Brussels to Review Cohesion Policy After Losing Its Effectiveness in Spain and Southern Europe

Bernardo de Miguel

6 mins - 8 de Junio de 2023, 07:05

The flagship of European solidarity is floundering, especially in southern Europe. Cohesion policy, one of the most ambitious initiatives in the EU’s history, is showing clear signs of exhaustion, according to the latest European Commission reports. Economic convergence has stagnated or even regressed in some of the regions receiving the most aid in Spain, Portugal, and Greece, the very three countries whose entry into the club triggered the launch of the multi-billion-dollar structural funds in 1988. 

The ineffectiveness of such a large investment (€378 billion planned between 2021-2027) has accelerated the debate in Brussels on the future of cohesion policy beyond 2027. Positions are divided between the reform of the funds or their disappearance. The only thing no one seems to want is to maintain a status quo that after 50 years in force no longer seems to meet the needs of a large part of Europe. Change is urgently needed because the European Commission fears that the persistent gap in wealth and job opportunities between regions will fuel social discontent and become the ideal spark for anti-democratic movements.

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“Overall, disparities in GDP per capita are receding, but at a decreasing pace,” says the report published last week by the Commission on growth and convergence in Europe’s regions. The same document adds that “growth has turned negative in several regions of the southern member states, notably in Greece and Italy”. Alarm bells about the shortcomings of cohesion policy in the Mediterranean countries started to ring almost a decade and a half ago, in the wake of the great financial crisis of 2008. But they have become even more acute in the last two years, aggravated by the devastating economic consequences of the pandemic.

The most dangerous black hole in cohesion policy seems to be in the so-called “transition regions”. This category includes regions with a GDP per capita of between 75% and 100% of the EU average. And Brussels cuts aid to them because it is assumed that they will soon move into the category of “more developed regions” (with a GDP per capita above 100% of the average). The target is met in many parts of Central and Eastern Europe, where the process of economic convergence is still very rapid. In Southern Europe, on the other hand, the so-called transition often ends in the so-called “growth trap”, i.e., a spiral of underinvestment, depopulation, and abysmal growth decline.

“In 2021, GDP per capita in the regions has fallen to around 85% of the EU average from 91% in 2000”, laments the Commission’s report. This is the case of Spain, which has gone from having only one region in transition (Extremadura) in the 2014-2020 budget period to adding another four (Andalusia, Castilla-La Mancha, Ceuta, and Melilla) in the current period (2021-2027). 

And the result is getting worse by the minute because in this classification Brussels took as a reference the GDP data prior to the Covid-19 debacle. The situation has deteriorated further during the pandemic and the Commission last week updated its guidelines on the aid intensity allowed in each region. Murcia, with 70.6% GDP per capita, is now among the least developed regions and therefore eligible for higher subsidies. And the Canary Islands, which was on the borderline between the two categories (with 75 per cent) has suffered a 10-point drop in GDP per capita to 65 per cent, according to the same document. 

The problem is not unique to Spain. So far this century and until 2020, cohesion policy has been funded to the tune of almost €1 trillion. But in Italy, according to a Commission report last April, all regions have lost ground since 2000. In France, most regions are at risk of falling into the growth trap. And the same problem is also affecting regions in Belgium and eastern Germany. 

“An increasing number of EU regions (...) are in a ‘development trap’ or at risk of falling into one,” warns the Commission’s convergence report cited above. “These regions are experiencing long periods of low or negative growth, weak productivity gains and low job creation,” the Commission says.

Brussels already pointed to the need for changes in the management of the funds in its eighth report on cohesion policy, published last year. The Commission suggests, among other possible measures, extending the Just Transition Facility to mitigate the social impact of certain environmental policies; directing part of the support to encourage diversification in regions where a single economic activity dominates too much; strengthening support for rural population centres that can serve as catalysts for growth at the county level; developing “a new growth paradigm” for less developed regions based on the opportunities and international links offered by the economic transformation underway around the world.

In principle, the evaluation of ongoing funds should take place when the current programmes come to an end (in 2029). But Brussels considers the situation to be so delicate that it will try to reform cohesion policy during the current budgetary framework (2021-2027) and before the next one is approved. The European Commission is finalising the mid-term review of the current budgetary framework, a procedure that is usually innocuous but which on this occasion could be the prelude to a real transformation of solidarity policies within the club.

The creation, moreover, of new support models in the wake of the pandemic (the SURE fund to finance temporary employment regulation and the Recovery and Resilience Fund to modernise the economic fabric) encourages a rethinking of the implementation of gigantic appropriations that during this period total €1.2 trillion, not counting the Common Agricultural Policy. One of the options being considered would be to replace the massive process of cohesion funds with the agility of the Recovery Fund, which in just four years is expected to inject €800 billion. But this possibility is rejected by the regional authorities, who fear that they will lose a leading role in managing the funds because the pandemic fund is managed centrally by the national governments. 

In any case, Brussels believes it is essential to have a policy that promotes prosperity in the regions because, according to its report last week, “those who are left behind can cultivate resentment and discontent towards the democratic system and the values on which the EU is based”.
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