In essence, cohesion policy is an investment program with the longer-term objective of stimulating upwards convergence. It is also political sign of solidarity between regions and member states (Andor 2020). Successive enlargements have boosted the size and importance of cohesion policy. Cohesion policy is approximately 35% of the EU’s current Multiannual Financial Framework and, combined with the overlapping NGEU, these investment programs amount to 70% of the EU’s budget. Cohesion has also been used recently as short-term crisis instrument threatening its long-term aim of boosting European resilience.
Emphasising the need for profound reforms of cohesion policy, Hunter (2023) called for a “reinvention, not just an upgrade”. Underlining that the time is ripe for more profound thinking on cohesion, the Commission created a high-level group to advise on the future of cohesion policy and on how it could evolve into an effective European growth model (European Commission 2023). Important as this step may be, it is one in a long history of reviews. The earlier Barca Report (2009) already concluded an “urgency for change” and offered an eclectic stocktaking of options. But, inevitably, it also noted that: “[t]he risk that no change will take place is also very high”.
Looking at recent ECA reports, the evaluations of cohesion policy, and the debates about the auditing of the RRF, the Barca Report is still relevant. It identified 10 Pillars for reforming cohesion policy. Important to note for our purposes, these pillars mainly reflect incremental changes: trying to do better what is being done in terms of contract relations, financial management and linking priorities to performance systems (Box 1).
Pillars 1 and 2 concern strategic priorities including performance indicators.
Pillars 3 and 4 suggest better contractual relations between Commission and member states and stress the relevance of ex ante conditionality.
Pillars 5 and 9 deal with better financial management including performance payment linked to the European Semester.
Pillar 6 suggests ways to prevent capture by local interest groups.
Pillar 7 stresses the need to experiment with counterfactual evaluations.
Pillars 8 and 10 underline the need to improve existing administrative systems through investment in human resources and better information systems.
Source: Barca Report (2009).
The most vulnerable regions particularly in the South of the EU have not converged.[9] Cohesion policy is least effective where it is most needed.
Some countries rely for their public investments for 50-85% on cohesion funds. This indicates that national public investments are crowded out and it also suggests that these member states are less forced to prioritise investments in their national budgets, and that dependence on cohesion funds has been created.
Much effort is put in ensuring better data to improve accountability. Yet monitoring performance remains highly complicated due to goal congestion.
Timing complicates policy learning. The midterm review is too early to assess outputs and outcomes. The previous MFF is still in full swing while the next MFF is already being formulated.
Emphasis in evaluations is on inputs and outputs while impact remains elusive.
Politicisation of performance data. Member states (national authorities) and the Commission have an interest in reporting that funds are responsibly spent and well executed.
A select group of national experts is used for national evaluations and are therefore not without interests either. The inward-looking auditing system partly results from the absence of an internal market for evaluation experts.
Reporting remains problematic given the variety of interests and reliability of the data. The search for better data to support policies has not solved the problem of politicised data.
ECA has consistently concluded that cohesion policy spending is affected by a material level of error. In recent years, the irregular spending in cohesion has been a significant factor in the “adverse opinion” on EU budget spending as a whole.[10]
Source: Expert panel ‘Evaluating EU Cohesion Policy – Challenges and opportunities’. ECA, 23 October 2023. Cohesion Conference 2023 | European Court of Auditors (europa.eu)
In line with the predictions in the Barca Report almost 15 years ago, the European Court of Auditors concluded in recent reports that many reforms have been discussed, implemented, and evaluated but these have not been able to solve the shortcomings and difficulties. Better monitoring of performance and performance-based financing had made little noticeable difference to the way EU funding was allocated and disbursed (ECA 24/2021). Similarly, in a recent expert-meeting at ECA, several recurring friction areas were discussed that fit the long-term pattern of tinkering with governance structures (see Box 2).
If anything, the accountability of performance is likely to become even more of a risk (ECA 6/2020, 2/2022, 21/2022, 26/2023). The complications of the overlap with the RRF are many and creates difficulties in spending the almost doubling of investment funds, as well as in monitoring outputs and outcomes when targets from projects are combined with milestones for reforms. This also creates the risk of funding inferior projects because the Commission can balance lacking outputs by approving intended reforms even though their implementation or sustained impacts are unclear. Moreover, the level of ambitions of the member states vary substantially. Some set high targets whereas others present objects that involve little risk. Furthermore, goal congestion creates complexities in assessing performance due to incompatible objectives (compare also Bachtler et al. 2013). Finally, the ECA reports note that the Commission has major interests in ensuring that, on paper, funds have performed well.
As regards objectives, it is often difficult to specify how to assess achievements. For example, in parallel to cohesion, ECA notes that the reporting of the RRF “fails to provide a full picture of how the funded projects contribute to the RRF’s objectives, such as making the European economy greener and more resilient” (ECA 26/2023). Trying to repair systemic deficits in auditing, there is tendency towards excessive data gathering and evaluating combined with repetitive attempts at streamlining the administrative burdens (fighting gold plating, strengthening the Single Audit principle, simplification of procedures, see e.g. ECA 2018, EP 2023).
In addition, the legality of spending has remained problematic for many years.[11] The acceptable error level for EU spending is 2%. However, the error level of 2022 was 6.6% (this means that 6.6% was not spent according to the rules – irrespective of doubts about the effectiveness). Given its size, cohesion is one of the reasons why the error margin for the EU budget as a whole was 6,4%.
For our purposes, it is important to examine how these legality figures emerged from the system based on national and EU audits. The ECA reports reveal a system in which member states have an interest in, and are in the position to, present financial corrections with a view to lowering the error rate to close to 2% (ECA 24/2021, ECA, ECA AR2022 p. 229). Subsequently the Commission’s own auditing of the national assurances detects additional risks in the national accounts. In 2022 the controls from DG EMPL and DG REGIO resulted in an error margin of 1.9%-2.7% (in essence: above the 2% mark that is allowed and reported by the member states).[12] Subsequently, ECA’s audit raised the error margin from the Commission upward to 4.1%-8.7%.
Commission supervision and its transparency is complicated by its wide range of tasks, incentives to show that funds are well spent, and – facilitated by a lack of transparency – by a considerable leeway in taking decisions on the legality and effectiveness of national spending and outputs.[13] This helps to explain the difference between the consecutive levels of control (national, Commission and ECA).
Hence, the important question now is: how to devise an audit system in which the national audits are reliable in the first place? In terms of implementation of any EU policy, also of cohesion, member states are the first in line to ensure the effectiveness and legality of spending (‘loyal cooperation’ as defined in the Treaties; Schout 2021a, 2022) while EU-level control should in principle be limited to ‘second-line control’ (supervising the national supervisors, preferably in the form of subsidiarity-based mutual inspection teams). As a corollary, in addition to the question of how to ensure reliable national auditing (first-line auditing), we also need to raise the question of how to design second-line auditing at the EU level?
It is particularly worrying that after all these years, the error in spending remains above target[14], that critique on the auditing is persistent, and that the related national auditing mechanisms as well as those of the European Commission, do not deliver the independent assessments according to international standards of sound financial management. The reports and evaluations show the widely shared concerns about transparency and about the weak culture of independent monitoring, enforcement, and follow-up from evaluations (see also the remarks from the ECA expert panel in Box 2). Some difficulties are unavoidable, given that the quality of institutions is below average in the less developed regions that are targeted by cohesion policy. Other dilemmas are however related to the governance system such as goal congestion and the leeway of the EU Commission in accepting data of insufficient quality. Actors at all levels have their financial interests as well as their relative autonomy in the use of funds to defend.
Evidently, the literature also acknowledges the many positive developments and successful outputs that have resulted from cohesion policy. There are many successful projects to report, data has been much improved and the related RRF program has underscored that there is solidarity within the EU if needed. There is also a wide recognition that regional differences are worrying and regional problems – including safeguarding employment for young talents – are aggravated by the four freedoms that define the internal market.
Despite a great deal of analysis, experimentation and evaluation, debates are repeating themselves over lack of a common monitoring culture, risk reduction, transparency, capture, etc. (EP 2023). What is meant by ‘a lack of a common auditing culture’ becomes clear from the many reports that have been produced. Despite a general basis in OECD principles of financial management, member states continue to differ in terms of ability to comply with international audit standards, struggle with complexity of rules, differ in the scope and provision of adequate audit tracing in documents, suffer from insufficient financing of the national authorities, lack of objective sampling, misinterpret EU rules, and suffer from problematic independence and insufficiently transparency (e.g. ECA 2021 + 2022, EP 2023).