In May 2022, the European Commission put forward a proposal to update the rules contained in the financial regulation (FR) covering the European Union’s general budget, to bring them into line with the principles governing the seven-year multiannual financial framework (MFF) 2021-27. This was necessary because the FR dated back to 2018, before the pandemic, whereas the MFF adopted in its train was tailored to allow for exceptional and urgent recovery funding, financed by ‘assigned revenue’.

In December 2020, in the regulation laying down the financial framework for the MFF, the Council of the EU had declared: ‘The economic impact of the Covid-19 crisis requires the Union to provide a long-term financial framework paving the way to a fair and inclusive transition to a green and digital future, supporting the Union’s longer-term strategic autonomy and making it resilient to shocks in the future.’ The European Trade Union Confederation (ETUC) thus supports the reasoning behind the commission’s move towards consolidation—providing greater legal certainty for EU institutions as well as the recipients of funding, protecting EU finances and simplifying procedures for beneficiaries.

The MFF and FR are inseparably linked: the former designates political priorities and resource allocation; the latter dictates how these resources should be employed and controlled. The MFF however only partially embodies the rights- and needs-based approach trade unions have advocated—to secure, for example, the resources required to implement the social policies set out in the Action Plan of the European Pillar of Social Rights (EPSR).

Powerful tools

These regulations are not mere technical formalities: their impact can be highly significant politically. They represent powerful tools to render access to financial resources conditional on effective compliance with the social rights and democratic principles which are rightly core to the EU’s values.

The opportunity for reform is therefore crucial, to guarantee greater coherence with social objectives and the needs of Europe’s citizens. With millions of workers struggling to pay their bills and put food on their table as a consequence of the cost-of-living crisis, inclusion of social considerations in the FR is more urgent than ever.

The ETUC hence demands more ambition. The recent inclusion of social conditionalities in the allocation of Common Agricultural Policy subsidies was an important achievement. For the first time, EU institutions agreed a CAP reform taking into account that for millions of agricultural workers living and working conditions remain extremely challenging. The same principle should inspire the entire EU budget.

The inclusion of social conditionality in the report on the commission proposal on the financial rules adopted jointly by the two responsible European Parliament committees (budgets and budgetary control) on May 4th is an important step in the right direction. It is crucial that this be strengthened and confirmed in the ‘trilogue’ negotiations also including the council.

In a resolution of November 2021 on revision of the FR in light of the entry into force of the current MFF, the European Parliament had underlined the need to ‘modernise the rules applicable to the EU budget’, to ensure ‘respect for Union values, and to increase parliamentary oversight, democratic accountability, transparency, civic engagement and the ability to respond to citizens’ needs quickly and effectively, particularly at times of crisis’. MEPs agreed that the FR should support implementation of the EPSR and ensure that, before receiving EU funding, beneficiaries should apply basic standards for workers, in terms of employment conditions and occupational safety and health.

Common good

Public money must be used for the common good. Fundamental to achieving the shared prosperity on which European social models are based is the ability of workers to bargain collectively. Yet the EU’s rules on public procurement result in a situation where half of all public contracts to private companies are awarded solely on price. This incentivises companies to cut corners on working conditions and evade collective bargaining.

The EU’s adopted target of 80 per cent collective-bargaining coverage—associated with the minimum-wages directive—is a major step forward. But it must put its money where its mouth is. Public procurement accounts for 14 per cent of EU gross domestic product. We must fix the procurement directives to ensure public money can only go to companies providing collectively-bargained pay and conditions, with effective sanctions where agreements are not respected. The European and national parliaments must have effective oversight, with the social partners involved at all levels.

Public funds (at EU or national level) deployed in support of European industry, in the context of the ‘Fit for 55’ emissions-reduction package and the Green Deal Industrial Plan, should be conditional too. Recipient companies should respect workers’ rights and collective agreements, invest in the company and its workforce before lining the pockets of chief executives and shareholders, avoid redundancies and a deterioration of working conditions and offer opportunities for reskilling as well as high-quality apprenticeships and graduate roles.

The ETUC is also calling for the new financial rules to promote more widely the EPSR, the United Nations Sustainable Development Goals and the fundamental rights of workers—and to make respect for the rule of law a condition for allocation of funds. Making access to EU and national public funds, as well as fiscal benefits, conditional on not avoiding paying taxes or circumventing environmental obligations and on respect for applicable working conditions resulting from law and collective agreements is not only ethically mandated. It is also an effective way to raise labour standards and tackle ‘social dumping’, affecting workers and responsible employers alike.

‘Off-budget’ instruments

In responding rapidly to the pandemic and other recent crises, the EU introduced new ‘off-budget’ temporary-recovery instruments such as NextGenerationEU (NGEU) which, with an investment of more than €800 billion, promised to be the EU’s largest stimulus package ever, being designed to face some of the greatest challenges in the union’s history. The number of such off-budget instruments—such as the facility for refugees in Turkey and the Covid-19 vaccine contracts—has increased, but they bypass scrutiny by the European Parliament as they are technically not part of the EU budget but ‘external assigned revenues’.

It is ironic that recovery is being financed without an opportunity for Europeans’ democratic representatives to have a say. Yet NGEU liabilities will endure until 2058, through borrowing for lending and direct EU expenditure, which could put at risk central budgetary principles, including equilibrium and universality. The ETUC is calling for the new rules to recognise the appropriate role of the European Parliament, and its national counterparts, in budgetary scrutiny of all EU programmes and financial resources, especially off-budget instruments.

The European Court of Auditors recently assessed the commission’s system for control of spending in member states as not sufficiently robust to guarantee the effectiveness of EU policies. It found that use of the Recovery and Resilience Facility (RRF) and implementation of National Recovery and Resilience Plans (NRRPs) were affected by weak national decision-making procedures, undermining the setting and feasibility of milestones, targets and implementation of the commission’s country-specific recommendations.

An ETUC report on implementation of the NRRPs showed a mismatch between the measures adopted in the national plans and trade-union expectations, due to the inappropriate involvement of social partners or the lack of it. Trade unions want to see a substantial, effective role for social partners,at all levels, in the programming, management, monitoring and evaluation of EU funding, following the most advanced practices of engagement.

Although foreseen in some pieces of EU legislation, social-partner involvement is often absent or ineffective. The partnership principle, for example, although not fully implemented and yet to be refined, is applicable to cohesion funds but not to many others. Nevertheless, it has proved its value in terms of decision-making, enforceability and monitoring.

Inclusive decision-making

The rules governing the use of all EU funds should not be circumvented in the event of unforeseen crises but should provide for inclusive decision-making in all circumstances. They must ensure compliance with the highest social rights and democratic principles, including transparency and accountability. This would enhance their effectiveness and overall consistency, helping to achieve the EU’s socio-economic aims.

Such rights and principles are not new but are already part of the EU acquis. Diverging from them would jeopardise EU policy and the realisation of its objectives. It would also undermine the work of the social partners, which is crucial to achieving the highest standards of social wellbeing in Europe.

The ETUC, IndustriAll Europe, UNI Europa, the European Public Service Union and the European Federation of Food, Agriculture, and Tourism Trade Unions will continue to press the EU institutions for a wide and comprehensive revision of the FR recognising these principles and priorities. We need effective implementation of social conditionality in the CAP, collective bargaining strengthened rather than undermined by the public-procurement directives and a Green Deal Industrial Plan that doesn’t hand a blank cheque to chief executives but supports Europe’s workers in a genuinely just transition.

This opinion has been published in Social Europe