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Briefing No 33
The PHARE Programme and the enlargement of the European Union

The views expressed in this document are not necessarily those of the European Parliament as an institution.


II. EU POLICY ON THE PHARE PROGRAMME

As the political situation in Central and Eastern Europe developed, Phare's geographical coverage was gradually extended and its budget increased. There are currently 14 countries eligible for Phare assistance (including Croatia which remains eligible, although Phare activities there are suspended), 10 of which are associated.

The nature of Phare has also evolved. Early activities were focused on the immediate needs of transition economies for critical aid and institutional reform. As the transition process progressed, the scope of programmes supported by Phare widened to address longer term economic development and investment requirements. During this period, Phare was principally "demand driven"; i.e. the partner countries themselves were the driving force in shaping programmes. This helped ensure that partner countries had a real stake in the programme, and that it remained flexible and responsive to the very different, and rapidly evolving, needs of the partner countries. The disadvantage of this approach was that programmes became inconsistent with an increasing number of priorities and small projects and, as a result, were sometimes difficult to manage.

Whilst the Copenhagen European Council of June 1993 was significant for the Phare programme in that it first authorised the use of up to 15% of Phare resources for the co-financing of large-scale infrastructure projects, the Essen European Council in December 1994 was a real turning point for Phare. It confirmed the Union's commitment to membership for the ten associated countries, and adopted the pre-accession strategy in which Phare was identified as the main financial instrument. This linked Phare explicitly to the accession process. The Essen Council also raised the proportion of Phare funds that could be spent on the co-financing of large infrastructure works to 25%, and confirmed the multi-annual programming approach.

At the Amsterdam Council in June 1997, the European Council invited the Commission to further build on the ongoing reforms of the Phare programme which the Commission had already carried out, as well as to further develop pre-accession assistance. Therefore, in "Agenda 2000" the Commission proposed a reinforcement of the pre-accession strategy for the period 1998-1999, including focussing of the Phare programme. It also proposed new financial instruments for the period 2000-2006.

In December 1997 the Luxembourg European Council decided on the establishment of a new instrument, the Accession Partnership, which will be the key feature of the enhanced pre-accession strategy: it will mobilise all forms of assistance to the applicant countries in a single framework. This single framework will cover in detail for each applicant the priorities to be observed in adopting the Union acquis and also the financial resources available for that purpose, in particular the Phare programme. The European Council also stated that the Phare programme would focus on accession by setting two priority aims: the reinforcement of administrative and judicial capacity and investments related to the adoption and implementation of the acquis.

The Copenhagen European Council of June 1993 adopted the following criteria for countries seeking to join the Union:

In addition, the Madrid European Council of December 1995 emphasised the importance of strengthening the administrative structure of the candidate countries in the pre-accession context. At the same time the Commission was asked to forward its opinions on the applications for membership of the applicant countries and to prepare a comprehensive document on enlargement. The Commission did this in July 1997, noting that none of the applicant countries fully satisfied all the criteria for accession yet, and identifying, for each country, the areas where further progress is necessary to meet the obligations of membership.

In its conclusions, the Luxembourg European Council in December 1997 supported the enhanced pre-accession strategy, centred on Accession Partnership and the increased pre-accession aid.

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III. PRINCIPLES GOVERNING PHARE

Phare's fundamental objective in the applicant countries is to help them join the Union as soon as possible. The programme will thus be transformed into an "accession-driven" programme. It will focus on a limited number of priorities in line with the Copenhagen criteria to maximise its impact on this fundamental target.

Therefore, Phare support will give priority to areas for action identified in the Opinions. These are set out in the Accession Partnerships. The change in Phare policy toward an accession-driven approach will be complemented by changes in the way in which Phare is managed, aimed at improving the speed, efficiency, and transparency of its actions.

Accession Partnerships have been drawn up for all the applicant countries of Central and Eastern Europe. The principles, priorities and intermediate objectives and conditions will be decided by the Council. They bring together, in one document per country, the assessment (based on the Opinions of the Commission and the subsequent work by the Council) of the priority areas in which the applicant countries need to make progress in order to be able to join the Union, and the ways in which Phare will support their efforts to do so, by way of establishing:

Objectives cover areas such as strengthening democracy and the rule of law, protection of minorities, economic reform, reinforcement of institutional and administrative capacity, justice and home affairs, agriculture, environment, transport, employment, regional policy and preparation for the countries' participation in the EU's internal market.

The Accession Partnerships are multi-annual, covering the pre-accession period, thus providing the framework for the multi-annual programming of assistance to the applicant countries, which will be of even greater importance in the future as this will enable them to plan and develop programmes ready for immediate implementation. The Accession Partnerships will be subject to review at regular intervals. The Accession Partnerships are a key element of the EU's pre-enlargement strategy. In setting clear targets, they give a new impetus and a better focus to the preparations for membership.

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IV. PHARE PRIORITIES

The Phare programme features two overriding priorities: Institution building and investment support. From 1998, around 30% of Phare assistance has been channelled towards institution building, which includes strengthening of democratic institutions and public administration to bring the countries up to scratch, so that they will be able to fulfill the Copenhagen criteria for membership.

This will be done through training, technical assistance and twinning of institutions and administrations in the applicant countries with relevant bodies in the member states. Initially, this support will focus on areas such as finance, justice and home affairs.

The Phare Management Committee, on 24 April 1998, approved a 12 MECU programme for improving governance and management (SIGMA) ( 1), until end 2000.

Institution buildingMECU 2.6
Policy making, coordination and regulatory managementMECU 1.8
Budgeting, expenditure management and procurementMECU 1.8
Public service managementMECU 1.8
Financial control, audit and administrative oversightMECU 2.2
Programme managementMECU 1.8

Programme objectives

The general objective of the programme is to assist the Central and Eastern European countries to build sound, efficient and effective public institutions, which will enable them to satisfy the Copenhagen accession criteria, particularly by:

To fulfil these aims, SIGMA will work to:

Implementation

The OECD is responsible for overall implementation of the programme. Central coordination and management is handled by the SIGMA secretariat. Liaison groups meeting take place at least once a year, with the participation of representatives from Central and Eastern Europe responsible for public administration reform, representatives of the OECD Public Management Servive, the OECD Secretariat, EU representatives and other significant funders of the programme. The liaison group reviews needs, advise on programme content, ensure effective management and report on progress. In designing and implementing projects, SIGMA normally acts within the framework of a previously agreed orientation, which is generally driven by the individual countrie's Accession Partnerships.

About 70% of Phare assistance will go towards investment support to help the applicants develop their infrastructure. This covers structural actions in agriculture, regional development, transport, telecommunications, co-financing of large scale infrastructure projects and development of small and medium sized enterprises. Beneficiary states shall also contribute to the financing of investments. They are responsible for prosecuting irregularities, without excluding the responsibility of the Commission.

The need for infrastructure support is particularly important to enable the countries to meet EU requirements in areas such as competition, environment, energy (including nuclear safety), transport safety, veterinary and phytosanitary standards and legislation for industrial products, Given the scale of the problems identified in the Commission's Opinions, a major investment effort by the applicant countries to meet EU standards is the only alternative to long and protracted transitional periods. If these investments were not made, the countries' ability to cope with market forces and competition would be weakened and, consequently, the benefits of enlargement reduced.

Phare can only meet a very small proportion of the enormous investment needs in financial terms, but it can, as it is a grant programme, play a key role in co-financing operations which will have a major impact on the applicant countries' economic situation.

Co-financing is arranged through a Memorandum of Understanding between the Commission, the World Bank and the EBRD on cooperation for pre-accession preparation, aiming at enhanced coordination. Close cooperation with the EIB will also be provided for through a separate Memorandum of Understanding, under which loans shall be issued to the applicant countries in key areas of their development.

The split of around 30% for institution building and around 70% for investment support should be seen as target rather than a strict division of resources and will be applied with flexibility on a country by country basis. Implementation of these figures depend on assessment of needs, related costs and absorption capacity, particularly in the field of institution building.

Implementation of the Phare Programme

Decentralised implementation is a method to prepare the countries to manage EU funds after enlargement. By transferring responsibilities for Phare implementation to the governments of the beneficiary countries, communication with the beneficiaries, efficincy and flexibility in programme implementation are enhanced. This allows for decisions to be taken as close as possible to the point of impact. The EP reports by Wiersma (A4-0165/98) and Hansen (A4-0286/97) have already recommended that financial management of specific sectors of the programme should be delegated to the national authorities of those countries with which accession negotiations had already begun.

Decentralisation should be backed up by proper monitoring of all significant measures for implementing the projects. For that reason, a proper relationship needs to be established in which the candidate countries share responsibility with the Commission. In this way, the Phare programme will contribute to enhancing the ability of the administrations of the applicant countries to exploit the opportunities offered by decentralisation and to tackle the level of control and of financial guarantee demanded by the Community's financial regulations. It is important that great care is taken to clearly define the eligible projects and to put them up for financing when they are ready for implementation. Only in this way, transparency and assessment of results will be possible. It is in the interest of both the applicant countries and the EU that the funds of the Phare programme are managed in a cost-effective way.

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V. TYPES OF PHARE PROGRAMMES

It is worth mentioning that most Phare projects are national programmes, agreed bilaterally between the EU and the applicant countries. They are financed for each country on the basis of the agreed annual programmes. Between 1990-1993 PHARE concentrated its efforts on those sectors that contributed directly to the transition to a market economy. About 80% of Phare funds were made available to the national programmes during 1990-1995.

There are also cross-border programmes, where infrastructure or environment problems are faced by more than one country, requiring cross border solutions. Taking into account the importance of the border regions between the member states of the EU, the EU - from 1992 onwards - has been financing several measures aimed at enhancing cross-border cooperation, notably to improve border crossing. In 1994, at the initiative of the European Parliament, a new budget of 150 MECU was made available to support cooperation between Phare countries and the adjoining border regions of the EU. Complementary financing in the EU's border areas is provided from the Regional Fund, administrated by the European Commission. Although infrastructure projects continue to have the largest share of the programme, other sectors such as tourism, trade, water treatment are also included. The main abjectives of the Phare cross-border cooperation programme are as follows:

Since 1991, Phare has included multi-country programmes with emphasis on the environment, human resources, telecommunications, energy, transport, nuclear safety, customs and the fight against drugs, all issues of common interest and awareness among the applicant countries. Over 1990-1996, 704.2 Mecu was provided, including virtually every sector of Phare activity. Many problems facing partner countries require cooperative solutions and Phare acts as a catalyst for multilateral dialogue, cooperation and planning of actions that have implications for more than one country.

As a result of the pre-accession strategy, there is sometimes a need for actions the Commission deems essential to the strategy's success, that are not yet requested by the applicant countries. This may force the Commission to take a leading role in the management of programmes, which are, unlike all other Phare ones, not driven by demand. Such projects, set up and run by the Commission, are known as horizontal programmes and account for about 5% of Phare's budget. They concern primarily areas of common interest to the EU and the applicant countries, for instance, the democracy programme for non-governmental organisations (NGO's) which further democracy in the countries, by offering grants to projects that fulfill certain conditions.

Each grant can be worth up to 200.000 Ecu and may be used to finance up to 80% of a project's costs. In 1996, the Commission made available 11 Mecu for this project.

Action for cooperation in economics (ACE) is a programme under Phare, designed to promote the exchange of knowledge and expertise between academic and professional economists in the Central and Eastern European countries and in the EU. This programme provides grants for research projects, fellowships, scholarships, seminars and conferences.

The Phare Partnership Programme provides co-financing grants for local development projects initiated by non-profit organisations that wish to build a sustainable partnership in order to exchange skills, knowledge and expertise. There are four areas of activity of this programme: (1) local development; (2) business and enterprise development; (3) human resources development; (4) socio-economic development. Eligible grants recipients are decentralised non-profit private or public sector organisations which contribute to the process of local economic and social development.

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VI. PHARE AND TACIS DEMOCRACY PROGRAMMES (PTDP) AND THE POSITION OF THE EUROPEAN PARLIAMENT

These programmes started out as emergency assistance, but developed towards support for economic, political and institutional reform. Assistance was in the form of the private sector, but also including help for preparing new legislation, developing new administrative structures and institutions and all elements of a fully democratic and civil society.

The initiative for a separate "democracy line" of support came from the European Parliament. The McMillan-Scott report in 1991 led to proposals from the Political Azffairs Committee for the creation of a budgetary line to fund a new "European Fund for the promotion of civil society and democratisation". The decision on the Community budget set aside 5 MECU of the Phare budget for this purpose. In 1992, Parliament voted to establish a European Democracy Initiative, which linked the programme for Central and Eastern Europe with support for building democracy in other parts of the world, such as Latin America and ACP countries.

The resolution leading to the establishment of the fund called for a "European Democracy Fund" "to provide financial aid through the Community budget for general civic education and to stabilise and reinforce democratic principles; also, to assist the development of human rights in such countries. In addition, to develop the concept of civil society in countries where human rights, multi-party systems, the rule of law, and economic freedom have been laking".

The three main objectives of the programme are:

a). The acquisition of knowledge and techniques of parliamentary practice and procedures by multi- party groups of politicians and by parliamentary staff;

b). The strengtheninh of NGOs and assiciations which, by their vocation and activities, can make a contribution to the promotion of a pluralistic society;

c). The transfer of specific expertise and technical skills about democratic practice and the rule of law to professional groups and associations in the Countries of Central and Eastern Europe and the Commonwealth of Independent States concerned.

Under these headings, the European Commission has defined the following areas of activity on which the PTDP should focus:

  1. Parliamentary practice and procedures;
  2. Transparency of public administration and public management;
  3. Development of NGOs and representative structures;
  4. Independent, pluralistic and responsible media;
  5. Awareness building and civic education;
  6. Promoting and monitoring human rights;
  7. Civilian monitoring of security structures;
  8. Minority rights, equal opportunities and non-discrimination.

In his Repport on the proposal for a Council Regulation on coordinating aid to the applicant countries in the framework of the pre-accession strategy (COM(98)0551 - C4-0606/98 - 98/0094(CNS)) of the Committee on Foreign Affairs and Defence Policy of 4 November 1998, Mr Baron Crespo, draftsman, identifies the main priority areas for Phare funds, i.e. the administrative and legal systems must be reformed and the institutions made more democratic before any other measures are taken as efforts to restructure other sectors would otherwise be pointless. He also stresses that the pre-accession strategy is based on the need to guarantee respect for civil liberties and the constitution, and the independence of the judiciary and the media.

From the budgetary point of view, in paragraph 12 of its resolution of 31 March 1998, Parliament reinforced its calls for a far-reaching decentralisation of the Phare programme, and called for a proposal from the Commission whereby, as from 1999 financial year, at least one PHARE country would assume full responsibility for the implementation of its national Phare programme, subject to regular - including ex-post - checks by the Commission.

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VII. POSITION OF THE EUROPEAN COMMISSION

Recently, the European Commission has established a new concept of the Phare Programme. According to Günter Burghardt, Director-General of DG IA, "from 1998 onwards Phare will focus exclusively on the priorities identified in the Accession Partnerships". Spending will be in a 30/70 split. Around 30% of Phare money is to be spent on institution building, laying the institutional basis for accession. Assistance will concentrate on building the structures, human resources and management skills in each candidate country in order to ensure that the acquis communautaire is in palce and enforced. In future, institution building will be supported in four priorities areas: finance, justice and home affairs, agriculture and environment.

The multi-country programmes are being rationalised and their number reduced. Four new multi-country facilities have been launched this year: large-scale infrastructure, SMEs, a catch-up facility for Bulgaria, Latvia, Lithuania, Romania and Slovakia, and a pre-structural funds programme.

Through the Accession Partnership there will be increased cooperation between candidate countries, the Commission and international financial institutions -mainly the European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) and the World bank. More emphasis will be placed on co-financing. So far, these institutions have identified a preliminary list of projects which could qualify for co-financing in 1998-1999, totalling around ECU 3,5bn.

Phare assistance is granted conditional upon stability in the country concerned, and a continuing commitment to democratic ideals and free market principles. In contrast to other aid programmes, Phare funds are not made available as loans. Phare is meant to finance the recipient states' own efforts to transform their economy. However, Phare-funded reform programmes are not dictated by the Commission. Instead, the Commission responds to proposals from the recipient states in their selections of sector for assistance.

The recipient countries are bound to make sure that grants are used before the deadline of the end of each year. However, shortcomings in the management of the funds have been registered in the majority of the countries concerned. Recently, Poland, Czech Republic and Hungary have been failing to use on time the allocated Phare funds. Given the backlog in previous programmes, the 1999 programming would be reduced. In May 1998, the European Commission rejected Polish applications for Phare grants worth 34 MECU from its 1998 aid budget because of inadequate project preparation. The Commission also decided to grant Poland only 178 MECU, to help it prepare for accession to the EU, instead of 212 MECU. In the case of Hungary, Commission representatives in Budapest said that of some 92 MECU allocated to Hungary from the Phare Programme in 1995, only some 55 MECU have been contracted. It appears that the reason for these inconveniences is the shortage of well-trained technical managers in the government.

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( 1) SIGMA was initiated in 1992 as part of the OECD's Public Management Service (PUMA). SIGMA is a joint initiative of the OECD Centre for Cooperation with Economies in Transition and the EU Phare Programme. SIGMA's aim is to make available to Central and Eastern Europe the OECD's expertise in modernising general management systems of governance and technical cooperation in public administration. Phare is SIGMA's main financial instrument.


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© Enlargement: 4 December 1998