Five things to know about EU regional policy cuts

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

EU regional policy boss Corina Cretu and Commission chief Jean-Claude Juncker are split over where budget cuts should come from. [European Commission]

The debate over the EU’s post-2020 budget (MFF) has cast a shadow on the future of the EU main investment policy. Francesco Molica and Nikos Lampropoulos look at what could happen next and what’s at stake.

Francesco Molica and Nikos Lampropoulos are the founders of Cohesion Policy Observatory. Nikos Lampropoulos is the director of EURACTIV Greece.

Despite its crucial support to regions and cities across Europe, EU Regional Policy, aka Cohesion Policy, risks being downsized in terms of financial resources, geographical reach, governance, and objectives alike. Why could this happen? What are the scenarios? What will be the consequences?

Here’s a short guide to understand what’s at stake.

Why has Cohesion Policy emerged as the most likely target of budgetary cuts in next MFF?

Official reason: Cohesion Policy accounts for some 34% of EU budget, and together with the CAP roughly 2/3 of it. Adding to the budgetary hole left by Brexit, the political pressure to make room for financing new priorities (defence, migration flows, structural reforms) would leave no choice but to decrease the financial envelopes of the two biggest policies.

Informal reasons: It is hardly a secret that a certain number of net contributors’ governments have never been fond of the EU regional policy, as they get a very tiny slice of the cake. On the other hand, the biggest beneficiaries of Cohesion Policy, namely Eastern European countries, are frustrating many older member states with their erratic or hostile attitude towards European integration.

The thinking goes, why should they continue to have all the benefits of membership if they show such a low commitment to the EU project? There is also growing scepticism about the poor management of cohesion funds in many geographical areas, i.e. in southern Europe. Last but not least, Cohesion Policy is perceived in several Brussels’ circles as an old-fashioned policy, not in tune with emerging priorities.

What are the options on the table?

The Commission presented member states with three different scenarios for the post-2020 budget, with two of them implying heavy cuts to the Cohesion envelope – from 15% to more than 30% of the current allocations. The third one would maintain the current amount of funding, which would anyway mean a reduction in real terms.

Although two of the three scenarios foresee limiting the scope of Cohesion Policy to less developed regions or countries, it is more likely that horizontal cuts will be eventually agreed by the Council, as the German government deal states the commitment to maintain Cohesion Policy for all the regions.

Why do developed regions want to keep the support of Cohesion funds? 

Because even developed regions are facing significant challenges that are typically falling within the scope of Cohesion Policy’s objectives.

Poverty and unemployment: Between 2000 and 2015 the economic outlook in a high number of regions in most developed countries has been constantly worsening.  As noted by the Seventh Cohesion Report, areas with GDP per capita close to the EU average seem stuck in a “middle-income trap” with significantly lower growth rates than the EU average. Intra-regional disparities are on the rise, too: Many regions, including richer ones, are still facing to varying degrees high levels of unemployment or poverty, especially in rural areas or urban outskirts.

Demography: Demographic and migration challenges are affecting places irrespective of their level of development.

Competitiveness: The structural transformations caused by the digital revolution, if not properly addressed, might also affect relatively wealthy areas.

Politics: It’s not only a matter of funds. It has never been. Cohesion Policy plays an ever-greater role in orienting territorial policies towards EU objectives, improving the quality of the administration and the impact of public spending.

Cuts apart, will Cohesion Policy retain its core objectives and architecture after 2020?

It depends on the approach. The core objectives of the policy are at stake. If the current requirement for each country/region to align the programming of funds with the economic semester (country-specific recommendations) evolves into a more restrictive arrangement, cohesion funds might well be used to finance the costs of structural reforms. This is implied by the proposals related to the EMU deepening package and the Commission’s communication on post-2020 budget. It means part of cohesion funds might end up serving purposes not directly linked to their core objectives.

The architecture will be also challenged. The above-mentioned initiatives, the emphasis on simplification and the extensive use of financial instruments, might lead to a more centralized approach, weakening the role of the regions and of the local stakeholders in the management and the decision-making processing of funds, especially in non-federal states.

What will be the consequences of having less Cohesion Policy?

Cohesion has emerged as the core policy of the EU integration. It has a key role in promoting EU citizenship, representing the most visible expression on the ground, i.e. in local and regional contexts, of the benefits of the EU membership.

At the same time, it accounts for a significant share of public investment in many regions, compensating for the drastic decrease of national public funding made available to local and regional authorities due to the crisis and subsequent restrictive fiscal policies.

Cohesion Policy place-based and tailor-made approach is pivotal to fight interregional and infra-regional disparities that are growing everywhere due to globalization.

Vis-à-vis the rise of populist and anti-European movements, weakening a policy that is not a simple tool to support infrastructures and investment, but became the point of reference for EU convergence, will send the wrong signal. It is not only investments that will be put at stake. The EU would give the idea that within the bloc solidarity is only for times of wealth but not when real danger occurs. It might sound dramatic, but cutting Cohesion Policy might affect not just the architecture, but the very spirit of EU.