Regional Policy Of The European Union

Contents

1. Overview
2. Etymology
3. Cultural Impact

The Regional Policy of the European Union , often referred to as Cohesion Policy , is a fundamental pillar of the Union’s strategy, meticulously designed to foster economic prosperity and reduce disparities across its diverse regions . This policy, a substantial undertaking that consumes over a third of the EU’s budget , is not merely about financial redistribution; it’s a strategic investment in the Union’s future, aiming to harmonize economic, social, and territorial imbalances. Its scope extends to the restructuring of areas grappling with industrial decline and the revitalization of rural landscapes facing agricultural challenges. Ultimately, EU regional policy strives to enhance regional competitiveness, stimulate robust economic growth, and, crucially, generate new employment opportunities. Moreover, it proactively addresses pressing contemporary issues such as climate change , the security of energy supply , and the pervasive influence of globalisation .

The reach of the EU’s regional policy is comprehensive, encompassing all European regions. However, these regions are not treated monolithically. They are categorized into distinct objectives, primarily determined by their prevailing economic conditions. For the period spanning 2007 to 2013, the policy operated under three core objectives: Convergence, aimed at supporting the least developed regions; Regional competitiveness and employment, focusing on fostering innovation and job creation; and European territorial cooperation, designed to promote cross-border collaboration. Prior to this, from 2000 to 2006, these objectives were more simply designated as Objective 1, Objective 2, and Objective 3, respectively.

This policy stands as the EU’s principal investment instrument, earmarked to absorb approximately one-third of the Union’s total budget. For the financial programming period of 2021-2027, this translates to a significant EUR 392 billion. A key tenet of the EU’s long-term budgetary strategy through its Cohesion policy is to provide targeted support to regions whose economic development lags behind the EU average, ensuring a more equitable distribution of opportunities and prosperity.

Notion of Territorial Cohesion

Territorial cohesion is a nuanced European Union concept, deeply rooted in the principles outlined in the European Spatial Development Perspective (ESDP). At its heart, territorial cohesion seeks to bolster European sustainable development and bolster its global competitiveness. It is envisioned as a mechanism to empower European regions, foster deeper territorial integration, and ensure a harmonious alignment of various European Union policies, all contributing to the overarching goals of sustainable development and enhanced global competitiveness for the EU. Sustainable development, in this context, is understood as a development paradigm that “meets the needs of the present without compromising the ability of future generations to meet their own needs,” a principle that underscores the long-term vision of the policy.

The paramount objective of territorial cohesion policy is to cultivate a balanced distribution of economic and social resources across European regions, with a distinct emphasis on the territorial dimension. This translates into ensuring that resources and opportunities are equitably accessible to all regions and their inhabitants. To achieve this ambitious goal of territorial cohesion, a deeply integrated approach, weaving together various EU policies, is not just beneficial but essential.

Objectives

The classification of regions is dynamic, adapting to evolving economic landscapes and policy priorities.

Classification of regions from 2021 to 2027:

Less developed regions: These are regions where the Gross Domestic Product (GDP) per capita is substantially below the EU average, typically less than 75% of the EU average.
Transition regions: These regions occupy an intermediate position, with their GDP per capita falling between 75% and 90% of the EU average.
More developed regions: These are regions with a GDP per capita exceeding 90% of the EU average.

Classification of regions from 2014 to 2020:

Less developed regions: Similar to the current classification, these regions had a GDP per capita below 75% of the EU average.
Transition regions: These regions had a GDP per capita between 75% and 90% of the EU average.
More developed regions: These regions had a GDP per capita above 90% of the EU average.

Eligibility of regions for different objectives from 2007 to 2013:

Eligible under Convergence objective: This was the primary objective for the least developed regions, aiming to help them catch up economically.
Phasing out eligibility under Convergence objectives: Regions that had previously been eligible under the Convergence objective but had since surpassed the threshold were provided with transitional support.
Eligible under Regional competitiveness and employment objective: This objective focused on regions aiming to strengthen their competitiveness and create jobs through innovation and employment initiatives.
Phasing in eligibility under Regional competitiveness and employment objective: Regions that had transitioned from the Convergence objective were supported under this new objective.

A visual representation of the European Regional Development Fund’s involvement in monument renovation projects in Poland highlights the tangible impact of these policies on the ground.

Less Developed Regions

The lion’s share of regional policy funding is invariably directed towards regions designated as “less developed.” These are the regions grappling with the most significant economic challenges, characterized by a per capita Gross domestic product (GDP) that falls below 75% of the EU average. This category encompasses a vast swathe of Europe, including nearly all the regions of the newer member states that joined the Union in 2004 and 2007 . It also includes substantial parts of Southern Italy , Greece, and Portugal, alongside specific areas within the United Kingdom and Spain.

The economic landscape shifted following the accession of new member states. The influx of these countries, with their generally lower average GDPs, led to a decrease in the overall EU average GDP. Consequently, some regions in the “older” member states, previously eligible for funding under the Convergence objective, found themselves marginally above the 75% threshold. To ensure continuity and avoid abrupt cessation of support, these regions were provided with transitional, “phasing out” assistance during the subsequent funding period of 2007–13. Furthermore, regions that had already crossed the 75% threshold within the EU-15 bloc, but still required support, received “phasing-in” assistance through the Regional competitiveness and employment objective. Despite the considerable investments channeled through cohesion policies, these areas often continue to exhibit lower investment rates compared to their more developed counterparts. For instance, only 77% of businesses in transition regions and 75% in less developed regions reported making investments, a figure slightly lower than the 79% observed in more developed regions. This disparity points to ongoing structural challenges in attracting and sustaining investment in these areas.

Financial constraints are a more pervasive issue in less developed regions, particularly impacting small and medium-sized enterprises (SMEs). SMEs in these regions are more than twice as likely (11%) to report difficulties in accessing finance compared to their counterparts in transition regions (5%) and non-cohesion zones (5%). This lack of financial access can stifle growth, innovation, and job creation. Moreover, less developed regions demonstrate the lowest engagement with investments aimed at combating climate change or reducing carbon emissions , with only 46% of businesses reporting such investments. This suggests a need for targeted support and incentives to encourage environmental sustainability in these economically vulnerable areas. In 2022, lending from the EIB Group specifically under its SME/mid-cap financing policy reached an impressive €3.5 billion, indicating a commitment to bolstering these crucial economic actors.

Regarding financing structures, bank loans constitute a significant portion of the funding in less developed regions, accounting for 49% of the total. Grants, however, play a proportionally larger role in these areas compared to more developed regions, making up 13% of external financing. This highlights the importance of grant-based support in bridging financial gaps for businesses in less developed economies.

A concerning trend observed in many regions across Southern Europe and in transition regions within higher-income Member States is the confluence of economic downturn and population decline. These demographic and economic pressures create a complex challenge for regional development. While there has been a general uplift in GDP per capita and employment figures across the EU, significant regional disparities persist within individual nations. These discrepancies are particularly pronounced between capital cities and their surrounding non-capital regions, a phenomenon that is especially noticeable in the newer Member States.

The participation of women in the workforce, including older women, has seen a notable increase in recent years. However, substantial regional variations persist. In cohesion regions, women’s employment rates remain considerably lower than those of men, with gender employment gaps reaching as high as 30% in certain parts of Southern Europe. This underscores the need for policies that specifically address gender inequality in the labor market and promote greater female economic empowerment.

Areas designated as less developed from 2014 to 2020:

Bulgaria: All regions, with the exception of the Southwestern region.
Croatia: All regions.
Czech Republic: All regions, excluding Prague .
Estonia: All regions.
France: Overseas departments such as French Guiana , Guadeloupe, Martinique , and Réunion.
Greece: Specific regions including Anatoliki Makedonia Thraki, Dytiki Ellada, Ipeiros, Kentriki Makedonia, and Thessalia.
Hungary: All regions, with the exception of Central Hungary .
Italy: Regions such as Basilicata , Calabria , Campania , Apulia , and Sicily .
Latvia: All regions.
Lithuania: All regions.
Poland: All regions, except for the Warsaw Metro NUTS2 Unit, which was carved out of Masovian Voivodeship .
Portugal: Regions including Alentejo , Azores , Centro, and Norte.
Romania: All regions, excluding Bucharest .
Slovakia: All regions, except for Bratislava .
Slovenia: The region of Vzhodna Slovenija .
Spain: Regions such as Extremadura .
United Kingdom: Areas including Cornwall and the Isles of Scilly , and West Wales and the Valleys .

Transition Regions

Transition regions represent a crucial intermediate category. Their GDP per capita lies between 75% and 90% of the EU average. Consequently, they receive a level of funding that is less substantial than that allocated to less developed regions but more significant than that provided to more developed regions. This targeted support aims to help these regions bridge the gap and move towards greater economic convergence.

Within these transition regions, bank loans are a primary source of finance, accounting for 69% of the total funding. Interestingly, transition regions appear to benefit significantly from investments originating in more developed regions. Studies indicate a notable impact on GDP (34%) and employment (47%) in some circumstances, suggesting a positive spillover effect from stronger economic centers.

In the context of the green transition, a considerable portion of businesses in transition regions (19%) report that climate change is having a significant impact on their operations. An additional 43% perceive a minor effect. This indicates a growing awareness and adaptation to climate-related challenges. Furthermore, 25% of businesses in transition regions can be classified as “green and digital,” signifying a proactive engagement with sustainable and technologically advanced practices.

Areas designated as transition regions from 2014 to 2020:

Austria: The region of Burgenland .
Belgium: The region of Wallonia , excluding Walloon Brabant.
Denmark: The region of Sjælland .
France: Regions such as Auvergne, Corsica, Franche-Comté, Languedoc-Roussillon, Limousin, Lorraine, Lower Normandy, Nord-Pas-de-Calais, Picardy, and Poitou-Charentes.
Germany: The region of Lüneburg, and all parts of former East Germany with the exception of Leipzig.
Greece: Regions including Dytiki Makedonia, Ionia Nisia, Kriti, Peloponnisos, Sterea Ellada, and Voreio Aigaio.
Italy: Regions such as Abruzzo, Molise, and Sardinia.
Malta: The entire country.
Poland: No regions were designated as transition regions in Poland for this period.
Portugal: The region of Algarve .
Spain: Regions such as Andalucía, Canarias, Castilla-La Mancha, Melilla, and Murcia.
United Kingdom: Areas including Cumbria, Devon, East Yorkshire and Northern Lincolnshire, Highlands and Islands, Lancashire, Lincolnshire, Merseyside, Northern Ireland, Shropshire and Staffordshire, South Yorkshire, Tees Valley and Durham.
Bulgaria: The Southwestern region.

Cross-border collaboration is also a significant aspect, as exemplified by initiatives like INTERREG IV France-Wallonie-Vlaanderen , which fosters cooperation across national boundaries.

More Developed Regions

This category encompasses all European regions not classified as less developed or transition regions, meaning they have a GDP per capita exceeding 90% of the EU average. The primary objective for these regions is to stimulate job creation by enhancing competitiveness and making them more attractive to businesses and investors. Funding in these regions supports a wide array of projects, including the development of clean transport systems, support for research centers and universities, assistance for small businesses and start-ups, provision of training programs, and the creation of new jobs. The management and allocation of these funds are typically handled through either the European Regional Development Fund (ERDF) or the European Social Fund (ESF).

Across all regions, bank loans remain the most prevalent form of external financing. In more developed regions, they constitute a substantial 58% of the total financing.

Areas designated as more developed regions from 2014 to 2020:

Austria: All regions, except for Burgenland.
Belgium: The regions of Flanders , Brussels , and Walloon Brabant .
Cyprus: The entire country.
Czech Republic: The region of Prague .
Denmark: All regions, except for Sjælland.
Finland: All regions.
France: Regions such as Alsace, Aquitaine, Burgundy, Brittany, Centre, Champagne-Ardenne, Île-de-France, Midi-Pyrénées, Pays de la Loire, Provence-Alpes-Côte d’Azur, Rhône-Alpes, and Upper Normandy.
Germany: Berlin, Leipzig, and all parts of former West Germany except Lüneburg.
Greece: Regions including Attiki and Notio Aigaio.
Hungary: The region of Közép-Magyarország.
Ireland: The entire country.
Italy: Regions such as Emilia-Romagna , Friuli-Venezia Giulia , Lazio , Liguria , Lombardy , Marche , Piedmont , South Tyrol , Trentino , Tuscany , Umbria , Valle d’Aosta , and Veneto .
Luxembourg: The entire country.
Netherlands: All regions.
Poland: The Warsaw Metro NUTS2 Unit carved out of Masovian Voivodeship .
Portugal: The Lisbon region and Madeira.
Romania: The region of Bucharest .
Slovakia: The region of Bratislava .
Slovenia: The region of Zahodna Slovenija.
Spain: Regions such as Aragon , Asturias , Balearic Islands , Basque Country , Cantabria , Castilla y León , Catalonia , Ceuta , Galicia , La Rioja , Madrid Region , Navarre , and Valencian Community .
Sweden: All regions.
United Kingdom: Areas including London, South East England, East of England, Dorset, Somerset, Gloucestershire, Wiltshire, Herefordshire, Worcestershire, Warwickshire, West Midlands, Leicestershire, Rutland, Northamptonshire, Derbyshire, Nottinghamshire, Cheshire, Greater Manchester, West Yorkshire, North Yorkshire, Tyne and Wear, Northumberland, South Western Scotland, Eastern Scotland, North Eastern Scotland, and East Wales.

European Territorial Cooperation

This specific objective is designed to diminish the significance of internal borders within Europe, fostering enhanced regional cooperation both between and within countries. It facilitates three distinct forms of cooperation: cross-border cooperation, transnational cooperation, and interregional cooperation. Financially, this objective represents the smallest portion of the EU’s regional policy budget, accounting for a mere 2.5%. The sole funding instrument for this objective is the European Regional Development Fund (ERDF).

Instruments and Funding

The Cohesion Policy is a significant financial commitment, representing nearly one-third of the EU’s overall budget. For the 2014-2020 period, this amounted to approximately EUR 352 billion over seven years. The subsequent programming period, 2021-2027, saw this figure rise to EUR 392 billion. These substantial funds are dedicated to stimulating economic development, creating jobs, and equipping communities and nations with the tools and resilience needed for the EU’s transition towards a more sustainable and digital economy . Notably, Cohesion lending has demonstrated a strong commitment to climate and environmental goals, with significant contributions recorded in 2021 and 2022. Sustainable energy and natural resources accounted for €10.2 billion, representing 34% of the overall European Investment Bank cohesion loans, a higher proportion than the 26% allocated to non-cohesion regions. Furthermore, 52% of all EU loans for sustainability, totaling €19.6 billion, were directed towards projects in cohesion areas, underscoring the policy’s role in driving the green transition.

The bedrock of the EU’s territorial cohesion policy lies in its structural funds. Two primary structural funds are accessible to all EU regions: the European Regional Development Fund (ERDF) and the European Social Fund (ESF). The ERDF is primarily tasked with supporting the creation of infrastructure and productive, job-creating investments, with a strong focus on businesses. In contrast, the ESF is designed to facilitate the integration of unemployed individuals into the workforce through targeted training initiatives. The management and delivery of these funds operate on a collaborative model, involving the European Commission, the Member States, and stakeholders at the local and regional levels. During the 2014–2020 funding cycle, resource allocation was differentiated based on regional classifications: “more developed” regions (GDP per capita above 90% of the EU average), “transition” regions (between 75% and 90%), and “less developed” regions (below 75%). Additionally, specific funds were set aside for member states with a Gross national income (GNI) per capita below 90% of the EU average, channeled through the Cohesion Fund . The funding for less developed regions, mirroring the aims of the earlier Convergence objective, is intended to empower these regions to bridge the economic gap with their more prosperous counterparts, thereby reducing internal economic disparities within the European Union. Examples of projects benefiting from this objective include improvements to basic infrastructure , support for businesses, the construction or modernization of waste and water treatment facilities, and the expansion of high-speed Internet access. Regional policy initiatives in less developed regions are fortified by three key European funds: the European Regional Development Fund (ERDF), the European Social Fund (ESF), and the Cohesion Fund .

The European Investment Bank (EIB) has made a significant pledge to enhance its support for specific regions through its Cohesion Orientation for the 2021–2027 period. Between 2023 and 2024, the Bank intends to channel at least 40% of its overall financing towards projects situated in cohesion regions, with a planned increase to at least 45% commencing in 2025. A substantial portion of this allocation, at least half, will be directed towards the less developed areas of Europe, with a particular emphasis on increasing the proportion of climate action and environmental loans directed to these regions.

Since 2021, the European Investment Bank has committed €44.7 billion to projects within EU cohesion areas. Of this total, €24.8 billion was disbursed in 2022 alone, representing 46% of all EU signatures. Over the previous period, from 2014 to 2020, the Bank contributed a cumulative €123.8 billion to projects in cohesion areas. Financial instruments deployed by the Bank have, to date, provided crucial support to approximately 6,600 projects across Greece , Italy , Poland , Spain , Portugal , Lithuania , Romania , and Cyprus . In 2022, the EIB Group’s total contribution to initiatives in cohesion areas reached €28.4 billion, with an additional €16.2 billion dedicated to climate action and environmental sustainability . This signifies a robust commitment to addressing both regional disparities and environmental challenges. For the EU as a whole, 44% of the EIB Group’s overall loan portfolio in 2022, amounting to €28.4 billion, was allocated to projects within cohesion areas. In the same year, EIB loans supported projects across the EU with a combined investment cost of €146 billion. In the realm of climate action and environmental sustainability , the European Investment Bank invested €16.2 billion in cohesion areas in 2022, a figure that represents over half of the EU’s total EIB funding dedicated to these critical areas. In 2023, cohesion regions were the primary beneficiaries of the EIB’s funding for urban and regional projects, receiving 83% of the total allocation. Similarly, 65% of the funding designated for strategic transport projects was directed to these areas, highlighting the strategic importance of investing in the infrastructure and development of cohesion regions.

Furthermore, in 2023, the European Investment Fund channeled €14.9 billion into cohesion areas. Through partnerships with approximately 300 institutions across Europe, the Fund facilitated financing for over 350,000 small businesses, infrastructure projects, housing initiatives, and individual ventures. This extensive support generated a significant impact on the real economy, amounting to €134 billion. The European Union itself invested €14 billion in these regions, with nearly half (49%) specifically focused on economic and social integration. These investments are projected to leverage additional funding, aiming to raise around €42.7 billion in total.