€600m Italy recovery fund fraud likely to be repeated, EU audit chief warns

The head of the EU’s auditing body said on Tuesday (9 April) that there is “absolutely” a risk that the recent case of the alleged embezzlement of hundreds of millions of euros from the bloc’s pandemic recovery fund could be repeated.

In an interview with Euractiv, European Court of Auditors (ECA) president Tony Murphy stressed that last week’s announcement that 22 individuals had been arrested in Italy for defrauding €600 million from the EU €723.8 billion Recovery and Resilience Facility (RRF) followed persistent warnings that a lack of central oversight was amplifying the likelihood of the funds’ misuse.

“Because of the limited control, or lesser control framework, compared to the standard EU funding based on multi-year budgeting (MMF), the risk of such incidents occurring is high,” Murphy said.

Murphy also pointed out that the facility’s scheduled expiry by the end of 2026 is further “contributing to the risk” of funds’ misappropriation by amplifying “pressure on member states to spend this money quickly”.

“That in itself inherently raises the risk of people being opportunistic and taking advantage of shortcuts or whatever might be there,” he said.

Last week’s news, reported by the European Public Prosecutor’s Office’s (EPPO)‘s Venice office, led to arrests in Italy, Austria, Romania and Slovakia and followed Murphy’s own explicit warning just two weeks earlier that the European Commission’s strategy of relying on member states to ensure RRF funds are properly spent was increasing the “risk of irregularity or even corruption”.

Murphy’s remarks also came just months after an ECA report found multiple “weaknesses” in the RRF’s monitoring framework.

Agreed at the height of the COVID-19 pandemic in December 2020, the RRF comprises €385.8 billion worth of loans, financed through debt jointly underwritten by EU member states, and €338 billion in grants .

The funds, which are the flagship component of the bloc’s NextGenerationEU (NextGenEU) initiative, are intended to boost Europe’s post-pandemic recovery by financing green, digital, and other critical investments in exchange for specific reforms.

Despite the fact that the facility has received eager applications by several member states — including Italy and Spain, the bloc’s third and fourth-largest economies —  less than a third of the total RRF facility has so far been disbursed. The majority of payments have come in the form of grants (€144.88 billion) rather than loans (€80.51 billion).

Heightened fiscal pressure from 2028

Murphy also noted that the steep increase in interest rates over the past couple of years will aggravate capital repayments on debt – which are set to start in 2028 – meaning that the EU will soon face significant “budgetary pressure”.

While loans will need to be repaid by member states receiving them, the repayment of RRF grants will tap into EU budget resources. Interest charges on these, Murphy said, are estimated to be “between €17-27 billion [until 2027],” he said, adding that at the moment, the 27-countrry bloc doesn’t have a dedicated funding source for that.

“The EU has funding aspirations in other areas, too, such as enlargement, Ukraine, defence and security, and they all cost money. So you have to get the money from somewhere or you have to increase the borrowing.”

“I think people have to realise that debt has to be paid back,” Murphy said, warning: “[We]’re only kicking the can down the road in a way. NextGenerationEU is aptly named because the next generation is going to have to pay for it.”

Meanwhile, Murphy expressed scepticism as to whether the RRF — or any instrument like it — should be continued beyond 2026.

His comments came on the same day that European Commissioner for Economy Paolo Gentiloni called for turning the RRF into a permanent resource.

“What I would say is we have a lot of concerns about whether it is or not [the way forward].”

The ECA is not the only institution which has warned of the dangers of the potential misuse of RRF funds in recent years.

In its annual report published last month, EPPO noted that it had opened more than than 200 investigations related to NextGenEU funding worth €1.8 billion over 2023.

It also reported 179 “active funding fraud investigations” related to recovery and resilience programmes in Italy alone – with Austria faring as the far second, with 33 detected cases.

“Recovery funds related to the consequences of the Covid-19 pandemic, particularly those covered by the European Commission’s Recovery and Resilience Facility, were… targeted by fraudsters,” EPPO noted.

In December last year the European Parliament’s Budgetary Control Committee said it was “concerned that the EU’s financial interests are not robustly protected in the RRF”.

MEPs pointed to “flaws in member states’ reporting and control systems” as well as “significant differences between member states’ reporting and follow-up of suspected fraud”.

Similarly, in 2022 the European anti-fraud office OLAF reported that over the past year it had “detected and investigated cases” of fraudsters targeting “green projects as well as funding for digitalisation”, both of which are key components of RRF funding.

[Edited by Anna Brunetti/]