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Summary of "EU Cohesion Policy: Some Fundamental Questions" by Indira Santos

Core Content

This document presents a critical analysis of the European Union's cohesion policy, focusing on its economic efficiency and redistributive effectiveness. The author, Indira Santos, outlines unresolved issues and proposes key questions for future policy reforms in the context of the EU Budget Review and the upcoming financial perspectives.

The paper highlights the complexity of EU cohesion policy due to its multiple objectives and the political compromises that influence the allocation of funds. It also questions the rationale behind EU-level intervention, emphasizing the need for a more operational and coherent policy framework.

Main Objectives and Instruments

EU cohesion policy has three key financial instruments:

• European Regional Development Fund (ERDF)
• European Social Fund (ESF)
• Cohesion Fund (CF)

These funds are used to achieve three main objectives:

1. Convergence: Aimed at the least-developed regions, accounting for 81.5% of total funds.
2. Regional Competitiveness and Employment: Focuses on innovation, entrepreneurship, and environmental protection, accounting for 16% of total funds.
3. European Territorial Cooperation: Encourages transnational cooperation, accounting for 2.5% of total funds.

The paper questions whether these objectives are clearly defined and whether they can be effectively operationalized.

Member State Disagreements

There are significant disagreements among member states regarding the allocation of structural funds:

• Some countries (e.g., Finland, Latvia, Lithuania, Romania) support funding only for poor regions.
• Others (e.g., Bulgaria, Czech Republic, Hungary, Ireland) advocate for funding only poor regions in poor countries.
• A few countries (e.g., Austria, Cyprus, France, Germany) support funding for all regions.

These differences reflect varying views on the effectiveness of EU-level redistribution and the role of national governments in managing regional development.

Structural Funds: Efficiency and Redistribution

The paper presents evidence that the impact of structural funds on growth is mixed. It points out several limitations in assessing their effectiveness, including:

• Non-random allocation: Structural funds are not distributed randomly, which complicates causal analysis.
• Opportunity costs: The paper emphasizes that the opportunity costs of structural funds are often overlooked.
• Intra-regional redistribution: A significant portion of structural funds is used for redistribution within the same region, rather than across regions or countries.

In particular, the paper notes that in the period 2007-2013:

• 27% of structural funds were allocated across countries.
• 75% of the remaining funds were used for intra-regional redistribution.
• Intra-regional redistribution is twice as large as inter-regional transfers.

This indicates that structural funds are not primarily used for cross-border convergence but rather for internal redistribution within countries.

Key Findings

• Net benefits vary significantly: Even within similar income levels, regions in different countries can receive vastly different amounts of structural funds.
• Country-level contributions affect regional benefits: A region's net benefit depends on both its own income and the overall contribution of its country to the EU budget.
• Added-value is questionable: If most of the funds a region receives come from within the same region, the added-value of EU structural funds is in doubt.

Lisbon Agenda and Crisis Management

The paper discusses the alignment of cohesion policy with the Lisbon strategy, which emphasizes competitiveness, innovation, and growth. It questions whether this focus is appropriate for all regions and highlights the need for a more nuanced approach to what constitutes Lisbon expenditure.

In the context of the global economic crisis, the European Commission has introduced more flexibility in the use of structural funds, including:

• Extended deadlines for fund usage.
• Increased reallocation between spending priorities.
• Emphasis on high-return projects such as green jobs and clean technologies.

The paper raises questions about the implications of this increased flexibility for the future design and role of cohesion policy.

Three Broad Questions for Debate

1. Impact: What conclusions can be drawn from existing evidence on the effectiveness of cohesion policy? Which policies and settings are most successful?
2. Subsidiarity: Who should benefit from structural funds, and in what form? Should all regions be eligible?
3. Evaluation: How can we better evaluate the impact of cohesion policy, especially structural funds, on growth and development?

Conclusion

The paper argues that cohesion policy is complex and often lacks clarity in its objectives and instruments. It calls for a more focused and operational approach to policy design, emphasizing the need to balance growth and redistribution goals. The role of the EU in regional policy is questioned, with a focus on whether structural funds are the most effective tool for achieving the desired outcomes.

Key Takeaways

• Multiple objectives create confusion in policy design and implementation.
• Political horse-trading influences the allocation of funds, often at the expense of policy quality.
• Intra-regional redistribution is more common than inter-regional, raising questions about the added-value of EU structural funds.
• Flexibility in fund usage is increasing, but this may not necessarily improve policy outcomes.
• Evaluation remains a challenge due to the difficulty in isolating the effects of cohesion policy from other factors.

References

• European Commission [2009] 'Commission increases flexibility of structural funds in response to the financial crisis', IP/09/310, Brussels, 24 February.
• Neheider, S. and I. Santos [2009] 'Reframing the EU budget decision-making process', Bruegel working paper.
• Santos, I. [2008] 'Is structural spending on solid foundations?', Bruegel Policy Brief 2008/02.
• Tabellini, G. (2003) Principles of policy-making in the European Union: An Economic Perspective, Bocconi University.
• Tarschys, D. [2008] The budget review and the committee on budgetary control: coping with multiple agents and multiple goals, Stockholm University.