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Presentation of the 8th Cohesion Report at the European Parliament Committee of Regional Development (REGI).

"Check against delivery"

Dear President Omarjee,

honourable members,

dear colleagues,

I am pleased to have an opportunity to present to you the 8^th Cohesion Report and to have an exchange on the state of Europe's regions today and an effective cohesion policy in the years to come.

With your help, we have taken decisive action to cushion the impact of the pandemic crisis. Cohesion has proven its value as a first responder for our societies, economies and health systems. However, Cohesion is a long-term transformational policy. Its primary and foremost objective remains promoting convergence and reducing regional inequalities.

So, as we look with hope to overcome the third year of the pandemic and reverting to a resilient growth path, we need to set our eyes on the major trends at the regional level: economic and social indicators, growth and demographics, greening and digitisation, public investment and governance.

We cannot lose sight of the forest, but in regional policy the individual trees are also important. In the end there is no forest without healthy trees, as there is no Union without thriving regions across Europe.

This 8^th Cohesion Report provides the picture of the situation, drawing some positive conclusions and revealing particular vulnerabilities that call for targeted responses at the regional level.

The Treaty requires this report every 3 years. The last report was issued in 2017. We publish its 8^th edition with a slight delay, in order to capture a first preliminary assessment of the impact of Covid at the regional level.

This is a very appropriate moment to take stock of the latest data and analysis for three main reasons.

First, because we know from experience that internal disparities tend to aggravate in the aftermath of crises; second, because we are ushering in a green and digital economy and society and regions are not in the same starting blocks; third, because we now have unprecedented funds available to Member States and it is imperative that these are used in a way that reinforces economic, social and territorial cohesion.

With this report, we take stock of the state of economic cohesion, social cohesion and territorial cohesion, and the progress made towards each.

The analysis is based on a broad and comprehensive range of statistical data, as well as economic analysis and modelling, to uncover the drivers of disparities.

The discussion starts with you today, but will continue in the cohesion forum in March, and indeed, I hope throughout the coming years. It is our collective responsibility to keep it alive, draw the necessary conclusions and take action.

To kick off our discussion, I will first briefly outline some of the key findings from the report, with data and maps. I will then finish, with some of the policy implications and hand over to you for debate.

The report shows early evidence that the pandemic has tested our health care systems and our economic and social structures, exposing sharp regional differences.

The two maps you see here, show striking differences at the regional level: in terms of mortality rates as well as economic impact.

Hard data shows that excess mortality rates are disproportionally higher in less developed regions – and big metropolitan areas as you can see in the first map. A number of factors contribute to this, such as vaccine coverage, different healthcare capacities, the age structure of the population.

However, as you can see in the second map there is no direct correlation between severity of infection and economic impact.

While I must underline that this is only a preliminary assessment, as 2020 GDP data at the regional level is not yet available, our simulation based on national data and the RHOMOLO regional model, shows a particularly severe economic impact on southern and south-eastern European regions, Spain, Italy, France, Portugal, Croatia and Greece, and lesser effect on Nordic and Eastern regions economies.

We can see that the recession is particularly sharp in some regions: either because of their geography, especially border regions, islands, and the outermost regions, or the structure of their economy, due to dependence on tourism or other industries heavily impacted by the restrictions.

So, the report gives a snapshot of a Europe in which new territorial and social disparities are emerging. And the recovery risks leaving some regions behind.

In this context, the support under CRII as well as fresh funding under REACT-EU, has been crucial.

The report also provides a rich analysis of long term trends in economic and social cohesion at the regional level. Some trends are positive, but some are cause for concern.

On the first map, you see the level of development of European regions today: there are regions that lag behind – from new Member States as well as others.

They still need to catch up significantly with the EU average, calling for sustained cohesion support as reflected in the 2021-2027 programming. What is a positive trend is evident in the second map: over the past two decades, these less developed regions have been growing faster than the EU average. So while the gaps remain, we note a continuous trend of growth, especially in Central and Eastern Europe.

We estimate that GDP per capita in less developed regions will be up to 5% higher in 2023, thanks to cohesion policy investment over the last 7 years.

Indeed, cohesion policy continues to be even more important to sustain public investment levels: in the cohesion countries, cohesion policy funding increased from the equivalent of 34% of public investment to 51%, just over half, between the 2007-2013 and the 2014-2020 period.

The models also indicate that cohesion policy has a net positive effect on EU growth as a whole. This is a reminder that richer regions in the longer term benefit from having more prosperous trading partners.

But a striking point from the second map is that many middle income regions, and some less developed regions, are persistently falling behind, especially in Southern and Southwestern Europe, or in the outermost regions, the burgundy/purple regions in the second map.

The report delves into the reasons for this limited convergence, what we call the middle income trap, in which regions seem basically unable to grow further.

Regions that spent most years in a development trap tend to have a lower level of education, less investment in research, lower quality of government and fragile industrial sectors.

Which also reveals a strong policy response clue: escaping the development trap calls for better governance, education, innovation and good business environment.

This is a very valid lesson also for the less developed regions which continue on their growth path (in green): such growth should be accompanied by innovation, education, and appropriate policies to avoid reaching a point of stagnation and a middle income trap in the future.

The innovation, and digital, divide is a particular area of concern. Innovation is increasingly concentrated in a few favoured regions, while less developed regions have seen their innovation performance worsen over time.

The examples of the digital divide are also striking: while 2 out of 3 people living in cities have access to very high speed broadband, but only 1 in 6 rural residents do so.

As we transition to a digital economy, there are regions which start this race in a very favourable position, and others which start a long way behind. So this is certainly an area for cohesion policy to address.

Similarly, the transition to a green economy offers new jobs and new opportunities, but some regions are better placed than others to exploit these opportunities.

As you can see from the map on the left, since 1990 CO2 emissions have decreased significantly in most of the regions of Europe, and only in a few, those in purple, emissions have increased.

However, when you look at the second map, which shows CO2 emissions in 2018, (latest year, for which data is available) we see the regions most dependent on carbon as we embark on the green transition. These are the regions which will have to make particular efforts, assisted by cohesion policy, and the Just Transition Fund.

The report puts all of this into the context of long-term demographic change. By 2040, 51% of Europeans will live in a region where the population is declining.

And as you can see from the map, with the darkest red spots indicating the strongest decline, this concerns more than half Europe's territory.

This demographic change will require adjustment across the board, including in terms of public service provision for a gradually aging population.

We must pay close attention especially to regions at risk of serious demographic decline. We need to create job opportunities for young people, work to improve regional attractiveness, including in terms of infrastructure and public services.

If you want to see it as one of the good lessons from the pandemic, shifting life and work preferences away from metropolitan areas has proven to be possible and sought after.

But speaking of attractiveness, governance and decentralisation are decisive factors. The quality of governance and degree of decentralisation vary significantly between EU Member States and between regions within EU Member States.

Here we are looking at the 2021 figures for the European quality of government index. This index is based on a regional survey on the quality education, healthcare and security. It captures citizens' perceptions as regards corruption or discrimination in the provision of these services.

Quality of governance is key to entrepreneurship and to private investment. One of the key findings in the report is that the ease of doing business has improved in all Member States, although there are still gaps and disparities between regions and between Member States.

Quality of governance is also key for accessing public services, and for citizenship and democracy. And here the report notes that the rule of law has deteriorated in a few Member States.

Turning to the future, what are the lessons for cohesion policy? I will highlight 3 key messages from the report.

First, investment is crucial. In the REGI committee, you know this. Public investment is not yet back to pre-2008 levels. In the difficult times of the last decade, cohesion investments have become increasingly important, often crucial.

But, investment alone is not enough: we must have place based strategies, at the right scale and territorial level, adapted to the new drivers of disparities.

For the coming years, as an answer to the COVID crisis, we have unprecedented financial means. Cohesion Policy, the Recovery and Resilience Facility and other instruments must be underpinned by regional strategies. We must mobilise all available resources to work together, for Europe's regions.

On this slide you see some key priorities, identified in the report. They will not surprise you.

We must ensure a fair transition, closing the digital and innovation divide, and helping those regions, that because of their economic structure, have the furthest to go, to become carbon neutral.

The crisis has also taught us the importance of a resilient economy. One key to this is diversification: we must help regions identify new opportunities and growth sectors, namely in their smart specialisation strategies.

We must also help regions respond to demographic change. In many cases, this means managing infrastructure and services to support an aging population. In some cases, this means making the region more attractive to new activities and new jobs so that young people remain.

Cohesion policy is not enough. Other European policies, and national policies, must consider their regional impacts, and discover, or rediscover, a sense of place.

For far too long, many policies have been “spatially blind”. They ignore regional impacts, even though horizontal instruments, and recovery instruments, will often have considerable spatial impacts.

But no policy, no matter how well intentioned, no matter its contribution to the greater good, no policy should leave parts of Europe behind.

In other words, horizontal policies should incorporate “regional proofing”, to ensure they obey the principle: “do no harm to cohesion”.

Third, we must have multilevel governance. As we rediscover the importance of place, we must rediscover its key principle: that local policies need local strategies, drawn up with local partners.

We must make the most of our regional partners, and partners from civil society and elsewhere. We must have cooperation among different levels of government to strengthen governance, introduce best practices, diffuse innovation, and implement policies which are tailor-made for the needs of the region.

Cohesion policy offers the framework to combine all these elements at the right territorial scale.

And tailor-made means not just tailoring for problems, but tailoring for opportunities: for example, the green economy brings new jobs, while teleworking is an opportunity to change the pattern of investment, and make smaller cities and rural regions, with their potential high quality of life, more attractive to high value economic activities.

These are the challenges before us, these are the challenges set out in the report. How to take all of Europe's regions, through the recovery, through the green and digital transition, through demographic changes and beyond, leaving no region behind.

The work starts with the practical step of programming, and I ask for your support in getting the new programmes up and running.

But to succeed, we need more than just programmes, we need a new sense of place, a new sense of partnership, and a discussion fed by facts.

The cohesion report provides the facts, and we invite discussion. In the coming weeks and months, and especially at the cohesion forum in March. Our answers will define Europe in the decades to come.

I am grateful to this committee for your support and for making so much time for this debate. I believe these facts and these discussions will repay the investment of our time. And I look forward to our discussion today.

Thank you.

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