[Publication] Exploring strategies for using Cohesion Funds to address social and economic challenges in the EU

This study analyses how Cohesion Policy (CP) can continue to support socio-economic and territorial cohesion in tackling emerging and existing demographic, technological and socio-economic challenges. It provides an overview of the main challenges and their intensity across EU regions and of its strengths and weaknesses in addressing them in the 2014-2020 and 2021-2027 periods. The study further derives policy implications for future CP and the role of the European Parliament in supporting its effectiveness.

The study is based on a review of the relevant literature and policy documents, a statistical analysis of national and regional socio-economic and CP data and indicators, interviews with EU stakeholders and five regional case studies representing different socio-economic, geographical, institutional and policy contexts: Apulia (Italy), Guyane (France), Northern and Western region (Ireland), Pohjois-jaItä Suomi (Finland), Warszawski stołeczny (Poland).

Main challenges at national and regional level

Despite the efforts made to reduce EU regional disparities, significant socio-economic and territorial inequalities still persist. These inequalities have been further exacerbated by a number of factors, such as the COVID-19 pandemic, Russia’s war of aggression against Ukraine and inflation.

Demographic challenges, such as population ageing, low fertility rates and migration flows, can intensify regional disparities, particularly in rural and remote areas, affecting labour markets, service provision and the long-term viability of welfare and social protection systems.

Poverty and social exclusion are affecting a growing number of people, with more than 1 in 5 persons in the EU at risk of poverty or social exclusion, particularly in the case of women, low-skilled workers, young people, migrants, ethnic minorities and persons with disabilities.

Rural and remote areas with limited access to digital and transport infrastructure, economic opportunities and essential services, are facing depopulation, high unemployment and economic stagnation. These regions and former industrial areas are at risk of a development trap.

The digital and green transition may further increase socio-economic and territorial inequalities, with poverty risks affecting a growing share of the population. Digitalisation and AI are rapidly reshaping production processes, global value chains and competitiveness, the labour market and skills, with a growing demand for digital and STEM (Science, Technology, Engineering and Mathematics) skills, while job losses are occurring both in some medium- and low-skilled positions and qualified occupations in all sectors.

The contribution of Cohesion Policy to addressing the identified challenges

Since the 2008 crisis, CP has become an increasingly important EU instrument for addressing socio-economic and demographic challenges, representing 34% of total public investments in less and moderately developed Member States in the 2007-2013 programming period and 52% in the 2014-2020 period. In the 2014-2020 period, total Cohesion funding for interventions addressing socio-economic and demographic challenges accounted for 84% of total Cohesion planned allocations. In the current 2021-2027 period, this share is 72% of total planned allocations, as more resources are allocated to address environmental and energy challenges.

Over time, CP has been effective in reducing regional disparities and in supporting economic recovery, particularly in less-developed regions, thanks to the focus on these regions and the place-based approach adopted. CP investments have contributed to the socio-economic growth of local economies through targeted measures and investments that support innovation, SMEs, employment, training and education, social inclusion and poverty reduction. CP has also supported institutional cooperation and capacity building for better governance and administrative efficiency.

CP contributed to tackling the specific regional challenges of the  regional cases considered, with important achievements for the competitiveness and innovation of SMEs (Finnish, Polish, Italian, and Irish regional cases), youth employment (Guyane and Finnish cases), upskilling (Guyane and Italian cases), job creation and reskilling (Finnish and Irish cases) and social inclusion (Finnish, Irish and Italian cases).

Cohesion Policy strengths and weaknesses

The debate and available evidence underline some important strengths of CP in addressing the considered challenges, including:

• The strong attention to territorial/spatial aspects and specificities, which differentiate it from other EU sectoral instruments;
• The shared management and partnership approach (involving regional/local public and private stakeholders) and the use of conditionalities and enabling conditions to promote the implementation of national reforms;
• The adoption of a strategic approach (as in the case of Smart Specialisation or R&D strategies) and synergies between CP programmes and national/regional programmes that have contributed to positive results;
• The Multiannual Programming Framework, ensuring funding stability and certainty for multiannual investment plans and reducing their vulnerability to national economic and political cycles;
• The improved capacity of national, regional and local authorities to rapidly respond to major unforeseen crises, with the introduction of more flexible and specific crisis-response instruments;
• The attention to institutional and administrative capacity building at all institutional levels, due to its relevance for effective implementation.

Conversely, the main obstacles hindering implementation on the ground are:

• The difficulty in adapting CP programmes to the complex challenges of local contexts and in addressing the rural-urban divide, especially for rural and peripheral regions experiencing brain drain and depopulation;
• The complex regulatory framework with stringent eligibility criteria often hindering the implementation of innovative projects tackling local specificities;
• The difficulty in out-reaching those businesses and population groups most hit by the emerging socio-economic challenges;
• The low awareness among the general public of the role of CP in promoting cohesion; and
• In some cases, the weakness of the governance system and of the institutional and administrative capacity at the national and local levels, especially in less developed areas.

The future of Cohesion Policy: Debate and policy implications

The acceleration of demographic, technological, socio-economic and environmental challenges in the coming years, together with geo-political tensions and conflicts, is likely to exacerbate existing socio-economic and territorial disparities both within and between EU countries. These challenges reinforce each other and ask for systemic answers.

The decline in competitiveness is, among others, becoming one of the most pressing structural challenge in Europe, which calls for a strengthening of global networks through trade and cross-border investments. The different impacts of the digital and green transition on social groups and territories may further increase social and territorial inequalities and polarisation in income, work opportunities and access to social services, creating cycles of poverty and social exclusion that involve a growing share of the population and might feed social conflict. In addition, marginal and rural areas risk falling into a talent development trap, limiting their potential for growth.

The current debate over the future of CP underlines that to tackle socio-economic and territorial inequalities, several changes should be made:

• CP investments should continue to be concentrated in less developed and stagnating regions already in or at risk of falling into development traps.
• CP’s place-based and people-oriented approach should be strengthened.
• Greater flexibility in the design and implementation of interventions and in eligibility criteria (the criteria for accessing funding) would support more territorially tailored interventions and economic and social innovation in response to emerging and developing needs on the ground.
• Strengthening the performance–based approach and extending the use of simplified costs options to further simplify procedures.
• Reinforced data collection, monitoring and evaluation systems and their stronger integration into decision-making mechanisms, together with continuing support for institutional and administrative capacity building, would improve CP effectiveness and value added.