The Future of EU Finances: the 7th report on economic, social and territorial cohesion
Yesterday the Commission published the 7th Cohesion report, taking the pulse of EU regions, drawing lessons from cohesion spending during the crisis years and setting the scene for Cohesion Policy after 2020.
See also IP/17/3644
What is the 'Cohesion report'?
Every three years, the EU takes the pulse of its regions and analyses the current state of economic, social and territorial cohesion in the EU. The results, compiled in the Cohesion report, gives us more than a snapshot of our Union; zooming in on regions, it helps us assess if regions have grown closer or apart in the recent years; who is leading and who needs to catch up in terms of innovation, employment or institutional capacity; who is ready to take up the big challenges of the coming years – harnessing globalisation, adapting to climate change and migration – and who needs further support.
The Cohesion report helps us see with more clarity and objectivity what has been achieved and what needs to be done in the post-2020 financial period. It sets the scene for shaping tomorrow's cohesion policy.
What are the main conclusions of the report on the current state of cohesion in our Union?
Europe's economy is bouncing back. GDP and employment rate has reached new highs and regional economic disparities have started shrinking again. But all is not well.
Regions are growing, but not at the same pace. Less-developed regions are catching up, their employment rates remain low. Unemployment rates remain above pre-crisis levels in a number of regions. Too many small businesses struggle to adapt to globalisation, digitalisation, green growth and technology change. At the same time, public investment remains low, especially in those countries and regions worst hit by the recent crisis, to the point that Cohesion Policy funds remain a lifeline for many of them.
The EU faces demographic and social challenges too. Natural population change in the EU turned negative for the first time in 2015. Deaths outnumbered births, which increased the impact of migration – from inside and outside the EU – on local populations; some regions face mass exodus, while cities are under the pressure of newcomers seeking better opportunities, including migrants. Pockets of poverty and social exclusion are still too common, even in wealthier regions and cities.
Finally, the report underlines that more investments will be needed everywhere in the EU to reach the 2030 targets of increased renewable energy shares and reduced greenhouse gas emissions.
What are the main suggestions of the report for the future Cohesion Policy?
For a lasting economic recovery, we need meaningful investments to improve the resilience of Europe's economy and labour force.
Without pre-empting the final proposal of the Commission, the report suggests that Cohesion Policy should keep on investing in all EU regions and focus on three main purposes:
- Harnessing globalisation, by supporting economic transformation in regions, innovation, industrial modernisation, and technology uptake;
- Leaving no one behind, by tackling unemployment, investing in skills and business development while fighting social exclusion and discrimination;
- Supporting structural reforms, as improving public administration boosts competitiveness, growth and maximise the impact of investments.
In addition, the report sets out options for the future implementation mechanism of the policy. There is consensus that more flexibility within a stable framework and simplified rules are needed. Several options put forward in the reflection paper on the future of EU finances are singled out in the report:
- A single rule book for Cohesion Policy and other EU funding instruments (COSME, H2020) investing in the same kind of projects, to make life easier for beneficiaries. Identical rules and clearer demarcation of interventions could ensure better complementarity with the European Fund for Strategic Investments (EFSI);
- Revising the allocation of funds with new criteria, in addition to regional wealth, linked to EU-wide challenges; demographic change, unemployment, migration or climate change;
- Increased national co-financing to incentivise sound spending and ownership;
- An unallocated portion of funding at the beginning of the budget period could be reserved for unexpected developments and help respond to new challenges more quickly.
What is currently the level of public investment in EU regions?
The EU economy is gradually recovering from a period of crisis, which featured a significant reduction in investment in many EU countries and regions. Public investment in the EU fell from 3.4% of GDP in 2008 to 2.7% in 2016. In a number of Member States, the reduction in growth-supportive expenditure has been substantial.
What is Cohesion policy's role in public investment?
Cohesion policy provides funding equivalent to 8.5% of public investment in the EU, a figure that rises to 41% for the EU-13 and to over 50% for a number of countries.
Cohesion Policy's key role in public investment reduced the impact of the crisis, by providing a stable source of investment as national investments declined.
The effects of investments build up over the long term. Investment for the 2007-2013 period increased the EU-12's GDP (i.e. excluding Croatia) by 3% in 2015, while for the 2014-2020 period the increase is estimated to be a further 3% by 2023.
The non-cohesion countries also benefit from spillovers generated by investments in cohesion countries both directly (a company can carry out work as a subcontractor in the context of an EU-funded project in another Member State) and indirectly (through higher income in cohesion countries due to EU investments and therefore increased trade).
How is cohesion policy linked to the EU economic governance?
For Cohesion Policy investments to be performant and for each euro spent on the ground to deliver results, a sound macroeconomic framework is needed, as well as a business-friendly environment.
In the 2014-2020 framework, there is an important link between Cohesion Policy and economic governance of the EU. All the 2014-2020 Cohesion Policy programmes have taken into account the main Country Specific Recommendations (CSRs) for the year 2014.
Cohesion policy is conditioned to the European Semester and the wider economic governance of the EU in two ways:
1) 'Ex-ante conditionalities' are preconditions Member States have to fulfil in order to receive Cohesion Policy Funds. These cover a wide variety of sectors, including compliance with energy efficiency or public procurement legislation, investment planning for innovation, transport or digital economy, and education reforms, as well as the implementation of CSRs.
2) 'Macroeconomic conditionalities' are measureslinking Cohesion Policy funds more closely to the European Semester and to the different economic governance procedures. For example, when a Member State fails to take effective or corrective action in the context of key EU economic governance mechanisms (Excessive Deficit Procedure, Excessive Imbalance Procedure) or fails to implement the measures required by a stability support programme, it can trigger a suspension of all or part of the commitments or payments for the programmes of that Member State.
Like the reflection paper, the Cohesion report acknowledges that the link between Cohesion Policy and the EU economic governance may need to be strengthened to support reforms for a growth-conducive environment.
How is Cohesion Policy providing tailored support to structural reforms?
A first assessment that the Commission published in March 2017 shows that the Cohesion Policy “ex-ante conditionalities” were a powerful incentive for Member States and regions to carry out reforms which would have otherwise been delayed or not necessarily implemented. They led to needed legislative changes in many policy areas - education labour market, health or social inclusion to name a few.
When “ex-ante conditionalities” specifically required the reinforcement and reform of administrations, the very process of fulfilling them resulted in improved coordination and communication between ministries, agencies, regional and local authorities and other stakeholders.
To go further, the Commission has launched the “catching up initiative” to help low-income and low-growth regions identify and implement the key reforms they need to improve their competitiveness. As part of this initiative, a one-year pilot in Poland with Commission and World Bank experts working on the ground with local authorities has shown promising results.
In addition, the Commission has provided Member States with expertise, best practices and peer exchanges tools to reinforce their institutional capacity and improve the way they manage and invest Cohesion Policy funds.
 Member States that acceded to the EU over 2004-2013: Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Malta, Poland, Slovenia, Slovakia, Bulgaria, Romania, Croatia
 Low-growth regions' GDP per head is up to 90% of the EU average but they have a persistent lack of growth. Low-income regions' GDP per head is growing, but is still below 50% of the EU average. One group is clustered mostly in southern Europe, and a second group is concentrated in the east.
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