Cohesion policy and the Recovery and Resilience Facility: not just two sides of the same coin
Economic convergence is one of the key objectives of EU cohesion policy. The COVID-19 pandemic, however, has had precisely the opposite effect. With a focus on green and digital transition, the Von der Leyen Commission is trying to gear several policies towards transition in the EU. Gert Jan Koopman has been Director-General for Budget at the European Commission since 2018 and has been at the heart of both the most recent multiannual financial framework negotiations and discussions on new EU initiatives following the outbreak of the COVID-19 pandemic. He explains how the new instruments, despite having similar transition objectives and complementing each other in some respects, differ in several other respects such as their design, drivers, timeframe and financing arrangements.
By Gert Jan Koopman, Director-General for Budget, European Commission
Transition aligned but different outlook
The 2021–2027 multiannual financial framework (MFF) and NextGenerationEu (NGEU) have strengthened the EU budget’s focus on economic, social and territorial cohesion. The current MFF dedicates €374 billion (1) to this goal (including €274 billion for regional development and cohesion), plus over €774 billion from the Recovery and Resilience Facility (RRF) (2) and REACT-EU within NGEU. Investments under cohesion policy and the RRF are playing an important role in the context of the recovery from the COVID-19 pandemic and its economic and social fallout. At first glance, cohesion policy and the RRF appear to be two sides of the same coin: both are investment-driven and with a macroeconomic impact; both contribute to the EU’s green and digital transition. However, as I will discuss in this piece, their design is fundamentally different, reflecting different purposes: whereas cohesion policy pursues the long-term objective of convergence, the RRF and NGEU are temporary instruments for the EU to respond to the economic and social challenges posed by COVID-19, with commitments running until 2023 and payments until 2026.
Role of cohesion in EU budget negotiations and implementation
The large amount dedicated to cohesion policy in the budget makes it the EU’s largest investment programme. Its predecessor — the EU regional policy — had its origins in 1957 with the Treaty of Rome. In 1988, an overarching cohesion policy was established, focusing on the poorest regions and geared towards investment. In the 1990s, the policy’s budget doubled, and it has accounted for around one third of the EU budget ever since.
Cohesion also plays an important role in the long-term decision-making process for the EU budget. The time it took to negotiate and agree the legislation governing the 2021–2027 cohesion policy funds is commensurate with their value as a proportion of overall expenditure. Although the Commission made its initial proposal in May 2018, the political agreement on the MFF was not reached until July 2020, and the process of adopting cohesion legislation lasted until June 2021. Cohesion was a focal point in the MFF discussions, not only because it brings Member States substantial public investment, but also because it is a key factor in determining the size of the EU budget and, consequently, of Member States’ contributions.
Smooth implementation of the EU’s annual budgets depends largely on the pace of cohesion policy implementation. This is because cohesion is the EU budget’s biggest spending policy based on multi-annual programmes. As cohesion policy is delivered under shared management, its implementation speed is very much in the hands of Member States. This makes it challenging to forecast long-term needs and to achieve stability in the size of annual budgets. Given the long-term nature of cohesion investment, the way such funding is delivered and the types of projects it covers, the cohesion policy implementation cycle is typically characterised by low absorption in the early years of an MFF, increasing over the course of the period. This is, to some extent, traditionally compensated for by overlaps with the preceding programming period, as absorption is much quicker in the final stages of the previous cohesion policy cycle.
The 2014–2020 programming period started with a delay, which was made up for towards the end of the period. The Commission proposed simplifications to the implementation of cohesion policy in 2021–2027 to make it smoother and contribute to more stable budgets. Most of these proposals were retained in the final political agreement. However, the delays in agreeing the new cohesion legislation and, to some extent, the work on national recovery and resilience plans, have in turn led to delays at the start of the 2021- 2027 programming period. The Commission will continue to closely monitor progress and support Member States in their efforts to overcome the delays experienced in 2021 and press ahead with implementation in the coming years.
NGEU and the RRF powering recovery from an exceptional shock
Significant fiscal effort and a quick policy response were needed to tackle the economic and social fallout of the COVID-19 crisis. Member State governments responded with a wide range of fiscal measures, but the nature of the crisis required additional efforts at EU level on top of the measures taken at the onset of the pandemic. The crisis risked creating a large and persistent investment gap, and redirecting resources from Member States or from other programmes would not have been an effective way to fill that gap. NGEU, and in particular the RRF, is thus a temporary and exceptional instrument created to prevent the COVID-19 crisis from causing further economic divergence across EU Member States, and to limit exposure to future unforeseen events by making their economies more resilient.
Figure 1 — NextGenerationEu: RRF grants and contributions to other programmes
NGEU is also strengthening cohesion policy thanks to the new Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) programme. REACT-EU is the second largest component of NGEU, with a budget of €50.6 billion (see Figure 1). REACT-EU continues and extends the measures delivered since 2020 through the Coronavirus Response Investment Initiative (CRII) and the Coronavirus Response Investment Initiative Plus (CRII+). These additional resources will be used for projects to foster crisis repair capacity in the context of the COVID-19 crisis (3).
Cohesion policy and the RRF: few overlaps, many complementarities
The RRF’s features and coordination mechanisms ensure that it complements support from other funds. Such complementarity is an obligation imposed upon both the Commission and the Member States by the RRF legislation (4). Member States also had to explain in their national recovery and resilience plans how they intended to use other funds, and how they would ensure complementarity. Overlaps between the RRF and cohesion policy are thus limited due to their fundamental differences in terms of:
- general objectives;
- management mode;
As mentioned above, cohesion policy and the RRF have some common aims, but different general objectives. The RRF has a broad scope by design, given the need to support the EU’s recovery from a crisis that affected all aspects of European society. It would not have been possible, from the outset, to carve out distinct RRF policy areas separate from those other EU funds. However, whereas cohesion policy is a place-based, regionally anchored long-term investment policy, with a focus on territorial development and ultimately aimed at fostering economic convergence and growth and jobs, the RRF is a reform and investment-oriented instrument, operating predominantly at national level. These different objectives are reflected in the different methods used to allocate funding (‘allocation keys’) under cohesion funding and the RRF.
Figure 2 — RRF and cohesion timeline
The timeline for the implementation of the RRF is ambitious, but it has limited overlap with cohesion policy or other funds. RRF disbursements, whose purpose is to fund timely and sizeable investments for economic recovery, are frontloaded and concentrated between 2021 and 2026. By contrast, implementation of the new cohesion policy, which will address structural and long-term objectives, is expected to start gradually and continue for as long as expenditure is still eligible (until June 2030, see Figure 2). Member States had originally presented their roadmaps with the target of having their programmes ready for adoption by the end of 2020. However, the pandemic has delayed this for various reasons:
- it delayed the adoption of the MFF;
- lockdowns hindered national public administrations in their activity; and
- administrative capacity was redirected towards new instruments to tackle the crisis (CRII, CRII+ and REACT-EU) and, to some extent, the RRF.
The RRF and cohesion funds have different management modes. The RRF is implemented under a unique form of direct management, with Member States preparing national recovery and resilience plans in consultation with the European Commission. The plans include a set of milestones and targets related to the implementation of investments and reforms. Disbursements are based on the achievement of the milestones and targets, and the Member States are the ultimate beneficiaries of funding. The RRF is thus performance-based, and it directly incentivises the implementation of reforms on a larger scale than any other EU programme.
The cohesion policy funds, by contrast, are implemented under shared management: the European Commission agrees on the programmes with Member State authorities (e.g. ministries and regional authorities), based on drafts prepared by the latter, and ensures that they reflect the relevant EU priorities and abide by the legal framework. Member State administrations then select the projects to finance and are responsible for day-to-day management. Payments are based on eligible costs, not performance.
RRF financing reflects the Facility’s peculiar nature. Given the need to provide sizeable and timely support, financing the recovery from the crisis with the EU’s available own resources would not have been effective. Common EU borrowing to finance the RRF, however, increased the available resources. It also creates added value at EU level: it strengthens the international role of the euro by increasing the supply of highly-rated euro-denominated bonds and, thanks to the EU’s high standing as a borrower, it allows Member States to access loans on better terms than most could obtain on financial markets.
EU budget increasingly investment-oriented
The EU budget is increasingly focusing on investment thanks to cohesion policy and the RRF. Whereas, in the year 2000, EU investment funding made up around 40 % of the EU budget, in the current MFF this share is expected to rise to almost two thirds (of the combined value of the EU budget and NGEU). Between them, cohesion policy and the RRF account for the largest share of such EU investment funding.
Cohesion policy funding will continue to foster economic, social and territorial convergence in the current and future MFFs. Ensuring its effective uptake and use will be key to maximizing the policy’s economic and social impact . The RRF will play a key role in economic recovery under the current MFF. NGEU is a temporary, one-off programme, and RRF disbursements are frontloaded and largely concentrated between 2021 and 2023. The gradual start to the implementation of the cohesion policy funds will then ensure that EU public investment is sustained even as the RRF reaches its completion.
Finally, cohesion policy can also play an important role in addressing the economic, energy and humanitarian impact of Russia’s invasion of Ukraine. For example, the recently adopted initiative ‘Cohesion’s Action for Refugees in Europe’ (CARE) introduces the necessary flexibility in the 2014–2020 cohesion policy rules so that Member States and regions can swiftly reallocate funding for such emergency support (5).
(1) Including the European Regional Development Fund, Cohesion Fund, European Social Fund+. Amounts are in current prices.
(2) The RRF envelope is €723.8 billion (€338 billion in grants and €385.8 billion in loans).
(3) With a top-up of €10.87 billion, NGEU also strengthens the Just Transition Fund (JTF). Although the JTF is formally not part of cohesion policy, it is under the same framework and integrated into its programmes.
(4) Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility, OJ L 57, 18.2.2021, p. 17–75
(5) Ukraine: Cohesion funding to support people fleeing (europa.eu).
This article was first published on the 1/2022 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.