Bilbao: Basque regional development bankers gathered last week to review what the Council’s Economic and Financial Affairs configuration formally signed off on 5 May, namely the European Court of Auditors’ Special Report 24/2025 on financial instruments in cohesion policy. The verdict from Luxembourg is uncomfortable. After three programming cycles of pushing managing authorities to use loans, guarantees and equity stakes alongside grants, the auditors conclude that the revolving use of cohesion funds, the entire policy justification for financial instruments, has only partially materialised.
The Bilbao session matters because the Basque Country has been one of the most enthusiastic deployers of financial instruments in southern Europe, channelling roughly EUR 240 million of European Regional Development Fund money through Elkargi and Finkatuz over the 2014 to 2020 programming period. Regional officials presenting at the session argued that the auditors’ findings, while broadly fair, understate the difficulty of recycling capital in regions with thin private-equity ecosystems and high small-business mortality rates. The auditors counter that those structural constraints were known when the policy was designed and should have shaped allocation decisions, not become excuses for underperformance.
The report’s core finding is that the revolving rate, the proportion of money that returns to the managing authority for re-investment after the initial deployment, sits well below the levels that the Commission used to justify the instruments in successive impact assessments. In some Member States the revolving rate is close to zero, with money effectively converted into grants through write-offs, restructurings or extended repayment periods that stretch beyond the programming horizon. The auditors identify weaknesses in the way ex-ante assessments quantified expected revolving flows, and recommend that the Commission tighten the methodology for the 2028 to 2034 cycle.
ECOFIN ministers accepted the recommendations without controversy, partly because the Commission had already integrated several of the changes into its draft Single European Fund regulation. That instrument, presented as the financing vehicle for cohesion, the Common Agricultural Policy and several legacy funds inside a single envelope, will require managing authorities to publish annual revolving-rate data and to justify any deviation from the ex-ante assumptions. The transparency requirement is modest in appearance but consequential in practice, because it forces regional governments to confront publicly how their actual lending performance compares to the projections they used to win Brussels’ approval in the first place.
For the Basque regional bankers in Bilbao, the immediate question is how to design the next generation of instruments so that the revolving rate actually materialises. Several speakers argued for a sharper focus on growth-stage companies rather than seed-stage start-ups, on the basis that mature firms repay capital more reliably even if the development impact per euro is lower. Others pushed for guarantee-heavy structures rather than direct lending, because guarantee schemes leverage private capital and limit public exposure to defaults.
The Commission’s response to the auditors, published alongside the report, accepts most recommendations but contests one in particular. Brussels argues that revolving rates measured in nominal euro terms understate the true policy contribution because grants and equity injections often catalyse private investment that the metric ignores. The auditors have not been persuaded, and the ECOFIN conclusions request that the Commission report back on revised methodology by the end of 2027, in time to shape the operational programmes that managing authorities will draft for the 2028 cycle. Bilbao officials privately concede that the bar has been raised, and that the next round of negotiations with the Commission will be tougher than the last.
