(FILE) 200 euro banknotes that enter circulation May in 2019 EFE/ Jorge Ortiz

Auditors warn of risk of interest rate hikes and war for EU budget

Brussels, Oct. 5 (EFE) – The European Court of Auditors (ECA) warned Thursday of the risk posed to the European Union budget by the “significant” increase in financing costs due to the rise in interest rates and greater exposure due to aid sent to Ukraine.

The audit of the Community’s 2022 budget approved the income, but issued an unfavorable opinion on spending after verifying that 4.2% of it was affected by errors, above 3% of the previous year.

In a statement, the Commission said it takes note of the ECA’s “reservations” on spending, but says it welcomed that the EU budget had been given “a clean bill of health for the sixteenth consecutive year”.

The ECA highlights among the budget’s risks and challenges, the increase in debt, which went from 236.7 billion euros in 2021 to 344.3 billion euros in 2022, mainly due to the issuance of 96.9 billion euros in debt to finance the post-covid recovery and resilience fund.

They point out that the cost of this financing had increased “significantly” in a context of interest rate hikes to mitigate the rise in inflation, which reached 10.6% in the euro area in 2022.

Of all EU borrowing – which also finances the SURE mechanism against unemployment and macro-financial assistance to Ukraine, among other tools – the only fund that entailed an interest rate risk was the Recovery Fund.

The cost of debt issued by the European Commission to finance said it went from 0.14% in the second half of 2021 to 2.6% in the same period of 2022, according to the auditors.

Given that the majority of EU debt issues are supported by the EU budget, including the Recovery Fund, the exposure to potential losses increased to 248.3 billion euros in 2022, and the exposure to Ukraine’s war doubled to 16 billion.

If in 2021 and 2022 aid to Kiev was obtained mainly with guarantees from member states, for 2023 was agreed a new package of 18 billion that Brussels will seek in the market with the approval of the Community budget.

The package increases the financial risks for future EU budgets that will have to cover any related losses related to this aid, according to the auditors.

Court President Tony Murphy said in a press conference that it is not viable to keep borrowing money without a plan to pay it back, recalling that governments have yet to agree on a package of new funds that will go directly into the EU budget to repay the debt and its growing interest.

The Commission estimates that the cost of debt interest for the Recovery Fund alone has tripled to as much as €34 billion, compared to the €15 billion originally budgeted until 2026.

In addition to these warnings, the Court’s assessment of spending in 2022 found that 4.2% was not implemented according to the rules and identified fourteen cases of suspected fraud that have been reported to the European Anti-Fraud Office, which has launched two investigations.

In addition, the auditors issued a “qualified opinion” on the €46.9 billion disbursed from the Recovery and Resilience Fund, as they found errors in six of the thirteen payments made in 2022, and that 15 of the 281 milestones and targets set for the countries receiving funds were not satisfactorily met.

They also found problems in the design of some of the objectives, in the reliability of the information provided by the beneficiary states and, as they had said in a report in March, and in the prior evaluations and subsequent controls made by the Commission to verify that the goals had been met and maintained.

Brussels comments on the audit

Brussels points out that the TCE estimate is not “fraud, inefficiency or waste” on the part of the EU and stresses that it does not always share its assessments of the budget, nor does it agree with its conclusions on “limited cases” of irregular payments of the Recovery and Resilience Mechanism.

It emphasized that thanks to hundreds of thousands of checks carried out by national authorities, other partners and the Commission itself, Brussels knows where the risks for the EU budget are and can take specific corrective measures before and after payments are made.

Also it explaind that the Commission’s objective is to ensure that once a program is closed and all the checks and corrections have been made, the residual error rate is well below 2%, even estimating that it will be 0.9%. EFE