Cohesion policy has been a major component of the EU budget.[1] With the addition of the more recent EU objectives including transitions towards sustainable development, EU enlargement, and preparing the EU for new geopolitical conditions, profound discussions on changing the EU budget will be high on the agenda. Insights into the added value and functioning of cohesion funds is one of the requirements of an informed discussion on the future of the EU budget.
Yet, what can be added to the long-standing debates on, and many evaluations of, cohesion policy? Relatedly, how come so many initiatives have been taken to improve the accountability of cohesion policy without achieving a culture of reliant, transparent and independent accountability? Cohesion policy is most likely one of the most evaluated European policies. Discussions about reforms have been many. Cohesion has seen many changes in terms of strategic foci, flexibilisation of governance, performance-based payment incentives, and decentralisation of program responsibilities (Levy 2002, Petzold 2022, EP 2023). The input and output indicators that the EU Commission presents in the 8th Cohesion Report[2] show progress on many fronts but also indicate that some EU regions have remained stuck in a “development trap” (European Commission 2022) and experts have concluded that cohesion funds are effective where they are least needed. Hence, its performance has remained unconvincing for a variety of reasons.
A discussion about cohesion funds is currently unavoidable. New developments in the EU demand a reconsideration of the EU’s financial priorities and therefore also of cohesion policy. Despite previous stalemates in the EU’s budget, changes in the EU’s priorities can be expected to have far-reaching consequences. The Commission demanded close to €100bn additional funds in its latest mid-term review for among others industrial policy (STEP), managing migration flows, enlargement, and increased interest rates (European Commission 2023). Of special importance are the financial commitments towards Ukraine for defence spending, economic support, its accession process, and reconstruction costs. Moreover, accession of Ukraine will have serious implications for the future of the EU’s finances (Schout at el. 2023). Despite these pressures, a discussion on changing the EU’s finances has not yet reached the level of political priority (see the scant attention for the EU’s finances in the State of the Union 2023).
This Policy Paper does not question the political importance of cohesion funds nor their share in the EU budget. Given the (increasing) differences between regions, cohesion funds are likely to continue one way or the other. Part of the political debate will be about whether and how to reform its governance. This Policy Paper is restricted to the quality of the monitoring and auditing as part of the wider debate on the (governance) reforms of the EU’s finances.
In essence, cohesion suffers from two types of interconnected accountability problems: persistent doubts about its effectiveness (results) and enduring problems with auditing (legality). As regards effectiveness, discussions have been going on for many years about its mixed contribution to convergence.[3] The second problem, legality, refers to anything from unintended mistakes in following the procedures to actual fraud. Given the complexity and evident risks involved in investing in backward regions, doubts about the feasibility and strictness of supervision have existed from the beginning (Bekker 2021). Originally, auditing was mostly related to the legality of spending. In recent years attention has increased for impact assessments, data-gathering, implementation of projects, learning from previous programs, governance instruments and, more recently, for counterfactual assessments of what a situation might have been without cohesion policy (Barca Report 2009, Crescenzia and Giua 2020). Yet, accountability and learning from assessment have remained points of concern (EP 2022) and, despite a general basis in OECD principles of financial management, member states continue to differ in terms of ability to comply with audit standards and lack of a common auditing culture (e.g. ECA 2021 + 2022).
In response to the deficiencies, we see a tradition for calling for ‘more’: more rules, more hierarchical steering and control, more training, and more resources (e.g. Barca 2009, EP 2023). This reflex of ‘more of the same’ needs to be questioned.
Although the focus here is on cohesion, its functioning has to be seen in relation to the wider development of the EU budget. Fragmentation of the budget has created overlap with other funds inside and outside the MFF (see the Recovery and Resilience Facility (RRF)). The European Court of Auditors (ECA) notes improvements in the overall EU budget including the increasing use of flexibility. Yet, in its meta-evaluation of EU funding, it concludes that the EU budget risks duplication of funds, lack of synergies and fragility in the governance mechanisms (ECA 05/2023, p.22). Difficulties to reform the budget and the individual funds is a feature that runs through the EU’s financial programs more generally (ECA 2014), has created a “galaxy of funds” (Begg et al. 2022) and a patch work of governance arrangements (Barca 2009, ECA 2019 and 2023, Bachtler and Mendez 2023). Cohesion policy is therefore also a case study for how to diagnose the weaknesses in the EU budget more generally.
Outline[4]
The repetition of assessments of weaknesses in cohesion suggests that something is amiss in the process of policy learning (diagnosing and implementing reforms). Section 2 briefly discusses the difference between single- and double-loop learning (incremental versus structural change). Section 3 reviews the state of play of cohesion funds. Subsequently, Section 4 analyses the frictions in the multilevel distribution of tasks between EU and national institutions. These difficulties are classified in Section 5 in terms of the good governance principles of transparency, independence and subsidiarity. This section also briefly points to the experience in other EU policy areas that managed to overcome comparable difficulties. The Conclusions complete the Policy Paper.[5]