Reformed Cohesion Policy: Background and Development

Reformed Cohesion Policy: Background and Development

Summary

The European Structural and Investment Funds (ESI Funds) have moved far beyond redistributive regional funding following significant reforms of the Unions Cohesion policy. The consolidation of an overarching policy based in law on the common values and solidarity of the Union presents significant potential to ensure investment is smart, sustainable and inclusive. Member States have an unprecedented opportunity to end institutional forms of care that are a violation of human rights and that decades worth of research evidencepoor economic, social and human outcomes. The Commission and other institutions of the Union recognise the profound negative effectsand significant harm caused to children, persons with disabilities including mental health problems and older persons who are placed in segregated living and service arrangements.

This informative paper gives a brief background of the Unions Cohesion policy in order to set the reforms of the 2014-2020 legislative frameworkgoverning the ESI Funds in context. The paper provides a road map of key Union instruments, policies and strategies that have developed and refined through each funding period. Learning what works and what does not work, current Union policy adopts a multidimensional approach (smart, sustainable and inclusive) toward growth and development. While there is room for improvement, the 2014-2020 reformed Cohesion policy marks an important shift in tying its investment policy closer to the values of the Union and the fundamental rights of its citizens and residents.

Table of Contents

Community Living for Europe: Structural Funds Watch

Setting the scene: The Structural Funds in the Union

The Development of EU Cohesion Policy

A new era: smart, sustainable and inclusive growth and development

The European Semester

The Unions Social Investment Approach

Community Living for Europe: Structural Funds Watch

Community Living for Europe: Structural Funds Watchis an independent pan-European monitoring and evaluation initiativeconcerned with whether and how the ESIFunds are being spent to ensure a right to community living for all.The initiative is funded by LUMOS and based in the Centre for Disability Law and Policy at the National University of Ireland Galway. It is guided by a Steering Committee comprised of LUMOS, the Centre for Disability Law and Policy, European Disability Forum, European Foundation Centre, the Equal Rights Trust, Age-Platform Europe and the European Expert Group on the Transition from Institutional to Community-based Care.

The legislative framework for the 2014-2020 programming period is the result of concerted advocacy over many years on the part of these and many other organisations across Europe pointing to a historic change on paper. On the basis of hard evidence we advocate for the continual improvement in the application and monitoring of the Funds, particularly the European Regional Development Fundand the European Social Fund.

Setting the Scene: The Structural Funds in the Union

All Member States are to share in the benefits of the Union namely, a strong single market founded on the four fundamental freedoms and the common values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights[1].

Article 174 of the Treaty on the Functioning of the European Union (TFEU) states that the Union shall develop and pursue its actions leading to the strengthening of its economic, social and territorial cohesion. In particular the Union aims to reduce the differences between the levels of development of the various regions and the backwardness of the least favoured regions[2]. The pursuit of economic, social and territorial cohesion is an area of shared competence between the Member States and the Union[3]. This means that both the Member States and the Union are tasked with achieving this goal. The Member States must conduct and coordinate their economic policies to achieve this objective while the formulation and implementation of Union's policies, actions and the implementation of the internal market shall contribute to this achievement[4]. Article 175 TFEU specifies the Union shall support the achievement of economic, social and territorial cohesion by the action it takes through the Structural Funds, the European Investment Bank and the other existing Financial Instruments. The particular attention to the development and growth of less developed regions demonstrates that the concept of equality is closely bound to the use of the Funds and the pursuit of cohesion[5].

The European Structural and Investment Funds (ESI funds) deliver a critical mass of investment for the achievement of Union goals. Promoting economic, social and territorial cohesion and combatting poverty, social exclusion and discrimination are fundamental objectives of the Union identified in Treaty based law[6]. These objectives inform the Europe 2020 strategy that is the Unions ten-year plan for smart, sustainable and inclusive growth. Europe 2020 sets five targets on employment, innovation, education, social inclusion and climate action. One of the social inclusion targets of the Union is to lift at least 20 million people out of poverty and social exclusion by 2020[7]. €351.8 billion of the Unions budget is allocated toCohesion Policy 2014-2020that is to be the principle investment tool for delivering theEurope 2020 targets. €62.5 Billion is allocated specifically to measures that promote social inclusion, combat poverty and any discrimination[8]. These available funds represent a historic opportunity to transform the landscape of the EU and benefit many millions of citizens and residents into the future. In order to help Member States reach their inclusive growth target the Union launched the European Platform Against Poverty and Social Exclusion. This flagship initiative is based on five area’s of action that include the need to make better use of EU funds to support social inclusion[9]. Further to this specific action area, a minimum amount of funding from the European Social Fund has been earmarked for measures supporting social inclusion in each Member State[10]. All Member States have translated the Europe 2020 goals into National targets[11]. These individual efforts need to be coordinated in order to achieve the desired impact on growth and better cohesion which is to be supported by and monitored in the framework of the European Semester. The European Semester is the yearly cycle of economic policy coordination that provides the framework for steering and monitoring Member States economic and social reforms to reach the Europe 2020 targets. Such reforms explicitly include the shift to community based care and integrated housing policies among other complementary policy areas[12].Key documents in the European Semester cycle inform the current and future focus of the Structural Funds and are therefore a vital driving force in supporting a harmonized and coordinated approach to achieving the Europe 2020 targets.

As one of the two major funding policies in the EU, cohesion policy funding represents a third of the entire EU budget[13]. In global terms, cohesion policy can be described as one of the world’s largest development programmes that exists under a single comprehensive policy architecture[14]. The 2014-2020 period reforms represent a cumulative change in thinking about growth and development. This change is centered on trying to understand ways of thinking about policies that respond to the integrated nature of growth and development and how they best operate and function in a market of regional globalisation and significant demographic changes. The multidimensional nature of growth and development has lead to the recognition of the need to target all aspects of growth; the smart, the sustainable and the inclusive. This approach is not unique to Europe. The United States adopts a forward facing approach to growth and development promoting innovation, research and development, sustainability and human capacity as “essential to achieving broad-based economic growth, building strong, sustainable communities and promoting social well-being”[15]. The Organisation for Economic Co-ordination and Development (OECD) growth strategy aims for a ‘stonger, cleaner and fairer global economy’ particularly through adopting a global response to moving beyond the economic crisis through the sharing of policy experiences[16]. In China, rapid economic growth over the past three decades has resulted in significant regional disparities and therefore new thinking that “economic growth depends on balanced development between urban and rural area’s and among regions”[17].

What is unique in the European case is that Cohesion policy as a growth and development strategy for Europe has moved far beyond a redistributive funding tool operating at regional level. The consolidation of an overarching policy that is based in law on the common values and solidarity of the Union provides targeted support for innovation and the reform of economic and social policy systems. A brief background is given below in order to contextualize the rationale and development of cohesion policy and the adoption of multidimensional policy approaches to growth and development in the Union.

The Development of EU Cohesion Policy

Regional policy was first introduced in the preamble of the Treaty of Rome in 1957 that established the European Economic Community under the aim of “reducing the differences existing between the various regions and the backwardness of the less favoured regions”. Article 2 of the Treaty advised that the Community was tasked with promoting a “harmonious development of economic activities” and “a continuous and balanced expansion” of the area. It is important to place regional policy in the context of economic policy thinking of the time that did not favour an overarching European community level policy. Consequently, it was held that the creation of the common market would solve the regional differences between and within the Member States that would in turn lead to harmonious development and a balanced expansion[18]. Any losses encountered in the transition toward the common market were to be compensated through specific sectoral policies including assistance to farmers through the common agricultural policy_ and to workers through the European Social Fund. Lacking a specific treaty basis, regional policy remained at what can be termed a compensatory level throughout the 1970s and 1980s.

The accession of Greece, Portugal and Spain as three large countries with lower GDPs in the 1980s boosted a ‘new era’ of major reforms of EU funding under the European Commission President Jacques Delors. Regional policy was transformed under a Cohesion agenda supporting “structural conversion and adjustment projects in regions in difficulty”[19]. The Single European Act of 1987 introduced a specific title on Economic and Social Cohesion thereby addressing the lack of a legal basis that had plagued earlier development efforts. While cohesion is not specifically defined in the Treaty its requirements are to promote the “overall harmonious development” of the Community and “strengthening economic and social cohesion”, particularly by “reducing disparities between the various regions and the backwardness of the least favoured regions”[20]. The Treaty goes on to state “the community shall support the achievement of these objectives by the action it takes through the structural funds”[21]. The particular attention given to less developed regions indicate the “pursuit of cohesion and, therefore, the operations of the Union funds are bound up with the concept of equality”[22]. The Single European Act shifted the use of the Funds from that of a compensatory redistributive mechanism toward a focus on the pursuit of genuine development strategies. The key policy instruments for delivering this agenda were the three Structural Funds (the European Regional Development Fund, the European Agricultural Guidance and Guarantee Fund-Guidance Section and the European Social Fund). Four major principles were to inform the implementation of cohesion policy in the 1988-1992 funding period all of which remain to the present day. A geographic concentration on ‘Objective 1’ regions whose development was lagging behind[23], the use of multi-annual programmes to be drawn up by the Member State and approved by the Commission in line with Union objectives, Partnership that required the involvement of regional and local authorities in program formation and implementation and, the principle of additionality to ensure Union funds add to, rather than replace national expenditure[24].

A multi-governance approach toward growth and development had emerged, this new thinking coincided with efforts toward decentralization, moving away from state centralized policy making. The 1994-1999 funding period was characterised by a major Treaty revision resulting in the Treaty on European Union (TEU), also known as the Maastricht Treaty. The completion of the internal market provided for the establishment of the Economic and Monetary Union (EMU) and made economic and social cohesion a core EU objective alongside the single market. The Cohesion policy budget significantly increased in this period from €64 billion to €168 billion[25]. The TEU introduced three novelties supporting multi level governance and expanding European solidarity through cohesion policy. First, the subsidiarity principle that aims to ensure decisions are taken as closely as possible to the citizen[26]. Where competence in certain policy areas are shared between the Union and the Member States, action should not be taken at the EU level unless it is more effective than action taken at national, regional or local level. Subsidiarity is closely bound up with the principles of proportionality and necessity, meaning that any action by the Union should not go beyond what is necessary to achieve the objectives of the Treaty. Secondly, the Committee of the Regions was established as an assembly of regional and local representatives with the aim of bringing European citizens closer to the EU. Lastly, the Treaty established the Cohesion Fund for less developed regions focusing on environmental and trans-European network projectsand, since 2007 sustainable development projects including energy efficiency and renewable energy[27].

The 2000-2006 funding period took its lead from the European Council adoption of the Lisbon strategy that set out achallenging programme for building knowledge infrastructures, enhancing innovation and economic reform, and modernising social welfare and education systems. The ten year strategy aimed to make the EU "become the most dynamic and competitive knowledge-based economy in the world by 2010 capable of sustainable economic growth with more and better jobs and greater social cohesion and respect for the environment"[28]. In 2004, ten new countries joined the EU expanding the European population by 20%, but its GDP by only 5%[29]. The Cohesion Policy budget increased to €213 billion of which €39.6 billion was allocated to the new member countriesbetween 2004-2006[30]. The Lisbon strategy reforms had four main aims, fleshed out in a new set of Regulations[31]. In order to focus support from the funds, three priority objectives were chosen. Objective 1 ‘promoting the development and structural adjustment of regions whose development is lagging behind’, Objective 2 ‘supporting the economic and social conversion of areas facing structural difficulties’ and Objective 3 ‘supporting the adaptation and modernisation of policies and systems of education, training and employment’[32].

Implementation was decentralized from the EU to the national level, Member States now had core responsibility for programme content, management, monitoring, evaluation and control. The Regulations required Member States to designate a Managing Authority for each programme to be in charge of managing and implementing cohesion policy funding. The third aim of reform was the simplification of programmes and implementation. The Regulations introduced a focus on priority axes that would represent the strategic priorities for investment decisions to be made during the programming period[33]. Each axes was based on a specific strategy with specific objectives translated into specific final aims and, in order to quantify the objectives,key indicatorswere formulated, guaranteeing that the data would be representative, measurable and manageable. The policy articulation into priority axes sought toconcentrateactions in areas likely to have the most significant impact on economic growth. Finally, under the principle of efficiency, greater control and effectiveness of investment were sought. More precise rules and instructions for monitoring and reporting were introduced together with ex ante, mid term and subsequent evaluations. A ‘performance reserve’ was introduced where 4% of funding would be held back and awarded mid way through the programme, on evidence of performance. The regulations also introduced the n+2 rule that required committed EU funding to be spent within 2 years by the Member States[34]. Failing the n+2 rule meant funding would be ‘decommitted’ and returned to the Commission.

Disparities between regions were particularly pronounced following the 2004 enlargement and the EU economy was performing poorly therefore, implementation of the 2000-2006 programmes experienced serious difficulties. The Lisbon strategy had become overly complex with multiple objectives and unclear divisions of responsibility between the EU and National levels[35]. In light of this, calls for better use of cohesion policy funding to reflect EU objectives and greater attention to jobs and growth were made[36]. These calls resulted in a re-launching of the Lisbon strategy in 2005 subsequently laying the groundwork for the next funding period. While the Lisbon strategy of 2000 focused on the correct structural reforms, surveillance of the Member State economies were carried out largely in parallel to the Lisbon strategy therefore macro economic imbalances were not adequately accounted for[37]. The economic crisis demonstrated that greater coordination of Member State economic and social policies were needed.