The cohesion policy (or regional policy) of the European Union provides a framework for financing a wide range of projects and investments with the aim of encouraging economic growth in EU member states and their regions. The policy is reviewed by the EU institutions once every seven years. The next round of programmes is to be launched in 2014.

Overview

The regional policy (also called ‘cohesion policy’) of the European Union has the overall goal of promoting economic prosperity and social cohesion throughout the entire territory of the Union, which means the 27 member states and their 271 regions.

Current programmes (2007-2013)

Within the current financial framework (2007-2013), spending on regional policy amounts to an average of almost €50 billion per year, which is more than one third (35.7%) of the total EU budget.

Regional policy spending is channelled through three funds – often called 'Structural Funds'. These are the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund.

The three main objectives of the EU’s cohesion policy are: Convergence, Regional Competitiveness and Employment, and European Territorial Cooperation.

Convergence: Over 80% of the cohesion policy budget is allocated to the poorest regions, which are those where the GDP per capita is less than 75% of the EU average (or slightly above this level). This money is spent on measures to boost economic growth, including transport and other infrastructure projects. A total of 100 regions receive funding under the Convergence objective, which up until 2006 was known as ‘Objective 1’. These regions have a combined population of some 170 million people, which represents just over one third of the total population of the EU. Most of the so-called ‘Convergence regions’ are to be found in the 'new' member states in Central and Eastern Europe (which joined the EU since 2004) as well as in Greece, Portugal, Spain and southern Italy.

Regional Competitiveness and Employment: Around 16% of the money – or €8 billion per year – is shared among the approximately 170 regions that do not qualify for support under the Convergence objective. The ‘Regional Competitiveness and Employment’ objective was previously (until 2006) known as ‘Objective 2’. European money is used to co-finance projects that contribute to the strengthening of economic competitiveness by promoting innovation and entrepreneurship, protecting the environment, improving transport links, adapting the workforce and investing in human resources.

European Territorial Cooperation: The remaining 2.5% of the cohesion budget – around €1.25 billion per year – is used to promote cooperation among regions in different member states by means of joint projects and exchanges of experience. Most of this money is spent on building closer links between border regions.

Future programmes (2014-2020)

In November 2010, the European Commission published its first ideas concerning the future of the EU’s cohesion policy after the current programming period comes to an end in 2013.

The most significant ideas put forward by the Commission include the following:

Linking allocation of funds to the Europe 2020 objectives. These objectives include raising the employment rate, tackling poverty, improving access to education, investing more money in research and technology, using energy more efficiently and promoting clean technologies to reduce carbon dioxide emissions.

Inviting member states to sign partnership contracts.These contracts would closely correspond to the National Reform Programmes that the member states have to develop and implement in the framework of the Europe 2020 Strategy. They would set out priorities for investment, allocation of resources and targets to be achieved.

Focusing resources on a small number of priorities. The Commission is proposing that member states and regions should concentrate resources from the structural funds and national budgets on a small number of thematic priorities, linked to the Europe 2020 objectives. Those countries that receive a relatively small slice of the structural funds would be asked to focus their programmes on just 2 or 3 priorities.

Making payments depend on certain conditions. The Commission proposes to agree a series of specific conditions with each member state. These could relate to the implementation of improvements to public administration or reforms to national legislation - for example regarding employment rules or environmental standards. Final payments would not be made until the pre-agreed conditions have been met.

Creating a 'performance reserve' to reward the best performers. It has been suggested that relatively small part of the budget for cohesion policy (perhaps 3% of the total) could be kept in reserve and used for making bonus payments to those member states and regions that have been most successful in reaching and surpassing their pre-agreed targets.

Stronger monitoring and evaluation. The Commission believes that improved monitoring and evaluation systems are necessary for supporting the move to a more results-oriented approach. It would like clear and measurable targets and indicators to be agreed in advance, which can be used to assess the outcomes of programmes in the various member states.

Combining grants with loans. Using EU money to provide loans is seen as a way to maximise the impact of public money and encourage more financially sustainable investments. The Commission already has experience of utilising so-called ‘financial engineering instruments’ in the current programming period (2007-2013).

Reinforcing the territorial dimension. The Lisbon Treaty states that the European Union should promote not only economic and social cohesion but also territorial cohesion. This implies that the EU should aim to ensure a more balanced development of economic activity across all of its regions including urban and rural areas, islands and peripheral regions. In particular, the Commission intends to pay more attention to urban areas, and to increase the involvement of local and regional authorities in operational programmes.

Strengthening partnerships. The Commission wants to increase the involvement of local and regional stakeholders, social partners and civil society organisations in the implementation of operational programmes. It also wishes to encourage the spread of local development approaches based on partnerships among the various relevant actors.

The ideas put forward by the Commission provide the basis for a public consultation (open until 31 January 2011) and an ongoing dialogue with national, regional and local governments, the European Parliament, the Committee of the Regions, and other stakeholders.

Issues

Among the issues that are being discussed in relation to the EU's future cohesion policy (2014-2020) are the following:

Budget

The amount of money available for cohesion policy will depend on the overall size of the EU budget during the 2014-2020 period. The European Commission is expected to present its proposals for the next seven-year period – the so-called Multi-annual Financial Framework – in June 2011.

The European commissioner responsible for regional policy, Johannes Hahn, has said that current funding levels should be maintained – at the level of around €50 billion per year – in order to support the implementation of the 'Europe 2020' strategy to boost the EU's competitiveness and "make Europe more visible" in the bloc's member states.

Some of the relatively wealthy EU countries, which are also net contributors to the EU budget, have for several years argued that the EU budget should be limited to no more than 1% of the combined income (GNI) of the bloc's 27 members.

This would represent a significant reduction compared to the 2007-2013 period, when the EU budget is equivalent to 1.13% of combined GNI.

On 18 December 2010, the leaders of France, Germany, Finland, the Netherlands and the United Kingdom sent a joint letter to European Commission President José Manuel Barroso in which they stated that the EU budget should not be increased by more than the average rate of inflation. Austria and Sweden are two other countries that have in the past supported calls to limit the size of the bloc's budget.

Concentration

The European Commission is suggesting that each member state or region should focus its resources (including money from the EU plus matching funds) on a small number of priorities, linked to the 'Europe 2020' strategy's objectives (raising employment rates, tackling poverty, improving access to education, investing more money in research and technology, promoting energy efficiency and renewable energy sources, and reducing carbon dioxide emissions).

Given the fact that all member states will be expected to pay attention to all of the 2020 objectives in their National Reform Programmes, it is difficult to see how a country could identify just two or three of these objectives as being more important than the others.

Conditionality

There seems to be broad support for the idea that member states should be encouraged to implement reforms which are considered necessary for achieving the targets they have set themselves. For example, environmental laws may need to be revised so that greater use can be made of renewable energy sources (including solar electricity and wind power).

However, more controversial is the Commission's proposal to suspend or cancel payments to member states that fail to respect the rules of the Stability and Growth Pact, which applies to EU countries that use the euro. In particular, regional governments are insisting that they should not be punished for the consequences of decisions taken by national governments.

Also controversial is the idea of a 'performance reserve' that would be used for making bonus payments to those member states and regions that have reached and surpassed their targets. Some member states are concerned that it would be difficult to allocate such bonus payments fairly, and prefer to know in advance exactly how much money they will receive from the EU.

Eligibility

During the current programming period (2007-2013), over 80% of the budget for cohesion policy is allocated to the 100 poorest regions, which are home to around 170 million people – or one third of the EU's population. The remaining 18.5% of the money is shared among all the other regions of the EU.

According to figures used by the European Commission, in the next programming period there will be less than 70 regions that can automatically qualify as 'convergence' regions because they have a GDP per capita below 75% of the EU average. This means that the number of people living in convergence regions will fall to 120 million – or one quarter of the EU population.

The Commission is considering the idea of introducing a new category of 'transition' regions, with a GDP per capita of between 75% and 90% of the EU average. These regions would receive less money than the 'convergence' regions, but they could still count on continued support from the structural funds.

In the event that the overall budget for cohesion policy is significantly reduced for the next period, some member states might ask whether it makes sense to continue making EU funds available to all of the Union's 271 regions, or whether it might be necessary to exclude the wealthiest regions from the scope of the bloc's structural funds, in order to maintain payments to the poorest regions.

Positions

EU Institutions

The European Parliament argues that "a strong and well-financed EU regional policy" is necessary for achieving social, economic and territorial cohesion, which is one of the main objectives of the EU according to the Lisbon Treaty. MEPs have called for "the budget for the policy to be maintained after 2013 and for any attempt to renationalise it to be rejected".

The Parliament believes that the current framework of EU cohesion policy should be preserved, based on the three existing objectives: 'convergence', 'regional competitiveness and employment', and 'territorial cooperation'. Moreover, it insists that the European Social Fund should remain part of the cohesion policy framework.

MEPs have called on the Commission to ensure more effective monitoring and supervision of how the money from the structural funds is being allocated and spent in the various member states. They would like to see "a stronger role for the regional and local level," as well as a greater focus on meeting the specific needs of urban and suburban areas.

The Committee of the Regions (CoR) sees cohesion policy as being "interdependent" with the 'Europe 2020' strategy, but insists that it must remain a policy in its own right. The CoR is concerned that the Europe 2020 framework should not cause problems for regional and local authorities, for example by introducing new reporting obligations.

The advisory body supports the current Structural Funds framework, and would oppose any shift towards a more sector-specific approach.

Associations

The Assembly of European Regions (AER) insists that the level of support for the EU's poorest regions must be maintained in the next period. It sees the convergence objective as a "symbol of European solidarity" that must be protected from any cuts to the EU budget.

However, the AER deeply regrets what it describes as "the failure to include regions as full partners alongside the European Union and its member states". Moreover, the Assembly strongly objects to suggestions that payments to regions could be conditional on the implementation by national governments of structural reforms which are not related to cohesion policy.

The AER is calling for the streamlining of rules governing the granting and operation of funds, and changes to the procedures for the preparation of territorial cooperation projects.

The Council of European Municipalities and Regions (CEMR) agrees with the Commission on the need for a strong cohesion policy for all EU regions, with a special focus on regions lagging behind. However, it wants the policy to be decentralised by strengthening the local dimension as a way to address the needs of both urban and rural areas and reinforce the links between them.

The CEMR is strongly opposed to proposals that payments should be conditional on member states' compliance with the rules of the Stability and Growth Pact. The Council insists that any conditions should be agreed in advance by all levels of government, and that local and regional levels must be included in any legally binding partnership contracts.

The Conference of Peripheral Maritime Regions of Europe (CPMR) also wants to maintain a cohesion policy that includes all the regions of the EU. It insists that regional governments must be fully involved in the governance mechanisms proposed in the 5th Cohesion Report, such as the partnership contracts that would set out the targets to be achieved.

CPMR agrees with the idea of a more focused and results-oriented approach towards the implementation of EU cohesion policy. However, it rejects the idea of linking payments from the structural funds and respect for the rules of the Stability and Growth Pact.

EUROCITIES - the network of major European cities - strongly supports proposals for a stronger focus on urban areas in the EU's cohesion policy, and would like to see a compulsory earmarking of funds for urban projects, without changing the overall architecture of the structural funds.

The network insists that the local and regional governments responsible for running Europe's cities are best able to manage the coordination and implementation of policies in urban areas. Therefore, member states should be obliged to work in partnership with cities, and involve them in deciding on priorities and developing the programmes to be co-financed by the structural funds.

EUROCITIES opposes the idea of linking structural fund payments to compliance with the Stability and Growth Pact, and it also has reservations about the proposal for a 'performance reserve'.

The REGLEG networkrepresents 73 regions with legislative powers, including all the regions of federal member states such as Austria, Belgium, Germany, Italy and Spain. REGLEG supports the idea of continuing with a cohesion policy that includes all the regions of the EU, and agrees that this policy should contribute to the goals of the EU 2020 Strategy.

REGLEG is in favour of simpler rules and greater autonomy for regional governments. "The cohesion policy is regional, so in regions with legislative powers the managing authority, the certifying authority and the control authority should be the responsibility of the regional government and devolved administrations in the respect of the principle of subsidiarity."

The Capital Cities and Regions and Cities for Cohesion networks submitted a joint response to the 5th Cohesion Report, supported by the regional governments of 10 national capitals and 6 other cities. The paper calls for "a mainstreamed urban approach into EU regional policy during the next programming period" and underlines that "the urban dimension should be a mandatory priority".

The 16 city regions argue: "Cities and urban areas that have critical mass and enough administrative capacity should be allowed to manage their own Structural Funds programmes, through global grants or other financial mechanisms adapted to local legal frameworks, procedures and culture."

An alliance of 7 French regions has submitted a joint contribution to the consultation on the 5th Cohesion Report. The participating regions all have a level of economic activity (GDP per person) between 75% and 90% of the average for the whole EU. They are demanding "the implementation of a simple, fair and effective system designed to take into account intermediate regions; a system that will include all European regions with a GDP per capita of between 75% and 90% of the EU average".

Member states

France supports suggestions to create a new category of 'transition' regions for those areas that are not poor enough to qualify as 'convergence regions', but which nevertheless have a GNP per head significantly below the EU average. The French government also supports linking EU cohesion policy to the 'Europe 2020' objectives and simplifying the administrative procedures linked to the structural funds (as reported by EurActiv France).

Germany is strongly in favour of using EU money to set up loan schemes and so-called 'revolving funds', as these can help to maximise the impact of public investments and ensure that projects are designed and managed in a way that is financially sustainable over the long term. It is hoped that such schemes will be more efficient and more effective than simply giving money in the form of grants.

The Germans support the Commission's idea of focusing resources on a limited number of priorities, but they insist that regions must be allowed choose these priorities for themselves. They agree with the concept of 'transition' regions, and are keen to see the continuation of financial support to the regions in the eastern part of Germany.

They also want to simplify the application procedures and reduce the administrative burden on grant recipients and managing authorities.

The Czech Republic, Hungary, Poland and Slovakia (also known as the 'Visegrad Four' or V4 countries) are known to be working together to coordinate their positions on the future cohesion policy of the EU (as reported by EurActiv).

They agree with the Commission on the need to maintain the size of the budget for cohesion policy, and to focus most of the resources on the poorest countries (the so-called 'convergence' objective). They also want to see simpler rules and procedures.

The V4 countries are stressing the need for flexibility – so that each country can choose its own priorities for determining how to invest the money it receives from the EU. At the same time, they are sceptical about the idea of creating a 'performance reserve' and making bonus payments to the best-performing regions and member states. They are afraid that such an approach might encourage the idea that member states are competing against each other rather than working together.

The United Kingdom is known to be in favour of restricting the overall size of the EU budget, which would also have consequences for structural funds (as reported by EurActiv).

NGOs and other stakeholders

The European Anti-Poverty Network (EAPN)is calling for the future cohesion policy to be closely linked with the goals of the 'Europe 2020' strategy and especially the objectives of the EU Strategy for Social Protection and Social Inclusion. EAPN wants simpler rules and procedures so that small non-governmental organisations (NGOs) can more easily access money from the structural funds.

EAPN insists that member states must be obliged to include social inclusion and poverty reduction among the priority objectives for all of their operational programmes. Those programmes that have a particular focus on social inclusion should benefit from a higher co-funding rate, with up to 75% of the total budget being covered by the EU.

Timeline