Cohesion lessons from the mid-term revision of the EU multiannual financial framework

July 2023

In late June 2023, the European Commission published the ‘Mid-term revision of the multiannual financial framework 2021-2027 (Opens in a new window)’. As for cohesion policy, the mid-term revision highlights some home-made problems. The risk is, however, that one draws misleading lessons from the analysis presented in the mid-term revision.

A possible conclusion might be: During the pandemic and in response to Russia’s war on Ukraine, cohesion policy funding has been effectively channelled to emergency measures and responses to migration and energy crises. This implied that funding for investments in structural change has been used to meet emergencies. Furthermore, cohesion policy has been slow in absorbing the available funding for the first years of the 2021-2027 period and risks decommitment. So, despite less money used for investments in structural change, the money available has not been used. An overhastily conclusion might be that cohesion policy funding for investments in structural change is no longer needed. This would, however, be a wrong conclusion, as the reasons for these observations lie elsewhere.

Cohesion policy was essential for crises responses

In line with various previous studies, the mid-term revision underlines how important cohesion policy has been to respond to the various crises Europe faced lately. Indeed, to respond to the crises a range of initiatives and funding instruments have been developed, often making use of unspent funds of the cohesion policy 2014-2020 period, some also bringing new funding.

In the wake of the pandemic, there were the Coronavirus Response Investment Initiative (CRII) swiftly followed by CRII+, and the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU). To allow for the crises responses programmes of the 2014-2020 period needed to engage in re-programming and manage crises related measures under CRII/CRII+ and REACT-EU with shortened programming and implementation.

Responding to the refugee and energy crises in the wake of Russia’s war on Ukraine, there are the Cohesion’s Action for Refugees in Europe (CARE), followed by CARE+, the Flexible Assistance for Territories (FAST-CARE) and the Supporting Affordable Energy (SAFE) instrument.

The obvious story: Why programmes run late

For the 2021-2027 multiannual financial framework, about EUR 392 billion, that is roughly 31%, are deliciated to cohesion policy. This comprises the European Regional Development Fund (ERDF), the European Social Fund Plus (ESF+), the Cohesion Fund (CF) and the Just Transition Fund (JTF). Compared to earlier programming periods, the flexibility has been increased and the administration simplified. Rather than being able to start in early 2021, most programmes were only adopted towards the end of 2022 and 9 programmes as late as in 2023. Therefore EUR 49 billion could not be used in 2021, nor carried over to 2022. To ensure they are not lost, the Commission adjusted the multiannual financial framework. Nonetheless, the mid-term revision underlines that cohesion programmes for the 2021-2027 period need to catch up with a one-year implementation gap and risk decommitment from 2025 onwards.

The obvious reasons for this include the late adoption of the legal base for cohesion policy – something which the programmes are not accountable for – and the administrative workload needed for the re-programming and management of crises instruments – see above – which reduced the programmes’ administrative capacities available for programming and kicking off the 2021-2027 period.

The elephant in the room: Competition between budget lines

The most important reason, however, becomes only visible when considering the full EU budget. Looking beyond the multiannual financial framework, the European Commission got an additional budget. Over the period 2021-2026, NextGenerationEU brings another EUR 807 billion to the EU budget. This means, the total EU budget amounts to about EUR 2 trillion.

Considering the full budget available the share of cohesion policy declines from roughly 31% to 19%. The biggest chunk of this additional EU budget, which is about EUR 724 billion, almost twice as much as the cohesion policy, goes to the recovery and resilience facility. It provides financial support to member states for productivity enhancing structural reforms in addition to investments, including investments in green and digital transitions and the European Pillar of Social Rights. While administrating and financing conditions are radically different from those of cohesion policy, the type of investments supported are rather similar.

In other words, cohesion policy got a competitor. This competitor has roughly double the financial envelope and, at first glance, easier administration and implementation frameworks. However, it comes with stricter rules stipulating that the investments must be made until a certain moment in time to be able to collect the money. Furthermore, given their high visibility of the recovery and resilience facility, many projects have been shifted from cohesion policy to the recovery and resilience facilitate. This is most likely the actual reason for the delay in cohesion policy spending. People simply need to prioritise absorbing the money of the recovery and resilience facility.

As for the future, the political commitment to the recovery and resilience facility, both at EU and national level, might become an additional aspect underlining the competition.

Re-focus on structural change

Considering cohesion policy and recovery and resilience facility as two funding instruments to accelerate structural change – and preferably contribute to economic, social and territorial cohesion – the actual budget for investments in structural change amounts to about EUR 1.2 trillion of the total budget of EUR 2 trillion. That is EUR 392 billion from cohesion policy plus EUR 724 billion from the recovery and resilience facility. EUR 1.2 trillion are a strong statement about how important structural change is for the EU and the future of its cities, regions and member states.

Why does this money need to be spent in a competition between two policies? The political rationale is clear. To show agency something new – e.g. a new instrument – needs to be presented showing that decision makers response to the crises. Furthermore, the new administrative rules developed for recovery and resilience facility give the European Commission a stronger negotiation position vis-à-vis the receiving member states. At the same time, it weakens the role of the local and regional level in the decision making. Thus it weakens subsidiarity and shared management approaches.

Nevertheless, most likely this competition does not necessarily imply that the most relevant and promising investments are supported. It rather focuses on how to avoid any of the money will be decommitment and thus stand for lost investment opportunities. Distributing the money via different funding regimes also leads to additional administrative costs and burden at the level of fund management and among the people running the investment projects. Not to mention, the confusion about diverging reporting and eligibility criteria – or the absence thereof. The two radically different implementation systems make their alignment very difficult if not impossible.

Focusing on single investments and the meeting of targets, the overall picture risks getting lost. EUR 1.2 trillion can make a real difference to the EU, its green and digital transition, its move towards strategic global competitiveness, its aim of economic, social and territorial cohesion and help to offer all places and people desirable future perspectives. For that, however, one would need a joint vision for Europe, its places and people, to guide how and where to invest. This is still missing.

by Kai Böhme