# EUR-Lex - 52014DC0473 - EN

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# 52014DC0473

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Sixth report on economic, social and territorial cohesion: investment for jobs and growth /* COM/2014/0473 final */**

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE
COMMITTEE OF THE REGIONS

Sixth
report on economic, social and territorial cohesion: investment for jobs and
growth

1. 
Introduction

Although national
governments had to apply spending cuts in recent years to balance their budgets
and private financing dried up because of the financial and economic crisis,
Cohesion Policy funding continued to flow to Member States and regions,
supporting critical investments in growth and employment.

The crisis has
had a profound impact on national and regional budgets, limiting funding
availability across all investment areas. In the EU as a whole, public
investment declined by 20% in real terms between 2008 and 2013. In Greece, Spain and Ireland, the decline was around 60%. In the central and eastern European
countries, where Cohesion Policy funding is particularly significant, public
investment (measured as gross fixed capital formation) fell by a third. Without
Cohesion Policy, investments in the Member States most affected by the crisis
would have fallen by an additional 50%. Cohesion funding now represents more
than 60% of the investment budget in these countries.

Figure 1: Impact of Cohesion Policy on public investment   || Figure 2: Part of Cohesion Policy in public investment

The economic
crisis reversed a long trend of converging GDP and unemployment rates within
the EU, affecting in particular regions in Southern Europe. The crisis also led to increases in poverty and social
exclusion. This in turn has made it
more difficult to meet several of the objectives of
the Europe 2020 strategy.

For example, in
210 of the 277 EU regions, there was an increase in unemployment between 2007
and 2012. In 50 of these regions, the increase meant that the unemployment rate
more than doubled. The situation is particularly concerning for young people
as, in 2012, in about half of the regions the youth unemployment rate was over
20%. As a result, many regions have not yet been able to contribute to meeting
the Europe 2020 headline target of 75% employment in the population aged 20-64
by 2020.

As well as
maintaining a focus on tackling long-term structural obstacles to development,
the Commission and Member States responded to the crisis by re-directing some
cohesion investments to areas where the impact
on economic activity and employment would be direct and immediate. As a result,
more than €45 billion – or 13% of total funds – had been re-allocated by the
end of 2013. This shifting of funds supported measures to mitigate growing
unemployment and social exclusion and sustain investment in innovation and
research and development (R&D), business support, sustainable energy, and
social and education infrastructure.

The Commission
also proposed measures to improve liquidity for the Member States most affected
by the crisis. The adoption of these measures by the
European Parliament and the Council allowed a reduction in national
contributions, and led to more than €7 billion of additional advance
payments. A further reduction in national
co-financing was also approved, worth almost
€2.1 billion.

Evidence
suggests that Cohesion Policy investments have had a significant impact.

Between 2007 and
2012, the European Regional Development Fund (ERDF) created nearly 600.000
jobs. This is equivalent to almost 20% of the estimated job losses in the same
period, since the on-set of the financial crisis. It invested
in 200.000 small and medium-sized enterprise (SME) projects and 80.000
start-ups, financed 22.000 projects involving
research and business sector cooperation,
provided broadband coverage to 5 million people and
connected 5.5 million people to waste water treatment.
In addition, EU investments under Cohesion Policy built 3.000 km of key
European transport networks (15% of the
overall TEN‑T network) and also doubled
the volume of government funding for R&D in
the less developed Member States.

Between 2007 and
2012 the European Social Fund (ESF) supported 68 million individual project
participations. After receiving ESF support 5.7 million unemployed or inactive
people entered employment, and almost 8.6 million qualifications were gained
through support from the ESF. There were more than 400.000 reported cases of
new start-ups and people becoming self-employed. All of this has helped to
either limit the fall in GDP in many countries or to prevent further increases
in unemployment.

The effects of
these investments will increase over the next few years as Member States have until the end of 2015 to use the funds from the 2007-13 programmes and
there is a time lag between the moment an investment is made and the time when
its impact can be measured.

With a total
budget of over €450 billion (including national co-financing) for the 2014-20
programming period, Cohesion Policy will be the main
investment arm of the EU. It will provide the largest contribution to
supporting SMEs, R&D and innovation, education, the low carbon economy, the
environment, the fight against unemployment and social exclusion, to developing
infrastructure connecting EU citizens and to modernising public
administrations. Its investments, combined with structural reforms, will
play a key role in supporting growth and job creation and
in achieving the Europe 2020 strategy's objectives of smart, sustainable
and inclusive growth.

The challenge is
to ensure that these resources are used in the most effective and efficient
way, maximising their impact, consolidating recovery and
helping the EU to emerge from the crisis stronger and more competitive than before.

The new Cohesion
Policy is fully aligned with the Europe 2020 strategy and its headline targets
on employment, research and development, climate and energy, education and the
fight against poverty and social exclusion, and linked to the European Semester
and the EU economic governance process. Therefore, investments under Cohesion
Policy will also be used to support policies pursued by Member States under the
Integrated Guidelines and the National Reform Programmes, as well as to address
the relevant country-specific recommendations (CSRs) from the Council. The
Commission can also ask Member States to amend their Partnership Agreements and
operational programmes to meet new challenges identified in the CSRs.

This
Communication summarises the achievements of cohesion funding in the previous
programming period. It describes the main elements of the Cohesion Policy
reform introduced for the period 2014-20,[1] and the
trends emerging from the ongoing programme negotiations between the Commission
and Member States. It is accompanied by a Staff Working Document, analysing the
socio-economic and governance challenges that Member States and regions are
facing and assessing the impact of Cohesion Policy and public investment on economic and social disparities.

2.           An
evolving policy: Investing in regions’ competitiveness to improve
peoples’ lives

The EU Treaty
sets as objective for Cohesion Policy to reduce economic, social and
territorial disparities, providing particular support to less developed
regions.

Over time, the
policy has helped to improve the standard of
living and economic opportunities in EU regions by improving skills and
employability; increasing access to regions; supporting administrative capacity
building; establishing links between research
institutions, universities and the business community; and providing services
to small and medium-sized businesses. By supporting the main drivers of
economic growth, Cohesion Policy helps EU regions grow more quickly.

While remaining
true to its roots, Cohesion Policy has developed and progressed. In its early
years, the policy had a purely national focus, financing predetermined projects in Member
States, with little European influence. Over time, key
principles were introduced such as multi-annual programming, more strategic
investment and greater involvement of regional and local partners.

The bulk of
financial support under the policy has consistently focused on less developed
regions and Member States. There has, however, been a shift of investment away
from infrastructure and towards SME support, innovation, more innovative
employment and social policies. This shift has been made possible because of
infrastructure development in Member States (both those that acceded after 2004
as well as in the 'older' Member States) supported under the Cohesion Policy in
previous periods.

Figure 3 shows
how the composition of investment has evolved since 1989.

Figure 3: Composition of cohesion policy
investment in less developed regions (1989-2013)

The proportion
of investment in heavy infrastructure (transport in particular) was high when
the policy was launched and after the 2004 enlargement, when countries with a
clear infrastructure gap joined the EU. With the creation of the Cohesion Fund
(CF) in the 1990s, environmental investment became increasingly relevant,
helping Member States and regions to comply with EU directives and regulations
in this area. Investment in the productive sector and in SMEs in particular has
remained relatively stable.

Investment in
people (education, employment, and social inclusion), however, has declined
slightly in relative terms. Nonetheless, the role of the ESF as an instrument
for investing in human capital has grown significantly, most recently as a
result of the dramatic impact of the economic crisis on Member States' labour
markets. As a new measure to address this, the regulatory framework for 2014-20
ring-fences a minimum share (23.1%) of the Cohesion Policy budget for the ESF.
This is important to ensure the volume of investments in human capital,
employment, social inclusion, public administration reform and institutional
capacity building necessary for working towards the objectives of the Europe
2020 strategy.

For the first
time, Cohesion Policy – in particular through the ESF – provided support during
the 2007-13 period to modernise and reform public administrations and judicial
systems in convergence countries. This support aims to improve the functioning,
accessibility and quality of public services, to facilitate evidence-based
policy making and to deliver policy jointly with social partners and civil
society.

Finally, the
proportion of resources dedicated to technical assistance has increased
significantly since 2000-06, reflecting the critical importance of
well-functioning institutions for the effective management of Cohesion Policy
programmes.

By tailoring
investments according to levels of economic development, Cohesion Policy has
been able to adjust to the changing needs of each region over time. However,
the evolution of the policy has not been as decisive as might have been
expected. Evidence suggests, for example, that the introduction in 2007-13 of
compulsory earmarking of part of funding to EU priorities was a step forward,
but results have been mixed and funds are still
spread too thinly.

It has also
become increasingly clear that the effectiveness of Cohesion Policy depends on
sound macro-economic policies, a favourable business environment and strong
institutions. In some cases, inappropriate
policies and administrative and institutional weaknesses have limited the
effectiveness of funding. Gaps have also remained when it comes to transposing
EU legislation into national law in areas directly related to Cohesion Policy.
Although attempts have been made to define strategic, institutional and
administrative frameworks being in place, their application remained
discretionary and unsystematic.

Finally,
implementation of the funds has focused more on spending and compliance with
management rules than on achieving objectives. Programme objectives have
sometimes been vague, making it difficult to monitor and evaluate performance.
Setting targets is complex and some Member States have set targets which were
not ambitious enough. This has limited the capacity to evaluate the effects of
interventions and to understand which measures were most effective and why.

3.           Achieving results is at
the core of the new Cohesion Policy

The results of
the negotiations on Cohesion Policy reform, which ended in December 2013,
address these shortcomings.

The reform is focused on delivering an investment policy. Cohesion Policy objectives have been brought into line
with the Europe 2020 strategy, and relevant CSRs are systematically being taken
into account when planning investments. The way in which Cohesion Policy works
has also been reformed, based on five main ideas.

3.1.        Cohesion Policy programmes
need to operate in a favourable environment

The new Cohesion
Policy is linked to the EU economic governance process and to the ‘European
semester’, as investment under the Cohesion Policy cannot be considered in
isolation from the economic context in which it is undertaken.

In order to
avoid unsustainable fiscal or economic policies that
undermine the effectiveness of EU support during the 2014-20 period,
funding may be suspended when a Member State does not comply with the
recommendations it received under the EU economic governance process.

The effectiveness
of investment must not be undermined by unsound policies or regulatory,
administrative or institutional bottlenecks. Member States and regions must
therefore meet a series of pre-conditions. These are designed to ensure that
investment feeds into a clear strategic policy framework that ensures swift
transposition of EU law affecting the implementation of cohesion funding,
sufficient administrative capacity, and respect of minimum requirements on, for
example, anti-discrimination, gender equality, disability, public procurement
and state aid.

In particular,
each area of investment must be based on a well-defined strategy. For example,
no investment in transport can be made until a comprehensive national or
regional transport strategy is in place. Similarly, investment in the field of
R&D and innovation needs to be framed within a ‘smart specialisation
strategy’, which involves a process of developing a vision, identifying
competitive advantage, setting strategic priorities and making use of smart policies
to maximise the knowledge-based development potential of any region. In a
nutshell, projects should follow strategies and not the other way around.

3.2.        Cohesion Policy programmes
need to concentrate resources on a small number of priorities and maximise their
added value

Member States
and regions need to concentrate funding on a limited number of areas of EU
relevance. A large share of the ERDF will be allocated to four priorities at the centre
of the Europe 2020 strategy: innovation and research, the digital agenda,
support for SMEs and the low-carbon economy.

ESF
concentration on up to five investment priorities will support the
consolidation of outputs and results at European level. It will also ensure a
clearer link with the European Employment Strategy and the Integrated
Guidelines on Employment. At least 20% of the ESF budget will be ring-fenced
for supporting social inclusion and combating poverty and discrimination.

Given the urgent
need to tackle youth unemployment, a €6 billion Youth Employment Initiative
(YEI) has been launched, providing dedicated funding to help implement the
Youth Guarantee across the EU. This ensures that every young person is offered
appropriate employment or training within four months of leaving school or
becoming unemployed. YEI funding will be focused on regions with particularly
high youth unemployment rates.

Regions and
Member States will have to make clear choices about their objectives. This will
allow a critical mass of resources to be reached, ensuring a meaningful impact
and guaranteeing that investments are made in those areas that have a direct
and immediate impact on growth and jobs.

3.3.        Cohesion Policy programmes
need to define clear objectives and results

Cohesion Policy
success will be measured by its results and its impact. The reforms therefore
concentrate on ensuring greater focus on results through better performance
indicators, reporting and evaluation.

When designing
programmes, Member States and regions must specify the results they intend to
achieve by the end of the programming period. Programmes will have to set out
how the proposed actions will contribute to achieving these objectives and will
establish performance indicators with clear baselines and targets to measure progress.
Each programme will have a performance framework to increase transparency and
accountability.

To provide an
additional incentive, approximately €20 billion (or 6% of the Cohesion Policy
budget) has been set aside, to be allocated in
2019 to those programmes which show they are on track to deliver their
objectives.

3.4.        Cohesion Policy programmes
need to give a stronger voice to cities

Cities can play
a key role in Cohesion Policy and in meeting the objectives of the Europe 2020
strategy. More than two thirds of Europeans live in
cities. Cities are productive and innovative and can take the lead on
achieving smart growth. They can be more resource efficient (e.g. by minimising
land take, soil sealing and energy use) and can take part in realising sustainable growth, e.g. through green
infrastructure. Given the disparities of wealth,
concentration of the socially excluded and concentration of poverty in cities,
they are essential to tackling the challenge of inclusive growth.

For these
reasons, it is expected that around half of ERDF will be spent in cities in
2014-20. The new Cohesion Policy also aims to empower cities to design and
implement policies that contribute to meeting the Europe 2020 objectives, by
setting a minimum amount (5% of ERDF) for integrated investment
in sustainable urban development, and by guaranteeing that cities will play the
main role in selecting projects.

The Commission
will also launch calls for projects under the new Innovative Urban Actions
programme to support cities that are willing to test new ideas in urban
development.

3.5.        Cohesion Policy programmes
need to better include partners at all levels

The 2014-20
policy framework is based on the premise that all partners at national,
regional and local levels, respecting the principles of multi-level governance
and including social partners and civil society organisations, will be involved
at all stages of programming. For the first time at EU level, the European Code
of Conduct on Partnership[2]
provides a blueprint for Member States to reach out to and engage these
partners in developing programmes, throughout programme implementation and
during monitoring and evaluation. Partnerships could also be particularly
effective in delivering community-led local development strategies. Measures to
build capacity in social and civil society partners are also embedded in the
new regulations.

4.           From theory to practice:
emerging evidence from negotiations

At the time it
adopted this Communication, the Commission had received all 28 Partnership
Agreements (PAs) and around 150 operational programmes (OPs).[3]
Negotiations with Member States and regions are ongoing. Therefore, the
following only provides an indication of the extent to which the main elements
of the reform have been incorporated in the new strategies and programmes.

The information
available shows some very encouraging trends and some challenges.

Overall, around
€336 billion are allocated to national and regional programmes under the
Investment for growth and jobs (IGJ) goal. The resources are divided as
follows: €187.5 billion to the ERDF, €63 billion to the Cohesion Fund, and €85
billion to the ESF which is higher than the legally required minimum ESF
allocation of €80 billion.[4]

Figure
4: Allocation to funding priorities by fund (2014-20), in % of fund total

Around €124
billion is allocated to R&D and innovation, ICT, SMEs, and low-carbon
economy. This represents an increase of almost 22% compared to 2007-2013. Most
of this amount is financed by the ERDF (€116.5 billion) and the rest by the
Cohesion Fund.

€98 billion will
be invested in employment, social inclusion and education measures. Most of
this amount is financed by the ESF: employment (€30.7 billion), social
inclusion (€20.9 billion), and education (€26.3 billion).

€59 billion is
allocated to transport and energy network infrastructure, representing a
decrease of 21% compared to 2007-2013.

Almost €4.3
billion will be invested in institutional capacity building of public
authorities and in the efficiency of public administrations and services
("good governance"). This represents an increase of 72% compared to
the last period.

The new
programming period brings therefore a clear shift in terms of funding
priorities compared to 2007-13. Member States and regions will invest more on
the ERDF priorities (R&D and innovation, ICT, SMEs, and low-carbon economy)
and on the ESF priorities (employment, social inclusion, education, and
governance). In turn, less money will be invested in network and environmental
infrastructure. The decrease of investment in infrastructure is particularly
marked in more developed Member States.

Figure 5: Allocation to funding
priorities 2014-20 vs. 2007-13, in % of total

The particular
focus that the Commission has placed on the low-carbon economy has resulted in
a visible increase in this type of investment: more than €38 billion will
support the transition to a low carbon and climate resilience economy. Several
countries have put particular emphasis on energy efficiency or developing
renewable energy. In some cases, however, the link between investment and the
expected results in relation to the climate change objectives needs to be made
clearer.

Given the
challenges of
high unemployment and increasing poverty, the focus on inclusive growth
could be stronger in some PAs. The Commission is also of the view that
the funding allocated to education is for the moment not sufficient to
implement the priorities identified. In some PAs low priority is given to
active measures for social inclusion. To ensure better social outcomes
and investments that are more responsive to social change, social policy reform
needs to be better embedded in programming.

Moreover,
concerning the YEI, relevant information in some PAs and OPs is rather general
and does not set out how this new initiative will be delivered and if and how
it will support the implementation of Youth Guarantee schemes. In some
programmes the actions supported by the YEI need to be more focused on
supporting employment creation.

Notwithstanding
the existence of a CSR on the integration of the Roma minority, some Member
States do not foresee a dedicated priority for marginalised communities, making
it more difficult to assess how much funding will be allocated to this policy
area. Some Member States do not sufficiently address the needs of this target
group or need to further elaborate their strategy and intervention logic.

Administrative
modernisation and the quality of justice are recognised as key factors for
competitiveness and inclusive growth. Many Member States are planning measures
to make their public institutions stronger and improve their capacity to
deliver more effective policies, better administrative services, speedier
judicial proceedings, increased transparency and integrity of public institutions,
and improved public participation in the different phases of policy-making.
Yet, in a number of Member States where public administration reform has been
identified as a challenge, a clear strategy is missing and objectives are
incomplete and unclear, whilst such reform is indispensable to support jobs,
growth and competitiveness. Moreover, in some of these Member States a clear
political commitment to such reform is lacking.

It is clear that
the need to prepare for investment by fulfilling conditions in advance of
programme implementation has been taken seriously. The process has not been
easy and, in many cases, the Commission will have to agree on action plans to
ensure full compliance with the requirements within well-defined deadlines. Conditions,
which Member States have found particularly difficult to meet, concern areas
where EU Directives need to be transposed or where EU regulations need to be
applied effectively.

Smart
specialisation strategies have been designed at national and regional level to
accelerate economic transformation and narrow the knowledge gap. More emphasis
needs to be put on soft forms of support, on supporting market-driven research
and cooperation with business. There is a risk of business-as-usual support for
SMEs, instead of support being tailored to their needs and growth potential to
ensure a high leverage effect and a quick uptake.

Some Member
States have also designed programmes that establish clear links between the
digital economy and innovation. This is important as investments in high speed
broadband and ICT are needed to overcome specific bottlenecks and to encourage
market-driven solutions. For example, it is essential to focus investment in
broadband on next-generation networks to ensure that less developed regions do
not fall further behind. Synergies between Cohesion Policy, Horizon 2020 and
other EU programmes are also critical in the context of smart specialisation
strategies at national and regional level.

In 2014-20, some
88 programmes in 16 countries will be multi-fund programmes, combining
resources from the ERDF, CF and ESF. This is expected to encourage an
integrated approach bringing together different policies, funds and priorities.

To make the
policy more effective, result-oriented and performance-based, Member States and
regions will have to set detailed objectives and targets. It is essential that
programmes do not express aims too generally, including a large number of
possible actions to maintain maximum flexibility in selecting projects at a
later stage. This is critical: if objectives and targets are not ambitious
enough and detailed enough, it will be very difficult to evaluate the policy
and to have a meaningful public debate about it. During the negotiation
process, the Commission will focus on these risks.

Partnership
Agreements have largely been drafted through reasonable dialogue with partners,
although there are indications that in some cases this dialogue has been
insufficient, important stakeholders were not involved, or comments were not
reflected in later versions of the documents. The Commission will look very
carefully at how Member States have applied the Code of Conduct on Partnership
to ensure genuine participation by stakeholders.

Last but not
least, the new period requires strong governance and coordination mechanisms at
the national and regional level to ensure consistency between programmes,
support to Europe 2020 and the CSRs, and to avoid overlaps and gaps. This is
particularly important in view of the overall increase in the number of
regional programmes (for ESF programmes it is almost 60% compared to 2007-13).

5.           Conclusion

In 2014-20
Cohesion Policy will guide the investment of a third of the EU budget to help
achieve the EU-wide goals of growth and jobs and reduce economic and social
disparities. It is also the biggest investment instrument at EU level for
pursuing the objectives of the Europe 2020 strategy. It provides the largest
contribution in a number of areas, including support to SMEs, R&D and
innovation, investment in a skilled and competitive workforce, the fight against
unemployment and social exclusion, climate change adaptation and the
environment.

Economic models
provide an indication of the macro-economic impact. For example, it is expected
that in the main beneficiary countries thanks to Cohesion Policy GDP could be
on average 2% higher and employment around 1% higher during the implementation
period.

But the
productivity-enhancing effects of the Cohesion Policy continue to build up
after programmes have come to an end. By 2030, it is estimated that GDP in
these countries will be more than 3% above the level expected in the absence of
the policy. This means that over the period 2014-30, for each euro spent in the
main beneficiary countries, GDP is expected to be more than three euros higher.

For these
effects to be realised, however, it is essential that Member States and regions deliver on the reforms and use the policy as an effective investment tool.
The outcome of the ongoing negotiations to develop robust strategies, identify
a small number of key investment priorities, set ambitious targets, and ensure
that micro and macro conditions maximise the impact of the investment
co-financed under the Cohesion Policy, will therefore be crucial.

The Commission
will submit an initial progress report on the programmes to the European
Parliament and Council in 2017. This will give an overview of progress by
Member States and regions towards the objectives set in their programmes,
indicating whether or not they are delivering the intended results.

[1]     See OJ L347, 20 December 2013.

[2]     See Commission delegated regulation of 7.1.2014, C(2013) 9651
final.

[3]     Four PAs have already been adopted by the Commission.

[4]     The financial resources for the IGJ goal include the ERDF
(excluding support for European Territorial Cooperation), the ESF and the
Cohesion Fund. The figures reflect the situation as of 1 June and may still
change in the context of the programme negotiations.