Report on Economic, Social and Territorial Cohesion: achievements, challenges and lessons learned

On 27 March the European Commission published the 9th Cohesion Report on Economic, Social and Territorial Cohesion presenting an assessment of the state of cohesion in the Union thirty years after the parallel launch of the European Single Market and of a reinforced Cohesion Policy, and twenty years after the 2004 enlargement. The report identifies the achievements of Cohesion Policy in terms of fostering upwards economic and social convergence in the Union, as well as emerging challenges and lessons learned and proposals for future.

The 9th Cohesion Report on Economic, Social and Territorial Cohesion confirms the key role and importance of Cohesion Policy and highlights significant achievements in terms of fostering upwards economic and social convergence in the Union. However, convergence has been uneven across the region, socio-economic disparities persist and a growing number of regions risk struggling with new challenges. In this context, the report proposes an analysis of the achievements but also of how the Cohesion Policy can adapt to fortify Europe’s growth model, to build an inclusive Union, and to deliver on the Treaty objective of economic, social and territorial cohesion.

This report is part of the reflection on the future of Cohesion Policy which is currently taking place and in which relevant stakeholders at all different levels are being involved. As part of this process, the Group of High-Level Specialists on the Future of Cohesion Policy released its report in February. The European Parliament, the Council of the European Union, the European Economic and Social Committee and the European Committee of the Regions have all adopted opinions and conclusions regarding key elements for the future of Cohesion Policy. In addition, over the past year, regional authorities and other stakeholders have provided inputs and 20 Member States have organised debates. The views of all these stakeholders fed into the discussions at the 9th Cohesion Forum, held in April.

While the report does not specifically mention Roma, it does include some references to marginalised communities, and in other cases Roma could be considered as part of the general groups mentioned. It is important that cohesion policy reflects the fact that, as the Cohesion Report itself states, “pockets of poverty can be found in every region – including developed urban areas. Some population groups, such as marginalised communities, live in persistent poverty, marked by housing segregation, insufficient education and employment opportunities, and limited access to basic services”. Besides the situation of poverty, these groups face inequalities in various areas (e.g. employment, education, health, housing…) which prevent them from benefiting from the economic, social and territorial cohesion promoted by cohesion policy. It is therefore necessary pay particular attention to these groups, complementing the regional/place-based approach (based on regions/cities) with a stronger person-based approach, to ensure that no citizen is left behind.

Main achievements, weaknesses and remaining challenges

The report argues that Cohesion Policy, building upon its regional focus and place-based approach, has been one of the key pillars of the European project, supporting every step from the European integration since the creation of the Single Market, the Economic and Monetary Union, to several enlargements, including in recent years, the green and digital transitions.

It presents a wealth of data and analysis on Europe’s territories (including a snapshot of their current situation, an analysis of the changes over the past decades, and trends for the future) that show that Cohesion Policy delivers tangible results. It drives sustainable economic and social convergence, it drives public investment, it contributes to improving administrative capacity and the quality of governance in Member States (notably through the ‘enabling conditions’ and their complementarity with the implementation of country-specific reforms promoted through the European Semester, the fundamental principles ruling the programming and implementation of Cohesion Policy, through evaluation, partnership, transparency or audit and control requirements, have positive spillover effects on national practices…). A key element is that Cohesion Policy generates considerable return on investments (each euro invested between 2014 and 2027 will, by 2030, have generated EUR 1.3 of GDP, almost tripling by end-2043 (30 years after these programmes began), which is equivalent to an annual rate of return of around 4%.

Cohesion Policy has also been quick in mobilising support to mitigate the impacts of the crises and pave the way for a robust recovery (e.g. through the Coronavirus Response Investment Initiative (CRII) packages, the NextGenerationEU and the Recovery and Resilience Facility (RRF), the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU), the REPowerEU, the Supporting Affordable Energy (SAFE) initiative, the Cohesion Actions for Refugees in Europe (CARE)…).

However, not all regions benefit from the same growth dynamics. Economic disparities remain large across the continent (more than one in four people in the EU (28%) live in a region with GDP per capita below 75% of the EU average) and changes in subnational disparities show different patterns across Member States. Rural, mountainous, island, and sparsely populated areas continue to face specific challenges that hinder economic growth and development, stemming from lower physical and digital connectivity or limited education and training opportunities. Furthermore, in many Member States economic development is driven by the competitiveness of capital regions and major agglomerations, coupled with a lack of catching up of other areas, this leads to internal divergence.

These territorial disparities compound a situation in which a number of regions face economic stagnation or decline, with the risk of falling into a development trap (i.e. they fall behind EU and national average growth rates, as well as their own past performance). The root causes of development traps differ between regions, which requires an individual diagnosis, and may involve various interlinked factors, such as insufficient specialisation, weak public governance, an inefficient innovation ecosystem, a gap in services or skills mismatches.

Furthermore, there are structural and emerging challenges that, if left unaddressed, could widen territorial disparities. These include the green and digital transitions, which bring new opportunities and are necessary to maintain the competitiveness of the EU in the future and to ensure a good quality of life for citizens but also require structural changes, which need to be accompanied by supporting policies – particularly for people, companies and regions that are most vulnerable and exposed, with the risk otherwise of increasing regional and social disparities.

Besides the fact that the climate change risks increase regional inequalities, as weather-related events affect unevenly the different regions, it is crucial that the transition to a climate-neutral economy is accomplished in a just and fair manner, considering the uneven capacity of regions to reap the benefits of this transition in order to avoid territorial disparities. The opportunities and challenges for employment and challenges of the climate transition should also be taken into account. Therefore a comprehensive approach is needed to foster jobs and opportunities across regions, deal with the asymmetric costs of climate change and implement the climate and green transition.

As regards the digital transition, it provides opportunities for all regions but it also entails risks for cohesion, due to the uneven capacity of territories and people to adopt and make use of digital technologies – including for those in disadvantaged situations and marginalised communities. Continuous support for regions, especially the least prepared ones, and in particular in rural and remote areas, is needed to ensure that they can reap the benefits of the digital transformation.

To this, we should add the new geopolitical landscape, which may also severely impact numerous EU regions, and the deficiencies in public governance and administrative capacity, which hamper the development potential and remain a structural challenge in several regions and Member States.

Social convergence

As regards social convergence, there has been progress, although many challenges remain:

EU Cohesion Policy has played a pivotal role to achieve the targets of the European Pillar of Social Rights (i.e. at least 78 % of people aged 20 to 64 in employment, at least 60 % of all adults in training every year, and reduction of the number of people at risk of poverty or social exclusion by at least 15 million, including at least 5 million children) by contributing to the overall improvement of employment and social indicators in the EU in the last decade. Yet, positive trends in social inclusion and poverty reduction could be jeopardised by inflation and high energy prices, and uneven progress across population groups. Rural areas in the East and South of the EU are the most directly affected by energy poverty. However, pockets of poverty can be found in every region – including developed urban areas. Some population groups, such as marginalised communities, live in persistent poverty, marked by housing segregation, insufficient education and employment opportunities, and limited access to basic services.

In terms of employment, despite progress in recent years as regards employment, youth unemployment and the rate of young people not in education, employment or training (NEETs rate) in the EU remain a significant challenge.

In addition, labour and skill shortages are on the rise and have become a major challenge in a variety of occupations and sectors across all skills levels, and particularly in some regions. These shortages are exacerbated by the concomitant challenges of demand for specific skills to respond to the digital and green transitions, structural industrial transitions and the sharp reduction of the working age population, which is expected to shrink by 50 million by 2050. In this regard, inclusive labour market participation of underrepresented groups plays a key role in achieving convergence and addressing labour shortages in the EU, together with strengthening lifelong learning and education policies, as well as with labour market reforms.

Women’s participation in the workforce continues to rise, thanks to high educational attainment, improved access to childcare services and more flexible work arrangements, and third country nationals’ employment rate rebounded after a drop in 2020. However, progress in closing the gender gap in labour market participation has slowed or stagnated in recent years.

There has been a general increase in educational attainment (the share of early school leavers has decreased across the EU, particularly in the less developed regions. The positive trend in tertiary educational attainment has continued across all regions…). In contrast, adult participation in education and training decreased when COVID-19 hit, but bounced back especially in less developed regions and Eastern EU Member States.

However, disparities in education and training persist, notably due to a strong concentration of tertiary graduates in cities (where most possibilities to acquire tertiary education are concentrated). These lead to imbalances, sometimes further increased by the outmigration of tertiary educated people from the regions where they had graduated. This ‘brain drain’ constitutes a serious challenge for the future sustainability of regional economies and social fabrics. These imbalances in the availability of talent across regions are due to insufficient quality job opportunities and other factors such as lower level of infrastructure endowment, access to childcare, education and training, health services and facilities and other services.

Lessons for the future

Taking stock of Cohesion Policy achievements and challenges, the Group draws the following lessons for future:

Need to address the sub-national disparities, notably between large metropolitan areas and other regions, as well as by regions lagging behind, often caught in a ‘development trap’. Experts consider that further simplification of the policy and support to administrative capacity could help in this sense.

As it was the case over the past periods, while constantly evolving to adapt to new circumstances and to support EU priorities (which involved changes to the investments supported, geographical coverage, delivery mode, the use of conditionalities and the link with the European Semester process), the fundamental values and principles of the policy are maintained and even strengthened over time: a long-term framework for programming, partnership with stakeholders and civil society, multilevel governance, evaluation and data collection, and most of all, the place-based approach – where support is tailored to regional specific needs and opportunities.
While maintaining the main focus on less developed regions, attention should also be paid to development dynamics and long-term trends, tackling problems before they become ingrained and helping regions caught (or at risk of being caught) in development traps. In short, taking a more pro-active approach to delivering on the Treaty objective of promoting harmonious development.
Regions have different development starting points, needs, and capacities. They are also unevenly equipped to cope with emerging challenges (such as digital transitions, the demographic transformation, changing global economic trends and climate change), which will also affect them differently. They will therefore take different development paths to manage ongoing and future transformations. The EU, through Cohesion Policy (but not only), should channel targeted, place-based support focusing on the specific needs of each region, consistent with EU priorities and with due attention to the challenges, frameworks, and policies in each Member State (the Just Transition Funds is considered an example in this sense). A thorough reflection is needed on how to best further tailor the policy to the different economic profiles and geographical features of regions to strategically target investments.
Promoting more balanced territorial development. Sub-national economic development is often characterised by strong polarisation between capital regions and large metropolitan centres on the one hand, and regions with lower population density on the other. The uneven distribution of growth drivers leads more developed regions to perform better in terms of innovation and competitiveness, quality of public governance and administration, and education attainment. This can also mean that significant economic and quality job creation potential remains to be exploited in less developed rural and intermediate regions. Territorial imbalances could be mitigated by a more polycentric development model: building on small and medium-sized cities and promoting accessibility of public services in areas far from large urban centres. Regional cooperation could be strengthened by building the capacity of relevant authorities and stakeholders.
Particular attention should be paid to partnership, multilevel governance and empowerment of stakeholders, following the efforts made in the 2021-2027 period to reinforce partnership and the involvement of regional and local actors, civil society, and social partners. Further reflection is needed on how to best involve sub-national authorities and other relevant stakeholders, and enhance territorial multi-level governance mechanisms. This enhanced role for local partners requires improving their administrative capacity – how best to do this should be part of the debate.
Promoting institutional convergence by addressing existing public governance and administrative capacity shortcomings, which impede some Member States and regions in reaping the full benefits of Cohesion Policy-– notably due to their difficulties in preparing and implementing investments. A more ambitious and comprehensive approach is necessary to address weaknesses in the national and regional administrations, as well as among beneficiaries and partners. Such a strategic approach could combine tailored technical support with reform requirements in certain domains.
Enhancing the effectiveness of Cohesion Policy investments and promoting reforms. Investments are a necessary, but not sufficient, condition to ensure economic development. Reforms are needed to remove obstacles to regional development – be it specific investment barriers, regulatory obstacles or measures to improve the functioning of the labour market and the business environment. There is a need to explore how the link between investments and reforms could be further strengthened to maximise the impact of Cohesion Policy, following the efforts made in the 2021-2027 period through the use of enabling conditions and the alignment with the European Semester and Cohesion Policy investments. This reflection should take into account the experience of other EU instruments – notably the RRF, which has introduced a stronger complementarity of investment policy and reforms in Member States, and should cover the scope of the reforms needed, the role of the European Semester, and the coordination between European and national and regional policies.
Promoting better coordination and coherence with national policies. There is need to further reflect on how EU and national action to address disparities and to promote the Treaty objective of economic, social and territorial cohesion should work together, reinforcing each other and tailoring support to different types of territory. For instance, integrating, where relevant, the territorial dimension into policy design could reinforce greater coherence between regional-specific needs and horizontal (European and national) policies.
Making delivery more effective. Experience suggests that the delivery mode of the policy can be improved, notably by ensuring further simplification for administrations and beneficiaries. In addition, it seems that Member States have not yet made full use of the simplification measures put forward in the 2021-2027 framework (e.g. a reduced list of policy objectives, a clearer intervention logic through indicators, lighter reporting, and single audit arrangements) and the possibilities to use alternative payment options beyond invoice-based costs (i.e. financing not linked to costs, or simplified costs options). The experience acquired through this programming period in this area (e.g. through ESF/ESF+) could help draw lessons. The mid-term evaluation of the RRF has also provided some important reflection to consider for the future design of EU funding instruments.
Reaching long-term objectives – but with built-in flexibility, for unforeseen circumstances. While the existing flexibility within Cohesion Policy to take into account changing circumstances is really important, its main focus must remain on the achievement of long-term structural objectives, taking full advantage of its implementation period spanning over a decade.