Balanced territorial development and the triple transition

June 2024

In April the European Commission published the 9th Cohesion Report (Opens in a new window). It presents a wealth of analytical results on the state of economic, social and territorial cohesion. Besides being a good reference document when discussing cohesion, it also provides insights on future strategic orientations. One of the key messages is to continue delivering economic progress and to ensure that no places are left behind, Cohesion Policy must adapt and modernise. This concerns the support of the triple digital, green and demographic transition, as well as the need for further improving governance and policy coordination across all levels of governance. 

Some key messages

Summarising the full wealth of information presented in the 9th Cohesion Report goes beyond the scope of a blog post. Therefore, the following will only highlight some selected findings and conclude with suggestions related to the implementation of Cohesion Policy post 2027 and the expressed need for a more balanced territorial development.

The EU is at a pivotal juncture, navigating through the green, digital and demographic transitions with an eye towards sustainable development and competitiveness on the global stage. As these transformations unfold, they unveil a complex web of mutual interplays and opportunities tempered by the need for profound structural changes.

One example of the interplay between the various transition processes is climate change effects exacerbating regional disparities, particularly in coastal, Mediterranean, and south-eastern regions. The report points out, that these regions are at risk of losing over 1% of GDP annually as a result and their ageing populations are more exposed to the harmful effects of climate change.

The green and digital transitions have the potential to redefine production processes and value chains globally, with clear implications for economic geography and with more innovative players finding it easier to adjust and take advantage of the opportunities that arise.

Besides analysing the territorial dimensions and disparities concerning the green and and digital transition, the report points at the substantial untapped potential for cross-border co-operation across all types of EU region in developing the value chains needed for the triple transitions. A main issue for this is the strong national bias in inter-regional collaboration in co-patenting. It limits the potential to co-operate in the EU Single Market. To overcome this, the report suggests among others to strengthen inter-regional knowledge flows and to promote co-operation in innovation between leading and lagging regions.

The demographic transition focuses on the slowdown in population growth and aging, driven by a natural population decline since 2012. Today, already 40% of people in the EU live in a region that lost population over the preceding decade. Demographic prospects risk to drive further concentrations to urban areas. Often demographic change fuels increasing concentration of the population in fewer cities and large towns, and a diminishing proportion in rural areas far away from the nearest city – where depopulation, ageing and a shrinking workforce are most prevalent. These demographic changes are accompanied by risks of labour and skill shortages, which pose potential challenges to cohesion.

As for future enlargements, the report underlines that disparities between EU regions and current candidate countries are large but not unlike those between the EU-15 and accession countries in 2004, suggesting that there is a very large untapped potential for further upward convergence.

Better policy coordination and governance

For the EU to master the digital, green and demographic transitions and keep the cohesion objective, better policy coordination and governance are vital. Efficient policy coordination is crucial for the effective functioning of governance systems at all levels. It involves the integration and alignment of various policy measures across different sectors and governance levels, ensuring they work cohesively rather than in isolation.

The analysis of economic, social and territorial cohesion points at considerable disparities within countries. These should be addressed in a complementary manner by national policies and EU funding. National policies and Cohesion Policy should be mutually reinforcing, leading to a more comprehensive and effective approach to regional development.

Vertical coordination refers to the alignment and integration of policies across different levels of governance – local, regional, national, and even international. The report emphasises that without strong vertical policy coordination, there can be policy overlaps, gaps, and inefficiencies. For instance, it highlights that 62% of regional policy initiatives could benefit from better alignment with national strategies to avoid duplication and enhance policy effectiveness. This alignment is particularly crucial in areas such as economic development and environmental regulation, where multi-level governance is common.

The Cohesion Report puts a special emphasis on the coordination between EU Cohesion Policy and corresponding national policies, and on the role of sub-national policies.

Horizontal coordination pertains to how different policy sectors, such as health, education, innovation and transportation, collaborate and align their strategies to achieve common goals. The report points out that effective horizontal coordination can lead to more integrated and sustainable outcomes. It cites a case where integrated policy approaches between transportation and land use planning led to improved urban mobility and reduced carbon emissions by 24% over five years in several European cities.

National policies are a catalyst for cohesion. The 9th Cohesion Report provides insightful analysis into the pivotal roles that national policies and their coordination with EU strategies play in fostering economic, social, and territorial cohesion. The report underlines that while EU funds and initiatives provide crucial support, the actual application and effectiveness largely depend on national policy frameworks. These policies need to be robust and well-aligned with cohesion goals to effectively utilise EU funds in reducing disparities between regions.

The report highlights that national policies must address structural challenges like market failures, public service deficiencies, and infrastructural gaps which are often more pronounced in less developed regions. It stresses the importance of national strategies in creating enabling environments that attract investments, enhance competitiveness, and foster inclusive growth.

A significant portion of the report is dedicated to the critical need for coordination between EU policies and national implementations. Effective governance frameworks at national level are fundamental to ensure that EU directives and funds are implemented efficiently and in ways that directly address the specific needs of diverse regions.

The 9th Cohesion Report also discusses the integration of different policy domains at national and EU levels. This cross-domain integration is crucial for addressing multi-faceted regional disparities and for achieving sustainable development goals. National policies that synergise with EU initiatives in areas such as innovation, digital transition, and sustainable development are particularly effective. These integrated policies help to ensure that investments are not siloed but contribute to comprehensive development objectives that benefit all regions.

Sub-national policies play a significant role for fostering economic, social, and territorial cohesion. Sub-national entities, including regions and municipalities, play a pivotal role in implementing policies that directly affect the grassroots level. They are often at the forefront of addressing specific local challenges, such as economic underdevelopment, social inequalities, and environmental concerns. By crafting tailored solutions that are attuned to local conditions, sub-national policies significantly enhance the effectiveness of national and EU-wide strategies aimed at promoting cohesion.

The 9th Cohesion Report also highlights the diversity of sub-national responsibilities and how these contribute to the overarching goals of cohesion across different EU regions. This diversity is largely influenced by the degree of decentralisation within each member state, which dictates how powers and responsibilities are distributed between national and sub-national levels. For instance, in highly decentralised systems, sub-national governments have significant autonomy in areas like education, health care, and economic development, which allows them to implement policies that are highly responsive to local needs.

One of the key messages from the report is the need for effective coordination between different levels of government to ensure that EU Cohesion Policy are utilised effectively. It highlights examples where strong collaboration between national and sub-national governments has led to successful outcomes in regional development projects. The report argues for enhanced mechanisms that facilitate better vertical and horizontal coordination, which can help in aligning local initiatives with national and EU objectives.

The findings of the 9th Cohesion Report suggest that empowering sub-national governments with greater responsibilities and resources is crucial for achieving more balanced and sustainable development across the EU. It also points to the need for ongoing support and capacity building for these governments to manage their roles effectively.

Balanced territorial development

Place-based approaches are presented as an important way forward. The report highlights that they can unlock the potential of all regions to innovate in line with their strengths and characteristics. The report advocates for tailored approaches to governance and policy-making at the sub-national level. Recognising the unique challenges and opportunities present in different regions, it calls for strategies that are specifically designed to leverage local strengths and address local weaknesses. This includes fostering innovation ecosystems, supporting SMEs, and investing in infrastructure that boosts connectivity and accessibility. The report also contains an attempt to define territorial cohesion: “Territorial cohesion is about ensuring the harmonious development of the wide diversity of places in the EU and making sure that people there are able to make the most of their inherent features.”

Promoting more balanced territorial development is seen as a necessity. The 9th Cohesion Report highlights that sub-national economic development is often characterised by strong polarisation between capital regions and large metropolitan centres on the one hand, and regions with lower population density on the other. This uneven distribution of growth drivers often leads more developed regions to perform better in terms of innovation and competitiveness, quality of public governance and administration, and education attainment while significant economic and quality job creation potential may remain to be exploited in less developed rural and intermediate regions.

Metropolitan areas, cities and their surroundings play a central role in regional development. They concentrate human capital (including universities, vocational training centres and R&D centres) and ensure high connectivity and high quality services. Because of this, they naturally attract investment. But their attractiveness comes at a price: higher congestion, social challenges, and housing costs – which, coupled with higher wage costs, may undermine their competitiveness.

Small towns and medium-sized cities also play a pivotal role in territorial development, by fostering the growth of their surrounding areas. They are key in the provision of public and private services and offer employment and education opportunities to the surrounding areas.

Territorial imbalances could be mitigated by a more polycentric development model: building on small and medium-sized cities and promoting accessibility of public services in areas far from large urban centres. Regional cooperation could be strengthened by building the capacity of relevant authorities and stakeholders.

Better cooperation across EU regions can also contribute to achieving more balanced territorial development. Cohesion Policy, especially through Interreg programmes, has helped to support interregional collaboration through cross-border and transnational cooperation, including through macro-regional strategies. These foster innovation, development, and better governance. There is nonetheless room for strengthening regional cooperation at different levels – notably in delivering common public goods across borders, given the added-value of supporting cross-border investments with the European budget.

Conclusion

Policy strategies, coordination and cooperation are all critical elements of effective governance. The analysis and strategies outlined in the report illustrate the significant benefits of well-targeted and well-coordinated policy actions and the pitfalls of isolated approaches. Policy makers are encouraged to take proactive steps towards enhancing coordination mechanisms, ensuring that policies across all levels and sectors are not only aligned but also synergistically contributing to the collective welfare of society.

The 9th Cohesion Report very much echoes the principles of the Territorial Agenda 2030 (Opens in a new window) for ensuring a future for all places.

However, the benefits of using place-based approaches should deserve more attention in the implementation of Cohesion Policy after 2027. By focusing more on places in the policy design and implementation would enhance a coordinated development of the rich variety of unique places within the EU. See also an earlier blog post on the need for a more place-based Cohesion Policy (Opens in a new window).  

Member states in their national policies and their regions in sub-national policies should be encouraged to study and make optimal use of their territorial reality, the potential and needs of their metropolitan areas, cities, towns, their less developed rural and intermediate areas.

Integrated and strategic development policies for the places within their respective territories should be part of the development of future Cohesion Policy programmes.  

To support member states and their regions, the European Commission has a vast European-wide analytical knowledge of regions and cities that can help targeting more specific, place-based suggestions for interventions in specific (types of) regions, urbanised and rural areas.

The Regulations governing the Cohesion Policy after 2027 should therefore include requests for improvement of place-based efforts when tackling the triple transition and regional disparities in order to promote more balanced, territorial development.

by Peter Mehlbye & Kai Böhme