Analytics, EU – Baltic States, Financial Services, Legislation, Modern EU

During last two decades, EU Cohesion Policy delivered results in all regions and was a major source of investment: it helped to create 1.2 million jobs in the EU over the last 10 years.

Regional economic gaps are slowly shrinking again and the reflection paper on the future of EU finances questioned the Cohesion Policy’s role only focusing on less-developed regions.

The seventh EU Cohesion report shows, that regions in EU are growing, but quite differently: many wealthy are closer to the EU average; others are stuck in a “middle-income trap”.

Some regions have been bearing the costs of globalisation without yet reaping its benefits, often with substantial job losses and the incapacity to achieve industrial transformation. They will need further financial support to foster job creation and structural change.

The report highlights that the current level of investment is insufficient to reach the 2030 targets of shares of renewable energy and reduced greenhouse gas emissions; e.g. all EU regions will therefore need more funding to achieve decarbonisation.

Public investments in the EU are still below pre-crisis levels; however, the states need more support to take up the existing challenges: the digital revolution, globalisation, demographic change and social cohesion, economic convergence and climate change.

These challenges are identified in the reflection paper*) on the future of EU finances (June 2017); the EU institutions are preparing proposals for the next multiannual financial framework, MFF for EU-27 (to be presented in mid-2018). It lays down the maximum annual amounts which the EU may spend each year in different policy fields over a period of 5 years.

*) See reflection paper in: http://europa.eu/rapid/press-release_IP-17-1795_en.htm

Commenting on the new Cohesion Report-17, Commissioner for Regional policy Corina Creţu underlined that the report clearly showed that “the Union needs more cohesion”. The crisis has left scars in many regions, which need additional cohesion policy tools to meet modern challenges. 

Commissioner for Employment, Social Affairs, Skills and Labour Mobility, Marianne Thyssen, noted that the Cohesion Report-17 underlined the need for “meaningful investments” for the current economic recovery to be sustainable.

Citations from: http://europa.eu/rapid/press-release_IP-17-3644_en.htm

EU-wide public consultation on the future Cohesion Policy will be launched in early 2018; in May 2018, the Commission will present a proposal for the MFF, followed by the proposals for Cohesion Policy after 2020.

Three main cohesion policy directions after 2020

= Harnessing globalisation. In order for the member states to face challenges in the globalised economy, regions need to modernise their economies and create value. Only a handful of EU regions can today lead the way; further investments are needed in innovation, digitisation and decarbonisation. In addition to necessary funding, efficient links should be fostered between research centers, businesses and services.

Regional innovation scoreboard in:

http://ec.europa.eu/growth/industry/innovation/facts-figures/regional_fr

= Leaving no one behind. Some EU regions face mass exodus, while many cities are under pressure due to newcomers seeking better prospects, including migrants. The EU’s employment rate has reached a new high, but the unemployment rates, especially among young people, are still above pre-crisis levels.

Thus, tackling unemployment, helping people develop their skills and set up businesses while fighting exclusion and discrimination will require further investment. Therefore the process of social cohesion in the EU states depends on resolving these issues.

= Supporting structural reforms. In order to improve investments, boosts competitiveness, increase growth and maximise the impact of investments efficient public administration is needed. The Cohesion Report-17 acknowledges that the link between Cohesion Policy and the EU economic governance may need to be strengthened to support reforms for a growth-conducive environment.

See: http://ec.europa.eu/regional_policy/mapapps/7cr/7cr.html?layer=eqgi

More information in: = The 7^th report on economic, social and territorial cohesion; = Memo – The Future of EU Finances: the 7th report on economic, social and territorial cohesion; = Factsheet – Cohesion in our Union; = Factsheet – Cohesion Policy at work, delivering in all EU regions; = Inforegio – interactive maps.

Source: http://europa.eu/rapid/press-release_IP-17-3644_en.htm ; Latvian version in:

http://europa.eu/rapid/press-release_IP-17-3644_lv.htm (9.x.2017). 

Supplement

Commission published additionally some comments on the EU cohesion support issues. These comments are important for the Baltic States’ government structures as the cohesion funds play a vital role in these states’ socio-economic development.      

Every three years, the EU institutions make analysis of European regions’ conditions in economic, social and territorial cohesion. The results, compiled in the cohesion report, help EU states progress in regional cohesion: who is leading and who needs to catch up in terms of innovation, employment or institutional capacity; who is ready to take up the big challenges of the coming years – harnessing globalisation, adapting to climate change and migration – and who needs further support.

Such reports help to see more clarity and objectivity what has been achieved and what needs to be done in the post-2020 financial period.

The main conclusions of the present Cohesion Report-17 are that European economy is “bouncing back”: GDP and employment rate in the member states has reached new highs and regional economic disparities have started shrinking again. EU regions are growing, but not at the same pace: less-developed regions are catching up, but their employment rates remain low. Unemployment rates remain above pre-crisis levels in a number of regions but too many small businesses struggle to adapt to globalisation, digitalisation, green growth and technology change.

At the same time, public investment remains low, especially in those countries and regions worst hit by the recent crisis; Cohesion Policy funds remain a lifeline for many of these regions.

The EU faces demographic and social challenges too. Natural population change in the EU turned negative for the first time in 2015: deaths outnumbered births, which increased the impact of migration (from inside and outside the EU) on local populations; some regions face mass exodus, while cities are under the pressure of newcomers seeking better opportunities, including migrants. Regions of poverty and social exclusion are still too common, even in wealthier regions and cities.

Finally, the Report-17 underlines that more investments will be needed everywhere in the EU to reach the 2030 targets of increased renewable energy shares and reduced greenhouse gas emissions.

Among main suggestions for the future Cohesion Policy based on the meaningful investments approach to improve the resilience of European economy and labour force are: 1. Harnessing globalisation (by supporting economic transformation in regions, innovation, industrial modernisation, and technology uptake); 2. Leaving no one behind (by tackling unemployment, investing in skills and business development while fighting social exclusion and discrimination); and 3. Supporting structural reforms (improving public administration boosts competitiveness, growth and maximise the impact of investments).

In addition, the report sets out options for the future implementation mechanism of the policy. There is consensus that simplified rules are needed: for example, a single rule book for Cohesion Policy and other EU funding instruments (COSME, Horison-2020, etc.) investing in the same kind of projects, to make life easier for beneficiaries. Identical rules and clearer demarcation of interventions could ensure better complementarities with the European Fund for Strategic Investments (EFSI); revising the allocation of funds with new criteria, in addition to regional wealth, linked to EU-wide challenges; demographic change, unemployment, migration or climate change; increased national co-financing to incentivise sound spending and ownership; and an unallocated portion of funding at the beginning of the budget period could be reserved for unexpected developments and help respond to new challenges more quickly.

Although the EU economy is gradually recovering from a period of crisis, public investment in the EU fell from 3.4% of GDP in 2008 to 2.7% in 2016. In a number of EU states, the reduction in growth-supportive expenditure has been substantial.

The EU Cohesion Policy provides funding equivalent to 8.5% of public investment in the EU, a figure that rises to 41% for the EU-13and to over 50% for a number of countries (the states that acceded to the EU during 2004-3: Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Malta, Poland, Slovenia, Slovakia, Bulgaria, Romania and Croatia).

Cohesion Policy’s key role in public investment reduced the impact of the crisis, by providing a stable source of investment as national investments declined. Thus, investments for 2007-13 increased the EU-12’s GDP (excluding Croatia) by 3% in 2015, while for the 2014-20 period the increase is estimated to be a further 3% by 2023.

The non-cohesion countries also benefit from spillovers generated by investments in cohesion countries both directly (a company can carry out work as a subcontractor in the context of an EU-funded project in another state) and indirectly (through higher income in cohesion countries due to EU investments and therefore increased trade).

Cohesion policy is closely linked to the EU economic governance: for efficient use of “cohesion investments”, a sound macroeconomic framework is needed, as well as a business-friendly environment. During 2014-20,cohesion policy programmes took into account the main Country Specific Recommendations (CSRs) in the European Semester for the year 2014.

Cohesion policy is conditioned to the European Semester and the wider economic governance of the EU in two ways:

1) “Ex-ante conditionalities”are preconditions which the EU states have to fulfill in order to receive Cohesion Policy Funds; they cover a wide variety of sectors, including compliance with energy efficiency or public procurement legislation, investment planning for innovation, transport or digital economy, and education reforms, as well as the implementation of CSRs.

2) “Macroeconomic conditionalities”, which are linking cohesion funds more closely to the European Semester and to the different economic governance procedures. For example, when a EU state fails to take effective or corrective action in the context of key EU economic governance mechanisms (Excessive Deficit Procedure, Excessive Imbalance Procedure, etc.) or fails to implement the measures required by a stability support programme, it can trigger a suspension of all or part of the commitments or payments for the programmes of that state.

Present cohesion report acknowledges that the link between Cohesion Policy and the EU economic governance may need to be strengthened to support reforms for a growth-conducive environment.

On Semester: https://ec.europa.eu/info/strategy/european-semester_en

To go further, the Commission has launched the “catching up initiative” to help low-income and low-growth regions identify and implement the key reforms they need to improve their competitiveness. Low-growth regions’ GDP per head is up to 90% of the EU average but they have a persistent lack of growth. Low-income regions’ GDP per head is growing, but is still below 50% of the EU average. One group is clustered mostly in southern Europe, and a second group is concentrated in the east.

As part of this initiative, a one-year pilot program in Poland with Commission and World Bank experts working on the ground with local authorities has shown promising results.

In addition, the Commission has provided EU states with expertise, best practices and peer exchanges tools to reinforce their institutional capacity and improve the way they manage and invest EU cohesion funds.

See more: http://europa.eu/rapid/press-release_MEMO-15-5128_en.htm