Pandemic, Russian aggression against Ukraine: European auditors identify budget risks for EU

That's according to an opinion issued by the European Court of Auditors on Thursday, October 5, Ukrinform reports.

"Errors in spending from the EU budget increased significantly in 2022, according to the European Court of Auditors' annual report published today. The auditors also warn of the growing risk of borrowing for additional payment needs, such as those triggered by the pandemic response and Russia's war of aggression against Ukraine, and they recommend taking measures to address the impact of high inflation on the EU budget," the statement reads.

The auditors conclude that the EU's accounts for the 2022 financial year give a true and fair view, and that revenue transactions can be considered error-free. However, EUR 196 billion in spending from the EU budget was affected by a significant increase in the level of error to 4.2% (2021: 3%).

The auditors consider two-thirds (66%) of the audited expenditure to be high-risk. The rules and eligibility criteria governing this type of expenditure are often complex, making errors more likely. The auditors also concluded that the regularity issues and weaknesses found in the member states' control systems affect the EUR 46.9 billion spent under the Recovery and Resilience Facility (RRF).

"The EU has demonstrated its ability to respond swiftly to a whole series of unprecedented crises with unprecedented action. However, the substantial amount of available funds in such an environment entails an increased budgetary risk. Our findings show that the risk has to be better managed, as we continue to detect errors through our work that led to a significant increase in spending affected by error," said ECA President Tony Murphy.

According to the report, as in the last three years, the auditors conclude that the level of error was material and pervasive, and have thus issued an adverse opinion on the EU's spending in 2022.

The estimated level of error is not a measure of fraud, inefficiency or waste: it is an estimate of the amount of money that was not used in compliance with EU and national rules. However, in the course of their work the auditors also identified 14 cases of suspected fraud. They reported these cases to the European Anti-Fraud Office (OLAF), which has already opened two investigations. Six of these cases were reported at the same time to the European Public Prosecutor’s Office (EPPO), which opened three investigations.

According to the report, 2022 was the second year of implementation of the RRF, the main component of the EU's EUR 800 billion 'NextGenerationEU' (NGEU) package, which is intended to alleviate the economic consequences of the pandemic. Under the RRF, EU countries receive funds in exchange for achieving predefined milestones or targets. Thirteen grant payments with a value of EUR 46.9 billion were made to 11 member states in 2022.

The auditors found that 11 of the 13 RRF grant payments were affected by regularity issues, because 15 of the 281 milestones and targets examined were either not satisfactorily fulfilled or did not comply with eligibility conditions. As a result, six payments were affected by material error. The auditors also identified cases of weak design in the measures and underlying milestones or targets, and problems with the reliability of information that member states included in their management declarations. The auditors therefore issued a qualified opinion on RRF expenditure.

EU debt jumped to EUR 344.3 billion in 2022 (2021: EUR 236.7 billion), mainly because of new borrowing for NGEU of EUR 96.9 billion. Only the NGEU instrument debt entails an interest rate risk for the EU budget. The related borrowing costs increased significantly in 2022 due to rising interest rates. The auditors also point out that the return of high inflation rates has significant budgetary implications. Based on the European Commission's inflation forecast, they estimate that the EU budget could lose nearly 10% of its purchasing power by 2023.

"The EU budget's total exposure to potential future obligations was EUR 248.3 billion by the end of 2022 (up from EUR 204.9 billion in 2021). Part of the increase is due to the EU's financial assistance to Ukraine, which more than doubled in 2022 compared to 2021 (EUR 16 billion, compared to EUR 7 billion). The auditors note that the approval of an additional EUR 18 billion at the end of last year will significantly increase this exposure for future EU budgets," the opinion reads.

In 2022, EU budget spending totaled EUR 196 billion, equivalent to 2.5% of the EU member states' total government spending and 1.3% of their gross national income.