains. Similarly dissatisfied is the culture sector, badly hit by the corona crisis.

On the other hand, some of the initial plans - for instance to let the RRF pay for costs linked to reforms such as the increase of teachers wages - have been short down by the European Commission early on. The tax reform, that would see shifting the tax burden from m the economic activity to consumption, property and externalities, is also under discussion in the context of RRF.

There was also a polemic between the finance ministry and NGOs backed by MEP Martin Hojsík (PS) as to whether the national recovery plan should be subjected to Environmental Impact Assessment. Otherwise compulsory for all of the strategic documents. The ministry claims this is not the case and European Commission has allowed skipping the EIA due to the time constraints.

Nevertheless, the government will need to catch up with the requirement for larger stakeholder involvement. To this end it plans to submit the pan to a inter-ministerial consultation process at the beginning of March and to organizes series of thematic roundtables “with a wide spectrum of stakeholders, including municipalities and regions, employers, trade unions and representatives of relevant ministries that are responsible for the preparation of respective components of the recovery plan”.

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