I. Introduction

1The political priority attached to the reduction of geographical disparities was present right from the foundation of what is today known as the European Union (initially the European Economic Community). Thus, the original Treaty of Rome of 1957, signed by six founding countries in order to establish the European Economic Community (EEC), stated in the preamble that the member states were “anxious to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less-favoured regions”.

2As explained in this paper, while this political statement of intent existed for a considerable time, transposing it into an operational regional policy at the European level took some three decades and was intimately bound up with the broader process of European integration, especially with regard to the creation of an economic and monetary union.

3The early history of the EEC, ‘the Community’, was one of emphasis on building the free-trade zone, although the need for intervention to address the geographical dimension was raised in different reports produced in the 1960s and 1970s by the EEC executive, the European Commission, and the Assembly (now the European Parliament). In 1968, a new administrative department within the Commission, the Directorate-General for Regional Policy was created. In 1972, the Heads of State and Government of the Community meeting in Paris adopted conclusions which described regional policy as “an essential factor in strengthening the Community”. The “Thompson Report”, published by the European Commission in 1973 and just after the enlargement from six to nine member states (adding Denmark, Ireland and UK), concluded that “although the objective of continuous expansion set in the Treaty has been achieved, its balanced and harmonious nature has not been achieved”. Thompson, who was the first UK European Commissioner, also said that ‘Regional Policy is in the general European interest… it is as much in the interests of the richer regions of Europe as it is in the interests of the poorer regions of Europe”2.

II. The European Regional Development Fund of 1975: Supporting National Regional Policy

4Following this early political debate, the European Regional Development Fund (ERDF) was set up in 1975, initially for a three-year period with a budget of € 1,300 million, with the objectives of correcting regional imbalances which had arisen in regions dependent on agriculture or affected by industrial change and structural unemployment. The new fund could finance three types of action:

• investments in small enterprises creating at least 10 new jobs;

• related investments in infrastructure, and

• infrastructure investment in mountainous areas, which also had to be eligible for support under the agriculture investment (or 'guidance') fund.

5Over the period from its creation until the end of the 1980s, the ERDF was used essentially to defray, through a relatively limited European budget, some of the costs of national investment in the regions in the member states. According to Drevet (2008)3, the ERDF operated in a manner which lacked, firstly, a European vision of regional development issues – the resources were allocated according to fixed national quotas – and, secondly, a genuine regional dimension – the regional and local authorities were absent from the conception and implementation of the policy. Resources arrived under the auspices of the national authorities to support projects in the regions in a manner that was almost entirely invisible from a European policy point of view. In its Second Periodic Report on the Social and Economic Situation of the Regions, the Commission admitted that “Trying to assess the effect of Community regional policy is to a large extent equivalent to answering the question of the efficacity of national regional policies and the degree to which they are strengthened by Community regional policy”.4 European resources were submerged in the much greater national expenditures, and in the mid-1980s, the contribution of the European budget to gross fixed investment in the Community was equivalent to just 0.25% of the total, rising to 3% in the newest member state, Greece, and 2% in Ireland and Italy.

6The relatively hesitant steps in developing a European regional policy reflected the work-in-progress nature of the broader process of European integration itself. With the notable exception of agricultural policy, there had been relatively little progress in developing policies at the European level, as distinct from the national level, especially in budgetary terms. Even the creation of a genuine free-trade zone remained unfinished work through to the 1980s, and for many lacked an essential additional element: a monetary union based on a single currency, in order to avoid problems such as those arising from competitive devaluation. Indeed, in the period leading up to the decision taken to create a European single market in the mid-1980s, it was common practice in the media to refer to (the slow pace of) European integration in terms of “eurosclerosis”.

III. Economic and Monetary Union and the Development of a Genuine, European-level Regional Policy

7The steps needed to achieve both economic and monetary union were extensively investigated and debated in the course of the 1970s and 1980s, and the decisions which followed these reflections had an important spin-off in addressing the weaknesses of the nascent European regional policy created after 1975, as discussed below.

8Monetary union, and specifically the idea of a common currency, proved to be, perhaps unsurprisingly, the more complicated issue, politically-speaking, involving as it does a loss of national sovereignty over the national currency (even though the existence of the capacity of individual countries to exercise that sovereignty genuinely independently in a global economic and monetary context is doubtful). In 1970, the Werner group submitted a report setting out a three-stage process to achieve EMU within a ten-year period5. The final objective would include the permanent locking of exchange rates – or possibly a single currency. The floating exchange rates of most currencies of the Community were held to have had a negative impact on internal cohesion and investment as well as on trade among the member states and between them and their major trading partners. The Werner report called for closer economic policy coordination, with interest rates and management of reserves decided at European level, as well as agreed frameworks for national budgetary policies.

9The Werner timeframe of ten years proved to be excessively ambitious, and while the common currency remained as a political objective throughout the 1980s most of the policy effort was focused on maintaining a monetary union between the national currencies of Member States. In particular, after 1979, with the establishment of the European Monetary System (EMS), the Community set up a zone of internal monetary stability.

10Making progress on economic union proved to be a somewhat smoother process in political terms. In 1985, the Commission produced a White Paper which set out a large and detailed programme for the removal of physical, technical and fiscal barriers preventing the free movement of goods and services, labour and capital throughout the Community. The programme was adopted by the member states in December 1985, setting 1992 as the deadline for the realisation of the legislative programme. The programme was essentially implemented on time, and in this way the Community took a major leap forward, in terms of integration, moving from a free-trade zone to a single market.

11As indicated, the political developments with regard to economic and monetary union proved propitious for the taking of a decisive step forward in relation to European regional policy. Initially, with the publication in 1977 of a report under the chairmanship of Sir Donald MacDougall6, an important early focus of attention had been on the possibility of a fiscal equalisation system inside the Community, on the model of that of federal entities such as the USA or Australia. A fiscal equalization system is typically a more powerful instrument for reducing geographical disparities than regional policy, because it seeks to achieve equality of access to public services such as health and education throughout the territory through automatic transfers from the centre which compensate for lack of tax capacity in the economically weaker areas.7 Such a system pre-supposes a high degree of political integration, which is probably why it was not the option of choice in the case of the Community given the stage of integration at the time.

12Thus, by the time of the Delors Report of 19898, the idea of fiscal equalization had all but been abandoned, and it was admitted that the “centrally managed Community budget is likely to remain a very small part of total public-sector spending” and unable to play the role of automatic stabiliser. Rather, the Delors report concluded that on the way to greater economic and monetary union, “Community policies in the regional and structural field would be necessary in order to promote an optimum allocation of resources and to spread welfare gains throughout the Community. …particular attention would have to be paid to an effective Community policy aimed at narrowing regional and structural disparities and promoting balanced development throughout the Community”. In retrospect, this conclusion, coming from the head of the EEC executive, Jaques Delors, over the period 1985-94 marked the beginning of a new era for EU regional policy, with the creation of a policy that was both ‘European’ and ‘regional’ for the first time.

13This can be seen in the proposal published in the Commission’s 1987 report, “Making a success of the Single Act: a new frontier for Europe”9 where it was proposed to double in real terms the structural investment budget by 1992, the year of the completion of the Single Market Programme, with a major impact for the resources available to the European Regional Development Fund.

14The growing confidence surrounding a new European regional policy was reflected in the Third Periodic Report written by the Directorate General for Regional Policy and published by the Commission in 1987. The Report set the scene for a genuinely European vision of regional problems and proposed a typology of regions deserving European aid: regions lagging behind; declining industrial regions; agricultural regions; urban problem regions; peripheral regions and islands; frontier regions.10

IV. Europe’s New Regional Policy: 1989-93

15The typology bears a great deal of similarity to that retained in the final legislative package which emerged in 1988, and which was implemented over the period 1989-93 (as part of the so-called Delors-I budgetary package). The policy as finally adopted included four priorities (under 5 ‘Objectives’ in the legislative texts): lagging regions (‘Objective 1, the top priority in financial terms), declining industrial regions, rural regions and labour market problems. The urban problem regions had disappeared under the assumption that they were mostly subsumed under other categories, mainly in declining industrial regions. The peripheral and island regions also disappeared, on the basis that they were subsumed under regions lagging behind or in agricultural regions. Curiously, in view of their importance for European integration and the breaking-down of national frontiers in the single market, the border regions were not identified as such in the legislation. They were, however, later included on a long list of specialist sectors and geographical areas where relatively small-scale programmes, known as Community Initiatives, could intervene.11 In fact, it was only 15 years later in 2007 that frontier regions entered the list of mainstream priorities.

16In terms of resources, the new regional policy was allocated some 14 EUR billion euros per year, or 20% of EU-Budget (and 0.27% of Community GDP). The effectiveness of these resources depended on the ability to target them, simultaneously, on investment and on the worst-affected areas. In practice, some 80% of the resources were allocated to (“concentrated” on) the regions lagging behind, defined as the regions with a GDP per head less than 75% of the EU average measured using comparable (“harmonized”) data for European regions. In terms of the impact on investment, the contribution from the Community to the four largest beneficiaries – Greece, Spain, Ireland and Portugal – was considerable, equivalent to 8% of capital formation on average, varying from 5% in Spain, 13.5% in Portugal, 16% in Greece to 17% in Ireland.

17Importantly, the new regional policy developed its own governance system. Firstly, the resources were to be delivered through the drawing up of strategic, medium-term, integrated programmes12. The programmes integrated investments in three fields: infrastructure, productive investment (both fields relying on the ERDF) and human capital (using mostly the resources of the European Social Fund (ESF)). In addition, the European Guarantee and Guidance Fund-Guidance section was integrated into the programmes for rural areas in pursuit of rural development objectives and the diversification away from agriculture.

18Secondly, the first steps were taken towards developing a multi-level governance model through the introduction of the concept of partnership. This required close cooperation in the conception and management of programmes between the European level, represented by the Commission, and all the relevant authorities at national, regional and local level in the member states in the conception and implementation of the programmes (selection of priorities, selection of individual projects, monitoring). Partnership effectively translated as decentralization, so that all but the larger projects were selected by the programme management authorities in the member states without the interference, ex-ante, of the Commission. For the majority of projects, therefore, the Commission’s intervention occurred ex-post, as part of financial control procedures.

19Finally, addressing the problem of the relative lack of impact, even invisibility, of EU actions the member States were required to demonstrate through their public accounts the ‘additionality’ of European resources, in order to show that the investment the latter supported came on top of the existing national effort rather than replacing it.

20In retrospect, the principles inherent in the delivery system of the first generation of programmes (concentration; strategic, integrated programming; partnership and decentralization; additionality) had a major influence on subsequent generations. While it has been customary to label each successive generation as a ‘reform’, in reality the four initial principles have been maintained in substance even if the emphasis may have changed and even if there have been, generally successful, attempts at improvements.

V. Consolidating the Regional Policy Model, 1994-1999

21The inter-linkages between progress on economic and monetary union, on the one hand, and regional policy, on the other hand, perhaps emerged most clearly in the Treaty on European Union of 1992 – the “Maastricht Treaty” – with the creation of a new European-level source of finance for investment known as the Cohesion Fund. The Cohesion Fund had as its main objective that of helping the four poorer countries of the EU (Greece, Spain, Ireland and Portugal) to overcome the difficulties they faced in moving to monetary union, in particular, in helping to maintain their investment budgets in order to promote economic catching-up with the rest of the EU while simultaneously keeping their public deficits in check in accordance with the so-called Maastricht criteria.13 The Fund was therefore targeted nationally rather than regionally, although it was later to be incorporated as one of the sources of finance in regional programmes in countries where it intervened (see below).

22The first allocations to the new Fund were made by the member states in Edinburgh in December 1992 when the EU budget for the six-year period up to 1999, inclusive, was agreed: the so-called Delors II package. In effect, the combination of the Maastricht Treaty and the Edinburgh decisions meant that economic and monetary union was back on track, and on the terms set out in the Delors report of 1989 in the sense that there was a strong reinforcement of finance for the reduction of geographical disparities. The overall budget for “cohesion” (a term which was used in the Maastricht Treaty and which captures both the national and regional targeting of Community resources14) increased to 32 billion euro per year, or 30% of the total budget and 0.45% of Community GDP. For the poorer countries the contribution to capital formation amounted to 14% of the total, compared to 8% for 1989-93.

23With resources on this scale, the European Union was effectively financing the major share of national budgets in key areas such as transport infrastructure. Not surprisingly, then, this was also the period when the governance system was modified in order to introduce a reinforced emphasis on the concept of “value-for-money”, with new provisions in the legislation requiring the measurement of results against pre-determined objectives.

24The legislative package was also notable for the reinforcement of other aspects of the governance system, insisting on the need for the programmes to be managed in accordance with EU policy and legislation in the following fields:

• competition policy and public procurement policy (to ensure that public intervention under the programmes was consistent with the idea of a” level playing field” for business throughout the EU)

• equality of opportunity

• the environment (to avoid that competition between regions became a’ race to the bottom’).

25In the course of the period, the EU enlarged to include, from 1995, three new member states: Austria, Finland and Sweden. In the accession negotiations, Finland and Sweden successfully elicited an adaptation to the priorities of regional policy to address the needs of regions with very low population density, characteristic of the northern territories in both countries.

26The period was also characterised by the continuation of multiple, sectoral Community Initiatives, reaching a total of 14 in 1995 when a new, and in many ways groundbreaking, programme was adopted to support peace and reconciliation in Northern Ireland and the border counties of Ireland. However, in accordance with the Edinburgh summit of 1992, priority was given to promoting the development of frontier areas under the heading of the so-called INTEREG Community Initiative.

VI. Regional Policy for an Enlarged Union, 2000-2006

27By the time of the design of the next generation of cohesion programmes for 2000-2006, the process of introducing the single currency in 11 of the then 15 Member States was coming to a successful conclusion (in 1999, with euro notes and coins following in 2002) and attention had shifted to preparing for enlargement, with the intention of bringing in several countries from Central and Eastern Europe.

28The Commission made early preparations for this period, publishing policy and financing proposals in 1997 under the heading of “Agenda 2000”.15 It recommended a comparatively modest approach to enlargement, proposing that negotiations should begin with 5 countries: Hungary, Poland, Estonia, Czech Republic and Slovenia. The consequences would be potentially far-reaching for the financing of cohesion and regional policy (and for agriculture) since levels of GDP per capita in all 5 would qualify them for the highest levels of European aid, and, since the group included Poland, by far largest of the candidate countries with 40 million of population only marginally behind Spain, the Union’s fifth largest member state. In the event, in agreeing the budget for 2000-2007 in March 1999, the member states decided to add a sixth candidate for the next enlargement, Cyprus, which in turn was quickly enlarged to ten with the addition of Slovakia, Lithuania, Latvia and Malta. The final budgetary deal provided 34 EUR billion for cohesion policy equivalent to 0.46% of GDP (including the resources for post-enlargement).

29The budgetary settlement reached in Berlin in 1999, based on the Commission’s Agenda 2000 proposals, was centrally concerned with the financing of enlargement.16 Preoccupations that new member states would not be able to use – ‘absorb’– the relatively high level of resources on offer for cohesion and regional policy in the poorest of the EU-15, led to the decision to cap transfers at a maximum of 4% of national GDP, a figure which approximated to the highest figure granted historically to any member state. For some, this was seen as a realistic move to take account of the lack of institutional and administrative capacities in countries that had not fully completed regime change from centrally-planned to market-orientated economies, for others it was seen as a way of reducing the immediate budgetary implications of enlargement, while for others still, it was seen as a way of ensuring that resources could still be provided in the relatively more prosperous EU-15 member states and their regions.

30The 4% cap was also accompanied by measures to smooth adjustment to the changing geography of eligibility for support. Thus for regions no longer eligible for EU support, EU aid was gradual phased-out over time while for regions becoming eligible, mostly in the new member states, the aid was phased-in over time.

31Among the other notable features of the Berlin agreement, based on the Commission’s original Agenda 2000 proposals, were the decisions:

• to narrow the focus to just three priorities: regions lagging behind (the top priority with 70% of the resources not including resources the same areas received under the Cohesion Fund); areas undergoing economic and social change in the industrial and service sectors, declining rural areas, urban areas in difficulty and depressed areas dependent on fisheries; adaptation and modernisation of policies and systems of education, training and employment. The decision was taken to reduce the 14 Community Initiatives to just three with an emphasis on cooperation, mostly cross-border cooperation.

• to move to a seven-year financial planning period. This reinforced the role of the programmes as medium to long-term interventions, a degree of stability and predictability rare in public expenditure, but highly useful in the context of investment planning.

• to place greater emphasis on performance, financial management and control. In particular, it was agreed that not all of the resources should be allocated up-front, and that a proportion should be retained to be allocated at the mid-point according to performance criteria.

VII. Attempts at Change, Not Continuity: The 2007-2013 Programmes

32As a result of the budgetary decisions taken historically, cohesion and regional policy had grown from a marginal position in the EU budget to a position equivalent to the Common Agricultural Policy, the two policies together accounting for four-fifths of all EU-level expenditure, with the R & D “framework” programmes a distant third with less than 5% of the budget.

33However, when the EU turned to reflecting on its competitive position in the world, which can be summed up as a failure to compete with ‘the best’ (USA, Japan) in terms of adding value through innovation, while losing out to emerging economies (China, South-East Asia) in traditional (lower added-value) industries, EU regional policy was not immediately seen as one of the solutions. On the contrary, this reflection, which took concrete form in the conclusions to a summit of EU leaders in Portugal in the year 2000, was later to give rise to a certain degree of frustration with the perceived unresponsiveness of regional policy to addressing the Union’s competitiveness problems. The latter’s partnership arrangements, with the heavy decentralization of project selection arrangements combined with the pre-allocation of resources by member state for seven years, were seen by some as too inflexible to meet new needs.

34This emerged most clearly with the work inside the European Commission on proposals for EU policies and finance for the period 2007-2013 (the ‘financial perspective’). Experience under Agenda 2000 had shown that the negotiations on financial perspectives involving the member states (25 after 1 May 2004) and the European Parliament, who together made up the Budgetary Authority of the EU, tended to be protracted, with the risk that the legislation to be adopted on the basis of the final financial package would not be ready on time for implementation on 1 January 2007. The Commission therefore made an early start, working up its proposals throughout 2003. It was the discussions on these proposals that most clearly showed the divide emerging between, on the one hand, those who saw the continuing virtue of geographically-based policies, with pre-allocated resources, and those, on the other hand, who were arguing for radical change in favour of more sectorally-based policies in fields such as R & D, transport networks, etc. where decisions would be taken centrally on a project-by-project basis and without geographical or regional criteria entering the decision-making process in any major way.17

35In a parallel track of work, the Commission was working on what emerged as the European Initiative for Growth (EIG)18 a plan which included a set of projects that were held to be ready for implementation and which were labelled “Quick-start” projects, requiring 60 EUR billion up until 2010. The funds for cohesion and regional policy were called upon to help, albeit in a non-directive way, given the fact that the resources were essentially outside the European Union’s control, and this undoubtedly added to the conviction of those who saw these funds as too inflexible.

36Much has been written on this particular point in the history of EU cohesion and regional polices.19 The discussion which took place could be condensed as one between those who placed the emphasis on delivering competitiveness through policies that were implemented geographically (through coordinated actions following a strategic plan) and those who placed the emphasis on sectoral delivery. In the end, in early 2004, the Commission adopted a proposal which represented a compromise between, respectively, the geographically-targeted and sectorally-targeted policies. Resources for cohesion and regional polices would be maintained at 0.46% of GDP, while those of the sectoral policies would be significantly increased.20 The proposals therefore meant a rebalancing, but not a major rebalancing, of the total EU budget in favour of sectoral policies for delivering competitiveness, where they would have seen annual expenditure under this heading rise from 8.8 to 25.8 EUR billion between 2006 and 2013, with 60% allocated to R & D.

37The Commission’s proposals then entered the political decision-making process, at the level of the member states meeting in the Council and the European Parliament, in the usual way. At this level, the relative merits of the geographically-based and sectorally-based approaches becomes only one, perhaps minor, consideration among others. As Mayhew points out: “… the overall size of the budget is the most important element for Ministers of Finance, who will have to transfer their national contributions to the EU budget from the national budget. The larger the EU budget, the larger the gross transfers for everybody, irrespective of the net position of the country”.21 The restrictive view of the budget tends, however, to be most in evidence among member states who are ‘net contributors’, while those who are ‘net recipients’ tend to take a somewhat more relaxed view. Between the 2000-2006 and 2007-2013, the geography of the latter had changed considerably as a result of enlargement which had seen the addition of 10 new member states with a strong interest in cohesion and regional policy, and with a major voice as a bloc around the table of 25 member states.

38The outcome of the negotiations in December 200522, reflecting the balance of the different forces, led to a shaving of 9% from the Commission’s proposals for geographically-targeted policies and a major slashing of the sectorally-targeted ones (for example, the finally-agreed figure for the latter for the year 2013 was 12.6 EUR billion compared to the 25.8 EUR billion in the Commission’s original proposal, albeit with priority being given to R & D within the total). Mayhew had predicted this reduction, writing in October 2004, over a year before the final settlement: “The very large [proposed] increase in R & D spending is perhaps the weakest part of the whole proposal” and accusing it of not having a ‘business plan’23. Moreover, the avoidance of a significant reduction in cohesion and regional policy meant that the policy was able to continue to operate outside the poorest regions (formerly known as Objective 1 and renamed as Convergence regions).

39In terms of delivery, the member states (or at least the net-contributors) were pre-occupied that the geographically-targeted cohesion and regional policies should genuinely focus on “competitiveness and creating jobs”, taking up the Commission’s suggestion that minimum levels of resources should be earmarked for a limited number of priority fields mostly to do with investment in RTD and innovation, productive investment, information and communications technologies and human capital.24 Thus, 60% of the resources in the poorest regions and 75% in the other aided regions were intended for this short-list. To improve delivery the member states also insisted on enhanced management and control (auditing) systems. The objective of promoting cooperation between regions in different member states, notably cross-border cooperation, became a headline objective for EU cohesion and regional policy, and was no longer a ‘Community Initiative’. Finally, this was also the period when the Cohesion Fund was brought into the programme planning process to help to ensure greater coherence with the ERDF. However, the 2007-2013 period can only with difficulty be remembered for the integration of different European funding streams for investment, with the rural development and fishing area investment funds peeling off to pursue the priorities of the Common Agricultural Policy and the Common Fisheries Policy respectively.

VIII. Re-consolidating EU Regional Policy: The Current 2014-2020 Period

40As the EU enters its latest financial planning period, superficially at least there is a high degree of continuity, at least as far as cohesion and regional policy is concerned, and at least in general terms. This applies in terms of the finance available and in the preservation of the essentials of the four principles of the delivery system that have guided the policy from the beginning, although important modifications were introduced as discussed below. For the Union’s regions, this outcome was perhaps unexpected, and many had been anticipating a further, major reinforcement of the sectoral policies following the challenge that had been mounted, eventually without real success, in the preparations for 2007-2013.

Finance

41First, in overall budgetary terms, the package for 2014-2020 bears the imprint of the global financial and economic crisis after 2008. The cuts in public expenditure at national level provoked by the crisis were translated directly, and explicitly, into austerity budgeting at the EU level up to the point of leading to a reduction of the Commission’s initial proposal, which the latter had earlier described as “an ambitious but realistic proposal” taking account of the impact of economic austerity. The Commission’s proposals, published in 2011 (and updated in 2012 for the accession of Croatia) called for a total budget equivalent to 1.09% of EU Gross National Income (GNI), a reduction on the outturn of 1.12% for 2007-2013.25

42Second, with regard to cohesion and regional policy, the proposals in this area represented 32.4% of the overall budget compared to 35.7% in 2007-2013 (which also meant an absolute reduction in real terms of 4.5%). However, the proposed cut in the cohesion and regional policy budget could be described as relatively modest.

43Third, with regard to the debate that had raged during the preparation of the previous 2000-2007 budget intending to (partly) undermine the geographical approach in favour of the sectoral targeting of EU funds, this preservation of the geographical approach suggested that an important part of the political consensus remained with the former. In other words, the delivery of the competitiveness agenda would rely heavily on the geographical targeted, highly decentralized approach with pre-allocated resources.

44While this is largely true, it is not entirely true, and there were significant steps in the direction of sectoralisation. First, the Commission proposed the creation of a new sectoral fund known as the Connecting Europe Facility (CEF), to fund investment projects mostly in the transport sector (and, in effect, occupying a funding gap that was identified back in 2003 in the search for resources for the Quick-start projects, as discussed above). The transfer from geographical to sectoral was particularly clear in the case of the CEF because the Commission proposed that it would include 10 EUR billion that would be ring-fenced inside the Cohesion Fund for CEF priority projects (and thus unavailable for other projects). Second, the sectoral policies for competitiveness, including the CEF, were set to receive an 80% increase in real terms, with their share of the overall budget increasing from 9.2% to 15.7%.

45When the Commission’s proposals went for decision to the member states and the European Parliament, important changes were introduced. At this level, the view that held sway was that there was insufficient account taken of economic and financial austerity in the proposals and a new total for the overall budget equivalent to 1% of EU GNI was set. This was imposed in a way that affected the composition of the budget, and in the final agreement it was the sectoral policies that absorbed most of the reduction. Cohesion and regional policy remained largely unscathed with a reduction of 4% in the final agreement, compared to a reduction of 23.6% for the sectoral competitiveness policies. The CEF was cut by slightly more than half. Thus the political negotiations pushed the pendulum back towards the geographically-targeted delivery of competitiveness. Undoubtedly, the maintenance of the 2007-2013 consensus in this regard can be partly attributed to the accession to the EU of Bulgaria and Romania in 2007 and Croatia in 2013, all of whom, as relatively poor member states, feature among the major beneficiaries of cohesion and regional policy. It was also influenced by the impact of the crisis especially in some of the poorer parts of the Union where public resources for economic recovery had become scarce. In this sense, in a Union that had taken the decision historically to reject the path of fiscal equalization typical of Federal entities, relatively strong cohesion and regional policy was needed as the only other available mechanism for redistribution.

The Delivery System

46As indicated above, the new delivery system for 2014-2020 is based on the traditional principles: concentration of resources; medium-term strategic programming; partnership and decentralization; additionality. However, there were important modifications as discussed below.

47The regions where most of the aid is targeted underwent a third name-change to become ‘less-developed’ regions (curiously borrowing a category from the development literature), having been known as ‘Convergence’ regions between 2007-2013 and ‘Objective 1’ regions throughout the period 1989-2006. The eligibility criteria based on levels of GDP per capita remain the same, and have been strictly applied.

48Important changes concern, firstly, the strategic programming of investment where an attempt has been made to ensure improved coordination on the ground in the member states between the five different European funding streams (ERDF, Cohesion Fund, ESF as well as the funds for rural development (the European Agricultural Fund for Rural Development) and the fisheries area funds (European Maritime and Fisheries Fund)). The move towards coordination (a “Common Strategic Framework”) in many ways represents a return to the original principle of 1989-1993 of integrating the funding streams and is intended to promote more ‘joined-up thinking’ in the implementation.

49Secondly, the delivery system will include a strong emphasis on achieving results. The traditional problem in this regard has been to find a system for the achievement of objectives set at European level by the institutions led by the Council (and today set out in the latest version of the EU’s competitiveness strategy known as “Europe 2020”) in a context of the decentralized decision-making on investment that characterizes the implementation of European cohesion and regional policy. Under this system, the main European-level opportunity to exert influence on the actual content of the investment lies in the preparation of the programmes which have to be approved by the Union (by the Commission). Thereafter, as described above, it is largely a matter of evaluating and auditing actions ex-post and already implemented by the member states and regions. In order to increase the connection between the initial strategic programme and the actual results achieved later, the new delivery system imposes more requirements – conditions – on the member states to demonstrate that they have put in place the capacities for effective and efficient implementation (the so-called ex-ante conditionalities).

50In this framework, the new delivery system will also link implementation more than ever to ‘sound economic governance’. By establishing a tighter link between regional and cohesion policy and the so-called European semester26 of economic policy coordination, the intention is to ensure greater consistency between macroeconomic policies at national level and investments through European programmes. Thus, when a country faces economic difficulties, the Commission will work with the member state to revise its strategy and programmes. If the economic situation becomes as serious as to undermine the effectiveness of EU investment (for example, because it is a cause of macro-economic instability), certain fiscal or economic conditions can be imposed as a condition for continued transfers under regional and cohesion policy. Historically, this conditionality existed only for the Cohesion Fund, but implementation will be tightened up so that the process of suspending transfers, so difficult to impose in the past, will become more automatic (and apply to all five funds).

51This new macroeconomic conditionality is therefore double in nature providing, firstly, for rapid intervention to adjust programmes with aim of supporting sound macroeconomic policy, or to address an excessive public deficit, macroeconomic imbalances or other economic or social difficulties, or, simply to seek to maximise the growth and competitiveness impact of EU funds. Secondly, it provides for the possible suspension of transfers where a member state fails to take corrective action in the context of the EU’s economic governance procedures.

IX. Concluding Remarks

52The history of EU cohesion and regional policy has been shown to be closely bound up with the general process of European integration, especially with regard to the development of economic and monetary union which eventually led to the creation of a single currency, the euro. In the integration process the idea of fiscal federalism, and the creation of a fiscal equalization system, was declined opting instead for a system based on supporting the economic growth and development of the weaker member states and regions through the channelling to them of investment funds from the central EU budget, so that they could share in the results of (or at the very least not unduly suffer from) economic and monetary union.

53In some senses, the development of the policy over time reflects repeated attempts to address the double nature of the role that was established, at least implicitly, for cohesion and regional policy. On the one hand, the policy represented a redistribution mechanism in the absence of any other in support of the poorer areas of the EU. On the other hand, it also represented an economic growth and development mechanism targeting resources on a limited number of investment fields. In the early phases, it could be said that rather too much emphasis was placed on the redistributive dimension at the level of Europe’s political leadership, so that there was perhaps too much effort devoted to securing resources under cohesion and regional policy, and perhaps insufficient attention paid to making the most successful use of those resources at a later stage.

54One of the major challenges for the policy was thrown down in the early part of this century in the lead-up to the preparations for the 2007-2013 budget. This was a period when the Union, after the agreement in Lisbon in 2000 on a plan of action aimed at obtaining more resolute joint action to address the issue of (relatively declining) international European competitiveness, was looking to mobilise all the available sources of finance for new investment. With the decisions of the 1990s, cohesion and regional policy had become by far the largest potential source of such investment at the European level.

55In this context a shift began in the conceptual framework of the policy, away from an emphasis on the redistributive aspect towards the economic growth and development aspects. Thus, the rationale of the policy became one of a source of investment to help in the realisation of the succession of (related) competitiveness strategies guiding the Union after 2000 (the Lisbon Strategy (2000), the Growth and Jobs Strategy (2005), and the Europe 2020 strategy (2010)).

56In order to deliver the European investment to contribute to the realisation of these strategies, changes to the delivery system were essential so as to translate European priorities into the real investment decisions taken at the regional and local level. This has led to a strengthening of the conditions accompanying cohesion and regional policy programmes beginning with the preferential earmarking of key investment fields in the requirements for the drawing up the strategic programmes for 2007-2013. These conditions have been reinforced, at least in legislative terms (actual implementation has yet to take place), for the period just beginning, 2014-2020.

57Moreover, not only is the policy now guided (conditioned) by the need to contribute to achieving the objectives of the current version of the EU’s competitiveness strategy – Europe 2020 – it has also become, in post-crisis Europe, an instrument to help to ensure the stability of the economic and monetary union as a whole with sanctions possible (transfers suspended) for the non-respect of the Union’s limits for national macroeconomic magnitudes. In a sense, this has closed a circle. The progress that was made on reinforcing EU cohesion and regional policy needed the introduction of economic and monetary union. Now, economic and monetary union needs cohesion and regional policy as an instrument to underpin its success. It can be predicted that much attention will be devoted over the coming years to seeing how this latter relationship plays out in practice.

58Of course, notwithstanding the paradigm shift in EU cohesion and regional policy, it retains a strong redistributive dimension and most of the resources are concentrated on the poorest regions in terms of income (GDP) per head, a significant political achievement in itself. However, the policy discourse has changed to focus on the policy’s allocative role in targeting investment projects essential to Europe’s economic success. There is therefore an emphasis on the future, seeking to mobilise underexploited resources in pursuit of new opportunities rather than seeking to compensate for the problems of the past. Finally, to be able to play its role in realizing the Union’s global economic objectives, it has been accepted that the policy needs to intervene in both the poorer and the more prosperous regions of the Union even if the resources are inevitably, and justly, concentrated on the poorest.