Boost Local Institutions and Governance for Effective EU Policy

Recent statements on the EU’s future have echoed a call for stronger local institutions and governance. But to most, these warnings might not even register. Major challenges, from war in Europe and its neighbourhood, climate change and waning global economic competitiveness dominate the headlines. Calls to train local civil servants to better implement EU policies are unlikely to grab attention. But ambitious EU policies cannot make a positive impact “closer to citizens” without competent, transparent local government.

The high-level group on the future of Cohesion Policy and the Letta Report on the Single Market have cited local administration and institutions as areas where the EU must get stronger. A report from the European Court of Auditors showed that local administration was making more errors than previously thought when implementing Cohesion Policy, which is the EU’s primary regional policy. The German finance minister presented a study by the German Leibniz Centre for European Economic Research (ZEW) that argued that local administration inefficiencies, among other factors, undermine calls for more regional investment.

In what ways are these reports arguing that local administration weak and, crucially, how does the EU plan to remedy this?

The link between local administration and policy effectiveness

Before looking at how local administration and governance could be strengthened, it is important to understand why this matters for bringing EU policies to people in their communities. For the EU, this relationship is often examined in the context of regional economic development projects as part of Cohesion Policy.

Three primary factors are generally considered as drivers of regional economic development: building physical infrastructure, investing in human resources and fostering innovation. But translating these into tangible outcomes requires effective governance and administrative capacity. Without these, even well-designed strategies risk failing to make an impact, leaving regions unable to fulfil their economic potential.

Despite the clear importance of local government institutions for regional development, this aspect is often an EU policy blind spot. Experts emphasise that institutional quality has a huge influence on the economic trajectories of regions. This can often explain the disparities between areas with similar economic starting points.

Weak local administration can also reduce the impact of increased investment. Experts have researched how the return on investment in regional development funding in Europe declines beyond €120 per capita without improved local governance. Essentially, improving local governance can result in greater returns on investment, rather than increasing total investment to, for example, €150 per capita in a region.

Other analyses, such as the European Quality of Government Index (EQI), support this conclusion, demonstrating the importance of institutional quality in regional growth prospects. The EQI measures public sector corruption and service quality perceptions, revealing significant institutional disparities across Europe.

Northern and Western European regions, for example, generally exhibit higher institutional quality, while Southern and Eastern Europe show more variability. In Southern Europe, the strong correlation between institutional quality and regional growth suggests that enhancing institutional frameworks could lead to better development outcomes.

Who’s saying local administration is a problem?

While research has established the link between institutional quality and policy effectiveness in regional development, recent political discourse has shone a light on it. This is partly because of increased scrutiny of the effectiveness of Cohesion Policy, which wields a third of the EU budget, but the lessons are relevant for EU policy generally.

In More than a Single Market, Enrico Letta observes that inadequate public administrations can “represent bottlenecks for the effective delivery of initiatives aimed at boosting cross-border activities, scaling up [small and medium enterprises] and, ultimately, at putting the EU businesses in the conditions to exploit the Single Market and therefore compete at global level.”

In Forging a Sustainable Future Together: Cohesion for a Competitive and Inclusive Europe, recommendations have been made by a high-level group on the future of Cohesion Policy brought together by the European Commission. The authors have dedicated a section on how to enhance local administrative capacity to improve policy effectiveness.

In a German Finance Ministry-backed ZEW report, “inefficient” local administrations are cited as a main reason Cohesion Policy has underperformed, especially in southern Europe. When the report was released, German Finance Minister Christian Lindner, a representative of the EU’s largest economy, remarked that Cohesion Policy is losing effectiveness because of inefficiencies in local administration. This set off alarm bells for proponents of expanding Cohesion Policy.

Finally, in July, the European Court of Auditors (ECA) warned that errors in Cohesion Policy expenditures between 2014-2020 were far higher than Commission, national and local authorities reported in their own reviews.

Member states’ poor local administration (including poor decision-making and slow verification processes by managing authorities), negligence or perhaps intentional non-compliance by beneficiaries, and problems interpreting the rules as laid out by the EU were the three main causes of errors according to the ECA.

This report provides tangible evidence that something is going wrong with translating the ambitious aims of the Cohesion Policy’s sweeping portfolio into outcomes for EU inhabitants. Blame cannot just be assigned to local administration, but they are on the frontline of combating administrative inefficiencies.

Getting down to detail: The case of Cohesion Policy errors and absorption

With Cohesion Policy, development, approval and reimbursement of projects is carried out in a system of multi-level governance.

The regions lead the way on soliciting and approving projects, while national coordinating bodies provide direction for overall strategy and auditors monitor. Finally, reporting on project outcomes, costs and progress goes all the way up the chain to the relevant Commission Directorates-General. The European Court of Auditors is the final institution to review programmes, which is why they only released their audit of the 2014-2020 spending period in July. This audit was extended until 2023 due to COVID.

While studies have shown that the effectiveness of Cohesion Policy is hampered by poor local administration in Southern and Eastern Europe, the Court of Auditors made it clear that Central and Northern member states have their issues too.

Germany stands out with a particularly high number of errors, while France, another large recipient, had thousands of irregularities.

Nine EU member states – Poland, Italy, Spain, Portugal, Hungary, Czechia, Romania, Greece and Germany – account for 76% of Cohesion Policy spending and 91% of the estimated errors, according to the ECA report.

The geographic diversity is matched by the various effects these errors have on the regions’ ability to spend funds. When comparing the level of spending irregularities with absorption – defined as the percentages of available EU funding that have been paid by the European Commission to Members States’ Operational Programmes at a certain point in time – there is no clear pattern. Local administrations’ challenges differ across countries and regions

In a review of absorption rates from 2014-2020 , the results are mixed. Estonia recorded zero irregularities and had a high absorption rate (100%) at the end of 2023. Meanwhile, other member states, such as Hungary, exhibited high absorption and high error rates, which could indicate issues with compliance and monitoring, but no problems with finding recipients and projects.

Still others, such as Denmark, had low error rates and low absorption. This might indicate that goals set for the policy that did not align with opportunities in Danish regions – or mismatches in available funding and project applicants.

Spain exhibited a high error rate (17%) paired with low absorption (74%). Spain’s Operational Programme was approved late, so they had less time than other member states to implement projects, but overburdened local administration struggling to find and approve projects in line with regulations are also potentially a reason.

What is the EU doing about it?

Starting with the 2014-2020 funding period, Cohesion Policy has used “Technical Assistance” (TA) to enhance regional governance by building administrative capacity. Despite its importance, TA funding constitutes just 3.1% of the European Structural and Investment Funds, with most of it (65%) directed towards human resources in managing authorities, according to a study by the European Policy Research Centre. In the report by the high-level group on the future of Cohesion Policy, the authors recommend more funding for technical assistance in future funding periods.

In October 2023, the Commission launched ComPact, a new initiative aimed at modernising and strengthening collaboration among national, regional and local public administrations across Europe. It focuses on three key areas: enhancing skills and cooperation through the Public Administration Skills Agenda; improving digital transformation readiness by, among other ideas, integrating AI technologies; and driving the green transition with a focus on carbon footprint reduction. The initiative will be supported by EU funding, such as the Technical Support Instrument, part of the Recovery and Resilience Facility, and the Digital Europe Programme.

But these initiatives are only the beginning of possibilities to strengthen local administration. Focus on providing more funding for TA is a good start, but it should not be the sole focus. Beyond the difficulty of finding more money when the conversation has already shifted to potentially cutting Cohesion Policy’s resources, simply boosting TA funding is a one-dimensional approach.

The report from the high-level group on the future of Cohesion Policy argues that administrative capacity building should extend beyond individual training. This approach would aim to foster partnerships and facilitate European-wide learning, focusing on enhancing organisations and entire regions.

By encouraging participation, transparency and accountability, regional development can be more efficient across the EU. The report proposes an Erasmus-like programme for civil servants that can help spread best practices and improve governance in vulnerable areas.

Improvements in local administrative capacity will have to go together with rule simplification. The same report from the high-level group calls for “meaningful simplification”. Its recommendation is an “alignment of horizontal rules between EU funds; fewer, clearer and shorter rules; genuine subsidiarity and proportionality; a stable yet flexible framework; extension of the single audit principle.”

For Cohesion Policy, this refers to reducing the complexity of rules and procedures that have accumulated over the past three decades. These rules and procedures impede local and regional authorities from effectively accessing funds, discourage innovative projects and generally diminish trust in the policy. Efforts should focus on streamlining administrative processes, enhancing digital approaches and expanding flexibility, while improving monitoring and evaluation mechanisms for funded projects, argues the high-level group.

It is encouraging, then, that this topic was included in Ursula von der Leyen’s political guidelines released for her re-election as Commission President. She promised to “make speed, coherence and simplification key political priorities in everything we do.” If such efforts go together with investment in regional administration, the impact could be better results from EU policies in areas where it is needed most.

About the author

Nathan Crist is Project Manager in the Europe’s Future Program at the Bertelsmann Stiftung working on the Europe’s Economy Project.

Read more of our work on Cohesion Policy and Administrative Capacity

Transition Regions’ Green Tech Potential is Key to EU Cohesion

Cohesion Policy’s Blind Spot: Strong Regional Institutions are Crucial to Implementing Effective Growth Strategies on the Ground (globaleurope.eu)

Digital and Green Transition Threatens to Widen the Gap between EU Regions

Explore Our Study: Technological Capabilities and the Twin Transition in Europe