European Court of Auditors slams EU’s Covid Recovery Fund

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The European Court of Auditors has published a comprehensive review, summarizing several opinions and reports related to the design, control framework and implementation of the EU’s Covid recovery scheme, mostly composed of the Recovery and Resilience Facility (RRF), which was established in February 2021.

The European Court of Auditors in Luxembourg, the EU’s financial auditor, has no legal powers to affect policy but it is oriented at improving the management of the EU budget and the financial reporting by the European Commission. For years, the institution has issued critical assessments of the EU’s regular budget, the Multiannual Financial Framework (MFF).

The institution has now also come out with a new report on the EU’s second big spending pot, the RRF. In a departure from its otherwise more measured tone, the Court of Auditors issuse stark criticism on how the RRF’s 650 billion euro have been spent and lent, stating that the fund “focusses on implementation progress rather than performance with limited information available on its results or efficiency. While the RRF’s control arrangements improved over time, they are not yet sufficiently robust. Finally, RRF implementation is progressing but faces delays, which poses risks in terms of the completion of measures and value for money.”

The auditors thereby also warn that the experience carries “lessons for future performance-based instruments”, explicitly referring to the EU’s long term budget, the “multiannual financial framework”, which will soon need to be renegotiated for the period after 2027.​

The background here is that European policy makers in Europe have been arguing more and more in favour of financing EU spending with jointly issued debt. In particular the European Commission has been quite keen on this, for example with its ReArm Europe plan.

The RRF costs 20 billion euro per year, the auditors estimate

The RRF is a new financial instrument. In 2021, the European Commission borrowed more than 700 billion euro on financial markets to finance the RRF. The cost of this is ultimately born by EU Member States, in proportion to the size of their economies, which is why it has been considered to be a form of eurobonds.

The original RRF budget was 724 billion euro. Of this, the EU countries used €650 billion: €359 billion in grants and €291 billion in loans. The RRF debt must be repaid by 2058 by both the Commission (the grants) and the Member States (the loans).

In its report, the European Court of Auditors estimates that the EU will spend more than 20 billion annually on repayments and interest from 2028 on.

For some EU member states, RRF funding is more important than for others. For Italy, it amounts to 10 percent of GDP, for the Netherlands it is worth less than 1 percent.

Despite the assertion by the Court of Auditors that it is not possible to verify the quality of the spending, several media reports have been surfaced in recent years highlighting scandals with RRF funds or inefficiencies. The EU’s anti-fraud agency OLAF has already opened hundreds of investigations into the spending of 650 billion euros from the EU corona fund.

For example, in 2024, police arrested more than 20 suspects in Italy, Austria, Romania and Slovakia as part of a major investigation into massive fraud linked to the EU’s  recovery fund, whereby apartments and villas, cryptocurrency, Rolex watches, gold and jewelry, as well as a Lamborghini, a Porsche and an Audi Q8 were seized.

The cross-border operation involved 150 officers as part of an investigation into an alleged criminal organization suspected of defrauding €600 million from the EU’s Recovery and Resilience Facility (RRF) for Italy.

However, also non-fraudulent use of RRF funds has made the headlines, as for example the Italian RRF-funded “Superbonus” scheme enabling homeowners to receive 110 per cent compensation for the ‘greening’ of their properties.

Lorenzo Codogno, a researcher at the London School of Economics and Political Science, College of Europe and LEAP, notes that this has been “resulting in significant capacity constraints and misallocation of resources. Its excessive generosity brought a massive deterioration in public finances, while its returns in terms of economic growth were short of expectations.” 

The Court of Auditors furthermore highlights how there is no overview whatsoever on the beneficiaries of the RRF funding, noting that the European Commission relies entirely on EU Member States for monitoring and does not conduct its own investigations.

Croatian Court of Auditors member calls the RRF experience “completely absurd”

At the press conference, the Croatian Court of Audit member Ivana Maletić stresses: “You need to be transparent with public money. Every citizen has the right to know where public money has gone. (…) EU policymakers should not allow such instruments in the future unless they first have information about the actual costs and the final recipients. They must also have a clear answer to the question of what citizens actually get for their money.’ She calls what happened with the RRF “completely absurd”

In turn, her Slovenian colleague Jorg Kristijan Petrovič made at the same event a point about the marketing name “Next Generation EU” which the EU Commission has used for the EU recovery fund. Instead of future generations benefiting from it, “it mainly means that they will need to pay back the money.”, he stated.

René van Rijckevorsel, the Brussels correspondent of Dutch magazine Elsevier, comments in response to the new report that “The European Commission and the Member States that were cheering for the Covid recovery fund should take the harsh criticism to heart. You can’t just leave reporting on how European funds are used to the Member States. If Brussels really wants to issue Eurobonds (which is not a good idea at all), then there must be a sound and watertight accountability system with clear objectives and performance requirements.

The Commission cannot currently recover funds if, for example, procurement rules are violated. So even if there are irregularities in public procurement, the Commission will still provide funds as long as the ‘agreed milestones and targets’ are met. And those targets and milestones only concern progress, not results.”

Elsevier magazine furthermore highlights how increased interest rates are making the Covid Recovery fund even more expensive for European taxpayers than initially assumed: “The RRF contains 724 billion euros: 338 billion in grants and 386 billion in loans. The Commission will only borrow the money on the capital market when it needs to be disbursed. This is not a good idea in hindsight, as interest rates are now higher than in 2020. Inflation has increased the amounts by about 10 per cent.”

 

 

 

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