Enlargement doesn’t threaten EU cohesion fund, bureaucracy does
BY KONSTANTINA MALTEPIOTI, EUobserver, 01 May 2024
ATHENS - The debate on the post-2027 cohesion policy has officially started. From the report published by the high-level group on the future of the cohesion policy in February 2024 to the ninth Cohesion report published in March, Europe’s biggest investment policy is being re-evaluated to better prepare for its new challenges and upcoming elections.
During the opening ceremony of the Cohesion Forum in April, EU commissioner Elisa Ferreira highlighted the need to reflect on the reform needs of an enlarged Europe.
It has been 20 years, to the day, since the biggest enlargement, when 10 countries joined the EU. Much like then, the EU's enlargement ambition of the last few years has raised concerns over its budget and financial stability since the countries on the waiting list for candidate status are poorer than the EU average.
The enlargement debacle
To address these concerns in the current eurosceptic, “what’s in it for me” climate, Ferreira sought to remind everyone of the spillover effects and the economic growth from the 2004 enlargement during her speech at the Cohesion Forum event.
“The motto remains that policies in Europe should leave no one behind.”
“For richer areas of the Union, this [the enlargement] meant new customers, new investment opportunities, new producers and diversified supply chains,” she stated, and then commented on the substantial reduction of the number of European citizens living in less developed countries, after 2000.
“From 25 percent of the EU population in 2000 to just over five percent in 2023. [...] It’s a true win-win for all of us.”
Cohesion policy represents one-third of the total EU budget. Each member state pays one percent of its Gross National Income, so the bigger the country’s economy the more it pays.
Naturally, countries that seem like they’re paying more, oppose a possible increase in the European budget, even if the money goes back to richer countries through their companies that are more apt to work in the single market.
An example is the construction of one of the Greek highways. Vinci Concessions, a French company, has acquired a contract through the company Olympia Odos S.A. in which it holds a 30 percent stake, for the Athens-Corinth-Patras-Pyrgos motorway, financed by a combination of private equity, EU funds, and the Greek State. Besides the French Vinci, Hochtief, a German company, has also benefited from this contract by holding a 17 percent stake at Olympia Odos S.A., and both of them, along with the other shareholders, will also be remunerated in the form of tolls charged until the contract ends in 2044.
“The single market creates an uneven distribution of wealth and cohesion policy is there to balance the European countries and regions so they can all be able to share as much as possible similar levels of prosperity,” Eleni Marianou, secretary general at the Conference of Peripheral Maritime Regions (CPMR), told the EUobserver. “The motto remains that policies in Europe should leave no one behind.”
Budget ceiling
Funnily enough, the budget should not be the main concern in an enlargement scenario. A pioneering study conducted by CPMR analysed the possible financial implications of the enlargement given the Cohesion Policy stays the same.
According to the findings, in case of enlargement, the cost of the policy would not increase compared to its current size, but rather decrease with or without it.
This is because there is a ceiling regarding the amount of funding a country can get, as the study says, “the formula is designed to prevent drastic redistributions and limit the support provided to new members.”
With cohesion investments, ultimately countries become richer, but the enlargement will change the EU average, so countries will seem richer and therefore get less money.
This means two things: Firstly, the countries’ economic growth is evidence that cohesion works, and secondly, in case of enlargement the funding allocation needs to be revisited to ensure distributional fairness at a regional and local level.
“The formula used to allocate EU budget funding is one that prioritises budgetary limits and controls rather than effectively reaching objectives,” the CPMR’s Jorge Núñez Ferrer told EUobserver.
“If nothing changes, enlargements will cut the payments to present regions and even manage to reduce the overall budgetary costs, while climate impacts, demographic decline and security challenges increase for many regions! This mathematical bureaucratic marvel can therefore backfire, this cannot be a model for stability and growth,” he also said.
Distributional unfairness inside the regions
The addition of the new member states is unlikely to happen before deciding on the next 2028-2034 long-term EU budget, aka the Multiannual Financial Framework (MFF).
However, adjustments to the cohesion policy are needed now to combat intra-regional disparities.
A recent study showed that even though cohesion policy is effective from a cross-regional perspective and contributes to the average economic growth of the regions it supports, the money does not always reach the poorest people in the regions.
The researchers conducted a survey of 2.4 million respondents in 231 European regions, looking at how the two largest types of cohesion policy funds, the European Regional Development Fund (ERDF) and the European Social Fund (ESF), affected income inequality between 1989 and 2017.
The findings showed cohesion investments benefit the highly educated and richest income groups in the regions it supports, while effects on poorer households are close to zero.
The issue isn't poor regions' access to funds, but rather the complexity of securing the funds. To get them, eligible organisations can apply by submitting project applications under specific ‘operational programmes’ that might be difficult for medium to small businesses to follow.
“It involves being aware of them, navigating the application process, and succeeding in competitive tenders,” told the EUobserver Nils Redeker, co-author of the study and deputy director of the Jacques Delors Centre leading its policy work on European economic policy.
“Typically, only larger and more productive companies, which tend to hire higher-educated and better-paid employees, manage to clear these hurdles,” he also said.
A focused, user-friendly policy
Cohesion needs to have simpler delivery methods. Less developed regions that need money the most but have been stuck in the development trap phenomenon after the economic crisis of 2010, particularly in Southern Europe, are not able to benefit from the cohesion policy.
As Dimitris Skalkos, general secretary of public investments at the Greek ministry of finance, said at CPMR’s event in Patras in March, “the complexity of the regulatory framework of the structural funds and the explosion of controls leads to lengthy procedures and costly delays."
"As we saw during the pandemic cohesion funds should be channelled quickly to those who need it most,” Skalkos also said.
In fact, according to commissioner Ferreira, during the pandemic European legislation was adopted within two weeks so countries could use the cohesion funding from their national envelopes to buy equipment and support workers and small businesses.
The EU’s response to Covid-19 and to the economic crisis of 2010 yielded much different socioeconomic outcomes in European regions, proving the need for less bureaucratic procedures.
“In the 2011 crisis the weakest regions took 10 years to go back to normality while in 2021 and 2022 the statistics show that the weakest regions as well as the richest regions bounced back on average to the level they had in 2019 in terms of development,” Ferreira added.
Amendments in the procedure could help eliminate inequality within regions, which according to Nils Redeker’s data is gradually rising over time, even though there's been a trend of regional convergence, with poorer regions narrowing the gap with the rest of Europe.
But, according to Redeker, what the policy primarily needs is more focus.
“The money is supposed to achieve everything from fighting social exclusion, promoting regional growth, helping the climate transition, and serving industrial policy goals,” Redeker said.
“A policy that aims to achieve everything is unlikely to work. Cohesion policy should focus more strongly on fostering social cohesion. For that, it needs a much stronger focus on the poorest regions, a better definition of local economic grievances, fewer hurdles for small and medium-sized companies to apply, and more investments in local social infrastructure,” he also said.
Ineffectiveness leads to vulnerability
“Cohesion policy is at risk at the moment, because there are other priorities like the common defence policy and the reindustrialisation of Europe,” Eleni Marianou told the EUobserver.
"Just because we suddenly have new priorities we should not forget the old ones, which is how different states and different regions can have the same level of development, because that is what cohesion policy does. It tries to bridge those gaps," Marianou also said.
As commissioner Ferreira said in Patras, Europe is "a chain, which is as strong as its weakest link”, and right now many are vulnerable to risks related to climate change. European climate adaptation is the epitome of social, economic and territorial cohesion since less developed countries are the most vulnerable ones.
"'Europe is a chain, which is as strong as its weakest link', and right now many are vulnerable to risks related to climate change."
The 2024 EUCRA report stated that “regions characterised by high levels of unemployment, poverty, emigration and ageing populations have a lower capacity to adapt to the impacts of climate change. Within Europe, such regions are concentrated in central-eastern Europe and parts of southern Europe”, which are the countries getting money from the sohesion policy.
According to the report, mountain regions like the Alps, islands and coastal regions in the Mediterranean, and large regions in northern Europe are especially sensitive to climatic changes, making their economies vulnerable due to their dependence on tourism, agriculture, fisheries and forestry.
In this fight against climate change, a report by the UN’s Intergovernmental Panel for Climate Change states that to develop climate resilience we need cooperation, access to financial resources particularly for the vulnerable, and inclusive governance.
This is similar to Cohesion’s “shared management and shared responsibility” principle, as described by Marianou and supported by CPMR, meaning the cooperation between European, national, local and regional levels.
The populist wave
The EU budget is defined once every seven years by the European Commission, EU member states, and the European Parliament.
In the first week of June, new lawmakers will enter the EU Parliament deciding on EU budget spending after the current period is over in 2027.
According to election forecasts, a populist wave might hit the Parliament for the first time. The far-right threat surfaces every five years, but according to a report by the think-tank European Council on Foreign Relations, an unprecedented majority of “a populist right coalition of Christian democrats, conservatives, and radical right MEPs could emerge.”
Anti-European populists are likely to win the largest number of votes in nine member states (Austria, Belgium, the Czech Republic, France, Hungary, Italy, the Netherlands, Poland, and Slovakia) and come second or third in nine more countries (Bulgaria, Estonia, Finland, Germany, Latvia, Portugal, Romania, Spain, and Sweden).
The far-right predictions concern countries both financing and receiving money from the EU budget, suggesting that the feeling of frustration is shared in both good and bad economies.
The so-called ‘geography of discontent’ mentioned in the EU Commission's February report includes towns and rural areas among other small cities and declining regions of Europe.
According to an analysis of the latest national election data in 11 countries by Investigate Europe, far-right parties achieved their highest percentage of votes in rural districts.
One explanation for this might be that when regions and people are feeling left behind they become frustrated, leaving room for populist ideologies.
“There is, in fact, good empirical evidence that concentrated regional decline is an important driver of political disillusion, populist attitude, and support for hard-right parties,” Redeker told EUobsever.
Author
Konstantina Maltepioti is an investigative journalist based in Greece and a part of the Reporters United network. She has covered political corruption, environment and human rights.
Disclaimer
The views expressed in this article are those of the author and do not necessarily reflect those of CEMAS Board.
