Enhancing the Financial Absorption Capacity of EU Member States Through the Reconsideration of Current Allocation Rules

Abstract

The preparation process of the new European Union (EU) programming period 2014–20 provides an opportunity to make recommendations based on experiences from the current programming period. We argue that the allocation mechanism recommended in the EU Guide (Guide to Cost-Benefit Analysis of Investment Project, 2008) does not ensure an increase in community welfare at the lowest possible public cost and is not in line with international practice. Regarding co-financing, projects with an expected return that is lower than the discount rate usually applied in the private sector but higher than the financial discount rate applied by the EU will not be supported. As a consequence, projects that promise a significant community welfare increase with the lowest public assistance will not be implemented. Our proposal is suitable for enhancing the financial absorption capacity of EU member states in spite of tightening funds.