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Why EU added value is in the fabric of cohesion policy

The EU’s cohesion policy is often labelled as one of the traditional policies of the EU, together with the EU’s agricultural policy, despite regular reform and modernisation. In terms of spending, these two policy areas, taken together, currently account for approximately two thirds of the EU budget. In her contribution, Elisa Ferreira, the Commissioner for Cohesion and Reforms (and previously Vice-Governor of the Portuguese Central Bank and MEP), argues that the EU’s cohesion policy has added value woven into its fabric — benefiting not only the recipients of cohesion funds, regions and Member States, but the European project as a whole. She pleads for an evidence-based policy that shows the true benefits of EU action, going beyond MFF contributions and a simple juste-retour logic, and explains why ‘leaving no region behind’ serves all EU Member States.

By Elisa Ferreira, Commissioner for Cohesion and Reforms, European Commission

No simple answers

The debate on EU added value continues in good times and in crisis, and rightly so. The choice of policies to fund at EU level is a key question for policy-makers, legislators and taxpayers. We should invest limited resources where the benefit of collective action at EU level, based on solidarity, brings higher returns to Europeans than Member States acting alone.

As an economist, a politician and policy practitioner, I recognise that the answer to the question of EU added value is not always evident in a simple, mathematical formula. We should nevertheless always strive to gain knowledge from our experience, 45 years in the case of the European Regional Development Fund (ERDF), and maximise the economic and social potential of cohesion policy.

As we saw in recent months, the ways in which we can do this can be unexpected, if not surprising: the Coronavirus Response Investment Initiatives showed just how versatile cohesion funding could be. In a matter of days, it became an emergency relief instrument for workers, hospitals and small businesses.

Below I focus on the multiple dimensions of cohesion policy’s EU added value and why the whole of our Union benefits from leaving no region behind.

Long history in a context of major socio-economic and political changes

From the creation of the European Social Fund (ESF) in 1957 and the ERDF in 1975, to the 2004 enlargement, the major global shocks of 2008 and the current public health and economic crisis linked to the Covid-19 pandemic, cohesion policy has been a motor of the Union’s success in navigating socio-economic change. For example, EU cohesion and rural investments played a key role in supporting the economies joining the Union in the 2004 enlargement in convergence and catching up, with an impact estimated at some 4% of additional GDP generated on average, see Figure 1. (1)

Challenges such as rapid globalisation, technological changes, demographic and migration trends, security, energy and climate change all affect the European Union. Addressing them at the territorial level has been, and remains, vital for cohesion in the Union and for our collective perseverance and prosperity.

Figure 1 — Impacts on GDP of 2017–2013 cohesion and rural development policies, 2015 and 2023

Source: European Commission

Important policy for a functioning single market

The single market, perhaps the greatest economic success of the Union, drives value creation and offers unmatched financial gains and opportunities, thanks to the four freedoms, and importantly, the free movement of knowledge. Economies of scale, innovation and competitiveness, and the bargaining power of the biggest trading partner in the world are all benefits of the single market averaging some 6% of EU GNI per year (2) and far outweighing the costs (Figure 2).

Figure 2 — Benefits of the single market vs. contributions to the EU budget

Source: European Parliament (2019) https://www.europarl.europa.eu/news/en/press-room/20200115IPR70326/q-a-on-the-eu-s-long-term-budget-multiannual-financial-framework-mff *data not updated

At only a fraction of the cost, cohesion policy investments make it a fair and sustainable economic proposition for all members of the single market club. Poorer regions and cities can find themselves stuck in low growth trajectories due to historical factor endowment (path dependence) and struggle to realise their regional potential and improve incomes. Solidarity and a level playing field, thanks to targeted investments, ensure cohesion in the single market. Crucially, cohesion policy helps address economic distortion and asymmetries, so that all Member States can be winners in the European Union.

Strong consensus on the need for significant cohesion policy investment

There is a broad agreement that the use of the EU’s cohesion policy to support the less developed Member States and regions (around 80% of total EU funding for cohesion) and the transitional regions with below average incomes produces strong EU added value, particularly in terms of modernisation and their integration in the single market. The importance of cohesion policy to less developed and transitioning economies is evident in the share of cohesion policy in total public investment. Cross-border cooperation too, the well-known Interreg programme celebrating 30 years this year, has a unique added value, bringing partners together across border lines in fields such as health, environment, research, education, transport and sustainable energy to reduce and remove obstacles in border regions that are often overlooked or marginalised at national level.

Perhaps the most criticised aspect has been cohesion policy support for the more developed regions, which arguably have sufficient public resources. Such an argument, however, ignores the fact that cohesion policy is unparalleled as an instrument to ensure that EU priorities such as the European Green Deal, digitalisation, research, innovation, or SMEs are pursued effectively in all of Europe’s regions. This dimension of EU added value will be even more evident in the phase of recovery, where regional asymmetries have been laid bare along with Member States’ different capacities to support their economies.

Collective Union investment in the aftermath of the Covid-19 crisis is necessary to balance out different economic capacities for a fiscal response to the crisis, which evidently are uneven at Member State and regional level, including in more developed ones. The political consensus that solidarity and cohesion should be at the centre of Europe’s recovery is certainly reassuring. Maintaining this vision in the critical years of recovery will be paramount.

Key design features of cohesion policy bringing added value

The regional dimension has to be fully reflected in the reforms and investments that Member States will undertake in the recovery phase. Cohesion policy itself, including through REACT-EU , the new cohesion instrument powered by NextGenerationEU, must create leverage based on long-standing experience and applying design features that bring added value.

Focus on the poorest, less developed regions

Cohesion policy provides most of its financial support to the regions that are lagging behind, recognising that the economic and social development of these territories will generate a spill-over effect in the more developed regions (3). According to some research results, externalities and spill-over effects of cohesion policy arise from more than 15% of cohesion funding, with significant benefits to ‘non-cohesion’ countries of about nine cent for each euro invested in ‘cohesion countries’ (4), noting the importance of procurement, contracting of work, import and export trade, mobility of workers and researchers. The 2007–2013 cohesion funds evaluation, based on two macroeconomic models (5) suggests a sustained flow of benefits in terms of GDP, productivity and investment throughout the Union. Notably there are net benefits even (through trade effects) for the donor regions, and the impact in all regions lasts way beyond the actual implementation period.

Addressing long-term needs, while overcoming crisis

Programming over a longer time span of seven years provides greater stability of investments than any national budget cycle and ensures that emerging one-off eventsand crises do not divert focus away from long-term development goals. Socio-economic shocks such as in 2008 and the 2020 pandemic clearly disrupt long-term policies, with the potential to create persistent economic and productive losses and hardship.

In the aftermath of the 2008 financial crisis, cohesion policy enabled public authorities facing budget constraints to meet EU policy goals despite fiscal pressures. For example, it funded infrastructure for water and waste management to ensure timely compliance with EU legal requirements. In many EU Member States and regions, it incentivised significant shifts in the disposal of waste away from landfills and towards recycling in line with the EU policy.

Thus in the midst of the economic crunch, cohesion policy ensured EU green and climate objectives continued to be pursued. Yet, in times of crisis, cohesion policy also provides a lifeline to companies and workers. In the previous programming period, ERDF support was vital in helping SMEs to withstand the financial crisis and enabled them to invest, expand or innovate, while financial instruments kept SMEs afloat by supporting working capital (6). Today, the Coronavirus Response Investment Initiative delivers working capital support to SMEs and short-term work schemes across the EU. In the recovery and longer term, ensuring company survival and job maintenance especially in the less developed and the most hard-hit regions should be a priority, aligned with green and digital objectives, in order to successfully reverse growing disparities and overcome the negative impacts of the crisis.

Involvement of national, regional and local partners

The shared management method is essential in creating ownership within the Member States and encouraging accountability and responsibility for the investments. The EU’s role is to provide general steering and ensure alignment with the EU’s agreed priorities, identified as the catalysts for sustainable long-term development of European regions. Developing public policy capacity for investment and learning within the Member States and regions is a long-term necessity. In less developed regions in particular, successful beneficiaries of cohesion policy programmes often go on to benefit from other programmes such as the Connecting Europe Facility and Horizon 2020 , or become partners of the EIB, and have frequently developed their capacity to engage through cohesion policy experience.

It will be equally important to maintain this partnership principle in recovery investments, enabling place-based policy making, ownership and participation. This will be crucial for the effective implementation of REACT-EU, in which the partnership principle should be respected, in order to overcome administrative capacity constraints, reduce the risk of irregularity and promote the effective use of EU-funding for crisis repair.

A modern policy and targeted investments underpinning reform and transition

In addition to well-established features, important changes have been made to the design of the policy over time to reinforce its added value and in particular to support reform efforts. Economic policy coordination and governance, from the Lisbon Agenda to the launch of the European Semester and Country-Specific Recommendations have influenced efforts by EU policymakers to reinforce cohesion policy’s focus. Active labour market measures, research and innovation, digitisation and climate action all find significant financing in cohesion policy. The important role of the European Structural and Investment Funds in implementing structural reforms, administrative capacity building and alignment with EU strategic priorities is recognised in the current programming period (7).

In the challenging yeas ahead, the synergies between cohesion and reform efforts will have to be further strengthened and maximised, taking into account the regional specificities. The added value of post-crisis recovery investments powered by NextGenerationEU and traditional cohesion investments will lie particularly in tailoring investments to each region’s needs — from basic infrastructure and digital education facilities in some to state-of-the art artificial intelligence applications in others. Equally, the regions most affected by the green transition should receive the necessary Union support to modernise their economies and find new sources of income for workers and future generations: a transition to climate neutrality can only be a fair and just transition. This too, adds value to the Union and must be recognised as such.

Box 1 — Promoting e-administration and bringing added value in words and in deeds

Cohesion policy is making substantial investments in digital transformation. It has expanded the application of IT use and data driven public administration at local, regional and national levels. The policy also leads by example, working with Member States and regions in transforming the public sector for the digital age. e-Administration is applied to all programmes at multiple levels: e-application processes during project selection; promoting e-cohesion to reduce burdens on beneficiaries; and in the monitoring of projects’ finances and performance.

Building on these practices the policy exploits its unique monitoring data to offer one of the most transparent presentations of the functioning and performance of the EU budget through the ESI Fund Open Data Platformhttps://cohesiondata.ec.europa.eu. It was launched in 2015, won the first EU Ombudsman award for open administration and has been regularly updated and expanded ever since. It has obvious transparency and openness benefits: our current work to track support for climate action (8) and the cohesion policy Covid-19 response (9) are clear demonstrations of this. Finally, the platform can also lead to improvements in the quality of data provided on performance.

Looking ahead

The proposals for the 2021–2027 Multiannual Financial Framework, agreed in principle in July 2020 by the European Council against the unprecedented background of the Covid-19 pandemic, include important new reforms of cohesion policy that are centred around added value. These improvements will build on the performance and evaluation culture developed over the past financial periods as well as the useful insight and advice of the European Court of Auditors. Other features such as thematic concentration and evaluation obligations are retained with some adjustments. The evaluation criteria for example now explicitly include European added value, and the evaluation of the 2014–2020 will address EU added value more thoroughly than ever before.

With this, I hope that the complex question of targeting EU investment and cohesion funding to maximise value added for the Union will be better informed and supported by an evidence-based policy. As Commissioner for Cohesion and Reforms, my primary task is the management of cohesion policy in line with Treaty objectives to reduce regional disparities and ensure the cohesive development of our Union. One cannot control all the contextual elements, but I am committed to ensuring that the investment by the EU taxpayers through cohesion policy is used to the best possible effect, with high levels of transparency, better communication of the performance of the policy, improving the quality of evaluation and ensuring that lessons are learned and applied. This is how we can deliver EU added value using the elements designed into the policy by the legislators.

(1) 2007–2013 programming period. European Commission, The impact of cohesion policy 2007–2013: model simulations with Quest III, 2016, https://ec.europa.eu/regional_policy/sources/docgener/evaluation/pdf/expost2013/wp14a_final_report_en.pdf

(2) European Commission, Technical briefing on the EU’s next long-term budget, 2019, https://ec.europa.eu/info/publications/technical-briefing-eus-next-long-term-budget_en

(3) A study by the Visegrad Four claimed very important spill-over benefits for more developed regions, while the Commission’s own modelling confirmed lower but still positive long-term effects 2016 DG REGIO, EC, EX POST 2007–2013, https://ec.europa.eu/regional_policy/en/policy/evaluations/ec/2007-2013/

(4) European Parliament, Research for REGI Committee, Externalities of Cohesion Policy, 2018, https://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_STU(2018)617491

(5) Quest III and Rhomolo, EC, DG REGIO, EX POST 2007–2013, 2016, https://ec.europa.eu/regional_policy/en/policy/evaluations/ec/2007-2013/

(6) EC, DG REGIO, EX POST 2007–2013, 2016, https://ec.europa.eu/regional_policy/en/policy/evaluations/ec/2007-2013/

(7) ISMERI study for EC DG EMPL, Support of ESI funds to the implementation of the country specific recommendations and to structural reforms in Member States, 2017, https://op.europa.eu/en/publication-detail/-/publication/de79c16e-6eb4-11e8-9483-01aa75ed71a1/language-en

(8) ESIF Open Data Climate Tracking, https://cohesiondata.ec.europa.eu/stories/s/a8jn-38y8

(9) ESIF Open Data CRII / Covid-19 Dashboard, https://cohesiondata.ec.europa.eu/stories/s/4e2z-pw8r

This article was first published on the 3/2020 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.

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