OREANDA-NEWS. September 23, 2015.  Thanks for your work. Great effort. 

Ladies and Gentlemen,

We often hear that budgets are boring. But seeing this room so packed, and knowing that there is also a listening room, I think we beg to differ! And I think we will have today a fabulous opportunity to get into a very serious, very timely substantive discussion.

So why are we here? Why is a Budget Focused on Results so important and what precisely is it?

Let me start with the first question, why is this such an important topic?

First, because for good or for bad, for better or for worse, we live in extraordinary times. On the positive side, innovation and technology are constantly changing the way we live. Modern science tells we can now live until 120. And that's wonderful until you think having to work until 100, but that's a separate story. 

There is a lot that impacts (positively) the way we can implement budget because of these developments in innovation and technology.

But there are also very significant negative factors. More frequent, unexpected and severe shocks. Be it shocks in the global financial system, we now 2007-2008 and right now China, shaking up the global markets. 

And there are the worst of shocks, those that are caused by the evil of war. And unfortunately this has become such a dramatic phenomenon that we feel it all the way here in Europe with the massive refugee flow in the last months. 

We have exceeded, measured by by number of people displaced, the footprint of the Second World War, with more 60 million people being displaced by conflicts. And on top of that we now know that climate change is for real, it is hitting us at home and it is hitting far away. 

More frequent, more devastating natural disasters disrupt our economies, but they are also impacting most severely the most vulnerable of people, those who live in fragile countries. Two thirds of the natural disasters happen in countries that are also vulnerable to conflict. So we have this factor that is changing dramatically the operating environment for all of us and of course for those who deal with the EU budget.

Second, demands for public funding, especially for EU funding, are going up – be it to deal with the consequences of the financial crisis, to boost investments, to cope with Ebola, to help the refugees or to deal with the impact of the euro crisis on Greece. 

Demands are going up, and at the same time, our EU budget is smaller. And when we are facing this reality, it is absolutely clear that we have to strive for higher value for money, we have to stretch every euro of our budget to the maximum, for the benefit of our people. 

Third, last but not least, over a long period of time, we have been primarily concentrating on absorption and compliance. And not so much on performance. There are reasons for it. When your budget is more than you can spend - and this has been the history for many years - then spending it is a primary driver. 

So we have to rebalance performance – I see here people from the Court of Auditors, we work very closely with them, we work with the Parliament, we work with our Member States - we have to work together to lift up performance. 

All these three factors together mean that there is a real urgency for systemic change in how we budget, how we implement the budget, how we use the resources.

It has started already. Those who have worked on the current financial framework, 2014-2020, are fully aware of the many changes that have been introduced. I will flag three because I think they are the foundation on which we stand and build today.

·         The integration of performance indicators into projects and programmes in a more systematic way.

·         The fact that we have introduced macroeconomic conditionality. Why is this important? Because, if the labour markets are improperly managed, the money we may be putting in job creation and labour mobility, in a bad policy environment, may not do the job. So obviously we have to look at the overall macroeconomic situation and use the budget to help it improve.

·         And we also introduced – a third very important element – a performance reserve. If you do well, you get access to more money.

Our Commission – starting on November 1 – took that issue of focus on results as an overwhelming, across the board, horizontal priority. 

In the very first weeks of the new Commission we created the Commissioners’ group 'Budget Focused on Results' and linked to this group we brought staff from different DGs to work together horizontally so we can make this systemic shift that we will be discussing today. 

We do not come here only with ambition for the future, we come here with achievements we have already made.

Let me move to the second and most important question. What does it mean for the EU budget to be working harder for our people, to be focused on results?

It is a systemic change in where we spend, how we spend, how we are assessed and how we communicate the results.

Let me go through these four blocks of what we believe this mission we have embraced is about.

And of course you are here to help us to make it more precise, and give it more punch!

First, where we spend. The changes we are introducing are quite significant, they are far-reaching changes and they are, in their totality, leading to that notion of having value for money.

The first is aligning budget with priorities. The Commission under  Jean-Claude Juncker has ten priorities, the most critical of those are Investments, Jobs, the Energy Union, Digital Market, Capital Union, migration (obviously a priority that is now hugely significant for us) trade, and looking at the democratic accountability of our institutions. We framed the ten priorities and then the challenge for us is that we put our money where our mouth is, that we are aligning our spending with priorities. 

Easily said, more difficult to do, but I can tell you that we have been working exactly in this direction.  Look at our 2016 budget proposal, the first budget proposal of the new Commission. When you know that 80% of our money is in shared management with Member States, within those parameters we have very significantly increased in certain areas. In investment for jobs and growth, migration (with a 30% increase vis-?-vis 2015) and for Heading 4 for external action with a 28,5% increase in our proposal. 

We are now going to come up with an amendment of the budget but what we have done in our original proposal is about alignment with the priorities driven by the surrounding environment.

Secondly, we are much more focused on horizontal alignment. We have multiple programmes, they are managed by different Directorates-General, by different ministries in our Member States or local authorities. And often we have, in the same location, one project doing one thing and another doing a different thing and they don't connect. And the question is how we can promote connectivity across these, how we can bring down the silos and how we can also help our Member States to get different objectives aligned so we get higher value for money. 

I will give you one example. In rural areas, we are using cohesion funds for internet connection, for connectivity. So we get money from a different budget area to also fulfil the objective of rural development.

I was recently visiting a small village where from different pockets of the budget there was support for agriculture, for development of tourism and of course a road. And if we didn't have the road, the other investments would have been meaningless because no one would be able to get there! So that kind of holistic thinking is we want to do more of.

And thirdly, it is absolutely critical that we are agile with the budget as the priorities shift.

Right now, as we are sitting in this room, our colleagues are working on a package for the refugees.

We have already pushed our budget in that direction; we have a total of 5.8 billion euro, of which 1.2 billion euro was additional money since May. And we are looking for ways in which we might be able to do even more. I am talking about the budget for 2015-2016, for these two years. 

How we can quickly respond, in an environment that is quick to change, is absolutely essential for the way we use our taxpayers’ money.

In our first budget proposal we also underpinned the Investment Plan for Europe. It is a very important example of a speedy delivery on a commitment to citizens. In record time, the Parliament, the Council and the Commission, we managed to boost investment capabilities for Europe, creating a guarantee fund that underpins 315 billion euro, our objective for private investments.  

Multiple objectives is going to be the name of the game – you take one euro and you see how you can make out of this euro five or six things. 

 I am thinking of, for example, energy efficiency. You take money and you put it into building insolation. This creates jobs, boosts investments locally, reduces energy consumption, reduces our energy footprint, and CO2 footprint. It creates higher value because the value of the building, of the property, goes up, and it also helps us with energy security. One euro – multiple results. We will have to be thinking about it more and more.

I will give you one very recent example - milk. The crisis in the milk sector came at the same time as the ongoing refugee crisis. Two crises at the same time, both very serious, one affects our farmers, the other one affects practically everyone. So we looked at ways in which we can help the farmers but also provide nutrition for the refugees. That kind of thinking, how we can achieve dual objectives, multiple objectives, we have to embed in our work.

Secondly, how do we spend? Well, here we have three big avenues of change: one is a more agile budget. Making the budget more agile, that is where we would have many conversations with our authorising authorities. I am very glad that there are many people here from the Council and from Parliament because we need to work together and figure out how we can create more agility for the budget. So, as things change we can move money faster, and that would mean a change in the Financial Regulation.

I was a Commissioner for Humanitarian Aid for five years. Humanitarian Aid is a wonderful example, very agile funding that does great things. There we can move over night. Something happens, the next morning we help. But then we move to how we use money in our own Member States, Solidarity Fund, something happens, six months later, nine months later, we are able to fund. And obviously, this is not what we can afford in this fast moving world of ours. So we have to think of where we can credibly, with good financial controls, introduce more agility in the Budget. 

Secondly, simplification. Commissioner Cretu is here and I know Commissioner Hogan will be coming. I saw Commissioner Moedas just walking in. They will tell you a lot about the need for simplification. Just take one change we made, and this is simplified cost options. One small change, multiple days of extra capacity for researchers to work because they do not have to fill in a separate form for every little penny they will get from us. You get a pen; you fill a form. A waste of time of very smart people in Europe. So that kind of simplification - simplifying rules in a way that helps us to be more effective as well as orienting our controls towards the risk profile. Higher risk, higher controls, lower risk, simpler controls. And that is absolutely paramount for us to be more effective with the budget. 

And last but not least, be able to use the small EU budget as a magnet to crowd in funds in good programmes, like we do with EFSI. Use the EU budget to crowd in private sector investments in research and development, in infrastructure, in digital markets, make sure that our budget packs a big punch we design its use so we can leverage funding, especially private funding.

We know that our economies are not short of cash, our financial system is full of money but money is not moving because of perceived high risk. Our budget can help on that.

Third, how we are assessed? And now I am going to make sure that the audience is included.  When I use this term, what is the first term that comes to mind. How is the EU budget assessed? What is the word that comes to mind? A measurement, an indicator. Error rate! Yes, thank you very much!

When we think of the performance of the budget today, the one measurement that is well established and it is an accurate comparator year-on-year is the error rate. What was the error rate last year? Last year it was 4.7%, with additional recalculations it would be 4.5%, the year before it was 4.8%, the problem with this is the Court of Auditors has a benchmark of 2%. We are aiming to get to 2%. 20 years in a row we have not been able to get to 2%, mostly because in areas of shared management, where we work with Member States, it is not so easy, it does not depend only on us.

In the areas we are responsible for – mostly 2% or less. When I was a Commissioner for Humanitarian Aid, it was under 1%. We controlled it. So we have to continue to work on that, but in terms of assessing, we believe there are two important steps to be taken. 

One, most important, to look at what the project delivers, in terms of outcome and even better, impact. We can build a road with 0% error rate but if it goes nowhere, it is still a road to nowhere, and it is a 100% waste of our taxpayers' money. So we have to bring this, what is the use, what is the impact, how are we generating household income, how are we lifting standards, how are we generating jobs? These are the measurements we need to get accustomed to. 

And when it comes down to error rate, we in the Commission have been working for some time on what we call residual error rate. What is the error rate after corrections of irregularities have been made? Why do we think this is important? Because, in the end, in a multiyear project what matters is, how is the project implemented until the very end. What is the end result? And actually we want to encourage people to make corrections. If you calculate a residual error rate, you inject an incentive for timely corrections of what, very often is, exactly this – an error, an error. Not fraud, not stealing the money, to which, by the way, 0 tolerance.

So we are thinking of assessment that allows us to capture things like contribution to growth rates. There are studies that show that cohesion in the previous seven years has led to an increase of GDP in Latvia by 2.1%, Lithuania, 1.8%, Poland, 1.7%. We have studies that show that in our research programmes, of the researchers that have been hired, 143 000 of them, after the end of the project, 43% maintained their job, they continued with their work. Or studies that show that 1 300 patients have been registered in EU-funded projects, some of them quite revolutionary. We have to capture that kind of impact of projects of the budget, concentrate more on it.

Finally, how do we communicate? Let's face it, we have communication problem, we have a reputation problem with our citizens. Not because we are not transparent. We are one of the most transparent organisations I can think of. Everything we do, you can find somewhere. But it is chaotic, it is difficult to find, it is sliced in so many ways by so many groups in the Commission, or in Member States, that it becomes impossible to put together a coherent picture.

We are also very concentrated on communications and I have a small presentation to make. We have been thinking what we owe to our people. In this modern world, we think we owe them an app, and actually some of my guys here have it on their iPhones and iPads. This is still a pilot, and the idea is an app where you can click and you can find any project that is funded by the EU. You can find it on a map. We now have 518 projects loaded; obviously this is a work in progress, but I encourage everyone to check it out. 

This is a question that we always have to ask when we look at projects: what is the added value, why should this be done by Europe and not by the country itself.

Let me finish with a very simple message. This can be done. This is a very big shift for the budget to be more agile, more efficient, more capable to deliver results for our people. We have no time to waste and the Commission certainly cannot do it on our own; we can only do it by working with the Parliament, working with the Member States and the broader community that is engaged on this matter.

We have our work cut out for us, but together we can do it and our people, you, your families, your neighbours, your friends, you deserve no less.

Best of luck to us getting this done.