Of the growing financial risks that threaten the EU budget due to the unprecedented level of debt, Russia’s aggressive war against Ukraine and high inflation, warns the European Court of Auditors (EEC), in his report that he made public today.

At the same time, the ECA estimates the error rate in EU budget spending at 5.6% in 2023 (from 4.2% in 2022 and 3.0% in 2021). It is worth noting that the estimated level of error compared to the 2% limit, which is set as the error rate above which irregular expenditure is considered significant.

As in previous years, in 2023 the estimated level of error in spending from the EU budget has increased, but the ECA is concerned about the increase in the level of error to 5.6% contained in the €191.2 billion EU expenditure from its budget. In addition, irregularities are also found in part of the €48 billion spent under the Recovery and Resilience Mechanism (RMF), the main pillar of the EU’s post-pandemic recovery fund (NextGenerationEU). The ECA identified payments for which not all conditions were met, as well as weaknesses in Member States’ safeguards systems.

The ECA concludes that the estimated error was significant and widespread and therefore issues a negative opinion on EU spending in 2023. The ECA notes that the significant increase in the estimated error rate is largely due to the errors were identified in cohesion spending, which amounts to 9.3% (compared to 6.4% in 2022). One possible reason he cites for the difficulties national administrations face in securing adequate funding for cohesion projects is the pressure on them to spend from competing EU funds.

About the Recovery and Resilience Facility (RESF) expenditure, the Court of Auditors expressed a qualified opinion. He points out that after the pandemic the MAA suffers from weaknesses in the system and irregular payments.

In particular, 2023 was the third year of implementation of the MAA, under which EU countries receive funding if they achieve predetermined milestones and target prices. In 2023, 23 grant payments were made to 17 Member States. The ECA found that around a third of the MAA payments in question did not meet the relevant terms and conditions. The result was six payments containing a significant error. The ECA also identified weaknesses in the design of milestones or target prices, as well as persistent problems with the reliability of information contained in Member States’ management declarations.

EU debt in 2023 almost doubled from 2021

According to the EAC, the EU debt is rising and is increasingly burdening the EU’s finances. The total amount of outstanding commitments, which if not released represent future debts, at the end of 2023 reached an unprecedented amount of €543 billion (up from €452.8 billion in 2022) . Meanwhile, EU debt soared in 2023 to €458.5bn (up from €348bn in 2022, a 32% increase), largely due to €268.4bn of Recovery Fund borrowing.

EU debt is now double what it was in 2021 (when it stood at €236.7 billion). This means that the EU is now one of the biggest issuers of debt securities in Europe, while it is not clear whether the Commission’s proposal for own resources will secure sufficient revenue to repay the debt of the Recovery Fund. The additional costs, which involve the loans of the Recovery Fund, are estimated to range between 17 and 27 billion euros.

The ECA also points out that high inflation continues to weigh on the EU budget. It estimates that, by the end of 2025, the EU budget could lose almost 13% of its purchasing power. At the end of 2023, the total EU budget exposure, which measures the risk associated with EU budget guarantees and contingent liabilities, stood at €298 billion (compared to €248.3 billion in 2022 ).

Regarding EU financial assistance to Ukraine, the ECA notes that it more than doubled in 2023 (from €16 billion to €33.7 billion) and warns that the future transfer of risks of possible loan defaults could put the EU budget under pressure. In addition, it highlights the serious risks posed by the facility for Ukraine established in 2024, with the aim of providing additional financial support of up to €33 billion in the form of loans, for the period 2024-2027, which does not require any provision .

The President of the EAC Tony Murphy stated the following:

“We are almost halfway through the 2021-2027 financial period and the findings of our annual report highlight critical challenges for the EU budget, including high levels of irregular spending. These challenges highlight the need for strong oversight and accountability systems at both Member State and EU level in order to maintain citizens’ trust and secure future EU budgets».