European Cohesion Policy is at a crossroads, facing unprecedented scrutiny and debate about its relevance and direction in a rapidly changing world. Designed to improve economic, social and territorial conditions across Europe, this policy now confronts new global priorities and fiscal constraints. In our new policy paperQuo vadis, Cohesion Policy? European Regional Development at a Crossroads”, we explore the current state and future prospects of Cohesion Policy, highlighting the trade-offs that fuel the ongoing debate.

The Quest for Cohesion Policy’s Mission

Cohesion Policy should achieve many goals while simultaneously establishing social, economic and territorial cohesion: Helping lagging regions to catch up, helping others maintain prosperity in a time of transition, compensating structurally disadvantaged regions, fostering solidarity – especially during crises – and more. The objectives of Cohesion Policy have evolved and expanded, pointing to a series of trade-offs.

Multitool vs precision tool: Targeting many goals at the same time conflicts with significant progress in individual goals, leading to a perception of stagnation. A focused set of objectives that align with broader European policy goals, such as competitiveness, digital transition and green transition, will enhance the policy’s effectiveness. This requires consolidation and prioritisation of Cohesion Policy’s objectives.

Long-Term vs Short-Term Perspective: Sustainable regional development requires long-term investments that yield results over time. However, recent crises, such as the COVID-19 pandemic and the energy crisis following Russia’s invasion in Ukraine, have shifted policy priorities to short-term responses. While Cohesion Policy has shown its adaptability to immediate needs, this flexibility has compromised its long-term objectives.

Past vs Future Orientation: Traditionally, Cohesion Policy has addressed existing disparities that are rooted in the past. Global challenges, such as war, green and digital transitions and intensified trade competition demand a proactive stance to prevent new disparities. With the introduction of the Just Transition Fund as the latest step, Cohesion Policy has demonstrated its ability to take a forward-looking approach. However, fixing problems of the past requires different strategies, rather than avoiding new ones.

All Regions vs Few Regions: Since 2007, Cohesion Policy has encompassed all European regions, allowing richer regions to benefit. However, the core focus remains on the lagging regions, primarily in Eastern and Southern Europe. With potential EU enlargement on the horizon, including Ukraine and Western Balkan countries, fund allocation is in question. Cohesion Policy must remain inclusive to maximise outcomes and ensure broad relevance.

Narrowing Fiscal Space, Doubts on Effectiveness

As one of the largest components of EU spending, Cohesion Policy is deeply intertwined with the Multiannual Financial Framework (MFF), the EU’s seven-year budget plan. Upcoming negotiations for the post-2027 period will be crucial in determining the policy’s future financing.

Competition for Funding: The EU faces growing financial demands. Current priorities, such as climate neutrality, require more funds, while new priorities, such as security, need significant investment. With Recovery and Resilience Facility (RRF) repayments starting in 2028, maintaining the EU budget’s status quo is unsustainable. Cohesion Policy must compete for limited resources, focusing on the highest return on investment.

Mixed Results on Effectiveness: While regional economic prosperity has generally increased – and disparities decreased – since Single Market implementation, the effectiveness of Cohesion Policy in driving this development is debatable. The substantial variation in its impact underscores the need for rigorous research to better understand its mechanisms and improve its design.

Declining Capacity for Absorption: Cohesion Policy funds are planned over seven-year periods, but fund utilisation has slowed. This reflects slower decision-making at the European level and challenges in effective fund utilisation by regions. The absorptive capacity is particularly low in less developed regions with multidimensional shortcomings. Improving regional capacity to absorb funds is essential for the policy’s success.

Optimal Policy Design in Light of the RRF

Optimal Cohesion Policy design is an ever-moving target. The discussion expanded to include lessons learnt from RRF, which was introduced in response to the COVID-19 pandemic. Despite its different genesis, the RRF focuses on improving structures in Europe, similar to Cohesion Policy.

Bottom-up vs. Top-down: Cohesion Policy is grounded in an inclusive bottom-up approach that ensures the participation of diverse regional stakeholders. The RRF, in contrast, is managed centrally with plans negotiated between the European Commission and member states. While Cohesion Policy’s bottom-up approach is often criticised for being ponderous, the RRF is confronted with a lack of participation, potentially leading to inefficient outcomes.

EU vs. National: Cohesion Policy operates on a pan-European scale, addressing inequalities and fostering regional connections beyond national borders. This European competence is crucial for coordinated regional development, which would be challenging in a decentralised regional policy scenario managed individually by member states. Beyond economic considerations, this is a matter of ensuring democracy and considering power dynamics.

No Strings Attached vs Conditional: Linking Cohesion Policy funds to structural reforms, akin to the RRF’s so-called cash-for-reforms approach, can enhance effectiveness. However, aligning conditions with the appropriate level of government is challenging. Regions, often the primary targets of Cohesion Policy, may lack the authority to implement necessary reforms, which are typically the competence of national governments.

Simple vs Bulletproof: Cohesion Policy’s complex structure, with multiple funds and regulations, leads to red tape. Simplifying this complex structure can enhance efficiency and effectiveness. A more streamlined approach, with clear and consolidated objectives, will facilitate better implementation and monitoring.

Synergies with Other Policies

Cohesion is – and cannot – be a matter of Cohesion Policy alone. Additionally, the trade-off between efficiency and equity addressed by Cohesion Policy is inherent in other policy areas.

EU Policies: The transition to renewable energy and the development of green and digital technologies are prime examples for policies that make an impact on economic disparities across European regions. Acknowledging effects on cohesion is vital for cohesion-sensitive policymaking. Strategic consideration of cohesion in all policymaking helps prevent new disparities and can improve policy outcomes.

National Policies: Cohesion Policy is not Europe’s only instrument for structural development. Many member states have their own policies with national scope. Also, fiscal equalisation schemes play a crucial role in promoting equity. Better alignment between national policies and the EU’s Cohesion Policy would enhance regional development.

Outlook: Debate will Intensify

The future of Cohesion Policy stands at a pivotal juncture. Confronted with global challenges and embedded in different trade-offs, it needs to clarify its mission, solve financing problems, improve its policy design and synergies with other policies.

In fall, the debate will intensify with the new European Commission, and further intensify next year when the next MFF is planned. An improved Cohesion Policy remains an essential tool for addressing regional disparities because improving economic, social and territorial cohesion is crucial for the European project.

About the author

Thomas Schwab, Senior Expert for European economics at the Bertelsmann Stiftung’s “Europe’s Future” program, specialises in analysing economic policy with a particular emphasis on territorial inequalities.

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