An agenda for a reformed cohesion policy : a place-based approach to meeting European Union challenges and expectations.
Date: 2012-11-26
Institutions: Directorate-General for Regional and Urban Policy
Subjects: Community budget, Structural Funds, economic and social cohesion, governance, political reform, regional policy

AN AGENDA FOR A REFORMED COHESION POLICY 

A place-based approach to meeting European Union challenges and expectations 

Independent Report 

prepared at the request of Danuta Hübner, Commissioner for Regional Policy 

by Fabrizio Barca 

April 2009 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
II

 
 
 
BACKGROUND RESEARCH AND ACKNOWLEDGMENTS 

This  Report  has  been  prepared  by  Fabrizio  Barca,  Ministry  of  Economy  and  Finance  of  Italy, 
with  the  support  (and  co-authorship  for  chapter  V)  of  John  Bachtler,  European  Policies 
Research Centre, University of Strathclyde. 

The Rapporteur for the study was Eric Von Breska, DG REGIO. 

Additional  research  for  sections  of  the  Report  was  undertaken  by  Carlos  Mendez,  European 
Policies Research Centre, and Gian Paolo Manzella, European Investment Bank.  

The Report has greatly benefited from independent research and contributions organised during 
2008. In particular: 

•  A "Hearing on growth, institutions and policy - state of the art and territorial dimension", 
was  prepared  and  steered  by  Andrés  Rodriguez-Pose  (Department  of  Geography  and 
Environment,  London  School  of  Economics,  United  Kingdom),  Michael  Storper  (Institute 
d’Etudes Politiques de Paris - Sciences Po, France, and London School of Economics, United 
Kingdom)  and  Tom  Farole  (Regional  Director  -  Kaiser  Associates,  London)  with  the 
participation  of  Philippe  Aghion,  (Department  of  Economics,  Harvard  University,  USA), 
Philip  Keefer  (Development  Research  Group,  The  World  Bank,  Washington),  Jacques  Le 
Cacheux  (UPPA  and  Observatoire  Français  des  Conjonctures  Économique  –  Sciences  Po, 
France),  Philip  McCann  (Department  of  Economics,  University  of  Waikato,  New  Zealand), 
Ivan Miklos (Former Deputy Prime Minister and Minister of Finance of Slovakia, Member of 
Slovak Parliament), Alberto Navarro-Gonzales (Former Secretary of State for the European 
Union  of  Spain),  Tommaso  Padoa-Schioppa  (Former  Italian  Economic  and  Finance 
Minister), Diego Puga (Department of Economics, Universidad Carlos III de Madrid, Spain), 
Guido  Tabellini  (IGIER  Bocconi  University  Milano,  Italy),  Gert  Tinggaard  Svendsen, 
(University  of  Aarhus,  Denmark),  David  A.  Wolfe,  (University  of  Toronto,  Canada), 
Commissioner Danuta Hübner and officials from DG REGIO, DG EMPL, SG and BEPA. 

•  A "Hearing on cohesion policy and regional innovation" was prepared and steered by Luc 
Soete  (UNU-MERIT,  Maastricht)  with  the  participation  of  Jan  Fagerberg  (Centre  for 
Technology,  Innovation  and  Culture,  University  of  Oslo,  Norway),  Kevin  Morgan  (Cardiff 
University,  United  Kingdom),  Andre  Sapir  (ECARES  -  Université  Libre,  Belgium),  Gilberto 
Seravalli  (Dipartimento di Economia, Parma University, Italy), Bart Verspagen (Maastricht 
University, Netherlands) and officials from DG REGIO, DG EMPL and DG ENTR. 

•  A "Hearing on cohesion policy and social inclusion" was prepared and steered by Fabrizio 
Barca  with  the  participation  of  Sabina  Alkire  (Department  of  International  Development, 
University  of  Oxford,  United  Kingdom),  Tony  Atkinson,  (Nuffield  College,  Oxford,  United 
Kingdom),  Giuseppe  Bertola,  (University  of  Turin,  Italy),  Marjorie  Jouen,  (Notre  Europe, 
Paris),  Eric  Marlier  (CEPS/INSTEAD,  Luxembourg),  Dirk-Jan  Omtzigt  (Oxford  University, 
Oxford  Institute  for  Global  Economic  Development,  United  Kingdom),  Saskia  Sassen 
(Columbia  University  in  the  City  of  New  York,  USA),  Commissioner  Danuta  Hübner  and 
officials from DG REGIO and DG EMPL. 

•  Five  Policy  Seminars  were  prepared  and  steered  by  John  Bachtler,  Fabrizio  Barca  and 
Carlos  Mendez  with  the  organisational  assistance  of  Alyson  Ross.  Invited  national  and 
regional officials from all 27 EU Member States took part (see summary). 

transcripts  or  summaries  of 

The 
http://ec.europa.eu/regional_policy/policy/future/barca_en.htm. 

these  meetings  are  available  on 

the  web  at: 

A  Workshop  on  Impact  Evaluation  was  also  prepared  and  steered  by  Arianna  Legovini  (The 
World Bank, Washington), Alberto Martini (Universita del Piemonte Orientale, Italy), Matthew 
H.  Morton,  (University  of  Oxford,  United  Kingdom)  and  Robert  Walker  (University  of  Oxford, 
United  Kingdom),  with  the  participation  of  officials  of  the  Commission,  Member  States  and 
Regions. 

III

 
 
Valuable comments and contributions have been made by officials and experts of DG REGIO, in 
particular  Peter  Berkowitz,  Nicola  de  Michelis,  Mikel  Landabaso,  Nicholas  Martyn  and  Frank 
Rawlinson, Katarina Mathernova, Veronica Gaffey and the evaluation team, Hugo Poelman and 
the  GIS  team,  Jean-Marie  Seyler  and  the  members  of  the  Sounding  Board.  Thanks  are  due  to 
Commissioner Hübner and Director General Ahner for creating the conditions for independent 
thinking through their openness to reflection and willingness to consider new ideas.  

Terry  Ward  reviewed  the  whole  Report.  Tiziana  Galliani  was  responsible  for  the  Bibliography 
and  for  the  tables  and  Angela  Winkelhorst  for  the  layout.  Paola  Favale  provided  assistance 
throughout the Report.  

Ten Working Papers (also available at the above web address) have been specifically prepared 
for the Report on the following topics: 

•  Multidimensional Measures of Poverty & Well-being, Sabina Alkire, Moizza Binat Sarwar, 
Oxford  Poverty  &  Human  Development  Initiative  (OPHI),  Oxford  Dept  of  International 
Development, Queen Elizabeth House, University of Oxford, United Kingdom 

•  Towards a Territorial Social Agenda for the European Union, Fabrizio Barca, Ministry of 

Economy and Finance, Italy 

•  Towards  better  use  of  Conditionality  in  Policies  for  Research  and  Innovation  under 
Structural Funds - The Intelligent Policy Challenge, Andrea Bonaccorsi, University of Pisa, 
Italy 

•  Operational Rules and Results in Cohesion Policy Programmes: Analysis and Proposals for 

Conditionalities, Paola Casavola, Independent expert, Italy 

•  Cohesion Policy in the European Union: Growth, Geography, Institutions, Thomas Farole, 
Andrés Rodríguez-Pose, Michael Storper, London School of Economics, United Kingdom 

•  The  Turning  Points  of  EU  Cohesion  Policy,  Gian  Paolo  Manzella,  European  Investment 
Bank,  Luxembourg  and  Carlos  Mendez,  European  Policies  Research  Centre,  University  of 
Strathclyde, United Kingdom 

•  Regional  Convergence,  Growth  and  Interpersonal  Inequalities  across  EU,  Philippe 

Monfort, Directorate General Regional Policy, European Commission 

•  Applicability of Impact Evaluation to Cohesion Policy, Matthew H. Morton, Department of 

Social Policy & Social Work, University of Oxford, United Kingdom 

•  Survey on Social inclusion: Theory and Policy, Dirk-Jan Omtzigt, Oxford University, Oxford 

Institute for Global Economic Development, United Kingdom 

•  Competitive European Regions Through Research and Innovation - Different Theoretical 
Approaches to Innovation Policies, Gilberto Seravalli, Department of Economics, Faculty of 
Economics, Università degli Studi di Parma, Italy 

IV

 
 
Table of Contents 

EXECUTIVE SUMMARY.......................................................................................................... VII 

OVERVIEW OF THE REPORT ...................................................................................................XI 

INTRODUCTION............................................................................................................................1 

I. 

THE  RATIONALE  AND  MOTIVATION  FOR  AN  EU  PLACE-BASED 
DEVELOPMENT POLICY ....................................................................................................9 

I.1.  The EU cohesion policy budget: a comparative and historical perspective .................9 

I.1.1. 

I.1.2. 

Alternative ways of tackling economic and social development: the 
EU and US.....................................................................................................9 

“No Community could maintain itself so long as some have cause 
to doubt the common will”: guidance from history.....................................13 

I.2.  The place-based paradigm: economic rationale and governance................................17 

I.2.1. 

I.2.2. 

I.2.3. 

I.2.4. 

The efficiency objective ..............................................................................17 

The equity (social inclusion) objective........................................................28 

Corollaries: avoiding common misconceptions...........................................36 

Governance: beyond the traditional dilemma of fiscal federalism ..............40 

I.3.  The  case  for  the  EU  cohesion  policy  budget  reconsidered:  why  should  the 

EU care?......................................................................................................................49 

II. 

INSIDE THE BLACK BOX OF COHESION POLICY.......................................................60 

II.1.  Cohesion policy today: resources, governance and goals...........................................60 

II.2.  The policy context: a very brief outline of Member States regional policies .............76 

II.3.  Empirical evidence .....................................................................................................80 

II.3.1.  Macro...........................................................................................................80 

II.3.2.  Micro ...........................................................................................................89 

II.4.  A tentative general assessment of successes and failures of cohesion policy.............91 

III.  THE NEED FOR A SHARP CHANGE OF DIRECTION .................................................108 

IV.  A CONCENTRATION ON A FEW EUROPEAN PUBLIC GOODS ...............................116 

IV.1.  Criteria for the choice of core priorities....................................................................117 

IV.2.  The  case  for  a  strong  focus  on  the  social  inclusion  objective:  towards  a 

territorialised social agenda ......................................................................................120 

IV.3.  Addressing the efficiency objective..........................................................................127 

IV.3.1.  A case for “Innovation”.............................................................................127 

IV.3.2.  Exploring other options: “Adapting to climate change”............................134 

IV.4.  Addressing the social inclusion objective.................................................................138 

IV.4.1.  A case for “Migration” ..............................................................................138 

IV.4.2.  Exploring other options: “Children”..........................................................145 

V

 
 
IV.5.  Tackling both objectives with the same core priority: the options of “Skills” 

and “Ageing” ............................................................................................................147 

V.  A MORE STRATEGIC AND EFFECTIVE GOVERNANCE...........................................155 

V.1.  An innovative concentration on core priorities and a conservative territorial 

allocation...................................................................................................................156 

V.2.  A new EU strategic framework for cohesion policy.................................................162 

V.3.  A  new  contractual  relationship,  implementation  and  reporting  aimed  at 

results 

...................................................................................................................165 

V.4.  A strengthened governance for the core priorities....................................................170 

V.5.  Promoting additional, innovative and flexible spending ..........................................173 

V.6.  Promoting experimentalism and mobilising local actors..........................................177 

V.7.  Promoting  the  learning  process:  a  move  towards  prospective  impact 

evaluation..................................................................................................................178 

V.8.  Refocusing  and  strengthening  the  role  of  the  Commission  as  a  centre  of 

competence ...............................................................................................................180 

V.9.  Addressing financial management and control.........................................................183 

V.10.  Reinforcing the high-level political system of checks and balances ........................185 

BIBLIOGRAPHY ........................................................................................................................189 

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EXECUTIVE SUMMARY 

There  is  a  consensus  that  the  European  Union  should  modernise  its  budget,  tackling  the  new 
challenges  and  breaking  away  from  bureaucratic  inertia  and  the  juste  retour  logic  that  hitherto 
have prevented change. The decision to undertake a budget review has provided the opportunity 
for doing so. This opportunity is still available. Cohesion policy is part of the review, but there 
are conflicting views on its rationale, its results, and the need and scope for reform. The risk of 
wrong changes is high. The risk that no change will take place is also very high. 

The purpose of this Report is to help avert these risks by setting an agenda for reform and seeking 
to initiate a frank, informed and timely debate on conceptual, political and operational aspects. A 
start has been made with the consultation undertaken for preparing the Report.1 On the basis of 
this consultation, and a review of the economic literature, empirical evidence and a comparative 
and historical perspective, the Report argues that: 

• 

• 

• 

• 

there  is  a  strong  case,  rooted  in  economic  theory  and  in  a  political  interpretation  of  the 
present state of the European Union, for the Union to allocate a large share of its budget to 
the provision of European public goods through a place-based development strategy aimed 
at both core economic and social objectives; 

cohesion  policy  provides  the  appropriate  basis  for  implementing  this  strategy,  but  a 
comprehensive reform is needed if present challenges are to be met; 

the reform requires the adoption of a strong policy concept (renewing the original ideas of 
EU  founding  fathers),  a  concentration  of  priorities,  key-changes  of  the  governance,  a  new 
high-level political compromise and an appropriate adjustment of the negotiation process on 
the budget; 

current  economic  and  political  events  have  increased  the  urgency  for  change:  some  of  the 
reform proposals can and should be anticipated in the current programme period. 

The policy model is the starting point of any change. Indeed, as the Report argues, without such 
an  initial  discussion  to  establish  a  mutual  understanding  of  the  rationale  of  a  place-based 
development  policy,  there  can  be  no  meaningful  debate  on  reform.  A  place-based  policy  is  a 
long-term  strategy  aimed  at  tackling  persistent  underutilisation  of  potential  and  reducing 
persistent  social  exclusion  in  specific  places  through  external  interventions  and  multilevel 
governance. It promotes the supply of integrated goods and services tailored to contexts, and it 
triggers institutional changes.  

In  a  place-based  policy,  public  interventions  rely  on  local  knowledge  and  are  verifiable  and 
submitted to scrutiny, while linkages among places are taken into account. The Report argues that 
this strategy is superior to alternative strategies that do not make explicit and accountable their 
territorial  focus,  or  even  hide  it  behind  a  screen  of  self-proclaimed  space-blindness,  fail  to 
integrate  services,  and  either  assume  that  the  State  knows  best  or  rely  on  the  choices  and 
guidance of a few private actors. The lessons of the recent crisis reinforce this argument. 

There is a strong case for the EU to allocate a large share of the Community budget to a place-
based strategy. It is an essential complement to the unification of markets, the creation of a single 
currency and the general erosion of national influence over economic developments. It can enable 
the EU to respond to the expectation of the European citizens that everyone, irrespective of where 
she/he lives, is able to benefit from the economic gains from unification, to have equal access to 

1 In the course of preparing this Report, 3 Hearings, 1 Workshop, and 5 Policy Seminars were organised 
involving  some  80  academic  experts  and  policy-makers,  and  a  group  of  Working  Papers  was 
commissioned. This material is available at http://ec.europa.eu/regional_policy/policy/future/barca_en.htm. 
VII

 
 
                                                      
the opportunities so created as well as an equal possibility of coping with the risks and threats. 
And it can do so by using a modern governance and by relying on the responsibility of Member 
States, which retain the power to adapt interventions to contexts.  

There is in particular a strong case for building a territorialised social agenda as part of cohesion 
policy, aimed at guaranteeing socially agreed standards for particular aspects of their well-being 
which people attach high priority to. This would represent a kind of social contract between the 
EU and its citizens and a means, in the longer-term, of encouraging mobility by reducing fears 
about it. 

There is also a clear advantage of the EU rather the Member States running such a policy since it 
is  better  able  to  take  account  of  over-the  border  interdependencies,  which  are  of  increasing 
importance  for  the  growth  of  the  EU  as  a  whole  as  closer  integration  occurs.  Moreover,  it  is 
further  removed  from  the  pressure  of  local  interest  groups  which  can  distort  or  obstruct  the 
development path pursued. 

The  review  undertaken  by  the  Report  shows  the  severe  limits  of  the  quantitative  evidence 
available on policy performance. However, a tentative analysis of strengths and weaknesses leads 
to  two  conclusions.  First,  the  current  architecture  of  cohesion  policy  represents  the  basis  for 
implementing  the  place-based  strategy  needed  by  the  Union.  Second,  cohesion  policy  must 
undergo a comprehensive reform for it to meet the challenges facing the Union. 

In short, the Report argues that: 

There  needs  to  be  a  clear  and  explicit  distinction  between  policy  interventions  aimed  at 
increasing  income  and  growth  (“efficiency”  objectives  in  the  terminology  of  the  Report)  and 
those  aimed  at  reducing  inequalities  (“social  inclusion”  objectives  in  the  Report),  not  least  in 
order to be able to monitor and evaluate the results. 

There needs to be a greater coherence with the  place-based or territorial policy concept. And a 
true concentration on a few issues of key importance for the EU and its people. This would create 
a Europe-wide critical mass of interventions on commonly agreed priorities, attract political and 
public  attention  to  the  measures  implemented  and  enable  the  Commission  to  better  focus  its 
human resources and efforts and play a more strategic role. 

There needs to be a reform of governance based on ten “pillars”. 

Pillar 1: An innovative concentration on core priorities and a conservative territorial allocation 
The  concentration  of  55-65%  of  funding  on  3-4  core  priorities,  the  share  varying  between 
Member States and Regions according to needs and strategies, with the criteria for the territorial 
allocation  of  funding,  and  the  distribution  of  funds  between  lagging  and  non-lagging  and  for 
“territorial cooperation” remaining much as now.  

The choice of the core priorities should result from a high-level political debate, but six possible 
candidates,  discussed  in  some  detail  in  the  Report,  are:  innovation  and  climate  change,  with  a 
largely  economic  (“efficiency”)  objective;  migration  and  children,  with  a  predominantly  social 
(“social  inclusion”)  objective  and  skills  and  ageing,  where  the  two  objectives  are  of  similar 
importance. For most of these, the EU has already developed a body of knowledge and expertise 
for setting the institutional principles and the indicators for policy implementation. 

Pillar 2: A new strategic framework for cohesion policy 
An enhanced strategic dialogue between the Commission and Member States (Regions), based on 
a European Strategic Development Framework, setting out the major policy innovations clear-cut 
principles for the core priorities and a set of indicators for assessing performance 

VIII

 
 
Pillar 3: A new contractual relationship, implementation and reporting aimed at results 
A new type of contractual agreement (a National Strategic Development Contract) between the 
Commission  and  Member  States,  based  on  the  above  and  focused  on  performance  and  on  the 
institutional requirements for intervention, covering all cohesion policy resources and specifying 
verifiable  commitments,  coupled  with  the  preparation  of  an Implementation  Assessment  (where 
required)  by  the  Commission  and  of  a  Strategic  Report  on  Results  by  Member  States  annually 
after the third year.  

Pillar 4: A strengthened governance for the core priorities 
The establishment of a set of ex-ante conditionalities on the institutional framework required to 
be in place in order to pursue each core priority and a system for assessing progress in meeting 
targets.  

Pillar 5: Promoting additional, innovative and flexible spending 
The  strengthening  of  the  principle  of  additionality  through  linkage  to  the  Stability  and  Growth 
Pact, plus a contractual commitment and an assessment of how the policy is delivering the value 
added for which it is justified, and the option of implementing the de-commitment rule over the 
entire country rather than at programme level. 

Pillar 6: Promoting experimentalism and mobilising local actors  
The  development  of  a  better  balance  between  creating  an  incentive  for  local  agents  to  risk  and 
invest  and  preventing  policy  from  being  “captured”  by  local  interest  groups,  through 
encouragement  for  experimentalism  and  a  direct  role  of  the  Commission  based  on  the 
establishment  of  a  small  fund  for  Innovative  territorial  actions  and  on  the  involvement  of 
international expertise at local level.  

Pillar 7: Promoting the learning process: a move towards prospective impact evaluation 
Encouraging the design and implementation of counterfactual methods for assessing the impact 
of  policy  interventions,  to  improve  understanding  of  what  works,  especially  in  a  prospective 
sense,  so  that  evaluation  is  designed  together  with  the  intervention  and  can  have  a  disciplinary 
effect by focusing attention on objectives and on the criteria for the selection of beneficiaries. 

Pillar 8: Refocusing and strengthening the role of the Commission as a centre of competence   
A  significant  investment  in  human  resources  and  organisational  changes  in  the  Directorates-
General of the Commission which have a overall responsibility for cohesion policy, together with 
much-improved coordination among Directorates in charge of cohesion policy. 

Pillar 9: Addressing financial management and control  
The assumption that recent changes introduced in this area, and further measures that might be 
taken on the basis of current debate, will allow a greater efficiency to be achieved and space to be 
made in the Commission for the above additional investment in human resources. 

Pillar 10: Reinforcing the high-level political system of checks and balances. 
A  much  improved  high-level  political  debate,  fuelled  by  the  new  information  on  performance 
produced  by  the  previous  changes,  together  with  a  renewed  system  of  checks  and  balances 
among the Commission, the European Parliament and the Council, strengthened by the creation 
of  a  formal  Council  for  cohesion  policy,  assessing  decisions  and  results  and  issuing 
recommendations.  

The  implementation  of  this  reform  would  require  a  strong  political  compromise  to  take  place 
during  2010.  It  would  also  require  some  changes  to  be  anticipated  in  the  current  programme 
period and the structure of the budget negotiation on cohesion policy to allow for simultaneous 
agreement on resources, governance and goals. 

IX

 
 
X

 
 
OVERVIEW OF THE REPORT 

Policy concept 

1.  The policy concept singled out in the Report is the place-based development approach, what 
the  OECD  calls  the  “new  paradigm  of  regional  policy”,  which  has  been  experimented  with  in 
various parts of the world in the past two decades. Its objective is to reduce persistent inefficiency 
(underutilisation of resources resulting in income below potential in both the short and long-run) 
and persistent social exclusion (primarily, an excessive number of people below a given standard 
in terms of income and other features of well-being) in specific places. Places are defined though 
the policy process from a functional perspective as regions in which a set of conditions conducive 
to development apply more than they do in larger or smaller areas. This is, in the Report’s view, 
the  appropriate  and  modern  way  to  interpret  the  task  set  by  the  EU  Treaty  to  promote 
“harmonious development” and to tackle “disparities” of regions and “regional backwardness” by 
means of cohesion. 

2.  Economic theory shows that a place might require an intervention from outside in response 
to two sets of market and government failures. First, a place can be trapped in a vicious circle of 
inefficiency or social exclusion because the appropriate economic institutions either intentionally 
fail to be chosen by local elites (that being against their interests), or because the less a place has 
effective  institutions,  the  less  likely  it  is  to  have  them  in  the  future  (path  dependency).  Social 
exclusion can also be perpetuated because individual circumstances are hereditary and persistent. 
The  intervention  needed  to  tackle  these  problems  should  take  the  form  of  the  provision  of 
integrated  bundles  of  public  goods  and  services  aimed  at  triggering  institutional  change, 
improving the well-being of people and the productivity of businesses and promoting innovation. 
The goods and services concerned need to be tailored to places by eliciting and aggregating local 
preferences and knowledge and by taking account of linkages with other places. This is where the 
territorial dimension of cohesion is particularly relevant. 

3.  Second, agglomerations – one of the driving forces of development – are always the result of 
public  as  well  as  private  decisions,  the  former  consisting  of  the  design  of  institutions  (for 
regulating  land  use,  promoting  research  and  support  to  firms,  providing  social  services, 
education,  healthcare,  water  supply  and  so  on)  which  are  tailored  to places. Such decisions are 
invariably made with very limited information on whether the agglomeration process concerned 
is  enhancing  or  reducing  overall  efficiency  and  whether  other  agglomerations  should  be 
encouraged instead or in addition. The pressure of private interests to capture decision-making, 
moreover, is permanently at work. These features call for a cautious approach under which public 
interventions with a territorial impact are made visible and verifiable and submitted to scrutiny 
together  with  the  initiation  of  a  process  whereby  everyone  is  given  the  opportunity  and  the 
information to participate and to voice their dissent. A place-based approach has the potential to 
ensure this. 

4.  The place-based approach goes beyond the traditional dilemma of fiscal federalism whether 
to decentralise or centralise any given public function. The responsibility for policy design and 
implementation is allocated among different levels of government supported by both contractual 
relations  and  trust,  with  a  role  being  played  by  special-purpose  institutions  (agencies,  public-
private partnerships, etc). More specifically, the authority governing the exogenous intervention 
sets the priorities, rules and general objectives for using the funding provided, leaving it to lower 
levels of government to implement these principles according to the context as they see fit. 

5.  Place-based  policies  are  complex  and  risky.  There  are  serious  risks  of  misallocating 
resources, creating a dependency culture and favouring rent-seekers over innovators. At the same 
time,  the  spatial  dimension  of  public  interventions  is  transparent,  verifiable  and  subject  to 
citizens’ scrutiny and there is a clear recognition that “the state does not necessarily know best”. 
The opposite is the case for policy strategies that camouflage strong and intended spatial effects 
of  similar  public  interventions  behind  a  screen  of  self-proclaimed  spatial  blindness.  When  a 

XI

 
 
policy  for  development  is  explicitly  place-based,  the  risks  can  be  identified  and  addressed 
through  the  effectiveness  of  the  conditionality  system,  the  focus  on  objectives  and  results,  the 
discipline imposed by evaluation, the competence and credibility of an external authority and the 
potential for open public debate over the policy choices made.  

A place-based approach to meeting EU challenges and expectations. 

6.  A  placed-based  policy  approach  is  particularly suitable for the European Union. The main 
argument put forward in this Report – the EU sustainability argument - involves two steps. First, 
all Unions need to accompany sovereignty over markets and money and their responsibility for 
encouraging internal mobility of labour and capital with a development policy aimed at giving all 
places the opportunity to make use of their potential (efficiency) and all people the opportunity to 
be socially included independently of where they live (social inclusion). Whether a Union is “free 
market” oriented or “social market” oriented – as the examination of the US case shows – money 
is spent on assisting regions tackle development problems. In the specific case of the European 
Union, citizens of countries which, after centuries of conflict, have come together under common 
rules  clearly  expect  it  to  commit  to  ensuring  equal  opportunities  for  everyone.  Tackling  the 
inefficiency and exclusion traps that arise in  Europe is a task for the EU because if this task is 
not successfully performed the EU is blamed.  

7.  As a result of unification, which has reinforced the effects of globalisation, citizens across 
Europe  have  seen  their  labour  markets  being  opened  up,  their  services  being  accessed  by 
outsiders  and  their  national  and  local  practices  being  changed  by  European  rules.  They  are 
experiencing an erosion of their national or regional common bonds and their national “feeling of 
community”  (or  “identification”).  This  process  is difficult, as memories of conflict and historic 
division  recede,  as  evidenced  in  opinion  polls  and  the  recent  experience  of  constructing  new 
constitutional  arrangements  for  the  EU.  For  the  sustainability  of  the  Union  and  to  avoid  a 
reversion  to  nationalistic  behaviour,  two  complementary  lines  of  action  can  be  pursued  in  the 
short-to-medium  term.  First,  there  is  a  need  for  less  elitism  in  EU  interventions  and  less 
invasiveness in interfering with national and local practices in an overly-detailed and bureaucratic 
way. Second, “common bonds” need to be promoted at the EU level since this is responsible for 
loosening existing bonds: the expectation of solidarity at the Union level can be a strong cement 
of this process. 

8. 
It  is  not  a  matter  of  “doing  something  social”  as  a  “cost  to  pay”  in  order  to  achieve  or 
preserve  market  and  currency  unification.  This  argument  has  been  overused  over  the  years  in 
order to convince the sceptics, and it has backfired. If a policy is a “cost”, why should we really 
care about its quality, its results and its conceptual design? Let’s just pay the cost and try to make 
it as low as possible. Market and currency unification are not objectives in themselves but means 
for  achieving  the  ultimate  objectives  which  motivated  the  formation  of  the  Union:  increasing 
growth and well being and preserving peace. Unless inefficiency and social exclusion traps are 
tackled  through  a  policy  for  development,  the  very  objectives  for  which  market  and  currency 
unification were introduced cannot be achieved. Independently of such unification, the pursuit of 
these  objectives  calls  for,  as  the  experience  of  other  Unions  shows,  the  Union  to  take  direct 
responsibility for tackling these traps. It requires, however, that action to do this is successful – 
which is where problems start.  

9.  The second step of the argument goes on to claim that a place-based approach, a “cohesion 
policy”,  is  the  best  way  for  the  Union  to  fulfil  its  development  task.  This  approach,  as  argued 
above, can be particularly effective since it responds to the need for tailoring interventions and 
economic  institutions  to  local  conditions;  a  need  that  has  been  forcefully  stressed  by  recent 
advances  in  the  theory  of  growth  and  development.  Further,  a  place-based  approach,  -  under 
which  the  Union  sets  the  framework  for  intervention  in  support  of  regional  development.  and 
jurisdictional Regions and Nation-States have responsibility for designing it and for selecting the 
regions and projects supported - is the only policy model that is compatible with the EU’s hybrid 
form  of  government  and  limited  democratic  legitimacy.  The  US  model  of  top-down  “federal” 

XII

 
 
interventions  would  not  be  suitable  for  the  EU,  even  if  it  were  superior,  which  the  Report 
suggests it is not.  

10.  The  rationale  for  investing  a  large  share  of  the  EU  budget  in  a  place-based  development 
policy  is  further  strengthened  by  two  advantages  that  the  Union  has  over  Member  States  in 
running  such  a  policy.  On  the  one  hand,  the  EU  level  is  better  suited  to  tackling  cross-border 
interdependencies on which development depends, to reducing the risk of beggar-thy-neighbour 
policies  and  taking  explicit  account  of  cross-border-externalities.  It  is  also  better  placed  to 
promote  a  process  of  institutional  learning  and  dissemination  and,  since  it  is  further  removed 
form  local  interests  and  regional  pressure  groups  than  Member  States  or  Regions,  it  has  more 
credibility in playing the exogenous role that policy requires. 

11.  The EU Treaty mission of harmonious development, and the economic rationale for a place-
based  approach,  point  to  two  distinct  objectives:  increasing  efficiency  and  social  inclusion. 
Greater  efficiency  is  central  for  the  future  of  the  Union:  market  integration, mobility of capital 
and labour, fiscal stability change the comparative advantages of regions and call for resource re-
allocation  and  institutional  changes  that  a  place-based  strategy  can  promote.  Assuming 
responsibility  for  social  inclusion  is  a  matter  of  urgency,  and  not  only  because  of  the  current 
economic  crisis.  The  division  of  labour  between  an  EU  level  taking  care  of  markets  and 
liberalisation, and Member States taking care of welfare, is under increasing pressure. Scope for 
action by the latter is increasingly constrained by the constitutional “supremacy of all European 
rules  of  economic  integration,  liberalization  and  competition  law”  and  by  the  pressure  of  tax 
competition and of EU stability rules on national budgets. Scope for action by the EU is limited 
by the strength of “national social contracts” and the differences between these.  

12.  There  is  a  strong  case  for  building  a  “territorialised  social  agenda”  within  the  context  of 
cohesion policy It would be a strategy focused on individuals but aware that their well–being and 
the effectiveness of any intervention depend on the place where they live. By adopting a place-
based approach, this agenda should be aimed at guaranteeing socially agreed essential standards 
for  one  or  two  issues  of  high  priority  for  European  citizens.  While  respecting    the  diversity  of 
“social contracts” between citizens and their Nation States, it would establish some elements of a 
social  contract  between  all  EU  citizens  and  the  EU  as  a  whole.  Moreover,  while  providing  a 
partial solution for the present, it could also help encourage mobility of labour in the longer term, 
giving an added source of social protection. 

Misconceptions and clarifications 

13.  There is also, however, a different argument to consider which is often used in supporting 
cohesion policy, namely that it is a means of financial redistribution among Member States and 
Regions.  As  the  Report  demonstrates,  this argument is highly misleading. The redistribution of 
resources  among  places  is  not  a  sufficient  condition  for  pursuing  either  the  efficiency  or  the 
equity objectives set out in the Treaty when calling for a reduction of disparities. It might be part 
of  the  means  of  such  a  pursuit  –  some  places  receiving  more  from  interventions  than  they 
contribute through taxation – but the main purpose of cohesion policy is not redistribution but to 
trigger  institutional  change  and  to  break  inefficiencies  and  social  exclusion  traps  through  the 
provision of public goods and services. It is certainly the case that cohesion policy has been and 
is  still  today  entrusted,  as  are  other  EU  policies,  with  the  side  task  of  “transferring  resources 
between Member States as part of grand bargains”, but if this were its main purpose it would be 
inappropriate  to  pursue  it  through  cohesion  policy.  A  mechanism  with  much  lower  transaction 
costs  that  does  not  raise  expectations  of  “development”  should  be  devised  instead,  a  financial 
equalisation system, an inter-country or an inter-regional “EU fund”.  

14.  Once  the  financial  redistribution  argument  is  dispelled,  the  inconsistency  of  the  so-called 
renationalisation  critique  is  revealed.  The  critique  posits  that  cohesion  policy  should  focus  on 
disparities  between  countries.  Countries  with  the  resources  to  pay  for  the  redistribution  of 
resources  among  their  regions  should  do  so  themselves.  Indeed,  under  the  principle  of 

XIII

 
 
subsidiarity,  these  countries  would  be  better  equipped  to  undertake  this  task  than  the  EU.  A 
system  through  which  the  richer  countries  make  large  contributions  to  the  EU  budget  and then 
receive some of this money back through cohesion policy – but tied to administrative rules and 
obligations – is regarded as inefficient. If the purpose of cohesion policy were indeed financial 
redistribution, the system would truly be highly inefficient – so inefficient in fact that it should be 
substituted by a simple system of “cheques”. The reason for not doing so is that the purpose of 
cohesion policy is not financial redistribution. 

15.  A more engaging issue is whether cohesion policy should intervene in all regions or only in 
“poor” ones. A first argument for it being confined to the latter, that “rich” regions already have 
access  to  the  financial  resources  to  pay  for  the  public  goods  and  services  they  need,  does  not 
apply once it is clear that the policy purpose is not financial redistribution. A second argument, 
that  rich  regions  tend  to  have  better  local  institutions  and  are  less  in  need  of  an  “exogenous 
intervention”, is more pertinent and calls for a concentration of resources and interventions in the 
poor regions. But, inefficiency and social exclusion traps can arise in all places. Local institutions 
in all regions find it difficult to adapt to external changes and exogenous interventions can help 
trigger adaptation.  

16.  Moreover,  excluding  citizens  of  rich  regions  from  cohesion  policy  would  undermine  a 
primary  purpose  –  of  giving  all  EU  citizens,  independently  of  where  they  live,  a  concrete  sign 
that the Union is taking action to ensure that they have an equal chance of benefiting from the 
opportunities  created  by  the  unification  of  markets  and  of  avoiding  the  risks.  It  is  a  relevant 
purpose  particularly  considering  the  levels  of  social  exclusion  in  many  otherwise  rich  urban 
regions.  These  arguments  are  further  strengthened  since,  in  the  implementation  of  cohesion 
policy,  eligibility  for  EU  intervention  is  not  decided  with  reference  to  places,  or  functional 
regions,  but  to  administrative  (NUTS  2)  Regions  –  identified  by  a  capital  “R”  in  the  Report  – 
which often include inside their borders places at very different stages of development. Whether 
cohesion policy is actually capable of delivering in rich regions the results that the grounds for 
intervention  assume  is  a  separate  issue.  It is an issue which has to do with the effectiveness of 
cohesion policy rather than with its justification. 

17.  Three  further  misconceptions  regarding  cohesion  should  also  be  dispelled.  The  first  is  the 
idea  that  convergence,  and  in  particular  convergence  of  per  capita  income,  captures  the  aim  of 
cohesion  policy.  It  does  not.  Convergence  is  neither  a  necessary  nor  a  sufficient  condition  for 
achieving the efficiency and the social inclusion objectives of cohesion policy and should not be 
used as a policy target. With respect to efficiency, a successful reduction of the capacity under-
utilisation of a region can take place while the income gap with other regions increases; equally, 
a  reduction  in  this  gap  could  well  take  place  with  capacity  underutilisation  worsening  in  all 
regions. For social inclusion, a reduction (or widening) in the income gap in a region compared to 
others  can  go  together  with  rising  (or  falling)  social  exclusion  as  measured  by  the  number  of 
people with low incomes in the region. Moreover, in any case, changes in the income dimension 
of social exclusion say little about what is happening to other aspects of well-being. 

18.  According to another misconception, place-based development policies restrict mobility by 
encouraging  people  not  to  move  out  of  places.  If  this  were  the  case,  these  policies  would  be 
against  efficiency  and  social  inclusion,  since  the  option  of  mobility  is  an  important  aspect  of 
both. In fact, it is not the case, since these policies aim at broadening the opportunity of people 
and giving them more substantial freedom to chose whether to move or not. Similarly, it is not 
true  that  place-based  development  policies  act  as  a  constraint  on  “natural”  agglomeration 
processes by inhibiting or distorting market forces, which would otherwise operate freely. Since 
any agglomeration process is always the combined result of both private and public actions, the 
alternative to visible, spatially-aware policies is not lack of public action, but seemingly spatially-
blind  policies,  which  claim  not  to  have  effects  which  vary  arrows  places  or  anyway  not  to  be 
tailored  to  contexts.  These  policies  are  by  definition  non-verifiable  in  their  territorial  impact, 
which makes them more likely to be inefficient and inequitable. 

XIV

 
 
19.  However, place-based policies are complex and risky. Once the features of the policy model 
have been investigated and the case for the Union to run this policy has been made, the question 
remains whether cohesion policy as currently operated in the EU, is achieving its efficiency and 
equity objectives. Whether it is creating a dependency culture or favouring rent-seekers, or rather 
it  is  triggering  institutional  and  economic  change  and  promoting  innovators.  The  success  of 
place-based  development  policies  and  their  capacity  to  avoid  these  risks  depend  on  their 
governance and implementation. The question, therefore, is whether these aspects of policy have 
been adequate.  

Lessons from cohesion policy performance and the need for a sharp change 

20.  The  state  of  the  empirical  evidence  on  the  performance  of  cohesion  policy  is  very 
unsatisfactory. The review of existing research, studies, and policy documents undertaken in the 
process of preparing the Report suggests, first, that econometric studies based on macro-data on 
growth and transfers, while providing specific suggestions, do not offer any conclusive general 
answer on the effectiveness of policy. This is due partly  to the serious problems faced by any 
attempt to isolate at macro-level the effects of cohesion policy from those of several confounding  
factors,  and  partly  to  the  fact  that  existing  studies  have  largely  analysed  the  effect  on 
convergence, which is not a good proxy of the policy objectives. The review also shows both the 
lack  of  any  systematic  attempt  at  EU  and  national/regional  levels  to  assess  whether  specific 
interventions “work” through the use of advanced methods of impact evaluation, and a very poor 
use of the system of outcome indictors and targets formally built by the policy.  

21.  Despite  these  severe  limitations,  the  available  quantitative  evidence  and  a  large  body  of 
qualitative evidence lead to two conclusions on the current architecture of cohesion policy. First, 
cohesion policy represents the appropriate basis for implementing the place-based development 
approach needed by the Union. Second, cohesion policy must undergo a comprehensive reform 
for it to meet the challenges facing the Union.  

22.  The  strengths  of  cohesion  policy,  which  indicate  that  it  represents  the  appropriate  basis, 
include, in particular: 

•  The development of several features of what has come to be called the “new paradigm 
of regional policy”, namely the establishment of a system of multi-level governance and 
contractual commitments that represents a valuable asset for Europe in any policy effort 
requiring a distribution of responsibilities. 

•  A  good  track  record  of  achieving  targets,  both  when  cohesion  policy  has  been 
implemented as a coherent part of a national development strategy and when local-scale 
projects have been designed with an active role of the Commission and the input of its 
expertise. 

•  A  contribution  to  institution-building,  social  capital  formation  and  a  partnership 

approach in many, though not all, regions, producing a lasting effect. 

•  The creation of an EU-wide network for disseminating experience, for cooperation and, 

for sharing methodological tools in respect of evaluation and capacity building. 

23.  The most evident weaknesses which indicate the need for reform of cohesion policy are: 

•  A  deficit  in  strategic  planning  and  in  developing  the  policy  concept  through  the 

coherent adoption of a place-based, territorial perspective. 

•  A  lack  of  focus  on  priorities  and  a  failure  to  distinguish  between  the  pursuit  of 

efficiency and social inclusion objectives. 

XV

 
 
•  A  failure  of  the  contractual  arrangements  to  focus  on  results  and  to  provide  enough 
leverage  for  the  Commission  and  Member  States  to  design  and  promote  institutional 
changes tailored to the features and needs of places. 

•  Methodological and operational problems that have prevented both the appropriate use 
of  indicators  and  targets  –  for  which  no  comparable  information  is  available  -  and  a 
satisfactory analysis of “what works” in terms of policy impact. 

•  A remarkable lack of political and policy debate on results in terms of the well-being of 
people,  at  both  local  and  EU  level,  most  of  the  attention  being  focused  on  financial  
absorption and irregularities. 

24.  An  assessment  of  the  evolution  of  the  governance  of  cohesion  policy  since  the  reform  in 
1988  suggests  that  some  weaknesses  are  the  result  of  attempts  to  limit  the  extent  of 
Commission’s discretion over funding. The “conditionalities” governing the provision of finance 
to Member States and Regions – on monitoring and reporting, evaluation; performance and other 
institutional  requirements  –  were  often  turned  into  “homogeneous  prescriptions”  liable  to  be 
bypassed  or  downplayed.  This  is  a  mistake.  Some  general  principles  have  to  be  agreed  at  EU 
level, and they should be based on the best available international knowledge on the institutions 
needed in each area of policy. Member States and Regions should be given freedom to propose 
how  they  intend  to  apply  these  principles  in  the  implementation  of  policy.  The  Commission 
should  be  given  the  discretion  to  disagree.  The  conditionality  resulting  from  this  “negotiation” 
should  be  incorporated  in  the  contract  under  which  Member  States  and  Regions  are  entitled  to 
use the funds. The present arrangements, by contrast, make applying general prescriptions both 
cumbersome for Member States and Regions and ineffective in ensuring good performance. 

25.  The structure of the present budget negotiation, under which the governance and objectives 
of cohesion policy are decided after the amount of funds and their allocation have been agreed, 
has  contributed  greatly  to  this  situation.  The  present  sequence  of  events  tends  to  decouple  the 
discussion  on  financial  balances  from  the  discussion  on  the  use  of  the  funds,  while  giving 
Member  States  and  Regions,  as  well  as  the  European  Parliament,  little  room  to  debate  policy 
goals.  Moreover,  once  the  financial  confrontation  is  over,  the  interest  of  the  central  decision-
makers in Member States fades away. Negotiating goals and administrative arrangements is left 
to the Ministries in charge of implementing the policy, whose mandate is to maximise the room 
for manoeuvre in the use of funds rather than to maximise the effectiveness with which the funds 
are  used  in  the  other  countries.  The  general  interest  of  the  EU  in  introducing  guarantees  that 
funds will be well used is therefore seriously under-represented. 

26.  It is evident that the diminishing political and cultural consensus on cohesion policy over the 
past decade has been influenced by the “intellectual complacency” of a majority in the economics 
profession  over  what  markets  can  achieve.  However,  the  review  carried  out  during  the 
preparation of the Report makes clear that important internal problems also hamper the conduct 
of cohesion policy, in the form of a weakened concept of what the policy is about, faults in its 
governance and a serious failure to focus on results. Re-launching cohesion policy, making it fit 
to tackle the challenges facing the Union, requires both the adoption of a strong policy concept 
and reform of the priorities and governance. It also requires building a new political compromise 
capable  of  giving  the  European  Parliament,  the  Council  and the Commission the determination 
and strength to approve the reform required, and the Member states the incentive to enact it. By 
building on the concept of a place-based approach, the Report puts forward a viable agenda for 
reform that calls for political consideration. 

A concentration of resources on a few European public goods 

27.  The first change proposed is the concentration of resources on a limited number of priorities 
which  has  eluded  reforms  in  the  past.  This  would  have  several  positive  effects.  First,  it  would 
create  a  Europe-wide  critical  mass  of  interventions  in  a  few  policy  areas, capable of having an 

XVI

 
 
impact  on  issues  of  European-wide  relevance.  Second,  the  effective  delivery  of  the  measures 
concerned  should  attract  both  public  and  high-level  political  attention,  creating  an  expectation 
that  positive  results  will  be  achieved,  so  encouraging  increased  involvement.  Third,  the 
concentration would require (and enable) the Commission to focus its human resources on a few 
issues,  giving  more  credibility  to  its  strategic  role  of  governing  cohesion  policy.  This,  in  turn, 
would be a condition for the Commission to be entrusted with, and to exercise, greater discretion 
over the deployment of funds and for designing more effective conditions for their use. 

28.  The selection of the priorities would be the result of a high-level political debate through a 
revised  strategic  process  that  would  also  lead  to  decisions  on  governance  and  on  resource 
allocation. The choice of issues would be based on a clear set of criteria: 1) EU-wide relevance, 
in  terms  of  needs  and  expectations  of  European  citizens  and  of  the  advantage  of  the  EU  over 
Member States in addressing the issue; 2) their place-based nature, in the sense of the extent to 
which  the  inefficiency  and/or  social  exclusion  problems  relevant  for  the  issue  are  context-
dependent  and  require  interventions  which  are  tailored  to  the  characteristics  and  needs  of 
different  places;  and  3)  verifiability,  i.e.  the  extent  to  which  policy  objectives  can  be  clearly 
identified  and  measured,  and  a  consensus  can  be  built  at  EU  level  on  the  principles  which 
economic institutions of Member State using the funds must follow.  

29.  Six candidates for the choice of core priorities are examined as a way of testing the policy 
concept  and  for  their  intrinsic  relevance.  They  are:  Innovation  and  Climate  change,  with  a 
predominantly  efficiency  objective;  Migration  and  Children,  with  a  predominantly  social 
inclusion  objective  of  efficiency  and  social  exclusion;  Skills  and  Ageing,  where  the  two 
objectives are of similar relevance. For most of these issues, the Union has already developed a 
body  of  knowledge  and  expertise  that  could  be  put  to  use  in  setting  the  guidelines,  the 
institutional principles and the indicators for policy implementation. 

30.  A  particular  case  is  made  for  selecting  Innovation  as  a  core  priority.  Place-based 
interventions,  building  on  the  strengths  and  taking  account  of  the  weaknesses  of  previous 
experience  as  regards  cohesion  policy  in  this  area,  could  complement  policies  aimed  at 
developing a European Research Area, by selecting in each region a limited number of sectors in 
which  innovation  can  most  readily  occur  and  a  knowledge  base  built  up.  Through  such  an 
approach  –  defined  in  the  current  policy  debate  as  “smart  specialisation”  -  the  most  could  be 
made of the present diversity of industrial agglomerations and networks, while their “openness” 
beyond regional or national boundaries would be promoted. Although in this policy areas the risk 
that  local  actors,  whether  public  research  centres  or  Universities,  firms  or  innovation 
“intermediaries”,  would  seek  to  profit  unduly  from  public  intervention  is  high,  due  to  lack  of 
information on appropriate targets, there are ways, as indicated in the Report, to create incentives 
to avoid such an outcome. The transfer of funds to Member States and Regions would be made 
conditional on their committing to using these incentives.  

31.  A  strong  case  is  also  made  for  including  Migration  among  the  priority  issues.  Given  the 
scale of migration, a large number of people in Europe are involved: the people moving to work 
in some areas of the EU, the people living in the areas where migration inflows take place, and 
the people experiencing (inside and outside Europe) the outflows from the area where they live. 
For each of these categories new opportunities go together with new risks. The final balance of 
advantages and disadvantages depends on how communities adjust and it is affected by the way 
public goods and services (urban planning, education, public transport, healthcare, social services 
and  so  on)  are  adapted  to  the  change  involved.  Some  places  might  fail  to  adjust,  as  is  already 
apparent  from  existing  tensions,  and  here  place-based  interventions  are  needed  to  avoid  new 
problems  of  social  exclusion.  By  building  on  the  creation  in  2007  of  an  Integration  Fund, 
cohesion  policy  would  allow  a  strategy  to  be  run  with  a  feasible  and  efficient  allocation  of 
responsibilities:  the  EU  would  establish  the  general  principles  of  intervention  and  ensure  the 
setting  of  common  objectives;  Member  States  and  Regions  would  adapt  policies  to  different 
social  and  cultural  aspirations;  local  authorities  would  design  projects  to  meet  the  needs  of  the 
local communities concerned. 

XVII

 
 
Ten pillars of governance reform 

32.  The  comprehensive  reform  of  the  governance  of  cohesion  policy  suggested  here  has  ten 
pillars.  They  are  not  intended  to  provide  a  blueprint  for  cohesion  policy  in  the  future  and  take 
only partial account of the impact – mostly still to be seen – of the changes introduced for 2007-
2013.  However,  together  they  provide  a  clear  statement  of  how  reformed  governance  can  be 
constructed  as  a  starting  point  for  debate.  They  also  offer  ideas  that  could  be  taken  up  in  the 
current programming period. In some cases this is necessary in order to build the basis and the 
experience to be put to full use in a new programming period. 

Pillar 1: Concentration on core priorities and a conservative territorial allocation   

33.  In a substantive change from the present arrangements, a share of resources no smaller than 
55%  and  as  close  as  possible  to  65%  would  be  concentrated  on  3-4  core  priorities,  the  precise 
threshold  being  decided  together  with  the  choice  of  priorities,  taking  into  account  the  financial 
needs. A fourchette would also be established for the share to be allocated to each core priority. 
The composition of the target allocation between the core priorities would vary between Member 
States and Regions according to needs and strategies.  

34.  The  criteria  for  territorial  allocation  would  largely  remain  unchanged.  The  unit  of 
intervention  of  cohesion  policy  is  the  place,  or  functional  region,  but  selecting  these  units  and 
allocating  resources  among  them  is  a  task  for  Member  States  and  Regions  during  the  policy 
process rather than for the Commission or for an ex-ante EU-wide decision. NUTS 2 Regions are 
the  closest  approximation  to  places  for  which  homogeneous  and  reasonably  updated  economic 
data are available for an allocation to be made ex-ante. Moreover, in line with the policy concept, 
the proposal is to maintain the present system of intervening in all Regions but with significant 
concentration on those lagging behind. The choice of 75% of GDP per capita as a threshold to 
define “lagging” regions is arbitrary and subject to criticism. Similar criticisms, however, could 
be  levelled  against  any  other  threshold.  Moreover,  any  proposal  to  change  the  existing 
arrangement  would  once  again  focus  attention  on  the  financial  issue,  detracting  attention  away 
from  the  most  pressing  issue  of  “how”  resources  are  used.  No  change  is,  therefore,  suggested. 
However,  an intermediate category of support for Regions above the 75% threshold and below 
75+X%  (the  X  being  left  to  negotiation)  would  be  introduced,  replacing  the  present  special 
provisions. 

35.  Lagging countries (defined as they are today) and Regions and non-lagging Regions would 
absorb about 96% of all funds, the remainder being allocated to “Territorial cooperation”, largely 
following present guidelines but geared to supporting core priorities. There is a need to achieve 
greater coherence between the different Funds into which cohesion policy is segmented and, in 
particular  for  the  rural  development  actions  of  the  Rural  Fund  and  the  territorial  actions  of  the 
Fisheries Fund to be brought under the umbrella heading of cohesion policy. A proposal is also 
made  to  concentrate  all  the  funding  for  Trans-European  Networks  (accounting  for  11%  of 
cohesion policy funding in the current period) into a single Fund. 

Pillar 2: A new strategic framework for cohesion policy 

36.  The  central  point  of  the  reform  is  a  new  type  of  contractual  agreement  between  the 
Commission  and  Member  States  (or  Regions)  focused  on  performance  and  on  the  institutional 
conditions for intervention. Putting this in place requires an enhanced strategic dialogue between 
Member States (or Regions) and European institutions leading to the adoption of a strong policy 
concept  and  concrete  goals.  This  dialogue  needs  to  start  as  early  as  in  the  second  half  of  2010 
with  the  Commission’s  Fifth  Cohesion  Report  setting  out  the  policy  concept,  the  lessons  to  be 
drawn  from  ongoing  programmes  and  preliminary  proposals  on  governance  and  priorities.  The 
subsequent debate would see Member States (or Regions) draw up, in the second half of 2011, a 
National strategic assessment of place-based policies at national level, together with proposals at 
the  EU  level.  A  temporary  Place-based  Policy  Group,  comprising  senior  officials  of  both 

XVIII

 
 
Member  States  and  the  Commission  and  international  experts,  would  lead  the  debate.  For  this 
early  debate  to  take  place,  and  Member  States  (Regions)  to  commit  themselves,  a  sufficiently 
strong political agreement needs to have been reached during 2010, through the budget review, 
on the broad lines of cohesion policy reform  

37.  On  the  basis  of  this  strategic  debate,  the  Commission  would  draft  a  European  Strategic 
Development  Framework  by  Spring  2012.  Along  with  the  policy  concept  and  an  outline  of the 
major policy innovations, the Framework would set the 3-4-four core priorities and, in each case, 
(unlike the present Strategic Guidelines) would lay down clear-cut principles to be followed by 
Member States and Regions in establishing the institutional framework necessary to tackle those 
priorities. It would also set out a limited number of core outcome indicators and tentative targets. 
At  the  same  time,  the  Commission  would  draft  a  Regulation  with  all  the  key-changes  to  the 
governance  of  policy  to  be  introduced.  The  debate  and  subsequent  adoption  of  the  Framework 
and  the  Regulation  by  the  Parliament  and  the  Council  would  take  place  during  2012 
simultaneously with the negotiation and approval of the new financial framework. 

Pillar 3: A new contractual relationship, implementation and reporting aimed at results 

38.  On the basis of the agreed Framework and Regulation, and developing the ideas anticipated 
in the National assessment, the Member States (Regions) would conclude with the Commission 
by the end of 2013 a National Strategic Development Contract (Contract) covering all cohesion 
policy  funding.  Regions  would  take  part  in  the  preparation  of  the  Contract  and  would  be  co-
signatories wherever required by national arrangements. Unlike the present equivalent Contract, 
which  is  largely  a  “reference  document”,  burdened  by  descriptive  parts  on strategy motivation, 
the new Contract would concentrate on objectives and the means of achieving these and would 
specify verifiable commitments. It would cover:  

(i) 

(ii) 

(iii) 

(iv) 

the  choice  of  priorities,  objectives  and  targets  (measured  through  a  rigorous 
system of outcome indicators), 

the allocation of funding to Managing Authorities (regional and national) and the 
general criteria for the selection of places and the allocation of funding to them; 

the  institutional  framework  in  place  or  which  the  Member  State  commits  to 
building in order to pursue each core priority; 

a commitment to have in place the administrative capacity necessary to manage 
the funds and to implement the conditions specified in the following pillars. 

39.  In  the  process  of  preparing  the  Contract,  the  Commission  would  undertake  a  strategic 
consultancy  role,  availing  itself  of  enhanced  human  resources  and  a  task  force  for  each  core 
priority (see below). Once a draft text is submitted, the Commission would be able to launch an 
independent  ex  ante  evaluation  of  some  parts  of  it.  If  no  agreement  were  possible  on  some 
aspects, the Commission could adopt part or all of the contract “subject to conditions”, such as 
the need for special monitoring and reporting. In the case of the core priorities, Member States 
(Regions) could be required to shift resources between them. The credibility of the Commission’s 
“threat”  not  to  adopt  part  of  the  Contract,  at  the  cost  of  putting  at  risk  financial  absorption  – 
today’s  primary  concern  -  would  be  strengthened  by  a  newly  created  permanent  Council  for 
Cohesion Policy assessing the Contract (see below). The Council would also assess any special 
intervention  of  the  Commission  –  such  as  decisions  to  adopt  parts  of  the  Contract  subject  to 
conditions.  This  would  provide  a  check  on  any  arbitrary  use  of  the  new  Commission 
discretionary powers. 

40.  Operational  Programmes  would  be  retained,  describing  how  the  general  Contract  is  to  be 
implemented by particular Managing Authorities, especially by specific Regions, but they would 
follow the more result-oriented structure of the new Contract. In Member States with federal or 

XIX

 
 
devolved  structures,  the  Programmes  would  provide  the  building  blocks  for  the  Contract  and 
would be adopted at the same time as the latter. 

41.  Within  a  year  of  the  contract  being  agreed,  the  Commission  would  undertake  an 
Implementation  Assessment  on  the  adequacy  and  quality  of  the  implementation  structures  and 
processes in each Member State. It would focus on issues such as whether the human resources, 
skills  and  administrative  system  are  in  place  for  the  various  activities  involved  in  managing 
cohesion  policy  funds.  The  extent  of  the  assessment  would  be  proportional  to  the  scale  of  EU 
funding and related to the past record of the Managing Authorities. A “contract of confidence” 
would  be  agreed  between  the  Commission  and  Member  States  when  the  assessment  was 
satisfactory.  Minor  deficiencies  would  result  in  a  provisional  contract  of  confidence,  major 
deficiencies in “action plans” to be implemented by Member States and, possibly, in a shift in the 
allocation of resources. 

42.  Every year after the third year, Member States would prepare, in each case, a brief Strategic 
Report  on  Results,  aimed  at  describing  the  progress  in  achieving  objectives.  The  emphasis  on 
indicators and results in relation to targets would mark a difference from current experience. The 
Commission  would  prepare  an  Opinion  on  each  country  Report  as  well  as  a  general  Summary 
Report.  The  new  Council  on  Cohesion  Policy  would  assess  all  these  documents  and  issue 
recommendations to the Member States and the Commission. 

Pillar 4: A strengthened governance for core priorities 

43.  “Conditionalities” on the institutional framework and a system of performance monitoring to 
track  progress  in  meeting  targets  represent  the  means  by  which  the  Contract  would  be 
strengthened  when  dealing  with  core  priorities.  Experience  shows  that  the  weakness  of  the 
institutional  framework  is  often  responsible  for  the  failure  of  interventions.  Although  it  is 
inappropriate  for  best-practice  institutions  to  be  centrally  identified  and  recommended, 
international  debate  and  EU  methods  (such  as  experience  under  the  Open  Method  of 
Coordination)  have  led  to  a  degree  of  consensus  on  the  general  principles  to  be  applied  to 
institutions  implementing  specific  policies  (on  innovation,  education,  urban  planning,  children 
care, etc). These principles include the exclusion of arrangements that have repeatedly failed and 
the focus of policy effort on relevant issues, and they are continuously being renewed through the 
experience gained from implementation. Member States would turn those principles into specific 
commitments in the Contract to be agreed with the Commission. 

44.  Secondly, a large body of experience is available on the use of outcome indicators and it is 
evident  that  they  have  limitations  and  need  to  be  interpreted  carefully.  They  do  not  measure 
policy impact (see below); they should not be used to criticise those managing interventions since 
there are many other factors influence outcome and there is a risk that they divert policy action 
from  other  relevant  (but  unquantified)  aspects.  But,  once  their  limits  are  taken  into  account, 
outcome  indicators  can  act  as  a  powerful  tool  to  focus  public  debate  on  objectives  and  to 
motivate policy-makers.  

45.  A system of performance monitoring for core priorities needs to be introduced by: creating a 
high-standard system of indicators and targets and a database which is accessible; by promoting 
public debate through the publication of a Commission annual Indicators and Targets Survey and 
a  Scoreboard  of  Progress;  by  encouraging  and  providing  technical  assistance  for  the  voluntary 
introduction  of  systems  of  rewards  and  sanctions  linked  to  targets;  and  by  entrusting  the 
Commission  with  responsibility  for  undertaking,  together  with  Member  States  (or  Regions),  an 
in-depth  performance  assessment  when  unconvincing  justification  is  provided  for  a  failure  to 
achieve  targets.  Financial  penalties  for  Member  States  resisting  either  the  assessment  or 
implementing its recommendations should also be envisaged.  

Pillar 5: Promoting additional, innovative and flexible spending 

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46.  The  existing  financial  additionality  requirement,  under  which  cohesion  policy  should  not 
replace domestic expenditure, can help to prevent the improper use of EU funding (e.g. by using 
it to cut taxes and so compete unfairly with other Member States) and to increase the scope for 
policy  to  support  target  regions.  But  the  present  additionality  requirement  fails  to  deliver  these 
goals  satisfactorily.  Several  changes  are  needed,  including  introducing  a  formal  link  with  the 
Stability and Growth Pact, so that the opposing effects that Member State public investment has 
on  the  “development  pact”  (in  line  with  it)  and  the  “stability  pact”  (contrary  to  it)  come  to the 
fore  and  lead  to  more  informed  policy  choices;  further  improving  accountability  as  regards  its 
measurement; eliminating reference to “past expenditure” as a means of establishing a floor to the 
level of spending; extending the requirement to all types of regions; and withdrawing automatic 
sanctions. A discretionary sanction would be foreseen only when Member States failed to show 
that  a  persistently  negative  gap  between  actual  and  target  expenditure  was  not  the  result  of  an 
intentional  reduction  in  taxation  being  compensated  in  order  to  comply  with  the  Stability  and 
Growth Pact. 

47.   A streamlined policy concept and the emphasis on performance increase the importance of 
“policy  additionality”  requirement  being  respected.  First  of  all,  there  needs  to  be  an  explicit 
commitment in the Contract that cohesion policy is really aimed at delivering the added-value by 
which it is justified: responding to the expectations of European citizens; exploiting cross-border 
interdependencies; keeping a distance from local interests. An assessment must also be included 
in  the  annual  Strategic  Reports  of  how  this  added-value  is  actually  delivered.  Secondly,  a 
commitment  should  be  made  to  cohesion  policy  having  a  high  innovation  content,  such  as 
experimenting  with  integrated  packages  of  intervention  or  adopting  different  geographical 
borders  for  certain  measures  (in  the  form  of  urban-rural  links,  multi-regional  action,  etc). 
Innovations should also be assessed in the annual Strategic Report. 

48.  The present automatic de-commitment rule of funds not spent by a given deadline should be 
retained,  since  in  a  complex  multi-level  governance  system  an  incentive  is  needed  to  bring 
negotiations to a close. The application of this rule at a detailed level (of single “axes” of single 
Programmes),  however,  creates  an  incentive  to  give  priority  to  financial  absorption  over  the 
quality of projects. In order to reduce this risk, Member State would be given the option to apply 
the  rule  at  the  level  of  the  whole  country  or  of  macro-areas.  Within  countries,  Managing 
Authorities, in coordination with each other, would be able to adopt different spending strategies, 
suitable  to  their  different  contexts.  A  sort  of  “market  for  credit”  would  tend  to  arise  de  facto, 
giving  flexibility  to  the  system.  The  present  system  of  national  co-financing  would  also  be 
retained, possibly with changes in the present rates. 

Pillar 6: Promoting experimentalism and mobilising local actors  

49.  A  place-based  approach  ultimately  relies  on  the  capacity  of  external  interventions  to 
promote a process for eliciting and aggregating knowledge and preferences in the places targeted. 
A better balance must be found between, on the one hand, creating an incentive for local actors to 
reveal  information,  to  risk  and  to  invest,  and,  on  the  other,  preventing  public  measures  from 
being  captured  by  these  actors.  More  “experimentalism”  is  needed,  in  the  sense  of  giving  an 
opportunity  to  experiment  with  different  approaches  or  measures  while  exercising  mutual 
monitoring. The increased policy debate on objectives and the system of performance monitoring 
proposed by this Report can help to move things in this direction. This should be complemented 
by a commitment to promote community-based indicators (on the basis of a growing international 
experience), especially when pursuing the social inclusion objective.  

50.  A  further  contribution  should  come  from  direct  interventions  by  the  Commission.  First,  a 
small  share  of  funding  –  say  0.1%  of  the  overall  budget  –  should  be  allocated  to  Innovative 

XXI

 
 
 
 
territorial  actions  run  by  the  Commission  to  develop  and  experiment  with  innovative  forms  of 
place-based policy interventions, particularly in respect of the core priorities. Funding would be 
allocated  –  without  national  pre-allocation  –  on  a  competitive  basis  to  the  “best  projects”. 
Secondly,  the  Commission  would  be  given  the  opportunity  to  mobilise  local  actors  directly  by 
organising  high-quality  workshops  and  pilot  experimental  impact  evaluation  (see  below). 
Thirdly, the opportunity should be increased for sub-regional local actors and interest groups to 
make their views known, which the new strategic process would to some extent encourage.  

Pillar 7: Promoting the learning process: a move towards prospective impact evaluation 

51.  Cohesion policy has invested significantly in the learning process, in facilitating exchange of 
experience and promoting evaluation. But in one important area no progress has been made, that 
of  understanding  of  “what  works”,  of  what  effects  particular  interventions  produce  and  “for 
whom”. The very limited information on “effects” which is available after 20 years of cohesion 
policy underlines how important it is for a reformed policy to make progress in this direction. 

52.  Different methodologies have been developed in other policy areas to address this challenge, 
but  the  most  promising  results  are  offered  by  a  family  of  methods  collectively  defined  as 
“counterfactual” which are aimed at assessing the impact of an intervention by estimating what 
the  outcome  would  have  been  had  the  intervention  not  taken  place,  mainly  by  analysing  what 
happened in respect of a “similar enough” population which was not targeted by the policy. The 
information required by this method is demanding. The answers it gives, moreover, are limited. 
In particular, it does not allow an understanding of “how” an intervention works, nor can it give 
safe guidance on whether the intervention will have the same effects when it is applied to another 
group  or  in  a  different  context.  On  the  issue  of  what  works,  however,  counterfactual  impact 
evaluation  is  more  effective  and  accountable  than  other  methods.  Moreover,  when  impact 
evaluation is prospective, when it is designed together with the intervention, it can have a strong 
disciplinary effect by creating an incentive for policy-makers to focus on objectives and on the 
criteria through which beneficiaries are selected. 

53.  Specific  challenges  need  to  be  overcome  in  applying  impact  evaluation  to  place-based 
policies,  in  particular,  the  heterogeneity  of  interventions  across  places;  different  services  often 
bundled together, making it difficult to understand what the “active ingredients” are; and so on. 
These problems suggest that the effort to promote impact evaluation as one of the methodological 
backbones of cohesion policy must be at the same time visionary and humble –visionary, since it 
needs  to  create  the  technical,  administrative  and  political  momentum  for  the  method  to  be 
pursued  as  an  important  source  of  information;  humble,  since  building  this  technical  capacity 
requires time, without any expectation of a “quick fix” able to provide uncontroversial answers 
on  which  parts  of  cohesion  policy  are  working  and  where.  The  responsibility  for  evaluation 
would  be  left  with  Member  States,  but  the  Commission,  by  strengthening  its  internal  structure, 
would  promote  its  use  and  create  an  EU  clearing  house  for  collecting,  filtering  and  making 
accessible studies and their results.  

54.  The random selection of the beneficiaries of an intervention – a method that allows a more 
straightforward  evaluation  of  impact  –  should  be  experimented  with  where  suitable,  as  part  of 
greater  policy  experimentalism.  Real  uncertainty  as  to  whether  interventions  are  beneficial  or 
harmful would often mean that there is not really a moral problem of confining interventions to 
some  units  or  groups.  The  other  ethical  demand  that  there  should  be  “respect  for  persons”, 
requiring  individuals  to  give  informed  consent  to  the  random  assignment,  is  more  likely  to  be 
satisfied by a policy characterised by partnership and local actors’ mobilisation. 

Pillar 8: Refocusing and strengthening the role of the Commission as a centre of competence   

55.  The reform of cohesion policy put forward in this Report calls for the Commission to play a 
more ambitious and demanding role than today. This role requires: a fully consistent approach to 
territorial  development  issues,  embedded  in  advanced  economic  and  social  thinking;  the 

XXII

 
 
implementation  of  methods  at  the  frontier  of  international  debate  and  experience;  a  stronger 
engagement with Member States and Regions; specialised human resources and the capacity to 
be  credible  both  as  a  contract  partner  making  discretionary  choices  and  as  a  think  tank.  If  the 
Commission were to fail in this role, the effectiveness and feasibility of most of the proposals set 
out here would be compromised and the architecture proposed by this Report would not hold up. 
There  needs,  therefore,  to  be  a  strong  political  agreement  to  strengthen  the  role  of  the 
Commission, a task that is technically feasible if reform is started in 2010.  

56.  A significant investment in human resources and organisational changes should take place in 
the  Directorates-General  of  the  Commission  which  have  overall  responsibility  for  cohesion 
policy  and  the  associated  Funds.  In  the  case  of  DG  REGIO,  some  broad  lines  of  action  are 
outlined by this Report:  

(i) 

(ii) 

(iii) 

(iv) 

(v) 

(vi) 

establishing  high-level,  specialist  task  forces  (with  officials  from  different 
Directorates) for the core priorities – teams of around 20 experts dedicated full-
time  to  activities  relating  to  the  core  priorities,  interacting  closely  with  the 
geographical units in charge of negotiation; 

training of staff in the conceptual and methodological issues on which policy is 
refocused and upgrading the knowledge and skills of geographical units; 

upgrading  the  evaluation  department  so  that  it  is  capable  of  providing  Member 
States with a think-tank on impact evaluation;  

creating  administration  support  teams  capable  of  carrying  out  appraisal  of 
implementation; 

integrating  organisational  structures  in  order  to  facilitate  coordination  between 
“horizontal” teams and geographical units; 

creating  a  research  department,  with  a  close  and  permanent  link  with  policy 
research on development 

57.  Internal  coordination  between  DG  REGIO  and  DG  EMPL  will  also  need  to  be  improved. 
The two Directorates have different perspectives and competences, one focussed on public goods 
and services mainly involving material infrastructure, the other focussed on investment in human 
capital; one focussed on the spatial context and territorial linkages, the other focussed on people. 
No  core  priority  would  be  the  exclusive  realm  of  either  of  the  two  Directorates,  nor  do  their 
know-how  and  competences  correspond,  as  is  sometimes  wrongly  assumed,  with  the  two 
objectives  of  efficiency  and  social  inclusion.  Whatever  objective  is  pursued  and  whatever  core 
priority  is  chosen,  the  perspectives  and  the  competences  of  the  two  Directorates  should  be 
integrated  in  their  day-to-day  activity,  both  in  Brussels  and  on  the  ground,  unlike  the  situation 
now. Closer coordination should also involve DG AGRI and DG MARE, as well as several other 
Directorates  responsible  for  policy  with  a  significant  territorial  impact  and with areas linked to 
the core priorities selected. This is what a number of administrators, politicians and experts have 
long been calling for. It is also what the “territorial” dimension of cohesion policy (made explicit 
in the new draft Treaty) requires. It is a condition of the reform proposed in this Report. 

Pillar 9: Addressing financial management and control.  

58.  Given  the  constraints  on  the  size  of  the  Commission,  in  order  for  the  Directorates 
responsible  for  cohesion  policy  to  make  the  necessary  investment  in  human  resources,  greater 
efficiency  must  be  achieved  in  addressing  the  task  of  financial  management  and  control.  The 
information available so far shows that high administrative marginal costs and a high degree of 
uncertainty  in  Member  States  (on  whether  their  choices  will  be  considered  acceptable)  go 
together with a high level of error, as assessed by the European Court of Auditors. Two factors 
contribute to this situation: shared management and the multiplicity of control levels increase the 
XXIII

 
 
opportunity  for  uncertainty;  the  audit  of  expenditure  under  cohesion  policy  works  as  a  “filter” 
through which general failures of Member States to comply with EU Directives – for example, on 
procurement  –  come  to  be  detected. The errors identified tend to become the main quantitative 
information available for debate in the European Parliament and among the public. Dealing with 
this  pressure  puts  a  strain  on  the  manpower  of  Directorates  and  reduces  the  time,  capacity  and 
incentive they have to deal with strategic tasks and with the monitoring of policy performance.   

59.  Significant changes have been introduced in this area in the past few years, the first effects 
of which will become known in 2010. Further changes are being discussed. Some of them seem 
worth considering, such as increasing the tolerable risk of error, introducing simplifications, like 
increased use of “flat rates” to measure due expenditure; assessing error rates by Member States 
annually  and  withholding  transfers  if  a  threshold  is  passed.  It  goes  beyond  the  remit  of  this 
Report  to  put  forward  any  further  proposals  for  change.  Instead,  one  or  other  of  the  following 
scenarios  can  be  assumed.  These  proposals  either  succeed  in  reducing  the  administrative  audit 
costs  of  the Directorates-General in charge of cohesion policy to the point where they can free 
human resources to for the reform sketched under pillar 8. Or, if this is not the case, it is agreed 
that the extra administrative costs borne at Commission level for this task will be considered as 
“costs to be born by the Commission as a whole” – as a means of monitoring compliance with 
EU Directives – and additional human resources will be provided for managing cohesion policy. 

Pillar 10: Reinforcing the high-level political system of checks and balances 

60.  The  changes  proposed  by  this  Report  are  intended  to  make  policy  choices  more  open  to 
debate  and  to  improve  the  supply  of  information.  They  also  give  the  Commission  increased 
powers  of  discretion.  A  complementary  change,  however,  is  required  on  the  demand  side.  A 
high-level  political  and  policy  debate  must  be  organised  to  make  the  most  of  the  improved 
information, accompanied by a stronger system of check and balances between the Commission, 
the European Parliament and the Council.  

61.  A formal Council for cohesion policy should be created, possibly under the General Affairs 
Council.  Its  main  tasks  would  be:  a)  to  assess  the  National  Strategic  Development  Contracts, 
once they have been approved by the Commission; b) to assess the Strategic Reports on Results, 
produced  annually  from  the  third  year  onwards  by  Member  States  and  the  related  Opinions 
prepared by the Commission; c) to assess the specific situations where a special intervention is 
needed  by  the  Commission  (approval  of  Contract  subject  to  conditions;  deficiencies  emerging 
from the Implementation assessment, results of in-depth performance assessment due to failure to 
achieve targets, etc.). The Council would issue recommendations. Its activity would be supported 
by the work of a permanent high-level group composed of senior Member State officials and its 
organisation  into  sub-groups  would  allow  the  implementation  of  a  peer-review  approach.  This 
architecture could be built gradually, starting with this programme period. 

62.  The new Contracts and Reports would also enable the European Parliament to play a greater 
role  by  contributing  views  through  opinions.  The  Summary  Report  prepared  annually  by  the 
Commission would play an important role, in the context of the proviso in the new draft Treaty 
for the Commission to submit annually to the European Parliament an “evaluation report on the 
Union’s finances based on the results achieved”. 

Changing the negotiation: a simultaneous agreement on resources, governance, and goals  

63.  For  the  negotiation  to  have  a  chance  of  delivering  anything  approaching  a  comprehensive 
reform  proposal  on  cohesion  policy,  the  negotiation  on  resources,  governance  and  goals  must 
come to a close at the same time. By aligning the negotiations on three relevant documents – the 
Financial  Framework,  the  Regulation  on  cohesion  policy  and  the  European  Strategic 
Development  Framework  –  a  balanced  view  can  emerge  from  the  mix  of  thematic  and  general 
interests: both the need of Member States and Regions to be assured of the freedom to implement 
the policy as they see fit, and the need to give the Commission the leverage to ensure the quality 

XXIV

 
 
of  spending.  It  is  an  obvious  requisite  for  a  system  of  conditional  grants  to  subordinate  the 
allocation of resources to the common acceptance of the rules and goals for using them. 

XXV

 
 
XXVI

 
 
 
INTRODUCTION 

Motivation and scope of the Report 

EU cohesion policy is the object of conflicting views at all levels of debate - political, economic 
and institutional.  

Some  see  the  policy  as  a  modern  and  effective  multilevel  governance  tool  for  promoting 
innovation and strengthening the adaptive capacity of European regions. Others take issue with 
the lack of enforceable commitments in the allocation of funds and the failure to promote tailor-
made  institution  building:  they  see  it  as  a  tool  easily  captured  by  rent-seekers  that  breeds  new 
layers of bureaucracy, protected by the complexity of its rules.  

Some  see  it  as  an  indispensable  tool  for  the  European  Union  to  respond  to  the  expectation  of 
equal opportunities that its existence and actions raise among European citizens; and as a way of 
doing so without impinging on the responsibility and capacity of Member States and Regions to 
tailor  interventions  to  contexts.  Others  see  it  as  a  highly  cumbersome  mechanism  for 
redistributing  resources  between  Member  States  and  Regions,  which  counteracts  the  efficient 
agglomeration  of  economic  activity,  fails  to  deliver  greater  equity  and  undermines  national 
authorities. 

Some  point  to  the  available  evidence  as  a  sign  of  policy  effectiveness  and  argue  that  cohesion 
policy adds significant value to the policy-making of Member State and Regions. Others use the 
same evidence to claim that no rationale exists for the EU to run cohesion policy, and to call for 
the policy to be at least limited to countries or regions lagging behind in economic development. 

At  times  it  appears  that  no  common  ground  exists  for  a  useful  debate  to  take  place.  The 
conceptual  foundations  are  blurred  and  several  misconceptions  have  arisen  on  cohesion  policy 
objectives.  Proposals  are  being  put  forward  that  suggest  using  the  policy  as  a  source  of  funds 
either  for  financial  equalisation  purposes  or  for  some  mix  of  localised  micro-interventions  and 
traditional  sectoral  public  investments.  In  these  conditions,  attempts  to  reform  cohesion  policy 
are  doomed  to  failure.  Conflicting  pressures  for  change  tend  to  be  accommodated  by  low-key 
compromises that lack reference to a shared vision and that often result in scattered changes and 
the imposition of new, and not necessarily coherent, rules. It is no surprise that relevant ideas for 
a “strategic turn” of cohesion policy were largely neutralised in the last debate on EU financial 
perspectives. 

Except  at  the  time  of  negotiations,  when  a  strong  political  EU-wide  interest  exists,  largely 
concentrated  on  financial  issues,  the  bridges  between  the  cohesion  policy  community  and  the 
overall  debate  on  the  Union  are  tenuous.  No  linkage  exists  with  the  macroeconomic  debate  on 
growth  and  with  the  discussion  on  the  Stability  and  Growth  Pact.  The  conceptual  and 
methodological advances made in the realm of the Open Method of Coordination often fail to be 
transferred  to  cohesion  policy.  The  linkage  with  the  Lisbon  Agenda  established  in  the  current 
programming period opened up an opportunity that is waiting to be exploited. 

In  the  recent  European  Economy  Recovery  Plan  drawn  up  to  respond  to  the  financial  crisis, 
cohesion  policy  plays  a  role.  And  it  does  so  also  in  important  debates  taking  place  on  sectoral 
issues such as research, transport infrastructure, employment, climate change, as cohesion policy 
is the main (sometimes the only) source of EU resources available to provide a spending tool for 
EU action. However, outside the cohesion policy community the attitude is often one of trying, 
via appropriate sectoral policies, to make the most of a policy that is considered to be basically 
about  “redistributing  funds”.  What  is  lacking  is  a  political  debate  about  whether  that  particular 
way of spending public funds adds value compared to sectoral or national approaches. And when 
and where it is effective. The same failure is visible in the academic debate, where very often a 
line separates the “cohesion policy experts” and the rest of academia. 

 1

 
The  limits  are  all  the  more  serious  if  one  considers  how  central  to  the  future  and  to  the  very 
existence  of  the  Union  is  its  direct  commitment  to  development:  what  does  the  Union  do  to 
ensure  all  territories  and  all  European  citizens  have  the  chances  to  make  the  most  of  the 
opportunities offered by the Union itself and to cope with the connected risks and threats? The 
achievement of market integration, the success of the euro, the mobility of people, while creating 
extraordinary  opportunities  and  winners,  have  also  challenged  many  regions,  created  losers, 
raised  concerns,  all  phenomena  that  are  exacerbated  at  times  of  crisis.  It  could  have  been 
predicted. It was predicted. The very purpose for creating cohesion policy was to give European 
citizens  “no  cause  to  doubt  the  common  will”  of  the  Union  to  take  care  of  their  different 
standards  of  living2.  Now,  when  the  division  of  labour  between  the  EU  taking  care  of  markets 
and liberalisation and Member States taking care of welfare has become very strained, the Union 
cannot afford to carry on cohesion policy without a large consensus and shared aims. 

The general review of the EU budget could still offer the opportunity for common reflection. It 
could make it possible to step back and to search for common ground in the form of a “policy 
model”  around  which  a  high-level  political  compromise  could  be  rebuilt.  This  policy  model 
should fulfil three requirements:  

•  a  clear  concept  based  on  a  verifiable  economic  rationale  that  leads  to  objectives  which  are 

well-defined and open to evaluation; 

•  an explicit and powerful political justification, rooted in the present condition of Europe and 

responding to the expectations of European citizens; and 

•  a system of policy governance that can credibly promise adequate performance, learning and 

democratic participation.  

The purpose of this Report is to develop such a policy model and to use it as a reference point for 
assessing  the  effectiveness  of  cohesion  policy  and for  presenting  concrete  proposals  on  how  to 
reform it. 

Given  that  there  is  a  lack  of  consensus  on  what  cohesion  policy  should  be  about  and  on  its 
objectives, the Report begins with an in-depth analysis of the policy concept. Having set out the 
“ideal” policy model, the Report addresses the issues whether it is appropriate for the EU to run 
this policy and to allocate to it a large share of the EU budget. These first two steps are taken in 
chapter I. They allow chapter II to open up the “black box” of cohesion policy as it actually looks 
today  and  to  provide  an  assessment  of  its  successes  and  failures  compared  to  the  model.  The 
subsequent chapters present proposals for change that are drawn from the first two. Their overall 
structure and their links both to the policy model and to the lessons from the past are outlined in 
chapter  III.  Chapter  IV  puts  forward  three  criteria  and  some  examples  for  choosing  a  limited 
number  (3-4)  of  core  priorities  on  which  the  majority  of  cohesion  policy  funds  should  be 
concentrated. Chapter V presents in detail ten “pillars” for the reform of governance.  

For those who would agree with the “ideal” policy model and find it appropriate for the EU level, 
the  Report  offers  a  framework  for  assessing  the  current  policy  and  a  comprehensive  set  of 
proposals  for  reform,  coherent  with  the  model.  For  those  who  would  disagree  either  with  the 
policy model or with the argument that the EU budget should care about cohesion, or for those 
who have a different view of what cohesion policy is all about, the Report offers an opportunity 
for  clarifying  the  nature  of  the  disagreement:  an  opportunity  for  a  more  straightforward 
discussion  in  what  is  today  a  fuzzy  and  often  uninformed  debate  and,  possibly,  for  building 
bridges across different economic, social and political perspectives.   

2 See the historical overview in section I.1.2. 

 2

 
                                                      
Guidance for the policy model: the EU Treaty and the “new paradigm of regional policy” 

The choice of the policy model adopted in this Report is strongly guided both by the content of 
the  EU  Treaty  and  by  the  paradigm  of  development  policy  that  has  progressively  gained 
international consensus over the past twenty years. 

the  Treaty  summarises, 

The overall task assigned by the EU Treaty to cohesion policy (namely to the Structural Funds 
and  to  the  Cohesion  Fund)  is  “to  promote  overall  harmonious  development”.  This  is  the 
expression  with  which 
the  mix  of 
efficiency/growth/economic  goals  and  equity/social  goals  outlined  in  its  first  introductory 
articles3.  The  task  is  elaborated  (“in  particular”)  as  the  reduction  of  “disparities  between  the 
levels  of  development  of  the  various  regions  and  the  backwardness  of  the  least  favoured 
regions”4. Both the efficiency and the equity dimensions of development are again contained in 
the objective of reducing disparities and backwardness of regions: all regions must be given the 
opportunity  to  achieve  their  full  potential  (efficiency),  and  all  citizens  must  be  given  the 
opportunity to live a life worth living independently of where they are born (equity).  

its  “cohesion”  Title, 

in 

The  two  missions  are  interdependent  but  very  different.  The  Report  will  argue  forcefully  that 
“convergence” of per capita average GDP of regions is a wrong and inappropriate proxy of any 
of  the  two  missions;  and  that  disentangling  the  two  missions  and  transparently  pursuing  them 
through  different  interventions  as  part  of  a  unitary,  comprehensive  strategy  is  one  of  the  pre-
requisites for improving the effectiveness of cohesion policy. 

“Cohesion”  is  the  means  through  which  the  Treaty  commits  the  Union  to  pursue  harmonious 
development  and  reduction  of  disparities.  It  should  do  so,  as  a  complement  to  Member  States’ 
“conduct” and “coordination” of their economic policies, both by taking those tasks into account 
when formulating and implementing other policies and the internal market and, directly, through 
the use of dedicated Funds5. The general reference to the action and condition of fitting together, 
embodied in the word “cohesion”, is qualified by the Treaty through specific reference to three 
dimensions: “economic”, “social” and (in the draft new Treaty explicitly) “territorial”.  

Harmonious development and the reduction of disparities must therefore be pursued through an 
action,  and  by  creating  a  condition,  where:  economic  relations  are  dense  and  fluid;  social 
relations are open and participatory; and territorial effects are taken into account and monitored 
(for all policies)6. As the Report will show, these policy features have been established through a 
long  process  started  in  the  early  years  of  the  Union  that  culminated  in  1988  with  a  high-level 

3 In the current text (article 2): “economic and social progress”, “high level of employment”, “balanced and 
sustainable  development”.  In  the  new  text  (article  3),  in  particular:  “well-being  of  [the  Union]  people”, 
“balanced economic growth”, “full employment and social progress”, reduction of “social exclusion”, etc.   
4  Attention  is  then  given  to  “islands”  and  “rural  areas”  -  in  the  current  Treaty,  article  158  -  and  also  to 
“areas affected by industrial transition”, or suffering from “severe natural or demographic handicaps”- in 
the new draft Treaty, article 174. 
5 Articles 159 of the current Treaty and 175 of the new draft Treaty, after mentioning the other two indirect 
means to pursue harmonious development, state that the Union (Community in the current text) “shall also 
support  the  achievement  of  [the  objectives  set  out  in  article  159/174]  by  the  action  it  takes  through  the 
Structural Funds”, to which the following article 161/177 adds the Cohesion Fund. The instrumental role 
of  “cohesion”  is  made  clear  by  article  2  of  the  current  Treaty  when  it  mentions  “strengthening  of  … 
cohesion”,  together  with  “the  creation  of  an  area  without  internal  frontiers”  and  “the  establishment  of 
economic and monetary union” as  the three means “through” which economic and social progress and the 
other objectives must be pursued. In the new draft Treaty the distinction between ultimate objectives and 
means to achieve them is blurred.  
6  This  interpretation  of  the  three  “properties”  of  cohesion  described  by  the  Treaty  will  become  clear 
through  the  discussion  of  the  policy  model  in  chapter  I.  For  this  interpretation  of  the  “territorial” 
qualification,  emphasizing  the  need  to  be  aware  and  to  measure  the  territorial  impact  of  all  policies,  see 
also  the  document  adopted  in  November  2008  by  the  Ministers  responsible  for  spatial  planning  and 
cohesion policy at the meeting in Marseille organised by the French Presidency. 

 3

 
                                                      
political compromise between different cultural and political conceptions of the policy. Reviving 
and innovating that compromise is a condition for cohesion policy to become more effective. 

The second guideline for the policy model developed and used in this Report is provided by the 
paradigm  of  development  policy  that  has  gained  international  consensus  over  the  past  twenty 
years.  

The  OECD  has  used  the  terms  “territorial  development  policy”,  or  “new  paradigm  of  regional 
policy”  to  refer  to  a  policy  approach  whose  objectives  are  “enhancing  well-being  and  living 
standards”  in  specific  regions  and  at  “generat[ing]  and  sustain[ing]  regional  competitive 
advantages”  with  a  fuller  and  better  use  of  regions’  assets.  In  this  approach,  regions  are  not 
defined  according  to  administrative  boundaries.  The  strategy  “is  place-based,  multilevel, 
institutional 
innovative  and  geared 
types  of 
building/strengthening,  improving  accessibility  to  goods,  services  and  information,  promoting 
innovation and entrepreneurship.  

regions”7,  and  aims  at 

to  different 

Essential features of the new paradigm are: tailoring interventions to specific territorial contexts 
and to their spatial linkages; and eliciting and aggregating the knowledge and preferences of local 
actors. This new approach compares with an “old approach” to regional policy, whose objective 
is  compensating  for  regional  differences  in  unit  capital  costs  (due  to  productivity  gaps)  and 
rebalancing  labour  and  capital  flows.  Its  strategy  is  centred  on  subsidies  to  firms  or  sectoral 
interventions,  often  with  an  exclusive  focus  on  the  creation  of  jobs  or  on  physical  connections 
between places. It is often based on the replication of best-practices through a top-down method. 

The  new  paradigm  has  gradually  come  about  through  independent  changes  taking  place  in 
different  contexts  and  cultures8.  The  design  and  the  implementation  of  cohesion  policy  have 
themselves  played  a  relevant  role  in  this  process,  although  this  linkage  in  itself  says  nothing 
about how close cohesion policy is today to the “ideal” model9.  

Some definitions: place, place-basedness and place-based development policy 

This  Report  has  opted  for  referring  to  the  new  paradigm  as  a  place-based  development  policy. 
This  stresses  its  intentional  focus  on  three  features:  the  place-specificity  of  natural  and 
institutional  resources10  and  of  individual  preferences  and  knowledge11;  the  role  played  by  the 
(material and immaterial) linkages between places; and the resulting need for interventions to be 
tailored to places.  

The  use  of  “place-based”  avoids  any  confusion  with  the  political  and  administrative  use  of  the 
word  “region”.  The  word  region,  with  a  small  “r”,  will  be  used  in  the  Report  interchangeably 
with  place:  it  is  clearly  the  way  in  which  this  word  (as  well  as  “area”)  is  also  used  in  the  EU 
Treaty. The words “territory” (and “territorial”) and “space” (and “spatial”), without entering into 

7 Excerpts from the Mission statement of the Territorial Development Committee of the OECD. See also 
OECD (2009b). 
8 This is clearly shown by the large body of evidence gathered by the OECD in the last ten years through 
its reviews. 
9  On this issue see Bachtler, J. and Mendez, C. (2007). For this assessment see chapter II, section 4. 
10 Most natural resources are immobile, and their utilisation depends on many features which are specific 
to  places.  The  features  and  the  effectiveness  of  both  informal  and  formal  institutions  largely  depend  on 
contexts. On this point see below, section I.2.1. 
11 The preferences of individuals are strongly context-dependent, while a relevant part of the knowledge on 
the  comparative  advantages  of  a  place  is  held  by  individuals  living  in  the  place,  and  their  knowledge  is 
often interdependent. See again below, section I.2.1. 

 4

 
                                                      
the specific meaning attributed to these words in different languages and countries, by different 
disciplines and in different policy fields12, will also be used interchangeably with “place-based”. 

Jurisdictional Regions, with a capital “R”, are often the administrative and political entities more 
suitable  for  implementing  place-based  policies,  but  they  are  not  their  unit  of  intervention.  The 
unit of analysis and interventions of this policy model – the place or region – is endogenous to 
the policy process.  

Alternative options for pre-defining places (often called “functional regions”) exist, as many as 
there  are  dimensions  of  human  life  and  activity13.  In  the  context  of  a  policy  aimed  at 
development,  place  must  be  defined  as  a  social  concept,  a  contiguous/continuous  area  within 
whose boundaries a set of conditions conducive to development apply more than they do across 
boundaries (i.e. relative to other places): natural and cultural circumstances and the preferences of 
people  are  more  homogeneous  or complementary, the knowledge of people is more synergetic, 
and  positive  externalities  and  formal  and  informal  institutions  are  more  likely  to  arise.  The 
boundaries of places are thus independent of administrative boundaries, endogenous to the policy 
process and can change over time. 

A place-based development policy can therefore be defined as: 

•  a  long-term  development  strategy  whose  objective  is  to  reduce  persistent  inefficiency 
(underutilisation of the full potential) and inequality (share of people below a given standard 
of well-being and/or extent of interpersonal disparities) in specific places,  

•  through  the  production  of  bundles  of  integrated,  place-tailored  public  goods  and  services14, 
designed  and  implemented  by  eliciting  and  aggregating  local  preferences  and  knowledge 
through participatory political institutions, and by establishing linkages with other places; and 

•  promoted from outside the place by a system of multilevel governance where grants subject to 
conditionalities on both objectives and institutions are transferred from higher to lower levels 
of government.  

This  definition  responds  to  the  provisos  that  the  EU  Treaty  establishes  for  cohesion  policy,  in 
terms of both objectives and means. It addresses both the efficiency and the equity dimensions of 
the  harmonious  development  mission.  It  complies  with  the  economic,  social  and  territorial 
dimensions  that  the  Treaty  sets  for  the  means  –  cohesion  –  through  which  the  reduction  of 
disparities must be pursued. It actually postulates that the place-based or territorial dimension, as 
previously  defined,  is  the  key  feature  of  the  policy  model.  “Place-based”  (or  territorial)  refers 

12 For a reference to the very different ways in which “territorial” is interpreted throughout Europe, see for 
example  the  Commission  staff  working  document  annexed  to  the  Green  paper  on  territorial  cohesion 
prepared by the EU Commission in 2008: “territorial diversity”, “territorial competitiveness”, accessibility, 
sustainability, “permanent and cooperative process that encompasses the various stakeholders involved in 
territorial development”, spatial planning, “territorial aspects of sectoral policies”, “polycentric territorial 
development”, etc.  
13  In  drawing  boundaries  between  places,  reference  can  be  made  to:  concentration  of  residence  and 
activity, or of both (so as to account for commuting); density of population; absence of land connections 
(islands);  existence  of  underground,  water  or  other  natural  linkages;  altitude;  position  relative  to  outside 
areas  (in  whatever  way  “outside”  is  defined  in  geo-political  terms);  proximity  to  natural  areas;  etc..  For 
many of these perspectives and some solutions on how to take them into account in the context of rather 
binding  administrative  constraints,  see  the  Commission  staff  working  document  annexed  to  the  Green 
paper on territorial cohesion prepared by the European Commission in 2008. 
14 This expression includes both “public goods”, i.e. goods from whose benefits it is costly to exclude an 
individual (no-rivalry condition) and it is also undesirable (since there is no marginal cost of an additional 
individual to enjoy it), like environmental care, contract enforcement, etc., and other goods, like education, 
health  care,  transport,  etc.,  which  are  publicly  provided  due  to  other  market  failures  (incomplete 
information, externalities, etc).  

 5

 
                                                      
both to the context-dependent nature of the efficiency and equity problems that the policy deals 
with, and to the fact that the design of  integrated interventions must be tailored to places, since it 
largely depends on the knowledge and preferences of people living in it. 

Structure of the Report 

But  what  is  the  economic  rationale  for  this  “ideal”  policy  model?  Does  the current state of the 
economic  debate  on  development  and  growth  lend  support  to  this  approach?  Why  should 
development policy be spatially-aware? What about the argument that development policy should 
mostly be a-spatial or “blind” and that any spatially-aware policy deters mobility from efficient 
agglomeration processes? Why do we anyway need an exogenous intervention by a higher level 
of government? For, if local knowledge and preferences are so relevant, why should development 
not  be  left  to  places?  And  why  should  any  exogenous  intervention  focus  on  public  goods  and 
services?  

And,  even  assuming  that  a  place-based  development  policy  is  warranted,  why  should  the 
European  Union  budget  have  a  role?  Should  not  such  a policy be left to Member States? And, 
finally, if the EU were given a role, should not the intervention be limited to poor countries or, at 
least, to poor regions?  

These questions need to be addressed before cohesion policy can be assessed and before anything 
can be said about whether and how it should be reformed. The structure of the Report is thus built 
around the following sequence. 

Chapter I provides the motivations, the economic rationale and the nuts and bolts of the policy 
model  to  which  cohesion  policy  will  then  be  compared.  After  firstly  examining  the 
motivations  for  cohesion  policy  that  emerge  from  a  comparative  (EU  vs.  US)  and  historical 
perspective  (section  I.1),  the  economic  rationale  of  the  ideal  model  is  investigated  with 
reference to the current debate on development and growth, and with separate reference to the 
two distinct objectives of the policy, efficiency and equity/social inclusion (section I.2.1). This 
allows  some  recurring  misconceptions  of  the  policy  model  to  be  rejected  through  a  set  of 
“corollaries”  (section  I.2.2).  The  policy  concept  is  then  used  to  show  how  a  place-based 
development  policy  allows  the  traditional  public  policy  dilemma  of  centralisation  versus 
decentralisation to be overcome; a methodological framework for implementing the model is 
sketched  (section  I.2.3).  The  analysis  can  then  revert  to  the  question  of  why  the  EU  should 
allocate  a  large  share  of  its  own  budget  to  this  policy:  two  rationales  are  presented  which 
support and shape this choice (section I.3).  

Chapter  II,  by  making  use  of  the  policy  concept  developed  in  the  first  chapter,  assesses  how 
distant cohesion policy is from the ideal model. After sketching the governance and the data of 
the present arrangement of cohesion policy (section II.1), and providing a brief description of the 
main  features  of  Member  States’  regional  policies  in  whose  context  cohesion  policy  is  being 
implemented (section II.2), the available empirical evidence on the effects of cohesion policy is 
reviewed (section II.3). In spite of the very serious limits of the quantitative evidence, a tentative 
picture is finally outlined of the successes and failures of cohesion policy (II.4).  

Chapters  III  draws  a  clear-cut  message  from  the  previous  two  chapters:  cohesion  policy  is 
strongly needed by the Union, it provides an appropriate base for building a response to current 
challenges,  but  for  those  challenges  to  be  met  a  sharp  change  of  direction  must  take  place.  An 
outline of the necessary reform is then provided, stressing that the chance for success hinges on 
the  synergy  of  three  factors:  adopting  a  strong  policy  concept;  introducing  key  changes  in  the 
priorities and governance of the current policy; and building a new strong political compromise. 
A revised design of the negotiation process is also necessary.  

Chapter IV deals with the issue of core priorities. It proposes three criteria that should be adopted 
for  the  choice  of  a  very  limited  number  (3-4)  core  priorities,  on  which  up  to  two  thirds  of  all 

 6

 
resources  should  be  concentrated  (section  IV.1).  The  case  for  a  strong  focus  on  the  social 
inclusion objective and a move towards a “territorialised social agenda” inside cohesion policy is 
then made (section IV.2). Six candidates for the core priorities are then assessed as a way to test 
the criteria: two (innovation and climate change) with a predominant efficiency objective (section 
IV.3); two (migration and children) with a predominant social inclusion objective (section IV.4); 
and two (skills and ageing), where the two objectives are of similar relevance (section IV.5). 

Chapters V proposes ten pillars for a reform of the governance of cohesion policy: they are not 
intended to provide a blueprint for cohesion policy since 2014, but do provide clear statements of 
how a comprehensive reform could be designed. The ten pillars are: an innovative concentration 
on  priorities  and  a  conservative  territorial  allocation  of  resources  (section  V.1),  a  new  EU 
strategic  framework  for  cohesion  policy  (section  V.2);  implementation  and  reporting  aimed  at 
results (section V.3); a strengthened governance for the core priorities (section V.4); promoting 
additional,  flexible,  and  innovative  spending  (section  V.5);  promoting  experimentalism  and 
mobilising  local  actors  (section  V.6);  promoting  the  learning  process:  a  move  towards 
prospective  impact  evaluation  (section  V.7);  refocusing  and  strengthening  the  role  of  the 
Commission as a centre of competence (section 8); addressing financial management and control 
(section 9); and reinforcing the high-level political system of checks and balances (section 10). 

 7

 
 8

 
 
I.  THE  RATIONALE  AND  MOTIVATION  FOR  AN  EU  PLACE-BASED 

DEVELOPMENT POLICY 

Any assessment of cohesion policy and any proposal for change aimed at building political and 
cultural  consensus  require  clear  answers  to  the  following  questions:  should  the  EU  devote  a 
significant share of its budget to running a place-based development policy for regions? What is 
the  economic  rationale  for  such  a  policy?  The  first  question  cannot  be  answered  without  a 
preliminary  agreement  on  the  other.  The  European  debate  on  cohesion  policy,  however,  has 
proceeded for too long on the assumption that it could be. Alternative views on whether and how 
“cohesion  policy”  should  be  reduced  in  scale,  strengthened  or  modified  in  same  way  have 
confronted each other without any consensus over what “cohesion policy” should be about. This 
has led to misconceptions and misunderstandings and has prevented a meaningful political debate 
from taking place as well as substantive changes from being made.  

The  task  of  this  chapter  is  to  address  these  questions,  to  outline  a  “new  paradigm  of  regional 
policy” - the place-based model of development policy - and to examine the rationale for the EU 
running this policy and funding it. 

First, the grounds for an EU cohesion policy are set out from both a comparative and an historical 
perspective  (section  I.1).  The  economic  rationale  for  a  place-based  development  policy  is  then 
discussed  in  terms  of  efficiency  and  equity  objectives,  in  the  process  identifying  a  number  of 
misconceptions  about  the  policy  model  and  showing  how  the  approach  enables  the  traditional 
dilemma  about  centralisation  or  decentralisation  to  be  resolved  (section  I.2).  This,  therefore, 
provides the basis for addressing the central question of why the EU should allocate a large share 
of its budget to such a policy (section I.3). 

I.1. 

The EU cohesion policy budget: a comparative and historical perspective  

Two different perspectives can shed light on the political and economic motivation for cohesion 
policy. First, in order to obtain a broader view on whether or not a union of States should have a 
role  in  economic  and  social  development  and  if  so,  what  this  should  be,  the  EU  and  the  US 
budgets are compared and differences and similarities are identified. Second, in order to obtain an 
historical perspective on the political motivation for EU cohesion policy, its origins are revisited, 
the views of its founding fathers recalled and the main stages in its evolution reviewed.  

I.1.1.  Alternative ways of tackling economic and social development: the EU and US 

In the EU, cohesion policy accounts for most (84%) of the total budget for economic and social 
development (58.3 billion euro a year in the period 2006-2008). This can be compared with the 
other large industrialised Union in the world, the US. The marked differences between the two in 
origin,  age,  political  construct,  institutional  design  and  economic  and  social  culture  are  reason 
enough for equally marked differences in the two development budgets. The analysis shows that 
both  important  differences  and  similarities  are  present:  they  help  explaining  the  motivation  for 
the European Union budgetary choice.  

The  US  Federal  Reserve15  has  identified  funding  for  programmes  for  economic  and  social 
development  in  the  Federal  budget,  namely  capital  expenditure  on  infrastructure,  financial 
incentives to firms and spending on training, employment and social services. As in the case of 
the  EU  budget,  these  programmes  include  only  measures  aimed  at  tackling  “special” 
development problems and exclude ordinary welfare provision. They are the result of around 60 

15  See  Drabenstott,  M.  (2005).  Its  data  were  updated  by  reference  to  the  Budget  of  the  United  States 
Government: Detailed Function Tables, Fiscal year 2009, Executive Office of the President of the United 
States. 

 9

 
                                                      
Federal  bills  dating  back  to  the  1933  Tennessee  Valley  Authority  Act.  They  include  a  diverse 
range  of  programmes,  including  those  stemming  from  the  1953  and  1958  acts  for  “Small 
Business”,  the  1977  and  1987  acts  to  develop  old  industrial  sites;  the  1987  act  for  health, 
housing, food and other assistance for the homeless, the 1991 act for mass transit, the 1998 act to 
create  employment  and  business  opportunities  and  provide  basic  public  services  in  urban  and 
rural areas and the 2002 bill for stimulating economic development and fostering partnership in 
13 different States. These programmes are aimed at increasing competitiveness, often in specific 
areas,  compensating  for  the  effects  of  external  shocks,  combating  deprivation  among  particular 
groups of people or in particular areas. Their objectives are to do with increasing both efficiency 
and equity and often the two together. 

The  programmes  include  types  of  expenditure  almost  identical  to  those  eligible  under  EU 
cohesion  policy.  Data  for  planned  expenditure16  on  development  in  the  US  and  the  EU  for  the 
period 2006-2008 indicate that:  

•  The  size  of  the  EU  development  budget  is,  as  expected  given  the  greater  role  of  Member 
States in this and other policy areas, smaller than that of the US both in absolute terms (58.3 
billion euro as against 252.7 billion euro) and as a share of GDP (0.5% as against 2.5%)17. 

•  The sectoral composition of the two budgets, however, is similar (Fig. I.1), the share going on 
infrastructure  (transport,  environment,  energy),  training,  employment  and  social  services 
being much the same. The US development budget, on the other hand, includes a larger share 
of expenditure on housing and a much larger share on health, while in the EU budget, a much 
larger share goes to both business aid and research.  

Fig. I.1 - Shares of the Union development budget by sector in the US and EU:  
2006-2008 

US

Transport
23.0%

Business support 
and Commerce
4.3%

Transport
19.6%

Business support
and Commerce
15.5%

EU

Research
7.8%

Regional 
Development
4.1%

Housing
0.9%

Health
15.1%

Training, 
Education, 
Employment
and Social 
Services
31.4%

Energy
1.4%

Environment
12.0%

Research
17.1%

Other regional
development
4.2%

Housing
0.13%

Health
0.85%

Training, Educat
Employment an
Social Service
25.8%

Environment
14.4%

Energy
2.5%

 Source: US Federal budget 

Source: European Union - DG Budget and DG Regio 

252,7 billion euro per year 

58,3 billion euro per year 

16 “Commitments” in the EU terminology; “outlays” according to the US budget. All information for the 
US is obtained from the Budget of the US Government website for the fiscal years 2008 and 2009.  
17 Note that the EU development budget accounts for a much bigger share of the overall budget (46%) than 
that of the US (12%), so that the overall Federal budget is much large still. 

 10

 
 
 
 
 
                                                      
The  governance  of  the  two  development  budgets  is  very  different.  In  the  US,  89%  is  spent  on 
some  180  sectoral  programmes  run  by  Federal  Departments  and  Agencies  (often  several  being 
responsible  for  the  same  type  of  expenditure)  under  a  panoply  of  Federal  legislation  approved 
over the years to tackle specific economic or social problems in parts of the country or across the 
US  as  a  whole18.  Only  11%,  therefore,  goes  to  “community  and  regional  development”.  In  the 
EU, around 84% of the development budget is spent under cohesion policy – i.e. under a place-
based programme under which funds are transferred to Member States and regions without being 
earmarked for particular sectors (though conditional on general rules being agreed on their use). 
Only 16% is, therefore, earmarked for sectoral programmes as such19. 

These  figures,  even  after  allowing  for  possible  differences  in  accounting  methods  and 
definitions20, suggest a number of points as regards the role of the two budgets and the particular 
governance of the EU budget. 

First,  both  the  EU  and  the  US,  despite  strong  cultural  and  institutional  differences,  allocate 
sizable  resources  to  economic  and  social  development  with  largely  similar  priorities.  The 
differences in the two budgets reflect a different allocation of responsibilities between the Union 
and the States and, in particular, the choice at present for the EU to play a very limited role in the 
provision  of  social  services21.  In  neither  of  the  two  Unions  do  the  interventions  represent  an 
“Equalisation Fund” that States can use as they wish. The purpose is not financial redistribution 
between  States,  but  rather  development  according  to  agreed  Union  principles  –  i.e.  to  increase 
efficiency and competitiveness and reduce social deprivation, often in specific areas.  

The similarities reinforce the idea that a Union of States – whether federal as in the US or hybrid 
as  in  the  EU  –  which  has  legislative  responsibility  for  managing  unified  markets  and  a  unified 
currency and which embodies a sense of common citizenship, cannot fail to have some budgetary 
responsibility for development in its regions and for its citizens. Both the US and the EU have 
large  disparities  between  both  regions  and  individuals.  In  the  EU,  disparities  in  GDP  per  head 
between  States  are  wider  than  in  the  US  (see  Map  I.2);  in  the  US,  inequality  between  people 
within each State is much wider than in the EU22. Whether the Union is “free market” oriented or 
“social  market”23  oriented,  therefore,  money  is  spent  on  assisting  regions  tackle  development 
problems. 

Moreover,  given  that  mobility  of  people,  which  also  tends  to  counteract  disparities  in 
productivity  and  standards  of  living  across  regions,  is  higher  in  the  US24,  the  size  of  the  EU 
development budget appears even smaller in comparison.  

18  See  Drabenstott,  M.  (2005).  Many  of  these  acts  continued  to  be  financed  after  the  initial  expiry  date 
passed. 
19 A greater share might be allocated to sectoral programmes, but as the result of the independent choice of 
Member States or Regions in their allocation of the resources of cohesion policy. Chapter II will show that 
this is indeed the case. 
20  Differences  in  institutional  arrangements  can  also  explain  some  of  the  differences  in  the  sectoral 
composition. 
21 On the instability of this choice see section I.3. 
22 According to Jesuit, D., Rainwater, L. and Smeeding, T. (2002), some 16.5% of people in US States, on 
average, had income below 50% of the median as against 9% in the EU. In the latter, the highest figure 
was in Slovakia (16%), much lower than the highest figure in the US 22% in Washington DC). 
23 See the new EU Treaty, article 3. 
24 Data for internal mobility are hard to compare since those for the US refer to mobility from a different 
State (in 2005, 2% of working-age residents had moved from a different State during the year), while those 
for  the  EU  refer  to  mobility  from  a  different  (NUTS  2)  region  (1%  on  average,  in  the  same  year):  see 
European Commission (2008f). These data seem to show that internal migration is very diffused in the US, 
whereas it is more concentrated in the EU. In the US, the share of working-age residents who moved from 
one of the “top 10%” States (in terms of mobility and adjusted for population size) was only three times 
larger  than  the  share  who  moved  from  the  “bottom  10%”  (3.4%  as  against  1.1%);  as  compared  with  25 

 11

 
                                                      
Map I.2: Disparities in per capita GDP among States in 2005: US and EU 

Source: Eurostat, NSI, DG REGIO 

The fact that the governance of the two development budgets differs is in line with what might be 
expected in view of the different development stages of the two Unions. The Federal government 
of  the  US  is  the  result  of  a  choice  made  more  than  two  centuries  ago  by  similar-minded 
communities.  Though  almost  permanently  contested,  it  is  strengthened  as  regards  development 
by the long-term effects of the “New Deal”25, and it has a high degree of legitimacy to manage 
directly  a  large  amount  of  resources  for  development  and  to  intervene  directly  in  regions.  The 
hybrid government of the EU is the result of a relatively recent choice made by very dissimilar 
communities which have been in conflict for centuries. It does not have federal powers and very 
different views coexist on what the limits of its powers should be. It largely relies on lower levels 
of government to allocate resources for development, establish priorities and manage spending.  

It is argued below (section I.2) that the current EU place-based model – that adopted for cohesion 
policy – has an economic rationale. It is also argued that, if properly designed and implemented 
by allowing different mixes of sectoral intervention to be truly tailored to places, this approach is 
a more modern and effective way of pursuing economic and social development than top-down 
sectoral programmes. But these considerations apart, the comparison with the US suggests a clear 
conclusion: the policy model currently adopted by the EU can be regarded as the only approach 
for  pursuing  a  policy  of  economic  and  social  development  that  is  compatible  with  the  present 
stage of political development of the EU. Even if top-down sectoral development policies were 

times larger (2.5% as against 0.1%). The higher mobility in the US, linked to a higher degree of cultural 
standardisation provides people with a form of social protection not present to the same extent in the EU. 
This  is  used  to  explain  the  lower  level  of  social  protection  expenditure  than  in  Europe  (see  D’Antoni, 
Pagano U. (2008)).  
25  As  Dorf,  M.C.  and  Sabel,  C.F.  (1998)  put  it,  the  present  situation  is  still  the  result  of  “a  New  Deal 
synthesis  in  which  an  all-powerful  Congress  delegates  much  of  its  authority  to  expert  Agencies  that  are 
checked  by  the  courts  when  they  infringe  individual  rights”,  though  as  they  also  discuss,  there  are 
weaknesses and ongoing changes in this arrangement.  

 12

 
 
                                                                                                                                                              
considered preferable to place-based development policies, the EU could not adopt them as they 
would impinge on the policy space of Member States.  

I.1.2.  “No  Community  could  maintain  itself  so  long  as  some  have  cause  to  doubt  the 

common will”: guidance from history 

The  founding  fathers  of  the  European  Economic  Community  (EEC,  later  the  European  Union) 
had  mixed  feelings  about  the  creation  of  a  Community  regional  policy.  In  the  preamble  to  the 
Treaty  of  Rome,  they  declared  themselves  “anxious  to  strengthen  the  unity  of  their  economies 
and  to  ensure  their  harmonious  development  by  reducing  the  differences  existing  among  the 
various regions and the backwardness of the less-favoured regions”. However, while their spatial 
awareness is clear from several Treaty statements, the founders did not provide a firm basis for 
establishing an autonomous Community regional policy26. 

The choice was intentional for two main reasons. First, there was a general, and arguably over-
optimistic,  feeling  that  integration  in  itself  would  contribute  to  reducing  regional  disparities 
through the promotion of inter-regional trade27. Secondly, the experience with domestic regional 
policy in a number of the countries –France, Italy and Germany – was relatively recent and it was 
not felt necessary to duplicate or interfere with this28. The choice was made, however, to develop 
the  existing  European  Coal  and  Steel  Community  Treaty  fund  (operating  since  1951)  for  the 
retraining and the resettlement of workers into a European Social Fund aimed at increasing job 
opportunities. 

Several  factors  soon  fuelled  a  growing  demand  for  a  Community  regional  policy,  starting  with 
increasing concern about the levels of economic and social disparity between Member States and 
regions and the worsening problem of declining industrial areas. But despite Commission efforts 
and a series of resolutions by the European Parliament29, no action was taken by the Council. The 
conditions for the creation of a Community regional development policy came in the late 1960s 
and early 1970s, generated by the plan to deepen the internal market and to launch an Economic 
and Monetary Union and the expected adverse effects of this on regional disparities. 

As the Werner Report put it in 197030, “the realization of global economic equilibrium may be 
dangerously  threatened  by  differences  of  structure.  Cooperation  between  the  partners  in  the 
Community  in  the  matter  of  structural  and  regional  policies  will  help  to  surmount  these 
difficulties, just as it will make it possible to eliminate the distortions of competition. The solution 
of the big problems in this field will be facilitated by financial measures of compensation. In an 
economic and monetary union, structural and regional policies will not be exclusively a matter 
for  national  budgets.”  The  first  enlargement  of  the  Community  in  1972  created  a  focus  for 
change when both Ireland and the UK supported a new Community policy instrument that could 
also  reduce  their  net  financial  contribution  to  the  Community31.  The  Heads  of  State  formally 
agreed at the Paris Council summit of 1972 to “give top priority to correcting the structural and 

26  These  references  can  be  grouped  under  three  categories:  a  proviso  to  take  account  of  regions  when 
applying  Community  sectoral  policies  (especially  in  agriculture  and  the  common  market,  as  well  as 
specific  provisions  for  the  Mezzogiorno  in  the  Italian  Protocol  attached  to  the  Treaty);  derogations  from 
the  general  rules  for  certain  regions  (notably  under  the  state  aid  rules,  with  a  specific  reference  to  the 
German Länder bordering the (then) Germany Democratic Republic and Czechoslovakia; and EU financial 
instruments  with  regional  effects  (the  European  Social  Fund,  the  European  Agricultural  Guidance  and 
Guarantee Fund and, with a more explicit regional dimension, the European Investment Bank which could 
prioritise the financing of projects in less developed regions). 
27 See Vanhove, N. and Klassen, L.H. (1987), pag. 258.  
28 See Wallace, H. (1977), p. 140. 
29 Resolution Van Campen in 1959; Resolution Motte, in 1960; Resolution Birkelbach, in 1964. 
30 Report on the realisation by stages of economic and monetary union (8 October 1970), in Bulletin of the 
European Communities (1970). See also a year earlier: Commission of the European Communities (1969). 
31 Wallace, H. (1977). 

 13

 
                                                      
regional imbalances in the Community which could hinder the achievement of the Economic and 
Monetary  Union.…[and]…ask  the  Community  Institutions  to  set  up  a  Regional  Development 
Fund …”. 

However  EU  regional  policy  came  about,  its  motivation  went  far  beyond  that  of  a  mere 
compensatory  tool  for  correcting  the  effects  of  market  integration.  The  Treaty  commitment  to 
reducing  Community  regional  disparities  was  regarded  as  “a  human  and  moral  requirement  of 
the  first  importance”.  To  this  end,  the  Report  by  Commissioner  George  Thomson  adopted  in 
197332  initiated  the  legislative  process  for  the  creation  of  the  Regional  Development  Fund, 
making two key lasting points (italics added): 

•  “no Community could maintain itself nor have a meaning for the people which belong to it so 
long as some have very different standards of living and have cause to doubt the common will 
of all to help each Member State to better the condition of its people…The long history and 
diversity of the European people, the historical and cultural values which are the moral wealth 
of each region, make the maintenance of establishment in each region of the groundwork of an 
up-to-date economy a matter of capital importance”. 

•  “The  purpose  of  a  Community  regional  policy  is  to  give  areas  suffering  from  regional 
imbalances the means to correct them and enable them to put themselves on a footing of more 
equal competitiveness. If this can be achieved, then it will be possible for the various factors 
of  production  of  the  community  to  be  more  fully  utilised  and  the  idle  human  resources  and 
under-used social capital and infrastructure to be more fully employed”. 

The  new  policy  and  its  visibility  (no  one  should  “have  cause  to  doubt  the  common  will”)  was 
clearly  seen  as  a  necessary  way  of  not  just  guaranteeing  the  sustainability  of  the  integration 
process  but,  much  more  importantly,  of  ensuring  the  sustainability  of  the  Community  itself, 
particularly  given  the  “long  history  and  diversity  of  the  European  people”.  Moreover,  the  two 
distinct,  though  complementary,  goals  of  the  new  policy  -  efficiency  and  equity  -  were  very 
clearly identified. European citizens demanded a Community effort, on the one hand, to give all 
regions  (or  places)  the  opportunity  to  fully  utilise  their  potential  and  achieve  competitiveness 
(efficiency), on the other, to pursue more similar standards of living for all individuals “in each 
region” (equity). 

At the outset, the role of the Community level of government in the new policy was not actually 
very  relevant.  The  old  social  fund  and  the  new  regional  fund  –  collectively  called  “Structural 
Funds” – were kept separate, the first being to support people to gain new skills, the second to 
provide infrastructure. Their overall size was rather small (5% of the total Community Budget). 
They were to be distributed on the basis of national quotas to finance projects, with no clear-cut 
strategy agreed between the Commission and Member States and the latter having the final say 
on project approval.  

A  greater  Community  orientation  developed  under  the  1979  and  1984  reforms,  reflecting  an 
attempt  to  improve  the  effectiveness  of  policy  and  to  develop  an  “integrated  approach”,  under 
which  EU  measures  and  national  policies  could  converge33.  Together  with  the  abandonment  of 
the quota system for allocating resources to them (replaced with a system of indicative ranges), 
Member  States  were  requested  to  submit  regional  development  programmes  that  allowed  the 
Commission to identify and discuss common Community priorities. Ex-post assessment was also 
introduced with the publication of periodic Commission reports on regional development trends. 

32 Commission of the European Communities, Report on Enlarged Europe (Thomson Report), COM (73) 
550 def, 3rd May 1973. The Report also argued that regional imbalances comprised those that arose from 
the “absence of modern economic activity or the over-dependence… on agriculture or declining industrial 
activities”  which  could  logically  be  found  in  specific  geographical  areas  with  a  “preponderance  of 
agriculture, in areas of industrial change and of structural under-employment”.  
33 See the account of Lowe, P. in Inforegio Panorama, European Commission (2008e). 

 14

 
                                                      
In addition, more scope was given to the Commission to pursue Community priorities (through 
Community  initiatives and programmes). The size of the regional funds rose to around 13% of 
the Community Budget by 1985. At the same time, a “higher degree of convergence”34 between 
countries  and  regions  came  to  summarise  the  policy  objectives,  aimed  at  capturing  at  once  the 
equity and the efficiency dimensions, a controversial step as discussed below35.  

These  steps,  together  with  the  agreement  on  Integrated  Mediterranean  Programmes  in  1985, 
represented  the  basis  for  the  landmark  reform  under  the  presidency  of  Jacques  Delors.  The 
starting point was the Single European Act, which dedicated a Treaty title to “cohesion” as a way 
to  “promote  …  overall  harmonious  development”,  along  with  a  requirement  to  alter  the  rules 
governing the operation of the Structural Funds, the main instrument for the pursuit of cohesion. 
The Treaty revision at Maastricht in 1992 gave added priority to “strengthening … cohesion” by 
including it in article 2 as one of the means for achieving the Union’s goals, on a par with “the 
establishment  of  economic  and  monetary  union”.  This  was  accompanied  by  the  creation  in  the 
Treaty of a Cohesion Fund for countries that were lagging behind in economic terms, aimed at 
improving their environmental and transport infrastructure. Successive increases in the resources 
allocated to cohesion meant that it exceeded 32% of the EU Budget in 1993. These developments 
were followed by a substantial change in the way policy was governed.  

Community  objectives  and  priorities  were  defined  as  the  reference  framework  for  resource 
allocation. Member States for the most part were required to formulate programmes in line with 
this and obtain Commission approval for their implementation. The change from annual to multi-
annual budgeting underpinned this new strategic approach, which increasingly reflected the idea 
that  economic  and  social  development  was  not  so  much  to  do  with  building  infrastructure  and 
giving subsidies to firms but more to do with encouraging the provision of extensive bundles of 
integrated services. The Commission invested human resources in designing and developing this 
framework. 

This strategic development was helped in the social sphere by the adoption in 1994 of a European 
Employment  Strategy,  which  became  a  point  of  reference  for  designing  programmes.  The 
importance of involving local actors in development policy if it is to be successful was reflected 
in the introduction of a “partnership principle” under which regional and local authorities were to 
be  involved  in  programme  formulation  and  implementation.  A  Committee  of  the  Regions  was 
created, emphasising the growing role of the regional level of government in all Member States36, 
while  an  “additionality  principle”  was  also  introduced  to  ensure  that  Community-funded 
expenditure did not simply replace nationally-funded expenditure. At the same time, the share of 
resources  allocated  to  initiatives  directly  managed  by  the  Commission  grew  to  15%  of  total 
funding in the years 1989-93 (reduced to 10% in 1994-99). 

The  reform  was  pushed  by  concerns  about  the  different  effects  on  regions  of  technological 
change  and  the  Community’s  policy  of  market  integration  and  liberalisation37.  As  stated  in  the 
Padoa-Schioppa  Report38,  “there  are  serious  risks  of  aggravated  regional  imbalance  in  the 
course of market liberalisation … and adequate accompanying measures are required to speed 
adjustment in structurally weak regions and countries … reforms and development of Community 
structural funds are needed for this purpose”. It was also prompted by the accession of Spain and 
Portugal in 1986, which substantially widened regional disparities across the Community.  

However;  a  wider  political  concern  motivated  the  reform  and  created  the  necessary  political 
compromise  for  it  to  be  launched.  If  progress  was  to  be  made  in  integrating  markets  and  in 

34 See European Commission (1984). 
35 See section I.2. 
36 According to Marks et al (2008), the 1990s represent the period of maximum concentration of reforms 
designed to increase “regional authority”: See below, section I.4. 
37 See for example Delors, J. (1989), p. 82. 
38 See Padoa-Schioppa et al (1987). See also Cecchini, P., Catinat, M. and Jacquemin, A. (1988). 

 15

 
                                                      
ensuring  free  movement  of  people,  if  protectionist  barriers  were  to  be  removed,  if  national 
autonomy over management of exchange rates and interest rates was to progressively disappear, 
there was likely to be increasing expectation that the same authority responsible for these moves 
should also be responsible for giving all places and all European citizens the same opportunity to 
gain  from  the  changes  and  avoid  the  risks.  The  new  Union  would  need  a  development  policy 
giving  legitimacy  to  a  voluntary  Community  of  Member  States  capable  of  ensuring  that  all  its 
citizens  benefited  when  new  opportunities  were  opened  up  by  market  integration  and  currency 
unification and were able to protect themselves against the risks. Indeed, the very existence of the 
Union would require it. As Delors put it, “…a Community on the brink of being transformed into 
a Union consciously accepted by the men and women of Europe … not merely uniting nations but 
developing a blueprint for society”39. 

Other political goals can be detected at the end of the 1980s among those who advocated reform, 
starting with Delors. The concept of cohesion was seized upon and pushed as a “State-building 
strategy”40  to  further  a  federalist  vision  of  Europe  and  to  complement  and  balance  the  market 
philosophy underpinning economic integration41. Cohesion policy was also seen by some as an 
opportunity to shift authority from Nation States to administrative Regions, a vision inspired by 
the  conviction  that  the  former  potentially  promoted  nationalistic  conflict,  while  the  latter  could 
better represent community values42.  

However, as in the case of all robust compromises, the different cultural and political visions – 
popular,  socialist  and  liberal  –  converged  on  a  common  denominator.  All  agreed  that  for  the 
Union  to  exist,  especially  when  unified  markets  and  currency  were  being  created,  there  was  a 
need for clear and strong development objectives. Cohesion policy, as it was designed, was seen 
as the best option given the historical stage of development of the Union, the role of nation States 
and  the  limited  power  accorded  to  the  EU  level.  The  strong partnership of Francois Mitterrand 
and Helmut Kohl, the economic and political interests of Spain and the role that Felipe Gonzalez 
came to play in the new dynamics of decision-making created by Spain’s accession and Margaret 
Thatcher’s willingness to compromise all contributed to making the reform possible and to giving 
it ultimately remarkable stability43. 

Since then, the architecture of cohesion policy has been revised as a result of a continuous search 
for  a  balance  between  conditionality  and  subsidiarity,  as  described  in  Chapter  II  below 
(Box II.A).  The  enlargement  of  the  Union  to  27  very  diverse  countries  has  provided  further 
arguments for a policy aimed at enabling all people, independently of where they live, to benefit 
from  the  opportunities  created  by  the  Union.  The  financial  success  of  monetary  union  and  the 
euro  and  the  more  recent  international  financial  crisis  have  highlighted  once  again  the 
unavoidability of the EU having development objectives. The relevance of spatial awareness has 
been  emphasised  by  the  explicit  introduction  in  the  Nice  Treaty  of  the  territorial  dimension  of 
cohesion  policy  alongside  the  economic  and  social  dimensions.  Nevertheless,  no  significant 
progress  has  been  made  in  giving  cohesion  policy  stronger  conceptual  foundations  or  in 
rejuvenating the cultural and political compromise that occurred at the end of the 1980s.  

The  progress  of  the  theoretical  debate  has  not  adequately  found  its  way  into  the  rather  close 
cohesion  policy  community.  Efficiency  and  equity  have  been  highlighted  as  policy  objectives, 
combined  as  they  have  been  from  the  start.  Even  when  during  the  past  10  years, 
“competitiveness”  has  become  the  prevailing  catch-word  in  policy  documents,  the  social  and 

39  Programme  of  the  Commission  for  1989,  address  by  Jacques  Delors  to  the  European  Parliament  and 
reply to the debate, Strasbourg, 16 February and 15 March 1989, p. 8. On this interpretation see also the 
account of Meadows, G. in Inforegio Panorama, European Commission (2008e). 
40 See Ross, G. (1995). 
41 See Grant, C. (1994); Ross (1995); Hooghe, L. (1996); Hooghe, L. (1998). 
42 On this vision and its risks, see Caracciolo, L. and Maronta, F. (2009). 
43 On the negotiation and the convergence of both economic and political interests that made it possible, 
see: Moravcsik, A. (1991); Marks, G. (1992, 1993); Pollack, M. (1995); Ross, G. (1995), p. 230-1. 

 16

 
                                                      
economic  dimensions  have  remained  entangled,  as  if  any  cohesion  policy  intervention  could 
achieve  both.  The  design  of  an  overall  “development”  strategy  –  the  Lisbon  Agenda  -  in  2000 
provided  a  potential  opportunity  for  cohesion  policy  to  be  rethought.  But,  lacking  a  shared 
concept  of  the  policy  around  which  to  rebuild  a  strong  political  compromise,  and  with  several 
Member States focusing on the financial features of the policy, the linkage with “Lisbon” failed 
to be used as a way of focusing cohesion policy on a limited number of priorities and on areas of 
intervention where its original place-based approach could be most effective.  

In  this  situation,  the  consensus  on  the  value  added  by  the  cohesion  approach  has  been 
progressively  eroding  over  the  years.  The  misconception  that  cohesion  policy  is  either  an 
equalisation  fund  for  countries  or  regions  or  a  source  of  finance  for  EU  sectoral  policies  has 
gained ground. Conflicting and incoherent views have emerged and there is a need to re-establish 
common ground for debate. Understanding the economic rationale for place-based policies is an 
essential starting-point for this.  

I.2. 

The place-based paradigm: economic rationale and governance  

The  comparison  between  the  EU  and  US  and  the  historical  overview  have  emphasised  the 
coexistence  of  both  efficiency  and  equity  dimensions  in  development  policy.  One  objective, 
efficiency, is about realising the full utilisation of the potential of every place or region; the other 
(equity) is about ensuring equal opportunities for individuals irrespective of where they live. This 
Report argues strongly that, in the context of a place-based integrated strategy, there is a need for 
clear-cut  distinction  between  these  two  objectives  and  a  need  to  pursue  them  through  distinct 
interventions.  As  will  be  argued,  progress  in  pursuing  the  efficiency  objective  might  help  the 
pursuit of the equity objective, but this need not be the case. Nor, in general, is it the case that a 
policy which is appropriate for pursuing one objective is also appropriate for pursuing the other. 
Moreover, confusing the two objectives can lead to fuzziness in both implementing and debating 
policy44. 

Moving on from this, the chapter examines the economic rationale of the place-based paradigm, 
considering  efficiency  and  equity  objectives  separately  (sub-sections  I.2.1  and  I.2.2),  enabling 
some common misconceptions to be exposed (sub-section I.2.3) and the governance required by 
the place-based approach to be outlined (sub-section I.2.4). 

I.2.1.  The efficiency objective 

In recent years, the varied, and variable, performance of industrialised and developing countries, 
as  well  as  progress  in  economic  theory  and  empirical  analysis,  have  made  most  scholars  and 
policy-makers  more  cautious  as  regards  both  the  explanations  for  growth  and  for  disparities 
between  places  and  what  governments  can  and  should  do  to  stimulate  growth45.  There  is, 
however,  a  strong  consensus  on  one  aspect,  namely,  that  “agglomeration”  is  one  of  the  key 
drivers of growth and development.  

44  One  example  is  the  controversy  over  the  weight  that  should  be  placed  on  increasing  the  growth  of  a 
country (or Union) as a whole as opposed to improving the internal balance of growth between regions. If 
efficiency is the objective, no trade-off by definition exists and the task of “tapping into unused regional 
capacities” should be pursued insofar as it contributes to overall efficiency. If equity is the objective, one 
should  refer  to  disparities  among  individuals  and  increasing  the  growth  of  lagging  regions  is  not  the 
ultimate goal but it can be a possible means of achieving this: accordingly, there can be potential trade-offs 
with overall growth or efficiency. 
45  See  the  collection  of  papers  edited  by  Aghion,  P.  and  Durlauf,  S.N.  (2005).  In  particular  Rodrik,  D. 
(2005) writes that “the experience of the last two decades has frustrated the expectations of policy advisers 
who thought we had a good fix on the policies that promote growth”. See also the 2008 Growth Report. 
The same caution is not to be found in World Bank (2008): see below. 

 17

 
                                                      
Thick agglomerations, networks, growth and the role of public action 

The  concentration  of  consumers,  workers  and  businesses  in  a  place  or  area,  together  with  the 
formal  and  informal  institutions  that  make  an  agglomeration  “thick”  and  cohesive,  has  the 
potential  to  produce  externalities  and  increasing  returns  to  scale.  These  include:  the  greater 
possibilities of matching firms and workers, of inputs and capital goods being more specialised, 
of a virtuous circle being created between supply and growth of demand, of labour pooling; and 
of  economies  of  scale  in  research  and  in  the  provision  of  public  goods  and  services46.  In  both 
developing and industrialised countries, the concentration of economic activity and people tends 
to be high and often coincides with a concentration of innovation. In OECD countries, there are 
wide  variations  in  GDP  per  head  within  countries,  accompanied  by  similar  variations  in 
innovative activity, productivity and employment rates, the top 10% of regions producing around 
40%  of  GDP47.  In  Europe,  which  is  highly  polycentric,  the  growth  of  metropolitan  regions 
around the capital city has often exceeded growth elsewhere, as in the case of Athens, Budapest, 
Dublin, Helsinki, London, Madrid, Paris, Prague and Stockholm48. 

The evidence also shows that agglomeration effects are not limitless and that a concentration of 
activity is neither a necessary nor a sufficient condition for high growth.  

It  has  long  been  known  that,  as  the  New  Economic  Geographers  have  stressed,  the  traffic 
congestion,  price  increases,  pollution  and  other  adverse  effects  on  health,  the  environment  and 
the quality of life, the rising costs of urban infrastructure and of urban sprawl, the social tensions 
and high crime rate which can all result from agglomeration can offset the benefits and bring the 
process to a halt49. Specialisation can also make agglomerations especially vulnerable to external 
events in a globalised economy as the current financial crisis is demonstrating. At the same time, 
opportunities  for  growth  exist  in  areas  where  there  is  less  concentration  of  economic  activity. 
Many rural areas have high rates of growth. In OECD countries, in the period 1995-2005, almost 
half  of  the  78  metropolitan  regions  grew  by  less than  the  national  average  (including  Brussels, 
Copenhagen, and Oslo)50.  

Moreover, although agglomeration is a driver of growth and development, it is not the only one. 
In particular, for a region to grow often requires strong “network effects” to be at work, i.e. that it 
is  able  to  benefit  from  the  growth  occurring  elsewhere  because  of  transport,  energy,  ICT  and 
other  connections.  In  Europe,  where  space  for  large  agglomerations  to  grow  is  limited  and 
polycentrism is high, economies of scale and growth can be generated by “networking between 
major  agglomerations  and  their  hinterland”  and  by  “dense  networks  of  big  or  middle  sized 
cities”51.  

Most  importantly,  the  fact  that  agglomerations  (as  well  as  networks  of  regions)  are  never  the 
result purely of market forces needs also to be taken into account. Public action, which invariably 
has  explicit  or  implicit,  direct  or  indirect  spatial  effects,  is  a  factor  too.  This  applies  to  both 
policies which have an overt spatial dimension – termed “spatially aware” – and those which do 
not – sometimes termed “spatially blind”. 

46  For  a  survey  of  the  literature  see  the  Report  Working  Paper  by  Farole,  T.,  Rodríguez-Pose,  A.  and 
Storper, M. (2009).  
47 See OECD (2009b). “Regions” refer here to the TL3 level adopted by the OECD (over 2300 units in 28 
countries) which largely corresponds to the Eurostat NUTS 3 level.  
48 See OECD (2006b). 
49  For  example,  OECD  (2006b)  argues  that  for  metro-regions  of  over  6  million  people  the  relationship 
between income and population size is negative. 
50  See  OECD  (2009b).  Metropolitan  regions  are  defined  by  the  OECD  on  the  basis  of  its  definition  of 
“predominantly  urban  regions”  (TL3  regions  with  less  than  15%  of  the  population  living  low  density 
areas) adjusted according to the size of urban centres. 
51  On  this  issue,  see  the  Report  Hearing  Paper  on  Growth,  in  particular  the  comments  by  Ash  Amin, 
Michael Storper and Philip McCann (from which the quotations in the text are taken). 

 18

 
                                                      
For  any  ongoing  agglomeration  –  i.e.  one  that  is  still  expanding  -  it  is  certainly  the  case  that 
considerable public policy decisions are responsible for providing the public goods and services 
that a growing population needs, such as the use of land; transport links and an internal transport 
network,  the  provision  and  servicing  of  industrial  and  commercial  sites;  education  and  health 
services, a police force and so on. Some of these decisions will be taken by the local authority, 
but  they  often  require  national  legislation,  financial  intervention  at  a  national  scale  and 
coordinated policies across the country as a whole. 

In  ongoing  agglomerations,  the  “hand  of  the  State”  is  generally  hidden  behind  seemingly 
“national”  policies  and  what  are  claimed  to  be  “natural  trends”.  National  policy  measures  are 
almost always taken with specific places in mind. An example is the set of policy measures that 
the recent World Bank Report on “Reshaping Economic Geography” defines as “spatially blind”, 
the institutional measures such as “regulations affecting the land, labour and international trade 
and social services as education, health and water and sanitation”52. Even ignoring the strong, 
context-dependent  effects  of  rules  on  labour  and  international  trade,  all  the  other  institutions 
defined  as  “blind”  not  only  have  effects  which  are  strongly  dependent  on  places53,  but  their 
design is always strongly tailored to places.  

Political  decisions,  with  an  intentional  spatial  effect,  on  whether  or  not  to  expand  or  contract 
services in particular areas, are taken simultaneously with private agents' decisions on whether or 
not  to  invest  capital  and  whether  or  not  to  move.  Public  and  private  decisions,  therefore,  go 
together  and  reinforce  each  other.  Moreover,  the  design  of  services  (education,  public  health 
water  supply  and  so  on)  tends  to  be  shaped  by  the  preferences  and  interests  of  the  people  and 
businesses whose influence on public choices is stronger. This is particularly evident in the case 
of regulation of land use and urban planning. The World Bank (2008) itself argues that “a city 
must satisfy the demands of its dominant or growing industries for both real estate and facilities” 
(p.  142).  High-rise  buildings,  land  for  warehouses,  pedestrian  areas,  metro  systems  –  the 
examples  considered  in  the  World  Bank  Report  –  relate  to  choices  made  as  part  of  public 
strategies which are designed for specific places and to respond to specific interests. 

The  spatial  concern  becomes  evident in agglomerations if the negative consequences of further 
agglomeration can no longer be prevented and national public action is called for to contain it54. 
It  is  also  evident  in  regions  where  a  process  of  agglomeration  is  not  at  work  and  public 
intervention is not disguised by a seemingly “natural” increase in population and GDP. 

The  strong  spatial  nature  and  effects  of  most  public  interventions  and  institutions  place  great 
responsibility on governments to decide whether or not to provide public goods and services and, 
if  so,  where.  In  principle,  governments  should  always  consider  alternatives,  assess  long-term 
returns and evaluate both the demands of the “dominant industries” and to what extent they are 
sustainable. However, the usually limited information on which to base choices, the difficulty of 
predicting  future  returns  and  the  existence  of  strong  private  interests  trying  to  influence  the 
decision-making process in their favour, makes any full and objective assessment of alternatives 
both  difficult  and  unlikely.  A  more  modest  but  feasible  approach  is  to  ensure  that  government 
decisions are at least transparent, verifiable and actually verified. The screen of spatial blindness 
tends  to  prevent  this  and  can  lead  to  painful  consequences.  It  restricts  information  on,  and  the 
public scrutiny of, decisions with strong spatial effects, leads to policy-makers being more easily 

52 See World Bank (2008), p. 22. 
53  This  point  is  actually  acknowledged  after  240  pages  of  the  Report  when  it  recognises  that  the  term 
“institutions (spatially blind policies) … is used here to categorize policies that are not explicitly designed 
with spatial consideration, but that have effects and outcomes that may vary across locations”. 
54 This is for example the case in Japan and Korea, as well as in the Netherlands where national policies 
have in recent decades switched back and forth between promoting and discouraging the development of 
the Randstad. See OECD (2005b). 

 19

 
                                                      
influenced by special interests55 and can have adverse cumulative effects on both efficiency and 
equity56.  

The  present  Report  argues  that  policies  which  make  clear  their  spatial  effects  and  ensure  that 
these are subject to public scrutiny are superior. This is the case for both urban and rural areas, 
for  agglomerations  and  lagging  regions.  A  place-based  development  approach  aimed  at 
increasing  efficiency  should  be  the  reference  model  for  these  policies.  But  what  exactly  is  a 
place-based  approach?  What  is  its  economic  rationale?  What  market,  and  government  failures, 
does it address and how? What are the risks of such an approach? 

The rationale for exogenous, spatially-aware public interventions  

The present Report defines efficiency as the achievement of full capacity or potential57, meaning 
the  value  of  output  that,  given  the  immobile  resources  of  a  place,  would  be  achieved  if  all  the 
economic  and  institutional  opportunities  were  exploited  and  every  feasible  agglomeration  or 
network  effect  was  at  work.  It,  therefore,  encompasses  both  static  and  dynamic  aspects.  Full 
capacity  is,  accordingly,  the  result  of  private  and  public  action  which  either  increases  the 
utilisation  of  current  capacity  at  a  given  point  in  time  (static  aspect)  or  expands  capacity  itself 
over  time  (dynamic  aspect)58.  In  consequence,  full  capacity  is  determined  not  by  given 
technological  conditions  but  through  the  interaction  of  economic  and  political  decisions  and 
institutions.  Secondly,  the  issue  of  the  long-term  sustainability  of  the  potential  of  a  place  is 
embodied  in  the  definition.  An  exogenous,  spatially-aware  public  intervention  aimed  at 
increasing  efficiency  in  a  given  place/region  can  be  defined  as  a  measure  implemented  by  an 
external body which has the objective of achieving fuller capacity utilisation of resources (mobile 
as well as immobile) than otherwise would have occurred. 

Exogenous  intervention  by  means  of  conditional  grants,  it  should  be  noted,  cannot  be  justified 
with the simple argument that some places are unable to raise enough revenue locally to promote 
development.  If  this  is  the  only  purpose,  the  appropriate  solution  is  financial  transfers  to  such 
places. Equalisation funds are used all over the world for this purpose and do not require active 
promotion  of  development  from  outside.  The  spatially-aware  conditional  grants,  which  place-

55  This  is  even  more  the  case  when  spatial-blindness  is  invoked  to  call  for  a  purely  passive  role  of  the 
public sector and there is no evaluation before interventions with spatial consequences are implemented. 
As an example of this,, see World Bank (2008): Box 4.6, which has the inviting title “Hong Kong, China: 
market  forces  led  the  way,  government  followed”,  and  which  explains  that  “The  government  contracted 
out urban redevelopment to a specialist organization dominated by private development interests”. In these 
circumstances,  efficiency  effects  are  subordinated  to  the  generally  unrealistic  assumption  of  “private 
development  interests”  possessing  both  perfect  information  and  being  benevolent,  i.e.  acting  in  the 
collective interest. Note that this “trust” in large concentrations of private interests taking the lead in public 
decisions and the belief that volatility can be assumed away are two of the main “intellectual errors” made 
by  large  parts  of  the  economic  profession,  as  has  been  pointed  out  with  regard  to  the  current  financial 
crisis: see for example Acemoglou, D. (2009). 
56 See below in the text, in particular note 58.  
57 This definition is an adaptation of the definition of Bourguignon, F., Ferreira, F.H.G. and Walton, M. 
(2007). 
58 The longer the time-span taken into account in the dynamic perspective, the more difficult it becomes to 
assess what the potential is and what effect current actions have on it. The more likely also it becomes that 
a trade-off arises between a short-term increase in capacity utilisation and a long-term sustainable rise in 
the  potential.  This  trade-off  is  relevant  in  terms  of  public  action  since  the  two  objectives generally have 
different  distributive  effects  and  are  thus  supported  by  different  groups  of  individuals:  the  irreversible 
effects often produced by either one or the other choice can make the use of compensatory mechanisms (by 
which  the  distributive  effects  are  neutralised  and  the  “best”  allocative  solution  is  chosen)  hard  or 
impossible  (the  argument  is  adapted  from  Acemoglu,  D.,  Johnson,  S.  and  Robinson,  J.A.  (2005)). 
Incompleteness of information and the existence of the trade-off further increase the need for public action 
to be verifiable and subject to strong public scrutiny. 

 20

 
                                                      
based  development  policies  are  about,  are  instead  motivated  by  three  distinct  (though 
interconnected) types of market or government failure: 

•  the economic institutions which a place needs are not put in place because they are contrary to 

the self interest of the local elite; 

•  the  formal  and  informal  economic  institutions  do  not  develop  because  of  strong  path-

dependency; 

•  there are many potential agglomerations and exogenous public action is an intrinsic part of the 
process  through  which  some  of  those  agglomerations  come  about:  since  the  State  has  very 
limited information, explicit spatial interventions, which increase verifiability, are likely to be 
more effective than “spatially blind” policies.  

First,  since  the  required  economic  institutions  may  intentionally  not  be  chosen  by  local  elite, 
exogenous public intervention can make a difference.  

As Douglass North writes, “institutions are not necessarily or even usually created to be socially 
efficient; rather they, or at least the formal rules, are created to serve the interests of those with 
bargaining  power  to  create  new  rules”59.  As  has  been  argued60,  the  political  power  to  choose 
economic institutions depends on the political institutions in place and the de facto distribution of 
power, which in turn depends on the distribution of resources. Elites which hold political power 
might not choose to put in place more efficient institutions if this is likely to reduce their share of 
resources61. A situation can then arise in which political and economic institutions reinforce each 
other, a vicious circle which can be broken only by an endogenous shift in the balance of power 
on  which  the  stability  of  political  institutions  rests  or  by  an  exogenous  intervention  aimed  at 
establishing more efficient economic institutions. 

This framework, which has been developed to analyse the linkage between growth and national 
economic institutions, can usefully be applied to “places”. Although local elites might not set the 
rules  for  representative  democracy,  they  are  responsible  for  how  the  local  democratic  process 
works.  Even  more,  they  tend  to  be  responsible  for  designing  and  running  many  of  the  local 
economic  institutions  which  influence  accessibility  from  outside,  the  use  of  land,  internal 
transport  systems  and  the  delivery  of  basic  services,  including  the  way  national  services 
(education, health and often security) are implemented locally. These local elites, for the reasons 
described above, can often choose the economic institutions that best suit their own interests, in 
doing  so,  acting  as  “rent-seekers”,  exploiting  their  power  to  extract  a  return  way  beyond  their 
contribution  to  value-added.  A  “trap”  can  be  created  in  these  cases  perpetuating  inappropriate 
institutions  (in  efficiency  terms)  and  this  can  occur  in  any  place  irrespective  of  its  stage  of 
development. 

As  compared  with  the  traditional  literature  on  fiscal  federalism,  the  neo-institutional  approach 
enables  the  (untenable)  hypothesis  of  benevolent  local  policy-makers  to  be  discarded. 
Accordingly,  it  suggests  a  role  for  external  policy-makers  to  upset  the  local  economic  and 
political  balance  and  to  promote  the  selection  of  more  efficient  economic  institutions.  External 
policy-makers do not need to be assumed benevolent. There is justification for them to select the 
appropriate institutions if their interest is far enough removed from the distributive effects at local 
level, and if it is linked more to achieving overall growth (as well as more tax revenue, reduced 
social tension or more legitimacy). 

59 See North, D. (1993). 
60 See Acemoglu, D., Johnson, S. and Robinson, J.A. (2005). 
61  This  is  especially  the  case  since  they  cannot  rely  on  being  compensated  for  their  loss.  Other  agents 
whose bargaining power is increased by the change cannot credibly commit themselves to later allow for 
the compensation to take place.  

 21

 
                                                      
Secondly,  the  weakness  of  both  formal  and  informal  institutions  can  perpetuate  itself  and, 
because of strong path-dependency, an exogenous public intervention is called for to bring about 
institutional change. 

It  is  widely  agreed  that  both  formal  and  informal  institutions  are  a  prerequisite  for  a  place  to 
make full use of its potential. Different concepts can help here: the agency of individuals or their 
capacity to act effectively in the pursuit of goals62; the beliefs of individuals63 in other agents or 
the  State  to  fulfil  their  commitments;  social  capital,  or  any  aspect  “of  social  structure  [which] 
facilitates  certain  actions  of  actors  within  the  structure”64;  trust  which  is  held  when  “the 
probability  that  [someone]  will  perform  an  action  that  is  beneficial  to  us  [is  attributed  a  value] 
high enough for us to consider engaging in some form of cooperation” with them65; institutional 
capacity,  or  the  capacity  of  public  and  private  local  institutions  to  govern  and  coordinate 
collective  decision-making66;  democratic  participation  in  decision  making,  as  a  condition  for 
local  choices  to  be  more  informed  and  more  in  line  with  people’s  preferences  and  to  allow 
citizens and collective bodies the freedom to experiment with solutions while exercising mutual 
monitoring67. All these institutional conditions tend to stimulate development by encouraging the 
involvement and cooperation of people, creating an incentive for them to pool knowledge and to 
develop collective projects.  

The  problem  with  all  these  prerequisites  is  that  they  do  not  arise  easily  and  are  highly  path-
dependent. Lack of agency tends to be perpetuated from one generation to the next. The same can 
be true of lack of trust, since in order “to protect children from costly mistakes, parents transmit 
conservative principles to them”68. It is also much harder to build effective institutional capacity 
if  the  capacity  is  inadequate  to  start  with.  The  same  is  the  case  for  democratic  participation  in 
decision- making. All these institutions are “carriers of history”69: the less a place has effective 
institutions, the less likely it is to have them in the future and to be able to exploit its productive 
potential. Once again, an exogenous intervention might be needed to trigger change. The purpose 
is obviously not to import institutions from outside, but to provide the pre-requisites for them to 
develop, to tilt the balance of costs and benefits for local actors to start building up agency, trust 
and  social  capital,  to  change  beliefs  and  to  experiment  with  institutions  and  democratic 
participation. As Amartya Sen (1999) puts it, what is called for is “a contribution to enhancing 
and guaranteeing the substantive freedoms of individuals, seen as active agents of change, rather 
than passive recipients of dispensed benefits”.  

This  second motivation for exogenous intervention applies more especially to places which are 
lagging-behind in their economic and social development where the “institutional trap” is more 
likely to occur. But in other places too, changes in the external context or in the place itself (such 
as  those  which  affect  its  comparative  advantage)  can  call  for  specific  institutions  which  were 
previously  not  present  or  for  changes  in  existing  institutions. An exogenous intervention might 
also  be  required  to  bring  about  “institutional  thickness”  across  places  or  cooperation  between 
them. Fuller utilisation of potential often requires cooperation between different places and these 
might not have the institutional conditions necessary for this to occur. 

Thirdly,  there  are  many  potential  spatial  distributions  of  economic  activity  (many  potential 
agglomerations).  Exogenous  public  action  –  whether  visible  and  intentional  or  not  –is  an 
intrinsic part of the cumulative causation process through which a particular spatial distribution 

62 See Sen, A. (1992). 
63 See North, D. (1990). 
64 See Coleman, J.S. (1988). 
65 See Gambetta, D. (1988). 
66 See Pyke, F., Becattini, G. and Segenberger, W. (1990), in particular the paper by Brusco, S. 
67 See Dorf, M.C. and Sabel C.F. (1998). See also Cohen, J. (1996). 
68  See  Guiso,  L.,  Sapienza,  P.  and  Zingales,  L.  (2008).  They  test  and  prove  empirically  this 
intergenerational transmission of miss-trust. 
69 See David, P.A. (1994). 

 22

 
                                                      
comes about. As the State has very limited information on whether one agglomeration pattern is 
better than another, it should follow a visible and verifiable approach to intervention wherever it 
takes place.  

Agglomerations  are  initiated  by  chance  and  by  natural  events  or  by  supra-local  public  action 
(geo-political decisions or wars) or inaction (failure to address poverty, social or ethnic tension or 
serious  economic  problems  elsewhere).  They  represent  one  of  the  many  possible  spatial 
distributions  of  economic  activity  that  could  come  about.  The  prevailing  distribution  is  not 
necessarily superior to other possible distributions in terms of efficiency. As has been shown, the 
existence  of  an  agglomeration  does  not  necessarily  mean  that  it  is  efficient70.  Furthermore, 
“whether  there  is  too  much  or  too  little  agglomeration  in  the  absence  of  regional  policy 
interventions is not clear”71. This means, given the lack of relevant information, that any public 
action with spatial effects needs to be cautious, whether promoting, mitigating or forestalling an 
agglomeration process.  

There is, therefore a need for public action to establish a process through which the knowledge 
and preferences of all those living in a place are elicited and aggregated and the decisions made 
and their effects submitted to scrutiny and public debate. This is what place-based developments 
policies are about and spatially-blind policies do not offer. 

Transparency and verifiability are also required of any public action with intended spatial effects 
because of the strong interdependencies between places. In particular:  

•  the  movement  of  labour  and  capital  away  from  places  with  untapped  resources  (often  rural 
areas  on  the  periphery)  to  thriving  agglomerations  (the  “centre”)  can  reduce  the  potential 
output of the former by more than they raise the potential output of the latter, in which case 
centripetal  forces  are  compromising  potential  long-term  objectives.  This  is  especially  true 
when the skills of those migrating are tied closely to the immobile resources of the area left 
behind  or  when  the  centre  has  already  reached,  or  is  approaching,  the  point  of  diminishing 
returns;  

•  mass movement away from rural areas can have negative consequences for the sustainability 

of overall growth, by depriving the land of the people taking care of it; 

•  the resulting impoverishment of rural areas can reduce the capacity of the overall development 
process to react to changes and shocks by depriving migrant labour of a place to return to and 
of alternative sources of income. The current financial crisis is providing worrying examples 
of what happens when the mantra of spatial blindness obscures open and democratic debate 
over effects of this kind72. 

70 See Ottaviano, G. and Thisse, J.F. (2004). 
71  See  Puga,  D.  (2002).  “The  fact  that  firms  and  workers  move  without  taking into  account  the  possible 
losses  for  those  left  behind  implies  –  the  argument  goes  -  there  may  be  too  much  agglomeration.”  The 
failure  to  take  into  account  the  long  term  losses  that  might  arise  from  agglomeration  –  due  to  either 
incomplete information or a choice not to do so – and the volatility of comparative advantages are other 
factors going in the same direction. “On the other hand” - as the quotation continues – “since when firms 
and  workers  move  they  do  not  fully  take  into  account  the  benefits  they  bring  for  other  firms  and  their 
impact on aggregate growth, there may be too little agglomeration”. 
72 A vivid example of this phenomenon is the mass movement of people in China from rural to urban areas. 
As the World Bank (2008) reports (p. 22 and 154-155), China, having gone back and forth in the last 50 
years “from facilitating to restricting labour mobility”, in the past few years has followed the ‘Reshaping 
Geography’ mantra: “encouraging mobility of people is the priority” (p. xxii). The effect of this choice can 
be  appreciated  in  the  light  of  the  current  financial  crisis.  As  The  Economist  (2009)  stated  (in  an  article 
entitled ‘A great migration into the unknown’), a large number of “Chinese workers from the countryside 
who are employed beyond their home areas will be out of a job this year” - a figure put in the article 15 
million  (10%  of  the  total  concerned)  and  at  20  million  the  following  week.  “Many,  [the  officials]  hope, 

 23

 
                                                      
The  uncertainty  about  whether  a  particular  pattern  of  agglomeration  or  spatial  distribution  of 
economic activity is better or worse than any other must also be taken into account when supra-
local  public  action  is  advocated  by,  or  for,  peripheral  areas.  There  are  risks  in  any  attempt  to 
“balance”  the  spatial  distribution  of  economic  activity  by  investing  in  the  periphery.  The 
supposed “untapped potential” of the periphery might well turn out not to exist, as is often the 
case.  Policy-makers  might  fail  to  design  or  implement  the  means  of  unlocking  this  potential, 
which is not unlikely given how little is known about what works and does not work as regards 
public  intervention.  The  intervention  could  end  up  constraining  an  efficient  agglomeration 
process while failing to achieve results in the periphery73. There are also risks to public decisions 
concerning regions hit by exogenous shocks. In the absence of viable opportunities, or because of 
policy failure, public intervention might end up “prolonging the agony” of a region and delaying 
its  recovery  by  hampering  the  process  of  creative  destruction,  which  involves  abandoning  old 
technologies and opening the way for new ones.  

Inaction  is,  of  course,  not  a  solution  either  for  agglomerations  or  other  regions.  A  failure  to 
intervene  could  well  lead  to  declining  efficiency.  The  centre  might  be  constrained  in  its 
development,  the  potential  of  the  periphery  might  be  wasted  and  a  region  falling  behind  might 
lose its knowledge base and even see the erosion of its formal and informal institutions.  

In  sum,  exogenous  intervention  (or  non-intervention)  is,  therefore,  part  of  the  process  through 
which agglomerations come about and the other places develop. As policy-makers have limited 
knowledge  on  how  and  where  to  intervene,  the  spatial  effects  of  all  national  and  supranational 
policies should be made explicit. Because there are strong interdependencies between places, the 
spatial consequences of exogenous intervention need to be assessed and compared in the context 
of  a  comprehensive  place-based  policy  covering  all  areas.  An  explicit  and  visible  spatial 
awareness  of  exogenous  policy  intervention  can  then  become  a  guarantee  of  accountability,  an 
incentive for more care to be taken in the design of policy and for initiating a learning process for 
improving the information on which public action is based.  

The  three  economic  grounds  together  provide  a  strong  case  for  efficiency-enhancing,  spatially-
aware, pro-active exogenous intervention. They apply to all types of area, both urban and rural. 
They  are  particularly  relevant  for  lagging  regions  which  are  especially  prone  to  be  stuck  in 
“underutilisation traps” (or “poverty traps”74), since all three can be at work: institutions are often 
lacking, the power of elites tends to be greater (due to weaker democratic participation) and there 
is in many cases an outflow of capital and labour.  

There  is,  however,  a  special  case,  a  particular  type  of  area  for  which  an  efficiency-enhancing 
exogenous  intervention  can  make  economic  sense  but  which  is  not  aimed  at  increasing  the 
capacity utilisation of the region: depopulating regions of collective interest.  

There are two features which characterise this type of area. First, they have no unused potential, 
because there are either no comparative advantages or because a deliberate choice has been made 

will  scatter  across  the  countryside”,  but  “in  recent  years  …  millions  of  farmers  have  lost  their  land  to 
relentless urban expansion (local governments have profited massively from selling appropriated rural land 
to  developers)”,  while  rural  healthcare  schemes  were  being  “rolled  out  across  the  country”;  therefore, 
“millions  of  jobless  migrants  may  well  remain  in  cities,  if  not  protesting  then  at  least  pushing  up  crime 
rates”. What will actually happen is hard to predict, but one thing is already sure: “President Hu Jintao has 
... announced big increases this year in agricultural subsidies”. Failure to acknowledge in time the spatial 
effects of intervention and the screen of spatial-blindness can not only have negative social consequences, 
but they can reduce flexibility and ultimately give rise to anti-market policies.  
73  See  for  example  the  case  of  French  spatial  planning  policies  of  the  1960s  and  1970s:  the  OECD 
Territorial Review of France argues that the relocation of public research centres outside the Paris metro-
region, pursued in the name of balanced development, is partly responsible for the region falling behind its 
main EU competitors in innovative capacity. 
74 For a survey, see Azariadis, C. and Stachurski, J. (2005). 

 24

 
                                                                                                                                                              
not to exploit the potential advantages which exist in order to preserve “irreplaceable resources” 
or  diversity.  This  might  be  the  case,  for  example,  for  remote  islands  or  mountainous  areas  or 
those  with  extreme  natural  conditions.  Second,  there  is  national  or  international  interest  in 
ensuring the economic and social viability of the local community there as a way of preserving 
the environment. In such special cases, it is justifiable for the national or international community 
as a whole to compensate people for living in the area through paying them subsidies. This can be 
efficiency-enhancing when it increases overall well-being.  

Intervention focussed on integrated bundles of public goods and services 

The rationale for exogenous intervention suggests that it should not focus on financial transfers to 
firms and individuals but rather on the provision through conditional grants of integrated bundles 
of  public  goods  and  services.  These  comprise  goods  and  services  traditionally  provided  by  the 
public  sector  due  to  market  failure,  such  as  law  and  order,  education,  training,  basic  research, 
water  supply  and  waste  disposal,  business  support,  transport  and  healthcare.  The  peculiarity  of 
the  place-based  approach  is  that  they  are  provided  in  (integrated)  bundles  as  a  result  of  an 
exogenous intervention. There are three justifications for this. 

First, raising the quality of the services concerned can directly affect the productivity of business 
investment  and  the  quality  of  life  of  those  living  in  an  area,  which  can  influence  inflows  and 
outflows  of  skilled  labour  and  innovators.  To  be  most  effective,  however,  the  provision  of 
different  kinds  of  goods  and  services  needs  to  integrated  since  there are strong externalities, in 
the  sense  that  the  effects  of  one  service  depends  on  other  services  being  provided.  The 
effectiveness  of  an  improvement  in  the  business  environment,  for  example,  depends  on  the 
education  and  training  programmes  available  as  well  as  the  health  and  social  services;  the 
effectiveness  of  an  urban  renewal  project  depends  on  the  transport  system,  business  support 
services and so on. Exogenous intervention should, therefore, be aimed at providing bundles of 
public goods and services.  

Secondly, in lagging regions especially, an essential part of the exogenous intervention consists 
of  building  or  strengthening  both  formal  and  informal  institutions,  which  has  more  chance  of 
involving local actors and of changing expectations if it is clearly being undertaken with a view 
to improving general well-being. The process of improving public goods and services in a place 
creates the context for changing institutions and encourages the commitment of people necessary 
to do this. The provision of public goods and services reduces uncertainty and helps to provide a 
focal point around which coordination and cooperation are more likely to take place75. 

Thirdly,  public  goods  and  services  can  promote  entrepreneurship  and  innovation  by  providing 
“real  services”  to  small  firms  –  by  improving  the  business  environment  through  facilitating 
access to external markets, managerial training, ensuring technical standards and access to credit 
and so on. Promoting research in places where it is already close to the technological frontier and 
adapting the knowledge base to new technologies in other places can also be a strategy with high 
returns. 

These  justifications  lead  on  to  the  last  question,  which  is  why  these  interventions  should  be 
place-based. 

The rationale for place-based interventions 

In the international debate on growth strategies and public governance, there has been a growing 
recognition that “one size does not fit all”. Economic institutions need to be designed and shaped, 
on the basis of general principles, to suit the local context and to embody local knowledge. 

75 See Seravalli, G. (2006). 

 25

 
                                                      
Given  the  main  functions  that  institutions  need  to  perform,  it  has  been  observed  that  the  “first 
order  economic  principles  do  not  map  onto  unique  institutional  arrangements”,  that  each 
objective  “can  be  achieved  in  a  large  number  of  different  ways”  and  that  “the  art  of  reform 
consists  in  selecting  appropriately  from  a  potentially  infinite  menu  of  institutional  designs”76. 
Local  knowledge  is  necessary  to  determine  the  institutions  for  a  particular  place.  Since 
institutions  capable  of  supporting  a  “healthy,  sustainable  market-based  system”  are  “highly 
specific to local conditions” and “contain a high degree of tacitness” (i.e. much of the knowledge 
they  require  cannot  be  transferred  as  a  blueprint),  local  knowledge  needs  to  be  exploited  and 
“participatory  political  institutions  [can  be  thought  of]  as  meta-institutions  that  elicit  and 
aggregate local knowledge and thereby help build better institutions”77.  

A similar point was made by the Growth Report prepared in 2008 by a Commission of policy-
makers  and  academics,  which  reviewed  the  role  of  government  in  13  post-war,  fast-growing 
developing  economies.  Among  a  range  of  prescriptions78,  the  Report  warned  not  to  “resist  the 
market forces that pulled people into the urban areas”, and stressed the need for local capacity to 
promote  “a  process  of  self-discovery”  to  allow  local  economies  to  make  the  most  of  their 
comparative advantages.  

In practice, the previous references use the term “local” to mean “national”. The same reasoning, 
however,  applies  to  sub-national  economic  institutions.  Institutions  need  to  be  tailored  to  the 
context where they are providing largely local services (water, waste disposal, local transport and 
so  on)  or  higher  level  services  (such  as  education,  research  and  innovation,  law  and  order)  the 
effectiveness of which, it is now understood, strongly depends on them being adapted to places. 
This  applies  still  more  to  those  formal  and  informal  institutions  that  are  a  prerequisite  for 
development: there is no general recommendation for building trust or social capital, which needs 
to be designed place by place. But the information which is necessary for such adaptation is not 
held  by  the  public  authorities  exogenously  intervening,  whose  know-how  concerns  general 
principles and the design of system for extracting local knowledge. Instead it is local actors who 
have the information needed for this and on the preferences that should guide the development of 
institutions. 

This  is  where  the  place-based  concept  allows  a  step  forward  to  be  taken  from  traditional 
development policies. It does not assume that the exogenous State knows better. Instead, it allows 
for  information  being  incomplete  and  designs  a  method  for  reducing  the  degree  of 
incompleteness. It requires local knowledge to be “elicited and aggregated” and then combined 
with global knowledge (the routines and engineering know-how embodied in the provision of any 
public good or service).  

However,  in  order  to  get  local  actors  to  reveal  information  and  their  preferences  (regardless  of 
whether they are members of the elite or not), the exogenous intervention must encourage their 
active involvement. This means making it convenient and rewarding for them to make the effort, 
to take the risks associated with revealing their views; to cooperate among themselves; to develop 
new  beliefs,  build  trust  and  to  encourage  participation  in  the  democratic  process.  If  this  is 
successful,  it  can  facilitate  a  positive  combination  of  public  and  private  investment.  For  supra-
local policy-makers, the challenge is to achieve this outcome while retaining a role of guidance, 
assistance and monitoring. By following a common approach in different places, they can make it 
possible to compare experiences and initiate a process of institutional learning. 

76 See Rodrik, D. (2005). 
77 See Rodrik, D. (1999). 
78 In particular: communicating a “vision of the future and a strategy for getting there”; making long-time 
commitments; facing up to the “economic upheaval that growth can entail”; “be inclusive, leaving citizens 
confident that they and their children will share in the benefits”; implementing impressive rates of public 
investments in infrastructure, education and health. See Growth Report (2008). 

 26

 
                                                      
A  further  reason  for  a  place-based  approach  is  that  the  strong  interdependencies  which  exist 
between different public goods and services can only be fully exploited at a local level through 
the active involvement of local actors and their knowledge. The integration of public goods and 
services is a task for to be attempted place by place. 

Policy risks 

In  sum,  it  is  evident  that  there  is  a  strong  case  for  place-based  development  policies  aimed  at 
increasing efficiency. Of course, as noted above, such policies are difficult and risky, but they are 
less  risky  than  policies  whose  spatial  effects  are  not  made  explicit  –  than  “spatially-blind” 
policies  generally  advocated  by  elites  who  do  not  have  to  account  for  their  efficiency  effects. 
Place-based policies are also less risky than policies simply involving the financial redistribution 
of resources from richer to poorer regions which often end up benefiting existing “rentiers”.  

Nevertheless, place-based policies tend to involve higher management costs than other policies. 
These can be justified only if they deliver better results, which may not occur if interventions are 
not  accompanied  by  effective  means  for  mobilising  local  actors,  eliciting  knowledge  and 
preferences,  and  obtaining  more  complete  information.  Moreover,  they  too  can  end  up  being 
captured by local elites. 

In this case, several negative effects can result79: 

•  investment being favoured in activities which are inappropriate and are not in line with either 

actual or potential comparative advantage80;  

•  regions  being  sheltered  from  markets,  creating  a  dependency  culture,  where  in  the  name  of 
generating  “structural  change”,  regions  come  to  rely  on  transfers,  which  in  the  medium-to-
long-term can mean disparities bring widened;  

•  responsibility  for  guiding  and  monitoring  being  abdicated  in  the  name  of  subsidiarity, 
entrenching existing elites by propping up ineffective institutions and fuelling rent-extracting 
machines; 

•  a  failure  to  develop,  at  local  level,  the  right  balance  between  promoting  “openness  to  new 
ideas and agents” and giving enough certainty to businesses and individuals who commit to 
investing in the process; 

•  a failure of coordination, with under-provision of some public goods and services and over-

provision of others81; 

•  labour mobility being impeded, agglomerations being prevented and overall efficiency being 

reduced. 

Note that some of these negative effects are the same as those underlined in current criticisms of 
cohesion  policy82  and  brought  to  light  by  the  World  Bank  (2008).  The  difference  is  that  in  the 

79 For some of these risks, see the Report Working Paper Farole, T., Rodríguez-Pose, A. and Storper, M. 
(2009).  
80  “This  is  particularly  likely  where  regions  adopt  policies  that  are  not  based  on  localised  sources  of 
comparative advantages and/or where they attempt to replicate wholesale that which has been successful in 
other  regions  (e.g.  the  plethora  of  would-be  “Silicon  Valleys”)”,  as  Farole,  T.,  Rodríguez-Pose,  A.  and 
Storper, M. (2009) put it. 
81  Lack  of  coordination  across  places  will  cause  an  under-provision  of  public  goods  and  services  with 
strong  externalities  outside  the  place,  while  it  will  cause  over-provision  if  each  place  does  not  take  into 
account  the  effects  of  other  places  providing  similar  services  (e.g.  multiplication  of  projects  for  the 
promotion of amenities for a limited tourist market, etc.). 

 27

 
                                                      
World Bank report these effects are seen as the consequence of spatially-aware policies, while the 
present  report  regards  them  as  the  consequence  of  the  bad  implementation  of  any  policy  with 
spatial  effects  (which,  as  argued  here,  includes  most  policies,  whether  they  are  labelled  as 
spatially aware or not). 

This highlights how relevant implementation is  for an efficiency-enhancing place-based policy. 
The  issue  of  governance,  therefore,  comes  to  the  fore  and  this  is  considered  in  section  I.2.3 
below, which sets out the means for assessing the implementation of cohesion policy. 

I.2.2.  The equity (social inclusion) objective 

It is uncontested that achieving an equitable distribution of well-being is one of the objectives of 
governments. There is also increasing agreement that development is about both efficiency and 
equity, and that public action, at whatever stage of development of an economy, should address 
social problems83.  

In Europe, pressure has mounted for greater attention to be given to social issues at EU level84. A 
concern is that high and rising inequality, and increasing fear of globalisation, could jeopardise 
economic integration (market-compensating motivation). Another is that national welfare systems 
are  increasingly  constrained  by  EU  budgetary  rules  (political-economy  motivation).  A  third  is 
that the EU’s existence is based on the expectation that citizens should enjoy equal rights (federal 
motivation). The failure to reduce inequality in several European countries, and its rise in others, 
are signs of the extent of the problem85. 

The  question  relevant  for  this  Report  is  not  “whether”  but  rather  “how”  governments  should 
pursue equity objectives. In particular, the issue is whether there is a rationale for inequality to be 
tackled  by  a  place-based  development  policy  rather  than  by  financial  transfers  to  people 
independently of where they live. Before addressing this question, it is first necessary to clarify 
the concept of inequality and to define the policy objective86. 

Multidimensionality and social inclusion 

There  is widespread agreement that no single dimension can capture a person’s well-being and 
the degree of inequality.  

A  life  worth  living,  including  the  opportunity  both  to  achieve  what  an  individual  considers 
relevant and to widen her or his set of options, embraces labour skills, health, education, housing, 
security, income, working conditions, self-respect, a role in decision-making and so on. Income is 
a  relevant  component  of  these  dimensions  but  it  does  not  reflect  them  all,  as  empirical  data 
confirm87. Income is one factor in achieving well-being, though it cannot achieve many aspects 

82 See for example Guido Tabellini’s comments in the Report Hearing Paper on Growth. 
83  As  the  2008  Growth  Report  put  it:  “the  economy’s  progress  maybe  jeopardised  by  divisive  politics, 
protests, and even violent conflict. Again if the ethical case [for a commitment to equality of opportunity] 
does not persuade, the pragmatic one should”. A similar concern for the US has been repeatedly expressed 
in recent years by The Economist with reference to the extraordinary increase in the inequality of income 
in the upper tail of the distribution. It will be argued below that an efficiency motivation can, however, a 
policy for equity. 
84 See the Report Hearing Paper on Social Inclusion. 
85 See Atkinson, A.B. (2008a), Brandolini, A. and Smeeding, T.M. (2009). 
86 For the following, see also the Report Working Paper by Barca, F. (2009a). 
87 The relevance of looking at multidimensional features rather than only at income in measuring inequality 
can  be  appreciated  by  examining  the  results  of  the  First  European  Quality  of  Life  Survey.  Income 
deprivation turns out to predict quite well the ranking of people according to a composite index of several 
forms  of  deprivation,  at  least  if  EU  countries  are  grouped  by  income  and  individuals  are  grouped  into 
quartiles. But it turns out that the countries would be grouped differently if income is ignored and other 
dimensions are used: in particular, Spain, Malta and Cyprus would be included in a higher group, Greece 

 28

 
                                                                                                                                                              
of  well-being  and,  accordingly,  cannot  be  seen  as  an  end  in  itself.  Amartya  Sen’s  capability 
approach  makes  clear  that  the  capacity  of  any  individual  to  convert  a  given  amount  of  any 
“commodity”,  including  money,  into  achievements  that  are  relevant  for  their  life  depends  on  a 
combination of (social and physical) circumstances and on access to other “commodities” often 
produced  by  policy.  Indeed,  several  dimensions  of  well-being  strongly  depend  on  public 
institutions  performing  essential  tasks  and  provide  public  goods  and  services.  These  different 
dimensions are also interdependent in terms of their effect on well being88.  

This  multidimensional  perspective  is  gaining  increasing  acceptance,  as  documented  by  the 
findings  of  the  OECD  mind-opening  “Global  project  to  measure  the  progress  of  societies”89.  It 
has long been adopted by the European Union in promoting, through the Social Protection and 
Social  Inclusion  Process,  the  commitment  and  cooperation  of  Member  States  to  reducing 
inequality90.  This  political  and  methodological  debate  has  utilised  the  concept  of  “social 
inclusion”,  which  includes  access  for  all  citizens  to  basic  resources,  social  services,  the  labour 
market  and  the  rights  needed  “to  participate  fully  in  economic,  social  and  cultural  life  and  to 
enjoy a standard of living and well-being that is considered normal in the society in which they 
live”91.  Together  with  the  multidimensional  approach,  this  concept  also  embodies  both  a 
threshold and an interpersonal notion of inequality and focuses strongly on the process through 
which greater equality is pursued.  

Building on this perspective, the academic debate92 and various international policy Reports93, it 
is  possible  to  develop  an  operational  definition  of  social  inclusion.  This  can  be  defined  as  the 

and  Portugal  in  a  lower  one,  closer  to  Romania.  Moreover,  for  some  dimensions  (particularly  those 
affected  by  the  provision  of  public  services),  the  ranking  of  countries  would  be  radically  different  from 
that suggested by income.  
88 As an example, it is worth considering three dimensions which are relevant, say, for a migrant worker: 
services or rules for access to the labour market; level of competence; and social norms affecting worker 
“acceptance”.  Concentration  on  any  one  of  these  dimension  could  be  misleading.  Observing  or 
guaranteeing  fair  labour  rules  might  not  avoid  the  other  two  factors  bringing  about  serious  inequalities. 
The provision of income transfers as a compensation for lack of work might, on the other hand, produce 
very different results, even increasing inequalities, if the other two factors strongly influence the capacity 
to use those financial resources appropriately. 
89  See  the  website  www.OECD.org/progress.  See  also  Giovannini,  E.,  Hall,  J.  and  Mira  d’Ercole,  M. 
(2007).  In  June  2007,  at  the  Istanbul  World  Forum,  the  European  Commission,  the  OECD,  the 
Organisation of the Islamic Conference, the United Nations, the United Nation Development Programme, 
and the World Bank signed an “Istanbul declaration” observing that “an emerging consensus on the need 
to undertake the measurement of societal progress in every country going beyond conventional measures” 
and  urging  “statistical  offices,  public  and  private  organisations  and  academic  experts  to  work  alongside 
representatives of their communities to produce high quality facts-based information that can be used in all 
of  society  to  form  a  shared  view  of  societal  well-being  and  its  evolution  over  time”.  See  also  the 
documents  presented  at  the  conference  co-organised  with  the  EU  Commission  and  Parliament,  in 
November  2007,  “Measuring  Progress,  True  Wealth,  and  the  Well-being  of  Nations”.  The  Commission 
President  Manuel  Barroso  remarked  how  unsuited  GDP  is  to  account  for  climate  change  and  the 
environment, while Commissioner Joacquìn Almunia observed that “… [GDP] should not be considered as 
a benchmark of the overall progress of a society. … There is a clear need to find measures that go beyond 
GDP.” 
90 On this, see Marlier, E., Atkinson, A.B., Cantillon, B. and Nolan, B. (2007). 
91 See in particular the definition of social inclusion provided in the 2004 Joint Report on Social Inclusion 
(p. 10). 
92 See the Report Working Paper by Omtzigt, D.J. (2009).  
93 Together with the definitions suggested in the 2004 Joint Report on social inclusion, see in particular: 
Marlier et al (2007), the policy-oriented volume developed out of the 2005 Report on social inclusion; a 
Report on “social cohesion” prepared for the Council of Europe (2007); a model developed in the context 
of  the  World  Bank  reporting  activity  in  order  to  define  the  concepts  of  “equity”  and  of  “equitable 
development  policy“;  an  independent  Review  (Fairness  and  Freedom:  the  Final  Report  of  the  Equalities 
Review,  2007),  commissioned  by  the  UK  Government  into  the  causes  of  persistent  inequality  in  British 
society, which draws on Amartya Sen’s capability approach. 

 29

 
                                                                                                                                                              
extent  to  which,  with  reference  to  multidimensional outcomes, all individuals (and groups) can 
enjoy  essential  standards  and  the  disparities  between  individuals  (and  groups)  are  socially 
acceptable, the process through which these results are achieved being participatory and fair. 

This definition captures both a threshold and an interpersonal concept of inequality: a threshold 
concept,  where  the  achievement  of  society  consists  of  guaranteeing  everyone  some  essential 
standards,  which  depend  on  (evolving)  social  preferences  and  attitudes94;  an  interpersonal 
concept,  where  the  achievement  of  society  consists  of  ensuring  that  disparities  between 
individuals (or groups) are socially acceptable. The two concepts are complementary but distinct. 
When disparities are reduced, the proportion of people falling under the threshold could increase 
and,  conversely;  when  the  essential  standard  is  achieved  by  a  growing  proportion  of  people, 
disparities could increase.  

The  reference  to  “a  participatory  and  fair  process”  captures  the  idea  that  both  the  dimensions 
and  the  thresholds  used  in  defining  social  inclusion  must  be  established  through  a  democratic 
process, in which everyone is given a chance to form an expectation and to voice it, information 
is  exchanged,  public  scrutiny  and  criticism  take  place;  and  a  consensus  emerges  on  which 
dimensions are relevant and what is “essential”95. This is the condition for making local choices 
more informed and in line with people’s preferences and for allowing citizens and collective local 
actors  the  freedom  to  experiment  with  solutions  while  exercising  mutual  monitoring96. 
Multidimensional outcomes should identify people’s substantive opportunity to live according to 
their  values  and  choices  and  to  overcome  their  circumstances.  The  reference  to  circumstances 
underlines that social inclusion policies should focus so far as possible on those factors that are 
outside  the  control  of  the  individual97.  These  include  both  personal  characteristics  inherited  or 
acquired  through  life  (gender,  physical  traits,  social  background,  etc)  as  well  as  contextual 
factors, including the functioning of public institutions, which can affect everyone, or particular 
groups, sharing certain features (religion, culture, outlook, etc). 

On  this  basis,  a  “place-based  policy aimed at social inclusion” can be defined as98: a territorial 
strategy for improving social inclusion, in its various dimensions, through the provision of public 
goods and services, by guaranteeing socially agreed essential standards to all and by improving 
the well-being of the least advantaged.  

What is the economic rationale for such a strategy? Why is an exogenous intervention in a place 
needed in order to promote social inclusion? Why, if an exogenous intervention occurs, should it 
be  centred  on  public  goods  and  services?  And  why  should  the  adaption and implementation of 
the policy be left to the local area?  

94 The idea that individual deprivation should be defined with reference to a threshold determined on the 
basis  of  what  is  “customary  or  at  least  encouraged  and  approved  in  the  societies  in  which  [individuals] 
belong” dates back to the 1960s and later to Townsend (see Townsend, P. (1979)). See also Omtzigt, D.J. 
(2009). 
95  See Sen, A. (1999). 
96 See Cohen, J. (1996); Dorf, M.C. and Sabel, C.F. (1998); Rawls, J. (1999). 
97 See Bourguignon et al (2007). This emphasis corresponds to the idea that those differences in outcome 
and opportunities among people that depend on their effort should not be a primary public concern. It also 
springs from awareness of the negative effect that addressing differences due to efforts could have on the 
efforts  that  people  make  themselves,  since  their    incentive  to  address  their  condition  through  personal 
effort might be reduced if they know that a collective/public effort would be made anyway to achieve the 
same result. Policy-making must be aware of this tension and address it, but it should not expect to solve it 
easily. The features of a person’s life which are “independent of choice” at any given moment include not 
only  those  which  they  inherited  from  the  previous  generation  but  also  those  which  were  the  result  of 
irreversible choices and efforts the person made during their life, while the same effort can produce very 
different circumstances according to external, non-controllable factors. 
98 On the ordering of the threshold and interpersonal objectives and on the focus on the well-being of the 
“least advantaged”, see again Bourguignon et al (2007). 

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The rationale for exogenous spatially-aware public interventions … 

In  general,  as  for  efficiency,  an  exogenous  intervention  aimed  at  improving  social  inclusion  is 
warranted if a situation of “inadequate”99 social inclusion (either in terms of the number of people 
below  a  threshold  or  in  terms  of  interpersonal  disparities)  is  persistent  because  economic  and 
social forces are not able to change it. In other words, there is a “social exclusion trap”100, where 
social  exclusion  is  defined  as  the  converse  of  social  inclusion101.  There  four  main  reasons  why 
such a trap might arise.  

•  The  first  is  the  same  as  for  an  under-utilisation  trap:  the  strong  path-dependency  that 
characterises formal and informal institutions, which can explain why a whole place or region 
fails to develop, socially excluding most of its citizens:  

The  other  three  can  produce  persistent  inequalities  within  a  place  while  the  place  as  a  whole 
might be thriving: 

•  Circumstances are transmitted inter-temporally from one generation to the next and they tend 

to reproduce the same distribution of opportunities or lack of them.  

•  Outcomes  depend  on  past  outcomes,  so  that  individual  efforts  are  not  independent  of  what 
happened  in  the  past  and,  therefore,  past  outcomes  tend  to  be  perpetuated102.  This  effect  is 
particularly strong when the repeated failure to achieve results by a group leads it to develop a 
self-deprecating belief.  

•  Third, policy and institutions can themselves depend on past outcomes. As noted above, the 
political power to choose economic institutions depends on the political institutions in place 
and  the  allocation  of  “de  facto  power”,  which,  in  turn,  depends  on  the  distribution  of 
resources.  Elites  which  hold  political  power  tend  not  to  select  institutions  appropriate  for 
economic  efficiency  when  this  would  reduce  their  share  of  resources.  Instead,  they  tend  to 
make  policy  choices  which  maintain  or  increase  their  share.  By  so  doing,  they  initiate  a 
process  through  which  political  and  economic  institutions  reinforce  each  other  and 
inequalities are perpetuated (and which, as noted above, might also produce inefficiency). It is 
equally likely to lead to the provision of public goods and services being distorted103. 

99  “Inadequate”  is  obviously  a  social  concept  depending  on  the  social  preferences  and  attitudes  of  the 
society which change over time. 
100 This definition and some of the motivations again closely follow those suggested by Bourguignon, F., 
Ferreira, F.H.G. and Walton, M. (2007), for the one-dimensional concept of equity. 
101  On the conditions for this to be appropriate, see the Report Working Paper by Barca, F. (2009a). 
102 For example, being born the daughter or son of the manager of a particular firm enables them to acquire 
knowledge  of  how  to  manage  the  firm;  all  other  things  being  equal,  which  will  make  them  more 
“indispensable” (in the sense of Oliver Hart’s theory of the firm) than others, make it efficient for the them 
to be in control of the firm, which will create an incentive for more effort, which in turn will produce a 
higher outcome. 
103  A  particularly  revealing  example  is  offered  by  the  development  of  Istanbul.  As  clearly  set  out  by 
Caglar, K. (2005), in the first phase of the very rapid development of the city and of the large inflows of 
migrants, social inclusion came about as the result of a very high demand for labour, the accumulation of 
capital  that  immigrants  could  achieve  by  appropriating  land  and  de  facto  becoming  owners  of  their 
dwellings,  and  the  influence  they  exerted  through  their  networks  on  the  decisions  made  by  the  political 
elite  concerning  the  provision  of  public  goods  and  services  (populist  developmentalism).  Since  the  mid-
1980s, there has been a change in the composition of migrants, from those coming from areas with which 
Istanbul had traditionally traded to those from eastern and south-eastern provinces hit by a severe crisis, 
where often there was “no place to go back”. In this context, three changes took place: demand for labour 
became more volatile; massive inflows of capital shifted the behaviour of the elites from allowing “illegal 
appropriation” and the ex-post provision of services to planning in partnership with the land-owners, and 
putting a halt to the accumulation of capital by immigrants; the informal networks did not survive the rapid 

 31

 
                                                      
These  three  factors  tend  to  complement  and  compound  each  other.  In  particular,  reversing  the 
influence of intergenerational transmission and of past outcomes would require a strong political 
willingness to do so that the third factor tends to makes unlikely. 

Whatever  the  reasons  for  the  social  exclusion  trap,  overcoming  it  requires  a  move  away  from 
endogenously  determined  choices.  This  change  can  sometimes  take  place  because  “political 
equilibria shift sufficiently to bring in governments – or reform groups within governments – that 
want  to  pursue”104  change.  Alternatively,  change  requires  an  “exogenous  intervention”  by  an 
external institution with enough power, capacity and credibility to promote internal action. 

Interventions focussed on integrated bundles of public goods and services 

There are two main reasons why a spatially focused social inclusion policy should concentrate on 
the provision of integrated bundles of public goods and services.  

First, several dimensions of well-being are largely determined by the success or failure of public 
institutions  to  provide  public  goods  and  services.  Accordingly,  exogenous  effort  should  be 
concentrated on the goods and services concerned: healthcare, education, housing, law and order, 
working  conditions,  transport  services  and  so  on.  It  should  also  be  aimed  not  only  at  making 
these  services  available  but  at  ensuring  that  people  are  able  to  access  them  and  so  can  benefit 
from their provision: learning from education, availing themselves from the public transport; etc. 
In order to achieve this result, the active participation of the potential beneficiaries is necessary. 
By  aiming  at  bringing  all  individuals  above  a  given  threshold,  this  approach  also  avoids  the 
limitations  of  policies  targeted  at  the  “really  needy”,  and  the  recreation  of  a  section  of  society 
labelled  “poor”.  But  it  leaves  open  the  question  of  how  to  choose  the  relevant  dimensions  and 
how to set thresholds (see below).  

The second reason is that, as in the case of exogenous efficiency-oriented interventions, informal 
and  formal  institutions  –  the  deficiencies  of  which  might  give  rise  to  a  social  exclusion  trap  - 
have more chance of being built or strengthened if tangible results in terms of public good and 
services are being delivered. These results become the means through which the ultimate goal of 
institution building is achieved. 

The rationale for a place-based policy 

An exogenous social inclusion policy must be place-based because the nature of social exclusion 
and the effectiveness of any intervention to combat this are influenced by the “place” in which a 
person  happens  to  leave.  In  the  inequality  literature,  this  fact  is  generally  recognised  only  as 
regards  the  immediate  group  within  which  an  individual  lives  -  the  household.  However,  the 
circumstances  and  well-being  of  individuals  are  also  influenced  by  the  wider  territorial 
community  with  which  they  interact,  including  its  natural  and  cultural  resources  and  public 
institutions. 

In  the  first  place,  the  measurement  of  social  inclusion  needs  to  take  “place”  into  account. 
Although  the  well-being  of  individuals  is  influenced  by  a  range  of  factors  –  their  social 
background, the tacit or formal knowledge they have acquired, their gender and the socio-cultural 
group to which they belong – the nature of this influence will depend on the place they live and 
the community with which they interact. The extent to which individuals are satisfied with their 
innate or acquired characteristics is also often place-dependent, as are their preferences – indeed, 
as noted above, they partly define what a “place” is. Equally, account must be taken of the fact 
that,  for  most  people,  the  returns  they  obtain  from  their  efforts  depend  on  their  circumstances 

urban development. This has resulted in a very strong increase in social exclusion, captured by an increase 
in the Gini coefficient between 1984 and 1994 from 0.43 to 0.58. 
104  See Bourguignon et al (2007). 

 32

 
                                                                                                                                                              
which in turn are related to the place they live. Their skills, therefore, are often closely linked to 
other people or the resources with which they work 

Secondly,  the  two  institutional  causes  of  social  inclusion  traps  are  very  strongly  context-
dependent.  Decisions  on  the  provision  of  key  public  goods  and  services  that  influence  social 
inclusion tend to be made by local elites, which means that social deprivation is likely to show a 
marked  spatial  pattern,  while  informal  and  formal  institutions  are  also  strongly  context-
dependent.  

Existing,  if  limited,  data  available  for  Europe  confirm  that  inequality  and  social  exclusion  are 
spatially concentrated. The polarisation of income inequality is not well captured by disparities in 
per-capita  income  between  regions  (defined  at  the  NUTS  2  level),  since  this  occurs  at  sub-
regional  level105.  Spatial  concentration  of  social  exclusion  occurs  in  “pockets”  both  in  urban, 
suburban or rural areas, which are often adjacent to areas with reasonable or even high standards 
of living106. 

Thirdly,  the  effectiveness  of  policy  depends  on  places.  The  capacity  to  access  services  and  to 
make  use  of  social  transfers  strongly  depends  on  conditions  that  are  context-dependent.  The 
design  of  interventions  needs  to  take  account  of  the  “technological  links”  between  people  and 
places, since the productivity of a person often depends on the context, or environment, in which 
they work107. The effectiveness of any given “sectoral” intervention aimed at a particular aspect 
of well-being depends on other “sectoral” interventions being made in the same place. The local 
level is, therefore, where the integration of bundles of services occurs.  

Fourthly, on the operational side, the ability of place-based policies to mobilise local actors and 
to give them the opportunity to experiment with solutions, exercise monitoring and participate in 
counterfactual  impact  evaluation  can  enable  three  fundamental  problems  regarding  the 
implementation of social inclusion policy to be tackled. 

•  Choice  of  dimensions  and  indicators.  Risks  of  paternalism,  of  the  selection  of  both 
dimensions and indicators not reflecting people’s preferences, are always prevalent. They can 
be  reduced  in  the  context  of  place-based  policies  by  an  experimental  approach  where  the 
actors  are  mobilised  and  exercise  monitoring  on  the  selection  made.  A  guarantee  that 
indicators satisfy a number of prerequisites is also necessary108. 

•  Choice of thresholds. The opposite risks exist on the choice of thresholds, the issue being to 
rely  only  on  the  subjective  judgements  of  individuals  on  whether  and  how  much  they  are 
deprived  (since  subjective  measures  reflect  a  “gap  between  expectations  and  realities”  and 
“expectations  may  adapt  …  in  response  to  the  realities  of  one’s  life  situation”109)  or  on 
standards  established  in  an  elitist  way  from  outside,  based  on  academic,  or  policy-maker, 
analysis. A “participatory and fair process” can take the best of both, by drawing on external 
assessments as well as eliciting individual preferences, and by giving people the opportunity 
to develop views on their rights and to revise their expectations.  

105  See Förster, M., Jesuit, D. and Smeeding, T. (2005). 
106 For example, the most prosperous Polish Region – Mazowieckie – is also the one with the third largest 
internal disparities in GDP per head across OECD Regions: see the OECD Territorial Review of Poland. 
107 If a person’s abilities are highly embedded in the place where they live, any intervention promoting exit 
can be costly in terms of their productivity and so of their capacity to live well. On the other hand, if for 
some aspects of well-being their abilities are particularly suitable to a different location, promoting exit can 
improve their well-being. 
108 As has been made clear in the EU Process of Social Inclusion, indicators that are used to focus public 
debate  must  satisfy  a  set  of  pre-requisites:  presenting  a  “clear  and  accepted  normative  interpretation”, 
being  “responsive  to  policy  intervention”,  being  statistically  validated,  etc.  See  Marlier  et  al  (2007),  pp. 
40-42.  
109 See Marlier et al (2007). 

 33

 
                                                      
•  Dealing with information incompleteness. The information needed for policy-making is very 
incomplete  –  on  individual  opportunities  and  outcomes  (which  tend  to  be  approximated  by 
indicators that capture only some of the relevant features), on whether the conditions exist for 
a  social  exclusion  trap  and  on  how  to  bring  about  change.  A  cautious,  participatory  and 
experimental approach, with appropriate use of impact evaluation, can improve the “revelation 
process”  (as  regards  both  knowledge  and  preferences)  and  gradually  reduce  the  information 
gap.  

In  short,  a  place-based  approach  can  make  the  promotion  of  social  inclusion  and  any  social 
agenda much more operationally effective. 

The linkages with efficiency 

How  should  a  place-based  policy  for  social  inclusion  deal  with  efficiency?  Should  the  two 
objectives be tackled together through the same interventions? Or should separate interventions 
be  designed,  as  part  of  the  same  strategy,  to  pursue  efficiency  and  social  inclusion  objectives? 
The  issue  is  particularly  relevant  considering  how  often,  both  in  general  and  in  the  European 
public debate, it is assumed that equity and efficiency can be pursued together.  

There is a fallacy which needs to be addressed first, namely that the social inclusion objective is 
integrated  in  the  efficiency  objective.  This  is  often  claimed,  or  assumed,  in  the  debate  on  EU 
cohesion  policy  by  interpreting  a  reduction  in  the  disparity  in  GDP  per  head  between  lagging 
regions  and  others  as  signifying  both  increased  efficiency  and  reduced  inequality.  In  fact,  a 
reduction  in  disparities  need  imply  neither  of  the  two.  In  the  case  of  efficiency,  a  reduction  in 
regional  disparities  can  occur  in  a  context  in  which  growth  in  all  regions  is  falling  below  its 
potential  and  inefficiency  is  increasing.  As  regards  inequality,  even  setting  aside  the  issue  of 
differences  between  GDP  per  head  and  income  per  head  as  a  result  of  commuting  or  transfer 
effects110,  a  reduction  in  disparities  can  go  together  with  increased  income  inequality,  if 
inequality  within  lagging  regions  is  increasing  –  something  which  can  occur  with  increased 
growth.  In  any  case,  a  reduction  in  income  inequality  says  nothing  about  what  is  happening  to 
other aspects of well-being.  

At the same time, it is clear that synergies can exist between the two objectives. These arise, first, 
from  the  common  underlying  causes  of  under-utilised  potential  and  social  exclusion  traps. 
Building formal and informal institutions for promoting development - more agency, more social 
capital  and  more  democratic  participation  in  decision  making  -  can  boost  both  efficiency  and 
social  inclusion.  In  particular,  social  inclusion  policy  interventions  aimed  at  strengthening  the 
awareness  or  capacity  of  local  communities  can  also  give  rise  to  a  shift  of  political  balance 
towards  reform  groups  that  are  interested  and  willing  to  promote  agglomeration  effects  which 
increase  the  incentive  of  local  individuals  to  increase  their  own  efforts.  At  the  same  time, 
reversing  a  policy  of  public  goods  and  services  provision  chosen  by  a  local  elite  in  its  own 
interests can enable economic institutions to be selected which are more suitable for growth. A 
classic example is education, where more investment in those in the lower tail of the distribution 
can increase “human capital” and growth. (A positive link of this kind between social inclusion 
and efficiency is often referred to in the European debate as a “market-strengthening linkage”111.) 

Synergies  can  also  arise  as  a  result  of  the  negative  effect  of  social  exclusion  on  efficiency  and 
growth.  A  high  level  of  inequality  is  seen  as  a  cause  of  social  and  political  instability  that  can 
disrupt  economic  and  labour  relations  and  raise  uncertainty112.  It  is  also  seen  as  a  cause  of 

110 For an assessment of these effects see Applica (2008), chapter 4, table 4.1.  
111  See  for  example  the  March  2008  EU  Joint  Report  on  social  protection  and  social  inclusion  process, 
where  it  is  argued  that  “well  …  designed  social  inclusion  policies  are  productive  factors”  and  that 
addressing the social inclusion of children “helps the future generations develop their full potential hence 
enabling them to contribute more to society and the economy”. 
112 See for example Alesina, A. and Perotti, R. (1996). 

 34

 
                                                      
disruptive  redistribution  policies  which  can  reduce  incentives  to  invest113.  In  a  similar  fashion, 
rising inequality, brought about by a rapid innovation-driven shift of resources between sectors 
and  firms,  can  produce  resistance  to  innovation  itself.  Reducing  social  exclusion  can  then  be 
beneficial for efficiency. This “market-compensating” view of social policy is widely deployed in 
the EU debate, while a stronger EU social agenda is also advocated in order to avoid jeopardising 
economic integration and monetary unification, or as a condition for accelerating Schumpeterian 
creative destruction. 

However,  whether  the  conditions  hold  for  these  synergies  to  operate  depends  on  specific 
situations – on how institution building develops, on the new public goods and services provided 
and  on  the  kind  of  policy  actually  implemented.  It  also  depends  on  whether  the  trade-offs 
between social inclusion and efficiency, which also exist, are more or less relevant.  

A  trade-off  can  arise,  first,  because  greater  social  inclusion  changes  the  balance  of  negotiating 
power  among  parties.  It  is,  therefore,  likely  to  make  some  people  worse  off  and  reduce  their 
effort;  if  the  resulting  losses  are  greater  than  the  gains  from  the  higher  effort  of  others,  then  a 
trade-off  arises.  Secondly,  it  can  result  from  the  separation  of  circumstances  and  effort,  in  the 
sense  that  policy  measures  which  address  the  circumstances  that  cause  disparities  or  social 
exclusion  can  end  up  reducing  the  incentive  for  effort,  so  reducing  efficiency.  Thirdly,  when 
there is limited labour mobility, attempting to reduce inter-regional inequality of income can have 
negative  effects  on  agglomerations  and  reduce  overall  efficiency114.  In  all  these  cases,  whether 
the effect concerned is important or not is again an empirical matter. 

In  a  place-based  strategy,  no  general  presumption  can  be  made,  therefore,  on  whether  an 
intervention  intended  to  pursue  one  objective  will  have  a  positive,  or  negative,  effect  on  the 
other.  Instead,  for  any  intervention,  there  is  a  need  to  state  the  primary  objective  –  either 
efficiency or equity – and then to assess the likely effect on the other objective.  

Such  a  strategy  is  supported  by  a  further  consideration.  Even  if  a  given  intervention  for  social 
inclusion in a given place has a net positive effect on efficiency, it might not be the intervention 
that would be adopted if efficiency were the aim, at least in the short and medium term. It could 
well  be  the  case,  for  example,  that  from  an  efficiency  perspective,  the  best  intervention  for  a 
backward  area  suffering  from  both  under-utilisation  of  potential  and  social  exclusion  is  to 
strengthen  the  business  environment,  through,  for  example,  supporting  a  productive  group  of 
innovators,  with  limited  (or  even  negative)  effects  on  inequality.  From  a  social  inclusion 
perspective,  the  best  intervention  for  the same area could be the provision of public goods and 
service to bring as many people as possible above a given threshold for some dimensions of well-
being, with limited effects on efficiency. There could obviously be synergies between the two in 
the long-term, but the longer the time horizon, the greater the lack of solid information on final 
effects and of the possibility of measuring results. 

Three lessons can be drawn from this cursory review of the linkages between social inclusion and 
efficiency.  

•  First, no general relationship can be taken for granted and empirical investigation must always 

be conducted to monitor the relationship place by place.  

•  Second, even if a social inclusion agenda were to be adopted with an efficiency justification – 
according  to  a  market-strengthening  or  a  market-compensating  perspective  -  policy  choices 
should be made by referring to the social inclusion objective alone.  

113 See for example Benabou, R. (1996). 
114 See Martin, P. (1999). 

 35

 
                                                      
•  Third, the two objectives should generally be pursued through the same strategy but through 

separate interventions.  

Two opposite policy risks and how to move ahead 

From  the  above  it  can  be  concluded  that  there  is  a  strong  case  for  a  place-based  development 
policy aimed at social inclusion. Such a policy, however, is difficult and it entails all the risks of 
a policy of this kind aimed at efficiency. A further risk can arise. 

Traditional social policies often focus on individuals without taking account of the fact that their 
well-being  and  the  effectiveness  of  policy  strongly  depend  on  the  place  where  they  live. 
Accordingly,  there  is  tendency  to  follow  what  might  be  described  as  a  de-contextualised 
individual  approach,  often  with  a  strong  non-egalitarian  bias.  At  the  same  time,  place-based 
policies can make the serious mistake of referring to places almost as if they had a “preference 
function”, a well-being of their own with the consequences for individuals getting lost. The gap 
between  the  average  well-being  of  a  place  and  other  places  is  then  taken  to  represent  the 
“inequality” of the people living there; and the policy for reducing the gap is termed “social”. A 
policy  which  focuses  on  places  without  adequately  taking  account  of  the  individuals  who  live 
there can be described as a depersonalised place-based approach. 

The failure of the social and territorial agenda to be linked with each other is reflected by the lack 
of data and of studies that combine and compare information on the interpersonal distribution of 
income  (or  specific  features  of  well-being)  with  information  on  regional  disparities  (either  in 
terms of income or other features)115.  

A  new  combination  of  the  social  and  the  territorial  agenda  is  therefore  required.  The  social 
agenda needs to be “territorialised”, the territorial agenda “socialised”. The place-based approach 
to social inclusion should be the result of these two shifts. 

I.2.3.  Corollaries: avoiding common misconceptions 

The clarifications on the “new paradigm of regional policy” in the previous two sections enable 
some  common  misconceptions  on  spatially-aware  development  policies  to  be  addressed.  They 
can be reviewed under seven corollaries which will then form the basis for assessing how close 
cohesion policy is to the new paradigm. 

The  first  misconception  is  that,  as  efficiency  and  social  inclusion  objectives  require  a  similar 
approach and synergies exist between the two, a place-based development policy can pursue both 
through  the  same  intervention.  While  the  policy  can  address  both,  in  general  they  should  be 
pursued through separate interventions.  

A place-based development approach is suitable for tackling both objectives as under-utilisation 
of  potential  and  social  exclusion  have  many  similar  causes.  Since  strong  synergies  can  be 
exploited in tackling the two objectives and since, as Joseph Stiglitz puts it, “there is not a neat 
separation  between  efficiency  and  distributive  issues”116  and  each  policy  intervention  often  has 
both an allocative and a distributive effect, a comprehensive, place-based development strategy 
can appropriately pursue both objectives at once. There are three arguments, however, for the two 
objectives to be pursued through dedicated and visibly distinct measures. 

•  Information  is  too  incomplete  to  assess  the  extent  of  synergies  and  trade-offs  between 

objectives in advance and, accordingly, to design catch-all interventions.  

115 On this issue, see the Report working paper Monfort, P. (2009). See also section II.3.1.  
116 Stiglitz, J. (1989) 

 36

 
                                                      
•  The  best  option  for  achieving  one  objective  is  often  not  the  best  option  for  achieving  the 

other.  

•  Mixing  the  two  objectives  reduces  the  accountability  of both and the opportunity for public 
debate.  It  also  increases  the  scope  for  local  rent-seekers  to  pursue  their  own  agenda.  When 
policy-makers  are  fuzzy  about  objectives  and  claim  that  both  efficiency  and  equity  can  be 
pursued, rent-seekers have an easier task of justifying interventions that suit them but which 
have no real effects on either efficiency or social inclusion.  

The  second  misconception  is  that  place-based  development  policies  restrict  mobility  by 
encouraging people not to move out of places. On the contrary, the virtue of the policy is that it 
broadens people’s opportunities and gives them more substantive freedom of choosing whether 
to move or not. 

If  place-based  development  policies  were  about  reducing  mobility,  they  would  be  against 
efficiency  and  equity,  since  the  option  of  moving  is  an  important  ingredient  of  both.  On  the 
contrary, place-based policies are, in fact, intended to enhance individuals' substantive freedom 
of deciding whether to stay (and to make the most of staying) or to move (and to make the most 
of  moving).  By  promoting  public  goods  and  services  which  are  tailored  to  places,  as  well  as 
enhancing agency, democratic participation and the formal and informal institutions necessary for 
development, the policies should enable people to make a real assessment of the alternatives open 
to them and to translate them into action.  

The movement of people out of a place can indeed boost both efficiency and equity, but it only 
does so if migrants improve their productive potential and the scope they have for exploiting it. 
This is more likely to be the case when outward migration is not the result of strong deprivation 
pressures  and  when  it  offers  migrants  the  opportunity  of  making  a  significant  step  forward  in 
terms of using their personal skills117. Encouraging mobility as a “priority” – as the World Bank 
Report  “Reshaping  Economic  Geography”  does  (see  in  particular  p.  xxii)  –  is  based  on  the 
mistaken  assumption  that  “the  state  knows  better”.  Choices  must  always  be  made  case-by-case 
and the information which informs these choices tends to be very incomplete. Accordingly, the 
appropriate general principle is to give individuals the capacity freely to assess whether to move 
or to stay and to adopt policy measures in line with this – which implies a place-based approach 
based on conditional grants.  

There is one special case when place-based development policies should aim at enabling people 
to  remain  in  a  place,  that  of  “depopulating  regions  of  collective  interest”  (see  section  I.2.1 
above). If there is a wider interest in maintaining population in a region and/or in preventing its 
resources  from  being  fully  exploited,  then  there  is  an  efficiency  rationale  for  compensating 
people for not moving out (and encouraging others to move in).  

The  third  misconception  is  that  place-based  development  policies  act  as  a  constraint  on 
“natural”  agglomeration  processes  by  inhibiting  or  distorting  market  forces  which  would 
otherwise  operate  freely.  This  is  not  the  case,  since  the  alternative  to  visible  spatially-aware 
policies is not free market forces but spatially-blind policies which are more likely to underuse 
information and to be captured by private interests.  

Any agglomeration process, networking between places or episode in the development of a place 
is invariably the combined result of both public and private actions. Some public actions are the 

117  When  skills  are  closely  tied  to  local  immobile  resources  or  to  other  local  skills,  their  return  in  other 
places (although greater than their return in the place of origin if no improvement there were to take place) 
could be lower than their return in the place of origin if local conditions were to change. The same loss of 
productive  potential  and  opportunities  can  arise  when  people,  pushed  by  deprivation  at  home,  have  “no 
choice”, but to leave and they then perhaps contribute to conditions of social unrest in the urban areas to 
which they move. 

 37

 
                                                      
result of decisions taken elsewhere in the form of region-specific public investment or particular 
forms  of  country-wide  institutions,  public  services  and  regulations  (relating  to  land  use, 
education, healthcare, water supply, infrastructure and so on). Even in growing agglomerations, 
what  might  appear  to  be  a  natural,  non-State  phenomenon  is  often  being  fuelled  by  State 
intervention. By contrast, under place-based policies, the spatial dimensions of policy objectives 
and forms of intervention are made visible and open to debate. The alternative to these policies is 
not the absence of State intervention, since public investment, law-making, regulatory action and 
so on will still go on, but the lack of visibility, analysis and debate as regards the spatial effects of 
such policies. 

This  might  not  be  so  important  if  the  State  operated  with  perfect  knowledge  and  was  wholly 
benevolent, neither of which is obviously the case in reality. An explicitly spatially-aware policy 
is, therefore, preferable. It is likely to elicit local knowledge, so reducing the lack of information, 
while  the  greater  visibility  of  policy  action,  through  allowing  public  scrutiny,  makes  it  more 
likely that those responsible for exogenous State intervention are not captured by local elites to 
the detriment of overall efficiency. 

The  fourth  misconception  is  that  place-based  development  policies  entail  an  in-built  trade-off 
between local objectives and global efficiency. While such a trade-off can arise, it need not do so 
and the opposite should be the case when efficiency objectives are pursued.  

Here, the two objectives of efficiency and social inclusion need to be considered separately. With 
respect  to  social  inclusion,  a  trade-off  may  arise,  though  not  necessarily.  As  argued  above,  it 
depends on whether the various potential synergies are larger or smaller than the various potential 
trade-offs, which can only be assessed on a case by case basis.  

For the efficiency objective (i.e. fuller capacity utilisation), a trade-off would not, by definition, 
arise  if  the  policy-makers  had  complete  information  on  the  returns  to  interventions.  A  place-
based  intervention  would  be  made  only  if  exploiting  unused  potential  contributed  to  overall 
growth of the wider economy more than it hindered it (by, for example, reducing the inflows of 
people into an agglomeration). If interventions were pursued despite having a negative effect on 
overall  efficiency,  it  would  imply  by  definition  that  the  equity  objective  was  being  accorded 
priority – in which case the policy decision should be assessed differently, in terms of individual 
(not average) well-being118. In reality, information is always incomplete, and place-based policies 
can  de  facto  end  up  unintentionally  reducing  global  efficiency,  though,  for  the  same  reason, 
failure  to  intervene  could  have  the  same  effect.  Again,  no  general  claim  can  be  made.  This 
underlines  the  need  for  policy  intervention  to  be  undertaken  with  declared,  verifiable  spatial-
awareness  and  for  a  cautious  approach  which  is  aimed  at  learning  from  experience  in  order  to 
improve the information available. 

The  fifth  misconception  is  that  place-based  development  policies  should  focus  only  on  “poor” 
places or regions. While such regions may be a priority, policy should apply to all regions. 

Once again, efficiency and equity objectives need to be considered separately. As regards social 
exclusion, policies for combating this should be implemented in all places, since it is a problem 
in  rich  as  well  as  poor  areas.  This  is  evident  in  the  high  levels  of  deprivation,  criminality  and 
social tension in many prosperous cities and in the pockets of high unemployment in regions with 
high productivity119.  

118  The  intervention  would  have  to  be  justified  in  term  of  its  effects  on  disparities  and/or  the  share  of 
people above relevant thresholds in the place targeted by the policy. This rules out any intervention which 
is  justified  in  equity  terms  but  is  de  facto  aimed  at  enhancing  the  returns  of  very  few  individuals.  This 
emphasises, once again, the need for a clear-cut distinction between the two  objectives. 
119  The  data-base  of  OECD  (2008a)  shows  for  example  that  in  half  of  all  metropolitan  regions  a  higher 
than country-average productivity is coupled with a higher than country-average unemployment rate.  

 38

 
                                                      
The economic rationale for pursuing the efficiency objective applies most especially to lagging 
regions, but it can be extended to all regions. Agglomerations tend already to benefit from “the 
hand of the State” and may have much less need for additional resources. However, there are four 
reasons  for  them  to  be  included  in  a  place-based  policy.  First,  as  claimed  above,  this  approach 
increases  accountability  and  can  reduce  policy  risks.  Secondly,  interdependencies  exist  which 
argue  for  keeping  all  places  in  the  policy  network:  Thirdly,  policy  learning  and  dissemination 
effects point in the same direction. Fourthly, comparative advantages can change with remarkable 
speed and a place which is successful today might well fall behind tomorrow. It, therefore, makes 
no sense to draw rigid boundaries120. 

The  sixth  misconception  is  that  “financial  redistribution”  of  resources  between  places  is  a 
necessary and sufficient condition for place-based development policies and that it is a good way 
of summarising the policy objective. This is not the case: financial redistribution is not sufficient, 
sometimes not even necessary and the “redistribution” label is misleading.  

The redistribution of resources between places is not a sufficient condition for pursuing either the 
efficiency  or  the  equity  objective.  The  task  of  place-based  development  policies  is  not  to 
compensate  for  the  failure  of  some  places  to  raise  enough  revenue  from  their  own  sources  to 
finance their development. If this were the purpose, an EU-level regional equalisation fund could 
be set up, as is common practice in many countries. Instead, the task of such policies is to trigger 
a  change  in  the  behaviour  of  private  actors  in  regions  where  either  an  efficiency  or  a  social 
exclusion trap exists. The simple transfer of funds cannot get close to doing this and might even 
worsen problems by creating a dependency culture. Moreover, the persistence of unused potential 
or social exclusion can occur in regions which do have the capacity to raise sufficient revenue. In 
this  case,  a  region  might  receive  less  in  financial  transfers  from  a  place-based  policy  than  the 
funds  its  citizens  contribute  (through  whatever  fiscal  mechanism  is  at  work)  and  financial 
redistribution is not necessary. For these regions, the return from the policy – if there is one – is 
its capacity to bring about change through an exogenous intervention. 

The  term  “redistribution”  misses  what  a  place-based  development  policy  is  actually  about  for 
three reasons. First, it evokes “financial redistribution”, which, as seen above, is only one part of 
the policy. Secondly, it highlights a redistributive function when the policy also has an allocative 
function.  Thirdly,  once  it  is  coupled  with  “regional”,  it  hints  at  the  idea  of  raising  the  average 
income  of  some  regions  by  reducing  that  of  others.  This,  as  noted  above,  is  the  objective  of 
equalisation  funds  and  has  nothing  to  do  with  either  the  efficiency  or  the  equity  objective  of 
place-based policies, which are aimed at fuller capacity utilisation and a reduction of inequalities 
between individuals rather than between regions.  

The  seventh  misconception  is  that  “convergence”  of  per-capita  income  or  per  capita  GDP 
among  places  and  regions  is  an  objective  of  place-based  development  policies  which  captures 
their  ultimate  aim  well.  This  is  not  the  case.  “Convergence”  is  neither  a  necessary  nor  a 
sufficient  condition  for  policy  success  in  pursuing  either  the  efficiency  or  social  inclusion 
objective, and is a misleading label.  

Convergence  is  not  a  necessary  condition  for  increasing  efficiency.  A  successful  reduction  of 
capacity  under-utilisation  in  lagging  regions  can  take  place  at  the  same  time  as  prosperous 
agglomerations grow faster and disparities between the centre and periphery widen. On the other 
hand, convergence might occur as a result of a “race to the bottom”, with policy failing to have 
any positive effect in lagging regions and GDP declining in the more prosperous ones. However, 
the difficulty of measuring the productive potential of an area might mean using the gap in GDP 
per head as a rough indicator of the magnitude of the underutilisation gap121, assuming arbitrarily 

120 This issue is further examined, with reference to the EU in section I.5. 
121 The allocation of resources of regional policy often refers, for the lack of alternatives, to this indicator. 
This is also largely the case with EU cohesion policy.  

 39

 
                                                      
that all places have the same potential in the long run122. But there is a need to be aware that this 
should never lead to adopting convergence as a target against which to measure policy success. 

As  regards  the  social  inclusion  objective,  convergence  is  only  one  of  several  relevant  factors. 
First of all, income per capita needs to be distinguished from GDP per capita: convergence of the 
latter  does  not  necessarily  imply  convergence  of  the  former,  due  to  commuting  or  transfers. 
Secondly,  convergence  of  regional  per-capita  income  might  occur,  but  because  of  rising 
interpersonal  inequalities  within  regions,  overall  inequality  might  increase.  Indeed,  empirical 
evidence  shows,  as  noted  above,  that  overall  inequality  is  dominated  by  inequalities  within 
regions  rather  than  between  them123.  Third,  income  is  only  one  of  several  dimensions  against 
which  social  inclusion  needs  to  be  assessed  and  convergence  of  income  need  not  entail 
convergence of these other aspects.  

I.2.4. 

 Governance: beyond the traditional dilemma of fiscal federalism 

Place-based integrated development policies have a strong economic rationale – this is clear from 
the arguments set out in previous sections. But can they really work? They are complex policies 
involving different levels of government and private actors which are subject to several serious 
risks.  Their  chances  of  success  depend  on  how  they  are  implemented,  how  risk  is  reduced  and 
what form of governance is adopted. These are important issues for cohesion policy. Even where 
the case for it might be accepted on theoretical grounds, it can be rejected, or at least, criticised, 
because of its implementation and design failures. Outlining a model of governance is necessary 
for assessing any concrete model of cohesion policy, including the present EU one. 

Two points have long been clear in the traditional analysis of public policy and fiscal federalism. 
First,  failure  in  the  provision  of  public  goods  and  services  –  “public  failures”  as  opposed  to 
market  failures  –  can  be  important  because  of  incomplete  information  on  the  preferences  and 
knowledge of individuals and because of the constraints in establishing adequate incentives for 
policy-makers  and  public  officials  to  act  in  the  general  interest.  Secondly,  decentralisation  of 
public  decision-making  is  the  primary  means  of  dealing  with  these  failures,  by  allowing  closer 
control  by  citizens  and  pressure  on  policy-makers  and  public  officials,  and  by  encouraging  the 
performance  of  different  places  in  the  provision  of  public  goods  and  services  to  be  compared. 
While  the  strong  effect  of  decentralisation  originally  claimed  –  that  through  the  mobility  of 
people,  it  would  ensure  an  efficient  provision  of  public  goods  at  local  level  –  has  proved 
mistaken124,  it  can  still  exert  pressure  on  authorities  and  tends  to  mean  that  the  decisions  they 
make accord better with the preferences of people, as well as accommodating diversity. 

The  analysis  of  institutions  and  path-dependency  in  agglomerations  presented  above  adds  a 
further  dimension.  Local  governments  can  consistently  fail  to  build  the  appropriate  economic 
institutions, either because they are not benevolent or because they do not have the capacity or 
the  means  to  do  so,  given  how  strongly  formal  and  informal  institutions  depend  on  past 
institutions  (hysteresis).  This  failure  may  be  so  severe  that  it  leads  to  underutilisation  or  social 
exclusion  traps.  Only  an  exogenous  public  intervention  can  improve  things  by  upsetting  the 
existing  balance.  But  for  this  intervention  to  be  effective,  it  needs  to  be  accompanied  by 
increased local involvement. This is the condition for eliciting the information on preferences and 
the local knowledge needed to tailor interventions to places and to reap the advantages of closer 
citizen control. 

122 See on this Monfort, P. (2009). 
123 See Förster et al (2005). 
124 As Stiglitz, J.E. (1989) argues with reference to public goods, the restrictive conditions under which the 
exit  mechanism  (people  “punishing”  bad  local  administrators  of  a  place  by  moving  out  of  the  place) 
originally  claimed  by  Tiebout,  C.M.  (1956)  produces  a  Pareto-efficient  outcome  are even stronger “than 
those required for private goods”. 

 40

 
                                                      
This perspective takes us beyond the traditional dilemma of fiscal federalism, of decentralisation 
versus centralisation.  

The traditional question, therefore, has been how to allocate responsibility for each type of public 
good and service to either the local or the central level – how to balance, on the one hand, the 
advantages of taking account of local preferences and allowing greater citizen control and, on the 
other,  the  advantages  of  scale  economies  and  cross-border  externalities  which  stem  from 
centralisation.  Under  place-based  development  policies,  by  contrast,  the  issue  is  how  to  design 
governance arrangements under which the two levels of government share responsibility for each 
public good and service. Instead of allocating to each of them a certain number of services, each 
of them can be allocated a certain number of tasks in the provision of services of all kinds.  

Subsidiarity of tasks and multilevel governance 

The  shift  from  a  separation  of  responsibilities  in  terms  of  types  of  services  to  one  in  terms  of 
tasks in their provision can be appreciated by reference to the concept of subsidiarity, the general 
principle  according  to  which  authorities  should  perform  only  those  activities  which  cannot  be 
performed  effectively  at  a  more  local  level.  In  the  context  of  place-based  policies,  subsidiarity 
needs to be interpreted with reference to responsibility not for whole sectors, but for whole tasks. 
The subsidiarity criterion, therefore, needs to govern the allocation of tasks.  

The architecture of policy-making which implements this more modern arrangement has come to 
be  called  multi-level  governance,  a  system  by  which  the  responsibility  for  policy  design  and 
implementation  is  distributed  between  different  levels  of  government  and  special-purpose  local 
institutions (private associations, joint local authority bodies, cooperation across national borders, 
public-private  partnerships  and  so  on)125.  In  this  architecture,  it  is  up  to  the  top  levels  of 
government  to  set  general  goals  and  performance  standards  and  to  establish  and  enforce  the 
“rules of the game”. It is up to the lower levels to have “the freedom to advance the ends as they 
see  fit”126.  Special-purpose  local  institutions,  comprising  both  public  and  private  actors  with 
responsibility  for  delivering  specific  services,  or  bundles  of  services,  play  a  decisive  role  in 
eliciting  the  knowledge  and  preferences  of  citizens  of  specific  places;.  Since  they  are  formed 
through  the  policy  process,  they  often  define  what  a  “place”  is.  In  their  absence,  multi-level 
governance  can  degenerate  into  a  system  of  negotiation  between  bureaucracies  representing 
different elites, with an authority defined by purely jurisdictional boundaries.  

EU  cohesion  policy  is  where  multi-level  governance  has  flourished127,  responding  both  to  a 
strong cultural tradition supporting an active role of local governments and communities and to 
the  awareness  of  the  limits  of  the  Commission  in  directly  managing  interventions.  In  order  to 
assess below how far cohesion policy has lived up to the model that it helped establish, four key 
aspects can be singled out which together determine how successful multi-level governance is: 

•  the allocation of tasks among levels of government and the role of jurisdictional Regions; 

•  contracts between levels of governments; 

•  decision processes at local level; 

125  See  Hooghe,  L.  and  Marks,  G.  (2003)  for  a  survey  and  analysis  of  how  the  two  distinct  types  of 
multilevel  governance  which  are  combined  in  this  definition  (general-purpose  jurisdictions  and  task-
specific  jurisdictions)  suit  different  objectives,  raise  different  problems  and  “coexist  because  they  are 
complementary”. The definition of multilevel governance developed in the remainder of the section also 
draws heavily on the theory of “democratic experimentalism” by Dorf, M.C. and Sabel, C.F. (1998) and 
applied to EU policy making by Sabel, C.F. and Zeitlin, J. (2008). See also Molle, W. (2006) and Begg, I. 
(2008b). 
126 See again Sabel, C.F. and Zeitlin, J. (2008). 
127 See Marks, G. (1993) and Hooghe, L. (1996).  

 41

 
                                                      
•  public debate being focused on objectives, learning and counterfactual impact evaluation 

The allocation of tasks among levels of government and the role of jurisdictional Regions  

In the allocation of tasks, two levels can be identified: a lower level corresponding to the unit of 
intervention  of  a  place-based  policy  and  a  higher  level,  corresponding  to  the  authority  (or 
authorities)  responsible  for  the  exogenous  intervention.  While  the  latter  level  is  identified  by 
jurisdictional  entities  (an  administrative  Region,  a  Nation  State,  a  supra-national  body),  the 
former  is  defined  by  the  policy  process,  its  boundaries  being  those  within  which  a  set  of 
conditions  conducive  to  development  apply  more  than  they  do  outside  (i.e.  in  other  places).  It 
will  then  embrace  those  local  public  authorities  and  private  agents  which,  through  shared 
features, are best placed to respond to exogenous interventions128.  

According to the policy concept and to practice, this lower level should have the responsibility 
for  designing  and  implementing  interventions,  namely:  a)  eliciting  and  aggregating  the 
knowledge and preferences of citizens; b) designing projects and appraising them for financing; 
and  c)  implementing  projects  and  managing  a  learning  process.  Conversely,  the  higher  level(s) 
should  have  responsibility  for:  a)  setting  priorities  and  general  objectives  and  the  contractual 
framework  for  the  lower  levels;  b)  selecting  projects  and/or  allocating  funds  to  places  and 
providing linkages between them; c) promoting institution-building and learning and monitoring 
results; and d) providing, when necessary, technical support and expertise. The allocation of tasks 
must obviously be adapted to the specific areas of action129.  

The  question  arises,  however,  as  to  where  the  responsibility  for  the  exogenous  intervention 
should  lie,  whether  a  supra-national  authority  should  be  responsible  as  well  as  national 
authorities. This goes to the core of the EU role and the very existence of EU cohesion policy. 
The  question  is  addressed  in  the  next  section.  The  further  issue  is  whether  there  should  be  an 
additional  level  of  government  between  the  “place  “  level  and  the  national  level,  namely  the 
Region,  with  a  capital  “R”,  i.e.  “a  coherent  territorial  entity  situated  between  the  local  and 
national levels which has a capacity for authoritative decision making”130.  

A number of factors are relevant in this regard, including the size of the country, the nature of 
policy priorities and the existence of sub-national cultural traditions. These and other factors can 
make it difficult – if still feasible – for national authorities to implement policy, such as selecting 
projects  and  promoting  institution  building,  and  make it desirable for Regions to have a strong 
role.  Constitutional  arrangements  and  the  de  facto  allocation  of  power,  i.e.  the  number  of 
different  levels  of  government  and  the  power  of  each,  are  also  relevant  in  this  regard131.  In 
particular,  the  trend  towards  regionalisation  which  has  taken  place  all  over  the  world  since  the 
end of the Second World War132, but which has been especially strong in Europe, has created a 

128 Given the definition of a place, which is endogenous to the area of human activity and public services at 
stake (see Introduction), “local” could refer to a very small or a rather broad sub-national or cross-border 
territory according to natural and cultural circumstances, the homogeneity or complementarity of people’s 
preferences,  synergies  as  regards  the  knowledge  of  people  and  the  opportunity  for  common  informal 
institutions to emerge. 
129 For example, in the area of innovation and research, the responsibility needs to be taken at the higher 
level in order to identify, ex-ante, places that can be on the technological frontier and places that should 
concentrate in adapting their knowledge base to existing technologies. 
130 See Marks, G., Hooghe, L. and Schakel, A.H. (2008). More than one jurisdictional layer can exist in 
practice  between  the  local  and  the  national  levels.  The  authors  identify  functional  and  non-functional 
reasons for explaining both the number and the power of intermediate governmental layers. 
131 See Alesina, A. and Spolaore, E. (2003). 
132 See again Marks et al (2008). By analysing data for 42 countries and capturing in an indicator the tax, 
expenditure,  legislative  and  constitutional  power  of  Regional  governments  over  their  own  territory  and 
over  the  nation  as  a  whole,  they  identify  384  reforms  during  these  56  years,  90%  of  which  increased 
regional authority. They also show that the last wave of power-shifting to Regions, started in 1992, ended 
in 2001 and that there are signs of a move in the opposite direction since then.  

 42

 
                                                      
strong  pressure  for  increasing  the  role  of  Regions.  Whatever  their  role,  however,  jurisdictional 
Regions  cannot  be  the  unit  of  intervention  of  place-based  development  policy,  or  the  “lower 
level” of multilevel governance described above, since neither their boundaries nor their internal 
governance  are  coherent  (unless  by  accident)  with  the  specific  and  changing  objective  of  the 
policy. 

Contracts between and within levels of government  

The nature of exogenous intervention by higher levels of government and the distribution of tasks 
between  levels  of  government  require  commitments  between  them.  Equally,  the  multi-sectoral 
nature  of  place-based  development  policy  requires  horizontal  coordination  and  reciprocal 
commitment  at  every  level  of  government.  “Contracts”,  both  vertical  and  horizontal,  and 
“conditionalities”  –  the  conditions  set  –  for  the  granting  of  funds  are  a  defining  feature  of 
multilevel governance. A central problem arises here for place-development policies because – as 
in a growing number of other policy areas – a web of reciprocal commitments must be made in a 
context of very incomplete information.  

For  contracts  to  be  effective  requires  the  ex-post  verifiability  of  commitments.  However,  both 
parties  to  the  contract  lack  complete  information  on  how  to  specify  commitments  ex  ante  in  a 
clear-cut  and  verifiable  way.  Accordingly,  this  makes  for  difficulty  in  defining  the  targets  that 
could  reasonably  be  achieved,  the  means  of  pursuing  them  and  the  institutional  conditions  for 
these means to be effective. It is not a matter in this regard of information being asymmetric, in 
the  sense  of  a  lower  level  of  government  (the  agent)  being  in  possession  of  information  not 
available  to  the  higher  level  (the  principal)  and  of  the  latter  being  able  to  design  contractual 
incentives to extract this information or make the agent behave efficiently. Generally, the agent 
does  not  have  the  information  either.  It  is  a  matter  instead  of  information  being  incomplete, 
which  cannot  be  overcome  through  contractual  incentives.  The  information  on  how  a 
commitment should be formulated, therefore, becomes complete only in the course of the policy 
process, if knowledge is elicited and aggregated during this process.  

Faced  with  this  problem,  policy-makers  can  take  two  opposite  approaches,  both  of  which  are 
risky.  They  can  take  a  hyper-rationalist  approach  under  which  targets  and  commitments  to 
targets and institutional requirements are established as if complete information were available. 
Or they can resort to a pure relational approach under which “parties commit to co-operating ex-
post … and design a governance mechanism for that purpose”133, making only a commitment to 
negotiate later and disregarding other commitments as being ineffective.  

In the first case, the premise of policy being place-based – subsidiarity of tasks - is violated. In 
particular,  the  setting  of  firm  commitments  for  the  design  of  institutions  or  specifying  “best 
practices”  tends  to  lose  sight  of  the  fact  that  institutions  are  highly  specific  to  context. 
Commitments distort public action. Moreover, they are unlikely to be considered credible and the 
unravelling  of  the  policy  process  will  tend  to  create  a  common  incentive  to  renegotiate.  By 
discounting this in advance, it is likely that both parties will agree ex-ante on commitments which 
are merely formal and which can be followed by formal (and useless) compliance. As indicated 
below,  the  “performance  reserve”  system  implemented  by  cohesion  policy  in  the  years  2000-
2006 is an example of this approach (section II.4).  

In  the  second  case,  two  facts  tend  to  be  overlooked.  The  first  is  that  policy  experience,  public 
debate and evaluation very often provide a body of knowledge on both causal relations between 
means  and  ends  and  on  institutions,  which  can  be  used  as  guidance  for  future  action.  This  can 
encompass  the  order  of  magnitude  of  the  effects  of  particular  interventions,  the  institutional 
problems that cannot be left unanswered and alternative approaches that seem to have worked in 
different contexts. The second is that the policy process itself can gradually improve knowledge 

133  See  OECD  (2007b).  The  survey  of  country  cases  shows  the  two  radical  cases  and  attempts  of 
combining them. 

 43

 
                                                      
on what to do and how to do it. By overlooking these two aspects, incomplete information can 
become  an  alibi,  for  not  contractualising  commitments  at  all.  Except  for  special  circumstances 
where the parties have a strong additional motivation to cooperate, the lack of any clear target or 
commitment  to  institutions  is  likely  to  prevent  a  convergence  of  policy  effort,  encourage 
opportunistic behaviour and discourage people from revealing knowledge and committing to the 
process.  The  way  that  “regional  innovation  strategies”  were  often  implemented  in  practice 
provides an example in this regard (section IV.3.1).  

Experience  shows  that  favourable  results  can  come  from  combining  the  two  approaches. 
Conditionality and subsidiarity can be combined by making the most of accumulated experience 
and by conceiving contracts as a means of learning134: 

•  All the aspects for which commitments can be codified in a verifiable way can be stipulated 
(i.e.  included  in  “hard”  clauses  in  the  contract)  –  the  funds  to  be  spent  by  a  given  date,  the 
data to be produced, the way that beneficiaries are selected and so on.  

•  For  all  other  commitments,  there  can  be  open-ended  –  “soft”  –  clauses,  which  describe  the 
commitments by means of principles or indicative quantitative conditions. These open-ended 
“conditionalities”  can  apply  to  two  aspects  in  particular:  a)  economic  institutions  in  policy 
areas (education, research, environmental and transport infrastructure and so on), for which a 
set  of  principles  can  be  established,  the  authority  in  charge  of  the  exogenous  intervention 
being responsible for approving ex-ante the actual implementation of these principles by the 
lower  level  of  government;  b)  the  objectives  for  each  priority  area  for  which  targets  can  be 
set,  appropriate  ex-post  incentive  mechanisms  (peer  pressure,  sanctions  for  repeated 
unexplained failure to achieve targets and so on) being implemented through monitoring and 
the dissemination of information.  

In the case of open-ended clauses, mechanisms should also be activated to aggregate and put to 
use the knowledge elicited and produced during the policy process in order progressively to firm 
up the open-ended clauses. In particular, targets can be progressively revised and sharpened. In 
this case, “reputational” mechanisms, linked to the prospect of further contracts or to the external 
role  of  an  “expert  mediator”  should  be  in  place  to  ensure  fair  and  agreed  interpretation  of  the 
original open-ended targets135.  

134 A move towards a combination of two radical approaches has been detected in the US by Sabel, C.F. 
and Simon, W.H. (2004) for a range of public goods and services (education, mental health, prisons, public 
housing).  In  particular,  in  the  case  of  the  attempt  to  enforce  equal  rights  to  education,  a  “top-down 
movement for standards” based on “high stakes testing” has come together with an opposite “bottom-up 
movement” based on “localism” and agent empowerment, in a new approach which mixes “local initiative 
and diagnostic standard”. For some practical examples in the difficult case of policies for innovation, see 
the Report Working Paper by Bonaccorsi, A. (2009). 
135  Actors  with  different  interests  and  knowledge  will  have  the  opportunity  to  learn  from  policy 
implementation what open-ended commitment should or could have meant. Cooperation is then promoted 
around the focal points provided by the contracts and given the aim of progressively “closing” the contract 
by  specifying  the  nature  of  the  commitments.  In  particular  cases,  this  combination  can  even  allow  a 
financial incentive to be attached to the open-ended commitments included in the contract. See for example 
Barca, F., Brezzi, M., Terribile, F. and Utili, F. (2004), for an “experiment” implemented in the context of 
cohesion  policy,  of  open-ended  clauses  with  incentives  attached,  where  the  mechanism  of  “closing  the 
contract” was entrusted to a third party, a Committee composed of members of the evaluation unit of the 
principal  (the  national  government),  two  representatives  of  the  Regions  (with  very  different  chances  of 
complying  with  the  commitments)  and  two  independent  experts  (appointed  by  the  Commission).  By 
periodically assessing the implementation of the clauses in each Region, the Committee brought together 
both an understanding and a consensus of what their right interpretation was in each different context. See 
also Bonaccorsi, A. (2009).  

 44

 
                                                      
Decision processes at local level 

The  ultimate  purpose  of  exogenous  intervention  is  to  induce  private  agents,  individually  and 
through “voluntary institutions”, and local governments to do what they fail to do by themselves, 
which is investing time and effort in revealing knowledge and preferences and aggregating them 
so as to provide public goods and services. For this to happen, both private and public actors need 
to have an incentive to participate, which, in turn, requires a change in expectations and a degree 
of certainty about the return from such effort136. 

Local institutions – networks, associations, districts, pacts, agencies, etc - created by private and 
public actors for specific purposes represent the means through which a change in expectations 
and  certainties  comes  about.  They  provide  the  framework  in  which  coordination  takes  place, 
reciprocal  guarantees  are  provided,  information  is  elicited,  projects  are  developed  and 
commitments  are  made  through  “contracts”  with  the  different  levels  of  government.  Their 
purpose  can  be  focussed  on  one  service  only  (transport,  healthcare,  education,  waste  disposal, 
research,  etc.)  or  cover  bundles  of  services.  They  can  embrace  different  administrative  levels, 
from  local  to  international,  which  are  relevant  for  the  purpose137.  These  local,  special-purpose 
institutions can have negative effects. Since they influence the use of public money, and become 
the means through which the exogenous intervention is linked to the place, pursues its goal and 
disburses funds, they can be used simply to make money. This would discourage new ideas and 
new  people  becoming  involved,  reduce  the incentive to innovate, lead to a choice of economic 
institutions  which  are  neither  in  the  interests  of  overall  efficiency  nor  of  equity and undermine 
the purpose of the exogenous intervention138. Even when a degeneration of this kind is avoided at 
the start of the process, it might occur once an elite (possibly replacing the old local elite) comes 
to  govern  the  process  and  makes  itself  “indispensable”  to  those  running  the  exogenous 
intervention. 

The antidote to this is the verifiability, openness and experimental nature of the local decision-
making process. The creation of local institutions and their activities needs to be inspired by these 
principles,  by  the  idea  of  substantial  democratic  participation  in  decision-making.  Three 
ingredients have emerged from the previous sections:  

•  a clear identification of objectives and standards, measured by validated indicators, which can 
be compared with what happens elsewhere, are open to monitoring, and capable of providing 
a focal point for public debate and action; 

•  a permanent mobilisation of all those interested, stimulated by the exogenous intervention, by 
the injection of information on actions and results and by having opportunities for expressing 
more informed proposals and for voicing disagreement; 

•  an  experimental  approach  through  which  collective  local  actors  are  given  an  opportunity  to 
experiment  with  solutions  while  exercising  mutual  monitoring,  and  alternative  measures  are 
tried  and  compared  through  a  systematic  learning  process,  in  which  prospective  impact 
evaluation  plays  a  relevant  role  and  the  results  of  previous  interventions  are  used  to  design 
new ones.  

136 An example of these incentives is represented by the choice in the regional innovation programmes of 
strongly limiting the number of selected clusters or poles or to label them to signal the ranking: see OECD 
(2007c). 
137 See again Hooghe, L. and Marks, G. (2003).  
138 On these risks, see also Farole, T., Rodríguez-Pose, S. and Storper, M. (2009). 

 45

 
                                                      
Focusing public debate on progress towards objectives, learning and prospective counterfactual 
impact evaluation 

Focusing  public  debate  on  objectives  and  learning  about  what  works  in  practice  are,  therefore, 
two 
fundamental  components  of  place-based  development  policies.  Their  successful 
implementation requires them to be distinguished methodologically. In particular, there are four 
distinct  functions,  which  are  often  at  risk  of  overlapping  and  hampering  each  other  in  policy 
design and implementation: 

•  Ensuring efficient and regular policy implementation (the narrow “accountability function”). 
Here, the purpose is to create an incentive for policy-makers responsible for implementation 
to  work  conscientiously,  to  comply  with  regulations,  to  spend  the  resources  that  were 
allocated  to  them  cautiously,  and  to  deliver  the  “physical”  output  (the  public  works,  the 
number of training hours) to which they committed themselves. Tasks should be clear-cut and 
described  in  a  verifiable  way  with  audit  and  incentive  mechanisms  to  encourage  policy-
makers to perform them diligently and with care. 

•  Encouraging  focus on objectives and on the progress towards achieving them. The ultimate 
goal  of  the  policy  is  to  achieve  objectives  –  given  outcomes  or  effects  as  regards  the  well-
being of people (reduction in travel time or in pollution, increasing skill levels and so on). The 
achievement of these depends, once the physical output is produced, on the appropriateness of 
the  policy  intervention  as  a  whole  (and  of  the  theory  on  which  it  is  based)  and  on  factors 
influencing  the  context.  The  policy  process  can  be  enhanced  by  requiring  policy-makers  to 
establish  targets  in  terms  of  verifiable  indicators  of  the  objectives  concerned,  to  document 
how closely results are to them and to focus public debate on this information. This process 
can encourage people to participate and increase policy effort, though results and the extent to 
which  they  are  in  line  with  targets  should  never  be  interpreted  as  a  measure  of  policy 
effectiveness. 

•  Learning  about  what  works.  The  purpose  here  is  to  understand  how  effective  policy  is, 
whether observed outcomes are due to the policy and to what extent, the ultimate aim being to 
increase  understanding  of  the  link  between  policy  and  outcomes.  This  requires  a  means  of 
estimating what would have happened if the intervention had not been undertaken. 

•  Learning about the implementation process. Here the task is to learn how policy was enacted 
– the sequence of actions, the allocation of responsibilities, the coordination of those involved 
and  so  on.  Together  with  learning  about  what  works,  this  can  lead  to  recommendations  for 
policy change and enable interventions to be better designed. 

The  task  of  ensuring  that  the  focus  is  on  the  progress  towards  achieving  objectives  requires 
contracts  to  put  a  strong  emphasis  on  these  and  to  set  targets.  It  also  requires  a  clear 
methodological  framework,  a  rigorous  distinction  between  outcome  and  output  indicators  and 
between  indicators  and  tools  for  impact  evaluation,  indicators  which  are  statistically  robust, 
comparability  across  places,  public  access  to  data  and  regular  monitoring  reports.  The  task  of 
learning about what works – or impact evaluation – is even more demanding and needs to play a 
central  role  in  these  policies.  If  it  is  carried  out  in  a  prospective  way,  i.e.  by  designing  it  in 
tandem with policy design, it can not only facilitate checking of whether public money delivers 
results but focus attention on objectives, on their definition and on the selection of beneficiaries. 
By doing so, it can have a disciplinary effect on policy-makers.  

Impact  evaluation  is  complex  since  the  effects  of  policy  need  to  be  disentangled  from  the 
underlying trends and from the effects of other events and policies. Outcome indicators can never 
do this job since they show how things evolve while the policy is being carried out but are silent 
on  the  underlying  causes.  Various  methodologies  have  been  developed  to  respond  to  this 

 46

 
challenge139.  Among  them,  the  so-called  “realist  evaluation”  can  be  of  help,  since  its  aim  is  to 
learn  which  mechanisms  and  which  contexts  cause  an  intervention  to  be  successful  –  i.e.  what 
makes individuals act in the way postulated by the theory of change on which the intervention is 
based. 

The most promising results, however, come from a family of methods developed in recent years, 
collectively defined as “counterfactual”, which are aimed at assessing the impact of interventions 
by  estimating  what  the  outcome  would  have  been  had  the  intervention  not  taken  place.  This  is 
mainly done by analysing what happened as regards “similar enough” individuals, organisations 
or  areas  not  targeted  by  the  policy.  Place-based  development  policies  represent  a  challenge  for 
the  implementation  of  counterfactual  impact  evaluation,  but  they  also  offer  an  environment  in 
which the disciplinary effect of using the method can be particularly strong, especially when it is 
used prospectively (see Box I.A). 

Box I.A Counterfactual impact evaluation and its prospective use by place-based development policy 

Counterfactual  impact  evaluation  (here  termed  simply  impact  evaluation)  allows  the  assessment  of 
policy effects without the use of complex econometric models, in which strong hypotheses need to be 
made which are often hard to appreciate by the layman, and to act as a leverage for policy improvement. 
It focuses on using data of good quality and on the robustness of the method through which a population 
“similar” to the target population is identified140.  

This  second  requisite  is  demanding,  since  the  selection  (or  self-selection)  of  the  beneficiaries  of  the 
intervention  might  well  produce  a  group  with  features  that  differ  markedly  from  those  of  non 
beneficiaries  (those  which,  according  to  the  selection  criteria,  are  the  most  suitable  firms,  the  most 
deprived individuals, the least capable local administrations, etc). In this case, a comparison between the 
beneficiaries  and  non  beneficiaries  does  not  produce  a  valid  estimate  of  the  effect  of  the  policy. 
Methods have been developed, which must be adapted and tested case by case, to deal with this problem 
by measuring the differences between the two populations taking observable variables into account in 
the comparison141. These methods cannot be used when there is reason to believe (as can often happen) 
that  some  “unobservable  variables”  also  exist  which  influence  the  selection  of  those  targeted  by  the 
policy. One way to solve this problem is to adopt randomised assignment, that is an experimental design 
by which the beneficiaries of an intervention are randomly selected so that non beneficiaries can be used 
as the counterfactual. 

Ethical  issues  that  apply  to  “all  social  experiments  (and,  indeed,  to  any  unproven  social  policy 
implemented on a large scale)”142 become more visible with randomised assignment. This has created 
pressure  openly  to  discuss  and  deal  with  these  issues,  a  step  which  is  often  overlooked  when  the 
selection  of  participants  is  based  on  different  methods.  Building  on  the  experience  established  in 
medicine, a set of principles of conduct has developed in the social field so that random assignment can 
be  considered  ethically  acceptable143.  One  of  them,  “equipoise”,  requires  policy-makers  to  be  truly 
uncertain whether the intervention concerned is beneficial or not: in this case, being excluded from the 
intervention  in  not  necessarily  a  disadvantage.  Other  principles  are  that  use  of  the  results  of  the 
experiment is guaranteed; and that, in order to run the experiment, the normal level of service will not 
be reduced144. Respect for people is a further relevant principle requiring individuals to give “informed 
consent”  to  their  participation  in  the  experiment:  they  must  “not  feel  under  undue  pressure  to 

139  On  this  and  what  follows  (in  the  text  and  in  Box  I.A),  see  the  Report  working  paper  Morton,  M.H. 
(2009). This paper and this Report also draw on the results of a two-day workshop which was organised by 
the  DG  REGIO  evaluation  unit  in  March  2008  and  which  benefited  from  the  contributions  of  Arianna 
Legovini  (sharing  the  results  of  the  experience  of  the  Africa  Impact  Evaluation  Initiative  at  the  World 
Bank),  and  Professors  Alberto  Martini  and  Robert  Walker.  For  a  critical  assessment  see,  for  example,  
Ravallon M. (2009).  
140 See in particular Heckman, J.J., LaLonde, R.J. and Smith, J.A. (1999).  
141  See again Morton, M.H. (2009) for a survey. 
142 See Walker, R., Hoggart, L., Hamilton, G. (2008). 
143 See Bluestein, J. (2005).  
144 See Stafford, B., Greenberg, D., Abigail, D. (2002). 

 47

 
                                                      
participate” and must have a full understanding of the purpose and consequences of participating145. 

Several  ethical  conditions  for  randomisation  can  be  better  dealt  with  in  the  context  of  a  place-based 
policy: 

•  Unlike  the  ordinary  provision  of  services,  place-based  exogenous  interventions  are  by  definition 
additional  and  can  be  truthfully  treated  as  “demonstration  projects”,  avoiding  the  risk  that  the 
normal level of service for some people is reduced.  

• 

In the participatory process which should characterise place-based interventions, both the expression 
of consent and the information on which consent is based can be better guaranteed. 

•  The choice of using randomised assignment as a way of testing the effects of an intervention where 

these are doubtful has more chance to emerge through the policy process. 

• 

• 

In  this  case,  the  principle  of  equipoise  can  be  consensually  extended  to  cover  a  situation  (which 
often  arises)  where  the  benefits  for  the  whole  community  are  truly  uncertain,  although  the  those 
targeted are likely to fare better than the non-targeted because, for example, they receive a monetary 
transfer. 

It is part of the logic of place-based interventions to be carried out in some places and not in others; 
if  the  selection  of  the  target  places  is  random  (which  in  some  cases  would  be  advisable  and 
commonly  agreed),  the  ethical  problem  is  reduced,  since  no  individual  would  be  “disadvantaged” 
relative to any other living in the same area146. 

Whatever  the  method  adopted,  if  the  conditions  exist  for  its  implementation,  impact  evaluation  can 
potentially answer the question of “what works” and “for whom”: whether an intervention has effects – 
on average and for specific groups – on the people at which it is aimed, and how close these effects are 
to  the  objective  (“internal  validity”).  It  does  not  provide  an  answer  to  the  question  of  “how”  the 
intervention  worked.  Nor  does  it  give  safe  guidance  on  whether  the  intervention  will  have  the  same 
effect  once  it  is  applied  to  another  group  or  extended  in  scale  (“external  validity”).  This  is  because 
effects  vary  across  individuals;  context  matters;  the  commitment  of  service  providers  and  of  policy-
makers might be greater in a demonstration setting; and there can be general equilibrium effects which 
do not manifest themselves until an intervention is taken to full scale147.  

The  contribution  of  impact  evaluation  goes  beyond  learning  about  “what  works”  and  “for  whom”. 
When it is prospective, i.e. it is designed together with the intervention, impact evaluation can have a 
strong disciplinary effect. First, it can help focus the attention of both policy-makers and beneficiaries 
on objectives. Secondly, it creates an incentive to assemble the information necessary to assess results. 
Thirdly, it brings to light the criteria by which beneficiaries are selected, which is a delicate problem in 
all development policies since there is a risk of policy being captured by pressure groups; prospective 
impact  evaluation  can,  accordingly  help  to  give  transparency  to  the  selection  procedure.  The  place-
based  development  approach  offers  a  policy  space  in  which  prospective  impact  evaluation  can  take 
place and the relevant information extracted through cooperation between evaluators, policy-makers and 
beneficiaries.  

In  applying  counterfactual  methods  to  place-based  policies,  there  are  a  number  of  specific  challenges 
which need to be addressed. Three are of particular relevance. 

•  By definition place-based policies give rise to heterogeneous interventions in the different places, so 
that implementation analysis is necessary in order to identify different “types” of intervention and to 
make them the subject of separate impact evaluations148. 

•  Place-development policies are often aimed at all the individuals living in a selected set of places. In 
comparing the performance of these places with that of others, the criteria that led to the selection of 

145  See  Walker,  R.  et  al  (2008)  for  an  evaluation  of  whether  this  condition  was  satisfied  in  the  “largest 
random assignment test of a social policy’s effectiveness in the United Kingdom to date” (p.162). Notice 
that the study represents an evaluation of the random assignment evaluation and was conducted under the 
auspices of the UK Department for Work and Pensions which launched the social experiment. 
146 For example, as Walker, R. et al (2008) point out, “consent for programme involvement is not sought 
… in the UK when a trial programme is run in one area and not in another”. 
147 See Duflo, E., Glennerster, R., Kremer, M. (2006). 
148 On this and other challenges see Diez, M.A. (2002). 

 48

 
                                                                                                                                                              
the target set should be expressed in terms of observable variables so that they can be used to select 
a “similar” group for counterfactual purposes. 

• 

It is part of the rationale of place-based policies that changes can be achieved if public goods and 
services  are  provided  in  bundles,  i.e.  if  multi-component  projects  are  undertaken.  This  presents  a 
challenge  since  it  is  difficult  to  assess  what  the  “active  components”  are  and  which  ones  are 
beneficial, neutral or damaging. Different strategies can be adopted in this respect – singling out ex-
post projects that have all the same components except one and assessing them separately, designing 
ex-ante  packages  that  differ  in  only  one component or resorting to qualitative methods in order to 
derive  from  the  subjective  perception  of  participants  some  hypotheses  about  the  relevance  of  the 
different components and then testing them. 

A  strategy  for  prospective  counterfactual  impact  evaluation,  capable  of  tackling  and  testing  different 
approaches  to  these  challenges  is,  therefore,  a  key  component  of  the  governance  of  place-based 
development  policies.  It  is  one  of  the  main  responsibilities  of  the  higher  levels  of  government 
responsible for the exogenous interventions to design and implement this strategy. 

I.3. 

The case for the EU cohesion policy budget reconsidered: why should the EU care? 

Now that a clear-cut policy concept – the place-based development model – has been identified, 
its rationale and governance have been investigated and misconceptions have been removed, it is 
possible to return to the central issue of this chapter, namely, what is the rationale for the EU to 
have  a  place-based  development  policy  and  to  devote  a  significant  share  of  the  Budget  to 
financing this? What, in other words, is the rationale for cohesion policy? 

Economic and social conditions indicate that the European Union is no exception to the rest of 
the  world,  in  the  sense  that  place-based  development  policies  are  greatly  needed.  As  regards 
efficiency,  Europe  is  not  exploiting  its  resources  to  the  full  in  all  types  of  region.  Many  large 
regions  are  lagging  behind  their  potential  and  failing  to  exploit  their  comparative  advantages. 
Several regions are finding it difficult to adapt to external changes and risk falling behind. The 
successful agglomerations are hampered, as elsewhere in the world, by development constraints 
and  by  the  negative  consequences  of  concentration.  Furthermore,  current  technological, 
demographic and climatic trends and changes in global competition are having different effects 
on  different  regions149.  On  the  equity  side,  income  inequality  is  marked  and  is  increasing  or  at 
best  stable  in  most  countries,  while  the  average  risk  of  (income)  poverty  across  the  EU  has 
remained at 15-16% for a decade. There are concentrations of deprivation, on various measures 
of  well-being,  in  most  countries150.  In  the  case  of  NUTS  2  regions,  large  intra-regional 
inequalities exist and even prosperous regions have a significant polarisation of living standards. 
Moreover,  independently  of  the  global  financial  crisis,  fears  of  falling  behind  are  widespread 
among large sections of the population. The demand for a new paradigm of development policy 
has been growing151. 

The financial crisis has further underlined the need for a new approach to development, for two 
reasons.  First,  it  has  increased  uncertainty  and  fear  right  across  society  and  has  inflicted  losses 
(current  and  anticipated)  which  will  create  new  inefficiency  and  social  exclusion  traps  and 
aggravate  existing  ones.  The crisis, beyond the necessary short-term boost to demand, calls for 

149 See European Commission (2008d). 
150 See section II.3.1. 
151 See the analysis and the data for what is by now an extensive review of regional problems and territorial 
policies  assembled  on  the  by  the  OECD  Territorial  Committee  in  its  broader  world-wide  activity:  the 
Reviews  of  territorial  policies  of  Italy,  Czech  Republic,  France,  Poland  Portugal  and  Finland;  the  case 
studies  of  rural  and  so-called  “intermediate  regions” ,  Teruel  and  Comarca  Central  Valenciana  in  Spain, 
Tzumerka  in  Greece,  Champagne-Ardenne  in  France,  Marevska  Trebova  in  Czech  Republic,  Siena  and 
Bergamo 
the  case  studies  of  metropolitan  regions  of  Athens,  Helsinki,  Øresund, 
Vienna/Bratislava,  Randstad  (conurbation  of  Amsterdam/Rotterdam/The  Hague/Utrecht),  Milan,  Madrid, 
Stockholm, Copenhagen and (looking forward) Istanbul. 

in  Italy; 

 49

 
                                                      
exogenous  interventions  which  are  highly  tailored  to  places.  Secondly,  there  is  a  crisis  of  trust 
between lenders and borrowers. It is not possible to anticipate how it will be overcome and what 
lasting changes will come about. But it can be anticipated that rebuilding will require investing in 
institutions  that  are  capable  of  restoring  the  trust  of  lenders  and  providing  better  flows  of 
information  on  borrowers.  Indeed,  promoting  local  projects  that  elicit  and  aggregate  the 
knowledge  of  actors  and  initiate  a  learning  process  across  places  is  an  appropriate  way  for 
governments to act in the present circumstances.  

But why should the EU operate this kind of policy and devote a large share of the Budget to it? 
Does  not  subsidiarity  suggest  that  place-based  development  policies  should  be  a  matter  for 
Member  States?  What  is  the  rationale  of  the  Treaty  proviso  that  the  Community  supports  “the 
achievement  [of  harmonious  development]  by  the  action”  of  dedicated  Funds? Would it not be 
more appropriate for the Union to promote Member State place-based policies by means of moral 
suasion through an “open method of coordination”? 

There two economic grounds for a large share of the EU budget to be allocated to a place-based 
development  policy.  First,  such  an  approach  is  the  only  feasible  and  effective  way  to  pursue  a 
development  strategy  which  is  indispensable  for  the  existence  of  the  Union  (sustainability 
argument). Second, the Union has a comparative advantage over Member States in running the 
place-based approach (policy effectiveness argument). 

The sustainability argument: a feasible and effective way to respond to rising expectations … 

The  sustainability  argument  for  the  EU  to  run  a  place-based  development  policy  has  two 
elements.  

•  First, the existence of the EU and its (actual and perceived) impact on people’s lives compel it 
to  pursue  a  development  policy  which  addresses  the  expectations  of  European  citizens, 
wherever they live, to be given the chance of benefiting from the opportunities and avoiding 
the risks created by globalisation and by the Union itself.  

•  Second,  the  place-based  model  –  one  targeted  at  regions  defined  by  the  policy  process,  in 
which the EU sets the framework, the priorities and the “conditionalities” (on which grants to 
lower  levels  depend)  and  jurisdictional  Regions  and  Nation  States  have  responsibility  for 
selecting  places  and  projects  -  is  the  only  development  policy  compatible  with  the  limited 
democratic legitimacy of the Union; though it is also a highly effective tool for addressing the 
task. 

This  is  a  reformulation,  made  under  even  more  compelling  circumstances  and  on  the  basis  of 
more advanced economic thinking, of the main reason that led, following the Thomson Report in 
1973,  to  the  progressive  creation  of  cohesion  policy  and  to  the  1988  high-level  political 
compromise (see section I.1.2). 

Globalisation,  a  “state  of  economic,  political  and  culture  in  world  affairs”  where  distance 
between  places  and  between  individuals  is  reduced,  markets  become  more  integrated,  branded 
products  are  widely  spread  and  “closer  interconnectedness”  exists  between  countries152,  is  at 
work  everywhere.  In  Europe,  the  political  choice  of  unifying  markets  and  currencies  has 
deepened  the  effects  of  globalisation,  creating  new  opportunities  for  many  European  regions 
where  the  knowledge  base  is  significant.  But  exploiting  these  opportunities  is  challenging  and 
difficult and the creative destruction brought about by market pressure involves losers as well as 
winners.  In  places  where  local  economic  institutions  are  weak  or  slow  to  adjust,  market 
integration does not automatically encourage capital and labour inflows and can actually facilitate 

152 This definition of the “elusive concept” of globalisation is derived from an extensive inquiry conducted 
by the UK House of Lords in 2002. See House of Lords (2002). 

 50

 
                                                      
outflows153. In this context, and with large inflows of migrants attracted by the relative openness 
and freedom of societies, a threat to local or national cultural identities is also being felt (strongly 
in  some  places),  particularly  by  those  lacking  the  means  to  “connect”  economically  and 
culturally154. New under-utilisation and social exclusion traps are likely to arise and existing ones 
might become more resilient. There are many possible scenarios open and the one that emerges 
will depend, inter alia, on public action. 

Once the choice has been made to pursue market and currency unification, to make markets more 
flexible  and  to  open  internal  borders,  the  sustainability  of  the  Union  depends  on  people  being 
convinced  that  a  similar  kind  of  policy  effort  is  being  made  to  give  all  of  them  the  same 
opportunity  to  benefit  from  these  changes  independently  of  where  they  live.  The  important 
progress achieved in market unification and the remarkable success of the single currency created 
ten years ago underlines what was argued back in 1973: that “no Community could maintain itself 
nor  have  a  meaning  for  the  people  which  belong  to  it  so  long  as  some  have  very  different 
standards of living and have cause to doubt the common will of all to help each Member State to 
better the condition of its people”. The European Union has been vested with sovereignty over 
economic, market and monetary issues which deeply affect the well-being of European citizens. 
This authority is often exercised through Member States, but EU citizens tend to perceive – by 
and large rightly – that the lawmaker in these areas is the EU155. This calls for the EU to use its 
budget to overcome the perceived disadvantages of  European integration and the obstacles that 
prevent European citizens from benefiting from integration, wherever they live.  

One important clarification is needed, however. It is not a matter of “doing something social” as a 
“cost  to  pay”  in  order  to  achieve  and  preserve  market  and  currency  unification.  This  argument 
has  been  over-used  through  the  years  in  order  to  convince  the  sceptics  and  has  backfired.  If  a 
policy  is  a  “cost”,  why  should  anyone  care  too  much  about  its  quality,  results,  evaluation  or 
conceptual design? Let’s just pay the cost and try to make it as low as possible. 

The reductionist argument is wrong for three reasons. First, market and currency unification are 
not objectives but means to achieving the objectives which motivated the formation of the Union, 
namely  increased  growth  and  well-being  and  helping  to  preserve  peace.  Secondly,  unless 
inefficiency  and  social  inclusion  traps  are  tackled  through  a  policy  for  development,  the  very 
objectives  for  which  market  and  monetary  unification  were  introduced  cannot  be  achieved. 
Thirdly, independently of market and monetary unification, these objectives require, as indicated 
by the experience of other Unions, the EU to take direct responsibility for tackling these traps. 

That  the  EU  should  commit  to  equal  opportunities  is  clearly  expected  by  citizens  of  countries 
which, after centuries of conflict, have voluntarily chosen to come together under common rules. 
In  doing  so,  they  have  experienced  their  labour  markets  being  opened  up,  their  services  being 
accessed  by  outsiders  and  their  national  and  local  practices  being  changed  by  European  rules. 
They have also experienced an erosion of their traditional bonds and their national identities. The 
process  of  unification  is  difficult  as  evidenced  in  opinion  polls  and  the  recent  experience  of 
attempting  to  construct  new  constitutional  arrangements.  For  the  Union  to  be  sustained  and  a 
reversion to nationalistic behaviour to be avoided, two complementary lines of action seem to be 
called for in the short-to-medium term. First, there should be less elitism in EU interventions and 

153  See  Ekinci,  M.F.,  Kalemli-Ozcan,  S.  and  Sorensen,  B.E.  (2007)  for  evidence  of  the  fact  that  the 
capacity  to  benefit  from  capital  market  integration  depends,  within  the  same  EU  country,  on  “social 
capital” measured by subjective indicators of trust (in people) and confidence (in institutions). 
154 The empirical study conducted by Kriesi, H., Grande, E., Lachat, R., Dolezal, M., Bornschier, S. and 
Frey, T. (2006) analysed a quality newspaper and a tabloid in Austria, France, Germany, Switzerland, the 
Netherlands and the UK in pre-electoral periods and showed that “the cultural dimension has been gaining 
in importance as it has become the primary basis on which new parties or transformed established parties 
seek  to  mobilise  their  electorate”.  This  in  turn  has  often  coincided  with  rising  opposition  to  European 
integration and growing support for restrictive immigration policies.  
155 See the note above. 

 51

 
                                                      
less  invasiveness  in  interfering  with  national  and  local  practices  in  an  overly-detailed  and 
bureaucratic way. Secondly, “common bonds” need to be promoted at the EU level since this is 
responsible for loosening existing bonds.  

Tackling  the  inefficiency  and  exclusion  traps  that  arise  around  Europe  is  a  task  for  the  Union 
because it will be blamed if the task is not performed successfully. Moreover, if it successfully 
performs  the  task,  then  the  loosening  of  existing  national,  or  regional,  bonds  is  likely  to  be 
accompanied  by  a  strengthening  of  European  bonds,  extending  beyond  national  or  regional 
borders.  Borrowing  an  expression  from  a  letter  written  in  1932  by  Sigmund  Freud  to  Albert 
Einstein, it could be argued that a process of building a “new identification” as European citizens 
is needed for the Union to hold under the present strain. An expectation of solidarity at EU level, 
of a “common will” to give opportunities to all citizens, can, therefore, be seen as the necessary 
cement for this process156. If this expectation were not to be fulfilled, not only would the EU’s 
pursuit of a market-based policy of liberalisation be eroded, but the existence of the Union as a 
meaningful institution would be put in strong doubt, so putting growth, well-being and peace at 
risk.  

But what kind of EU development policy is warranted today by present political circumstances? 
Here is where the second part of the motivation comes in.  

The  EU  is  a  transitional  hybrid  form  of  government  and  enjoys  only  limited  democratic 
legitimacy.  Member  States  have  strong  social  contracts  with  their  citizens  which  would  not 
permit  a  top-down  development  policy  like  that  in  the  US  (see  section  I.1.1).  Full  sovereignty 
over development policies would not be allowed. Nor would a place-based development policy 
be  accepted  if  the  Union,  by  overriding  Nation-States  and  regions,  were  to  select  regions  and 
directly finance their projects. A place-based development policy under which Nation-States and 
Regions are responsible for these two tasks and the Union is responsible for the framework, the 
priorities and the conditions set for receipt of grants is a way of dealing with the expectations of 
European  citizens,  without  impinging  on  national  aspirations  and  by  making  the  most  of 
jurisdictional  Regions.  This  is  the  political  economy  reason  that  explains  the  1988  European-
wide high-key political compromise that brought together different but converging visions of the 
Union (see section I.1.2).  

At  the  same  time,  as  the  previous  section  has  shown,  this  policy  model  is  also  particularly 
suitable,  unlike  a  top-down  approach,  for  tackling  both  inefficiency  and  social  exclusion  traps 
because it combines an exogenous strategic intervention with a reliance on local preferences and 

156 In September 1932 Sigmund Freud answers a letter by Albert Einstein, encouraged by the International 
Institute of Intellectual Cooperation created by the League of Nations, asking his views on how to prevent 
“wars  between  nations”  (as  “the  most  typical,  most  cruel  and  extravagant  form  of  conflict  between  man 
and  man”).  Among  other  observations,  Freud  argues  that  “there  are  two  factors  of  cohesion  in  a 
community: violent compulsion and ties of sentiments (“identification” in technical terminology) between 
the members of the group. If one of these factors becomes inoperative, the other may still suffice to hold 
the  group  together”.  With  reference  to  the  League  of  Nations,  which  in  his  words  was  attempting  to 
acquire authority ”by calling into play certain idealistic attitudes of mind”, he argues that “it would seem 
that any effort to replace brute force by the might of an ideal is, under present conditions, doomed to fail”. 
But he argues that two ways exist to “divert [man’s aggressive tendencies] into a channel other than that of 
warfare” between nations. One is love. “The other bond of sentiment is by way of identification. All that 
brings out the significant resemblance between man call into play this feeling of community, identification, 
whereon is founded, in large measure, the whole edifice of human society”. This “feeling of community”, 
this “identification”, no longer at national or sub-national level, but among the citizens of different nations 
is what can help prevent wars. See the letters published in Einstein on Peace (1960), pp. 186-203. 
In 1941, after the failure of the League of Nations predicted by Freud and in the middle of the war, a very 
similar  concept  was  expressed  by  Altiero  Spinelli  and  Ernesto  Rossi  in  the  Manifesto  “For  a  Free  and 
United  Europe”  written  while  being  confined  on  the  island  of  Ventotene.  They  advocated  European 
unification, basing it on a set of policies aimed at freedom and at the equality of opportunities that would 
create “on the new order the consensus of very large masses of citizens”. 

 52

 
                                                      
knowledge. Its participatory approach also serves to counteract the elitism that often characterises 
EU interventions. 

A place-based development approach is, at once, the only model politically available to the EU to 
fulfil an unavoidable task and the approach potentially most effective in performing it.  

This  motivation  is  strengthened  by  the  present  financial  crisis,  which,  by  threatening  the 
economies  of  whole  regions  and  the  well-being  of  many  people,  imposes  pressure  on  national 
governments  to  act  defensively.  It  also  forces  the  EU  to  reconsider  some  of  its  fundamental 
economic principles concerning market integration, mobility of labour, currency unification and 
fiscal  stability,  as  well  as  restraining  countries  from  tackling  their  problems  at  the  expense  of 
others  157.  Going  back  on  these  principles  would  undermine  the  whole  political  construction  of 
the Union. Responding to the crisis through major public investment – whatever is thought about 
the likely effectiveness – is an option open to Member States but not to the Union as such, due to 
its hybrid political nature. The supply-side policy model embodied by cohesion policy – a long-
term  strategy  aimed  at  the  provision  of  public  goods  and  services  with  a  determining  role  for 
“local” actors – appears to be a more feasible, appropriate and effective answer.  

… with an overtone of urgency for the social inclusion objective 

This strong justification for an EU place-based development policy applies to both the efficiency 
and  the  equity  objectives.  On  the  efficiency  side,  citizens  of  all  regions  need  to  know  that  the 
same  authority  –  the  European  Union  –  which  is  promoting  the  conditions  for  greater  capital 
flows  and  preventing  the  use  of  traditional  defence  mechanisms  (subsidies  and  protectionist 
barriers)  is  also  engaged  in  a  serious  and  accountable  effort  to  enable  their  local,  regional  and 
national  authorities  to  strengthen  the  economic  institutions  which  are  necessary  for  taking 
advantage of these capital flows. On the social inclusion side, the need for EU responsibility is 
assuming some urgency. 

The  division  of  labour  between  the  EU  taking  care  of  markets  and  liberalisation  and  Member 
States taking care of welfare is under increasing pressure158. On the one hand, the scope for action 
of Member States is increasingly constrained by the constitutional “supremacy of all European 
rules  of  economic  integration,  liberalisation  and  competition  law”  and  by  the  pressure  of  tax 
competition and EU stability rules on national budgets. On the other hand, “Europeanising social 
policies … [is] politically constrained by the diversity of national welfare states, differing … in 
their ability to pay, [and] …. in their normative aspirations and institutional structures”. This is 
occurring  in  a  Union  which,  “because  of  the  great  cultural  and  linguistic  diversity”  of  its 
Member States, “cannot count on a high liquidity of resources”, namely on high labour mobility, 

157  This  pressure  is  visible  in  the  text  of  the  Commission  Communication  on  “Temporary  Community 
framework  for  State  aids  measures  to  support  access  to  finance  in  the  current  financial  and  economic 
crisis” (2009/C 16/01). By significantly widening the framework originally proposed by the Commission 
in November 2008, it introduces, together with guarantees, subsidised loans and risk capital measures, aid 
schemes  and  a  provision  on  the  cumulation  of  different  measures,  as  well  as  extending  eligibility  to 
companies “in difficulties”. On the delicate issue of the “free movement of workers”, where problems are 
increasingly perceived by the European Trade Union Confederation on the implementation of the posted 
workers  Directive,  a  Communication  was  prepared  for  Council  adoption  in  February  2009  (6480/09) 
which concludes that “the post-enlargement free movement of workers has not led to serious disturbances 
on  the  labour  markets”,  and  “invites  those  Member  States  that  continue  to  apply  restrictions  under  the 
transitional arrangements, with the full involvement of the social partners … to lift all restrictions in the 
third phase if serious disturbances to the labour markets … cannot be established”. But the issue of how 
compatible a situation of free movement of workers is with the absence of common requirements on wage 
levels and working conditions is coming to the fore. 
158  See  among  others  Scharpf,  F.W.  (2002),  from  which  the  two  following  quotes  in  the  text  are  taken, 
Cramme, O. (2008), Bertola, G. (2007) and D’Antoni, M., Pagano, U. (2008). 

 53

 
                                                      
which  can  act  as  a  source  of  social  protection  and  accordingly  requires  more  protection  to  be 
provided through public intervention159. 

It  has  been  argued  that  Europe  is  “in  the  paradoxical  situation  where  forms  of  European 
protection  are  extremely  difficult  for  the  same  reason  that  they  are  necessary.  The  absence  of 
cultural homogeneity hampers the introduction of social protection policies … that are necessary 
precisely because of cultural diversity”160. The soft route of the Open Method of Coordination, 
while creating an innovative framework for policy learning and policy guidance and giving the 
EU a way to encourage policy action by Member States161, does not resolve the paradox, since it 
ultimately relies on the willingness of Member States to make use of it. Nor is there a solution in 
the  European  Court  exercising  some  kind  of  radical  pressure  to  balance  the  rights  and  duties 
emerging from liberalisation and common citizenship, since people will not be satisfied with the 
EU playing only the pars destruens – ruling against national laws that go against these rights and 
duties – and leaving the pars costruens to Member States162. 

An EU place-based development policy can be a way of experimenting with a move ahead while 
mobility of people and labour is very gradually promoted. It can reconcile the diversity of “social 
contracts”  between  national  groups  of  EU  citizens  and  their  Nation  States  by  establishing  an 
overall  social  contract  between  all  EU  citizens  and  the  EU  as  a  whole.  The  content  of  this 
contract  would  be  a  commitment  of  the  EU  to  pursue  a  number  of  clear-cut  objectives  –  or  to 
guarantee  certain  socially  agreed  essential  standards  –  through  a  territorialised  social  agenda. 
These  objective  would  include  issues  of high priority for European citizens, such as migration, 
child poverty or ageing (see chapter IV below). The amount of available resources and the very 
nature of cohesion policy - which is not geared to providing services for everyone but rather at 
providing additional support in specific places – would obviously not enable whatever priority is 
chosen to be fully achieved. But it could enable the issue to be tackled in many regions all over 
Europe  and  a  European  methodology  to  be  established.  It  would  be  up  to  each  Member  State 
and/or Region to implement the policy in a way that was in line with social aspirations.  

While providing a partial solution for the present, a territorialised social agenda could help build 
future solutions. On the one hand, it could help promote mobility (if, say, it reduces the risks of 
migration)  with  positive  effects  on  social  protection.  On  the  other,  it  could  provide  lessons  on 
building a comprehensive and permanent European social policy.  

A  comparative  advantage  over  Member  States:  exploiting  interdependencies  and  enhancing 
credibility 

The  second  economic  rationale  for  the  EU  running  a  place-based  development  policy  and 
devoting a large share of its budget to this has to do with the comparative advantage that it has 
over  Member  States  in  running  such  a  policy.  This  advantage  depends  on  two  factors:  the 
capacity to exploit interdependencies and to avoid a zero-sum game among Member States and 
the credibility not to be captured by local interests. 

In the first place, the EU level is better suited to tackling strong, cross- border interdependencies 
on  which  development  depends.  The  capacity  of  a  place  to  come  closer  to  its  potential  and  to 
reduce  social  exclusion  depends  on  what  happens  in  other  places.  A  prominent  example  is  the 
often  strong  interdependency  resulting  from  the  dynamics  of  agglomerations  and  networks, 
which creates links between places which can be in different countries. In general, as compared 
with the national level, the EU can achieve three additional results. 

159 See D’Antoni, M., Pagano, U. (2008). 
160 The quote is taken from D’Antoni, M., Pagano, U. (2008). 
161 See again Sabel, C.F. and Zeitlin, J. (2008). 
162 See Scharpf, F.W. (2008). 

 54

 
                                                      
•  Reducing  the  opportunity  for  beggar-thy-neighbour  policies  by  restraining  Member  States 
from  favouring  their  national  champions  or  reacting  to  regional  problems  by  intervening 
through  subsidies  and  the  like  which  are  damaging  to  other  Member  States.  Existing  EU 
Regulations create the framework for avoiding these zero-sum (often inefficiency-enhancing) 
actions, but having a direct influence through controlling a significant share of total European 
capital expenditure could give much greater guarantees. 

•  Taking account of the cross- border externalities of the public goods and services provided in 
any given place. For several important services (environmental protection a, research and high 
education, energy, etc), the benefits produced by public intervention are only partly enjoyed 
by those living in the place concerned and so they tend to be under-produced. By contrast, an 
EU-level  policy  can  lead  to  cooperation  between  Member  States  and  Regions  around  the 
achievement  of  common  goals  –  through  a  common  strategy  with  contractual  commitments 
that  assure  participants  that  others  are  making  similar  investments,  rather  than  through 
common  projects  (the  transaction  costs  of  which  can  be  very  high).  Such  cooperation  can 
enable  all  of  them  collectively  to  achieve  a  level  of  provision  of  these  services  that  is 
beneficial to all. 

•  Promoting  a  process  of  institutional  learning  and  dissemination  that  allows  each  place  to 
benefit  from  the  experiments,  results  and  mistakes  of  policies  carried  out  in  other  Member 
States. This can have the additional positive effect of developing a common culture in national 
bureaucracies that for centuries have been working against each other. 

Secondly, the EU level of government can improve the credibility of exogenous intervention.  

For place-based development policies to work, the exogenous policy-makers running them must 
be motivated by interests that are not specific to the places in which policy is implemented, such 
as  by  the  prospect  of  increased  tax  revenue  from  more  prosperous  regions,  a  wider  political 
consensus  or  reduced  social  tension.  These  interests  tend  to  give  them  an  incentive  to  reduce 
capacity underutilisation in areas or to increase social inclusion there. The greatest risk for these 
policies is perhaps when the exogenous policy-makers become diverted away from their general 
interests because they are captured by local elites. If this happens, these places will be favoured 
over  others  with  no  reference  to  efficiency  considerations,  though  this  is  even  more  likely  to 
occur if there is no place-based policy and the spatial-awareness of public interventions is hidden. 
Moreover, policies will tend to favour elites in the places concerned, with no reference to either 
efficiency or equity considerations. Because of this risk, the more distant the policy-makers are 
from places, the less chance there is for them to be ‘captured’ in this way.  

The  peculiar  way  in  which  the  authority  of  the  EU  has  come  about,  and  the  mixed  loyalty  to 
national and European interests which its political and bureaucratic elites tend to have, can ensure 
a distance from local interests and regional pressures which is much greater than in the case of 
national  government.  Administrative  Regions  and  Municipalities  do  lobby  “Brussels”  strongly 
and experience shows that they are sometimes effective as a group in tilting policy in a way that 
is  favourable  to  the  level  of  government  they  represent.  However,  their  individual  influence 
manifests itself only occasionally in affecting the allocation of very limited “special” resources. 
The EU, therefore, has the potential to be very credible in playing such a role. 

Obviously, credibility cannot be attributed to an institution by fiat alone. An institution like the 
EU which has the scope to acquire it, must build it up and renew it continuously. This is equally 
true, however, of the other grounds which make the EU an appropriate level of government to run 
place-based  development  policies,  namely,  sustainability  and  the  capacity  to  deal  with 
interdependencies. Entrusting the EU with partial authority over development, as in the case of 
cohesion policy, requires it not just to manage funds but to have a strong political vision, to base 
this on a development model and to choose clear objectives.  

 55

 
Before coming on to how this sovereignty is exercised in practice and how far cohesion policy 
has  been  in  line  with  the  conceptual  model  that  it  has  helped  to  shape,  two  different  critiques 
directed at the geography of EU cohesion policy first need to be considered. They both dispute 
EU-wide coverage of the policy and advocate more concentration. One argues that policy should 
focus  on  disparities  between  countries,  the  other  that  it  should  be  limited  to  the  “poorer” 
Regions163. 

Renationalisation and the issue of “rich” regions 

According  to  the  first  critique,  cohesion  policy  should  leave  the  issue  of  disparities  within 
countries  to  the  Member  States  themselves  and  confine  funding  to  lagging  or  “poor”  countries 
only. The argument is that countries with the resources to pay for regional development should 
do so without support from the EU and, in any case, under the principle of subsidiarity, they are 
better equipped to undertake this task than the Union. In addition, a system by which the richer 
countries make large contributions to the EU Budget and then receive some of this money back 
through cohesion policy, and tied, moreover, to administrative rules and obligations, is regarded 
as inefficient. 

The approach of allocating cohesion policy resources only to poorer countries – variously termed 
a  “cohesion  model”  or  “renationalisation”  –  would  have  potentially  significant  implications  for 
the net balances of Member States depending on the version adopted (e.g. whether allocations to 
Member  States  are  based  on  national  or  regional  disparities).  Although  this  is  often  the  main 
concern in the debate, this issue is not of interest for this Report. What matters here is the thesis 
that there is an economic rationale for the EU to intervene in disparities between Member States 
but not in disparities between regions. 

This thesis essentially assumes that cohesion policy is a mechanism for financial redistribution, 
transferring funds from richer to poorer areas to compensate for their lower levels of prosperity 
and  revenue-raising  capacity.  The  EU  –  the  argument  goes  –  should  be  concerned  with 
redistribution  among  jurisdictional  entities  which  are  the  next  level  down  –  i.e.  the  Member 
States  –  which  should  then,  according  to  the  principle  of  subsidiarity,  decide  how  to  deal  with 
internal regional disparities given their national constitutional and institutional arrangements. 

If the assumption that cohesion policy is a financial redistribution mechanism were correct, the 
thesis that the policy should be concerned only with poor countries would, in fact, be wrong. A 
complex,  multi-level  governance  system  with  conditions  on  the  use  of  resources  would  be  an 
overly  cumbersome  way  of  redistributing  funds  between  Member  States.  A  mechanism  with 
much  lower  transaction  costs  should  be  devised:  a  financial  equalisation  system  –  an  inter-
country  “EU  fund”  –  which  compensated  for  the  different  levels  of  national  income  per  head 
across the EU. It is not relevant, as has been argued in this regard, that the scale and format of 
cohesion policy may have been influenced by the demand of some Member States to rebalance 
their  net  payments  to  the  EU  or  to  compensate  them  States  for  the  effects  of  other  policies164. 
This is not a good reason why policy should be preserved in its present form when redistribution 
could be delivered more efficiently by other means. 

However, as the Report has argued, cohesion policy is not about financial redistribution. It is a 
policy  for  the  exogenous  promotion  of  development  through  public  goods  and  services  in  all 
places where inefficiency or social exclusion traps exist. This explains its complex architecture. If 
the  arguments  put  forward  to  justify  the  policy  concept  and  the  Union  responsibility  for  it  are 
agreed,  then  it  should  be  accepted  that  the  policy  should  not  be  about  compensating  for 
disparities  between  countries  and  the  issue  of  “poor”  countries  does  not  arise.  If  the  actual 

163  See,  for  example,  Sapir,  A.  (2003).  In  order  to  appreciate  current  views  on  these  two  issues,  see  the 
contributions of Member States to the public consultation on the budget review launched by the European 
Commission: http://ec.europa.eu/budget/reform/issues/read_en.htm. 
164 See Molle, W. (2006). 

 56

 
                                                      
governance and implementation of the policy are considered ineffective, they should be reformed 
everywhere.  And  if  no  improvements  can  be  made  or  if  the  conceptual  arguments  in  favour  of 
place-based  policies  are  rejected,  then  the  policy  should  be  discontinued  everywhere.  It  would 
certainly not be appropriate to “inflict” it on poor Member States only.  

The  second  critique  of  the  geographical  scope  of  cohesion  policy  intervention  accepts  that 
regions  and  not  countries  should  be  the  territorial  reference  for  determining  eligibility  for  EU 
support but argues, first, that Regions should be defined at the NUTS 2 level and, secondly, that 
the policy should be limited to the poorest of these Regions (whether in poorer or richer Member 
States).  In  essence,  in  terms  of  the  present  system,  this  would  mean  discontinuing  support  for 
regions under the “Competitiveness and employment” objective (formerly Objective 2).  

The main feature of this critique is that non-lagging Regions do not need EU financial support. 
They already have access to the resources to pay for the public goods and services they need and 
they  tend  to  have  local  institutions  which  can  take  care  of  their  development  needs  and 
implement region-specific solutions. The costs of “recycling” national contributions via the EU 
are  seen  as  particularly  high  in  these  Regions.  This  argument  is  buttressed  by  referring  to  the 
questionable  performance  of  EU  support  for  them  in  the  past,  with  a  lack  of  clear  evidence  of 
quantified impacts from relatively small allocations of funding, disputed “added value” and high 
administrative costs. Moreover, it is argued that support for innovation, entrepreneurship and so 
on could equally well be delivered by targeted interventions under other EU policies. 

These criticisms raise important issues concerning the performance of cohesion policy especially 
in non-lagging Regions, issues that are considered in the next chapter. The criticism, however, is 
not convincing on conceptual grounds. 

First, while cohesion policy determines eligibility and resource allocation on the basis of NUTS 2 
regions – the authorities in which are also in some cases responsible for managing the funds (see 
section  II.1  below)  –  these  should  not  be  mistaken  as  the  unit  of  reference  for  interventions, 
which is rather the place or region endogenously identified through the policy process. A “rich” 
NUTS  2  region  can  include  both  “rich”  and  “poor”  places,  so  that  even  if  it  were  agreed  to 
exclude  rich  places  because  of  their  stronger  local  institutions,  it  does  not  seem  reasonable  to 
exclude poor places too. But even if this important point is set aside and it is assumed that rich 
NUTS 2 regions include only rich places (or functional regions), their exclusion from the policy 
seems unwarranted for several other reasons.  

In  the  case  of  the  “renationalisation  thesis”,  references  to  financial  capacity  and  “recycling” 
indicate that cohesion policy is largely (or even solely) perceived as a redistribution mechanism. 
But, as argued extensively above, the function of the policy is quite different, namely, to address 
inefficiency and social exclusion traps, problems extending well beyond the adequacy of “own” 
financial  resources  to  fund  required  expenditure.  Comparing  the  maps  of  “problem  Regions” 
from  the  1950s  and  1960s,  when  regional  policies  were  launched  in  the  more  developed  EU 
countries, with spatial patterns of regional disadvantage today demonstrates both the remarkable 
persistence of some problems, despite large transfers of financial resources over the year, as well 
as  the  emergence  of  new  problems.  For  both  kinds  of  problem,  institutional  failures,  path 
dependency  and/or  agglomeration  effects  are  at  work  which  calls  for  exogenous,  active 
interventions, not just financial transfers.  

In  non-lagging  Regions,  the  institutional  structure  is  more  often  in  place  to  tackle  inefficiency 
and  social  exclusion  problems  autonomously.  Increasingly,  however,  Regions  have  to  adapt  to 
economic,  social  and  environmental  challenges  to  their  comparative  advantage.  For  political, 
institutional  or  cultural  reasons,  the  local  institutions  often  find  it  difficult  to  adjust  to  external 
changes – because, for example, of the inability or unwillingness of local elites to understand the 
nature of change, to detect problems, to change established policies, to shift away from declining 
sectors  or  activities,  to  try  fresh  ideas  or  generally  to  act  in  a  timely  way.  Such  constraints are 
particularly pertinent for the EU in addressing, as  an intrinsic part of its role, the challenges to 

 57

 
economic and social development and in trying to ensure strategic and coordinated action in areas 
like innovation, migration, climate change or demographic ageing. 

Moreover,  excluding  all  the  citizens  of  rich  Regions  from  interventions  would  undermine  a 
primary  reason  for  the  policy,  namely,  to  give  everyone  in  the  EU,  irrespective  of  where  they 
live, a concrete sign that the EU is addressing their problems. This is particularly so for the equity 
objective once the extent of social exclusion which is a feature even of rich Regions is taken into 
account, but it is also true for the efficiency objective whenever adjustments are resisted by local 
elites.  

In particular, rich Regions no less than other Regions can gain from both an EU-wide perspective 
and  the  capacity  of  cohesion  policy  at  EU  level  to  reduce  the  extent  of  beggar-my-neighbour 
policies and to reap the benefits of cross-border externalities and institutional learning.  

It is sometimes argued that the added value of Community involvement in non-lagging Regions 
could  be  achieved  by  alternative  methods  such  as  the  Open  Method  of  Coordination  or  other 
exchanges  of  experience.  The  reality,  however,  is  that  the  multi-level  governance  approach  of 
cohesion policy is central to its effects. Put simply, it is the combination of financial resources, 
“conditionalities”,  partnership,  multi-annual  planning  –  cutting  across  national  and  regional 
electoral  cycles  –  and  mutual  learning  over  successive  programme  periods  which  underlies  its 
potential effectiveness. Passive or “softer” mechanisms would not have the same influence. This 
leaves open, of course, the important question of whether these effects materialise in the actual 
implementation of policy – a point which is considered in the next chapter. 

A final conceptual issue is whether cohesion policy is best placed to deliver the place-based, or 
territorial, dimension of EU objectives in rich Regions or whether this should be undertaken by 
sectoral  policies.  In  the  Report’s  view,  this  distinction  is  irrelevant.  Of  course,  the  same 
objectives could be delivered under other policy headings. However, if place-based, territorially 
differentiated  policy  intervention  is  needed  at  EU  level  –  as  many  believe  and  as  this  Report 
argues – then some form of multi-level governance will need to be (re)invented to deliver these 
policies  in  partnership  with  Member  States  and  Regions.  Cohesion  policy  already  has  an 
established system of multi-level governance. If changes are needed, this should be the starting-
point. 

*  *  *  *  *  * 

Having discussed the rationale for an EU place-based development policy and its potential role as 
an exogenous driver of change, the question arises of how close cohesion policy is to this policy 
model  and  how  far  is  living  up  to  its  potential.  This  dual  question,  which  relates  to  the 
effectiveness of EU cohesion policy, is considered in the next chapter. 

 58

 
 59

 
 
II. 

INSIDE THE BLACK BOX OF COHESION POLICY 

Having singled out and discussed a policy model - the new paradigm of regional policy or place-
based (territorial) development approach - and having argued that a strong rationale exists for the 
European Union to allocate to this approach a large share of its budget, the Report can now move 
on  to  question  whether  cohesion  policy,  with  its  current  architecture,  lives  up  to  the  challenge. 
How close is cohesion policy to the policy model? 

The place-based approach is a very powerful and innovative method of public action to support 
development,  but  it  is  not  an  easy  one  and  it  runs  several  risks  (section  I.2).  It  is  important  to 
understand how far its actual implementation is from these risks and what results it seems to have 
delivered.  This  is  the  second  indispensable  step  in  order  to  develop  a  consensus  on  whether, 
compared  to  an  agreed  model,  cohesion  policy  is  so  far  from  its  mission  that  an  appropriate 
place-based  approach  must  be  built  anew  from  different  premises,  whether  it  is  so  close  to  its 
mission  that  only  minor  adjustments  are  needed,  or  whether  it  is  the  appropriate  basis  for 
implementing the model but it requires major changes in order to meet the challenge. 

This  chapter,  after  presenting  a  sketch  of  today’s  cohesion  policy  and  of  the  regional  policy 
context of Member States where cohesion policy takes place, surveys the available quantitative 
evidence and presents a tentative assessment of successes and failures of this EU policy. 

II.1.  Cohesion policy today: resources, governance and goals 

The  present  framework  of  cohesion  policy  for  the  period  2007-2013  is  the  result  of  several 
changes which have taken place since the far-reaching 1988 reform. Box II.A briefly reviews this 
evolution, while this section describes the present system in terms that are accessible to readers 
outside the rather closed cohesion policy community. 

Resources, governance and goals of cohesion policy for the seven year period 2007-13 were set 
by three separate policy decisions that were made at different times between December 2005 and 
October 2006:  

•  Resources and their allocation to Member States and Regions, after a de facto negotiation with 
the  Commission  started  in  2003,  were  first  agreed  by  the  Heads  of  State  at  the  European 
Council summit of December 2005, and then finalised (with relatively minor changes) by an 
Inter-Institutional  Agreement  between  the  European  Parliament,  the  Council  and  the 
Commission (2006/C 139/01) on May 2006.  

•  Governance was agreed in July 2006 through a set of Regulations by the European Parliament 
and  the  Council,  on  Commission’s  proposal  (Regulations  1080  and  1081,  and  Council 
Regulation 1083). 

•  Goals  were  set  in  October  2006  when  the  Council  adopted  the  Community  Strategic 
Guidelines (with “assent” by the European Parliament), a document that the Commission had 
drawn  up  by  moving  from  an  original  draft  prepared  in  July  2005  (following,  in  turn,  the 
communication in May 2005 of the Third Progress Report on Cohesion). 

•  The overall amount of expenditure allocated to cohesion policy for seven years is 346 billion 
euro (308 billion at 2004 prices, which was the basis for the negotiations), accounting for 35.7 
percent of the EU budget. The budget is divided into three distinct funds. The two “Structural 
Funds” are: the European Regional Development Fund (ERDF, or Regional fund), 58 percent 
of  the  total;  and  the  European  Social  Fund  (ESF,  or  Social  fund),  22  percent165.  The 

165 The internal proportion of ERDF and ESF is the result of Member States’ choices and their negotiation 
with the Commission. 

 60

 
                                                      
“Cohesion  Fund”  accounts  for  the  remaining  20.0  per  cent.  In  the  Commission,  the 
responsibility  for  the  ERDF  and  Cohesion  Fund  is  entrusted  to  the  Directorate for Regional 
Policy (DG REGIO), which also has an overall responsibility for cohesion policy, while the 
responsibility for the ESF is entrusted to the Directorate for Employment, Social Affairs and 
Equal Opportunity (DG EMPL). 

The European Agriculture Rural Development Fund (EARDF or Rural fund) and the European 
Fisheries  Fund  (EFF  or  Fisheries  fund),  which  financed  interventions  for  these  two  fields  of 
action, were moved out of the realm of cohesion policy and included under “agricultural policy” 
and “fisheries policy” respectively, although most of their interventions are inspired by principles 
similar to those of cohesion policy. 

Territorial allocation to Regions and countries 

Resources are allocated to three types of eligible territory, using as a geographic unit of reference 
either jurisdictional Regions (“level 2” of a pre-defined normative nomenclature – Nomenclature 
of  Territorial  Units  for  Statistics,  NUTS,  approved  through  EU  Regulation  -  largely  based  on 
administrative units)166 or nation-states: 1) the lagging Regions and the lagging countries, 2) the 
other  (non-lagging)  Regions,  and  3)  all  areas  entitled  to  run  interventions  of  territorial 
cooperation.  It  is  long-established  practice  to  call  the  three  types  of  eligible  territory 
“objectives”. The first eligible territory has been recently identified as “convergence”, in order to 
underline the existence of a development gap to be reduced; the second one is termed “regional 
competitiveness  and  employment”.  As  chapter  I  made  clear,  “convergence”  does  not  capture 
either  efficiency  or  equity  –  the  two  general  objectives  of  cohesion  policy  –  while  the  term 
“competitiveness and employment” somehow captures both. For these reasons, and since in both 
cases the same broad range of interventions can be financed, this Report will refer to the first two 
categories for what they are: types of eligible territory, called lagging and non-lagging. 

Lagging Regions and countries have been assigned the majority of resources: 81.6 per cent (see 
Table II.1). Lagging Regions (61.6 per cent of the total funds) qualified for the assistance when 
their GDP per capita in the years 2000-2002 was below the threshold of 75 per cent of the EU25 
average:  this  criterion  led  to  the  selection  of  84  Regions  (in  18  Member  States),  with  a  total 
population  of  around  154  million  (or  31  percent  of  the  EU27  population).  A  further  13  EU15 
Regions  (accounting  for  3.4  per  cent  of  the  total  EU  population)  were  eligible  as  transitional 
“phasing-out Regions”, in recognition of the “statistical effect” (on the threshold) of enlargement. 
Lagging countries (20.0 per cent of the total funds, corresponding to the whole of the Cohesion 

166 The Nomenclature of Territorial Units for Statistics (NUTS), established by Eurostat since the 1970s, 
was turned into Community legislation in 1988, when the reform of cohesion policy took place whereby 
the  units  were  used  for  the  allocation  of  large  amount  of  resources.  It  is  now  ruled  by  EU  Regulation 
1059/2003  and  subsequent  amendments.  The  nomenclature  is  a  hierarchical  classification,  whereby  each 
Member  State  is  subdivided  into  NUTS  (level)  1  territories,  each  of  which  is  subdivided  into  NUTS  2 
territories,  and  so  forth.  Criteria  for  classification  are  the  following:  1)  administrative  units  within  the 
Member State (defined as “a geographical area with an administrative authority that has the power to take 
administrative or policy decisions for that area”); 2) thresholds of population (level 1: 3-7 million; level 2: 
800  thousand  –  3  million;  level  3:  150-800  thousand);  3)  if  no  administrative  units  exist  for  that  level 
(population interval), this NUTS level shall be constituted (as a non-administrative unit) “by aggregating 
an  appropriate  number  of  existing  smaller  continuous  administrative  units”  taking  into  consideration 
“geographic,  socio-economic,  historical,  environmental  circumstances”  (thresholds  will  not  be  binding). 
The  2003  Regulation  established  a  list  of  units  at  each  level:  for  level  2,  the  largest  Regions  are  Île  de 
France  and  Lombardia-Italy  (11  and  9  million  inhabitants  respectively), the  smallest  (with  less  than  300 
thousand inhabitants) are 14 units, mostly in peripheral areas or islands. Changes can be proposed by the 
Commission (at Member State request) not more often than every three years: they follow automatically 
from  changes  in  administrative  units;  for  non-administrative  units,  a  limit  exists  according  to  which 
changes  should  “reduce  the  deviation  of  the  size  in  terms of population of all EU territorial units”. This 
proviso can help in curbing proposals by Member States which have a mere financial scope of widening 
the territories entitled to higher EU transfers (see below). 

 61

 
                                                      
Fund) qualified for EU support when they had a GNI per capita in the years 2001-2003 below 90 
percent of the EU25 average. They included all of the new Member States, Portugal and Greece 
(plus Spain on a transitional basis), with a total population (partly overlapping with the previous 
one) of around 166 million euro. 

Table II.1: Allocation of the cohesion policy budget for 2007-2013 and eligibility criteria 
(2004 prices) 

Territorial allocation

Criteria for Regions’ 
and States’ Eligibility

Countries

GNI p.c. below 90% of 
GNI p.c. of EU25

Regions

GDP p.c. below 75% of 
GDP p.c. of EU25 

Lagging 
Regions and 
Countries

Phasing out 
Regions

Total

Phasing in 
Regions

GDP p.c. below 75% of 
GDP p.c. of EU15 (and 
not selected by the 
previous criterium)
-
Not included in the 
previous categories but 
eligible as lagging Region 
in 2000-2006

Non-lagging 
Regions

Regions

Total

Territorial 
Cooperation

Cross-border

-
NUTS 3 areas along all 
internal and certain 
external land borders and 
along maritime borders 
separated by a maximum 
of 150 km.

Transnational

All areas

-

-
Total
Source: DG Regio. 
(1) 

Criteria for allocating 
resources among 
Regions and States

Surface, population and 
GNI
For groups of eligible 
Regions of each MS: 
GDP per capita, 
population, 
unemployment rate and 
GNI of the Region’s 
country(1)

Linear reduction from 
the 2006 level, 
unemployment rate(2)

Eligible
 population

Millions

166.0

Financial resources

%

20.0

Billion euro

Annual euro
per capita

61.6

53.0

153.7

57.5

177.1

164.6

16.4

4.1

12.5

109.1

-

206.4(3)

81.6

251.2

173.9

Linear reduction from 
the 2006 level, 
unemployment rate

19.0

3.4

10.4

78.1

All Regions different from 
the other categories

For groups of eligible 
Regions of each MS: 
suggested distribution(4)

295.3

12.5

-

314.3

15.9

38.7

49.1

18.7

22.3

Share of population of 
eligible NUTS 3 
Regions

Share of national 
population
-

190.0

484.4

484.4

2.5

7.7

2.3

100.0

308.0

90.9

The  rather  complex  criteria  are  such  that  the  weights  of  the  three  variables  “correcting”  the  population  are  approximately  as 
follows: 85% regional GDP, 12% GNI, and 3% to unemployment. 

(2)   The allocation for the statistical phasing out region in 2007 corresponds to 80% of their per capita aid intensity level in 2006 and 
a linear reduction to reach the national average per capita aid intensity level for the Regional competitiveness objective in 2013 
(i.e. between EUR 18 and EUR 25 per capita). To the allocation thus obtained is added, if applicable, a premium of EUR 600 per 
unemployed person exceeding the number that would be unemployed if the unemployment rate of the EU convergence Regions 
applied (see point 6(a) of Annex II to Council regulation 1083/2006). 
It includes 166 millions of people in lagging countries, 31,2 millions in lagging Regions not included in lagging countries and 
9,2 millions in phasing-out Regions not included in lagging countries. 

(3) 

(4)   For  the  distribution  of  the  resources  within  any  group  a  formula  was  suggested  by  the  Commission:  weighted  average  of 
population, unemployed people at NUTS 3, number of jobs needed to reach an employment rate of 70%, number of employed 
people with low educational level, population density. 

The  major  part  of  the  remaining  resources  (15.9  per  cent  of  the  total)  has  been assigned to the 
non-lagging  Regions,  a  greater  intensity  of  assistance  being  provided  for  those  “phasing-in 
Regions” which in the previous programming period qualified as “lagging” but which exceeded 
the eligibility threshold because of their own growth. 

The  third  component  of  the  cohesion  policy  budget  (2.5  per  cent)  is  assigned  to  European 
territorial  cooperation.  The  main  beneficiaries  (two  thirds  of  the  amount)  are  all  the  “level  3” 
NUTS  territorial  units  that  are  considered  to  be  entitled  to  cross-border  projects:  those  along 
internal and certain external land borders and along maritime borders separated by a maximum of 
150  km  (and  including  overall  almost  40  percent  of  the  EU27  population).  The  other 
beneficiaries under this part of the budget – for trans-national and inter-regional cooperation - are 
all areas of the EU. 

 62

 
 
For  each  eligible  territory,  the  distribution  of  resources  across  Regions  and  countries  followed 
some  general  criteria  (see  Table  II.1).  For  a  lagging  Region,  the  per-capita  allocation  was 
inversely related to the per capita GDP of the Region and the per capita GNI of the country of 
which  it  is  part,  while  the  region’s  unemployment  rate  had  only  a  very  small  influence  (about 
3 per  cent).  A  series  of  ad  hoc  provisions  also  had  to  be  introduced  during  the  negotiations  in 
order to take care of specific national interests. The resulting overall distribution among Member 
States is presented in Table II.2, while Map II.3 shows an estimate of the final “aid intensity” for 
each  Region  of  the  EU  and  Map  II.4  shows  the  corresponding  gaps  in  per  capita  GDP  across 
Regions. 

Table II.2 - Allocation of cohesion policy budget to Member States for 2007-2013 
(million euro, 2004 prices) 

Member States

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany 

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

Not allocated

Lagging Regions and States

Countries

Regions

Non-lagging 
Regions

Territorial 
Cooperation

Total

-

-

2 015

193

7 830

-

1 019

-

-

-

3 289

7 589

-

-

1 363

2 034

-

252

-

19 562

2 722

5 769

3 433

1 239

3 250

-

-

-

159

579

3 873

-

15 149

-

1 992

-

2 838

14 323

14 158

12 654

-

19 255

2 647

3 965

-

495

-

39 486

15 494

11 143

6 230

2 407

20 161

-

2 594

-

914

1 268

-

363

373

453

-

1 426

9 123

8 370

584

1 865

681

5 640

-

-

45

-

1 477

-

843

-

399

-

7 628

1 446

6 232

-

228

173

159

24

346

92

47

107

775

756

186

343

134

752

80

97

13

14

220

650

88

404

202

93

497

236

642

392

1 301

2 020

6 047

580

23 698

545

3 058

1 533

12 736

23 449

18 217

22 451

815

25 647

4 090

6 096

58

761

1 697

59 698

19 147

17 316

10 264

3 739

31 536

1 682

9 468

392

Total

61 558

189 604

49 127

7 750

308 041

Source: Fourth progress report on economic and social cohesion, COM (2006)281, Brussels,Annex, p.12.  

 63

 
 
Map II.3: Overall annual aid intensity 2007-2013 

Source: Eurostat 

Allocation to national and regional authorities 

The  allocation  of  resources  to  a  Region  says  nothing  about  the  authority  that  manages  those 
resources, which might well be the central State. It only establishes that the beneficiaries have to 
be citizens of that Region.  

 64

 
 
Map II.4: Disparities in GDP per capita among NUTS 2 Regions in 2006 

Source: Eurostat 

By  looking  at  the  decisions  actually  undertaken  by  the  Member  States  on  the  management  of 
resources  allocated  to  Regions,  it  appears  that  only  36.9  per  cent167  of  these  resources  are 
managed by the Regional authorities, the rest being managed by the central government. Taking 
account  of  the  resources  allocated  to  the  national  level  through  the  Cohesion  Fund,  the 
administrative Regions are now managing only 30.5 per cent of the whole cohesion policy budget 
(excluding  territorial  cooperation)  (see  Table  II.5).  As  expected  in  a  place-based  approach,  the 
role  of  the  administrative  Regions  strongly  depends  on  the  constitutional  and  political 
arrangements in each country. Among the ten countries benefiting most from support for lagging 
Regions, only Germany, Italy and Spain - where Regions enjoy considerable autonomy - have a 
greater share of cohesion policy resources managed at regional level than at national level (see 
Figures II.6 and II.7). 

167 The data have been elaborated by DG REGIO. 

 65

 
 
                                                      
Table II.5: Share of resources managed by regional and national authorities in (%) 

Managing 
authorities

Lagging 
countries

Regions

Lagging

Non-lagging

Total

National

100.0

Regional

-

69.4

30.6

31.5

68.5

63.1

36.9

Total

69.5

30.5

Total

100.0

100.0

100.0

100.0

100.0

Source: DG REGIO 

Fig. II.6: Share of resources managed by Regional and National authorities in lagging 
Regions by Member State: 2007-2013 (%) 

Regional

National

50

40

30

20

10

0

AT

BE

BG CZ DE

EE

EL

ES

FR HU

IT

LT

LV MT

PL

PT RO SK

SL UK

Source: DG REGIO 

Fig. II.7: Share of resources managed by Regional and National authorities in non-lagging 
Regions by Member State: 2007-2013 - (%) 

7

6

5

4

3

2

1

0

Regional

National

AT

BE

CZ DE DK

EL

ES

FR HU

IE

IT

KY

LU

NL

PT

SE

SF

SK UK

Source: DG REGIO 

 66

 
 
 
 
 
Typologies of interventions  

The  cohesion  policy  budget  can  finance  a  broad  range  of  expenditure,  under  the  different 
typologies,  or  “priorities”,  in  which  the  development  strategy  is  categorised168.  The  16 
expenditure  categories  (plus  “technical  assistance”  and  “special  interventions  in  the  outermost 
regions”169) currently in use are presented in Table II.5, where the distribution of tasks between 
the ESF and ERDF is also reported. The Cohesion Fund, targeted on the lagging countries, has a 
more limited scope of action defined by the Treaty: transport, energy and environment.  

In  the  current  period,  Member  States  and  Regions  were  also  asked  to  “earmark”  resources  for 
those expenditure categories that are considered to fit mostly the EU’s Lisbon agenda. These are 
equivalent to nine of the 16 categories. Lagging Regions were required to concentrate 60 percent 
of expenditure on those categories, with the requirement increased to 75 percent in other Regions. 
Earmarking was voluntary for the Regions of the so-called EU12 newer Member States. 

Table II.8 - Categories of policy interventions and scope of the specific Funds(*):  
2007-2013 

Categories

Regional 
Fund 

Social  
Fund   

Cohesion 
Fund

Research and technological development 
(R&TD) and innovation(1)
Support to firms' investments
Information Society
Transport
Energy
Environmental protection and risk prevention
Tourism
Culture
Urban and rural regeneration
Adaptability of workers and firms, enterprises 
and entrepreneurs
Access to employment and active and 
preventive labour market measures
Social inclusion of less-favoured persons(2)
Human capital (education, life-long training, high-
level studies in R&TD)
Social infrastructure(3)
Partnership and networking
Institutional capacity at national, regional and 
local level
Reduction of additional costs of outermost 
Regions
Technical assistance

X

X
X
X
X
X
X
X
X

X

X

X

X
X
X

X

X

X

X

X

X

X

X

Source: DG REGIO 
(*)   The flexibility of the eligibility criteria of each Fund is such that both of regional and the social ones do also 

finance a few interventions falling in the categories which are not marked in the table. 

(1)   R&TD activities, technology transfers, assistance to R&TD, advanced support services to firms, assistance to 
SMS  for  environmentally-friendly  products,  support  to  firms'  investments  directly  linked  to  research  and 
innovation. 

(2)   Integration and re-entry into employment for disadvantaged people. 
(3)    It also includes: education, health, childcare, housing. 

168  The  Regulation  explicitly  excludes  only  :  interest  on  debt,  recoverable  value  added  tax, 
decommissioning  of  nuclear  power  plants,  purchase  of  land  for  an  amount  exceeding  10%  of  the  total 
eligible  expenditure  for  the  operation  concerned  (and,  for  the  social  Fund,  purchase  of  furniture, 
equipment, vehicles, infrastructure). 
169 Compensation of costs due to accessibility deficits, territorial fragmentation, size of market factors and 
climate conditions are accepted for the “outermost regions” listed by article 299 of the Treaty (349 of the 
new Treaty): it includes freight transportation services, operations linked to storage constraints, operating 
aids, etc.  

 67

 
 
                                                      
General conditionalities 

The funding provided by the EU must be matched by national financing. Matched funding does 
not need to be provided at the level of single projects or intervention, but rather at the level of all 
the  expenditure  made  in  any  given  category  of  each  Operational  Programme  (see  below).  This 
system of co-financing promotes coherence between cohesion policy and national policies and it 
extends the amount of expenditure on which EU cohesion policy rules have an influence beyond 
the  limits  of  the  EU  budget.  Since  co-financing  does  not  apply  to  single  projects,  it  does  not 
reduce the moral hazard of national authorities in choosing projects for EU financing.  

Together  with  this  co-financing  principle  and  with  the  coherence  principle  (earmarking  of 
expenditure  to  support  the  Lisbon  strategy),  five  other  general  pre-requisites  are  established  as 
“principles of assistance”170:  

•  Additionality: dating back to the origins of the Regional fund, the aim of this principle is to 
ensure  that  Community  expenditure  does  not  merely  substitute  for  planned  national 
expenditure. In 2007-2013, its verification has been restricted to lagging Regions and a new 
sanctioning  mechanism  for  non-compliance  has  been  introduced,  which  could  allow  the 
Commission to withhold a percentage of the Member States’ funding allocation at the stage of 
ex-post verification of additionality. 

•  Complementarity,  sustainable  development  and  gender  equality:  the  implementation  of 
cohesion  policy  must  complement  national  actions  and  other  EU  policies,  must  take  into 
account,  and  actively  promote,  sustainable  development  and  gender  equality/non-
discrimination in the planning and implementation of assistance. 

•  Partnership:  Member  States  are  required  to  organise  the  design  and  implementation  of  EU-
funded  regional  development  programmes  in  partnership  with  “competent  regional,  local, 
urban”  authorities,  with  economic  and  social  partners,  and  with  “appropriate  bodies 
representing  civil  society,  environmental  partners,  non-governmental  organisations,  and 
bodies responsible for promoting equality between men and women”.  

•  Shared  management:  the  implementation  of  cohesion  policy  operates  through  a  mode  of 
shared management, whereby tasks are delegated to Member States but which are required to 
cooperate with the Commission to ensure sound financial management. 

•  Proportionality:  newly  introduced  for  the  2007-13  period,  this  principle  stipulates  that  the 
financial  and  administrative  resources  employed  by  the  Member  States  and  Commission 
should  be  proportional  to  the  total  amount  of  expenditure  of  a  programme  in  relation  to 
indicators, evaluation, management, control and reporting. 

Responsibilities for programming and “contracts” among the Commission and States/Regions 

Member  States  are  responsible  for  implementation,  but  they  must  comply  with  the  previous 
principles and with the commitments that are agreed ex-ante in “contracts” with the Commission. 
The  Commission  is  responsible  for  this  contracting  process,  for  ensuring  the  compliance  of 
contracts with the regulations, as well as for offering advice, technical support and guidance. 

170 As set out in Chapter IV of Regulation 1083/2006 (Articles 9-17). 

 68

 
                                                      
The  contracting  process  works  as  follows.  First,  on  the  basis  of  Commission  proposals,  the 
Council adopts a set of Community Strategic Guidelines which specify an indicative framework 
for intervention linked to the Integrated Guidelines for Growth and Jobs. Then, by building on 
these guidelines (with which “consistency” is required by the Regulation), every Member State 
prepares  “in  dialogue  with  the  Commission”  a  National  Strategic  Reference  Framework  which 
sets out the strategy for the use of the funds in that country. The Framework is required to contain 
the following information: 1) the analysis of existing weaknesses and potentials; 2) an outline of 
the strategy, including its priorities, and its justification; 3) a description of how it will contribute 
to the EU priorities; 4) a list of the specific “operational programmes” through which the strategy 
would  be  implemented;  5)  the indicative allocation of funds among the programmes; and, only 
for  lagging  Regions,  6)  information  on  the  Additionality  commitment;  and  7)  on  the  actions 
planned for improving administrative efficiency171. The Commission is given the power formally 
to approve points 4-5-6-7, while it takes note of the other points. 

Finally, each authority of the Member States (either central administrations or Regions, or other 
bodies) to which the National Framework has assigned a role for managing a programme, draws 
up  an  Operational  Programme  (separately  for  the  Social  and  Regional  funds).  About  430 
Operational Programmes exist in the current programming period. Each Programme is required to 
contain:  a  socio-economic  analysis;  a  strategy  with  priority  axes  (justified  on  the  basis  of  the 
previous two strategic documents) and quantified targets; an indicative breakdown of categories 
of  expenditure;  a  financing  plan;  and  implementing  provisions  for  a  monitoring  and  evaluation 
system; and an indicative list of major projects. The Commission is given the power to “appraise” 
–  here  the  Regulation  uses  a  more  straightforward  language  than  it  does  for  the  National 
Framework  –  the  propose  operational  programmes  “to  determine  whether  it  contributes  to  the 
goals and priorities of the National Strategic Reference Framework and the Community Strategic 
Guidelines”, and to approve the Programme or ask the Member States to revise it. 

It must be noted that no information or commitment is required, either in the National Framework 
or in the Operational Programmes, on the institutional requisites which must be satisfied in each 
sector  where  interventions  take  place  in  order  to  spend  resources  effectively  –  the  institutional 
focus is limited to the requisite for financial implementation and administrative efficiency by the 
authorities managing the funds - or on the chain of events (the “theory of change”) through which 
the planned expenditure should bring about results. Quantification of targets is required only in 
the Operational Programmes. 

The allocation of the cohesion budget across the different categories of interventions which, for 
the current programming period, has resulted from this process is presented in Table II.9 for the 
threefold  typology  of  eligible  territories.  Table  II.10  presents  the  breakdown  of  expenditure 
(giving  both  the  shares  and the actual amounts in  millions of euro) for the whole of the Union 
among the 86 sub-categories into which the 16 expenditure categories have been subdivided.  

171  A  “national  contingency  reserve”  could  also  be  set  up,  providing  a  mechanism  for  responding  to 
unforeseen crises. 

 69

 
                                                      
Table II.9: Allocation of cohesion policy budget by categories and territorial destination, 
2007-2013(*) (% shares) 

Research and technological development (R&TD) and innovation(1)

Support to firms' investments

Information Society

Transport

Energy

Environmental protection and risk prevention

Tourism

Culture

Urban and rural regeneration

Adaptability of workers and firms, enterprises and entrepreneurs

Access to employment and active and preventive labour market measures

Social inclusion of less-favoured persons(2)

Human capital (education, life-long training, high-level studies in R&TD)

Social infrastructure(3)

Partnership and networking

Institutional capacity at national, regional and local level

Reduction of additional costs of outermost Regions

Technical assistance

Total

Lagging 
Regions and 
countries

13.0

4.0

4.4

25.7

3.1

16.0

1.8

1.7

2.9

3.0

5.0

1.8

7.6

5.5

0.2

1.1

0.1

3.1

Non-
lagging 
Regions

21.9

4.5

4.2

4.5

3.3

6.3

1.5

1.5

3.5

10.4

15.3

9.1

8.0

1.5

0.7

0.2

0.5

3.1

Territorial 
cooperation

Total

16.3

0.4

7.1

13.2

4.3

16.1

7.4

6.0

2.2

1.8

2.5

0.8

3.9

5.7

2.8

3.5

0.1

5.9

14.5

4.0

4.4

22.0

3.1

14.6

1.8

1.7

3.0

4.2

6.6

2.9

7.6

4.9

0.4

1.0

0.2

3.1

100.0

100.0

100.0

100.0

Source: DG REGIO 
(*)  

In some cases the description of the categories differs from the established one. General subsidies to firms (not linked to 
innovation) are kept separate from the general category of RT&D and innovation. 
R&TD activities, technology transfers, assistance to R&TD, advanced support services to firms, assistance to SMS for 
environmentally-friendly products, support to firms' investments directly linked to research and innovation. 
Integration and re-entry into employment for disadvantaged people. 
It also includes: education, health, childcare, housing. 

(1)  

(2)  
(3)  

 70

 
 
 
Table II.10: Allocation of cohesion policy budget by categories and sub-categories, 
2007-2013 (million euro at current prices; % shares) 

Categories

Million        
euros

Research and technological development (R&TD) and innovation

50 046.5

Code

Sub-categories

Overall 
share     

Share 
within 
category

(%)

14.5

(%)

100.0

01

02

03

04

05

06

07

08

Code

09

Code

10

11

12

13

14

15

Code

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

Code

33

34

35

36

37

38

39

40

41

42

43

R&TD activities in research centres 

R&TD infrastructure and centres of competence in a specific technology

Technology transfer and improvement of cooperation networks ...

Assistance to R&TD, particularly in SMEs (including access to R&TD services in research 
centres)

Advanced support services for firms and groups of firms

Assistance to SMEs for the promotion of environmentally-friendly products and production 
processes (...)

Investment in firms directly linked to research and innovation (...)

Other measures to stimulate research and innovation and entrepreneurship in SMEs

Support to firms' investment

Sub-categories

Support to firms' investment

Information society

Sub-categories

Telephone infrastructures (including broadband networks)

Information and communication technologies (...)

Information and communication technologies (TEN-ICT)

Services and applications for citizens (e-health, e-government, e-learning, e-inclusion, etc.)

Services and applications for SMEs (e-commerce, education and training, networking, etc.)

Other measures for improving access to and efficient use of ICT by SMEs 

5 783.3

9 899.4

5 578.0

5 574.0

5 150.9

2 504.6

9 029.6

6 526.7

13 605.4

13 605.4

15 284.7

2 256.5

3 597.8

523.8

5 225.1

2 144.4

1 537.2

1.7

2.9

1.6

1.6

1.5

0.7

2.6

1.9

3.9

3.9

4.4

0.7

1.0

0.2

1.5

0.6

0.4

11.6

19.8

11.1

11.1

10.3

5.0

18.0

13.0

100.0

100.0

100.0

14.8

23.5

3.4

34.2

14.0

10.1

Transport

Sub-categories

75 774.0

22.0

100.0

Railways

Railways (TEN-T)

Mobile rail assets

Mobile rail assets (TEN-T)

Motorways

Motorways (TEN-T)

National roads

Regional/local roads

Cycle tracks

Urban transport

Multimodal transport

Multimodal transport (TEN-T)

Intelligent transport systems

Airports

Ports

Inland waterways (regional and local)

Inland waterways (TEN-T)

Electricity

Electricity (TEN-E)

Natural gas

Natural gas (TEN-E)

Petroleum products

Petroleum products (TEN-E)

Renewable energy: wind

Renewable energy: solar 

Renewable energy: biomass

Energy

Sub-categories

Renewable energy: hydroelectric, geothermal and other

Energy efficiency, co-generation, energy management

 71

4 105.3

18 518.6

558.8

695.6

5 133.1

17 482.2

7 659.3

9 775.8

634.4

1 793.9

1 635.4

446.8

1 089.8

1 851.1

3 532.5

265.8

595.6

10 756.2

272.8

313.2

658.6

361.9

171.6

0.0

787.6

1 071.6

1 796.9

1 129.8

4 192.3

1.2

5.4

0.2

0.2

1.5

5.1

2.2

2.8

0.2

0.5

0.5

0.1

0.3

0.5

1.0

0.1

0.2

3.1

0.1

0.1

0.2

0.1

0.0

0.0

0.2

0.3

0.5

0.3

1.2

5.4

24.4

0.7

0.9

6.8

23.1

10.1

12.9

0.8

2.4

2.2

0.6

1.4

2.4

4.7

0.4

0.8

100.0

2.5

2.9

6.1

3.4

1.6

0.0

7.3

10.0

16.7

10.5

39.0

 
     
 
Categories

Million        
euros

Code

Sub-categories

Environmental protection and risk prevention

44

45

46

47

48

49

50

51

52

53

54

Code

55

56

57

Code

58

59

60

Code

61

Code

62

63

64

Code

65

66

67

68

69

70

Code

71

Code

72

73

74

Code

75

76

77

78

79

Management of household and industrial waste

Management and distribution of water (drink water)

Water treatment (waste water)

Air quality

Integrated prevention and pollution control 

Mitigation and adaption to climate change

Rehabilitation of industrial sites and contaminated land

Promotion of biodiversity and nature protection (including Natura 2000)

Promotion of clean urban transport 

Risk prevention (...)

Other measures to preserve the environment and prevent risks

Tourism

Sub-categories

Promotion of natural assets

Protection and development of natural heritage

Other assistance to improve tourist services

Culture

Sub-categories

Protection and preservation of the cultural heritage

Development of cultural infrastructure

Other assistance to improve cultural services

Urban and rural regeneration

Sub-categories

Integrated projects for urban and rural regeneration

Adaptability of workers and firms, enterprises and entrepreneurs

Sub-categories

Development of life-long learning systems and strategies in firms; training and services for 
employees ...

Design and dissemination of innovative and more productive ways of organising work

Development of special services for employment, training and support in connection with 
restructuring of sectors ...  

Access to employment and active and preventive labour market measures

Sub-categories

Modernisation and strengthening labour market institutions

Implementing active and preventive measures on the labour market

Measures encouraging active ageing and prolonging working lives

Support for self-employment and business start-up

Measures to improve access to employment and increase sustainable participation and progress 
of women ...

Specific action to increase migrants' participation in employment ...

Social inclusion of less-favoured persons

Sub-categories

Pathways to integration and re-entry into employment for disadvantaged people ...

Human capital

Sub-categories

Design, introduction and implementing of reforms in education and training systems ...

Measures to increase participation in education and training throughut the life-cycle ...

Developing human potential in the field of research and innovation, in particular through post-
graduate studies ...

Social infrastructure

Sub-categories

Education infrastructure 

Health infrastructure

Childcare infrastructure 

Housing infrastructure

Other social infrastructure

 72

50 120.2

6 234.3

8 087.7

13 906.6

1 020.4

738.9

304.7

3 450.6

2 705.1

6 166.7

5 829.0

1 676.2

6 355.3

1 142.4

1 427.6

3 785.3

5 962.9

2 917.5

2 245.4

800.0

10 188.2

10 188.2

14 427.9

9 752.9

1 898.0

2 777.0

22 638.5

2 375.5

12 075.2

1 043.6

3 247.2

2 651.2

1 245.9

10 156.0

10 156.0

26 030.8

8 612.9

12 500.6

4 917.3

16 864.3

7 356.2

5 211.0

555.7

802.9

2 938.5

Overall 
share     

(%)
14.5

Share 
within 
(%)
100.0

1.8

2.3

4.0

0.3

0.2

0.1

1.0

0.8

1.8

1.7

0.5

1.8

0.3

0.4

1.1

1.7

0.8

0.7

0.2

3.0

3.0

4.2

2.8

0.6

0.8

6.6

0.7

3.5

0.3

0.9

0.8

0.4

2.9

2.9

7.6

2.5

3.6

1.4

4.9

2.1

1.5

0.2

0.2

0.9

12.4

16.1

27.7

2.0

1.5

0.6

6.9

5.4

12.3

11.6

3.3

100.0

18.0

22.5

59.6

100.0

48.9

37.7

13.4

100.0

100.0

100.0

67.6

13.2

19.2

100.0

10.5

53.3

4.6

14.3

11.7

5.5

100.0

100.0

100.0

33.1

48.0

18.9

100.0

43.6

30.9

3.3

4.8

17.4

 
       
     
       
       
       
       
       
       
     
     
       
     
     
       
     
       
       
       
     
       
          
          
     
       
       
     
       
          
          
       
       
       
       
       
       
       
       
       
     
 
Categories

Partnership and networking

Sub-categories

Code

80

Code

81

Code

82

83

84

Code

85

86

Promoting the partnerships, pacts and initiatives through the networking of relevant stakeholders

1 274.5

Institutional capacity at national, regional and local level

3 562.2

Sub-categories

Mechanisms for improving good policy and programme design, monitoring and evaluation ...

3 562.2

Reducing additional costs of outermost regions

Sub-categories

Compensation of any additional costs due to accessibility deficit and territorial fragmentation

Specific action addressed to compensate additional costs due to size market factors

Support to compensate additional costs due to climate conditions and relief difficulties

Technical assistance

Sub-categories

Preparation, implementation, monitoring and inspection 

Evaluation and studies; information and communication

647.5

474.8

129.0

43.7

10 838.6

7 894.7

2 943.9

Million        
euros

Overall 
share     

Share 
within 
category

1 274.5

(%)

0.4

0.4

1.0

1.0

0.2

0.1

0.0

0.0

3.1

2.3

0.9

(%)

100.0

100.0

100.0

100.0

100.0

73.3

19.9

6.7

100.0

72.8

27.2

-

Source: DG REGIO

Total

344 533.7

100.0

A significant difference can be detected between the allocation programmed for lagging Regions 
and countries and the allocation for non-lagging Regions. In the first group, about 45 per cent of 
resources is assigned to transport, environmental and energy infrastructures, while this share goes 
down  to  about  15  per  cent  for  the  second  group.  The  main  differences  concern  transport 
infrastructure, which represent more than one quarter of all the expenditure of lagging Regions 
and countries (less than 5 per cent in the other group). Human capital receives about 8 per cent in 
both  groups.  In  Regions  with  a  GDP  per  capita  lower  than  50  per  cent  of  the  EU  average,  the 
share of infrastructure goes up to 52 per cent, with human capital falling to less than 5 per cent. 

Interventions related to research and innovation receive 13 per cent of the funds in the lagging 
Regions and countries and about 22 per cent in the non-lagging Regions. Generic subsidies for 
business investment (not connected to innovation or environment) are down to about 4 per cent in 
both groups. Pro-active and preventive labour market measures, access to employment (and self-
employment) and adaptability of workers and entrepreneurs absorb 8 per cent of funds in the first 
group  and  about  26  per  cent  in  the  second.  Social  services  (mostly  education  and  health)  and 
measures aimed at social inclusion in the labour market account for about 7 per cent in the first 
group, and over 10 per cent (mostly aimed at the labour market) in the second. 

Management and control 

Once  the  programmes  have  been  approved,  Member  States  have  the  responsibility  for 
management. The responsibilities for programme management, audit and control are assigned to 
three key bodies: a Managing Authority with overall responsibility for the main programme-level 
management and implementation tasks (some of which can be delegated to a technical secretariat 
or  intermediary  body);  a  Certifying  Authority,  responsible  for  certifying  statements  of 
expenditure and payments applications; and an Audit Authority.  

Project  generation,  appraisal  and  selection  are  the  responsibility  of  the  Managing  Authority, 
providing  that  they  are  in  line  with  programme  objectives.  Also,  a  Monitoring  Committee, 
created by the Member State for each programme, is required to approve project selection criteria 

 73

 
 
within six months of programme approval. An exception concerns major projects, which require 
prior approval by the Commission172. 

The  financial  management  of  programmes  is  undertaken  on  the  basis  of  commitments  and 
payments. Financial commitments are made by the Commission on an annual basis, in line with 
the agreed profile of spending under the EU budget and, at Member State level, the aggregation 
of approved or planned expenditure. Payments to Member States are made by the Commission at 
three  stages:  a  first  interim  payment,  conditional  on  receipt  of  assurance  on  management  and 
control systems; interim payments, three to five times a year on the basis of certified expenditure 
incurred;  and  the  final  payment  of  the  balance,  once the programme closure requirements have 
been fulfilled and the necessary documentation has been sent to the Commission.  

Finally,  coming  to  control,  the  overall  system  is  intended  to  ensure  that  the  expenditure 
reimbursed  from  the  EU  budget  meets  all  the  required  national  and  Community  conditions 
(relating to public procurement, State aids, environment, eligibility) and demonstrate a low error 
rate.  The  control  system  has  several  levels.  One  is  the  control  system  of  the  Member  States 
themselves,  which  aims  to  prevent,  detect  and  correct  irregularities.  A  second  level  is  the 
Commission’s  supervision,  which  aims  to  ensure  that  Member  State  control  systems  are 
established,  operate  as  required  and  mitigate  the  risk  of  control  failures,  with  provisions  for 
financial corrections to be made when irregularities are detected. A third level involves controls 
by the European Court of Auditors. In the current period, as a result of successive tightening and 
adjustments  of  controls,  Member  States  are  required  to  certify,  for  each  Programme,  the 
compliance of its management and control system: the Commission’s approval is needed before 
interim payments can start. An annual audit opinion on the effectiveness of the system must also 
be issued by Member States.  

Monitoring, evaluation, deadlines for spending, other sanctions  

Monitoring  is  linked  to  the  financial  and  physical  targets  set  in  the  operational  programmes. 
Progress  in  achieving  these  targets  is  reported  by  the  Managing  Authority  to  the  Commission 
through  an  Annual  Implementation  Report,  which  must  be  examined  and  approved  by  a 
Monitoring Committee, whose composition is fully up to the Member States to decide and where 
a representative of the Commission might take part - much looser provisos than in the past). A 
review meeting is also held annually between the Commission and Member State authorities to 
examine,  for  the  whole  country,  programme  implementation  progress  and  results  over  the 
previous  year.  A  computerized  monitoring  and  information  system  has  the  task  of  allowing  a 
timely exchange of data with the Commission. 

Evaluation focuses on the overall programme and is segmented in three distinct phases: ex-ante, 
on-going  and  ex-post.  The  first  two  stages  are  primarily  the  responsibility  of  Member  State 
authorities,  although  the  Commission  offers  support  through  the  publication  of  guidance 
documents,  networking  activities  and  participation  in  evaluation  steering  groups,  while  ex-post 
evaluation  is  formally  required  to  be  undertaken  by  the  Commission.  The  scope  of  ex-ante 
evaluation  is  broad,  covering  the  appraisal  of  needs,  goals,  expected  results,  quantified  targets, 
strategic coherence, lessons from the previous period, as well as the quality of the procedures for 
implementation, monitoring, evaluation and financial management. The “on-going” evaluation is 
left to Member State choice, in connection with changes in the external environment, difficulties 
revealed by the monitoring system, and proposals for programme modification.  

The  only  compulsory  incentive  mechanism  used  by  cohesion  policy  is  the  automatic  de-
commitment rule which requires committed funding to be spent within two years (three years for 
the  EU10,  Greece,  Portugal,  Romania  and  Bulgaria,  but  only  for  2007-10  commitments)  or  be 
lost to the programme: the so called n+2 system. Member States are allowed to set aside, at the 

172 Major projects are defined as those whose total cost exceeds €50 million (€25 million in the domain of 
the environment). 

 74

 
                                                      
start  of  the  programme  period,  a  “national  performance  reserve”  equal  to  three  percent  of 
programme allocations, whose allocation is linked to the achievement of performance goals and 
targets. Most Member States have not set up a performance reserve. 

The  suspension  of  payments  is  foreseen  only  for  “serious  deficiencies”  in  the  managing  and 
control  system,  for  “serious  breaches”  of  the  control  procedure,  for  “serious  irregularities”.  No 
discretional tool is given to the Commission, other than moral suasion, if no or inadequate move 
seems to be made in the direction of the announced results. The pressure to produce results is left 
to  possible  mechanisms  operating  at  country  level,  or  to  the  possibility  of  public  debate  taking 
place at EU level on the basis of Member States’ reporting.  

Reporting 

With  the  aim  of  enhancing  accountability  and  transparency,  Member  States  are  required  to 
elaborate  two  Strategic  reports  in  2009  and  2011  for  all  Programmes,  analysing  their 
“contribution”  to  cohesion  policy  objectives,  tasks  of  the  Regional  and  Social  Funds,  priorities 
set out in the Community Guidelines, and the Lisbon goals (beyond this reference to these very 
general  goals,  no  mention  is  made  in  the  Regulation  of  comparing  results  to  objectives  or 
targets). A summary of the Member State strategic reports will be prepared by the Commission in 
2010  and  2013  and  will  be  subject  to  examination  and  debate  by  the  Council,  the  European 
Parliament, the Economic and Social Committee and the Committee of Regions.  

Finally, the annual implementation Reports prepared by Member States for the National Reform 
Programmes of the Lisbon strategy must include a concise section analysing the contribution of 
each cohesion policy Programme, beginning in 2007. An annual progress report summarising the 
Member State reports is submitted by the Commission to the Spring European Council from 2008 
onwards. 

BOX II.A The evolution of governance: 1988-2008 

Empowering the Commission: 1989-93 and 1994-99. 

The 1988 reform (see section I.1.2) led to a radical change in the balance of decision-making authority in 
the governance of cohesion policy, providing the Commission with much stronger leverage and influence. 
In  the  programme  periods  1989-93  and  1994-99,  considerable  emphasis  was  placed  on  the  programme 
design  stage,  where  the  Commission  was  able  to  exercise  a  powerful  role  in  influencing  programme 
priorities, measures and the balance of funding. This applied particularly to the planning for the 1994-99 
period,  where  ex  ante  evaluation  of  programme  outputs  was  actively  used  as  part  of  a  strategic  policy 
discussion between the Commission and Member States. 

Several  important  conditionalities  on  the  use  of  funds  were  introduced:  stricter  regulatory  provisions  on 
programme content, requiring quantified objectives; an evaluation of environmental impact; more detailed 
financial  tables  and  specific  information  to  allow  additionality  to  be  verified;  increased  emphasis  on 
compatibility with other Community policies, most notably in the areas of State aid, public procurement, 
gender  equality  and  the  environment;  and  strengthened  evaluation  obligations.  Lastly,  as  a  member  of 
Monitoring  Committees  with  veto  power,  the  Commission  services  were  given  the  opportunity  of  an 
important  oversight  and  a  decision-making  role  in  the  implementation  of  programmes.  Outside  the 
mainstream programmes, the role of the Commission was also reinforced through the increased importance 
given to Community Initiatives, where it had greater scope for proposing priorities for targeted EU support 
and  stronger  managerial  responsibilities  (prominent  examples 
include  Interreg  for  cross-border 
cooperation,  RECHAR  for  the  conversion  of  coal-mining  areas,  URBAN  for  urban  development,  and 
LEADER  for  rural  development).  The  political  role  acquired  by  cohesion  policy  and  its  difficult  task 
attracted many professionals to the Directorates-General responsible for the policy, enabling it to cope with 
the challenge. 

Reducing Commission discretion and designing a compliance-oriented system: 2000-2006 

During the mid to late 1990s the power of the Commission was increasingly perceived as excessive. The 

 75

 
approach  was  criticised  for  being  too  top-down,  with  insufficient  flexibility  for  the  Member  States  and 
Regions  to  adapt  the  policy  requirements  to  different  domestic  contexts.  At  the  same  time,  national  and 
regional  authorities  (the  latter  strengthened  by  decentralisation  trends  across  the  EU),  had  gained 
experience  in  preparing  development  strategies,  and  were  less  ready  to  accept  the  Commission’s  role, 
sometimes perceived as intrusive advice. In response to these pressures, the regulatory framework adopted 
in 1999 led to a new balance in the respective roles of the Commission and the Member States. On the one 
hand,  the  Commission’s  discretion  was  curtailed  by  decentralising  responsibility  for  programme  content 
and management to Member States and Regions. Detailed information on the interventions (i.e. listing the 
final  beneficiaries,  monitoring  indicators  and  financial  plans  for  so-called  “measures”  or  groups  of 
projects)  was  transferred  to  a  Programme  Complement  adopted  by  Member  States  and  Regions.  The 
Commission’s  role  in  the  Monitoring  Committees  receded  to  that  of  an  observer,  and  its  role  in  the 
programming  phase  took  a  step  back.  A  drastic  reduction  took  place  in  the  number  of  Community 
Initiatives (from 13 to 4), with a corresponding fall in their share of the Cohesion policy budget (from 10 
percent to 5 percent).  

On  the  other  hand,  in  return  for  this  loss  of  discretion,  and  with  the  idea  of  better  supervising  the 
effectiveness  of  expenditure,  new  requirements  were  introduced  that  would  not  supposedly  require  the 
Commission’s  discretion,  and  would  rather  be  as  much  as  possible  “automatic”.  So  the  obligations  for 
monitoring and reporting became more prescriptive; a formal distinction was introduced between ex-ante, 
interim  and  ex-post  evaluations,  eroding  the  unitary  nature  of  the  evaluation  process;  a  “performance 
reserve”  was  introduced  where  the  performance  was  supposed  to  be  captured  by  fully-defined  and  rigid 
targets and their achievement was rewarded. Financial absorption was also incentivised through a further 
automatic rule (the n+2 rule). Finally, stronger audit and control requirements were introduced and applied 
with increasing rigour throughout the latter half of the 2000-2006 period, partly in response to the financial 
management crisis which led to the resignation of the Santer Commission in 1999.  

Attempting a strategic turn: 2007-2013 

It soon became clear during the 2000-2006 programme period that the shift away from discretion to more 
automatic  rules  had  not  achieved  the  desired  results.  The  conditionalities  were  very  often  considered  by 
Member States as a “compliance exercise”, and they failed to give the Commission substantial information 
or  an  opportunity  chance  to  exert  adequate  influence  on  performance.  The  performance reserve, in most 
cases,  placed  emphasis  on  financial  absorption  rather  than  on  other  dimensions  of  performance  (i.e. 
effectiveness  or  management),  and  the  difficulty  of determining  meaningful  targets  in  advance  was  very 
often  tackled  by  setting  them  at  unchallenging  levels  (see  below,  section  II.4).  At  the  same  time, 
programme authorities found themselves burdened with a very complex web of procedural tasks with high 
regulatory  uncertainty,  in  spite  of  the  simplification  exercise  undertaken  during  2003.  This  reinforced 
existing doubts on the effectiveness of cohesion policy. Amid increasing criticisms and growing proposals 
to restrict the policy to disparities among countries (see section I.5), a widespread conviction arose that a 
strategic  turn  was  needed  in  which  the  Commission  could  step  back from some of the procedural issues 
and play again a more substantial role regarding the content of policy. 

Whether the governance (described in this section) that has resulted from the attempt of a strategic turn, is 
a  satisfactory  one  is  an  issue  dealt  with  in  section  II.4.  But  it  can  be  anticipated  that  the  changes  to  the 
Regulation produced by the long 2003-2006 negotiation, while representing a step in the right direction, 
especially  in  introducing  a  National  Strategic  Reference  Framework  for  each  Member  State,  have  fallen 
short  of  expectations.  Having  been  substantially  weakened  by  Member  States  pressure,  they  have  not 
provided the Commission with the opportunity or the information adequately to press Member States and 
Regions on matters of substance and results, and they have further deprived it of discretion by integrating 
all  Community  initiatives,  except  for  Territorial  cooperation,  into  the  mainstream  programmes.  The 
potentially  interesting  decision  to  earmark  expenditure  for  Lisbon-related  priorities  offers  such  room  for 
manoeuvre  that  it  was  treated  as  yet  another  compliance  exercise.  While  some  procedural  requirements 
were loosened, others have been strengthened or newly introduced. A strengthening of audit and control 
obligations has also taken place.  

II.2.  The policy context: a very brief outline of Member States regional policies 

EU  cohesion  policy  operates  in  contexts  where  development  policies  are  also  run  at  national 
level.  The  effectiveness  of  the  former  in  each  country  partly  depends  on  how  it  is  strategically 
integrated  with the latter. In particular, all Member States have, together with sectoral policies, 

 76

 
 
some kind of place-based/territorial/regional/spatial development policy, with varying degrees of 
correspondence  with  old  or  new  paradigms  developed  through  the  culture,  the  politics  and  the 
practice  of  the  country.  173  These  domestic  development  policies  –  which  can  be  termed 
“regional” – shape the policy space existing for cohesion policy. 

The  definition  of  what  constitutes  regional  policy  in  the  EU  Member  States  has  developed 
significantly  over  time.  From  the  immediate  post-war  period  up  until  the  early  1990s,  the 
reduction  of  disparities  and  the  guarantee  of  equal  opportunities  to  all  citizens  through  the 
national territory - sometimes linked to constitutional commitments - was implemented, together 
with welfare policies, through a regional policy mostly aimed at reducing the inter-regional gaps 
in per capita income. Its main tools were infrastructure support (for transport, water, energy, land 
improvements) and business aids, largely targeted on backward areas. Examples of such policies 
includes  British  regional  policy,  with  regional  development  grants  and  regional  selective 
assistance at its core, support in Germany under the regional policy GA (Gemeinschaftsaufgabe) 
established in 1969 and special intervention in the Italian Mezzogiorno up to 1992. Governance 
was  rather  straightforward,  with  a  strong  responsibility  of  the  central  governments  both  for 
designing and managing policy interventions (except in federal states).  

A partial move towards the new paradigm 

Following and fomenting an international trend, and influenced both by the strengthening of EU 
cohesion policy and by the process of decentralisation of authority to jurisdictional Regions, the 
regional policy of Member States has gradually shifted away from this paradigm, and it is now 
often closer to the model of place-based policies sketched in chapter I, with an emphasis on the 
efficiency objective. Competitiveness and growth have taken relevance as policy objectives, the 
use of business aids has been reduced174 while the set of instruments has been focussed on public 
goods and services to citizens and firms, interventions have often broadened to cover all regions, 
and multilevel governance systems have been designed175. 

The  general  awareness  and  attention  to  the  spatial  effects  of  all  policy  action  has  increased.  In 
those  countries,  particularly  the  Nordic  ones,  where  there  has  historically  been  a  distinction 
between  narrow  regional  policy,  targeted  at  designated  problem  regions,  and  broad  regional 
policy,  focusing  on  the  spatial  impact  of  sectoral  policies,  the  latter  has  grown  in  importance, 
with an effort to coordinate the different policies aimed at social and economic development176. 
In other countries where EU cohesion policy funding is of major importance and covers a large 
share of total spending for capital expenditure and for development, particularly those which are 
beneficiaries  of  the  cohesion  fund  but  also  Italy,  the  strategic  framework  created  by  cohesion 

173  The  typology  of  Ministries  (sometimes  more  than  one)  in  charge  for  regional  policy  varies  greatly 
between  countries,  reflecting  different  conceptual  approaches,  the  amount  of  available  resources  and 
sometimes the influence of cohesion policy. 
174  This  has  taken  place  in  the  context  of  a  general  reduction  of  the  use  of  State  aids,  discouraged  and 
progressively  limited  by  the  European  Union  as  a  policy  instrument  very  prone  to  be  used  in  an  anti-
competitive way and as a beggar-my-neighbour tool. Total State aids (for industry and services), of which 
today regional State aids represent about one sixth, have decreased in the EU15 as a share of GDP from 
0.9  percent  in  1992  to  0.4  percent  in  2007.  The  reduction  has  been  particularly  strong  in  countries  with 
relevant regional policies, where the use of State aids was particularly intense, like Italy (from 1.4 to 0.3 
percent) and Germany (from 1.4 to 0.6 percent). In the EU12 countries the share in 2007 was equal to 0.4 
percent, down from 1.2 in 2000. 
175 See Yuill, D., Ferry, M., Vironen, H., McMaster, I. and Mirwaldt, K. (2008), from which many of the 
following information are extracted. 
176  In  Denmark,  the  new  institutional  set-up  centred  on  regional  growth  partnerships  integrates  local, 
regional,  national  and  EU  economic  development  activities  within  a  single,  programme-based  policy 
structure.  In  similar  vein,  the  renamed  regional  growth  policy  in  Sweden  aims  to  improve  local  and 
regional  competitiveness  in  all  regions  via  regional  programmes  and  enhanced  regional  and  sectoral 
coordination. In Finland, the policy focus has shifted towards the development of all regions. In most of 
these countries, regional interventions in the lagging areas still play a relevant role. 

 77

 
                                                      
policy has provided the ground for coordinating “regional interventions” with spatially relevant 
sectoral interventions. In other countries too regional policy has broadened its scope177.  

On  the  other  hand,  the  change  of  perspective  has  often  failed  to  break  into  the  policy 
segmentation  that  prevents  truly  integrated  place-based  interventions.  The  need  to  define  the 
boundaries of “places” according to the scope of feasible and useful development projects, rather 
than  the  other  way  round,  has  often  run  into  the  bureaucratic,  top-down  limit of administrative 
Regions.  The  need  to  bring  together  all  spatially-aware  interventions,  whether  aimed  at  urban, 
rural or other areas, has often run into the vested interests that have grown up around these fields 
of  action.  The  need  for  national  spatial  planning  and  the  strategy  of  regional  policy  to  be 
designed  together  has  run  into  conceptual,  academic  and  bureaucratic  barriers,  although  some 
countries are moving successfully in this direction178. 

Efficiency and equity 

In its shift towards the new paradigm, the regional policies of Member States have predominantly 
focused  on  the  efficiency  objective.  The  generic  task  of  “reducing  disparities”  has  been  often 
substituted  by  the  objective  of  ensuring  that  the  capacity  and  the  potential  of  all  places  are 
exploited  and  utilised  to  the  full.  Regional  competitiveness  and  the  extraction  of  the  region’s 
comparative advantages have often become the mantra of regional policy. In the move away from 
generic  business  aids,  interventions  have  therefore  concentrated  on  infrastructure  support  (both 
broad infrastructure and measures specifically targeted at the business sector), innovation-related 
assistance, training and retraining, and more in general services aimed at improving the business 
environment.  Measures  aimed  at  improving  the  capacity  of  local  administrations  have  also 
acquired a growing role.  

The emphasis on the task of promoting capacity utilisation has broadened the policy from areas 
lagging behind in economic development, to all areas that need an exogenous support in order to 
keep  up  with  ever-evolving  external  challenges.  On  the  other  hand,  the  majority  of  domestic 
regional policy funding very often still flows to the backward or peripheral areas179. A significant 
role is increasingly played in some countries by places and regions at risk of depopulation that 

177  In  Germany,  where  regional  policy  has  long  been  a  Land  responsibility,  an  important  instrument  for 
assisting areas facing structural weaknesses, the coordination framework has been used in recent years also 
to  finance  R&D  institutes,  regional  strategy-building  and  cluster  initiatives.  In  the  United  Kingdom,  the 
focus of regional policy has moved from regional aid and infrastructure-based measures to a wider set of 
initiatives  designed  to  target  the  key  productivity  drivers  in  the  regions  (competition,  enterprise, 
innovation, skills and investment).  
178 A good example is Ireland where, following its introduction in 2002, the National Spatial Strategy has 
become  central  to  developments  in  the  regions,  with  spatially-oriented support increasingly concentrated 
on  the  nine  regional  gateways  and  related  hubs  designated  under  the  Strategy.  In  the  Netherlands,  the 
Peaks in the Delta White Paper is closely aligned with the longer-term National Spatial Strategy, while, in 
the United Kingdom, economic and spatial development strategies in the English regions are being brought 
together within integrated regional strategies. Portugal is another country where spatial planning priorities 
are  having  a  growing  impact,  not  least  through  the  development  of  a  more  integrated  and  coherent 
approach to the role of urban areas in economic development. 
179 In Germany, six-sevenths of regional funding is allocated to the new Länder which contain under one-
fifth of the population; in Italy 85 per cent of the funding goes to the Italian Mezzogiorno which has one 
third of the population; in Denmark, at least 35 percent of programme-based expenditure must benefit the 
designated  peripheral  areas,  which  hold  10  percent  of  the  population;  in  the  Netherlands,  the  all-region 
“Peaks in the Delta approach” has transitional provisions until 2010 under which 27 percent of the budget 
will flow to the north compared with a population share of 10 percent.; in Sweden, the four northernmost 
regions  received  some  44  percent  of  programme-based  funding  in  2007  compared  to  their  11  percent 
population coverage. In Poland too, domestic regional policy support is allocated according to a formula 
which favours sub-regions with low GDP per head and high unemployment. 

 78

 
                                                      
the country as a whole wants to maintain viable180. As it was pointed out (see section I.2.3), this 
target – the only one for which the new paradigm of regional policy calls for discouraging labour 
mobility – can actually be efficiency-enhancing when it truly responds to the demand of people 
living  outside  the  place  to  preserve  those  places  through  the  presence  and  care  of  their 
communities and/or to preserve diversity.  

In  the  policy  shift,  EU  Member  States  have  often  not  given  a  similar  attention  to  equity 
considerations.  Neither  the  freedom  of  individuals  to  enjoy  an  essential  standard  of  services 
independently of where they live, or their opportunity not to differ “excessively” from the others 
for  reasons  linked  to  external  circumstances  have  generally  been  the  central  focus  of  domestic 
regional policies. This was already often the case with the old paradigm, but the move away from 
the  vague  concept  of  “reducing  disparities”  has  brought  this  policy  bias  to  light.  Relevant 
exceptions  exist,  mostly  in  the  Nordic  countries,  where  the  focus  on  social  inclusion  is  often 
reflected in the commitment to equitable service provision across the country181. In Sweden, the 
achievement of “a good level of services in all parts of the country”, which was the overarching 
objective  of  regional  policy  under  the  2001  Government  Bill182,  remains  an  underlying  policy 
theme;  one  of  the  three  objectives  of  Finnish  regional  policy  over  the  2003-07  period  was  to 
safeguard the service structure throughout the country; a shift in a similar direction took place in 
2003 in Denmark183.  

In some countries the lack of focus of domestic regional policy on equity and social inclusion is 
due to the fact that this task and the whole social agenda are tackled through welfare systems not 
dependent  on  contexts,  and/or  through  a  system  of  un-conditional  block  grants  paid  by  an 
equalisation fund, whereby jurisdictional Regions are fully responsible for spending. This is the 
case  in  Austria,  where  issues  of  interpersonal  equity  are  addressed  through  fiscal  equalisation 
mechanisms which aim to provide equal public services all over the territory, and regional policy 
has  a  strong  growth  and  innovation  orientation.  It  is  also  the  case  of  Germany,  whose 
constitutional  guarantee  of  uniformity  of  living  standards  throughout  the  territory  (Article 
106(3)2) is also fulfilled through a strong fiscal equalisation system.  

Governance and evaluation 

The greater place-basedness of domestic regional policies and the growing authority of NUTS 2 
Regions all over Europe through a process of decentralisation have involved a change of regional 
policy  governance.  A  system  of  multilevel  governance  has  come  about,  partly  favoured  by  the 
similar mechanisms that were being implemented by EU cohesion policy, and partly influencing 
them.  

The shift to a system where the responsibilities for different tasks of the same policy action are 
assigned  to  different  levels  of  government  and  where  at  each  level  of  government  different 
sectoral authorities are asked to interact has called for an increased degree of policy coordination, 
both horizontal and vertical. National-level coordination involves both the authority in charge of 
domestic  (and  sometimes  European)  regional  policy  and  other  national  ministries  which  act  as 

180  In  Finland,  one  of  the  three  broad  regional  policy  goals  involves  supporting  a  multi-centred  regional 
structure.  In  Sweden,  the  aim  of  regional  development  policy  over  the  2001-07  period  was  to  provide  a 
good level of services in all parts of the country. In Slovenia, one of the objectives under the 2005 Law on 
Balanced Regional Development is to promote the polycentric development of settlement and polycentric 
economic development. 
181  See  Neubauer,  J  et  al  (2007).  Italy  has  made  an  initial  step  in  this  direction  in  its  2007-2013 
comprehensive  domestic  and  European  regional  programming,  by  setting  standards  for  services  (in 
education,  child  care,  assistance  to  the  elderly,  etc),  gearing  policy  interventions  to  them  and  linking 
financial incentives to their achievement (see http://www.dps.mef.gov.it/obiettivi_servizio/) 
182 Government Bill 2001/02:4, En politik för tillväxt och livskraft i hela landet, 27 September 2001. 
183 See Regeringen (2003) and Halkier, H. (2001). 

 79

 
                                                      
partners  in  regional  development184.  Regional-level  coordination  brings  together  the  growing 
number of local actors to set goals, plan initiatives and allocate resources; regional programmes 
often  play  an  important  role  in  this  coordination.  Finally,  national-regional  coordination  is 
pursued  through  joint  structures  with  national  and  regional  representation,  through  the 
application  of  national-level  guidelines  or  targets  and  through  the  use  of  contracts  or 
agreements185. 

Whether domestic regional policies have moved in the direction of the place-based model also in 
the focus on places and in the capacity to mobilise local actors and to truly engineer a process for 
eliciting  and  aggregating  local  knowledge  and  preferences  is  very  hard  to  say.  The  lack  of 
information  on  this  central  issue  is  linked  to  a  more  general  poverty  of  information  on  those 
aspects of the policies that concern their implementation place by place. In general, the progress 
in policy tasks, content and governance design has not been matched by adequate progress in the 
capacity  to  evaluate  policy  performance.  An  increased  amount  of  resources  and  time  is  now 
dedicated to this task, but results are not yet satisfactory. 

In  the  early  days  of  regional  policy,  relatively  little  stress  was  placed  on  policy  evaluation, 
although a pressure for improving evaluation in the realm of regional policy came in the 1970s 
both in the UK and in Germany186. More recently, evaluation has become more broadly grounded 
across the Member States, driven by a variety of factors including demands for accountability in 
public expenditure, an increasing need to demonstrate value-for-money and a growing emphasis 
on  policy  learning.  A  relevant  contribution  has  also  come  from  the  evaluation  culture  of  EU 
cohesion  policy,  which  has  certainly  influenced  changes  in  countries  like  Austria,  Finland, 
Ireland and Italy, and more recently in the new Member States.  

Results in terms of assessing - through rigorous methods - whether some regional interventions 
actually  have  an  effect  on  the  policy  objectives  have  come  in  the  area  of  business  aids,  where 
counterfactual  impact  evaluations  are  now  carried  on  in  several  countries187.  But  in  general 
results have fallen very short of needs, and short of the progress which was in the meantime made 
in  other  policy  areas,  especially  in  social  policies.  This  is  partly  explained  by  the  peculiar 
difficulties that impact evaluation encounters in regional policy (see section I.2.4). But the very 
limited number of academic evaluation studies in this policy area does probably signal also a lack 
of administrative and political commitment that deprives domestic regional policy of a powerful 
tool to learn and improve. 

II.3.  Empirical evidence 

II.3.1.  Macro 

The  starting  point  of  any  empirical  macro  analysis  of  regional  performance  is  convergence, 
generally  limited  to  average  GDP  per  capita  or  to  productivity.  With  specific  reference  to  EU 
cohesion policy, it is often assumed that this is a good measure of the “disparities between levels 
of development” referred to in the EU Treaty as a proxy of economic and social cohesion. 

184 Together with France, changes in this direction have for example taken place in Greece, Portugal, UK, 
Finland and in most new Member States. 
185 See OECD (1996). 
186 In the United Kingdom, a 1973 report by a parliamentary sub-committee challenged academics to fill 
what it considered to be a serious policy vacuum (see House of Commons, Expenditure Committee (Trade 
and  Industry  Sub-Committee)  1973).  In  Germany  there  has  been  a  long-standing  interest  in  policy 
evaluation,  with  “success  controls”  (Erfolgskontrollen)  applied  to  all  public  intervention  measures  from 
1970  (see  Bachtler,  J.  2008).  Both  the  Netherlands  and  Sweden  have  also  had  a  long-term  interest  in 
regional  policy  evaluation,  in  particular  when  developing  new  regional  policy  proposals  and  related 
legislation. 
187 In the UK context, see for instance Wren, C. (2005). 

 80

 
                                                      
On the limits and the numbers of convergence 

In fact, as this Report has argued (sections I.2.1 and I.2.3), convergence is not a good measure of 
development.  It  does  not  give  information  on  the  capacity  of  a  region  to  escape  either 
inefficiency or social exclusion traps. As for social inclusion, even putting aside the commuting 
and social transfer issues which make per capita income gaps different from GDP per capita gaps, 
convergence  refers  to  only  one  dimension  of  well-being  that  cannot  be  taken  as  a  summary 
measure  of  all  the  others.  Furthermore,  even  on  the  income  dimension,  it  refers  only  to  an 
average measure that is silent on individuals’ well-being: average convergence (divergence) of a 
region  could  well  coincide  with  an  increase  (decrease)  of  the  share  of  people  below  essential 
standards or of interpersonal disparities, because of counteracting changes within the region. As 
for efficiency, convergence is not informative on the capacity of a region to make use of its own 
potential, unless one makes the empirically unproven assumption that this potential is adequately 
approximated by the average output of all the other regions. 

All these limits are even greater since in practical terms convergence is generally measured with 
reference  to  administrative  Regions  which  have  little  to  do  with  the  regions  or  places  relevant 
from the point of view of development. 

Furthermore, convergence is even less useful as a measure of the effectiveness of a place-based 
development  policy.  When  this  policy  is  at  work  in  a  region,  the  reduction  of  its  GDP/income 
gap  with  other  regions  (even  setting  aside  the  commuting  issue)  says  by  itself  nothing  on 
whether,  without  the  policy,  the  performance  would  have  been  worse,  the  same  or  better. 
Convergence of EU regions is then of no help in assessing whether cohesion policy is effective 
and whether it should be continued, discontinued or reformed. 

Still, convergence of average regional per capita GDP can be of use as a “context indicator”. It 
can provide information on the following features: whether, as the result of all market and public 
forces  at  work  (including  cohesion  policy),  the  centripetal  forces  have  been  prevalent  or  not; 
whether  and  at  what  pace  a  convergence  process  is  taking  place;  and,  if  so  case,  with  what 
features it has occurred. A failure of a region to converge can raise questions – though not give 
answers – on whether this is due to the potential of that region falling short of the potential of 
other  regions  (possibly  due  to  permanent  under-utilisation)  or  to  the  repeated  failure  of  that 
region adequately to utilise its potential.  

Regional dispersion in per capita GDP is high in all industrial countries188. It is high in Europe 
too. Its change in recent decades is the object of a wide empirical literature. The results can be 
summarised as follows189. 

First, a strong overall regional convergence has taken place in the EU in the last 25 years, in the 
EU15 only until the end of the 1990s, with a change of trend since then, in the EU27 between 
2001  and  2005(see  Figure  II.11)190.  In  the  current  decade  employment  rates  have  been  slowly 
converging  in  both  areas,  while  productivity  of  labour  has  converged  only  in  the  EU12  area. 
Overall convergence is largely associated with convergence between countries with the countries 
newly joining the Union often growing at a pace much greater than the others (Map II.12): since 
the mid-1990s within-country gaps have actually widened (Figure II.13). The internal widening 
has been particularly significant in some of the new members of the Union. These results should 
be  used  with  caution  since  the  size  of  regional  dispersion,  and  possibly  its  within-country 
increase,  are  biased  upwards  due  to  commuting  effects  which  tend  to  overestimate  GDP  in  big 

188 See OECD (2009a). 
189  For  a  survey  of  recent  results  and  new  empirical  evidence  from  which  the  figures  and  maps  of  this 
section are taken, see the Report working-paper Monfort, P. (2009). 
190  Caution  is  required  in  the  analysis  of  long-term  trends  since  the  series  for  the  years  1980-1995  are 
estimates based on data of the previous national accounting system. 

 81

 
                                                      
cities where many people work but do not live, and they tend to underestimate it for “commuter 
belts”191. 

Fig. II.11: Regional per capita GDP dispersion (coefficient of variation)  
across groups of EU Member States: 1980-2006(1) 

EU-15

0.34

0.33

0.32

0.31

0.30

0.29

0.28

EU-12

EU-27

EU-27 
EU-12

0.48

0.46

0.44

0.42

0.40

0.38

0.36

EU-15

0
8
9
1

1
8
9
1

2
8
9
1

3
8
9
1

4
8
9
1

5
8
9
1

6
8
9
1

7
8
9
1

8
8
9
1

9
8
9
1

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

Source: Cambridge Econometrics and Eurostat database. DG REGIO calculation. 
(1) Coefficient of variation measured on NUTS 2 Regions. 

191  Correction  for  the  commuting  effect  can  lead  to  significant  reductions  in  the  extent  of  measured 
regional disparities. A recent study finds that the mean log deviation index is reduced by 15% across the 
EU-25 as a whole in 2005 and by around 30% in the EU-15 when adjusting for the commuting effect. The 
effect  is  even  greater  in  some  countries  like  Belgium,  the  UK,  Slovakia  and  the  Czech  Republic.  See 
Applica, Ismeri and WiiW (2008). This effect might contribute to the observed increase of within-country 
regional disparities. 

 82

 
 
                                                      
Map II.12: Relative income performance of EU Regions, 1995-2005  
(per capita GDP - PPS) 

Source: Monfort, P. (2009) 

Fig. II.13: Regional per capita GDP dispersion for the whole EU in 1995-2006(1)  
between-countries and within-country components (Theil index)(2) 

0.100

0.090

0.080

0.070

0.060

0.050

0.040

0.030

0.020

Total

Betweeen

Within

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Theil index measured on NUTS 2 Regions. 
The Theil index is derived from a measure of information entropy. It measures how far the actual 

Source: Eurostat database. DG REGIO calculation. 
(1) 
(2) 
distribution of income is from the distribution that would prevail (at the limit) if each person had the same 
probability to earn any unit of income (which is equivalent to perfect equality). A property of the Theil index 
compared to other disparity measures is that it can be expressed as the sum of the average disparity within 
subgroups and the disparity among those subgroups, a property which is referred as “decomposability”. 

 83

 
 
 
 
Second, the poorest regions have in general been converging towards the average during the last 
decade. This can first be appreciated by observing that the regions which ranked as the poorest in 
1995 have generally moved up in their relative level of per capita GDP, as have many medium-
ranked  ones,  while  most  top-ranked  regions  have  moved  down:  as  Figure  II.14  shows, 
movements  are  of  course  not  uniform  among  poor  and  rich  regions,  the  exceptions  often 
belonging to countries with very slow growth (like Italy and Germany). This general feature is 
confirmed  by  building  transition  matrices  that  express  the  frequency  with  which,  in  the  same 
period, regions of any given class of income stay in the same class or move to other classes. In 
the  EU-15  Member  States,  and  with  different  choices  of  classes,  the  frequency  of  upward 
movements  of  regions  in  the  lower  classes  is  high,  is  higher  than  the  frequency  of  downward 
movements,  and  is  higher  than  downward  movements  of  regions  in  upper  classes192.  The 
typology of regions according to their position in the transition matrix is presented in Map II.15. 

Fig. II.14: 1995-2005 change of per capita GDP of EU Regions ranked  
according to their 1995 per capita GDP(1) (EU=100) 

GDP/head 

350

300

250

200

Közép-Magyarország 

Mazowieckie 

Border, Midland and Western

Southern and Eastern

Inner London

Berkshire, Buckinghamshire and Oxfordshire 

Praha

Bucuresti - Ilfov

Bratislavský kraj

Eesti 

Attiki

1995 
2005 
Interpolation (2005) 

150

Latvija 

100

50

0 

Poor Regions 

Münster

Berlin

Lüneburg

Région de Bruxelles-Capitale / 
Brussels Hoofdstedelijk Gewest 

Sicilia  Malta Molise 

Dytiki Ellada 

Guyane 

Prov. Hainaut

EU Regions 

Rich Regions

Source: Eurostat database. DG REGIO calculation. 
(1) Measured for NUTS 2 Regions. 

192 See again Monfort, P. (2009). 

 84

 
 
  
 
                                                      
Map II.15: Transition of EU Regions from one income class to an other: 1995-2005 
(per capita GDP - PPS) 

Source: Monfort, P. (2009). 

Third,  the  convergence  process  of  the  last  decade  is  slow.  This  is  clearly  shown  by  using  the 
information  of  the  transition  matrices  as  a  way  of  estimating  the  stationary  distribution  of 
regional  income  that  would  prevail,  and  the  time  that  it  would  take  to  come  about  if  the  past 
relative  growth  trends  were  to  persist  in  the  future  (Markov  chain  analysis).  With  different 
choices of classes, the existence of a process of reduced divergence is confirmed, but the present 
distribution  appears  quite  persistent,  and  the  time  estimated  to  achieve  the  new  stationary 
distribution  is  long  (between  40  and  50  years)193.  The  result  of  a  “high  persistence  …  in  the 
regional  distribution”  is  confirmed  for  a  slightly  longer  period  (1991-2005)  with  reference  to 
labour productivity by a recent study that employs an alternative methodology194. 

193 See again Monfort, P. (2009). 
194 See Maza, A., Villaverde, J. and Hierro, M. (2009). 

 85

 
 
 
                                                      
It  is  no  surprise  that  with  changes  in  inter-regional  disparities  so  much  depending  on 
idiosyncratic factors, and with a strong persistence of the current distribution, no general “natural 
linkages” or “path” can be detected between convergence and growth. 

It has sometimes been argued that: (i) development will inevitably create regional disparities in 
GDP per capita; and (ii) these regional disparities will "naturally" vanish as economies develop. 
An inverse-U curve195 has therefore been postulated between the level of per capita GDP and the 
regional  gaps  in  GDP  per  capita.  Recent  work  seems  to  confirm  the  existence  of  such  a 
correlation  across  EU  countries  at  a  given  moment  in  time196.  But  when  time  is  considered,  it 
becomes  clear  that  many  different  economic  growth  paths  exist  and  that  no  general  “rule”  is 
warranted197. The application to Europe of the vast empirical literature which tests the existence 
of  a  negative  correlation  between  growth  rates  and  the  level  of  growth,  shows  very  different 
results,  depending  on  the  specification  adopted  (absolute  or  conditional  convergence,  set  of 
control variables, spatial effects, change of convergence rate over time, etc.) 198.  

Impact of cohesion policy 

The  strong  focus  on  regional  disparities  and  convergence  has  influenced  the  empirical  macro-
analysis  of  the  impacts  of  cohesion  policy.  Both  simulation  models  and  econometric  analysis 
have paid much attention to this profile, while being also concerned with the impact of cohesion 
policy  on  growth,  productivity  and  employment,  or  on  specific  targets,  like  innovation  and 
accessibility.  On  the  whole,  although  specific  studies  have  allowed  light  to  be  shed  on  some 
policy  aspects  in  specific  countries  and  to  offer  some  insights  on  how  policy  works,  this  large 
body  of  analysis  has  led  to  contrasting  results  and  has  not  created  a  consensus  on  policy 
effectiveness.  

The  analysis  based  on  simulation  models  has  made  clear  the  relevance  of  capital  expenditure 
mobilised by cohesion policy, some of its macro-outputs (such as the number of people trained or 
those  employed  by  subsidised  firms),  and  the  extent  of  some  changes  which  have  taken  place 
while cohesion policy was being implemented (in productivity, employment rate, etc). It has also 
allowed  the  construction  of  accounting  frameworks  which  are  relevant  for  policy  debate. 
However,  conclusions  on  the  policy  effectiveness  of  cohesion  policy,  which  are  often  positive, 
tend to be strongly influenced by the assumptions built into the models199.  

Econometric  analysis  has  built  on  the  growth  theory  and  on  the  analysis  of  absolute  and 
conditional  convergence.  Existing  studies  tend  to  suggest  an  excessive  policy  focus  on 
infrastructure  investment,  while  the  impact  of  investments  on  education  and  human  capital  is 
generally  estimated  as  positive200.  The  estimated  success  or  failure  of  EU  support  is  also  often 
region/programme-specific  due  to  factors  such  the  quality  of  strategic  planning,  the  policy  and 
institutional context, and administrative capacity201. Beyond specific suggestions, these studies do 
not offer, though, a conclusive general answer on the effectiveness of cohesion policy. The use of 

195 The inverse-U is sometimes referred to as “Williamson curve” from the name of the US economist who, 
by  following  work  by  Kutznets  on  individual  incomes,  estimated  a  similar  curve  for  a  given  moment  in 
time  between  the  level  of  GDP  per  capita  of  US  States  and  the  extent  of  regional  disparities  internal  to 
each State. 
196 See Barrios, S. and Strobl, E. (2005); Ezcurra, R. and Pascual, P. (2007). 
197 See Monfort, P. (2009). 
198 See the survey by Eckey, H.-F. and Türck, M. (2006). 
199  See  among  many  others:  Bradley,  J.  (2006);  Ecotec  (2003);  ESRI  and  GEFRA  (2002);  in’t  Veld,  J. 
(2007). 
200 See among recent works: Puga, D. (2002); Rodríguez-Pose, A. and Fratesi, U. (2004); Ecorys (2006); 
De la Fuente, A., Doménech, R. and Jimeno, J.F. (2003). 
201  See  among  others:  Bailey,  D.  and  De  Propris,  L.  (2002);  Ederveen,  S.,  Gorter,  J.,  de  Mooij,  R.  And 
Nahuis, R. (2003); Milio, S. (2007); Ederveen, S., de Grot, H.L.F. and Nahuis, R. (2006); (but on the latter 
paper, see the criticism of Bradley, J. and Untiedt, G. (2008)). 

 86

 
                                                      
similar data sets has produced positive, statistically insignificant and negative effects of cohesion 
policy202. 

These  inconclusive  results  can  be  attributed  to  the  complexity  of  the  growth  and  convergence 
process and to the failure to model it over time and over different countries and regions which are 
characterised  by  very  different  institutional,  economic  and  social  conditions.  Furthermore, 
cohesion  policy  should,  by  definition,  be  targeted  on  specific  places  and  specific  populations 
which  represent  only  a  subset  of  the  “regions”  and  of  the  population  investigated  by  macro-
analysis. Finally, serious problems come from the great difficulty of isolating at macro-level the 
effects  of  cohesion  policy  from  those  of  several  external  confounding  factors,  including  the 
effects of seemingly spatially-blind policies, i.e. of building an acceptable counterfactual203. 

An  understanding  of  whether  cohesion  policy  makes  a  difference  to  the  capacity  of  specific 
populations in specific places to increase their unused potential or to reduce social exclusion can 
be  better  derived  through  direct  micro-analysis  of  the  specific  interventions  that  were  aimed  at 
them.  The  macro-analysis  can  then  follow,  by  aggregating  the  micro-evidence.  Before  coming, 
then,  to  the  micro-dimension  of  evaluation,  a  final  reference  must  be  made  to  the  very  limited 
macro-level  information  available  on  what  should  be  the  other  general  objective  of  cohesion 
policy: inequality and social inclusion. 

Interpersonal income inequality, growth and the regional dimension  

The  empirical  literature  on  cohesion  policy  has  never  paid  much  attention  to  interpersonal 
inequality:  neither  to  the  linkage  between  regional  convergence  and  changes  in  interpersonal 
inequality  within  countries  and  across  the  whole  EU,  nor  to  intra-regional  interpersonal 
inequality,  and  not  to  the  impact  of  cohesion  policy  on  income  inequality.  This  should  be 
surprising considering the proclaimed relevance of the social dimension of cohesion policy. But it 
can probably be explained by the tendency to overlap the efficiency and the equity goal and to 
assume  implicitly  that  a  reduction  of  regional  disparities  in  GDP  per  capita  is  a  good  proxy  - 
which it is not - of a reduction in interpersonal inequality.  

Existing  data  show,  however,  that  no  given,  natural  correlation  exists  between  interpersonal 
inequality  and  growth  in  GDP  per  capita.  We  know  today  that  the  other  inverse-U  curve  – 
suggested by Kuznets - that was supposed to link the level of development (measured by GDP 
per head) with inequalities in the distribution of personal income – by which at the first stage of 
development,  inequalities  would  tend  to  grow  with  GDP  per  head,  while  at  a  later  stage  they 
would  tend  to  decrease  -  does  not  hold.  In  the  last  twenty  years,  the  rebound  in  income 
inequalities  in  some  industrial  countries  and  its  resilience  in  others  show  that  “if  there  was  an 
inverse-U, the pattern has now become a U”, or more precisely that “it is misleading to talk of 
‘trends’  when  describing  the  evaluation  of  income  inequality…it  is  better  to  think  in  terms  of 
‘episodes’  when  inequality  rose  or  fell”.204  In  the  more  recent  period,  and  with  the  caution 
required  by  problems  with  data  homogeneity  and  availability,  a  measure  of  personal  income 
inequality  provided  by  the  Eurostat  database  shows  increases  in  three-quarters  of  the  new 

202 Among recent works, for positive effects, see for example, Cappelen, A., Castellacci, F., Fagerberg, J. 
and  Verspagen,  B.  (2003),  Beugelsdijk,  M.  and  Eijffinger,  S.C.W.  (2005),  and  Hagen,  T.  and  Mohl,  P. 
(2008); for absence of results or even negative ones, see for example Dall’Erba, S. and Le Gallo, J. (2008), 
and Hagen, T. and Mohl, P. (2008). Conditionally-positive effects (depending on the existence of adequate 
institutions)  are  estimated  by  Ederveen,  S.,  de  Grot,  H.L.F.  and  Nahuis,  R.  (2006)  (but  see  on  this  the 
criticism of Bradley, J. and Untiedt, G. (2008)). 
203 For an attempt to move in this direction, see Busillo, F., Muccigrosso, T., Pellegrini, G., Tarola, O. and 
Terribile, F. (2009). 
204 Atkinson, A.B. (2008a). 

 87

 
                                                      
Member States and in half of the old ones (Figure II.14)205. Similar high levels of inequality are 
shown by an examination of non-income dimensions of well-being (see section IV.2). 

Fig. II.16: Changes in interpersonal income inequality in 1995-2005(1)  
(absolute difference of ratios) 

3 

2.5 

2 

1.5 

1 

Latvia

Hungary

Lithuania

0.5 

EU-25 

Denmark 

Czech Republic

Germany 

Greece

Cyprus

Luxembourg

Poland

Romania

Finland

Slovenia

Portugal

Slovakia

Sweden

U-K

0 

-0.5 

-1 

EU-15 

Belgium 

Bulgaria

Ireland

Italy

France

Estonia

Spain

Austria

Malta

Netherlands

Source: Eurostat database. 
(1) Changes in the “income quintile share ratio” (S80/S20), i.e. the ratio of total equivalent disposable income received 
by the top richest 20% of the population to that received by the bottom 20% of the population. Changes are computed 
for  the  period  1995-2005  for  EU-15  countries  and  2000-2005  for  the  EU12,  except  for  Cyprus  (2002-2005),  Latvia 
(1999-2005), Malta (1999-2005) and Slovakia (2004-2005). 

Coming  to  intra-regional  inequality,  very  little  information  is  available,  due  to  limited  policy 
demand. But what is known is quite revealing. A study conducted on 1990s data shows a very 
high variance of poverty rates (measured relative to 50% of national median income) within each 
European country206. This high variance persists even when, for each region, rather than a unique 
national  median  income,  the  regional  median  income  is  adopted  as  a  standard:  even  relatively 
rich  areas  show  high  “poverty”:  Greater  London  showed  a  20.1%  variance  against  10.1%  in 
Wales or 4.7% in Lorraine.  

As  a  result  of  very  high  interpersonal  inequality  within  each  region,  overall  interpersonal 
inequality is not well captured by inter-regional disparities in income per-capita. A recent study 
of  central  and  eastern  European  countries  shows  that  “the  contribution  of  intra-regional 
inequalities to overall inequality largely outweighs the inter-regional contribution”207.  

The  reduction  in  inter-regional  disparities  –  convergence  –  obviously  tends,  ceteris  paribus,  to 
reduce overall interpersonal inequality208, but the latter can be strongly influenced by changes in 
intra-regional  inequalities,  which  can  move  in  the  opposite  direction.  As  was  argued  above,  an 
improvement  in  a  region’s  efficiency  can  well  take  place  together  with  a  rise  in  its  internal 
inequality. Once again, this calls for an analysis to be carried out at micro level, place by place, 
on the separate effects of cohesion policy on efficiency and social inclusion. 

205 See also Förster et al (2005) who analyse the evolution of personal income inequalities during the 1990s 
in the Czech Republic, Hungary, Poland and Russia. 
206 See Jesuit, D.K., Rainwater, L. and Smeeding, T. (2002). Reference is to NUTS 2 Regions. 
207 See Förster, M., Jesuit, D. and Smeeding, T. (2005). 
208 A correlation between the convergence of regions within a country and the degree of income inequality 
in  the  same  country  is  shown  by  an  examination  of  both  cross-section  and  time  series  by  Monfort,  P. 
(2009).  

 88

 
 
                                                      
II.3.2.  Micro 

Since  its  reform  in  1988,  cohesion  policy  has  been  one  of  the  most  extensively  reported  and 
evaluated  policies  in  Europe,  certainly  more  than  any  other  EU  policy.  The  evaluation 
framework,  as  the  analysis  of  Member  States  practice  shows,  has  certainly  increased  the 
propensity to question results, and to investigate the implementation process. It has created strong 
incentives for investing human resources in this field, even in countries whose culture was more 
alien to an evaluation approach. However, if we search for the evidence produced by this effort, 
the results appear to be poor. This is particularly true for two of the most relevant dimensions of 
any evaluation effort in the field of place-based policies: an understanding of which interventions 
work and which do not; and the mobilisation and concentration of public debate, both at the level 
of  the  elites  and  the  general  public,  on  a  few  clear-cut  objectives  measured  by  indicators  and 
targets. 

The  first  of  these  two  tasks  –  learning  about  what  works  (and  for  whom)  –  should  have  been 
entrusted to impact evaluation, i.e. to a micro-evaluation, intervention by intervention, of whether 
the  action  aimed  at  a  given  set  of  citizens  or  firms  changed  their  behaviour  and  produced  the 
desired  effect  or  any  other  effect  (see  section  I.2.4).  Impact  evaluation,  as  with  the  rest  of  the 
evaluation process, is the responsibility of Member States. A valuable effort undertaken recently 
by  DG  REGIO,  whereby  all  the  information  and  evaluation  studies  conducted  by  individual 
Member States for the 2000-2006 programmes were surveyed and analysed, has shown that very 
little  and  fragmented  results  have  been  achieved  by  Member  States  in  this  area  of  evaluation, 
their  effort  being  concentrated  on  process  evaluation  and  on  the  qualitative  evaluation  of  all 
programmes209.  A  limited  amount  of  available  empirical  studies  making  use  of  counterfactual 
impact  evaluation  concerns  the  effects  of  business  aids  on  the  levels  of  investments  and 
employment210.  No  systematic  use  can  be  made  of  these  results.  The  possible  reasons  for  this 
failure in making impact evaluation a central tenet of cohesion policy are discussed in the next 
section. 

The picture for indicators and targets is equally worrying. 

Member States are and were formally required to quantify targets in the operational programmes. 
This was both in terms of financial and physical outputs – such as the kilometres of road or of 
training hours - and in terms of outcome relevant for people’s well-being – such as accessibility 
times  or  competence  levels)  and  with  reference  to  measurable  indicators.  Member  States  were 
also required to update the Commission, via a dedicated database, on the progress made against 
these  indicators.  The  questions  are  then:  Have  meaningful  target  values  been  chosen?  Do  the 
indicators  (whose  selection  is  left  to  Member  States  and  is  supposed  to  reveal  preferences  and 
policy choices specific to places) comply with minimal requisites of statistical validation, clarity 
of interpretation and responsiveness to policy intervention? Can some of the indicators (at least 
those  referring  to  output)  be  aggregated  across  countries?  Has  there  been  ex-ante  or  ex-post  a 
European public debate on the targets chosen by different Member States? Or on whether targets 
were achieved and why? The answer to all these questions is not affirmative. 

The survey of ex-post evaluations confirms what the absence of any EU-wide database available 
to  the  public  on  indicators  and  targets  was  already  signalling:  the  quality  of  the  indicators  is 
doubtful and so is the meaningfulness of the targets. Indicators mix variables that are quite close 
to policy interventions (like the share of goods transported by train or the connection to sewage 
networks)  with  variables  that  describe  the  general  context  (rate  of  employment,  share  of  direct 
investments).  They  mix  (without  clarification)  objective  and  subjective  typologies,  they  often 

209  See  Ex-post  evaluation  of  Cohesion  Policy  Programmes  2000-2006.  The  few  exceptions  are  mostly 
represented by the impact evaluation of business aids. 
210 See for example: Bondonio, D. and Greenbaum, T. (2006); Bronzini, R. and de Blasio, G. (2006); Duch 
Brown,  N.,  Montolio  Estivill,  N.  and  Mediavilla,  M.  (2007);  Adorno,  V.,  Bernini,  C.  and  Pellegrini,  G. 
(2007). 

 89

 
                                                      
refer to different years, they are often expressed in absolute terms with no clue to how they are to 
be standardised, and they do not exhibit statistical validation. Targets are often overly ambitious, 
often just above the baseline, without justification being provided for these choices.  

For two countries – Italy and Spain - where information was available which allowed the survey 
of evaluations to construct some tables, the targets and actual values for some of the indicators 
are  reported  in  Table  II.17211.  The  choice  of  indicators  is  limited  to  those  for  which  the  above 
problems  seemed  less  serious.  The  table  draws  attention  to  several  issues:  the  scattered  and 
unstructured  way  in  which  the  information  is  provided;  the  problems  that  should  be  tackled  in 
order to make it really useful; but also the potential that these figures could have if they were to 
become the object of public debate. This is ultimately the real problem with this information. In 
general,  it  is  provided  by  Member  States  as  a  compliance  exercise,  knowing  in  advance  that  it 
will not be discussed. No-one will ask, for example, Italy why the reduction of water distribution 
irregularities, to which many resources were assigned, fell so much short of the target, or which 
local  achievements  are  behind  the  reasonable  results  in  differentiated  waste  collection, 
considering what is publicly known about Naples mondezza (garbage). No public discussion, no 
circulation  of  information,  poor  quality  of  information:  this  is  the  inferior  equilibrium  that 
prevents indicators from being of use. 

Table II.17: Targets for lagging Regions eligible for cohesion policy: 
a selection for Italy and Spain 

Indicators

Baseline 
(2000)

Targets 
(2006)

Final values 
(2006)

Baseline 
(1998)

Targets 
(2006)

Final values 
(2005)

ITALY

SPAIN

  Transport

Length of road network of high capacity (kms/1000 km2)
Length of TEN (kms)
Length of high speed rail (kms)
Goods transported by train as share of all transported goods (%)
Air traffic (passengers per 100 inhabitants)

  Telecommunication

Internet diffusion among families (%)
Internet diffusion among population over 14 years old (%)

  Environment

Water distribution interruptions (% of families with irreg.)
Connection to sewage water network (% population)
Differentiated waste collection (% of waste)
Protected land (% of surface)
Polluted coasts (% of total)

  Other services to citizens

Medical doctors (per 1.000 inhabitants)
Thefts (per 1.000 inhabitants)
Violent crimes (per 10.000 inhabitants)
Participation in sport (% total population)

Source: Ex-post Evaluation of Cohesion Policy Programmes 2000-2006.
(1) 2003.
(2) 2006.
(3) 2000.

-
-
-
1.9
90.4

10.8
-

29.7
-
2.2
-
5.9

-
19.3
15.2
21.8

-
-
-
2.7-2.8
120-140

40.0
-

12.0-15.0
-
7.0-13.0
-
4.0-5.0

-
14-16
12-14
25-30

-
-
-
1.8
119.5

29.1
-

23.3
-
9.7
-
6.6

-
18.7
23.8
23.1

14.5
5 096
623
-
-

-
5.4

-
79.0
-
12.9(3)
-

3.9
-
-
-

24.3
8 186
1 565
-
-

-
25.4

-
98 .0(2)
-
28.0
-

4.5
-
-
-

20.9
6 144
687
-
-

-
23.5(1)

-
100.0
-
13.4
-

4.1
-
-
-

The  quality  of  indicators  and  the  lack  of  any  legal  requirement  to  establish  core  indicators 
common  to  all  Member  States  are  also  the  reasons  why  data  can  only  be  aggregated 
internationally  for  some  countries  and  for  limited  information.  The  above  survey  and  other 
sources  allow,  for  example,  DG  REGIO  to  estimate  that,  in  the  period  2000-2006,  and  with 
reference  to  different  subsets  of  Member  States,  44.4  thousand  kilometres  of  new  (or 
reconstructed) roads, 11.7 thousand km of new (reconstructed) railways and 17.2 thousand km of 

211  The  failure  of  the  evaluators  to  construct  summary  tables  for  other  countries  is  not  a  good  signal  on 
their quality. 

 90

 
 
                                                      
water supply network have been built212. But, for example, in terms of the time saved by transport 
improvements (a meaningful measure of outcome in this field), information is only available for 
certain countries, expressed in non-comparable units of measurement213. 

Although  no  changes  have  been  made  in  the  Regulation  for  the  current  programming  period 
2007-2013  that  are  likely  to  change  this  situation,  improvements  might  come  from  the 
Commission’s  recommendation  to  apply  a  limited  set  of  indicators  across  all  programmes  and 
from  the  recent  DG  REGIO  initiative  to  establish,  through  a  survey  of  countries’  choices, 
indicative  common  definitions  of  core  indicators  and  then  to  check  the  actual  availability  and 
quality of data for these indicators in the information system. But a sharp change in the demand 
side,  in  the  expected  public  use  of  this  information,  and  in  the  role  these  data  play  in  Member 
States’ strategy and reporting is clearly necessary to make indicators and targets a useful policy 
tool. 

II.4.  A tentative general assessment of successes and failures of cohesion policy 

The  limits  of  both  macro  and  micro  quantitative  systematic  evidence  weaken  any  attempt  to 
produce a definitive assessment of cohesion policy. However, the availability of a large body of 
qualitative analysis and studies, the existing research, as well as a review of an extensive set of 
policy  documents  and  reports  allow  us  tentatively  to  assess  how  close/far  cohesion  policy  is 
from/to the place-based model sketched in chapter I.  

“Successes” and “failures” are summarised in a list of 15 statements presented in Box II.B. The 
following sections provide explanations and references for those statements. The list is defined as 
“provisional”, since some of its content represents an informed assessment, and in the hope that 
the  discussion  promoted  by  this  Report,  together  with  new  results  on  the  effects  of  the  more 
recent programme periods and improved quantitative analysis of results will lead to refinement, 
revision or rejection of some or parts of these statements. 

On  the  whole,  on  the  basis  of  all  the  reviewed  evidence,  the  Report  has  come  to  believe  that 
cohesion  policy  offers  the  appropriate  framework  for  implementing  a  place-based  approach  to 
development in the European Union. But it has also come to believe that its present strategy and 
architecture cannot meet the challenge. Significant and visible major changes need to be made in 
its  priorities  and  governance.  The  weaknesses  analysed  in  what  follows  can help in identifying 
these changes. 

Strategy and objectives 

Cohesion policy has certainly contributed to the development of a common strategic approach to 
regional  policy  across  the  EU  which  has  many  features  of  a  place-based  development 
approach214.  

A  multi-level  governance  system  has  been  developed,  where  an  agreed  set  of  policy  principles 
and  criteria  for  allocating  funds  and  a  common  regulatory  framework  are  combined  with 
flexibility  for  Member  States  to  implement  the  funding  according  to  their  own  institutional 
structures. Within this governance system, the Commission has played a central role. It has been 
the  architect  of  reform  proposals  and  has  influenced  area  designation  and  financial  allocation 
methodologies.  Its  role  in  ensuring  regulatory  compliance  has been used to modify programme 

212 The aggregation refers to different group of countries: for roads to 15 Member States (CY, CZ, DE, EE, 
EL, ES, FR, HU, IRL, IT, LV, MT, PL, PT, SK), for railway to 8 (CZ, DE, EL, ES, IT, LT, SK, UK), for 
water to 9 (CZ, DE, EL, ES, IT, MT, PL, PT, SK). 
213 Spain, for example, saved nearly 1.2 million hours of travel time; Czech Republic reduced road time 
by 23% in the areas of intervention. 
214 Bachtler, J. and Yuill, D. (2007). 

 91

 
                                                      
strategies  and  to  influence,  monitor  and  control  the  operational  allocation  of  expenditure215. 
Research  has  indicated  that  the  principles  and  methods  of  cohesion  policy  have  influenced  the 
design and/or implementation of regional development policies in almost every Member State. In 
particular, they have contributed to a broadening of the agenda of regional development (beyond 
business support and infrastructure, and with an increasing focus on EU-defined objectives), and 
to  new  forms  of  governance,  to  include  regional  and  local  actors  as  well  as  non-governmental 
groups in developing region-specific development responses.  

These policy and institutional effects are most prominent in the lagging regions and countries of 
southern,  central  and  eastern  Europe  –  where  significant  spillovers  into  national  policies  and 
administrative  practices  and  effects  on  institutional  capacity  are  evident  –  but  also  apply  (to  a 
lesser extent) in the non-lagging regions216. 

However,  the  paradigm  shift  is  still  a  “work  in  progress”.  The  traditional  approach  to  regional 
policy, focusing on financial transfers to firms to compensate for their higher unit capital costs, 
and on public works retains a high profile in some Member States, where a place-based approach 
– aimed at providing bundles of public goods and services tailor-made to contexts – is still in the 
making. In these situations, although cohesion policy funds are not earmarked to sectors, a large 
part of the resources ends up being allocated to sectoral programmes that lack place-basedness: 
this is particularly the case for the resources – about two thirds of the whole budget – which are 
managed by the central administrations.  

Efficient  (and  possibly  effective)  management  and  implementation  of  the  policy  is  particularly 
evident  in  Member  States  where  there  has  been  a  high  level  of  integration  between  EU  and 
national  development  strategies,  built  on  strong  analytical  foundations,  with  institutionalised 
partnership,  clear  definitions  of  roles,  wide  consensus  and  a  strong  commitment  from  political 
elites217.  This  integration  has  also  sometimes  enabled  the  Commission  services  to  play  a 
supportive  role  in  strategy  development  (especially  in  the  1990s)  and  in  the  management  of 
programmes218. 

Where this shared strategic approach is lacking, the implementation of cohesion policy has been 
subject  to  major  tensions  and  conflicts.  This  is  evident  in  some  Member  States  which  have  a 
long-standing  domestic  regional  policy,  and  which  have  been  unable  or  unwilling  to  integrate 
fully the objectives or (more commonly) the management processes of cohesion policy. This has 
led  to  the  implementation  of  “parallel”  regional  policies  (EU  and  national),  each  with  its  own 
administrative requirements. The result is inadequate internal policy coherence between cohesion 
policy  and  domestic  regional  development  policies/strategies  and  limited  exploitation  of  the 
scope  for  strategic  synergies.  A  further  consequence  is  problematic  relations  between  national 
and European administrators219.  

215 Bachtler, J. and Méndez, C. (2007). 
216 Ibid. See also: Dąbrowski, M. (2008); ÖIR (2007); Mairate, A. (2006). 
217 See for example: Hartwig, I. (1999); ÖIR, LRDP and IDOM (2003); Bradley, J. (2005). 
218 Bachtler, J. and Méndez, C. (2007). 
219 National administrators chafe at the imposition of administrative obligations which are variously seen 
as  more  prescriptive,  complex  and  bureaucratic  than  existing  national  processes  –  especially  where  EU 
funding is relatively small-scale – and they may resent or even obstruct the influence of the Commission 
services. For their part, Commission officials are frustrated at their limited ability to influence the way that 
cohesion policy funds are managed and implemented. Over successive programme periods, some of these 
conflicts have been ameliorated by a convergence of EU and national policy goals and the adaptation of 
administrative  systems,  but  the  friction  between  different  EU  and  national  processes  –  and  associated 
strategic deficits - remains a problem in several countries. See EPRC and Metis (2009). 

 92

 
                                                      
The territorial or place-based dimension 

In  general,  the  effectiveness  of  the  strategic  approach  has  been  negatively  influenced  by  the 
failure to develop over time the policy model, to debate and refine the place-based development 
model – that cohesion policy itself helped to shape after 1988 – in the light of lessons and of the 
advancement of economic theory. 

Existing  research  has  underlined  insufficient  understanding  in  cohesion  policy  strategy 
development and debate of what is driving or hindering regional economic change, and the lack 
of  a  development  model  behind  the  adopted  strategies220.  This  weakness  has  made  cohesion 
policy  open  to  several  inappropriate  interpretations  (for  example,  of  being  a  tool  for  financial 
redistribution among regions, or for regional convergence – see sections I.2.3 and I.5); it has led 
to  growing  criticisms  –  that  it  acts  against  labour  mobility  or  against  efficient  agglomeration 
processes;  and  it  has  diluted  its  territorial  or  place-based  nature.  The  reference  to  places,  to  a 
place-based  approach,  has  been  progressively  left  to  a  “niche”  of  the  policy  arena.  The  place-
based  dimension  has  been  somehow  constrained  into  a  corner  –  the  “spatial”  corner  –  and  has 
been progressively treated as a perspective which is separate from the “economic” and “social” 
perspectives, rather than as a way of approaching both these dimensions; the perspective has been 
used for some limited programmes (territorial cooperation, Leader – in rural areas – and Urban, 
whilel they existed, and a few others), but does not characterise all interventions.  

The  failure  to  develop  the  conceptual  foundations  and  the  scope  of  the  territorial  dimension  is 
evident in the tendency to treat jurisdictional NUTS 2 Regions as the unit of reference for policy 
intervention,  i.e.  to  confuse  them  with  the  places  or  regions  that  the  policy  should  target 
(according to the economic rationale discussed in section I.2). NUTS 2 Regions very often are, in 
the  context  of  a  place-based  policy,  the  most  suitable  entity  to  be  entrusted  with  programme 
management, i.e. with the responsibility to select places and projects (section I.2.4). Due to the 
availability of robust data, they might also be the appropriate unit of reference for allocating EU 
funds  (see  below,  section  V.1).  But  they  almost  never  are  the  appropriate  unit  of  intervention. 
They  are  not  the  places/regions  for  which  a  place-based  intervention  should  be  designed. 
Mistaking  one  thing  for  the  other  has  led  to  the  unfounded  idea  that  the  purpose  of  cohesion 
policy was the convergence of NUTS 2 Regions. 

The conceptual limits, the inadequate emphasis on the territorial perspective, have limited, in the 
current  programming  period,  the  positive  impact  of  the  decisions  to  link  a  relevant  share  of 
cohesion policy to the Lisbon Strategy and to introduce the Community strategic guidelines and a 
National Strategic Reference Framework for each Member State. While the Community strategic 
guidelines,  especially  their  first  draft,  reflected  several  important  territorial  themes,  the 
opportunity  was  missed  for  cohesion  policy  to  add  -  to  the  sectoral  approach  of  the  Lisbon 
strategies - the place-based dimension. Cohesion policy was rather seen by many as a “fund with 
a redistributive tilt” to be used as a means of financing sectoral policies. Furthermore, the final 
scope of “priorities” was so broad and their number was so high that a very unfocussed policy 
design  was  allowed221:  Member  State  pressure  on  the  regulations  during  the  negotiations 

220 Bachtler, J. and Gorzelak, G. (2007). 
221  This  lack  of  focus  is  well  represented  by  the  juxtaposition  of  several  “sets  of  priorities”  whose 
reconciliation  take  place  at  the  cost  of  taking  away  any  focus  from  the  word  priority.  The  Community 
strategic  guidelines  for  2007-13  contain  three  “priorities”:  (a)  improving  the  attractiveness  of  Member 
States, regions and cities by improving accessibility, ensuring adequate quality and level of services, and 
preserving  the  environment;  (b)  encouraging  innovation,  entrepreneurship  and  the  growth  of  the 
knowledge economy by research and innovation capacities, including new information and communication 
technologies;  and  (c)  creating  more  and  better  jobs  by  attracting  more  people  into  employment  or 
entrepreneurial  activity,  improving  adaptability  of  workers  and  enterprises  and  increasing  investment  in 
human  capital.  These  priorities  are  sub-divided  into  a  number  of  specific  guidelines,  mostly  related  to 
cohesion policy but some relating to legal, regulatory or investment policies of the Member States such as 
land-use planning, accessibility of services and wage bargaining. Partly corresponding with the guidelines, 

 93

 
                                                      
worsened this situation by inserting “catch-all” categories of eligible expenditure – such as “other 
investment in firms” – and ensuring that the Fund-specific priorities needed only be “primarily” 
rather than exclusively targeted.  

Finally, the lack of clarity and consensus on the policy model has limited the coordination, both 
at Member States and EU level, between the territorial approach of cohesion policy and sectoral 
strategies.  

At  EU  level,  although  sometimes  presented  as  an  organisational  problem  -  different  funds 
administered  by  different  Directorates-General  –  the  insufficient  policy  integration  has  often 
concerned the goals and the priorities of policy. This is most obvious in the relationship between 
cohesion  policy  and  rural  development,  where  there  is  no  coherence  between  the  two  sets  of 
community strategic guidelines. But it also applies to social priorities, which should be tackled 
through a fully coherent territorial strategy embracing public goods and services financed by both 
the  Regional  and  the  Social  funds.  Or  to  specific  policy  goals  like  innovation  or  cluster 
development,  where  the  Directorates  for  Regional  policy,  Research  and  Enterprise  (and  indeed 
for  Competition)  each  have  their  own,  poorly  coordinated  objectives.  The  debate  and  analysis 
originated by the explicit reference in the draft of the new Treaty to the “territorial” dimension of 
cohesion have recently brought attention to these limits: “Experience shows – it is argued in the 
document  adopted  in  November  2008  by  the  Ministers  responsible  for  spatial  planning  and 
cohesion policy222 - that the European Union’s sector-based policies often have effects which can 
run counter to the cohesion goals”, not taking into account their “likely territorial impact”.  

Efficiency and social inclusion objectives 

The conceptual fuzziness has been increased by the failure to distinguish between efficiency and 
social  inclusion  (equity).  The  Treaty  reference  to  “reducing  disparities  between  the  levels  of 
development of the various regions” has progressively come to be interpreted as “convergence” 
between regions, and convergence has been interpreted as implying both efficiency and equity. 
Social goals have progressively been pursued by “camouflaging” them as efficiency goals, while 
efficiency goals have often been “justified” with reference to their social synergies. One objective 
has  been  pursued  in  the  name  of  the  other.  As  has  been  noted:  “much  of  the  language  of  EU 
cohesion  policy  eschews  trade  off”  223,  as  if  the  two  objectives  would  necessarily  and  always 
reinforce each other.  

This is unfortunate, since, as this Report has shown (sections I.2.2 and I.3): first, from the outset 
cohesion policy has embodied a vocation to pursue both equity and efficiency objectives; second, 
the place-based approach, which characterises cohesion policy, is a very effective way to pursue 
both these objectives; third, none of the two objectives is captured by convergence; fourth, both 
trade-offs and synergies exist between the two objectives, whose balance can only be empirically 
determined  with  reference  to  specific  contexts;  therefore  and  finally,  policy  effectiveness 
demands that the two objectives are pursued by dedicated interventions, in both cases through a 
territorial/spatial/place-based perspective.  

This  fuzziness  of  meta-objectives  and  the  dichotomization  of  the  economic-social  perspective 
from  the  territorial  one  have  hampered  strategic  design.  This  is  particularly  the  case  for  social 
interventions: as the Report argues (section I.2.2), the very causes of social inclusion are context-
dependent  and  policy  effects  depend  on  places;  the  effectiveness  of  a  social  agenda,  the 
pursuance of greater social inclusion, could be strongly enhanced by its territorialisation. At the 
same time, the ambiguity between efficiency and equity and the emphasis on convergence have 

the Fund-specific regulations identify 16 priority themes on which assistance should be ‘primarily’ focused 
(see Section II.1). Under the earmarking requirements, 9 of these priorities are “prioritised”.  
222 The document was approved at the meeting in Marseille organised by the French Presidency. It was a 
step in the process initiated by the presentation of the Commission “Green Paper on Territorial Cohesion”. 
223 See the Report Working Paper by Farole, T., Rodríguez-Pose, A. and Storper, M. (2009). 

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negatively  influenced  the  policy  process  -  by  depriving  it  of  a  more  meaningful  and  focussed 
public  debate  –  and  the  capacity  to  assess  results.  And  they  have  fuelled  some  of  the 
misconceptions mentioned above.  

Contracts and conditionalities 

As  the  Report  has  shown  (section  I.2.4),  the  multilevel  governance  that  runs  place-based 
development policies must appropriately combine conditionality and subsidiarity224. In particular, 
it must allow the level of government responsible for the exogenous action to set priorities and to 
shape criteria for interventions (conditionalities), while at the same time allowing and promoting 
the  freedom  of  the  private  and  public  actors  at  lower  level  of  government  to  “advance  ends  as 
they  see  fit”  on  the  basis  of  their  knowledge  and  preferences  (subsidiarity).  In  EU  cohesion 
policy the compromise between conditionality and subsidiarity is unsatisfactory. 

On  the  one  hand,  the  combination  of  the  National  Strategic  Reference  Framework  and  the 
Operational  Programmes  of  each  country  fails  de  facto  to  provide  the  Commission  with  an 
adequate commitment by the Member State (and its Regions) about its strategy and its coherence 
with EU criteria. On the other hand, the ex-ante conditions on the use of funds give rise to great 
concern  among  Member  States  and  Regions  about  their  interpretation  and  about  being  second-
guessed by the Commission225. Overall, the perception of cohesion policy as a mere redistributive 
tool in the form of block grants has been reinforced. 

As  pointed  out  earlier  (section  II.1),  the  Regulation  does  not  require,  either  for  the  National 
Framework or for the Operational Programmes, any commitment on the institutional requisites to 
be  satisfied  in  the  sectors  of  intervention  and  any  explanation  of  how  the  national  or  regional 
authorities expect to achieve the announced results and about the timing of this process. As for 
objectives  and  targets,  they  do  not  need  to  be  specified  in  the  National  Framework,  while  a 
review  of  Operational  Programmes  for  the  2007-2013  period,  as  well  as  the  experience  of 
previous periods, show that the section on indicators and targets, generally relegated to the latter 
stages of the programme approval process, often appears as an appendix226. Furthermore, as noted 
above (section II.3.2), although a large amount of resources is invested by the Commission and 
Member  States  in  the  collection  of  data  on  physical  outputs  and  outcomes,  indicators  lack  the 
minimal  requisites  of  statistical  validation,  clarity  of  interpretation,  responsiveness  to  policy 
intervention, comparability over time and across countries. Targets are often overly ambitious, or 
set just above the baseline, signalling either that the strategy and its goals are not appropriately 
defined, or that Member States have a propensity not to reveal their goals. On the whole, even 
after several programme periods, monitoring is still often seen as a “regulatory requirement” and 
subject to systemic failings227.  

Given this situation, how could cohesion policy be more results oriented? How could one expect 
a lively debate to take place in the Council or in the European Parliament on whether targets are 
being achieved in country X or Y? But the questions also go in the other direction. How could 
one expect Member States to take the commitment to specify objectives more seriously if there is 
no  strong  requirement,  opportunity  or  demand  at  EU  level  (as  for  the  Open  Method  of 
Coordination) for a periodic debate on these commitments? 

Four concurring reasons explain these serious limits. 

First,  owing  to  the  lack  of  a  renewed  high-key  political  compromise,  limited  consensus  on  a 
policy concept and Member State pressures, the choice has gradually prevailed of curtailing any 
conditionality  that  would  require  the  Commission  to  exercise  discretionality,  an  indispensable 

224 See OECD (2007a), chapter 7. 
225 See Blom-Hansen, J. (2006). See also OECD (2007a). 
226 See the Report working-paper Casavola, P. (2009). 
227 Polverari, L., Mendez, C., Gross, F. and Bachtler, J. (2007). 

 95

 
                                                      
requisite  for  policy  success.228  This  is  clear  if  one  considers  how  broad  and  un-binding  the 
Community  Strategic  Guidelines  are.  The  Report  will  argue  that  design  of  the  negotiation 
process,  by  which  resources  are  agreed  and  allocated  to  Member  States  and  Regions  before 
agreeing on the rules and setting the goals, is an important concurrent cause of this weakness. 

Second,  a  methodological  failure  has  prevented  dealing  appropriately  with  the  issue  of 
incomplete  information.  It  is  not  only  the  case  that  the  Commission  has  less  information  than 
Member  States  and  Regions  on  what  should  be  done  to  achieve  results  (as  in  the  traditional 
paradigm of asymmetric information). It is also generally the case that, at the moment of drawing 
Programmes, Member States and Regions themselves have only a very partial understanding of 
what  their  targets  should  be  and  how  to  achieve  them;  therefore,  even  if  they  wanted  to,  they 
could  not  commit  themselves  in  a  complete  and  verifiable  way.  The  “degree  of  completeness” 
varies across policy fields, being quite high, say for major infrastructure – the managing authority 
presumably has a clear idea of which projects will be implemented during the programme period 
– but very low in other fields, like innovation.  

In  this  context,  any  attempt  to  set  very  high-stake  requisites  in  a  homogeneous  way  across  all 
fields  (as  if  contracts  could  be  largely  complete  and  verifiable)  is  bound  to  fail:  contracts  will 
either  set  very  low  targets  or  targets  will  knowingly  be  unrealistic,  while  unevenness  in  the 
implementation  of  the  rules  is  bound  to  arise  -  sometimes  perceived  by  Member  States  as 
arbitrariness. An example of this methodological failure is the performance reserve in the period 
2000-2006.  Introduced  in  response  to  concerns  about  the  effectiveness  of  spending,  it  initially 
pursued  a  very  homogeneous  approach  across  countries  and  it  finally  had  to  succumb  to  a 
selection of targets which could be easily achieved and which did not put regions/programmes in 
competition with each other229.  

Third,  a  perverse  incentive  mechanism  is  at  work  due  to  the  spending  deadlines  and  the 
decommitment system, by which the Commission is under a strong pressure to let Member States 
move  on  with  spending,  rather  than  checking  on  its  quality.  The  emphasis  on  financial  targets, 
while motivated by efficiency reasons, has both reduced the credibility/ability of the Commission 
to reject ex-ante programmes on the grounds of “quality” and reduced the incentive for Member 
States  to  promote  the  quality  of  spending.  The  de-commitment  (n+2)  rule  was  introduced  to 
improve  the  financial  absorption  of  EU  funding  and  avoid  the  programme  closure  delays 
experienced  in  the  1990s.  By  incentivising  programmes  to  ensure  timely  commitment  of 
resources, the n+2 rule has had a powerful effect on programme management. At the end of 2007, 
de-commitments  amounted  to  around  1.9  billion  euro,  or  around  1  per  cent  of  total  allocated 
funding allocated (1.1 per cent for lagging regions, and 0.4 per cent for non-lagging regions)230, 
although with major differences between countries (up to almost 3 per cent) and within countries 
(five  programmes  in  three  different  countries  ranging  between  13  and  26  per  cent).  However, 
there  is  considerable  evidence  that  the  de-commitment  rule  has  negatively  affected  project 
quality, encouraging programme managers to focus on “safe” types of intervention projects and 
applicant groups and discouraging innovative or risky projects231 . 

Fourth, setting more binding conditionalities and monitoring their implementation would require 
a  quantity  of  human  resources  that  cannot  today  be  made  available  by  the  Commission.  The 
present breadth of policy priorities and the amount of procedural tasks to be executed (especially 
relating  to  control  activity,  see  below)  prevent  the  Directorates-General  in  charge  of  the policy 
from  having  the  human  resources  that  would  be  necessary  to  be  fully  competent,  tough  and 

228 On the need for clear-cut conditionalities and Commission discretionality, see the Report Hearing Paper 
on Growth, particularly the comments by Philip Keefer and Michael Storper. 
229 See: European Commission (2000); European Commission (2004d). For an exception, see Anselmo, I. 
and Raimondo, L. (2003). For an example of the very polarised debate on the issue, see BKA (2003). 
230 See Applica, Ismeri, Wiiw (2008). 
231  See  also  the  Report  Seminar  paper  summarising  the  views  of  Member  States’  and  Regions’  policy-
makers. 

 96

 
                                                      
trusted (as a provider of value added), both in negotiating the programme strategies and later in 
supervising commitments and assisting Member States. The positive experience of the role that 
the  Directorates-General  and  their  geographic  units  in  charge  of  these  tailor-made  activities 
played  in  some  policy  areas  and  in  some  Member  States  confirms  that  the  issue  of  human 
resources is a central one. The discretion required for an appropriate implementation of cohesion 
policy  and  by  the  open-ended  nature  of  the  commitments  undertaken  in  its  multi-level 
governance demands very high skills.  

A particularly serious conditionality failure concerns additionality: the commitment of Member 
States that EU assistance will not substitute for a reduced domestic policy effort, which is one of 
the  main  “principles  of  assistance”  of  cohesion  policy.  Here,  the  complexity  and  the  lack  of 
transparency  of  the  methods  used  by  every  Member  State,  the  lack  of  comparability  across 
countries,  and  the  failure  to  circulate  information  have  so  far  prevented  any  satisfactory  public 
debate  both  on  the  way  additionality  targets  are  set,  and  on  the  compliance  with  those  targets. 
They  have  also  created  high  risks  of  arbitrariness  in  checking  compliance.  On  the  whole,  they 
have not guaranteed adequate pressure on Member States to avoid using EU assistance to reduce 
both domestic expenditure and taxation and to cause unchecked, inappropriate competition with 
other  Member  States.  Under  the  current  Regulation  and  practice,  the  publication  of  results  and 
methodologies  has  been  introduced.  But  the  failure  to  link  (formally  and  statistically)  the 
additionality  requirement  to  the  information  requirements  of  the  Stability  and  Growth  Pact 
prevents  a  frank  public  debate  from  taking  place  on  the  trade-off  that  several  countries  face 
between  respecting  additionality  (or  establishing  an  ambitious  additionality  targets)  and 
complying with budget constraints. This is a particularly relevant issue at a time when financial 
instability demands truly concerted efforts and no free-riding. 

The specific task of territorial cooperation 

The  assessment  of  results  is  still  more  difficult  in  the  case  of  the  three  strands  of  territorial 
cooperation – cross-border, transnational, interregional – due to their complexity, to the particular 
fuzziness  of  their  objectives,  and  to  shortcomings  in monitoring systems and data collection232. 
Indeed, one study concluded that some of its programmes had “hardly any tangible outputs”233. 
As  a  generalisation,  this  is  excessive,  and  there  is  certainly  evidence  of  territorial  cooperation 
encouraging  partners  to  proceed  with  projects  that  would  otherwise  have  not  taken  place234. 
However,  much  of  the  research  evidence  focuses  on  the  qualitative  effects  of  territorial 
cooperation.  

On  the  whole,  the  available  evidence  seems  to  suggest  the  following  tentative  conclusion235. 
First,  cross-border  and  transnational  programmes  have  often  helped  to  overcome  institutional 
inertia,  mobilising  financial  resources,  stimulating  economic, social and cultural exchanges and 
new  relationships236.  Second,  they  have  facilitated  policy  transfer  and  institutional  adaptation 
through networks237. Third, the intensity and effectiveness of territorial cooperation vary greatly, 
with the greatest impact occurring in regions where integration and cooperation are already well 

232 See: Interact (2006) and Taylor, S., Olejniczak, K. and Bachtler, J. (2004).  
233 See: Böhme K (2005).  
234 See: BMBau (2008); European Commission (2007b); Colomb, C. (2007), p. 347.  
235  See:  BMBau  (2009);  Mirwaldt,  K.,  McMaster,  I.  and  Bachtler,  J.  (2008);  Ferry,  M.  and  Gross,  F. 
(2005). 
236  See:  Lähteenmäki-Smith,  K.  and  Dubois,  A.  (2006);  Taylor  et  al  (2004);  Böhme  et  al  (2003); 
Marchante, A., Ortega, B. and López, J. (2002); Perkmann, M. (1999); Church, A. and Reid, P. (1999). 
237 See: Dühr, S., Stead, D. and Zonneveld, W. (2007). In the more advanced cases, the effects transcend 
“simple  learning”  to  promote  systematic  learning  processes  and  organisational  learning:  see  BMBau 
(2008);  Farthing,  S.  and  Carrière,  J.P.  (2007);  Böhme,  K  (2005);  Böhme,  K.,  Josserand,  F.,  Haraldsson, 
P.I., Bachtler, J. and Polverari, L. (2003); Giannakourou, G. (2005). 

 97

 
                                                      
developed (e.g. Baltic Sea, Benelux area) within a pre-existing political or strategic framework238. 
On the other hand, it has been suggested that territorial cooperation has encouraged new public 
conceptions of regions, and the creation of new “regional identities”, institutions and cross-border 
governance systems: in some cases, local authorities have entered a field previously reserved for 
central state actors239. Whether this has positive or negative effects on economic efficiency and 
on geo-political stability is obviously an open issue240.  

Whatever  view  is  taken  of  the  networking  and  new  regional  identities  promoted  by  territorial 
cooperation, their translation into verifiable results has been limited in the past by several factors. 
First,  a  lack  of  fit  between  EU  and  national  policies  and  rules  together  with  insufficient  (or 
absent) Member State commitment to exploiting the programmes – which is also evident in their 
poor integration with mainstream cohesion policy programmes – has prevented the use of their 
experimental results241. Second, the policy objectives have often lacked clarity: most programmes 
are  broad,  leaving  room  for  the  pursuit  of  more  vested  interests242.  Finally,  the  territorial 
programmes  themselves  have  lacked  adequate  organisational  commitment  to  translate  learning 
into  practical  results.  Territorial  cooperation  is  inherently  complex;  projects  are  commonly 
characterised  by  interdisciplinarity,  multiple  languages,  cultural  diversity  and  the  challenge  of 
communicating across sectoral boundaries243, and there may be difficulty in translating individual 
learning  into  organisational  learning  and  change.244  No  information  is  yet  available  on  whether 
the changes introduced for the 2007-13 period can actually improve some of these factors. 

The role of Regions 

As part of the paradigm shift, the new method of running public investments has been associated 
with a process of decentralization to Regions that has occurred in many European countries, as 
well as other parts of the developed world over the past decades.  

A  progressive  regionalisation  of  Structural  Funds  management  and  implementation  has  taken 
place  over  successive  programme  periods  since  1988245.  Responsibility  for  managing 
tranches  of  funding)  or  certain 
programmes,  specific  programme  elements  (priorities, 
implementation  functions  (e.g.  project  selection)  have  been  devolved  to  lower  levels  of 
government  (e.g.  Italy,  United  Kingdom)  or  to  deconcentrated  offices  of  the  state  (France, 
Sweden).  In  many  Member  States,  there  have  been  spillovers  into  domestic  policy  through  the 
creation of new Region-level institutional frameworks or a strengthening of the ability of Regions 
to  steer  their  own  economic  development,  as  in  Finland,  Ireland,  Italy,  the  Netherlands  and 
Sweden246. But, the regionalisation of management has not been universal, as shown by parts of 
southern and central-eastern Europe247.  

This process has largely followed a trend towards an increase in the authority of Regions that has 
taken  place  all  over  the  world  (see  section  I.2.4).  However,  the  shift  to  Regions  taking 

238  See:  Böhme,  K.,  Haarich,  S.,  Lähteenmäki-Smith,  K.,  Polverari,  L.,  Turró  Bassols,  L.  and  Ulied,  A. 
(2003); Nadin, V. and Shaw, D. (1998). 
239 See: Böhme (2005); Taylor et al (2004); Perkmann, M. (1999). 
240  For  example  Caracciolo,  L.  and  Maronta,  F.  (2009)  argue  that  the  creation  of  these  new  identities, 
failing a truly federal design of Europe, might well produces fragmentation of political decision making, 
undermine the legitimacy of national States and create the premise for future geo-political instability. 
241 See: Dühr et al (2007); Wilson, T.M. (2000). 
242 See: Scharpf, F.W. (1991). 
243 See Böhme K (2005). 
244 Ibid.  
245  Some  commentators  argue  that  there  has  been  little  substantial  redistribution  of  political  power  for 
deciding  regional  policy  planning  and  spending.  See:  Elias,  A.  (2008);  Keating,  M.  (2008).  John,  P. 
(2000). 
246  See:  Kunnunen,  J.  (2004);  Fabbrini,  S.  and  Brunazzo,  M.  (2003);  Gren,  J.  (2002);  Coyle,  C.  (1997); 
Kleyn, W.H. and Bekker, M. (1997).  
247 See: Bruszt, L. (2008); Bachtler, J. and McMaster, I. (2008). 

 98

 
                                                      
responsibility should not be overstated. Only 30 per cent of the cohesion budget (37 per cent of 
structural funds) is managed today by Regions. These figures partly reflect the fact that, with the 
wave  of  decentralisation  coming  progressively  to  a  halt  and  a  new  pressure  for  centralisation 
appearing  at  the  beginning  of  this  century248,  there  has  been  a  certain  re-centralisation  of 
management  responsibility:  from  regional  to  national  authorities  (as  in  the  Netherlands  and 
Sweden) or from the local level to the regional level (as in Flanders and Scotland)249. For some 
countries, the reduction of EU funding (in 2007-13) might have contributed to this reversal. On 
the other hand, for the new Member States the low level of regionalisation might reflect the early 
stage in the implementation of a new policy. 

To  what  extent,  cohesion  policy  has  actually  played  a  part  in  this  process  of  variable 
regionalisation, and the effect in terms of policy effectiveness, is hard to establish. Undoubtedly, 
since  1988,  the  regulations  governing  cohesion  policy  have  consistently  emphasised  the 
importance of involving Regions in the design and delivery and strengthening their capacity. The 
EU - and particularly EU cohesion policy – has been credited with exercising a strong influence 
on  the  evolution  of  Region-level  structures  and  systems,  as  part  of  the  governance  of  regional 
development  policies  in  the  Member  States250.  The  Commission  has  often  acted  as  an  ally  of 
Regions in pushing for their stronger involvement in programme formulation, management and 
implementation251.  This  involvement  was  a  necessity  for  those  Regions  which  have  almost  (or 
even formally) the status of a State or which, for their degree of authority, cultural identity and/or 
geopolitical role, have acquired the strength and the capacity to play a central role in economic 
and  social  development.  In  other  circumstances,  the  degree  to  which  regionalisation  has 
improved policy effectiveness depends on the balance between two factors: Regions’ proximity 
to places/regions, and the effect of cohesion policy on Regions’ capacity, allowing more tailored-
made strategies and a better promotion and selection of projects (as it can be appreciated by the 
superior quality of many Regional Operational Programmes); a misconception arising by which 
jurisdictional Regions become a proxy for places/regions and de facto constrain or fail to enhance 
the role of local governments and municipalities. 

Significant differences exist between Regions in their capacity to manage, programme, monitor 
and evaluate cohesion policy interventions, and similarly strong differences existing also between 
Member  States252.  Cohesion  policy  might  have  sometimes  represented  the  leverage  through 
which endogenous change in institutional capacity and in human resources has taken place253. At 
the  same  time,  the  EU  decision  to  require  every  Member  State  to  create  NUTS  2  entities  for 
cohesion policy, when they previously did not exist, and with programmes needing to be planned 
and implemented through some kind of relationship between national and local governments, is 
likely to have been an important governance device for facilitating cooperation and coordination 
between  the  two  levels.  However,  design  of  the  policy  has  often  failed  to  be  sufficiently 
adaptable to different national context, and its implementation might have not acted as a device to 
promote a greater role and participation of local actors. Furthermore, the pro-regional attitude of 
cohesion  policy  might  in  some  cases  have  been  used  by  the  Regions  to  promote  their  geo-
political ambitions (and the vested interests of particular organisations), well beyond the purpose 
of cohesion policy254.  

248 See Marks et al (2008). 
249 See Ferry, M., Gross, F., Bachtler, J. and McMaster, I. (2007). 
250 See: Hooghe, L. and Marks, G. (2001); Hooghe, L. (1996); Marks, G., Nielsen, F., Ray, L. and Salk, J. 
(1996); Marks, G. (1992); Marks, G. (1993).  
251 See the Report Seminar paper summarising the views of Member States’ and Regions’ policy-makers. 
252 See Milio, S. (2007). 
253 See for example Barca, F. (2009b). 
254 See Caracciolo, L. and Maronta, F. (2009). 

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Capacity of local governments and mobilisation of actors 

The  mobilisation  of  public  and  private  actors  at  local  level  with  the  aim  of  eliciting  and 
aggregating  their  knowledge  and  preferences  and  of  promoting  their  freedom  and  capacity  to 
develop  projects  is  the  ultimate  purpose  of  the  place-based  approach  (section  I.2).  Cohesion 
policy addresses it through one its “principles of assistance”: the principle of partnership. 

At local level, the improvement of public capacity and the involvement of private actors and their 
associations often go together. There is evidence that cohesion policy has actually contributed to 
– and in some cases initiated – processes of institution-building and social capital formation. It 
has been argued that the planning and implementation requirements for spending cohesion policy 
funds  have  challenged  the  power  balances,  interests  and  behaviours  of  established  actors, 
providing  opportunities  for  new  organisations  and  views  to  have  an  influence  on  economic 
development255. 

Research  on  the  application  of  the  partnership  principle  reveals  clear  changes  in  the  territorial 
relations between organisations and across levels of government, both in the implementation of 
cohesion  policy  as  well  as  domestic  policies256.  This  concerns  the  way  in  which  sub-national 
authorities  have  become  involved  in  the  planning  and  implementation  of  cohesion  policy 
programmes  through  various  forms  of  consultation  or  cooperation,  although  with  major 
differences between Member States. Cohesion policy has often played a key role in supporting 
local  development  institutions  and  networks,  which  has  helped  them  to  lead  and  co-ordinate 
bottom-up,  integrated  responses  to  economic  development  challenges.  It  has  also  extended  the 
number and type of organisations involved in economic development, and increased the resource 
base  for  their  local  bodies.  It  has  more  recently  (since  2006)  strengthened  the  exchange  of 
experiences  (through  the  web-based  availability  of  material  prepared  in  a  given  format)  and 
promoted  linkages  across  networks  and  local  projects  through  the  “Regions  for  Economic 
Change initiative”257. 

How often the creation of networks and the promotion of local institutions in the targeted places 
have  allowed  knowledge  and  preferences  to  be  elicited  from  local  actors  and  opportunities  for 
innovators to be opened up, rather than the funding being captured by the same elites responsible 
for the unsatisfactory development of those same places, is hard to say.  

Systematic  evidence  is  not  available  on  an  issue  that  would  require  more  concerted  evaluation 
and  analysis.  Implementation  reports,  a  large  amount  of  evidence  reported  by  European  bodies 
which  organise  private  and  public  local  actors,  and  anecdotal  evidence  suggest,  as  one  would 
expect,  that  both  situations  have  occurred.  There  are  situations  where  cohesion  policy  seems 
definitely to have elicited and aggregated local knowledge, promoted innovators, and represented 
leverage for change. Situations also exist where the failure to mobilise local actors, the incentive 
to spend the funds rapidly, and a top-down attitude of regional governments have favoured the 
creation  of  a  rather  static  system  of  public  clients  endowed  with  the  competence  to  spend 
cohesion policy funds. As has been stated, in these situations, “unorganised actors in the region 
will  often  be  unable  to  come  onto  the  scene”258.  Even  when  special-purpose  institutions  – 
networks,  associations,  districts,  pacts,  agencies,  etc.  –  have  emerged  at  local  level  and  have 
acquired a central role in developing projects for the “place” whose boundaries they have created, 
the risk of these institutions rapidly evolving from a tool for innovators and change to a tool for 
rent-seeking has often not been identified and addressed.  

255 See: Paraskevopoulos, C.J. (2003); Paraskevopoulos, C.J. (2001); Hibbitt, K., Jones, P. and Meegan, R. 
(2001).  
256 See: Dąbrowski, M (2008); Roberts, P. (2003); Jones, M. (2001); Östhol, A. and Svensson, B. (2001); 
Kelleher, J., Batterbury, S. and Stern, E. (1999). 
257 See http://ec.europa.eu/regional_policy/cooperation/interregional/ecochange/index_en.cfm?nmenu=1. 
258 See De Rynck, S. and McAleavey, P. (2001), p. 545-546. 

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On the whole, the mobilisation of local actors, the opening up of opportunities for innovators and 
the limitation of rent-seeking have not been helped by a lack of reference to, and debate on, the 
policy concept. In the social domain, there has been a tendency to “de-personalise” the territorial 
approach, to refer to places or territories as if they had a preference function of their own and not 
to  give  due  importance  to  the  ultimate  effects  on  individuals’  well-being.(see  section  I.2.2). 
Compared to the policy concept, the failure to take an experimental approach, guided by the use 
of impact evaluation (see below), and to focus public debate on objectives and targets have also 
taken a toll.  

A  more  positive  performance  in  this  respect  is  apparent  in  the  implementation  of  local-level 
initiatives  directly  managed  by  the  Commission  services  and  characterised  by  the  intensive 
provision  of  expertise in relation to financial resources. These local initiatives have shown that 
they  can  be  successful  in  developing  new  ideas,  promoting  policy  integration  and  institutional 
cooperation, engaging with new stakeholders and encouraging the dissemination and transfer of 
knowledge.  The  drawback  is  that  these  initiatives  have  generally  operated  separately  from 
mainstream programmes, and their results have not always been considered or integrated in the 
development of either EU or domestic regional policies. 

One  example  is  the  regional  innovation  actions.  Since  the  early  1990s,  the  Commission  has 
actively  sponsored  various  initiatives  to  develop  local  innovative  activities.  Building  on  the 
experience  of  previous  pilot  projects259,  the  Regional  innovation  strategies  and  other  initiatives 
were launched since 1994. A key objective was the promotion of regional and local activities and 
capacity  in  the  policy  domains  of  innovation  and  the  information  society.  The  positive 
contribution  of  the  initiatives  in  these  respects  has  been  demonstrated  in  several  evaluation 
studies,  notably  in  terms  of  the  creation  of  new  partnerships260,  although  the  effectiveness  and 
impact of the actions has also attracted criticisms.261  

A second example is provided by the URBAN initiative which promoted an integrated approach 
to urban development through cross-sectoral coordination, local responsibility and concentration 
of funding on selected areas. Evaluation (of URBAN 1) found the initiative to be successful in 
building local capacity and targeting disadvantaged groups, although it was considered limited in 
the scope of interventions.262 Similar observations can be made about the Leader initiative under 
the EU’s rural development policy which again emphasised locally-based, bottom-up approaches 
for  rural  development  with  a  strong  focus  on  multi-sectorality.  Central  to  the  participative, 
partnership-working  method  is  the  requirement  to  set  up  Local  Action  Groups  of  public  and 
private stakeholders to identify development needs within their rural communities and to develop 
and test small-scale, innovative projects to tackle the identified needs. These distinctive features, 
commonly  referred  to  as  the  "Leader  method",  are  often  singled  out  as  generating  significant 
added value263, notwithstanding several non-trivial challenges.264 

259 In particular, the launch of a Regional Technology Plan (RTP) pilot action under article 10 of the ERDF 
regulation  by  DG  REGIO  to  initiate  the  development  of  Regional  Technology  Strategies,  subsequently 
developed in eight European regions between 1994 and 1996. 
260  See:  Boekholt,  P.,  Arnold,  E.  and  Tsipouri,  L.  (1998);  Ecotec  (2000);  Charles,  D.,  Nauwelaers,  C., 
Mouton, B. and Bradley, D. (2000); Socintec and Inno (2005). See also: European Commission (2006a). 
261  Such  as  lack  of  involvement  of  target  beneficiaries  in  strategy  formulation;  difficulties  in  generating 
private sector funding; non-implementation of actions identified in the strategy; unsystematic monitoring 
and evaluation. See Cocintec and Inno (2005). 
262 See GHK (2003). 
263  The  ex-post  evaluation  of  the  1994-1999  period,  for  instance,  argued  that  more  effective  use  of 
endogenous resources has been promoted through the area-based approach; while the scope of local actor 
involvement  has  been  broadened  as  a  result  of  the  bottom-up  approach,  particularly  by  drawing  in  the 
voluntary sector. See ÖIR – Managementdienste GmbH (2003). 
264 The main problems identified in the 2000-2006 mid-term evaluation include: a lack of competition in 
the  selection  of  the  Groups;  restricted  abilities  by  Groups  to  design  tailor-made  strategies  due  to  time 
constraints. A more important fundamental criticism, given that much of the success of Leader depends on 

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The  mainstreaming  of  Community  initiatives  in  2007-2013  has  led  to  increase  financial 
allocation for urban development but with a stronger sectoral focus and loss of local targeting and 
community involvement.265  

Financial management and control 

The success of a system of financial management and control is greater, the lower are its costs, in 
terms  of  its  administrative  burden  and  the  uncertainty  produced  by  its  rules,  and  the  lower  the 
resulting error rates. The system used for EU cohesion policy seems to fare quite badly on both 
these counts.  

The most comprehensive available information on financial management errors is the estimate of 
(“at  least”)  11  per  cent  produced  by  the  European  Court  of  Auditors’  in  the  2007  Report 
published at the end of 2008. The errors mainly consist of breaches of public procurement rules, 
declaration  of  expenditure  not  complying  with  the  eligibility  rules  and  other  conditions  of 
funding,  failure  to  deduct  revenues  from  project  costs  or  expenditure  declared,  and  lack  of 
supporting  documents  as  evidence  of  correct  expenditure.  Fraud  is  not  common.  Most  errors 
seem  to  stem  from  a  lack  of  knowledge,  training  or  management  capacity,  but  also  from  the 
complexity of funding conditions.  

The above error figure could turn out to be an overestimate, since for each programme period the 
final selection of the expenditure actually entitled to be reimbursed by the EU budget is done at 
closure,  both  within  Member  States,  through  the  winding-up  declaration  exercise,  and  at 
Commission  level,  through  the  evaluation  of  that  declaration.  A  definitive  assessment  of  the 
effectiveness of the control system enacted in the years 2000-2006 will therefore be available in 
one or two years time. At the moment; no information is available that might suggest an error rate 
lower  than  the  2  per  cent  level  which  is  currently  the  “acceptable”  EU  threshold.  It  is  also  not 
clear - and will take a long time to become clear given that the new programmes have just started 
to  “generate  expenditure”  –  whether  the  new,  more  preventive  control  system  introduced  for 
2007-2013,  which  increased  the  responsibility  of  Member  States  to  verify  and  ensure  that  the 
control system is working properly, can produce better results.  

As for the costs of the control system, the direct administrative costs of running the system would 
increase rapidly, according to Commission estimates, if an attempt were made under the present 
rules  to  reduce  the  error  rate266.  The  existence  of  several  layers  of  control,  partly  linked  to  the 
shared management that characterises cohesion policy, and the overlap at any given moment of 
regulations  relating  to  different  programme  periods  create  differences  of  interpretation  and 
uncertainty.  A  significant  share  of  human  resources  and  time  is  spent  both  by  the  Commission 
Directorates-General and by Member States in dealing with the control system. In particular, the 
responsibility entrusted to the Commission for the system of financial management and control 
has required the allocation to these tasks of a sizeable share of the human resources and time of 
the  geographic  units  in  the  Directorates-General.  All  this  activity  takes  away  human  resources 
from the strategic tasks of negotiating ex ante and monitoring ex-post the substance of Member 
States’ programmes; and it threatens the credibility of the Commission carrying out these tasks. 

To these costs one must add the political cost for the Commission, and for its role in governing 
cohesion policy, which arises from the estimates of a high error rate and from the ensuing debate. 
This  effect  is  particularly  strong,  since,  as  we  saw  earlier  (section  II.3.2),  no  other  results  of 
cohesion policy are so well analysed in quantitative terms and debated at EU level, namely in the 
European Parliament and in the media.  

learning,  is  that  there is a lack of systematic knowledge accumulation and transfer from one programme 
period to the next. See ÖIR (2006). 
265 See European Commission (2008h). 
266 See Commission of the European Communities (2008g). See below, section V.8. 

 102

 
                                                                                                                                                              
The  publication  of  the  Court’s  estimate  in  2007  (of  an  error  rate  of  12  per  cent  for  2006) 
triggered a crisis in the discharge procedure, which is not yet over. The Commission addressed 
the  crisis  by  adopting  an  Action  Plan  to  improve  its  supervisory  role  and  by  accelerating 
suspension  and  financial  correction  decisions:  in  2008,  the  Commission  adopted  10  decisions 
formally  to  suspend  payments  (as  against  one  in  2007),  because  Member  States  failed  to  take 
action on weaknesses of their control systems; 26 decisions involving financial corrections were 
taken, as against 16 in 2007, and for much larger amounts. In its 2007 Annual Report; the Court 
upgraded  the  rating  of  Commission  and  Member  State  systems  to  “partially  effective”  (yellow 
instead of red, in the EU Court’s coding system) as a result of finding 3 of the 16 audited systems 
to be ineffective, as against 13 out of 19 in the previous assessment. But the debate is still open 
on how to improve the system while reducing its costs, and proposals for change are being put 
forward which will be discussed in Chapter V. 

Evaluation 

Research  shows  that  the  evaluation  system  established  for  cohesion  policy  has  produced  three 
positive  effects267.  First,  national  and  regional  authorities  responsible  for  managing  cohesion 
policy have invested time and resources in planning and commissioning evaluation studies – in 
many  cases  for  the  first  time.  The  requirements  have  also  stimulated  the  supply  of  evaluation 
services  from  consultants,  universities  and  research  centres.  Second,  although  many  authorities 
may  have  a  “compliance  approach”  towards  evaluation,  there  is  evidence  that  the  value  of 
evaluation  for  the  effective  design  and  management  of  programmes  has  been  increasingly 
recognised. Third, there have been certain spillover effects on the evaluation of domestic regional 
policy,  with  the  adoption  of  some  EU  evaluation  procedures  in  non-EU  funded  areas  of 
government intervention. 

Nevertheless,  in  spite  of  the  progress  in  the  evaluation  culture,  a  learning  system,  based  on 
impact  evaluation  of  projects  and  the  systematic  diffusion  of  information  that  would  allow  the 
policy to improve over time, has not been created. As we have noticed (section II.3.2), very little 
is  known  about  which  interventions  did  or  did  not  work.  This  is  largely  due  to  the  failure  to 
develop a strategy of impact evaluation. 

Compared to the policy concept (section I.2.4), a clear distinction has not been made between the 
function  of  promoting  the  focus  on  objectives  through  outcome  indicators  and  targets  and  the 
function  of  learning  about  what  works.  In  particular,  it  has  been  assumed  that  indicators  can 
contribute to measuring the impact of cohesion policy on outcomes. An ambiguous definition of 
“impact indicators” has been introduced: they are  considered to be those indicators of outcome 
that “refer to the consequences of the programme”. It has been argued that “the ultimate objective 
of structural funds and cohesion fund assistance is a certain impact, measured as far as possible 
by  impact  indicators”268.  This  can  obviously  never  be  the  case,  since  outcome  variables  and 
indicators  are  influenced  both  by  the  policy  and  by  any  other  event  that  has  in  the  meantime 
taken  place.  Disentangling  the  first  effect  from  the  latter  is  precisely  the  purpose  of  impact 
evaluation. Indicators measure what happened while the policy was being implemented: it can be 
very relevant for focusing public debate and policy-maker action on a few, clear-cut objectives, 
but  is  says  nothing  about  effects.  Mixing  the  two  functions  –  as  is  currently  done  –  has  taken 
credibility away from the task of truly evaluating impacts. 

Some further factors have also prevented impact evaluation from developing. First, the fuzziness 
about  objectives  noted  above  has  discouraged  evaluation  questions  on  the  purpose  of 
interventions: in order to address the issue of “what works”, one needs to have clear idea on what 
“works”  mean,  which  outcome  an  intervention  should  produce  for  it  to  “work”.  Second,  an 
excessive  emphasis  has  also  been  placed  on  the  evaluation  of  whole  programmes  that  are 

267 See: Bachtler, J. (2008); Bachtler, J. and Wren, C. (2006); Derlien, H.-U. and Rist, R.C. (2002). 
268 See European Commission (2006d), pp. 6, 10 (italics added). See Martini, A. (2008) for an examination 
of this misconception. 

 103

 
                                                      
composed  of  heterogeneous  interventions,  to  which  impact  evaluation  methods  cannot  be 
applied.  Third,  the  evaluation  process  has  been  fragmented  into  stages  of  the programme cycle 
(ex-ante,  in  itinere,  ex-post),  logically  placing  the  evaluation  of  effects  at  the  end  of  the  cycle, 
and making it conceptually more difficult to design the sort of “prospective impact evaluations” 
envisaged in section I.2.4. 

Political and policy debate 

One  final  feature  emerges  from  the  review  carried  out  for  this  Report,  a  noticeable  paradox: 
although cohesion policy is undoubtedly the most important EU policy for economic and social 
development,  an  EU-level,  continuous  political  and  policy  debate  on  cohesion  policy  and  its 
progress has been lacking.  

Outside the boundaries of the “cohesion policy community”, the representatives of EU citizens in 
the European Parliament and the politicians and policy-makers of Member States do not have the 
opportunity  to  discuss  the  successes  and  failures  of  cohesion  policy  in  different  countries  and 
regions and to make informed decisions on this basis. The Commission and Member State policy-
makers  in  charge  of  cohesion  policy  are  not  questioned  in  national  or  European  fora  about  the 
substantive  performance  of  their  policy  choices,  their  accountability  being  limited  to  financial 
irregularities. This deprives them of the incentive and the stimulus to focus on substantive issues, 
rather than on financial absorption. Cohesion policy has failed to become an arena for lively and 
mature  debate  on  “development”  or  for  competition  in  the  use  of  alternative,  advanced  policy 
models and methodologies.  

The failure to create a robust system of outcome indicators and targets (section II.3.2) is at the 
same  time  a  cause  and  an  effect  of  this  absence  of  high-level  political  debate.  The  lack  of  a 
qualified and regular flow of information on outcomes, the failure of the proviso on the 2009 and 
2011  strategic  reports  by  each  Member  State  to  require  any  precise  comparison  of  targets  and 
results,  has  clearly  prevented  a  results-oriented  debate.  At  the  same  time,  the  lack  of  a  strong 
political demand for information, the absence of any linkage at EU level between the debate on 
cohesion  policy  and  the  debate  on  growth  and  stability, in spite of cohesion policy financing a 
large share of European total fixed capital formation, have not created any strong motivation for 
those  indicators  and  targets  to  be  dealt  with  rigorously.  This  applies  both  to  Member  State 
programming documents and reporting and to the Commission pressure on Member States. 

The  lack  of  high-level  strategic  debate  must  also  be  linked,  once again, to the lack of progress 
since the 1988 reform in focussing the objectives of the policy and in providing the strategy with 
more advanced conceptual foundations. The justifications for the EU to run cohesion policy, to 
be entrusted with a direct responsibility for development (see section I.3) – the very sustainability 
of the Union, and its comparative advantages – are strong, but they rely on the EU exerting this 
responsibility  on  the  basis  of  a  politically  agreed  vision.  The  strong  substantial  compromise  of 
political and cultural views that made the 1988 reform possible has failed to be moved forward 
and  rejuvenated.  The  conceptual  model  which  cohesion  policy  itself  has  partly  shaped  has  not 
evolved. Cohesion policy has often sealed itself from advance in mainstream debate, although, as 
chapter I showed, these advances often brought increasing support to its very existence.  

This deficit in the strategic debate has prevented the European Parliament, the Commission and 
the Council from making progress with this vision. “The idea of integrated development has lost 
ground in the Member States and progressively in the Commission as well, and hence confidence 
has  diminished  in  what  should  be  managed  at  the  level  of  the  Union”269.  Conflicting  and 
incommunicable  views  on  cohesion  policy  have  emerged,  fuelled  by  the  scarcity  of  solid 
evidence  on  results,  by  the  inadequacy  of  the  debate  on  the  policy  conceptual  framework  and 
ultimately by ambiguities in the policy objectives.  

269 See the account of Jean-Charles Leygues in European Commission (2008e).  

 104

 
                                                      
The  structure  of  the  negotiations  in  the  seven-year  cycle  of  cohesion  policy:  resources, 
governance, goals 

This Report believes that the structure and sequence of the complex negotiation that every seven 
years sets the framework of cohesion policy bears a responsibility for some of its failures, namely 
the weakness of the policy debate and the fact that no adequate tools exist to pursue performance. 

The  present  negotiation,  whereby  resources,  governance  and  goals  are  not  decided 
simultaneously  but  in  a  sequence  starting  with  the  allocation  of  funds  and  finishing  with  the 
goals, has a rationale. First – with reference to the last negotiation, and referring to the first year 
of the new programming period as “t” – in the year t-4, debate on the budget starts both inside the 
Commission  and  between  Member  States.  Then  in  Spring-Summer  of  the  year  t-2,  while 
negotiation on resources enters its final phase, the Commission focuses its attention on goals by 
issuing  the  Cohesion  Report  and  its  draft  Guidelines.  In  the  meantime,  by  the  end  of  year  t-2, 
Member States agree on a budget, which is later discussed and approved (with minor changes) by 
the European Parliament. Once this is done, the discussion on governance and goals can enter its 
final  phase  and  come  to  a  close  with  a  decision  by  Council,  European  Parliament  and 
Commission  by  Summer-Autumn  of  year  t-1.  Governance  and  goals,  it  can  be  claimed,  can  be 
discussed in detail only once the quantity and allocation of resources is decided: with the great 
uncertainty that characterises to the last minute financial issues, there would be no point in trying 
to discuss goals and governance any earlier. 

But this sequence presents several serious weaknesses: 

•  First,  Member  States  and  Regions,  social  and  economic  actors  and  experts,  European 
Parliament  and  citizens  have  very  little  time  to  discuss  goals  and  priorities:  the  debate  is 
dominated  for  3-4  years  by  financial  issues,  often  with  no  reference  to  objectives  and 
priorities;  while  no  more  than  a  year  is  dedicated  (after  the  Spring-Summer  of  year  t-2)  to 
debating  these  central  issues.  There  is  no  time  for  strategic  ideas  to  emerge  which  are 
alternative  to  those  advanced  by  the  Commission.  The  pressure  of  all  actors  can  be 
accommodated only by diluting ideas, a phenomenon visible in the changes of the Guidelines, 
from the original Commission communication to the approved document.  

•  Second,  the  European  Parliament  has  no  major  say  on  the  budget:  once  the  agreement  has 
been reached by the European Council, the threat of upsetting the fragile equilibrium that has 
been reached prevents any effective discussion and significant change. 

•  Third, the separation of the three decisions on resources, governance and goals is particularly 
damaging. Resources are set and allocated without a clear mandate on how and to what ends 
the  resources  should  be  spent.  Once  the  financial  confrontation  is  over,  the  interest  of  the 
political  and  economic  decision-making  centres  of  each  Member  State  fades  away. 
Negotiation  with  the  Commission  on  goals  and  governance  is  largely  entrusted  to  specific 
Ministries that, in each Member State, are in charge for implementing the policy: their main 
preoccupation is, by mandate, to maximise the flexibility and room for manoeuvre in using the 
funds in their own country, whereas they have no interest in maximising the effectiveness of 
the  use  of  funds  in  the  other  n-1  countries.  A  strong  bias  is  thus  introduced  in  the  final 
negotiation  on  goals  and  governance,  whereby  the  rules  of  the  game  and  the  goals  are 
loosened and the general EU interest fails to be pursued. 

•  Fourth, as the result of the delay in esrablishing goals and governance – only a few months or 
weeks  before  the  new  cycle  starts  –  Member  States  and  Regions  set  the  basis  for  the 
programming cycle when these features are not yet decided: This makes Member States and 
Regions particularly averse to any new binding rule, which would upset their programmes. 

All  these  factors  make  it  extremely  difficult  to  introduce  any  comprehensive  reform  of  the 
governance  and  goals  of  cohesion  policy  that  tackles  the  weakness  reviewed  in  the  previous 

 105

 
pages. And helps explaining the failure to introduce a “strategic turn” in the last negotiation (see 
Box II.A). 

Box II.B Successes and failures: a provisional list 

The  available  information  from  evaluations,  studies,  qualitative  assessments  suggest  that  cohesion  policy  has 
achieved the following successes. 

1)  Cohesion  policy  has  played  a  major  part  in  the  “paradigm  shift”  in  regional  development  policies  across  the 
EU,  towards  a  more  place-based/territorial,  knowledge-oriented,  integrated  and  participatory  approach  to 
public  investment  based  on  multilevel  governance.  It  offers  the  appropriate  base  for  the  Union  to  build  a 
rejuvenated place-based approach to tackle economic and social development. 

2)  A  very  relevant  contribution  has  been  made  to  public  investment  in  the  lagging  areas  of  the  EU:  policy 
effectiveness has been achieved when cohesion policy has been implemented as a coherent part of a national 
development strategy. 

3) 

In some lagging regions, cohesion policy has contributed significantly to institution-building and social capital 
formation,  producing  a  lasting  effect.  However,  this  has  not  been  universal:  sometimes  the  lack  of  initial 
institutional capacity has prevented policy from being effective and institution building has not succeeded. 

4)  Cohesion policy has provided a common framework for policy management, allowing for institutional diversity 
while facilitating cooperation and exchange of information across countries, regions and places. This approach 
is at the centre of deserved international interest. 

5)  Cohesion  policy  has  often  played  a  key  role  in  promoting  and  enhancing  the  knowledge  base  of  local 
development  institutions  and  networks,  and  in  strengthening  the  exchange  of  experiences  and  the  linkages 
across networks. Local-scale projects designed with an active role of the Commission, and intensive input of 
expertise, often have a good track record of success.  

6)  There  is  evidence  of  cohesion  policy  strengthening  the  role  of  administrative  Regions,  as  part  of  the 
regionalisation process taking place in some parts of the EU. However, the picture is mixed: the enforcement of 
a given template of NUTS 2 Regions is not effective when regions lack political legitimacy.  

7)  An  evaluation  culture  has  been  promoted  across  the  EU,  encouraging  awareness,  capacity-building  and 
methods for assessing regional development in countries and regions where this was previously limited or non-
existent. (But see point 13). 

Notwithstanding  these  successes,  the  policy  has  also  been  characterised  by  important  weaknesses  and  failures, 
which are partly to be attributed to the negotiation process settling the governance and goals issues after the resource 
issue.. 

8) 

In the absence of a high-level cultural and political compromise on a policy model, strategies, both at EU and 
Member States (Regions) level, often lack clear-cut objectives and a justification of how planned interventions 
should  achieve  them.  Priorities  are  very  broad,  covering  all  possible  areas  of  public  action  and  cannot  by 
identified with any European public good.  

9)  The  territorial  or  place-based  perspective  (that  cohesion  policy  has  helped  bring  about)  is  often  blurred: 
insufficient attention is paid to its central tenet according to which public goods and services and institutions 
must  be  tailored  to  specific  contexts  by  eliciting  and  aggregating  local  knowledge  and  preferences; 
administrative Regions (decisive players in the implementation process) are erroneously treated as the unit of 
reference  for  policy  interventions;  outdated  concepts  of  regional  policy,  involving  financial  transfers  and 
sectoral public works, still play a strong role.  

10)  The  meta-objectives  of  efficiency  and  equity  are  generally  mixed,  reducing  the  room  for  performance 
accountability. Specific objectives and targets, relevant for EU citizens well-being, are often mentioned only as 
part of a compliance exercise.  

11)  The  conditionality  system  is  not  sufficiently  results-oriented  and  insufficiently  effective.  A  high  level  of 
uncertainty in Member States, concerned about being second-guessed by the Commission, often goes together 

 106

 
 
with  the  failure  of  the  Commission  to  receive  adequate  guarantees  on  the  effective  use  of  funds:  a)  ex-ante 
commitments on the national institutional requirements for the use of funds look inadequate; b) the bad quality 
and  very  limited  role  played  by  outcome  indicators  and  targets  prevents  this  tool  from  providing  focus  and 
incentives for good performance; c) significant costs are incurred to prevent irregularities with unsatisfactory 
results. 

12)  The  mobilisation  of  local  actors  and  experimental  approach  are  inadequate.  The  prevalence  of  a  top-down 
approach  to  programme  management,  with  limited  local  public  debate,  too  often  betrays  the  very  nature  of 
place-based  policies  and  increases  the  chances  for  the  interventions  to  be  captured  by  vested  interests  (rent 
seekers) rather than promoting innovation. 

13)  Despite  the  progress made in developing an evaluation culture, a European “policy learning system” has not 
been created on the crucial issue of “what works and for whom”, limiting the scope for policy to improve over 
time. At the same time, methodological problems and an insufficient public debate, both at local (point 12) and 
European  (point  14)  levels,  have  failed  to  create  a  demand  for  a  systematic  diffusion  of  information  on 
outcomes. 

14)  Outside  the  “cohesion-policy  community”  there  is  no  high-level,  continuous  policy  and  political  debate  on 
cohesion policy and on its results, whether in the European Parliament, in the Council, or in the Commission, 
or in society at large, and there is no linkage with the debate on Growth and Stability.  

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III.  THE NEED FOR A SHARP CHANGE OF DIRECTION 

The  results  of  the  previous  chapters  send  a  very  clear  message:  cohesion  policy  is  strongly 
needed by the Union, but a sharp change of direction is needed to make it fit for the challenge. 

The place-based approach pursued by cohesion policy is a much-needed tool for the Union today 
… 

The place-based (territorial) development policy model, the paradigm that cohesion policy aims 
to implement, is a modern way to promote development and it is the only model available at this 
stage to the European Union to fulfil the development mission required by its own existence. 

The unit of intervention of this policy model is the place or region defined endogenously by the 
policy  process.  Its  objective  is  to  reduce  inefficiency  traps  and/or  social  exclusion  traps  in 
specific places - backward or advanced, urban or rural, central or peripheral – due to the failure 
of  appropriate  economic  institutions  to  be  chosen,  to  path  dependency,  to  the  conditions  of 
uncertainty  in  which  private  and  public  agents  make  their  choices.  This  is  the  interpretation 
proposed  by  this  Report  of  the  overall  task  set  by  the  EU  Treaty  to  promote  “harmonious 
development” and to tackle “disparities” of regions and “regional backwardness”. 

The  model  operates  by  financing  and  promoting  the  supply  of  bundles  of  place-tailored  public 
goods and services aimed at: 

•  strengthening/building institutions and challenging inefficiency and social exclusion traps, 

•  improving access of citizens and firms to goods, services, information, 

•  promoting innovation and entrepreneurship. 

Place-based  policies  are  run  by  a  system  of  multilevel  governance  where  grants  subject  to 
conditionalities on objectives and on institutions are transferred from one level to the lower ones, 
and where the latter has the freedom to enact the mandate in the way it sees fit. For the design 
and  implementation  of  interventions,  these  policies  elicit  and  aggregate  the  knowledge  and 
preferences of people living and working in the places.  

Place-based  policies  are  complex.  Serious  risks  exist  of  misallocating  resources,  creating  a 
dependency  culture,  or  favouring  rent-seekers  instead  of  innovators.  But  in  this  paradigm,  the 
spatial awareness of public interventions is transparent, verifiable and submitted to scrutiny and 
there is a strong recognition that “the state does not necessarily know best”. The opposite is the 
case for those interventions that camouflage strong spatial effects or intentions behind the screen 
of self-proclaimed spatial blindness270. Policy risks can then be detected by the very process of 
writing contracts, by monitoring the achievement of targets, by evaluating impacts, by comparing 
results  across  places:  if  public  debate  and  political  mobilization  are  high,  the  risks  can  be 
addressed and partly overcome. 

A strong case exists for this policy paradigm to be directly run by the European Union and to be 
entrusted with a large share of its limited budget: 

•  it is a modern and effective model for promoting development (for the reasons just recalled); 

•  it is the only policy model through which the Union, given its limited democratic legitimacy, 
can address the expectations of European citizens, wherever they live, to be given the chance 
to benefit from the opportunities and to escape the risks created by globalisation and by the 

270 See World Bank (2008) and the critique of this approach in chapter I. 

 108

 
                                                      
Union  itself,  without  impinging  onto  national  sovereignties  and  regional  and  national 
aspirations;  

•  the Union has a comparative advantage over Member States in running this policy: preventing 
or  mitigating  degenerative  defensive  actions;  exploiting  and  promoting  cross-border 
interdependencies; benefiting from a greater credibility to act independently of the pressure of 
local rent-seekers. 

The present state of the Union makes cohesion policy even more important than in the past. Since 
the  early  1990s,  the  issue  of  European  integration  has  increasingly  engaged  the  general  public, 
opening up room for innovators and creating opportunities, but also raising widespread fears of 
falling behind and eroding national or sub-national common bonds. It has become an important 
theme  in  national  party  politics  and  the  object  of  social  movement  protests271.  The  views  of 
national public opinion – traditionally less supportive of European integration than those of the 
national  elites272  -  which  have  for  a  long  time  not  been  given  much  relevance  by  national  or 
supra-national elites, cannot any longer be ignored273.  

The  Report  has  made  clear  that  the  answer  to  this  discontent  and  pressure  is  not  “doing 
something  social”  in  order  to  achieve  and  preserve  market  and  currency  unification,  a 
reductionist view that has promoted disengagement from the way EU resources were being spent. 
Inefficiency and social exclusion traps need to be tackled by the Union both because market and 
currency  unification  by  themselves  cannot  deliver  what  they  promised,  and  because  tackling 
those  issues  is  what  citizens  of  a  Union  expect  from  the  very  entity  that  is  opening  “their” 
national  labour  markets,  letting  other  people  access  “their”  services,  asking  them  to  change 
“their”  national  or  local  practices.  The  loosening  of  existing  national  bonds  needs  to  be 
accompanied by the strengthening of bonds at a higher level, if rising tensions are to be avoided. 
Tackling  the  inefficiency  and  exclusion  traps  that  arise  around  Europe  is  a  task  for  the  Union 
because the Union will be blamed if this task is not successfully performed.  

If cohesion policy lived up to the challenge, it could represent an opportunity to strengthen the 
Union and to democratise its decision process. If it did not, it would leave the Union exposed to 
strong  threats  and  to  a  reversion  to  nationalistic  behaviour.  These  arguments  –  the  Report  has 
stressed – are further underlined by the current financial crisis. 

The Report has sketched some features of the policy model that take particular relevance in the 
EU context and has singled out some common misconceptions. In particular: 

•  The policy model does not aim either to discourage the mobility of people or to “encourage 
the mobility of people” - the latter option being advocated by seemingly-blind policies which 
attribute to the state the capacity to know best (just by observing the latest moves of capital 
and labour) - but more modestly aims at giving people a more substantive freedom to choose 
whether  to  move  or  not,  and  the  opportunity  for  learning  about  policy  choices,  expressing 
more informed proposals and voicing disagreement. 

•  The  two  objectives  of  efficiency  and  social  inclusion  should  be  pursued  through  distinct 
interventions.  Social  inclusion  should be addressed with a clear-cut reference to both places 

271  As  shown  by  Imig,  D.  (2004),  from  the  first  half  of  the  1980s  and  the  second  half  of  the  1990s,  the 
proportion  of  social  movement  protests  which  have  Europe  as  the  central  topic  of  the  protest  has  risen 
from 5-10 to 20-30 per cent. Benoit, K. and Laver, M. (2006) show through an expert survey that in 2003 
European integration was the third most important issue in national party political contests. For these and 
other results see Hooghe, L. and Marks, G. (2008b). 
272 See Hooghe, L. (2003). 
273 See Hooghe, L. and Marks, G (2008a, 2008b). The second paper stresses that “in the 25 years prior to 
the Maastricht Treaty Accord” only seven national referenda were held on European issues, while 27 have 
been held since, in 6 cases with the Government being defeated. 

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and people so as to avoid the opposite risks of ”depersonalisation” and “decontextualisation”. 
The  social  and  the  territorial  agenda  should  come  together  in  a  “territorialised  social 
agenda”.  The  division  of  labour  between  the  EU  level  taking  care  of  markets  and 
liberalisation  and  Member  States  taking  care  of  welfare  is  increasingly  unsustainable:  this 
agenda is sensible and a pragmatical way to move forward.  

•  “Convergence”  in  per  capita  income  (or  GDP)  of  either  countries  or  regions  -  however  the 
latter  are  defined  -  is  not  the  purpose  of  the  policy  paradigm,  nor  is  it  a  good  proxy  of  its 
objectives,  nor  is  it  an  appropriate  interpretation  of  what  the  EU  Treaty  calls  for.  Both  the 
increase  in  the  capacity  utilisation  of  places  and  the  increase  in  social  inclusion  of  people 
living in those places can take place independently of convergence, while convergence does 
not necessarily ensure either of the two. 

•  “Financial  redistribution”  between  territories  (however  defined)  is  not  what  the  policy 
paradigm is about – equalisation funds would do this job with much lower transaction costs. 
Its  purpose  is  to  use  financial  resources  as  a  means  of  exogenously  promoting  pro-active 
interventions in places/regions where inefficiency or social exclusion traps arise. 

… but sharp changes must be introduced to make it fit for the challenge 

Cohesion policy, with its current architecture, offers the appropriate framework to implement the 
place-based policy model and tackle the challenges facing the Union, but for these challenges to 
be met a sharp change of direction is needed and several key-components of the policy must be 
reformed.  This  is  the  result  of  the  review  conducted  by  the  Report  by  comparing  the  actual 
implementation to the policy model.  

On the one hand, cohesion policy:  

•  has nurtured several features of what has come to be called the new paradigm; 

•  has produced a good track record of result, both when it was implemented as a coherent part 
of a national development strategy, and when local scale projects have been designed with an 
active role of the Commission and intensive expertise; 

•  has  set  in  place  a  system  of  multilevel  governance  and  contractual  commitments,  both 
vertically, between Commission, national and regional levels, and horizontally, that represent 
a very valuable asset for Europe; 

•  has contributed to institution-building, social capital formation and a partnership approach in 

many regions, producing lasting effects; 

•  has  created  a  network  across  the  whole  Union  for  the  diffusion  of  experiences  and  of 

methodological tools in the area of evaluation and capacity building; 

On the other hand, these weaknesses have come to the fore:  

•  a  deficit  in  strategic  planning  and  in  developing  the  policy  concept  through  the  coherent 

implementation of a place-based, territorial perspective; 

•  a lack of focus on priorities and a failure to distinguish efficiency from social inclusion; 

•  a failure of the contractual arrangements to focus on results and to provide enough leverage 
for the Commission and Member States to design and promote institutional changes tailored 
to contexts; 

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•  methodological  and  operational  problems  that  have  prevented  both  the  appropriate  use  of 
indicators  and  targets,  and  an  adequate  analysis  of  “what  works”  in  terms  of  policy  impact; 
and 

•  a  remarkable  lack  of  political  and  policy  debate  on  results,  both  at  local  level  –  insufficient 
experimentalism  –  and  at  EU  level,  most  of  the  attention  being  focussed  on  financial 
absorption and irregularities. 

The  diminishing  political  and  cultural  consensus  on  cohesion  policy  during  the  last  decade  has 
certainly  been  influenced  by  the  “intellectual  complaisance”  of  the  majority  of  the  economic 
profession to what markets can achieve274. But to this – the review conducted by this Report has 
made clear - must also be added the failure to develop a conceptual framework, the weaknesses 
of the governance and a serious failure to focus on results. 

Re-launching  cohesion  policy  requires  three  steps:  adopting  a  strong  policy  concept;  reforming 
the priorities and governance of current policy; and building a new strong political compromise.  

This Report has put forward the proposal for a strong policy concept. It needs to be accompanied 
by  sharp  changes  in  the  priorities  and  governance  of  cohesion  policy  aimed  at  removing  the 
weaknesses that have been identified: this is the purpose of the next two chapters. If this second 
step were to be agreed, the opportunity would arise for a new high-level political compromise to 
be constructed. Cohesion policy could be re-launched as a primary tool for the Union. 

Reforming priorities and governance: from general principles to operational proposals 

The  proposals  for  change  are  inspired  by  the  following  principles,  which  reflect  the  policy 
concept, the rationale for the EU to implement a place-based policy and the lessons learnt from 
the last twenty years: 

(2) 

(3) 

(4) 

(5) 

(6) 

Concentrating resources.  

Orienting grants to results.  

Mobilising and learning.  

Strengthening the Commission.  

Reinforcing political checks and balances.  

274 The expression is borrowed from Acemoglou, D. (2009). He argues that the financial crisis offers large 
parts of the economic profession the opportunity to reflect on its “intellectual errors” and to move forward 
on  those  economic  principles  that  are  “still  valid”.  Three  errors  are  mentioned:  the  notion  “too-quickly 
accepted  …  that  the  capitalist  economy  lives  in  an  institution-less  vacuum,  where  markets  miraculously 
monitor opportunistic behaviour”; “the idea “that the era of aggregate volatility had come to an end”; and 
the  “trust  [in]  the  long-lived  large  firms  to  monitor  themselves  and  their  own  because  they  had 
accumulated sufficient reputation capital”. Notice that all these three “errors” still hamper the argument of 
World  Bank  (2008)  when  it  calls  for  public  decisions  to  follow  the  decisions  of  large  concentrations  of 
private interests and the market signals coming from labour flows (“encouraging mobility of people is the 
priority”,  p.xxii).  The  three  still-valid  principles  are  described  by  Acemoglou  as:  the  central  role  of 
innovation and reallocation for economic growth, and the risk of them being prevented by local elites, by 
the  resistance  of  losers  which  lack  safety-nets,  and,  today,  by  a  crisis-induced  backlash  against  markets. 
Notice that the new paradigm of development policy discussed in this Report is strongly in tune with these 
principles: when appropriately implemented, as the significant and visible changes advocated here should 
allow  cohesion  policy  to  do,  it  can  be  a  powerful  tool  to  promote  innovation  and  reallocation  and  to 
prevent a backlash against market integration. 

 111

 
                                                      
These  principles  are  implemented  by  the  proposal  of  a  new,  narrowly  defined  set  of  core 
priorities, in chapter IV, and of revised governance articulated in ten “pillars”, in chapter V. Each 
principle maps onto several operational proposals. 

The first principle – Concentrating resources- calls for a concentration of the majority (as close 
as  possible  to  two  thirds)  of  cohesion  policy  resources  on  a  very  few  (three-four)  narrowly-
defined  core  priorities.  This  would  allow:  achievement  of  a  critical  mass  that  can  make  an 
effective  and  visible  difference;  the  focusing of public debate both at local and EU-wide level; 
and  making  it  feasible  for  the  Commission  to  play  the  substantial  role  called  for  by  the  policy 
model. The criteria according to which the political process could choose these core priorities are 
presented  in  chapter  IV,  where  six  candidates  for  this  choice  are  also  analysed,  innovation, 
migration,  climate  change,  children,  skills  and  ageing.  In  particular,  pursuing  the  issue  of 
migration  and/or  children  would  allow  a  territorialised  social  agenda  to  be  launched  by  the 
Union. 

The  second  principle  –  Orienting  grants  to  results  –  calls  for  both  the  EU-wide  strategy  and 
national  and  regional  strategies  to  move  towards  the  clear  identification  of  objectives,  and    for 
contracts  where  Member  States  (Regions)  take  a  commitment  to  results  and  to  a  strategy  to 
achieve  them.  A  system  of  annual  reporting  on  results  and  on  indicators  is  needed,  to  be 
submitted  to  the  discussion  of  high-level  political  institutions.  The  system  of  indicators  and 
targets  must  be  highly  verifiable.  For  the  core  priorities,  a  commitment  to  the  economic 
institutions  governing  the  sectors  of  intervention  (whether  education  or  environmental 
infrastructures or research) must be foreseen.   

The  third  principle  -  Mobilising  and  learning  –  calls  for  a  strengthening  of  some  essential  and 
interconnected features of the policy paradigm which are necessary for it to be effective in truly 
eliciting  and  aggregating  knowledge  and  preferences  at  place  level  and  discouraging  rent-
seeking:  (i)  the  use  of  an  experimental  approach  by  which  collective  local  actors  also  exercise 
mutual monitoring; (ii) the provision of information and the creation of a policy space giving an 
incentive  to  people  to  voice  their  views  and  dissent;  and  (iii)  the  implementation  of 
methodologies  that  allow  a  prospective  search  for  “what  works”,  with  its  strong  disciplinary 
effect. 

The fourth principle – Strengthening the Commission – is the complement of all the others. Little 
of  what  is  envisaged  by  the  other  principles  can  be  implemented  unless  the  Commission’s 
Directorates-General  in  charge  of  cohesion  policy,  and  their  links  with  relevant  sectoral 
Directorates-General,  are  reformed  in  line  with  the  challenging  role  that  the  revised  design 
assigns  to  the  Commission.  The  enhanced  function  of  think-tank  that  it  is  foreseen  by  the 
proposals  on  core  priorities,  on  impact  evaluation  and  on  a  more  direct  role  as  a  mobiliser  at 
place  level,  and  the  enhanced  function  of  negotiator  that  is  linked  to  the  redesign  of  contracts, 
demand a move in this direction. In particular, a significant investment in human resources and a 
far-reaching internal reorganisation are needed. 

The  fifth  principle  –  Reinforcing  political  checks  and  balances  –  calls  for  both  the  European 
Parliament and the Council to be given the opportunity to debate on a well-documented ground 
the implementation and the results of cohesion policy and to assess the choices of Member States 
and  the  Commission.  The  present  situation,  where  the  political  and  policy  debate  focuses  on 
financial absorption and the estimated share of irregular payments must be overcome. Together 
with the drastic improvement of the system of indicators and reporting, this objective calls for the 
creation  of  a  dedicated  Council  for  cohesion  policy and for a formal linkage, through financial 
additionality, with the Stability and Growth Pact. 

The proposals advanced in the next chapters along these principles build both on the conceptual 
model  discussed  in  chapter  I  and  on  the  experience  of  the  place-based  approach,  within  and 
outside  cohesion  policy.  The  experience  suggests  that  these  proposals  are  feasible,  but  it  also 
suggests that they are demanding. They call for a substantial effort, both by the Commission and 

 112

 
by each Member States, in improving the organisation, investing in human resources, improving 
methodologies, overcoming current habits. A high-level political compromise is an indispensable 
requirement for this to happen. However, adequate time is also necessary for the implementation 
to take place. If changes were going to be agreed for the next programming period, reform should 
start  "now",  since  2010,  by  intervening,  in  the  true  spirit  of  the  budget  review,  on  the 
implementation of the current programming period. 

Three further general questions needs to be addressed before presenting the proposals in details.  

•  What is the Report proposing in terms of territorial allocation of resources? 

•  How  dependent  on  each  other  are  the  proposals  made  on  the  core  priorities  and  on  the  ten 

pillars of governance? 

•  Should any change take place in the budget negotiation (on the cohesion policy issue) whose 

structure was argued to be partly responsible for the failure to innovate cohesion policy? 

A conservative view on territorial allocation 

The principles for territorial allocation suggested by the policy model are straightforward: a) the 
appropriate unit of intervention for a place-based development policy is a place/region defined as 
a  contiguous/continuous  area  within  whose  boundaries  a  set  of  conditions  conducive  to 
development apply more than they do across boundaries (see Introduction), an area that can be 
identified  only  through  the  policy  process,  independently  of  administrative  boundaries;  b) 
interventions should potentially extend to all regions of the Union and should concentrate on the 
lagging  regions,  where  inefficiency  and  social  inclusion  traps  are  generally  more  likely  and 
pressing; c) the selection of places/regions suitable for intervention should be up to jurisdictional 
Regions  or  Member  States,  i.e.  (except  for  pilot  programmes)  it  is  not  up  to  the  EU  level  of 
government to discretionally map places. 

The present arrangement by which resources are pre-allocated to NUTS 2 Regions (and, for the 
cohesion fund, to Member States), leaving the lower level of government to allocate it internally, 
is thus coherent with the policy model.  

As  for  the  use  of  parameters  –  mostly  GDP  per  capita  –  referring  to  NUTS  2  Regions,  for 
defining what territories are “lagging” and in allocating funds, the Report will argue (chapter I, 
pillar  1)  that  this  choice  is  dictated  by  the  availability  of  robust,  homogeneous  and  adequately 
updated  economic  data.  The  Report  will  also  argue  that  there  are  no  credible  alternative 
methodologies  on  offer  which  are  clearly  superior  to  the  present  approach  and  which  have  a 
chance  of  gaining  consensus.  And  that  embarking  on  a  complex  revision  of  parameters  would 
once again focus the policy debate on financial issues, distracting from the pressing issue of how 
the funds are used. 

As  it  has  been  argued,  the  “EU  budget  still  has  a  role  to  play  in  smoothing  the  (bumpy)  road 
towards European integration by transferring resources between Member states as part of grand 
bargains. These may be parcelled up inside policies that have worthy objectives (cohesion as a 
public good), but are inevitably susceptible to the pork-barrel politics of juste retour thinking”.275 
The  more  the  financial  compromise  is  preserved,  the  more  room  there  will  be  for  a  high-level 
political compromise over “worthy objectives”. 

What really matters is that, once resources are (conservatively) allocated to Regions and Member 
States, no assumption should be made – as in the past has sometimes been made – that resources 
will be provided to every place/region. Under the contracting system proposed below in chapter 

275 See Begg, I. (2009b), p.10. 

 113

 
                                                      
V,  Member  States  (Regions)  will  be  required  to  concentrate  resources  where  economic 
inefficiency or social inclusion traps are more pressing.  

A set of comprehensive proposals: "tout se tien"  

The  reform  proposals  made  in  the  next  two  chapters  are  strongly  inter-dependent.  Some  of  the 
ideas  (a  stronger  indicator  system,  the  sharpness  and  quality  of  reporting,  experimenting  with 
impact evaluation, strengthening the Directorates responsible for the policy), assuming that any 
consensus  builds  up  around  them,  could  have  a  life  of  their  own  and  could  be  of  use  in  the 
current programming period. Implementing them as soon as possible would actually be necessary 
to build the basis and the experience for a full use in the next programming period. But the major 
proposals  (the  new  contractual  arrangements,  the  concentration  on  a  few  priorities,  the 
discretional  role  of  the  Commission,  the  high-level  debate,  the  linkage  with  the  Stability  Pact, 
etc) can fly and can even be implemented only as part of a comprehensive package. The change 
of direction that this Report calls for in order to tackle the existing challenges cannot be achieved 
though gradualism, it requires a cold-turkey approach that adjusts all at once the incentives for all 
the actors engaged in this policy. One example can make this strong interdependence clear. 

Let’s consider the proposal to foresee for each core priority the establishment at EU-wide level of 
a set of general principles on the institutional framework that is suitable for pursuing the priority: 
each Member State (Regions) would have the freedom to implement those principles as it sees fit, 
while  the  Commission  would  have  the  responsibility  for  expressing  or  not  expressing  (after 
negotiation) confidence in that choice. 

A  minimum  requirement  for  this  proposal  to  be  accepted  is  that  the  principles  regarding  the 
institutional framework concerning each core priority are agreed through a policy process where 
Member  States  play  an  active  and  effective  role.  Even  in  this  case  it  could  be  argued  that  too 
much discretionality is being entrusted to the Commission in assessing, case by case, whether the 
general  principles  have  been  appropriately  tailored  to  the  circumstances;  and  that  a  strong  risk 
exists of falling back on a “best practice syndrome”, by which the Commission would arbitrarily 
have  a  template  in  mind  and  would  try  to  apply  it  to  all  cases.  The  very  competence  of  the 
Commission in exercising this role on some specialised issues could be challenged. Alternatively, 
it  could  be  argued  that  the  Commission  would  not  have  the  incentive  to  exercise  the 
discretionality and to block, if deemed necessary, the allocation of resources to a priority, since 
the political pressure of EU institutions is focused only on financial absorption and irregularities, 
rather than on the capacity to achieve objectives. 

These objections make it clear that the above change can fly only if it is accompanied by a set of 
other  changes.  In  particular,  in  order  to  overcome  the  reasonable  concern  on  the  “best  practice 
syndrome”  –  reasonable  in  the  light  of  past  and  current  experience  –  a  strong,  clear  consensus 
must exist at political level both on the need for Commission discretionality, as a requisite for the 
very existence of a conditional grants system, and on the context-dependent nature of economic 
institutions:  a  strengthened  high-level  political  debate  both  in  the  Council  and  in  the  EU 
Parliament are indispensable. This change, together with the drastic improvement in the quality 
of indicators, with the production of annual reports focused on results and with a linkage with the 
Stability and Growth Pact, would also create the right pressure and incentive for the Commission 
not  to  express  confidence  when  confidence  is  unwarranted.  Furthermore,  since  Member  States 
(Regions) will generally have a better knowledge on the institutions that are most appropriate for 
their  territories,  the  Commission  can  credibly  challenge  their  proposals  only  if  it  demonstrably 
has,  on  its  “side  of  the  table”,  highly  qualified  in-house  experts  who,  together  with  a  good 
understanding  of  the  national  and  regional  contexts,  have  an  in-depth  expertise  on  the  core 
priority of high international standard. 

Comprehensiveness is where previous attempts to reform cohesion policy have failed. They have 
been trimmed during the negotiation and have lost much of their effectiveness. This is where the 
reform attempt advocated by this Report should seek to succeed. If a strong political compromise 

 114

 
were  built  on  the  basis  of  the  policy  concept  and  on  a  coherent  proposal  for  changing  the 
priorities and the governance, it could possibly withstand the turmoil of the financial negotiation 
phase.  

A simultaneous agreement on resources, governance and goals 

This  leads  to  the  last  preliminary  question,  regarding  the  structure  and  sequence  of  the 
negotiation.  The  course  of  cohesion  policy  for  each  programming  cycle  is  ruled  by  three 
documents establishing:  

•  the strategic principles on the policy concept, priorities and goals;  

•  the financial framework on the amount and allocation of resources;  

•  the regulation designing the governance.  

The  analysis  carried  in  chapter  II  suggests  that  for  the  negotiation  to  have  a  chance  to  deliver 
anything  similar  to  a  comprehensive  reform  proposal  of  cohesion  policy,  the  negotiation  on 
resources, governance and goals must come to a close at the same time  

Experience  shows  that,  once  the  financial  framework  is  signed,  the  general  economic  and 
political  interest  of  each  Member  State  fades  away  and  with  it  the  interest  in  the  quality  and 
effectiveness  of  the  policy  in  all  the  other  Member  States.  The  regulation  and  the  strategic 
principles  become  then  the  realm  of  the  “regional/territorial/spatial/place-based  authorities”  of 
each  Member  State  that,  by  mandate,  are  not  supposed  to  be  interested  in  the  effectiveness  of 
policy  anywhere  except  in  their  own  country:  While  indispensable  for  their  competence  and 
experience,  they  are  also  generally  moved  by  the  goal  of  keeping  the  hands  of  national  or 
regional  authorities  as  free  as  possible,  and  the  regulation  and  the  strategic  principles  are 
modified likewise. Only by aligning the negotiation of the three documents can a balanced view 
emerge from the mix of general and thematic interests and contributions. It is, on the other hand, 
an  obvious  requisite  for  a  system  of  conditional  grants  that  the  amount  and  allocation  of 
resources  are  subordinated  to  the  common  acceptance  of  the  priorities  and  the  rules  for  using 
them. 

A  policy  concept  plus  a  sharp  reform  of  priorities  and  governance  plus  a  strong  political 
compromise,  together  with  an  appropriate  design  of  the  negotiation  process  could  deliver  the 
much improved cohesion policy that the Union so much needs. 

 115

 
IV.  A CONCENTRATION ON A FEW EUROPEAN PUBLIC GOODS 

The concentration of the majority of funds (possibly up to two thirds) on a few (3-4) narrowly-
defined  core  priorities  in  all  regions  is  one  of  the  main  features  of  the  proposed  reform  of 
cohesion policy276. 

Such  a  concentration  of  resources  would  have  several  positive  effects.  First,  it  would  create  a 
European-wide critical mass of interventions on a few priorities, capable of having an effect on 
issues  of  importance  across  the  EU  and  of  creating  a  set  of  well  defined  “European  public 
goods”277.  Secondly,  the  effective  delivery  of  these  European  public  goods  could  attract  both 
public and high-level political attention and accordingly give more of an incentive for all those 
involved to produce effective results. It would also create more favourable conditions for an EU-
wide learning process. Thirdly, such concentration of funding would enable the Commission to 
focus its expertise in a limited number of policy areas and give it more credibility in playing a 
greater  strategic  role  in  governing  cohesion  policy.  This  is  a  condition  for  the  Commission  to 
exercise  greater  discretion  over  the  deployment  of  funds  and  to  put  in  place  more  effective 
conditions over their use. 

The concentration of resources would not only apply to the selection of the priorities but also to 
the  nature  of  the  measures  undertaken  in  each  priority  area.  With  the  choice  of  core  priorities 
across the EU being decided after a high-level debate, involving Member States and Regions and 
the implementation of the changes in governance proposed in the next chapter, there would be a 
stronger  incentive  to  use  the  resources  effectively  as  well  as  in  places  where  they  can  best 
contribute to pursuit of efficiency or social inclusion objectives.  

The high-level political debate leading to the choice of core priorities would be part of a revised 
negotiation process over strategy which would lead to the simultaneous approval of the financial 
framework,  the  strategic  principles  and  the  regulation.  This  process  is  described  in  the  next 
chapter together with proposals for the share of resources to be allocated to core priorities and the 
arrangements  for  their  governance.  In  this chapter, three criteria are put forward to be used for 
selecting the core priorities (section IV.1), a case made for a strong focus on the social inclusion 
objective  through  the  launch  of  a  “territorialised  social  agenda”  (section  IV.2),  and  some 
candidates for the choice of core priorities suggested – “Innovation” and “Climate Change”, with 
a  predominantly  efficiency  objective  (section  IV.3),  “Migration”  and  “Children”,  with  a 
predominantly social inclusion objective (section IV.4) and “Skills” and “Ageing”, where the two 
objectives are of similar relevance (section IV.5). 

The options put forward should be regarded as examples of how the three selection criteria could 
be applied in practice. They also demonstrate the way that the conceptual framework discussed in 
Chapter I can be applied and how the ideas and methodological advances already made can be 
deployed.  The  maturity  of  the  analysis  set  out  differs  markedly  between the potential priorities 
examined,  reflecting  existing  knowledge  and  experience.  In  particular,  the  lessons  learnt  from 
regional policy intervention in support of Innovation over the past two decades enable a more in-
depth assessment to be made of this option. 

276  For  the  other  resources,  Member  States  and  Regions  would  be  free  to  choose  without  constraint  the 
priorities  that  they  consider  most  appropriate  to  focus  on  from  the  broad  range  of  existing  options.  See 
chapter V, pillar 1.  
277  A  “European  public  good”  refers  to  a  strategic  action  undertaken  by  the  EU  with  the  following  two 
features: a) the action has a general effect – making the Union and its policies sustainable – which benefits 
all  European  citizens  in  addition  to  those affected by the projects supported under the action concerned; 
and b) it is neither possible nor desirable to exclude anyone from the general effect. 

 116

 
                                                      
IV.1.  Criteria for the choice of core priorities 

Ranking the priorities 

Three criteria are of particular importance to apply when selecting the core priorities:  

•  Its EU-wide relevance; 

•  Its place-based nature; 

•  Its verifiability. 

EU-wide  relevance  refers  to  both  the  relevance  of  the  issue  for  European  citizens  and  the 
rationale  for  EU  involvement  in  a  policy  response.  It  includes  five  distinct  but  interdependent 
sub-criteria,  linked  to  the  justification  for  the  EU  to  manage  a  place-based  development  policy 
and to Member States interests.  

A first group of three sub-criteria are linked to the sustainability rationale for cohesion policy –
that the policy is the most feasible and effective way for the EU to fulfil the development task 
which is inherent in its existence. 

•  First,  the  issue  must  be  highly  relevant  to  the  well-being  of  EU  citizens,  from  an  efficiency 
and/or  a  social  inclusion  perspective  based  on  existing  information  and  projected  future 
developments. 

•  Secondly, there must be a  strong and unsatisfied political expectation from EU citizens that 

the issue needs to be addressed by policy. 

•  Thirdly, EU citizens should expect this issue to be wholly or partly addressed by the EU; the 
more  this  is  the  case,  the  greater  is  the  need  for  and  the  potential  value  added  of  EU  direct 
development intervention. 

The fourth sub-criterion is linked to the other rationale for cohesion policy – that the EU has a 
comparative advantage over Member States in running a place-based development approach. 

•  In comparing alternative options for cohesion policy action, choices should be guided by the 
potential effectiveness that EU budgetary intervention could have. For example, higher added-
value  would  be  expected  if  EU  supra-national  exogenous  interventions  involve:  addressing: 
cross-border  interdependencies,  reducing  the  possibility  of  beggar-thy-neighbour  actions, 
exploiting externalities and promoting cooperation and exchange of information. The added-
value  is  also  likely  to  be  greater,  the  more  the  Commission  is  able  to  act  as  a  “centre  of 
expertise” capable of commanding credibility in negotiations on the use of resources. 

•  Fifth and finally, an assessment of EU-level relevance needs to take account of the political 
legitimacy of choosing the option in question, in the sense of ensuring that there is sufficient 
Member State support for the priority to be selected.  

Member  States  interest  can  be  of  two  kinds.  For  some,  it  could  lie  in  the  advantage  of 
externalising some responsibility for the design of intervention rules (for reasons of externalities 
and coordination, competence, credibility, etc) or in the perception of gains associated with EU 
cohesion policy intervention. For other countries, the benefit could be indirect, such as ensuring 
that  deficiencies  or  gaps  in  the  priority  area  are  properly  addressed  in  other  countries,  or 
reinforcing  the  sustainability  of  the  EU  as  a  whole  and  its  capacity  to  deliver  in  other  areas  of 
interest such as market integration or currency unification. Whatever the basis for Member State 
interest,  the  existence  of  a  genuine  compromise  among  Member  States  on  selecting  a  few  core 
priorities is also a condition for achieving EU-level agreement on the strategic principles for each 
core  priority  –  both  in  terms  of  goals  and  institutional  requirements  –  and  coherence  between 
cohesion policy and the actions undertaken under other Community policies. 

 117

 
The second general criterion, that the adoption of a place-based approach is important, is also of 
great importance. In spite of the recent formal acknowledgment of a “territorial” dimension in the 
Treaty,  this  perspective  is  often  neglected  in  debates  on  the  choice  of  priorities  for  cohesion 
policy. The risk is to conceive this policy as a “pot of funds” available for whatever EU strategy, 
and to make choices on the basis of traditional sectoral perspectives. Attention should instead be 
paid  to  how  far  the  particular  tools  of  a  place-based  approach  –  allowing  interventions  to  be 
tailored  to  places  –  are  needed  in  practice  in  tackling  the  issue  concerned.  In  most  cases,  the 
knowledge  and  preferences  of  local  actors  are  of  relevance  for  policy  success,  since  most 
institutions  and  the  measures  applied  need  to  be  tailored  to  places.  But  the  importance  of 
adopting a place-based approach differs between issues and the core priorities should, therefore, 
be chosen where it is particularly important.  

In this context, it should be emphasised that for an issue to require a place-based approach it is 
not enough that the scale of the problem differs across regions. For example, employment rates 
could differ markedly between regions, but it might be that the main cause was the regulation of 
the  labour  market  and  so  tackling  low  employment  rates  would  not  be  a  priority  for  cohesion 
policy.  Two  features  should  be  considered  when  assessing  the  place-based  nature  of  an  issue, 
which are linked to the definition of the term (see Introduction and sections I.2.1 and I.2.2): first, 
whether and to what extent the inefficiency or social exclusion problems relating to the issue are 
strongly context-dependent; secondly, whether the measures for tackling the problems need to be 
tailored  to  places.  As  shown  in  Chapter  I,  the  place-based  nature  of  problems  tends  to  be 
particularly high where changes to local, informal, institutions are required, which in turn entails 
the direct and active involvement of the people in the place concerned. The same is true when a 
number  of  sectoral  interventions  need  to  be  integrated,  which  can  only  occur  at  place  level 
through  the  bundling  of  particular  public  goods  and  services  to  match  local  needs.  Lastly,  the 
place-based  nature  of  policies  matters  greatly  if  there  are  strong  interdependencies  between 
places and there is a need for a comprehensive territorial strategy. 

The third and last criterion for choosing core priorities is verifiability, defined as the capacity for 
identifying,  and  committing,  to  concrete  objectives  and  to  the  development  of  economic 
institutions  whose  achievement  and  implementation  can  be  confirmed  ex-post.  This  is  an 
important criterion given that the major change advocated for cohesion policy is largely centred 
on assigning a greater role to performance and results in policy design and implementation and 
on the construction of institutions which are necessary to achieve results.  

So far as objectives are concerned, a core priority should, first, be unambiguously about what the 
EU is seeking to achieve. The high-level political compromise that leads to their selection must, 
therefore,  make  clear  the  nature  of  the  goals  which  are  being  commonly  agreed  at  EU  level. 
Second,  it  should  be  possible  to  track  the  pursuit  of  these  goals  through  indicators  which  are 
adequately measured and regularly reported and the limitations of which can be monitored and 
adjusted over time. This requirement would be more easily satisfied (and agreement on a set of 
EU-wide core indicators facilitated) if the EU had already developed, a body of knowledge and 
expertise in the selection and measurement of indicators. Finally, verifiability would be greatly 
enhanced  if  the  goals  concerned  lent  themselves  to  prospective  impact  evaluation,  which  is 
proposed as an integral part of future cohesion policy.  

As regards economic institutions, an issue can become a core priority when sufficient consensus 
exists at EU level on a set of principles which institutions at Member State level need to comply 
with for cohesion policy funds to be allocated to tackling the issue concerned. These principles 
need  to  be  incorporated  in  a  European  Strategic  Development  Framework  and  their  specific 
implementation  described  in  a  verifiable  way  in  the  National  Strategic  Development  Contract 
which  each  Member  States  needs  to  agree  with  the  Commission  (see  Chapter  V).  The  more 
agreement  there  is  at  European  level  on  such  a  set  of  principles,  the  more  effective  cohesion 
policy can be. These features are reflected in the proposals described in Chapter V below. 

 118

 
Having explained the three general criteria of EU relevance, the next task is to clarify how they 
might be applied in practice by examining possible candidates for the choice of core priorities. 
Before this, however, two further questions need to be addressed: 

•  whether  the  choice  should  be  from  among  “policies”  corresponding  to  different  kinds  of 
public  goods  and  services  or  from  among  “issues”  corresponding  to  economic  and  social 
challenges; 

•  whether  a  core  priority  should  be  concerned  with  only  one  of  the  two  main  objectives  of 

cohesion policy, efficiency and social inclusion, or both. 

Defining the priorities 

There  are  different  ways  to  define  the  priorities.  One  approach  would  be  policy-based,  under 
which, in line with the current categorisation used for cohesion policy (see tables II.8-9-10), the 
priorities are selected from among the different kinds of public goods and services (those relating 
to research, transport, energy, education, social infrastructure and so on). An alternative would be 
issues-based,  deriving  the  priorities  from  global  trends  or  specific  challenges  faced  by  the  EU 
(demographic change, technological advance, environmental degradation, and so on). 

In  the  first  case,  cohesion  policy  would  finance  a  limited  set  of  public  goods  and  services 
included  in  the  chosen  category;  in  the  second,  it  would  finance  public  goods  and  services 
relevant for addressing the issue chosen. Opting for the first approach would have the advantage 
of  the  EU  specialising  in  some  clearly  defined  services.  Its  sectoral  nature,  however  would 
betray, as has often been the case, the premise on which a place-based approach is founded: that 
bundles  of  different  public  goods  and  services  tailored  to  places  are  the  way  to  address 
inefficiency  and  social  exclusion  traps.  It  would  also  have  a  greater  chance  of  conflicting  with 
national  sectoral  policies.  Choosing  the  priorities  on  the  basis  of  issues  (challenges),  on  the 
contrary,  has  a  much greater chance of satisfying the EU-relevance criterion and responding to 
the expectations of EU citizens. This is the option suggested here.  

With  regard  to  the  distinction  between  the  efficiency  and  the  social  inclusion  objectives,  it  has 
been  argued  that  both  should  be  pursued through cohesion policy, but that this should be done 
through  distinct  and  separate  interventions  (sections  I.2.2  and  I.2.3).  To  repeat,  this  is,  first, 
because the relationship between the two objectives is complex, context-dependent and uncertain; 
secondly, because the most appropriate intervention for one objective is not necessarily the most 
suitable for the other; and, thirdly, because verifiability is improved and profiteering made more 
difficult if the focus is limited to one objective only278. In the light of this principle, should any 
core priority address only one of the two objectives? 

Whatever priority is chosen, both dimensions - efficiency and social inclusion - are bound to be 
relevant.  For  any  priority,  synergies  and  trade-offs,  which  need  to  be  recognised  in  policy- 
making, are almost certain to exist. For any priority, the increased emphasis on results calls for an 
impact assessment in terms of both objectives. For any priority, consensus on the policy will also 
depend on its capacity to make progress on both fronts. At the same time, for the reasons set out 
above,  for  any  priority,  each  intervention  needs  to  be  expressly  aimed  at  either  efficiency  or 
social inclusion objectives. It is, accordingly, not necessary, and likely to be unfeasible, to limit 
the aim of a whole core priority to one objective alone. 

278  As  argued  in  section  I.2.2,  relevant  synergies  often  exist  inefficiency  traps  and  social  exclusion  traps 
often coincide and might even require similar interventions (especially in building local institutions, both 
formal  and  informal).  But  this  is  not  always  the  case,  since  in  many  cases  the  pursuit  of  fuller  capacity 
utilisation  calls  for  interventions  that  are  sub-optimal  for  social  inclusion.  In  addition,  in  the  short  and 
medium term, which is relevant for the mobilisation of public opinion and debate, synergies are much less 
important, while experience shows that if objectives are fuzzy, people’s expectations tend also to be and 
the behaviour of policy-makers is, accordingly, allowed to be so.  

 119

 
                                                      
Nevertheless, there is a strong case for at least one or two of the core priorities to focus primarily 
on  one  objective  only.  It  would  assist  policy  verifiability  and  the  focus  of  political  and  policy 
debate if at least some of the European public goods produced by cohesion policy could be easily 
identified as being aimed at increasing either efficiency or social inclusion. Moreover, the need to 
choose at least one core priority that is primarily and visibly aimed at social inclusion is essential 
if the reform of cohesion policy is also to be used as an occasion to launch a territorialised social 
agenda. This choice requires a strong political and policy focus, which a “dedicated” core priority 
can offer.  

It should be noted that the focus of a core priority on one of the two objectives does not mean 
assigning it exclusively to one of the two distinct Funds, regional (ERDF) and social (ESF), that 
currently make up most of the cohesion policy budget. If the present configuration of Funds were 
to be maintained - as the Report suggests doing (see chapter V, pillar 2) – the two Funds would 
specialise  (with  many  overlaps)  on  two  types  of  intervention:  “hard”,  comprising  largely 
investment in infrastructure under the regional Fund, and “soft”, aimed at strengthening human 
resources under the social Fund. Both types are needed in any comprehensive action aimed at a 
core priority, whether the objective is efficiency or social inclusion. 

Given  these  considerations,  two  core  priorities  for  which  the  main  objective  is  efficiency  – 
Innovation and Climate Change - two for which it is social inclusion - Migration and Children - 
and two for which the two objectives are both relevant – Skills and Ageing – have been chosen as 
relevant examples. These priorities are assessed against the general criteria set out above. First, 
however, there is a need to justify why there should be a strong focus on social inclusion and a 
move towards a territorialised social agenda. 

IV.2.  The  case  for  a  strong  focus  on  the  social  inclusion  objective:  towards  a 

territorialised social agenda 

The  Report  has  set  out  the  conceptual  principles  (sections.I.2.2)  and  I.5)  and  some  of  the 
evidence  (section  II.3.1)  that  suggest  cohesion  policy  being  given  a  more  focused  social  task 
(section I.3). These threads are brought together below in the proposal for a territorialised social 
agenda.  

Europeanising and territorialising the social agenda 

The argument in favour of a territorialised social agenda aimed at social inclusion can be set out 
in four steps. 

First,  over  the  past  decade,  the  EU  has  seen  some  reduction  in  regional  disparities  in  average 
GDP per capita, but for individuals there appears  to have been little or no improvement in any 
measure  of  social  inclusion  at  national  level.  The  limited  data  available  (section  I.2.3)  suggest 
that in the EU Member States income inequality, after some decline up to 2000, has risen since 
then  in  many  countries.  The  risk  of  poverty  has  averaged  15-16%  across  the  EU  over  the  past 
decade279,  with  marked  differences  between  Member  States  (see  table  IV.1).  No  automatic 
correlation between growth and income inequality has materialised, challenging the assumption 
that, after rising with GDP per head in the early stages of development, income inequality would 
tend to decline as development proceeded.  

279 Risk of poverty refers to disposable income adjusted for household composition below 60% of the 
national median: “risk” refers to the fact that whether or not “poverty” materialises depends on other 
features of any individual’s life (see below for the concept of multidimensionality). See Eurostat, “At-risk-
of-poverty rate after social transfers – total” available at: 
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1996,45323734&_dad=portal&_schema=PORTAL&s
creen=welcomeref&open=/&product=REF_SD_SC&root=REF_SD_SC&depth=3. 

 120

 
                                                      
Table IV.1: Multidimensional measures of social inclusion: selected indicators in 2007(*) 

Income

Education

Health

Employment

Country

At risk of poverty 
national rate(1)

National 
threshold(2)

Early school 
leavers among    
18-24(3)

Low achievement 
in literacy by 15 
years old 
students(4)

Disparity in 
access to care(5)

Regional disparity 
in employment 
rate(6)

(% share)

(% share)
10.9
12.3
16.6
12.6
5.5
12.4
14.3
7.9
12.7
12.7
14.7
10.9
11.5
19.3
16.0
8.7
15.1
37.6
12.0
5.0
36.3
19.2
7.2
4.3
31.0
12.0
13.0

(% share)
13
15
14
16
10
12
18
13
13
13
21
16
18
20
23
20
14
14
10
19
18
19
12
12
20
12
19

(PPS euros)
           22 296 
           20 822 
 - 
           20 300 
           10 505 
           20 592 
             7 205 
           18 879 
           19 147 
           19 155 
           14 201 
             7 751 
           20 025 
           17 714 
             5 734 
             5 904 
           36 136 
           14 798 
           21 012 
             6 416 
           10 954 
 - 
             7 563 
           15 753 
           15 819 
           19 045 
           22 520 

Austria
Belgium
Bulgaria
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
Source:  http://ec.europa.eu/employment_social/spsi/common_indicators_en.htm .
(*) The indicators are selected from those adopted at EU level to monitor the objectives of the social inclusion strand of the Social Protection and 
(1) Share of population below the national threshold (60% of the equivalised median income).
(2) 60% of the median income for two adults with two dependent children, at purchasing power parity.
(3) Share of total population aged 18-24 who have at most lower secondary education and not in further education on training.
(4) Share of students assessed at level 1 (of 6) or below by the international OECD Pisa survey.
(5) Access to care is measured by self-reported umet need for medical care for the following reasons: financial barriers, waiting times, too far for travel. 
(6) Coefficient of variations of employment rates across Regions at NUTS 2 level.

(% share)
21.5
19.4
51.1
-
24.8
16.0
13.6
4.8
21.7
20.0
27.7
20.6
12.1
26.4
21.2
25.7
22.9
-
15.1
16.2
24.9
53.5
27.8
16.5
25.7
15,3
19,9

(ratio)
3.3
18.0
-
13.2
7.0
1.0
4.6
5.2
7.2
-
4.0
4.9
3.9
4.4
4.9
3.5
2.0
4.3
3.0
2.1
8.7
-
8.0
1.5
4.5
3.7
1.7

3.4
8.7
7.3
-
5.2
-
-
5.4
7.5
5.2
3.7
9.1
-
16.0
-
-
-
-
2.2
5.1
3.1
3.6
8.6
-
7.8
2,9
5,5

There are other dimensions of well-being, which this Report has argued are necessary in order to 
assess and address social inclusion satisfactorily. Here, too, inequalities are significant. table IV.1 
shows, for example, with reference to EU-wide thresholds, that in 2007 the share of early school 
leavers (with at most lower secondary education) among 18-24 years old was over 10% (in some 
cases, well over) 21 out of 27 Member States. In over half of the Member States, more than one 
in five 15 year-old students has literacy levels at the lowest end of the scale. Disparities within 
countries are also important, as the same table shows for access to health care measured by self-
reported  unmet  needs.  In  addition,  available  information  indicates  large  proportions  of 
individuals feeling stressed as regards more than one relevant aspect of their well-being280. 

At regional level, there are wide disparities in employment rates (table IV.1) as well as in risk of 
poverty rates, with high values in some relatively prosperous regions. Intra-regional inequalities 
in income tend to dominate over disparities between regions (section II.3.1).  

Secondly,  this  persistence  of  inequality  is  mirrored  by  a  series  of  factors  which  give  rise  to 
increased  concern  among  European  citizens:  the  challenge  of  globalisation  and  of  market  and 
currency unification (and now of the financial crisis and its repercussions) to both regions and to 
particular  sections  of  the  population;  fears  about  not  reaping  the  opportunities  offered  by  these 
global changes but instead falling behind; pressure of migration flows; perceptions of a threat to 
cultural identity; and the growing limits of national budgets to deliver on welfare commitments. 

280 See Marlier, E., Atkinson, A.B., Cantillon, B. and Nolan, B. (2007) and the First European Quality of 
Life Survey. 

 121

 
 
 
                                                      
All these factors place growing pressure on the EU to strengthen its social agenda and to address 
the issue of social exclusion, as symbolised by the explicit reference to its reduction in the new 
Treaty as one of the goals of the Union. 

Third, the EU has been addressing the social agenda primarily with reference to employment and 
labour market issues. This is a central aspect and deserves the attention that it receives (including 
the launching of initiatives through cohesion policy), especially at times of crisis. But it is only 
one of the several dimensions of the social agenda. In particular, the issue of social inclusion has 
been  tackled  through  the  Social  Protection  and  Social  Inclusion  Process,  the  open  method  of 
coordination  based  on  the  voluntary  commitment  of  Member  States.  This process has achieved 
important results in methodological terms, setting measurable indicators and guidelines, alerting 
some  countries  to  the  issue  and  promoting  a  debate  based  on  facts  and  figures.  A  serious  gap 
exists,  however,  between  “the  objectives  and  aspirations  of  Member  States  and  the  actual 
implementation of policies”281. Despite its aim, the process has failed to mobilise a wide range of 
actors  and  to  raise  widespread  political  interest.  It  has  often  remained  elitist  and  its  important 
methodological advances not fully exploited. 

Equally,  the  social  inclusion  framework  has  had  only  a  limited  impact  on  the  use  of  cohesion 
policy resources. In the 2007-2013 period, under 3% of these are being spent, through the social 
Fund, on “improving the social inclusion of less favoured persons” (mostly on their integration 
into  employment)  (see  table  II.8).  Significant  other  resources  are  being  spent,  through  the 
regional Fund, on “social infrastructure” (4.9%) – the majority on education and health, but also 
on  childcare  and  housing  –  and  on  other  infrastructure  that  can  be  of  great  relevance  for 
addressing deprivation and inequalities (6.3% on the management, distribution and treatment of 
water, and 1.8% on the management of household and industrial waste) (Table II.9). But they are 
not necessarily directed at the objective of social inclusion, nor are they necessarily integrated at 
local level with the provision of other services aimed at extricating places from social exclusion 
traps. 

Fourthly,  as  argued  in  section  I.3,  the  current  situation,  where  the  EU  has  sovereignty  over 
markets  and  liberalisation  and  Member  States  have  sovereignty  over  welfare,  is  becoming 
increasingly unsustainable. Member State social policies are increasingly constrained by common 
budgetary commitments and rules. Cultural and linguistic diversity limits internal mobility as a 
means of effectively providing an additional source social protection. At the same time, European 
citizens  attribute  to  the  direct  action  of  the  EU  –  and  are  sometimes  encouraged  to  do  so  by 
national  politicians,  eager  to  turn  necessary  institutional  changes  into  external  constraints  -  the 
adverse effects of increased competition, pressure on national budgets, migration and so on. For 
the sustainability of the EU and its policies, European citizens in whatever region they live also 
need  to  see  the  EU  running  effective  policies  to  address  their  fears;  all  of  them  need  to  be 
reasonably  convinced  that  a  policy  effort  on  the  same  scale  as  devoted  to  unification  is  being 
made by the EU to ensure that they have equal access to the opportunities created by unification, 
independently of where they live. The EU cannot allow social inclusion not to be improved. 

A territorialised social agenda offers the Union a chance to respond to the challenge sketched out 
above.  The  open  method  of  coordination,  while  providing  a  strong  methodological  base  (see 
below), falls short of being able to meet this challenge. The action of the EU Court of Justice can 
undo  national  rules  that  produce  perverse  social  results,  but  cannot  positively  build  new  rules 
which  address  the  issue.  The  option  of  transferring  sovereignty  for  welfare  intervention  to  the 
EU,  as  in  economic  areas,  is  not  feasible  owing  to  cultural  diversity  and  differing  national 
aspirations  and  social  models  as  well  as  to  the  lack  of  political  legitimacy  of  the  EU  level  of 

281  See  the  2006  Joint  Report  on  Social  Protection  and  Social  Inclusion.  Similar  conclusions  are  to  be 
found in the Commission’s 2008 Communication on “A renewed commitment to social Europe”: “In spite 
of  the  European  Council’s  commitment  in  2000  <<  to  make  a  decisive  impact  on  the  eradication  of 
poverty>>, there are no signs of an overall reduction in poverty rates in the EU… and health inequalities 
(shorter lives, worse health status in disadvantaged groups) persist” (p. 4). 

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government. The place-based approach is a feasible and effective means of tackling this situation. 
It  is  an  advanced  approach  for  delivering  public  goods  and  services  addressing  multiple 
dimensions  of  social  inclusion.  And  it  is  a  means  which  is  compatible  with  the  current 
architecture  of  the  Union.  It  can  combine  action  across  three  levels  of  government:  the  EU, 
setting the general strategy, priorities and objectives, supervising, promoting measures aimed at 
results and learning and mobilising actors; the national and Regional levels, adapting the strategy 
and  objectives  to  specific  aspirations  and  institutional  contexts  and  selecting  projects;  and  the 
local level, designing the projects to the particular needs, knowledge and preferences of places. 

Cohesion  policy  can  simultaneously  Europeanise  (in  a  feasible  and  cautious  way)  and 
territorialise  the  social  agenda.  It  can  enable  the  EU  to  respond  to  the  growing  demand  for  a 
stronger commitment to the social agenda, while, at the same time, experimenting with a modern 
way of promoting multi-dimensional social inclusion. It can also have another positive effect. By 
creating new solidarity and new “identifications”282 between citizens at an EU-wide level and by 
progressively  reducing  their  fears  about  the  effects  of  integration  (especially  if  aimed  at  issues 
such as migration, see below), it can help lay the foundation for greater mobility of citizens and 
labour, which can itself represent, in the long term, an additional source of social protection.283 

Building on the existing knowledge base 

In building a territorialised social agenda, cohesion policy would not start from scratch. It could 
first of all build on its own experience, bringing together the lessons from those Member States 
which, in implementing cohesion policy or their own regional policies, have experimented with a 
place-based  approach  aimed  at  social  inclusion.  It  can  then  build  on  the  measurement,  the 
methods and the ideas developed in the Social Inclusion Process.  

Five lessons can be extracted from this Process284. 

•  The  multi-dimensional  nature  of  social  inclusion  calls  for  a  measurement  of  both  standards 
and inequalities in relation not only to income but to a wide range of indicators representing 
the  multiple  aspects  of  well-being.  A  system  of  comparable  indicators across Member State 
has  been  developed  (the  now-revised  Laeken  indicators285,  from  which  the  figures  in  Table 
IV.1 are taken) which is aimed at being “comprehensive” and “balanced” and covers income, 
labour,  education,  material  deprivation,  housing  and  health.  These  indicators  are  mostly 
“objective”, but others on “subjective measures” also exist286.  

•  The selection of indicators complies with the requirements previously outlined (section I.2.2), 
and  ideas  have  been  developed  on  how  to  move  forward;  the  data  for  these  indicators  are 
provided  by  Eurostat  (in  the  form  largely  of  the  EU  Statistics  on  Income  and  Living 
Conditions  –  EU-SILC  but  also  the  EU  Labour  Force  Survey)  mostly  on  the  basis  of 
household sample surveys. The choice of indicators strongly reflects the main purpose of the 
exercise which is cross-country comparability. 

•  The  view  has  been  established  that,  in  assessing  disadvantage,  reference  must  be  made  not 
only to national standards but also in relation to the standards of the EU as a whole (EU-wide 
thresholds),  at  least  as  background  contextual  information  of  which  policy  action  must  take 

282 Identifications stay for “ties of sentiments between the members of the group”: see section I.3, and in 
particular note 155.. 
283 On this issue see D’Antoni, M., Pagano, U. (2008). 
284 See in particular Marlier et al (2007).  
285  The  revised  set  of  Laeken  indicators  which  are  currently  used  in  the  open  method  of  coordination 
include: 11 primary indicators at national level (poverty risk, labour conditions, education, housing, health 
and material deprivation), 3 secondary indicators (a breakdown of poverty risk by personal characteristics 
and education level) and 11 context indicators (mostly measures of income and labour inequality). 
286 See the European Quality of Life Survey. 

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notice.  Although  EU  citizens  set  their  expectations  and  perceive  their  rights  primarily  with 
reference to their own national societies, but they increasingly take account of the “European 
society”.  This  will  be  increasingly  the  case  the  more  and  the  longer  that  markets  and 
currencies  are  unified.  The  variation  in  living  standards  across  EU  countries  is  substantial, 
with “the rich in the poorest countries [being] objectively as badly off, or worse off, than low 
or middle income groups in the richer countries and [feeling] accordingly”287. This situation is 
likely to produce mounting tension. 

•  The  importance  of  the  sub-national  dimension  is  clearly  recognised,  i.e.  that  disadvantages 
should not only be measured for Member States as a whole but also for regions within these, 
given the pronounced territorial concentration of inequality that exists in Europe. Due to the 
lack  of  data  at  present,  however,  the  revised  Laeken  indicators  include  only  regional 
disparities for employment rates. 

•  On more strategic grounds, impact evaluation, mobilisation of actors and mainstreaming are 
strongly advocated. It is argued that, by developing an appropriate system of measuring and 
reporting,  social  inclusion  considerations  should  influence  public  interventions  in  all  policy 
areas. For this to happen, a systematic practice of impact evaluation must first be developed, 
so  that  beneficiaries  of  policy  measures  and  the  public  at  large  can  be  mobilised.  If  this 
happens, systematic knowledge on how different interventions affect social inclusion can be 
built  up  and  by  feeding  this  into  the  policy-making  process,  there  is  scope  for  achieving 
permanent effects. 

For  cohesion  policy  to  be  able  to  draw  extensively  from  these  lessons  and  to  respond 
appropriately to the task outlined in this Report, there is for major reform in its governance, as 
proposed  in  Chapter  V.  To  pursue  the  objective  of  social  inclusion,  three  mutually  reinforcing 
features  are  particularly  important  to  include  in  the  policy-making  process:  a  system  of  robust 
indicators  and  targets;  a  mobilisation  of  the  relevant  actors  at  place  level;  and  a  prospective 
impact evaluation. Given their role as regards social inclusion,, it is useful to develop further in 
each case the general ideas sketched in section I.2.4. 

A system of robust indicators and targets 

A system of indicators represents the “hardest” component of the triangle to put in place, but it is 
indispensable for improving verifiability. 

The use of indicators for a policy the main goal of which is to reduce the share of people “falling 
below  essential  standards”  in  multi-dimensional  terms288  is  clearly  central.  It  is  only  through 
indicators  and  setting  standards  that  the  policy  can  be  designed,  implemented  and  monitored. 
Three  limitations  of  indicators  are  particularly  relevant  in  this  context.  First,  because 
measurability is difficult, there is the risk of only partially capturing the dimensions of well-being 
being  considered,  so  creating  a  bias  in  the  policy  implemented.  Secondly,  there  is  a  risk  of 
choosing  indicators  in  a  top-down  way,  without  incorporating  local  information  and  taking 
account of what is considered to be most relevant in the place concerned. Thirdly, there is a risk 
of  interpreting  changes  in  the  indicators  which  have  occurred  while  policy  was  being 
implemented, as signs of policy impact, ignoring all the other factors potentially responsible. As 
has been argued, all these risks are commonly incurred by cohesion policy. 

Similar problems arise in setting essential standards for the different dimensions of well-being289. 
First, when standards are set with reference to given indicators and are turned into policy targets, 
policy  bias,  as  noted  above,  can  become  important,  which  also  creates  scope  for  political 

287 These are the results brought to light by the First European Quality of Life Survey, p. 36. 
288 The interpersonal goal must be defined in relation to indicators too. 
289 Once again, a similar problem exists in addressing the inter-personal goal, since targets must also be set. 

 124

 
                                                      
manipulation.  Secondly,  the  standards  should  reflect,  as  emphasised  by  the  definition  of  social 
inclusion,  a  social  agreement  reached  through  a  “participatory  and  fair  process”.  This 
requirement is hard to respect, and standards might well be set top-down and not reflect actual 
local preferences or needs. Thirdly, standards can be context-dependent (as, for example, in the 
case  of  housing  requirements  which  vary  according  to  climate),  so  that  they  might  need  to  be 
adjusted for this. 

These issues are being resolved by a rapidly growing body of international experience (including 
that documented by the Union itself), to which cohesion policy can turn for guidance290. 

In particular, the experience of the social inclusion process suggests that a set of core indicators 
should  be  established  first,  in  a  similar  way  as  in  the  case  of  the  Laeken  indicators.  Given  the 
unsatisfactory nature of the present system of indicators of cohesion policy, account needs to be 
taken of requirements such as: 291 

•  having the capacity to “capture the essence of the problem”; 

•  having a “clear and accepted normative interpretation” (i.e. that “a movement in a particular 

direction … is a positive outcome”);  

•  being robust and capable of statistically validation;  

•  being responsive “to policy intervention but not subject to manipulation”; 

•  being “timely and susceptible to revision”. 

Improvements to the Laeken indicator system have also been proposed292, which can be useful in 
the context of cohesion policy: a) introducing a regional – and sub-regional - breakdown for as 
many  indicators  as  possible,  through  greater  recourse  to  administrative  data;  b)  upgrading  the 
comprehensiveness of the indicators; c) increasing the coverage of dimensions of social inclusion 
and d) encouraging the use of indicators by “independent researchers” and the public at large.  

There  is  also  much  scope  for  Member  States  to  develop  additional  national  indicators.  Unlike 
what happens today, in doing so, they should be required to respond to a set of requirements such 
as  those  sketched  above,  with  the  Commission  providing  technical  assistance  and  supervision. 
Scope  is  also required for particular places and communities to choose their own indicators. In 
the  case  of  social  inclusion,  the  scope  for  bottom-up  design  is  obviously  greater.  International 
experience  shows  that  this  approach  is  feasible,  that  it  can  be  integrated  with  the  use  of  a  few 
indicators  applied  on  a  broader  spatial  scale.  Equally,  there  is  a  need  for  a  “policy  space”  at 
national  and  at  local  level  to  contribute  to  the  development  of  both  national  and  European 
standards. The latter should be a priority in policy implementation. Feedback from the local level 
to  the  EU  level,  and  a  debate  on  core  and  community-based  indicators,  would  encourage  and 
facilitate a comparison of opportunities and outcomes in respect of the different dimensions and 
would form part of the process of determining socially agreed essential standards. 

The  effectiveness  of  a  system  of  indicators  and  targets  can  be  enhanced  through  impact 
evaluation  and  the  mobilisation  of  local  actors.  Impact  evaluation,  is  the  only  way  properly  to 
investigate  effects  and  to  avoid  misinterpreting  indicators  as  measures  of  impact,  while 
mobilisation of beneficiaries is the only way to ensure both a demand for, and usage of, impact 
evaluation.  At  the  same  time,  the  latter  is  also  the  way  through  which  local  knowledge  and 
preferences  can  be  taken  into  account  in  choosing  indicators  and  standards,  new  place-specific 

290  See  the  website  www.OECD.org/progress  of  the  OECD  Global  Project  to  measure  the  progress  of 
societies: the section on “knowledge base” provides a link to hundreds of documents and experiences of a 
very  different  nature  on  the  development,  analysis  and  policy  use  of  indicators  of  well-being.  See  also 
Marlier et al (2007) and the Report working-paper Alkire, S. and Sarwar, M.A (2009). 
291 See Marlier et al (2007), pp. 40-42. 
292 Ibid. 

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indicators can be developed and standards set and pressure can be exerted to change established 
indicators  and  standards.  Mobilisation  and  impact  evaluation  can  together  keep  a  check  on  the 
potentially  damaging  effect  of  indicators  not  being  truly  comprehensive  by  highlighting  the 
problems,  pressing  for  changes  in  indicators  and  complementing  these  with  qualitative 
assessment of “what really happens to deprivation in a given dimension”. 

Mobilisation of actors at local and European level 

The  design  of  a  reliable  but  flexible  and  mixed  system  of  indicators  is  strongly  linked  to  the 
successful mobilisation of relevant actors. On this issue, some lessons can again be derived from 
the  experience  of  the  open  method  of  coordination,  but,  as  has  been  said,  the  learning  process 
should  enter  “the  political  bloodstream  of  national  and  European  debate,  rather  than  [being] 
locked away in the processes of the Open Method of Coordination”293. 

It has been observed that, in spite of the annual Round Tables on Poverty and Social Inclusion 
and  other  steps,  the  EU  strategic  approach  “still  often  appears  far  removed  from  what  is 
happening on the ground”294. More involvement of the bodies representing social interests at EU 
and national levels, including NGOs in particular, is clearly required, in line with the mandate of 
the  2002  European  Council  “to  mobilise  all  relevant  bodies”.  But  this  should  be  only  an 
intermediate step towards the ultimate goal of mobilising the potential beneficiaries of policy and 
the local branches of those bodies in every place in which intervention occurs. Conditions should 
be created for them to participate actively in the policy process, in identifying the most relevant 
dimensions to address in each place and the way to measure them, in designing interventions and 
in  assessing  their  effects.  In  order  to  move  in  this  direction,  account  should  be  taken  of  the 
experience of a number of pilot and demonstration projects implemented in the 1970s and 1980s 
Poverty  Programmes,  which  were  small  scale  and  very  place-based  and  which  succeeded  in 
involving local actors295.  

The  requirements  for  mobilisation  should  be  identified  and  Member  States  asked  to  commit  to 
them  in  their  “contracts”  with  the  Commission.  But  the  Commission  should  also  undertake  the 
task of directly raising public awareness and encouraging involvement, by organising workshops 
and  “conventions”  across  the  EU  in  places  where  the  priorities  are  particularly  relevant. 
Information and data should be analysed and debated, and policy options and results should be 
presented  and  compared.  Such  actions  would  be  greatly  assisted  by  the  participation  of 
representatives  of  policy-makers  and  beneficiaries from other countries where similar problems 
are being addressed. This methodology is already part of the toolbox of cohesion policy, but it is 
underused and it has not so far relied on substantial Commission expertise on the priority issue 
concerned.  In  addition,  the  design  and  implementation  of  impact  evaluation  of  as  many  local 
projects as possible would increase local involvement and make it more pragmatic. 

Prospective impact evaluation 

Prospective  impact  evaluation  is  the  third  methodological  pillar  to  be  developed  and  applied 
whenever feasible. This method is more frequently implemented in the social policy area, where 
a body of experience has been accumulated, which should be put to use in cohesion policy. The 
idea  is  to  submit  social  inclusion  projects  financed  by  cohesion  policy  to  impact  evaluation, 
using, so far possible, counterfactual methods. As the Report argues (see Box I.A and Chapter V, 
pillar  7),  this  evaluation  should  not  be  designed  and  implemented  after  the  interventions  have 
been initiated, but it should instead be prospective, i.e. it should be designed while the objectives 
are being identified and the policy designed.  

293 See Liddle, R. (2007a). 
294 See again Marlier et al (2007), p. 231.  
295 See again Marlier et al (2007). 

 126

 
                                                      
By  being  prospective,  impact  evaluation  can  not  only  improve  the  chances  of  coming  up  with 
clear results, but it can also have a useful disciplinary effect. It can focus attention on objectives 
(which often tend to “get lost” in the complex process of local partnership) and on the criteria for 
the selection of beneficiaries and can improve data collection. It is a way of making better use of 
the  knowledge  of  independent  experts.  The  learning  process  established  by  the  design  of 
prospective impact evaluation and fuelled by its results can improve policy and provide a good 
basis  for  mobilising  local  actors.  Member  States  need  to  commit  to  its  use  and  be  responsible, 
with  regions,  for  designing  and  implementing  it.  The  Commission,  however,  should  have  the 
opportunity,  the  in-house  skills  and  the  resources  to  launch  impact  evaluations  of  specific 
projects, whenever required, and to promote an EU-wide public debate on the results (see chapter 
V, pillar 7). 

IV.3.  Addressing the efficiency objective 

IV.3.1.  A case for “Innovation” 

Innovation  is  a  major  source  of  productivity  growth  and  economic  efficiency.  In  its  broad 
definition  it  embraces  any  discontinuity  -  of  technologies,  organisations  and  institutions296  –  in 
the workings of the economy and society297. A narrower definition, the one used here, includes 
those changes that have the (direct) effect of inventing general purpose technologies or bringing 
about  their  application  in  a  specific  domain  (business  activities,  healthcare,  the  environment, 
culture and so on)298. Innovation, and the research that can lead to it, tends to be under-produced 
by  society  due  to  well-recognised  market  failures,  to  radical  or  Hayekian  uncertainty  or  to 
asymmetries  of  information.  These  require  public  intervention,  which  in  turn  is  prone  to 
failure299.  

In  what  follows,  the  case  is  made  for  Innovation  (using  the  narrower  definition)  to  be  a  core 
priority of cohesion policy, providing that its objectives are focused and that, in the context of the 
governance reform proposed in Chapter V, key changes are introduced. 

The need for an overall European strategy 

There is already a powerful case for support of innovation to be an item in the EU budget. Taking 
a global perspective, the innovation gap between the EU and two of its main competitors, the US 
and Japan, is significant, although diminishing, and is reflected in productivity growth. Over the 
2005-2007, the US kept its lead as regards 12 out of 17 indicators for which comparable data are 
available  (the  main  exceptions  being  science  and  technology  graduates  and  employment  in 
medium-high and high-tech manufacturing). The same is true of Japan.300 A comparison over a 
longer period indicates that the EU has been closing the gap with the US in all of the indicators 
except business R&D and European Patent Office and Patent Cooperation Treaty patents.  

296 See OECD (1996). 
297 From this point of view, place-based development policies as a whole are policies for innovation. On 
this issue, see Seravalli, G (2008). 
298  On  this  issue,  see  Foray,  D.  (2008).  This  narrower  definition  is  the  one  generally  used  in  the  vast 
literature  that  examines  the  impact  of  the  effort  to  innovate  and  the  expenditure  on  innovation  (and  the 
research  that  innovation  initially  requires).  On  the  level  and  growth  of  GDP:  see  for  example  Sala-i-
Martin, X. (1996); Aghion, P. and Howitt, P. (1992, 1998); Roemer, J.E. (1986).  
299 See the Report Working Papers by Seravalli, G. and Landabaso, M. (2009) and Bonaccorsi, A. (2009). 
The  “Hayekian  uncertainty”,  referred  to  by  the  latter  author,  follows  the  notion  proposed  by  von  Hayek 
(1945) relating to the component of knowledge which is relational, time-dependent and space-dependent 
and requires trusted relationships between individuals to be elicited and aggregated.  
300  See  MERIT  (2009),  where  29  innovation  scoreboard  indicators  are  reviewed,  with  reference  to  three 
broad  categories:  enablers  (human  resources,  finance  and  support),  firm  activities  (firm  investments, 
linkages and entrepreneurship, throughput) and outputs (innovators, economic effects). A role is attributed 
to non-R&D innovation. Comparison with US and Japan concerns 17 indicators. 

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Major disparities in innovation capacity persist within the EU, both at Member State and regional 
levels.  A  summary  innovation  index  constructed  with  reference  to  the  years  2002-2003  by 
aggregating a much more limited group of indicators (7),301 gives some indication of the relative 
performance  at  NUTS  2  level  (Map  IV.1).  It  highlights  a  strong  innovation  “polarisation”:  the 
presence  of  technological  “hotspots”  is  accompanied  by  a  high  number  of  regions  with  low  or 
very  low  performance.302  Leaving  aside  the  Finnish  and  Swedish  northern  regions  (which  are 
large in terms of land area but sparsely populated, for which the relevant disaggregated data do 
not  exist),  Europe’s  innovation  “polarisation”  is  strongly  marked  by  a  form  a  centre-periphery 
pattern.  Many  of  the  regions  located  physically  on  the  outskirts  of  Europe  or  farthest  from  the 
European centre, appear to lag behind in research and innovation. 

Map IV.2 -Regional disparities in innovation, 2002-2003 

Source DG Regio 

301  See  MERIT,  Joint  Research Centre (2006). The summary indicator is built for 25 EU Member States 
with reference to the following indicators: participation in life-long learning per 100 population aged 25-
64; public R&D expenditure (% of GDP); business R&D expenditure (% of GDP); employment in high-
tech manufacturing (% of total employment); employment in high-tech services (% of total employment); 
number of patents applied for at the European Patent Office (per million population); human resources in 
science  and  technology  (%  of  population).  Two  indices  are  calculated  for  each  NUTS  2  Region,  one 
relative to the EU-wide mean value, the other relative to the national mean; the weighted mean of the two 
is then obtained by attributing a weight of 0.75 to the first and 0.25 to the second.  
302  It  should  be  noted,  following  MERIT  (2009),  that  at  country  level  a  convergence  of  innovation 
performance (measured on the broader set of indicators) has been taking place over a five -ear period (up 
to  2005-2007),  countries  with  below  average  performance  having  faster  growth  rates  of  the  innovation 
indicator  than  those  with  above  average  performance.  (The  main  exceptions  are  Italy,  Spain,  Norway, 
Lithuania  and  Croatia,  which  combine  below  average  levels  of  performance  with  below  average  growth 
rates, and Switzerland which combines a high level of innovation performance and an above average rate 
of improvement.) 

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The causes of this innovation gap have been identified and discussed in the growing debate on 
the EU innovation deficit, prompted by the Report on “Creating an Innovative Europe” (the Aho 
Report)303.  The  conclusions  have  influenced  EU  decision-making304  and  underlie  the  choice  to 
concentrate a large share of cohesion policy resources for 2007-2013 on the innovation priority 
(see  Tables  II.9-10  in  section  II.1)305.  Among  the  causes  of  the  innovation  gap,  one  is  of 
particular relevance: the nationally fragmented nature of the public research system. The result is 
that: a) scale effects cannot be exploited; b) flows of human resources and the establishment of 
networks between research centres and with the private sector are limited; c) the advantages of 
Europe’s  high  diversity  (of  culture,  science,  business  attitudes  and  so  on),  which  could  enable 
general purpose technologies to be applied in numerous areas, or spill-over effects to take place 
across  areas,  are  not  being  exploited;  and  d)  over-production  of  research  is  taking  place,  with 
several  regions  investing  in  the  same  ways.  This  situation  affects  regions  which  are  on  the 
technological frontier or close to it as well as regions which have an important knowledge base to 
exploit in adapting technologies306. 

The acceleration of the formation of a European Research Area (ERA) is, therefore, a key need, 
as  is  the  strengthening  of  the  Framework  programmes  and  of  all  the  initiatives  aimed  at 
organising and financing high-level research at EU level. But these steps must be part of a more 
general strategy that allows the full potential of all places to be exploited. If, in the polarisation 
process,  places  not  on  the  technological  frontier  but  with  a  strong  knowledge  base  were  to  fall 
behind,  the  opportunity  would  be  wasted  to  apply  new  general  purpose  technologies  in  the 
activities in which they are specialised. Diversity would be squandered and growth opportunities 
would  be  lost.  Inefficiency  traps  would  multiply.  The  overall  effect  on  Europe  innovation  and 
productivity  growth  would  be  negative.  Moreover,  the  persistent  failure  to  adapt  the  new 
technologies  to  regions  away  from  the  frontier,  by  progressively  eroding  the  comparative 
advantages of those regions, would increase the fears of the people living there about the effect of 
innovation and their opposition to it, as well as to the institutions which are working to increase 
the pace of innovation. Such opposition, too, would have negative effects on overall growth. 

These arguments provide a background to the political decision taken for the current programme 
period to shift some of the focus of cohesion policy to investment in research and innovation. The 
intrinsic uncertainty that characterises innovation, however, and the long time it takes for policy 
effects to materialise make the general policy risks of a place-based approach (see section I.2.1) 
particularly  relevant  and  call  for  them  to  be  tackled  through  the  implementation  of  strong 
“conditionalities”. 

A place-based approach: rationale, policy risks and solutions 

In the case of innovation, the general rationale for EU-level funding for development through a 
place-based approach (see section I.2.3) has special importance307.  

First,  any  policy  for  innovation  needs  to  be  place-based.  By  definition,  the  knowledge  base  on 
which interventions need to be built is local, and the nature of the economic institutions that must 

303  The  Report  was  prepared  in  January  2006  by  an  independent  expert  group  appointed  following  the 
Hampton Court Summit and chaired by Esko Aho. 
304  In  December  2006,  the  EU  adopted  a  number  of  strategic  priorities  for  stimulating  innovation  at  EU 
level which were aimed at improving access to finance in support of innovation, at creating an innovation-
friendly regulatory environment and demand for innovation and at reinforcing the activities of institutions 
relevant for innovation. See Council Conclusions on a broad-based innovation strategy: strategic priorities 
for innovation action at EU level, Competitiveness Council meeting, Brussels, 4 December 2006. 
305 See Commission of the European Communities (2007b). 
306 See in particular Foray, D. (2008). 
307See the Report hearing summary on Innovation (2009), in particular the introductory note by Luc Soete. 
On  the  need  to  tailor  interventions  to  contexts,  see  also  the  Report  hearing  summary  on  Growth,  in 
particular the presentation by Philippe Aghion. 

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be enhanced are also strongly linked to places. In tackling unused innovative potential, the first 
step to make is capacity building, both through the training of people and through the promotion 
of  new  institutions.  Capacity  building  must  be  geared  to  places  and  it  must  be  given  adequate 
time to produce results, as well as being continuously monitored. A place-based approach is the 
appropriate way of doing this. 

Secondly,  the  EU  level  is  the  most  appropriate  one.  As  US  experience  shows,  diversity  and 
openness can be best be combined at this level. On the one hand, it can promote the diversity of 
agglomerations, knowledge bases and networks that fuel innovation. On the other, it can facilitate 
the opening up of research and innovation areas across national boundaries which is needed for 
diverse  places  to  interact  with  each  other  in  a  mutually  productive  way.  In  this  respect,  the 
distance of the EU level away from the place concerned, if coupled with high-level expertise, can 
give it greater credibility in exercising a brokerage function and resisting the pressure for every 
area  to  “play  a  world-wide  role”,  a  pressure  to  which  national  and  regional  governments  often 
succumb.  The  EU  level  can  also  reap  the  benefits  of  transnational  externalities  and  can 
encourage the circulation of information on policy results and practices. Finally, by assigning an 
important  strategic  role  to  the  EU  level,  place-based  interventions  can  be  coordinated  with  the 
EU policy aimed at supporting “areas of excellence”, turning it into a comprehensive European 
policy for innovation. 

Innovation, therefore, satisfies the first two criteria that a core priority must meet – policy needs 
to be place-based and the issue has EU-level relevance. It is less easily satisfies the third criterion 
of verifiability, however. 

A place-based policy for Innovation is anything but easy. Policy which set out to close the gap in 
innovation  between  regions  can  make  three  different  mistakes:  it  can  encourage  “policy 
imitation”, when the institutions and measures established in places with a history of successful 
innovation  are  taken  as  a  model  to  be  imitated,  without  appreciating  the  particular  conditions 
under which they operate; it can suffer “local capture”, when the policy agenda is taken over by 
local actors, whose interest does not coincide with the general interest of tapping into the unused 
innovation potential; and it can pursue “financial redistribution”, when regional interventions are 
interpreted  as  a  means  of  ensuring:  that  all  regions  (or  NUTS  2  Regions)  in  the  EU  achieve  a 
given  target  level  of  R&D  expenditure,  or  that  finance  is  provided  to  all  private  projects  that 
appear “innovative” according to some pre-defined parameters, or that “collaborative networks” 
with Universities are developed.. To pursue this objective, the massive injection of EU funds in 
regional knowledge economies not nearly enough by itself, but it could even be detrimental. 

In line with the idea of “smart specialisation”308, what is needed is a policy that matches the effort 
to  establish  a  European  Research  Area  (ERA)  and  promotes  the  use  of  the  knowledge  base  of 
regions  by  tailoring  intervention  in  line  with  innovative  potential;  a  policy  that  concentrates 
funding by selecting for each region the limited number of areas where innovation can usefully 
take place and by defining in these terms the boundaries of the “region” itself. It is a difficult task 
because,  whenever  a  region  is  away  from  the  technological  frontier,  the  classic  problem  of 
incomplete  information  and  asymmetrical  information  is  increased  by  a  lack  of  reference  to 
recognised international standards of excellence. There is, however, no alternative to trying to do 
this if an EU strategy is to be pursued. The task is difficult but not impossible,309 since selection 
and  incentive  mechanisms  can  be  designed  to  help  concentrate  interventions.  This  is  why 
verifiability must be ensured and adequate “conditionalities” set to link the transfer of resources 
to. 

Cohesion policy has built up a stock of experience on methodologies, successes and failures that 
can  help  to  deal  with  the  risks  of  public  failure  and  to  design  “conditionalities”.  In  particular, 

308 See Foray, D. and Van Ark, B. (2007).  
309 This slogan is taken from the title of Seravalli, G. (2006).  

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important  lessons  can  be  drawn  from  the  experience  of  the  European  innovation  strategies 
launched  as  a  Community  initiative  in  1994.  The  interventions  under  this  strategy  marked  a 
radical departure from concentrating funding on the creation of public research centres and other 
purely supply-side interventions, often juxtaposed with developing local networks, the creation of 
participative, demand-oriented, local and cross-country linkages and an experimental approach of 
trial and error. The Commission played an active role, bringing its expertise to bear and gaining 
credibility as a result, often close supervising implementation of the strategy. Results are mixed 
and possibly not fully appreciated310 (partly because of the general failure to invest adequately in 
the  evaluation  of  impacts),  but  they  gave  rise  to  the  development  of  both  capacity  and 
methodology which could now be put to use.  

The steps that have followed have not made enough use of the lessons of this exercise. This can 
be attributed to the strong demand for a European policy, by the rush “to do something visible 
about innovation” and by the rhetoric that accompanied it. The decision to reduce the role of the 
Commission  and  to  mainstream  interventions  in  national  and  regional  programmes  was 
accompanied by the allocation of resources to innovation and research which seem to have been 
greater than the capacity to use them. For whatever reason, the interventions in this area in the 
2000-2006 programming period have not lived up the expectations. The capacity to build, place 
by  place,  a  policy  tailored  to  regional  innovative  potential  was  often  inadequate.  Efforts  to 
improve  policy-making,  strategy  development  and  evaluation,  including  coordination  between 
national and regional policy-making, were limited. Financial allocations to innovation planned in 
2000  had  to  be  reduced  at  the  mid-term point in several Member States due to implementation 
difficulties arising from the design of the new measures and the weak demand from enterprises311. 
Four  main  bottlenecks  to  the  efficient  absorption  of  funds  and  the  effective  outcome  of 
innovation measures were identified in the evaluation of these312: a) a lack of expertise at national 
and  regional  levels;  b)  an  administrative  rather  than  strategic  management  of  the  interventions 
leading to a lack of synergies with other initiatives; c) a dominance of supply-side measures with 
poor  linkages  to  regional  innovation  systems;  and  d)  limited  interest  in  many  “softer  demand 
side” measures aimed directly at enterprises.  

Strong  risks  exist  that,  despite  the  guidelines  drawn  up  by  the  Commission  in  its  Community 
strategic  guidelines,  these  limitations  may  persist  in  the  current  programme  period.  No  change 
has  in  fact  taken  place  to  some  key  aspects  factors  on  which  greater  success  of  the  strategy 
depends. No unified conceptual framework has been developed at EU level, in spite of the first 
steps  made  to  give  strategic  coherence  to  the  interventions  of  the  Framework  programmes  and 
cohesion  policy.  313  Competing  pressures  and  the  extremely  broad  range  of  priorities  for 
intervention dealt with by the Directorate for Regional Policy mean that no further investment in 
human resources has been made in this specialised area. Nor have improvements been introduced 
in the design of “conditionalities” applying to this policy area. In short, the conditions are not yet 
in  place  to  avoid  regional  innovation  policies  serving  purely  as  a  mechanism  for  redistribution 
and/or being heavily “de-financed” half way through the programme period. 

The proposal made here to make Innovation one of the core priorities - on which to concentrate 
the concerted effort of the Commission, Member States and Regions – is, therefore, very much 
conditional  on  a  decisive  shift  in  the  way  that  policy  deals  with  the  above  factors.  The  key 
changes  are  the  same  as  the  general  ones  advanced  by  this  Report  for  the  whole  of  cohesion 
policy and described in the next Chapter. In particular, a set of principles needs to be included in 
the  European  Strategic  Development  Framework  (see  Chapter  V,  pillar  2)  and  Member  States 
need to describe in their National Strategic Development Contract with the Commission how they 

310 See Morgan, K. (2004). 
311 See European Commission (2006a).  
312 See Technopolis (2006) and Musyck, B. and Reid, A. (2007). 
313 See Commission of the European Community (2007a). 

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plan to tailor these principles to their particular context (Chapter V, pillars 3 and 4). This would 
ensure the requirement of “verifiability”314.  

Principles 

At  strategic  level,  the  general  policy  guidelines  of  the  Innovation  priority  should  follow  the 
conceptual framework outlined above: 

•  Regional policy would effectively complement ERA policy by focusing on the application of 
innovation  at  local  level  and  being  aimed  at  the  promotion  of  a  specific  (and  unique) 
knowledge base in each region (smart specialisation). Each place would be competing with a 
small number of other territories to attract and capture specialised knowledge resources in its 
own area. This would enable it more easily to reach a “tipping point” for gaining increasing 
returns.  Innovation  systems  associated  with  these  knowledge  bases  need  to  be  developed  in 
conjunction  with  the  application  domains  essential  to  the  economy  of  the  place  concerned. 
Close  relationships  need  also  to  be  maintained  with  other  (central)  regions  which  are  the 
source of generic technologies.  

•  Investment  in  diverse  systems  would  then  go  together  with  openness  to  other  research  and 
innovation areas, facilitating both cooperation and competition. Often, obsession with making 
sure  that  policies  have  local  impacts  has  meant  that  they  have  been  designed  as  closed  in 
“geographically”, further exacerbating the locational “tournament effects”315. It is, therefore, 
important to open up those local networks as part of the regional innovation policy. 

•  Pursuing  this  approach  offers  a  way  of  reconciling  polarisation  and  polycentrism  and  of 
enabling policy to escape from the trap of regional administrative barriers. If carried out by a 
large number of regions, it would add a new dimension to the ERA by creating numerous sub-
areas of competition and regional polarisation. These areas would not necessarily correspond 
to state borders, nor to the administrative boundaries of administrative Regions. Instead; they 
would  be  based  on  the  existence  of  specific  areas  of  specialisation,  delineated  by  the 
aggregation of public and private interests.  

Any national strategy for the implementation of a regional innovation policy should also include 
a  clear  linkage  with  education  policies  (possibly  co-financed  by  cohesion  policy  also).  In 
particular,  in  the  regions  on  the  technological  frontier,  an  appropriate  strategy  for  tertiary 
education is essential316. 

This  place-based  strategy  largely  depends  on  a  fine  balance  being  maintained  between 
cooperation  and  competition  and  between  exogenous  push  and  endogenous  choice  that  is 
achieved in the process of designing and implementing projects. Five principles assume particular 
importance in this process317. 

(1) 

(2) 

In every candidate area (the boundaries of which should not be pre-defined ex-ante but 
drawn  according  to  the  responsiveness  of  local  actors),  a  preliminary  ex-ante  search 
would seek to identify comparative advantages in terms of innovation potential. 

As  the  information  on  the  knowledge  base  is  largely  held  by  local  actors  (businesses, 
researchers, specialised workers and so on), these need to be given a stake in the process 
with a scale of intervention which encourages them to reveal information and to invest.  

314  For  what  follows,  see  the  Report  hearing  summary  on  innovation.  See  also  Foray  D.  (2008),  Report 
working-papers Seravalli, G. (2009) and Bonaccorsi, A. (2009).  
315 See the Report hearing summary on innovation, in particular the introductory note by Soete, L. 
316 See Aghion, P. (2006)  
317 See again Foray, D. (2008) and the Report hearing summary on Innovation.  

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(3) 

(4) 

(5) 

On  the  basis  of  the  ex-ante  search,  a  bundle  of  interventions  should  be  designed, 
combining the supply and demand side, and setting an appropriate system of incentives in 
order to reduce the risks of adverse selection and of moral hazard. 

A  context  of  competition  must  be  maintained,  with  promotion  of  the  mobility  of 
researchers. 

Lastly, since much uncertainty by definition hampers any ex-ante decision, and learning 
is the essence of the policy, an experimental and cautious attitude should be adopted, and 
room  should  be  preserved  for  replacing  projects  when  the  first  steps  do  not  look 
promising.  

These principles partly conflict with each other - for example, mobility increases the “innovate 
here, benefit elsewhere syndrome” - and only a dynamic process governed by an external actor 
can reconcile them.  

Incentives 

By far the toughest task, on which policy success hinges, is the creation of adequate incentives 
for public and private actors. The problem arises because of the uncertainty that is inherent in the 
process of innovation and which prevents complete contracts between actors being written. It can 
be summarised by adapting the image of the Triple Helix318, often used to describe the strategic 
collaboration that is necessary for an innovation system to succeed. Together with private firms 
and  the  public  sector  (encompassing  here  the  government,  public  research  centres  and 
universities), it is useful to think of the third corner of the Helix as made up of “intermediaries”, 
i.e.  those  individuals  and  institutions  that  other  institutions  use  in  order  to  communicate  and 
transact  between  themselves,  and  which  (in  order  to  play  this  role)  acquire  idiosyncratic 
knowledge and often separate interests and a specific agenda. 

It is evident that, due to public failures, this “Triple Helix may fail to materialise, particularly in 
less developed regions. In most cases, the three actors do not align their goals … They constitute 
separate corners of a triangle, not strains in a dynamically active helix. Actors stay at their own 
corner and pull forces in their direction”319. Rent-seeking can take several forms: public research 
centres  and  universities  tend  to  define  the  agenda  of  cooperation  solely  from  a  research 
perspective and overestimate its application potential; less developed regions might be biased by 
having  additional  social  aims,  such  as  supporting  support;  large  firms  might  try  to  use 
interventions as a form of leverage for maintaining a plant production against competition from 
lower cost locations; smaller firms may be reluctant to take long-term risks and might try to use 
innovation  support  to  fund  short-term  activities;  intermediaries  might  exploit  their  special 
knowledge to charge all the other institutions unreasonable fees.  

In  order  to  extract  rents,  all  the  corners  of  the  Helix  can  turn  the  lack  of  information,  which 
prevents perfect incentives from being designed, into a way of avoiding any link between public 

318 See Bonaccorsi, A. (2009). 
319  Ibidem.  On  the  introduction  of  “intermediaries”  as  a  separate  corner,  Bonaccorsi,  A.  (2009)  writes: 
“The  assumption  that  intermediaries  simply  represent  one  of  the  other  actors  is  wrong.  Public 
intermediaries are assumed to act on behalf of the government, but in practice they have large autonomy 
and behave for their own survival and growth. Intermediaries created by universities and public research 
centres, on the other hand, are assumed to represent the research activity of their organizations, but often 
develop their own strategy. Finally, intermediaries created by business firms, or acting on behalf of them, 
end up creating permanent structures, whose goal is procuring resources. In all these cases, the actors are 
the principal, and intermediaries are assumed to be the agent. However, over time intermediaries combine 
the  role  of  agent  for  principals  with  an  autonomous  strategy,  usually  generated  by  internal  resources 
following processes of learning in the field. They are no longer agents of a principal in the Triple Helix but 
are themselves relatively independent actors.” 

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transfers  and  results  at  all.  The  way  out  of  the  problem  is  to  challenge  these  positions  and  to 
explore,  replicate,  adapt  and  experiment  in  respect  of  the  various  ways  that  exist  to  write 
contracts even under conditions of strong uncertainty.  

This  step  requires  the  systematic  use  of  the  extensive  experience  that  has  been  accumulated 
through years of policy operation, in order to extract, generalise and make usable information on 
results-based  mechanisms  for  adaptation  in  other  circumstances.  These  mechanisms  could 
include:  

•  identifying  elements  and  functions  of  the  innovation  process  (like  the  provision  of  certain 
services) which are sufficiently standardised and for which there is enough experience of what 
constitutes  good  practice  or  fair  price,  and  designing  for  these  elements  complete  contracts 
linking public funding to results;  

•  linking the financing of one phase of the innovation process to verifiable results of an other 
phase (possibly leaving the actors the opportunity to select the relevant indicators themselves), 
whenever this distinction in phases is appropriate;  

•  designing  incomplete  contracts  with  open-ended  clauses,  where  the  re-negotiation  of  the 
contract  is  planned  by  defining  ex  ante  a  third  party  in  charge  of  observing  the  results  and 
defining bona fide the conditions for the interpretation of the open-ended clauses;  

•  using public procurement, as emphasised by the Aho Report320. 

The transfer of cohesion policy funds to Member States and Regions would be made conditional 
on them committing to using these and other results-oriented methodologies that are deemed to 
be suitable to particular contexts. The “conditionalities” introduced in the contracts (see pillars 2-
3 in Chapter V) would also include an outline of the institutions and in-house capacity which are 
required.  Contracts  would  also  identify  objectives  and  valid  indicators  to  monitor  them  and 
commit Member States and Regions to the adoption of prospective impact evaluation.  

The Commission would supervise the implementation of those “conditionalities” according to the 
rules described in the next  chapter. The Commission would provide guidance and assistance to 
countries  and  on  the  ground,  transfer  information,  create  a  clearing  house  for  results  and 
encourage dissemination of information. It would also be given the opportunity to build a one-to-
one  relationship  with  the  areas  and  the  actors  running  the  projects  where  required.  In  order  to 
perform these tasks, to be credible in doing so and to acquire a recognised status throughout the 
EU, the Commission would invest in the creation of a specialised task force on Innovation (see 
chapter V, pillar 8). 

IV.3.2.  Exploring other options: “Adapting to climate change” 

The well-being of most current and all future generations will be strongly influenced by climate 
change (whatever estimates of impact are used) and by the public response to it.  

The  evidence  presented  by  successive  Assessment  Reports  of  the  Intergovernmental  Panel  on 
Climate  Change  and  other  bodies  on  the  detrimental  effects  of  increased  concentration  of 
atmospheric  greenhouse  gas  resulting  from  human-induced  CO2  emissions  has  gained  growing 
acceptance. These effects concern many features of human life and economic activity, stemming 
from  changes  in  temperature,  sea  levels,  water  and  food  availability,  land  yields,  the  risk  of 
disasters,  energy  supply  and  demand,  the  functioning  of  transport  systems  and  so  on.  There  is 
agreement  on  the  fact  that  this  is  an  extraordinary  example  of  market  failure  and,  despite 
controversy and persistent uncertainty about the exact magnitude of the potential effects, a broad 

320  For  example  of  these  mechanisms  and  for  an  attempt  of  generalising  them,  see  again  Bonaccorsi,  A. 
(2009). 

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consensus has emerged about the need for public action, though there is disagreement about what 
the nature and size of this should be321.  

In terms of the definition of the objectives of cohesion policy adopted by this Report, addressing 
climate  change  is  an  issue  which  definitely  falls  under  the  efficiency  objective.  It  is  part  of  a 
forward-looking approach aimed at preventing a possible permanent reduction of the capacity to 
use  the  planet’s  potential.  Trade-offs  obviously  exist  between  the  short-to-medium  term  use  of 
resources  and  their  long-term  use,  which  is  what  the  disagreements  are  largely  about.  But,  as 
Kenneth  Arrow  put  it,  given  the  size  of  risks,  “the  case  for  intervention  to  keep  CO2  within 
bounds … is sufficiently strong to be insensitive to this dispute” and that, whatever the assumed 
discount  rate,  “we  are  much  better  off  reducing  CO2  emissions  substantially  than  risking  the 
consequences of failing to act”322. 

The European Union (both the Council and Parliament) has addressed the issue of climate change 
by developing a strategy for its mitigation. In December 2008, it approved a climate and energy 
package with legally binding targets for 2020 on greenhouse gas emissions, share of renewable 
energy and energy efficiency and on a revised Emissions trading system323. Other legislation on 
climate  change,  such  as  reducing  CO2  emissions  from  motor  vehicles,  increasing  the  energy 
efficiency  of  buildings  and  a  framework  for  Carbon  Capture  and  Storage  are  also  being 
considered  or  have  already  been  adopted.  In  June  2007,  the  Commission  published  a  Green 
Paper, Adapting to climate change in Europe – options for EU action, drawing up a framework to 
tackle climate change from an “adaptation” perspective or, as the document put it, of “reducing 
the  risk  and  damage  from  current  and  future  harmful  impacts  cost-effectively  or  exploiting 
potential benefits”. A White Paper is expected to be adopted in 2009. 

In this context, on one point there is no doubt: cohesion policy, as any policy aimed at delivering 
public  goods  and  services,  must  take  account  of  the  impact  on  climate  change  when  designing 
measures. More specifically, all programmes supported by cohesion policy must contribute to the 
targets  set  by  the  Union  –  by  taking  account  of  the  price  of  carbon  in  the  analysis  of  their  net 
benefits;  by  actively  contributing  to  the  rebalancing  of  energy  sources;  by  considering  the 
possible  effects  of  climate  change  on  the  return  from  infrastructure  and  the  feasibility  of 
constructing it, and so on. A move in this direction is partly included in the current allocation of 
cohesion policy funds for the 2007-2013 period, where 1.3% of all resources (EUR 4.8 billion) 
are  allocated  to  renewable  energy,  1.2%  cent  (EUR  4.4  billion)  to  increasing energy efficiency 
and  other  uses  directly  impacting  on  climate  and  an  additional  9.2%  (EUR  31.7  billion)  to 
“clean”  modes  of  transport  (such  as  railways  and  cycle  paths)  (see  Table  II.9-10).  At  the  same 
time, however, a similar share in aggregate (11.6%) is allocated to investment in motorways and 
other roads. There is little doubt that a greater effort of integrating climate change fully into the 
decision-making process needs to be made, starting from now. 

The  question  open  for  debate  is  a  different  one.  Is  there  a  role,  beyond  being  “coherent”,  that 
cohesion policy could or should play in supporting public action in relation to climate change? Is 
there a case for “climate change”, or more accurately “adaptation to climate change”, becoming 
one of the 3-4 core priorities advocated by this Report? These questions need to be addressed in 
two stages, applying the criteria set out in section IV.1. First, is there a place-based dimension to 

321  The  economic  case  and  the  debate  were  catalysed  by  the  Report  on  “The  Economics  of  Climate 
Change” entrusted by the UK Treasury in 2006 to a Commission headed by Lord Nicholas Stern, which 
produced estimates of the likely value of future economic losses and of the costs of mitigating them. The 
discussion  that  followed  concentrated  on  the  emission  scenarios  adopted  by  the  Report,  on  the  possible 
bias  towards  pessimistic  assumptions  on  expected  damages  and  towards  optimistic  ones  on  mitigation 
costs,  and  on  the  “almost  zero”  discount  rate  that  was  adopted  to  measure  time  preference.  It  was  also 
pointed out that standard discounting procedures are not suited to dealing with extremely low probability 
events.  
322 See Arrow, K. (2007). 
323 See Council of the European Union (2008c). 

 135

 
                                                      
climate change, and the mitigating actions required, which justifies intervention through a place-
based  policy?  Secondly,  if  answer  is  positive:  is  there  a  rationale  for  the  EU  to  have  some 
responsibility for such a policy? 

There  is  no  doubt  that,  although  climate  change  is  a  global  phenomenon,  its  effects  are  place-
specific. The map presented in the 2007 Commission Green paper (see Map IV.3) illustrates the 
varied  nature  and  extent  of  problems  that  might  affect  different  regions  in  Europe  in  terms  of 
rainfall and temperature change by the end of the current century. Other consequences, such as a 
rise in sea level or desertification, are even more space-specific. Some places will suffer more, or 
many  more,  negative  effects  than  others.  According  to  the  projections,  the  most  extreme  direct 
effects  are  likely  to  occur  in  the  peripheral  parts,  so  exacerbating  existing  disparities.  That 
climate  change  has  asymmetrical 
the 
territorial  effects 
Commission’s working Document “Regions 2020”324. Mitigation of climate change, too, tends to 
have  differential  effects  of  regions,  as  emission  intensity  varies  between  industries,  and  some 
places will be affected more than others. 

is  powerfully  underscored  by 

But  regional  differentiation  is  not  sufficient  to  justify  a  place-based  policy.  For  this,  local 
knowledge and preferences must also be necessary both to understand the full extent of climate 
change  effects  (on  the  basis  of  externally  developed  scenarios)  and  to  design  effective  public 
action  to  adapt  to  it.  The  Commission  Green  Paper  on  climate  change  argues  that:  “Many 
decisions influencing directly or indirectly climate change adaptation are taken at the local level. 
This is also where detailed knowledge on the local natural and human conditions is available.” It 
can  be  argued  that,  faced  with  the  exogenous  shock  of  climate  changes  or  with  the  impact  of 
mitigation, each place is challenged to respond with innovative action that is out of the ordinary, 
such  as,  changing  land  use  and  management,  conserving  and  managing  water  supplies, 
reassessing  infrastructure  provision,  investing  in  new  sectors,  reviewing  risk  prevention  and 
relocating  settlements.  The  capacity  to  innovate,  which  gives  opportunities  for  improvement  as 
well as for managing negative effects, is specific to places and depends on the capacity of local 
actors to pool their knowledge and reach agreement on their preferences.  

Map IV.3 - Change in mean annual precipitation by 2100(*)  

324 See Commission of the European Communities (2008e). 

 136

 
 
                                                      
Source: EU Commission, Green paper on “Adapting to climate change in Europe”. 
(*)  The  figure  is  based  on  IPCC  SRES  scenario  A2.  The  projected  climate 
impacts are estimated for 2071-2100 relative to 1961-1990. The map is based 
on  DMI/PRUDENCE  data  (http://prudence.dmi.dk),  and  processed  by  JRC 
within the JRC funded PESETA study (http://peseta.jrc.es). 

We  are  then  in  a  situation  where  some  places  might  fail  to  develop  adequate  responses.  New 
inefficiency  traps  could  arise.  For  the  same  reason,  some  people  will  be  affected  more  than 
others,  due  to  factors  such  where  they  live,  their  income  level  and  their  capacity  to  adapt. 
Existing  social  exclusion  traps  could  worsen  and  new  ones  could  emerge,  while  inequalities 
might result from mitigation policies. There is, therefore, a rationale for place-based intervention. 
This would have the purpose of alerting communities to risks independently of vested interests, 
promoting early and innovative adaptation to both climate change and the effects of mitigation, 
triggering public debate, by bringing to light problems and alternative solutions, taking account 
of the experience elsewhere, and building capacity and links with global centres of competence 
as well as with other places, the response in which influences the effectiveness of the measures 
taken.  

If this is agreed, it is possible to move on to the second question: how important is it for the EU 
to  adopt  this  priority  as  part  of  cohesion  policy?  The  point  here  is  not  to  do  with  mitigation  – 
with whether or not mitigating climate change is a reasonable task for the EU budget. A strong 
case  can  be  made,  and  has  already  been  made325,  for  the  EU  spending  some  of  its  budget  on 
mitigation,  by  pointing  to  the  common  benefits  of  action  –  once  it  is  undertaken,  it  is  neither 
possible nor useful to limit the gains achieved to particular individuals or countries – and to the 
disincentive, therefore, for Member States to act independently. Nor is the issue here whether the 
cost  of  mitigation  should  be  partly  paid  for  by  a  reduction  in  the  present  budget  for  cohesion 
policy326, which to answer would require a comparative assessment of alternative budget options, 
which goes beyond the scope of this Report. The issue is instead to do with adaptation, whether 
adapting  to  climate  change  (and/or  to  the  effects  of  its  mitigation)  through  a  place-based 
approach is a task for the EU or should be left to Member States. 

A first point to consider is how far choosing climate change as a core priority of cohesion policy 
would add to the sustainability of the Union, since this is one of the two justifications for the EU 
directly  to  run  a  place-based  development  policy.  It  can  be  argued  that  the  active  role  of  the 
Union  in  a  policy  of  mitigation,  with  potentially  negative  short-  and  medium-term  effects  on 
some sectors and jobs, requires it to take an active role in adaptation. The EU cannot be left once 
again - the argument would go - to shoulder the burden of actions with negative effects on large 
sections  of  the  population,  without  being  given  the  chance  to  have  some  responsibility  for  the 
more  positive,  “well-being-improving”,  part  of  the  strategy.  This  is  even  more  the  case  once 
account  is  taken  of  the  attitude  of  some  countries  which  tend  to  off-load  the  more  unpleasant 
decisions  on  mitigation  on  to  the  Union.  The  experience  of  market  and  currency  unification 
suggests that the political sustainability of the EU requires it to have a direct policy responsibility 
for public investment in the areas affected by the decisions it makes. This case would be further 
strengthened if the Union were to decide to pursue mitigation directly through its own budget. 

A  second  point  relates  to  policy  effectiveness,  i.e.  whether  the  EU  has  a  strong  comparative 
advantage  over  Member  States  in  having  responsibility  for  policy  intervention  in  this  area.  It 
could be argued that, although interventions for adaptation are very place-specific, they are also 
interdependent  and  interdependencies  extend  across  national  borders.  The  effectiveness  or  the 
feasibility  of  some  interventions  depends  on  trans-European  territorial  cooperation,  as  with 
coastal  defences  or  for  protection  from  river  flooding.  In  addition,  benefits  can  result  from 
information flows and exchange of practices that only a common policy framework can ensure. 

325 See Begg, I. (2009). 
326 Begg, I. (2009) argues that this could be the case, possibly by “embedding” the mitigation task inside 
the policy. 

 137

 
                                                      
Benefits  can  also  come  through  a  coordinated  commitment  to  avoiding  beggar-my-neighbour 
interventions in adaptation to exogenous change.  

These arguments seem to suggest that adapting to climate change and a low-carbon economy is 
potentially a relevant issue for EU cohesion policy. More analysis is needed to assess whether it 
should  also  become  one  of  the  core  priorities  of  this  policy.  This  decision  should  be  taken  by 
investigating  the  verifiability  criteria  as  well  as,  which  is  not  done  here.  However,  should  this 
issue  be  chosen  as  a  core  priority,  there  would  need  to  be  a  significant  effort  to  create  a 
Commission  task  force  capable  (as  it  argued  in  relation  to  innovation)  of  playing  a  role  in 
providing guidance and assistance, negotiating “conditionalities” with Member States, promoting 
the  circulation  of  information,  mobilising  local  actors  and  carrying  out  impact  evaluations  of 
interventions. 

IV.4.  Addressing the social inclusion objective 

IV.4.1.  A case for “Migration” 

Migration  represents  one  of  the  principal  challenges  facing  the  European  Union  in  the  coming 
years.  

Map IV.4 - Net migration by NUTS 2 Regions in 2005 
(% share of total population) 

Source: Estimates on Eurostat data on NUTS 2 population, deaths and births. 

 138

 
 
Trends, effects and the role of public action 

Migration  flows  both  from  outside  and  within  the  Union  are  important.  In  2005,  there  was  an 
estimated net inward migration to the EU of some 1.6 million, adding just over 0.3% to the EU’s 
population,  only  slightly  lower  than  for  the  US  in  the  same  year  (0.4%)327.  Marked  regional 
differences exist, however, with the inflows being very much concentrated in certain parts. 

Estimates of net inter-regional and international flows at NUTS 2 level suggest that in 2005 about 
180 Regions experienced a net inflow of migrants (a total of some 1.8 million people) and about 
80  experienced  a  net  outflow  (a  total  of  0.2  million  people).Some  70  Regions  experienced  an 
inflow totalling 1.4 million and an addition to population of over 0.5%. These include large parts 
of  Spain  and  south-west  France,  the  centre-north  of  Italy,  south-eastern  Germany,  western 
Austria;  Ireland,  the  western and eastern areas of the UK, the capital city regions of the Czech 
Republic,  Hungary  and  Bulgaria  and  some  areas  in  Belgium  and  Greece  (see  Map  IV.4). 
Together these regions account for around a quarter of total EU population and had a net inflow 
of  migrants  amounting  on  average  to  1%  of  population.  Regions  with  net  outflows  were 
concentrated in the eastern parts of the new Member States, northern Germany, the Netherlands 
and  north-eastern  France,  southern  Italy  and  the  northern-most  parts  of  Finland,  though,  on 
average, net outflows amounted to only around 0.2% of population. 

Data  on  the  composition  of  active  working-age  population  by  country  of  origin  show  that  the 
share  of  people  born  in  other  countries  has  grown  significantly  in  recent  years:  from  10.6%  in 
2000 to 12.9% in 2006 in the EU15 Member States, taken together, where comparisons can be 
made  (see  Table  IV.5).  The  increase  has  affected  all  the  countries  except  France  and  the 
Netherlands.  In  the  new  Member  States,  the  average  share  in  2006  was  5.8%.  With  internal 
mobility of people within Europe still limited328, these net inflows are largely due to immigration 
from outside the Union.  

327 See European Commission (2008f). 
328  The  share  of  working-age  residents  who  moved  from  a  different  Region  or  Member  State  of  the 
European Union “within the previous year” is estimated in 2006 at 1%, while the corresponding share of 
working-age  population  who  moved  from  a  different  State  is  estimated  at  2%  in  the  United  States.  See 
European Commission (2008f). 

 139

 
                                                      
Table IV.5 - Share of population which is born outside the country of residence:  
total and by macro-area of origin 

Share of active working age 
population from any other 
country

Country

By country of origin in 2006(1)

Share of active 
population

Share of total population

2000

2006

From an EU-15 
countries

From an EU-12 
countries

From outside 
EU

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

Sweden

United Kingdom

EU-15 (2)
Bulgaria

Cyprus

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Malta

Poland

Romania

Slovakia

Slovenia

EU-12 (3)

EU-27 avail.

12.1

11.5

5.8

0.5

12.1

-

5.3

7.5

-

38.5

13.2

5.3

4.2

12.5

9.1

10.6

-

11.2

-

19.7

-

-

6.0

-

-

-

-

-

-

-

15.4

13.5

6.8

3.3

11.5

-

7.5

-

7.6

40.4

12.8

7.4

13.6

14.9

11.8

12.9

-

17.3

1.9

14.3

1.7

10.6

4.1

4.6

0.5

(0.1)

0.7

7.5

5.8

9.3

3.1

6.2

1.6

1.1

3.1

-

0.6

-

1.1

36.0

2.3

1.6

2.1

4.1

2.3

-

-

6.0

0.1

-

0.2

-

-

1.7

0.1

-

-

(0.7)

-

-

3.6

0.6

0.4

0.3

0.3

-

1.1

-

1.1

1.9

0.5

0.2

2.4

1.4

1.2

-

-

2.1

1.2

0.6

1.1

1.1

(0.3)

-

0.1

-

0.6

-

-

-

8.7

6.7

4.6

1.8

7.8

-

5.9

-

5.3

8.6

9.1

5.7

10.0

10.0

8.8

-

-

11.0

0.6

13.6

0.4

9.6

3.8

3.0

0.3

-

(0.1)

4.6

-

-

Source: IZA, AMS, NIRAS (2008). 
(*)  Data in brackets lack reliability due to small sample size. The symbol "-" is used when data are 

(1) 

either not available or extremely unreliable. 
The three shares do not generally add up to the total share since one refers to the active working 
age population and the other two refer to total population. 

(2)  Data for Germany are not available. 
(3)  Data for Bulgaria are not available. 

Projections  for  the  years  up  to  2020,  made  before  the  outbreak  of  the  global  financial  crisis329, 
show significant flows continuing and high concentration persisting330. The majority of migrants 
are  expected  to  go  to  regions  in  Western  and  Southern  Europe,  with  Eastern  European  regions 
experiencing  significant  outward  migration.  Interregional  migration  flows  within  countries  are 
also  expected  to  be  substantial,  with  Regions  in  Southern  Italy,  Greece,  Eastern  Germany  and 

329  The  effects  of  the  crisis  on  migration  flows  are  hard  to  predict.  On  the  one  hand,  the  pull  effect  will 
obviously diminish for a while. On the other, the global nature of the crisis might well strengthen the push 
factor, while the severity of the crisis in some of the eastern Member States might also increase flows. 
330  See  Lanzieri,  G.  (2006,  2007).  Projections  are  based  on  the  2004  EUROPOP  national  and  regional 
population  projections  produced  by  Eurostat,  the  latest  available  on  a  regional  scale.  The  national 
population projections released by Eurostat in August 2008 are based on a so-called Convergence scenario 
(based on the assumption that the socio-economic and cultural differences between Member States of the 
European  Union  will  fade  away  in  the  very  long  run  –  in  2150  –  with  fertility  and  mortality  rates 
converging  to  the  same  values  and  net  migration  converging  to  zero),  in  contrast  to  the  trend  scenario 
applied for 2004. 

 140

 
 
 
                                                      
Central  and  Eastern  Europe  experiencing  significant  outward  migration  (the  expected  net 
outcome for each NUTS 2 Region is shown in Map IV.6). 

Migration into Europe and between Member States is driven both by push and pull factors. The 
push  comes  from  differences  in  economic  possibilities,  income  and  quality  of  life  between 
Europe  and  other  world  regions.  High  population  growth  in  Europe’s  immediate  neighbouring 
regions (the Middle East and North Africa) coupled with poor economic performance, scarcity of 
natural  resources  and  human  rights  abuses  constitute  a  strong  driving  force  for  many  migrants, 
reinforced by the very wide disparities in earning possibilities. On the pull side, together with a 
need for specific skills, two additional factors are at work: a generalised and increasing shortage 
of labour, linked to demographic trends (which is likely to reassert itself once the present crisis is 
over)  and  the  policy  of  many  local  producers  in  the  agriculture  and  other  traditional  sectors  to 
withstand global competition by offering low wages and poor working conditions, often illegally, 
to people from abroad.  

Map IV.6 - Forecast of cumulated net migration 2004-2020 
(% of total population) 

Source: Lanzieri, G. (2006, 2007) 

Migration represents both an opportunity, sometimes a once-in-a-lifetime one, and a risk for the 
three groups of people involved. 

 141

 
 
Those who migrate can enjoy, in addition to higher income, increased learning possibilities, more 
freedom  and  more  life  chances,  while  their  children  (second  generation  migrants)  might  have 
greater, or much greater, opportunity to be educated. On the other hand – leaving aside the two 
extremes of highly skilled professionals and those involved in criminal activities - migrants can 
find themselves in a very weak position in the labour market, live in disadvantaged areas, have 
problems in accessing public and private services based on trust relations (like bank credit) and 
face  fear  from  their  neighbours.  All  these  factors  amount  to  less  freedom,  while  second 
generation migrants might see their disadvantage perpetuated by the school system. 

For people living in areas where migration inflows are concentrated, there may be benefits from 
the labour migrants have to offer (their skills, their availability to do jobs that residents would not 
do, the pay they accept, and so on) as well as from exposure to a different culture. On the other 
hand,  social  and  public  services  (such  as  schools)  might  be  strained,  infrastructure  become 
inadequate,  the  general  wage  level  pushed  down  and  local  identity  and  “values”  come  under 
threat.  Moreover,  when  the  demand  for  labour  attracts  immigrants  to  illegal  activities  or  the 
integration process fails, domestic residents might also feel a threat to their security. 

For the people living in areas most affected by migration outflows331, there is a benefit from the 
remittances sent from abroad and there can be advantages coming from the increased competence 
and the cultural broadening of those who have left. On the other hand, social services might be 
discontinued or curtailed because of the reduction in population and the economic potential of the 
area  might  decline,  especially    when  a  large  share of those migrating are young, well-educated  
people.  

The  net  outcome  for  these  three  groups  depends  on  both  the  capacity  of  the  communities 
involved  to  react  to  change  and  other  developments  which  occur  as  a  result  of  the  migration. 
Public  action  can  make  a  significant  difference  to  the  outcome:  by  adjusting  urban  planning, 
education, public transport, health services, security and social services; by adapting the support 
given to businesses and easing access to the labour market; by investing in cultural facilities; by 
encouraging  a  reconsideration  of  comparative  advantage,  and  so  o.  These  are  all  interventions 
which, while inspired by common principles and experience, need to be very much place-based, 
since both the effects of migration and the way to tackle these depend on the specific context. As 
repeatedly noted in this Report, however, some places might fail to react for a variety of reasons. 
New  social  exclusion  traps  might  emerge,  giving  rise  to  a  clear  demand  for  exogenous  place-
based intervention. 

The pressure on the EU and the scope for cohesion policy 

Faced with this situation, pressure has been mounting on the EU since the late 1990s to play a 
role in tackling the issue of migration. There are three main reasons for this332. First, it has been 
clearly recognised that, with a unified labour market and free movement of people across most 
internal  national  borders,  the  effectiveness  of  internal  and  external  migration  policies  in  one 
Member  State  will  be  strongly  affected  by  the  policies  adopted  in  others.  Secondly,  some 
Member  States  are  particularly  willing  to  externalise  some  national  decisions  on  migration. 
Thirdly, whatever the actual state of affairs, the EU is considered by many European citizens as 
having  a  responsibility  for  the  inflows333,  once  again,  the  sustainability  argument  strongly 
implying that the EU should take direct responsibility. 

331  This  last  issue  is  often  overlooked.  On  the  need  to  take  it  into  account,  see  for  example  The  Region 
Council of Päijät-Häme (2008). 
332  For  this  point  and  the  following  ones,  see  Papademetriou,  D.  and  Zincone,  G.  in  UniCredit  Venice 
Forum 2008 “Migration from a national, European and global perspective”. See also Niessen J. (2001). 
333  As  noted  above,  Kriesi  et  al  (2006),  by  analysing  Austria,  France,  Germany,  Switzerland,  The 
Netherlands  and  UK  in  pre-electoral  periods,  show  a  strong  linkage  in  the  shift  of  position  of  several 

 142

 
                                                      
At the same time, there are strong pressures for dealing with this issue in a country-specific way, 
especially  in  regulating  flows  and  coping  with  integration.  This  is  because  the  economic needs 
and  preferences  of  countries  and  Regions  differ  markedly  in  terms  of  required  competences, 
while  radically  different  country-  or  Region-specific  cultural  heritages  imply  different 
approaches,  especially  to  integration.  The  challenges  that  migration  represents  for  national 
identity are perceived and dealt with in many different ways.  

This situation, which is unlikely to change in the foreseeable future, explains why the EU-wide 
debate  and  effort  have  had  only  limited  results  on:  legal  immigration  and  relations  with  third 
countries; a common broad denominator (in the 2003 Directive); and, through the European Pact 
on  Immigration  and  Asylum  (adopted  by  the  European  Council  in  October  2008),  controlling 
illegal  immigration,  making  border  controls  more  effective,  regulating  asylum  and  creating  a 
partnership  with  countries  of  origin  and  transit.  “There  is  no  consensus  in  Europe  about 
migrants’ entitlements or their integration into society”334, and on the difficult issue of whether 
the equal enjoyment of rights by all might legally require differentiated treatment335. 

Immigration represents a particularly significant example of the general paradox – that the EU is 
expected  to  play  an  active  social  role  but  is  at  the  same  time  prevented  from  so  doing  by  the 
existence  of  national  social  contracts  and  different  aspirations.  Failure  to  deal  with  the 
immigration issue not only erodes consensus in favour of the EU and its policies, but, by fuelling 
concerns  and  fears,  it  deters  mobility  of  labour  within  the  Union,  depriving  people  of  an 
additional potential source of social protection  

One  EU  decision,  however,  indicates  that  the  opportunity  exists  to  move  forward,  namely  that 
establishing  for  2007-2013  a  small  but  significant  (EUR  4  billion)  Framework  programme  for 
Solidarity and the Management of Migration Flows, including four Funds: for External Borders 
(EUR 1.8 billion), for Return (EUR 0.7 billion), for Refugees (0.7 billion) and for the Integration 
of  Third-country  Nationals  (EUR  0.8  billion).  In  the  Commission  Communication  which,  by 
building  on  the  already  established  Refugee  Fund,  started  the  process  that  established  the 
Framework336, it was argued that the different features of the migration issue had different effects 
in different Member States and that the need existed for a “fair share of responsibilities between 
Member States”. In particular, in June 2007337, the Integration Fund was designed with the aim of 
supporting  the  efforts  of  the  Member  States  in  “enabling  third-country  nationals  of  different 
economic, social, cultural, religious, linguistic and ethnic backgrounds to fulfil the conditions of 
residence  and  to  facilitate  their  integration  into  European  societies”,  in  particular  “taking  into 
account the principle that integration is a two-way dynamic process of mutual accommodation by 
both  immigrants  and  citizens  of  Member  States.”  Some  93%  of  this  Fund  is  distributed  among 
Member  States  on  the  basis  of  the  number  of  legally  resident  third  country  nationals;  the  rest 
being available for Community actions. 

Cohesion policy, by combining EU principles and the freedom of Member States and Regions as 
well  as  local  institutions  to  apply  them  to  specific  needs,  could  serve  as  the  appropriate 
framework  to  take  one  step  further  and  to  address  the  social  problems  concerning  all  the  three 
groups of people discussed above.  

An  EU  place-based  approach  can  respond  to  the  highly  differentiated  way  in  which  migration 
inflows and outflows affect different places. It can do so by helping to provide the public goods 
and  services  that  these  effects  demand.  Moreover,  while  many  different  cultural  and  normative 

parties  towards  increased  opposition  to  European  integration  and  growing  support  for  restrictive 
immigration policies. 
334 See Report for the Council of Europe, p. 23. 
335  See  the  ruling  of  the  European  Court  of  Human  Rights  as  quoted  by  the  Report  for  the  Council  of 
Europe, p. 48. 
336 COM(2005) 123 final. 
337 Council decision n. 2007/435/EC. 

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aspirations exist in the EU, there is one common feature, that citizenship is de facto defined in 
part  by  the  accessibility  of  people  to  services  (education,  healthcare,  public  transport,  security, 
etc).  The  arrival  of  “outsiders”  in  some  areas  and  the  departure  of  people  from  others  put  this 
under  stress  and  gives  rise  to  a  fear  among  those who have not moved that this might threaten 
their  quality  of  life  and  among  those  who  have  moved,  a  fear  of  being  excluded  from  a  better 
standard  of  life.  Dealing  with  the  pressures  placed  on  public  goods  and  services  as  a  result  of 
migration, adjusting these to change, in order to promote the inclusion of newcomers (allowing 
for their diversity) and preventing exclusion is a task common to all EU regions, and one which . 
could also extend outside the EU’s borders. 

Cohesion  policy  would  give  ample  room  to  local  authorities  in  both  urban  and  rural  areas  to 
design  projects  according  to  the  context,  combining  the  bundles  of  services  that  are  required: 
strengthening  or  adjusting  education,  healthcare,  transport,  childcare,  etc;  extending  skills; 
supporting  businesses  and  access  to  credit;  upgrading  urban  areas;  addressing  special  needs  of 
migrants and minority groups – of residents threatened by migration inflows, of people in areas 
depopulated  by  migration  outflows  –  strengthening  action  against  illegal  work  and  organised 
crime and so on. External border regions would also benefit in particular from the extension of 
interventions to transnational cooperation projects.  

National  and  local  government  would  promote  these  actions  in  the  context  of  the  general 
principles  and  guidelines  which  would  be  agreed  for  the  whole  of  the  EU  (see  chapter  V, 
pillar 2). On the basis of these principles, each Member State (or Region) would design a strategy 
for  implementing  the  core  priority  and  would  agree  with  the  Commission  the  institutional 
framework which the policy requires in each local context as well as the means for ensuring its 
successful  implementation  (see  chapter  V,  pillar  3).  As  for  any  other  core  priority,  this  would 
require the creation in the Commission of a specific, inter-service, high-level task force. Member 
States  and  Regions  would  have  the  opportunity  to  shape  their  strategies  in  line  with  their 
aspirations  and  integration  policies,  but  they  would  do  so  by  continuously  confronting  other 
approaches and other standards, as their citizens increasingly require (see chapter V, pillar 8).  

Mobility  is  bound  to  increase  the  awareness  of  European  citizens  of  the  quality  of  services 
enjoyed  in  other  areas  of  the  Union;  to  strengthen  progressively  their  tendency  to  use not only 
national  but  also  “European”  standards  as  a  reference  for  their  aspirations,  however  defined. 
Cohesion policy, by defining its overall objectives with reference (as argued in section IV.2) to 
both national and European standards, is suited to this (long) phase of transition. In addressing 
migration and reducing fears, cohesion policy would also be likely to have a positive effect on 
labour mobility, providing a further source of social protection. 

In terms of its effectiveness, cohesion policy would also benefit from two general advantages that 
it has over national policies: the capacity to take account of cross-border interdependencies and 
the greater distance it has from local problems and pressures. So far as the verifiability condition 
is concerned, the choice of migration as a core priority would require a concerted effort by the 
Commission and by all levels of government, in consultation with national and European bodies 
representing citizen interests, to develop the methodological tools proposed in chapter V that are 
necessary for the policy objectives to be clearly identified (at all territorial levels) and for results 
to be evaluated.338 In particular, in setting objectives and building a robust system of indicators, 
care would be needed to represent the multi-dimensional nature of social inclusion satisfactorily. 
Experimental  methods  and  the  use  of  prospective  impact  evaluation  in  the  implementation  of 
local projects have particular relevance in this regard.  

338 Some lessons could be drawn both from the current experience of the European Fund for the Integration 
of  Third  Country  Nationals  (see  above)  and  from  the  limited  experience  of  addressing  migration  issues 
through cohesion policy in the area of labour market integration and through specific assistance to regions 
particularly affected by migration issues, such as outermost and external border regions.  

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If  all  these  conditions  were  satisfied,  choosing  this  “Managing  the  social  consequences  of 
migration”  as  one  of  the  core  priorities  of  cohesion  policy  would  enable  the  EU  to  tackle  the 
issue in an effective way, but without setting a role for itself that cannot be achieved. 

IV.4.2.  Exploring other options: “Children”  

Ensuring the social inclusion of “Children” is another option to be considered as a core priority. 

The  conditions  of  children  represent  a  particularly  striking  aspect  of  the  permanence  of  social 
exclusion in Europe. According to 2005 estimates339, 19 out of 98 million children (aged 0-17) 
live  in  households  with  income  under  the  risk  of  poverty  threshold  (60%  of  the  median 
equivalent  household  income).  Both  their  share  and  the  intensity  of  their  risk  of  poverty340  are 
higher than those of the total population. The information available suggests that, on average, the 
risk of poverty has not changed much over time. Taking account of deprivation as regards other 
dimensions of well-being, the proportion of children below the threshold for more than one of the 
dimensions covered by the Laeken indicators ranges from around 10% in some Nordic countries 
– where the risk of poverty is lower than for the rest of the population - up to about 40% in 10 
Member States. 

Family  circumstances  matter  for  childhood  deprivation.  Children  in  large  families  (with  3 
children  or  more)  have  a  risk  of  poverty  rate  of  25%  (as  opposed  to  19%  for  all  children)  and 
those  in  lone  parent  households,  a  rate  of  34%,  an  alarming  figure,  given  that  the  share  of 
children not living with both their parents increased from 14% to 19% during the 1990s. In these 
households too, as in others, the risk of poverty of children is strongly affected by the education 
level  of  parents  and  their  labour  market  situation.  On  average  across  the  EU,  for  over  30%  of 
children at risk of poverty, neither of their parents had an upper secondary level of education as 
opposed to 16% in the case of all children.  

Faced  with  this  situation,  several  Member  States  do  not  have  a  policy  specifically  aimed  at 
children but seek to reduce their risk of social exclusion through policies on education, housing, 
childcare,  health,  etc.  As  has  been  pointed  out:  “a  significant  number  (though  not  all)  of  the 
Member States with an average or high level of child poverty have yet to develop an adequate 
response  to  combat  it”341.  Policies  in  this  area,  on  the  other  hand,  are  bound  to  be  strongly 
influenced  by  “value”  considerations.  The  way  of  educating,  raising  and  caring  for  children 
reflects strong issues of identity, linked to what individuals and communities consider desirable. 
On  the  other  hand,  the  effects  of  these  intended  choices  on  observable  outcomes  are  hard  to 
disentangle from the effects of collective failure to act. 

The European Union, in the context of the social inclusion process, has given growing attention 
to the social inclusion of children and it has influenced the social agenda of countries which had 
not identified this as an objective.342 It has explicitly mentioned the “protection of the rights of 
the  child”  in  the  proposal  for  a  new  Treaty  as  one  of  the  Union’s  aims  in  article  3  alongside 
“economic  growth  and  price  stability”.  In  the  Presidency  conclusion  of  March  2006,  the 
European Council asked Member States “to take necessary measures to rapidly and significantly 
reduce child poverty”, since they are “less likely than their better-off peers to do well in school, 
enjoy good health and stay out of dealing with the criminal justice system” and “have damaging 
effects on the future life opportunities of children”. The report on Child poverty and well-being, 

339 See European Commission (2008a). 
340 Measured by the distance of the median equivalised income of those living below the line and the value 
of the threshold. 
341 See again European Commission (2008a), p. 126. 
342 See Atkinson, A.B. (2008b). 

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from which the quoted figures are taken, originated from this conclusion343. The social inclusion 
of children is an issue where the demand and the momentum exist for the European Union to take 
some direct responsibility. 

In  bringing  increased  and  explicit  attention  to  bear  on  the  objective  of  social  inclusion,  as  this 
Report advocates, cohesion policy should consider childhood deprivation as a serious option for 
one of the core priorities. The issue is certainly important and addresses widespread concerns. Of 
the three requirements set out in this Report for choosing a core priority, the place-based aspect is 
clearly satisfied. The circumstances which influence the social exclusion of children are strongly 
linked to the territorial context – not just to the family in which children happen to grow up, but 
also to the schools they attend, the environment in which they spend their time and its degree of 
openness. Most public interventions that matter for increasing the social inclusion of children – 
education, housing, urban planning, social services, security, cultural activities, etc – need to be 
tailored  to  places  in  a  way  that  place-based  policies  are  well  positioned  to  ensure.  As  for  the 
verifiability  requirement,  this  is  complicated  to  ensure,  but  no  more  so  than  for  other  social 
issues. Experience exists in the Commission, in some Member States, in international bodies in 
measuring outcomes and assessing effects which can be built on. 

On  the  question  of  EU-level  relevance,  several  aspects  need  to  be  considered.  The  social 
inclusion  of  children  is  unquestionably  an  issue  of  importance  for  all  EU  citizens.  The  issue, 
however,  does  not  present  the  EU  with  a  problem  of  sustainability,  since  the  Union  is  not 
commonly  held  responsible  for  deprivation  among  children,  as  is  the  case  for,  say,  migration. 
Moreover,  the  “value”  aspect  linked  to  the  issue  raises  strong  identity  problems  that  demand 
national approaches and invite caution in setting EU-wide targets for services.  

On  the  other  hand,  the  choice  by  the  EU  of  children  as  a  core  priority  would  have  some  clear 
advantages.  First,  the  synergies  between  equity  and  efficiency  are  particularly  relevant: 
improving  opportunities  for  the  most  deprived  children  can  also  increase  their  future 
productivity, while taking care of some of their needs through public services can increase their 
parents’  possibility  of  working  and  earning  more344.  Although  there  should  be  no  confusion 
between  the  two  tasks,  this  is  ceteris  paribus  an  advantage  for  the  effectiveness  of  the  policy. 
Secondly, with several Member States not having a specific strategy to deal with this issue, there 
are  less  risks  of  impinging  on  national  policies  and  political  spaces.  Thirdly,  the  issue  would 
unquestionably have high visibility and potential for being perceived as a European public good.  

One example helps to clarify the different aspects that need to be weighed up in deciding whether 
or  not  to  make  children  a  core  priority.  It  concerns  childcare,  a  service  at  the  centre  of  EU 
attention. At the EU Council in March 2002, targets were established for the provision childcare 
(which includes childcare at day-care centres and pre-school education, but not the informal care 
provided  by  relatives,  friends  or  neighbours),  facilities  needing  to  be  provided  for  33%  of 
children  under  3  and  90%  of  those  between  3  and  compulsory  school  age.  Eurostat  figures  for 
2006 show an average figure of 26% for the first age range and 84% for the second. The country 
variance  around  these  proportions  is  extremely  high,  in  the  first  age  group,  the  share  ranging 
from over 70% in Denmark and over 40% in Sweden, the Netherlands, Spain and Belgium, down 
to less than 20% in Greece and Germany and less than 5% in most new Member States. 

The issue is strongly supported by all social partners who have also drawn attention to the wide 
disparities  which  exist  within  countries.  In  July  2008,  the  main  EU  organisations  representing 
workers  and  entrepreneurs  (European  Trades  Union  Organisation,  Businesseurope,  European 

343  A  strong  focus  on  the  social  exclusion  of  children  (“prioritise  early  intervention  for  disadvantaged 
children, tackle early school leaving, overcome declining social mobility”) is suggested also by Liddle, R. 
(2007a) in the context of a proposal for “A new Social Europe”.  
344 The trade-off between equity and efficiency is also smaller, if it is assumed that a greater separation is 
possible, especially for younger children, between circumstances (at which interventions would be aimed) 
and effort: in other words, the improvement of circumstances would not have a negative effect on effort. 

 146

 
                                                      
Centre of Employers and Enterprises, and European Association of Craft and Small and Medium 
Size Enterprises) wrote in a letter to the Commissioner for Employment, Social Affairs and Equal 
Opportunities  that  “despite  significant  improvements  in  a  number  of  [Member  States],  the 
situation  remains  unsatisfactory  in  the  majority  of  EU  countries”  ,  that  a  “wide  variety  of 
situations“  exist  within  countries,  and  that  also  “regional  disparities  exist  in  terms  of  quality, 
accessibility and affordability. For example the provision of childcare is particularly challenging 
in  bigger  cities  and  remote  areas”.  They  then  underline  the  “disincentive  to  work”  for  parents 
that  derives  from  this  situation,  Member  State  responsibility  for  the  issue,  and  the need for the 
EU to promote action and for the European Social Fund to be used for this purpose.  

The figures, the demand for the EU to act and the emphasis on national responsibilities raise two 
separate issues. First, the figures reflect both the degree of political awareness as well as different 
national conceptions of the desirable way to care for children in the early stages of life, which is a 
reminder of the risk of pushing common uniform targets too far. Secondly, from the perspective 
of social inclusion, the provision of childcare should be considered along with its quality – as the 
social partners remark - its linkage to education, and the other rules and conditions relevant for 
both  children  and  parents  (including  leave  facilities  at  work,  the  opportunity  for  the  elderly  to 
play a role in childcare, the conditions for community support, and the quality of housing). Only 
an integrated, place-based approach can deliver results.  

If the EU were to decide to prioritise the social inclusion of children in cohesion policy, it should 
be wary about recommending general best practices on the issue of childcare. Rather, it should 
encourage,  through  the  strategies  of  Member  States  (and  Regions),  the  production  of  validated 
community-based indicators capable of focusing action and public debate on the features relevant 
for specific contexts. It should also encourage tailor-made projects that respond both to a set of 
EU-wide agreed principles and to different national aspirations. How effectively the Commission 
could play this role in such a sensitive area through the strengthening of its in-house capacity is 
one of the issues that should be considered in making the choice. 

IV.5.  Tackling  both  objectives  with  the  same  core  priority:  the  options  of  “Skills”  and 

“Ageing” 

Two further options for the choice of core priorities, where the objectives of efficiency and social 
inclusion are equally relevant, skills and ageing, will be briefly considered. 

Skills 

Possessing  adequate  skills  is  necessary  for  the  capacity  to  enjoy  life,  for  self-esteem,  for 
increasing  income  and  for  finding  a  job345.  Map  IV.7  shows  how  important  the  effect  of 
education – a major source of skills – is on employment rates. It also shows that this effect differs 
markedly between regions, even within the same country. Possessing adequate skills is even more 
important in a situation where rapid technological change, global challenges and external shocks 
are likely to make existing skills obsolete or in need of updating.  

Employment  and  unemployment  rates,  strongly  influenced  by  education  and  the  availability  of 
skills, have been converging in the EU, but the variation in these, even within countries, remains 
very  high,  and  there  is  a  persistent  tendency  of  some  Regions  to  under-perform.  The  relative 
position  of  80%  of  Regions  in  the  EU  with  “very  high  unemployment”  in  1993  remained  the 
same in 2003, as against 65% in the US and Canada346. 

A  substantial  effort  to  upgrade  skills  at  all  levels  (and  in  particular  of  the  low-skilled  and 
disadvantaged)  will  be  essential  to  enable  all  European  citizens  to  adjust  to  a  changing 

345 See for example Overman, H.G. and Puga, D. (2002). 
346  See  OECD  (2005a).  High  unemployment  is  defined  as  the  unemployment  rates  which  belong  to  the 
upper quintile of the unemployment distribution. 

 147

 
                                                      
environment, to maintain and improve their long-term job prospects and to avoid falling behind. 
It  will  require  investment  to  improve  the  quality  of  education  and  training347.  But  it  will  also 
require  more  informative  and  timely  ways  of  matching  the  supply  of  skills  with  labour  market 
demand,  and  new  strategies  to  make  the  most  of  the  skills  of  older  people  with  their  much 
extended  life  span.  The  effects  of  the  public  action  taken  to  deal  with  the  skill  issue  will  be 
important for efficiency and growth. But the effects on social inclusion will also be important. 

Public  action  aimed  at  improving  skills  undoubtedly  requires  nation-wide  institutions.  But  in 
order to be effective, it must also take account of the specific circumstances and needs of places, 
in  order to address the causes that make some nation-wide services (education, training, labour 
market  policies)  more  effective  in  some  contexts  than  in  others.  This  is  particularly  true  for 
education,  the  effectiveness  of  which  strongly  depends,  not  only  on  the  social  and  cultural 
upbringing of the students, but also on the context in which they live and on the other students 
with whom they interact348. In the case of public action aimed at upgrading the skills of people 
already active in the labour market, a successful approach needs to take account of, and adjust to, 
the  knowledge  and  preferences  of  those  that  it  is  directed  at,  especially  the  unemployed  and 
marginalised  groups.  For  this  reason,  in  several  EU  countries,  local  and/or  regional  authorities 
have  responsibility  for  upgrading  skills.  As  in  other  areas,  however,  the  local  capacity  or 
willingness  to  act  can  vary  greatly  between  places.  Exogenous  intervention  is  needed  to  avoid 
both inefficiency and social exclusion traps and to support action, diffuse information and ensure 
standards.  

347 See Commission of the European Communities (2008d). 
348  According  to  the  data  collected  and  analysed  by  PISA  –  see  OECD  (2006a)  –  for  11  of  the  17  EU 
countries surveyed by the assessment, the variance in student performance in mathematics between schools 
represented more than 30 per cent (for 7 countries more than 50 per cent) of the total variance in student 
performance, with a large majority of it being explained by the economic and social status of students and 
schools.  Partly  due  to  structural  features  of  those  education  systems,  this  show  how  “territorial”  the 
education challenge often is.  

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MAP IV.7 - Differences between employment rates of population 
with high and low education level in 2006(*) 

Source: Eurostat. 
(*) High education is defined as qualifications at tertiary (ISCED 5 or 6) 
level; low education as only basic schooling or qualifications no higher 
than lower secondary (ISCED 2) level. 

EU  cohesion  policy  already  operates  in  this  field.  In  the  current  period  2007-2013,  EUR  25 
billion  have  been  allocated  to  improve  human  capital  and  EUR  13.5  billion  for  supporting  the 
adaptability  of  workers,  enterprises  and  entrepreneurs,  which  also  includes  the  development  of 
systems for anticipating economic change and future requirements in terms of jobs and skills. The 
equity and efficiency objectives, therefore, coexist349. The question is whether there are sufficient 
conditions  and  opportunities  for  redirecting  some  of  these  funds  and/or  other  funds  to  a  less 
fragmented  strategy,  inspired  by  a  general  EU vision  and  more clear-cut objectives, centred on 
both equity and efficiency.  

In terms of social inclusion, the general objective would be to raise the education, competences 
and basic skills of as many European citizens as possible above certain minimum levels. In terms 
of efficiency, the general objective would be to support in all places the upgrading of individual 
skills which are needed in the EU in order to strengthen competitiveness. An analysis needs to be 

349  Equity  is  likely  to  be  the  main  objective  for  the  additional  EUR  10  billions  which  are  aimed  at 
improving the active inclusion in the labour market of less favoured persons (but here the emphasis is not 
necessarily on skills). 

 149

 
 
                                                      
carried out of the extent to which a policy space for the EU level of government exists for it to 
acquire  more  sovereignty  on  this  issue,  as  well  as  how  far  there  is  knowledge  base  in  the 
Commission from which to start playing this new role . 

Ageing 

Population  ageing,  driven  by  low  levels  of  fertility  and  mortality,  represents  a  global 
“demographic revolution”350. For the EU, it is a challenge in terms of both efficiency and social 
inclusion,  calling  for  interventions  on  the  organisation  of  labour  and  on  the  structure  of  public 
goods and services.  

In  the  world  as  a  whole,  the  share  of  older  people  in  the  population  will  reach  21%  in  2050 
against  around  11%  today  and  by  then  the  number  of  older  people  is  expected  to  exceed  the 
number of young people under 15 for the first time.351 . The EU displays a combination of high 
and increasing life expectancy and an extremely low fertility rate352. As a result of the accession 
of  the  new  Member  States,  the  average  age  of  EU  population  has  fallen  slightly.  However, 
enlargement  has  not  significantly  changed  the  demographic  map  of  the  Union  and  the  recent 
reductions  in  fertility  rates  in  the  new  Member  States  have  given  them  the  same  demographic 
pattern as the rest of the Union.  

Projections for the EU353 for 2050 anticipate about 60 million more people of 65 and over – the 
official age of retirement in most Member States – and about 50 million fewer 15-64 year olds. 
The  share  of  population  aged  65  and  over  will  rise  all  across  Europe,  but  a  wide  variation 
between regions is expected. Map IV.8 shows that in the 2020 the largest shares of older people 
are  projected  to  be  in  Eastern  Germany,  Central  France,  Italy,  North-West  Spain,  parts  of 
Bulgaria,  Finland  and  Sweden354.  In  some  of  these  areas  –  in  Eastern  Germany,  North-West 
Spain,  Bulgaria  and  some  Regions  of  South-Italy  –  this  would  be  coupled  with  marked 
population decline, (Map IV.9). Recent research suggests that demographic ageing in virtually all 
European  countries  will  increase  income  inequality  and  poverty  rates  in  Europe  in  the  coming 
decades355.  

350 See World Health Organisation (2004), p. 6. 
351 See United Nations (2001). “Old” in the UN definition is 60 and above. 
352 See Eurostat (2004), p. 37; European Commission (2004a). The fertility rate is defined as the average 
number of babies born to women during their reproductive years.  
353 Projections were made by Eurostat in 2004 at national and regional level by applying a trend scenario. 
National projections were then produced in 2008 only at national level and with a convergence scenario. 
See Commission of the European Communities (2008e).  
354 See Commission of European Communities (2008e), using the Eurostat 2004 projections. 
355See SCP (2004). 

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Map IV.8 - Share of population aged 65 and above in 2020 
(% shares) 

Source: Commission of the European Communities (2008e). 

These widespread and profound changes will not only differ in intensity across regions but will 
also be experienced very differently from place to place according to factors such as ethnicity, the 
structure of occupations and migration flows. The different rates at which different ethnic groups 
age,  and  their  different  family  and  intergenerational  relations,  will  also  influence  the  effects, 
making them very dependent on the local context. Moreover, the regional policy response will be 
conditioned by the administrative context, the regional policy framework and the broader socio-
economic  profile  of  the  region.  Demographic  ageing,  therefore,  has  significant  territorial 
consequences. 

 151

 
 
 
Map IV.9 - Population decline between 2004 and 2020 
(annual average % change) 

Source: Eurostat. 

The challenges for each region are likely to relate to all aspects of life. 

•  Organisation of labour. Ageing contributes prima facie to a shrinking population of working 
age, and the regions most affected might see their income prospect worsen. On the other hand, 
the  older  sections  of  the  population  represent  an  often  underutilised  source  of  labour,  ideas, 
guidance and information. If they are properly used, which is likely to require changes in the 
present organisation of work and labour, they could represent an asset rather than a liability 
for many regions. 

•  Consumption. The different pattern of consumption of retired people calls for adjustments in 

the composition of goods and services provided. 

•  Welfare system. A growing number of older people requires changes in the type and scale of 

social services.  

•  Spatial  planning  and  infrastructures.  Outward  migration  of  younger  people  can  leave  older 
people isolated in deprived urban centres or in rural areas and this has implications for spatial 
planning, welfare provision, housing and transport systems. 

 152

 
 
•  Voluntary activities. The elderly, through their participation in the provision of local services 
and voluntary and caring work, can be among the most active contributors to social cohesion 
and  to  the  reduction  of  social  exclusion,  including  that  resulting  from  demographic  ageing. 
This contribution can be facilitated or hindered depending on the degree to which older people 
have  a  say  on  issues  such  as  urban  and  spatial  development,  housing,  social  services  and 
public transport. 

In the face of all these various challenges, risks and opportunities, there is a need, from both a 
cultural and political perspective, for a major adaptation of the policy measures and institutions 
that  have  been  designed  for  a  population  with  a  very  different  age  composition  and  for  an 
adjustment of the national pension, welfare, labour market and family law systems in place. At 
the same time, there is also a need for a response at local level, capable of tackling all the issues 
mentioned above. Since places will be affected very differently by the demographic changes and 
since  their  circumstances  differ,  there  will  be  considerable  variation  in  their  capacity  and 
innovativeness  to  respond.  New  inefficiency  traps  will  arise,  as  some  places  fail  to  adapt  their 
institutions and services, and comparative advantages will be lost. New social exclusion traps will 
also  emerge  as  sections  of  the  population  fall  below  socially  acceptable  levels  of  income  and 
suffer deprivation in other aspects of well-being.  

There  is,  therefore,  a  clear  case  for  a  place-based  development  policy  to  combat  the  effects  of 
demographic ageing. Intervention can help to increase participation rates and labour productivity 
through support for active labour market policies, training of older people and improvements in 
education and life-long learning. It can also raise awareness of the potential of older workers and 
promote  changes  in  the  organisation  of  labour  which  enable  their  potential  to  be  realised  and 
support  improvements  in  accessibility  and  mobility.  In  addition,  it  can  help  to  reduce  physical 
and social isolation in rural areas as well as that caused by a decline in family support, ensure that 
housing  stock  meets  new  needs,  improve  service  delivery,  access  to  ICT  and  public  transport, 
provide  suitable  health  and  long-term  care  and  focus  interventions  on  the  specific  situation  of 
vulnerable groups. 

Since  the  problems  that  demographic  ageing  gives  rise  to  require  a  place-based  approach,  the 
next question is whether the verifiability criterion is satisfied. For the social inclusion objective, 
the methodological issues are similar to those mentioned above with respect to children. For the 
efficiency  objective,  verifiability  is  undoubtedly  more  complex  and  calls  for  carefully  defined 
methods  if  the  criterion  is  to  be  satisfied.  The  final  and  central  question  is  whether  the  Union 
should be involved in running a place-based policy in this area. 

The  European  Union  has  always  recognised  the  importance  of  ageing.  The  issue  has  featured 
prominently in both the Lisbon agenda and in the anti-discrimination Directives. It is commonly 
recognised  that  population  ageing  is  one  of  the  main  challenges  that  the  EU  will  face  in  the 
coming years. Cohesion policy support has already been given to a number of initiatives dealing 
with  ageing356.  But  the  question  is  whether  the  EU  importance  is  sufficient  for  the  issue  to 
become a full-scale central concern of cohesion policy.  

As  in  the  case  of  the  social  inclusion  of  children,  there  is  no  specific  expectation  by  European 
citizens  that  the  EU  should  address  the  issue,  nor  is  the  EU  blamed  for  its  existence.  But,  by 
tackling  this  issue  as  a  core  priority  of  cohesion  policy,  the  EU  would  have  an  opportunity  to 
anticipate,  through  a  shared  strategy,  the  effects  of  a  demographic  revolution  that  individual 

356  Cohesion  policy  is  financing  projects  in  private  firms,  municipal  and  regional  governments  and 
development  agencies  aimed  at  developing  strategies  for  retaining  older  workers:  see  European 
Commission (2007a). Community Initiatives are also supporting projects combating age discrimination in 
the labour market. These include support for business start-ups among those of 50 and over and life-long 
learning:  see  Ministerstvo  práce  a  sociálních  věcí  ČR,  Evropský  sociální  fond,  Program  Iniciativy 
Společenství  EQUAL;  and  Shrnutí  Programu 
(Accessed  at: 
http://www.esfcr.cz/). 

Iniciativy  Společenství  EQUAL 

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countries are not adequately responding to and for which there is, therefore, a policy space to fill. 
Moreover, due to the innovations that a policy for the elderly requires, there is significant scope 
for  the  exchange  of  experience  and  mutual  learning  that  a  policy  governed  at  EU  level  is  well 
placed to ensure. The issue would undoubtedly have high visibility and the policy measures put 
in place to tackle it the potential for being regarded as a European public good. 

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V.  A MORE STRATEGIC AND EFFECTIVE GOVERNANCE 

Reforming the governance of cohesion policy is one of the conditions for meeting the challenges 
for which the policy is needed in the European Union.  

More  so  than  two  decades  ago,  cohesion  policy  can  be  a  primary  and  effective  instrument  for 
addressing issues of inefficiency and social exclusion in Europe and for promoting solidarity and 
a renewed commitment to the Union and its integration strategy among European citizens. The 
Report has argued that a clear-cut rationale exists for an integrated, place-based approach to be 
run at EU level according to the needs of places (chapter I). The task assigned by the Treaty to 
the  Union  “to  promote  overall  harmonious  development”  and  to  reduce  “disparities”  and 
“backwardness” in regional development has strong foundations. 

The  review  of  policy  results  conducted  by  this  Report  (chapter  II)  shows  that  cohesion  policy 
offers  an  appropriate  basis  for  addressing  the  task,  but  that  a  set  of  serious  weaknesses  exists 
requiring reform of some key components of the policy. The basis is represented by: a system of 
multilevel governance with a focus on places/regions; a system of contractual commitments, both 
vertically,  between  Commission,  national and regional levels, and horizontally, that represent a 
valuable European asset; an EU-wide network for the diffusion of methodological tools; and an 
attitude and a capacity for partnership. The weaknesses concern: deficits in strategic planning and 
policy  conception;  lack  of  focus  on  core  priorities  and  of  distinction  between  efficiency  and 
equity  considerations;  failure  of  contractual  arrangements  to  focus  on  results  and  to  design 
institutional  changes  tailored  to  different  contexts;  methodological  problems  hampering  the 
appropriate use of indicators, targets and evaluation; and a lack of debate on results, both at local 
and EU levels.  

The case for change was made in chapter III. Together with a strong concentration of resources 
on a few core priorities and a territorialised social agenda (chapter IV), the following principles, 
drawn from the policy concept and from the lessons of the past, have been highlighted to guide 
the  reform  of  the  governance  of  cohesion  policy:  orienting  grants  to  results;  mobilising  and 
learning; strengthening the Commission; reinforcing political checks and balances. Some steps in 
these  directions  have  been  attempted  for  the  current  period357,  but  they  have  fallen  short  of 
expectations due to lack of progress on the policy concept, methodological weaknesses, and the 
absence  of  a  strong  political  compromise  that  enabled  Member  States  largely  to  neutralise  the 
proposals for change. 

The  “ten  pillars”  for  reform  presented  in  this  chapter  are  based  on  the  principles  summarised 
above.  They  are  not  intended  to  provide  a  blueprint  for  cohesion  policy  in  the  future  and  take 
only partial account of the impact – mostly still to be seen - of the changes introduced for 2007-
2013. However, the pillars do provide clear statements of how a reformed system of governance 
can  be  constructed  as  a  starting  point  for  debate.  They  also  emphasise,  as  has  been  stressed  in 
chapter III, that effectiveness is dependent on a comprehensive reform, with the success of one 
proposed change strongly depending on the implementation of the others.  

Changes such as those proposed here can be made and results can be achieved if the rejuvenated 
policy concept is accompanied by a strong political compromise and by an appropriate design of 

357  Particularly  relevant  is  the  introduction  of  the  Community  Strategic  Guidelines  and  the  National 
Strategic Reference Frameworks: whatever their actual implementation; they do represent a building block 
on which the proposals of this Report can be built. Earmarking has also been introduced, but the reference 
to  the  very  broad  Lisbon  “priorities”  and  Member  State  pressure  during  the  negotiation  (see  Box  II.A) 
have  diluted  its  effect.  A  strategic  reporting  process  has  been  launched,  but  Reports  are  not  asked  to 
describe  progress  towards  quantified  objectives,  and  the  persistent  lack  of  a  system  of  robust  indicators 
makes this step unlikely. A more intensive exchange of experience is being promoted through the ‘Regions 
for Economic Change’ initiative, which is a basis for further moves in this direction.  

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the  negotiation  process,  with  the  strategic  principles,  the  financial  framework  and  the  overall 
regulation being approved simultaneously. The overall regulation, which would embody the rules 
described and justified in this chapter, would represent a simple and clear general EU framework. 
This  would  have  important  implications  at  EU  level.  However,  for  the  framework  to  succeed 
would  also  require  Member  States  and  Regions  to  play  their  part  in  making  the  necessary 
domestic changes that the reform requires. 

The  ten  pillars  also  offer  ideas  that  could  be  of  use  in  the  current  programme  period.  In  some 
cases this is both possible and necessary in order to build the base and the experience to be put to 
full  use  in  the  post-2013  period:  a  stronger  indicator  system;  the  sharpness  and  quality  of 
reporting; experimenting with impact evaluation; and strengthening DG REGIO and DG EMPL. 
Other  proposed  changes  would  also  warrant  preparatory  moves  before  the  end  of  the  current 
period – most notably the dialogue on new priorities. 

V.1.  An  innovative  concentration  on  core  priorities  and  a  conservative  territorial 

allocation 

The first question for this chapter is how cohesion policy resources should be deployed: the share 
of  resources  for  the  core  priorities;  the  territorial  allocations  to  regions  and  countries  – 
geographical coverage, territorial units for resource allocation and eligibility thresholds; and the 
specific aspects of territorial cooperation and TENS funding. All these issues are discussed under 
the  working  assumption  that  the  resources  for  cohesion  policy  will  be  similar  to  the  present 
amount. 

Focusing  resources  on  core  priorities:  a  large  share  of  cohesion  policy  resources  should  be 
concentrated on 3-4 narrowly defined core priorities of EU interest. 

One  of  the  substantive  changes  proposed  by  this  Report  is  the  concentration  of  a  significant 
proportion of cohesion policy funding on a limited number of core priorities (three or four). They 
would become the European public goods on which cohesion policy is focused. We propose that 
the  selection  of  these  core  priorities  should  be  the  subject  of  a  strategic  political  process  (see 
pillar 2) involving EU and Member State authorities. A key requirement is that the priorities are 
defined  strictly  and  that  they  are  assessed  on  the  basis  of  conceptually-founded  criteria.  The 
Report suggested three criteria in chapter IV – EU-relevance, place-basedness, and verifiability - 
which  are  coherent  with  the  rationale  of  the  EU  having  a  cohesion  policy.  The  Report  also 
examined  the  arguments  for  some  specific  options  for  the  choice  of  core  priorities:  innovation, 
climate change, migration, children, skills, ageing.  

Strategic political agreement would also be required for the share of cohesion policy resources to 
be  allocated  to  the  agreed  priorities.  Clearly,  they  could  not  account  for  the  whole  cohesion 
policy  budget;  in  many  lagging  regions,  there  is  a  wide  range  of  development  needs  and 
challenges  to  be  addressed.  Determining  the degree  of concentration also needs to consider the 
varied capacity of Member States effectively to absorb funding (absorption capacity) under the 
various options for core priorities, and this decision needs to go hand-in-hand with the choice of 
core priorities. However, we propose that the target share at EU level should be no lower than 55 
per cent and as close as possible to 65 per cent: this aim should be born in mind in deciding the 
core  priorities  and  assessing  the  likely  financial  absorption  of  each  candidate.  The  agreement 
should  also  establish  a  fourchette  (a  range  with  an  upper  and  lower  limit)  for  the  share  of  the 
cohesion policy budget allocated to each core priority at EU level. 

The concentration requirement would apply to every country or region, but the share (allocated to 
core  priorities)  should  vary  according  to  territory:  highest  in  non-lagging  Regions,  where  the 
smaller  amount  of  per-capita  resources  demands  strong  concentration;  and  lowest  in  lagging 

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countries, where the scope for using the funds is limited by the Treaty to transport, energy and 
the environment358.  

Each  Member  State  (and  Regions)  would  determine,  in  dialogue  with  the  Commission,  the 
distribution  of  its  allocated  cohesion  policy  resources  among  the  core  priorities,  justified  with 
reference  to  its  needs  and  development  strategy.  In  the  context  of  the  strengthened  governance 
concerning the core priorities – described in pillar 4 – the approval of the Commission for these 
choices would be necessary. The remaining resources would be allocated to other development 
priorities  selected  by  the  Member  State  (Region),  providing  that  the  place-based  nature  of  the 
interventions is adequately justified with reference to development needs and the overall strategy 
(see pillar 3). A decision would have to be taken on whether to retain, as a reference, the present 
16  expenditure  categories,  with  some  clear  advantages  of  comparability  over  time,  or  to  adjust 
them in favour of a less sectoral approach.  

Territorial allocations to Regions and countries: as currently, cohesion policy should have the 
scope to address development issues in all parts of the Union, with resources concentrated on 
lagging countries and regions. 

The  territorial  allocation  of  resources  raises  three  questions:  in  which  regions  should  cohesion 
policy  resources  be  used?  What  units  should  be  used  for  the  allocation  algorithm?  And  what 
threshold(s)  should  be  used  for  determining  the  territorial  concentration  of  resources?  As 
anticipated in chapter III, on all these issues the Report takes a conservative view.  

The  first  issue  concerns  geographical  coverage.  Addressing  development  problems,  namely 
“development  traps”  relating  to  economic  inefficiency  and  social  inclusion  (see  chapter  I),  is  a 
challenge for all areas of the Union. The main development problems are clearly greatest in the 
lagging places, where the need for financial support is greatest and where both institutions and 
fiscal  capacity  are  weakest.  It  is  here  that  the  concentration  of  resources  should  be  maximised. 
However, the rationale for a place-based approach by cohesion policy is not restricted to lagging 
regions; there is a strong justification for the EU to intervene also in non-lagging regions where 
economic inefficiency and social exclusion traps exist (see section I.3)359. This is even more the 
case when (see below) the territorial unit for resource allocation is a jurisdictional unit – either a 
Region  or  a  nation-state  -  which  can  include  regions/places  at  different  stages  of  development. 
The Report therefore proposes that the present principle for the territorial allocation of funding 
should be retained: cohesion policy should apply to all parts of the EU territory, concentrating on 
lagging  regions,  and  having  the  scope  to  intervene  in  all non-lagging regions in support of EU 
core priorities also. 

An  important  caveat  is  that,  while  cohesion  policy  should  have  the  scope  to  intervene 
everywhere, this does not assume that funding will necessarily be provided to every place/region. 
Under the contracting system proposed below (pillar 3), Member States will be required to justify 
the  spatial  allocation  of  resources  (especially  where  concentration  is  required  by  the  core 

358 Taking, as an example, the present distribution of funds (around 20 per cent to lagging countries, 62 per 
cent  to  lagging  Regions,  16  per  cent  to  non-lagging  Regions  and  around  2  per  cent  to  territorial 
cooperation), the overall range allocated to core priorities under the above proposal – no less than 55 per 
cent,  possibly  up  to  65  per  cent  -  could  approximately  correspond  to  the  following  ranges  of  resources 
attributed to each type of territory: 25-30 per cent of the resources attributed to lagging countries (given 
the Treaty constraints); 55-65 per cent of the resources attributed to lagging Regions; 85-100 per cent of 
the  resources  attributed  to  non-lagging  Regions;  55-100  per  cent  of  the  resources  attributed  to  territorial 
cooperation (very much depending on what the chosen priorities are). These specific ranges are coherent 
with  an  overall  55-65  range  also  for  other  potentially feasible distributions of resources among different 
territories. 
359 As section I.3 made clear, proposals to restrict cohesion policy to “poor” countries or “poor” Regions 
are  based  either  on  budgetary  politics  or  on  a  conceptual  view  of  cohesion  policy  concerned  with 
convergence and financial redistribution, rejected by this Report. 

 157

 
                                                      
priorities  to  be  effective).  Depending  on  the  core  priorities selected, the territorial allocation of 
funding  within  Member  States  should  be  those  places/regions  where  economic  inefficiency  or 
social inclusion traps are considered most important.  

The  second  issue  relates  to  the  territorial  unit  for  resource  allocation  at  EU  level:  which  unit 
should be used to distinguish between lagging and non-lagging regions so as to differentiate the 
intensity  of  funding?  The  policy  concept  would  suggest  referring  to  places  defined  as  a 
contiguous/continuous  area  within  whose  boundaries  a  set  of  conditions  conducive  to 
development apply more than they do across boundaries (see Introduction); an area that can be 
identified  only  through  the  policy  process,  independently  of  administrative  boundaries.  The 
primary  alternative  to  the  present  pre-allocation  of  resources  to jurisdictional Regions is then a 
discretionary process of allocating funds to places/regions according to the geography of needs. 
But  this  is  not  a  task  that  the  Commission  has  the  knowledge  to  perform.  It  is  a  task  better 
performed by Member States and Regions. Once the options are restricted to a pre-allocation to 
jurisdictional units, there are no credible alternative methodologies which are clearly superior to 
the present approach. The Report considers that the present use of jurisdictional entities - NUTS 
2 Regions – for resource allocation should be retained (plus national allocations for the Cohesion 
Fund as specified by the Treaty).  

NUTS 2 Regions are the closest approximation to the relevant territorial units for which robust, 
homogeneous and adequately updated economic data exist for an allocation to be made ex-ante. 
The backwardness of a NUTS 2 Region can then be taken, for the sake of allocating funds, as a 
proxy of the economic backwardness of the regions/places included in its boundaries. However, 
it  must  be  emphasised  that  NUTS  2  Regions  should  not  be  considered  as  the  relevant  unit  of 
intervention by Member States (Regions). Once the overall amount of resources has been decided 
at EU level for all lagging Regions and for all non-lagging Regions in each Member State, the 
allocation of resources to places/regions inside each of the two blocks and the territorial scale for 
intervention – national, regional, sub-regional – should be based on what is most appropriate for 
the  priority  being  supported  and  the  institutional  context.  Within  Member  States,  the  territorial 
allocation for lagging and non-lagging Regions, as well as the criteria for the allocation to places 
and  regions  within  each  NUTS  2  Region,  would  be  part  of  the  contract  agreed  with  the 
Commission.  

A  possible  exception  to  this  approach  concerns  peripheral  or  remote  regions  suffering  from 
depopulation in which there is wider European or global interest (as discussed in chapter I). In 
such  regions,  where  there  is  a  “Community  interest”  in  maintaining  settlement,  environmental 
resources  or  cultural  heritage,  a  compensatory  approach  to  EU  support  could  be  undertaken  to 
address the sustainability/viability of these regions (potentially defined through demographic or 
territorial criteria) without the requirement to meet the objectives or minimum spending targets of 
the core priorities. 

This  leaves  one  last  issue  to  consider  here360:  the  threshold  for  separating  lagging  from  non-
lagging Regions and the associated intensity of funding.  

The present 75 percent GDP per capita (at purchasing power parity) threshold, with reference to 
the  EU  average  of  GDP  per  capita,  -  as  any  other  similar  threshold  -  does  not  provide  much 
information  on  the  unused  potential  of  a  Region,  unless  one  assumes  (on  the  basis  of  no 
evidence)  that  the  long-term  potential  is  the  same  in  all  Regions.  As  for  inequality,  it  provides 
information  on  the  proxy  of  one  dimension  only  (income)  and  says  nothing  either  on  the 
distribution  of  income  or  on  any  other  dimension.  But  similar  objections  would  apply  to  any 
other  straightforward  threshold  that  might  be  considered.  And  the  present  criterion  has  the 

360  Other  parameters  exist:  those  for  deciding  the  difference  in  aid  intensity  between  lagging  and  non-
lagging Regions and within lagging Regions (according to their “level of development”). The discussion 
over them, being largely a matter of negotiation, does not belong to the present stage of budgetary review 
and to this Report.  

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considerable advantages of relying on the most accountable of all national statistics (at least for 
the GDP current-price and constant-price figure) and of having been the established criterion for 
eligibility  since  1988.  Furthermore,  since  decisions  on  the  budget  (and  net  Member  States 
balances) are currently entangled with policy decisions on territorial allocation, any debate on the 
latter would once again focus attention on the financial issue, distracting from the more pressing 
issue of “how” resources are used361. 

The arbitrariness of any thresholds and the perverse effects that they can induce suggests, though, 
considering a new category of transitional support for Regions above the 75 per cent threshold 
and below another threshold, to be decided. There is large cluster of Regions either side of the 75 
per cent threshold. Small upward or downward changes in annual growth rates (or revisions of 
GDP data) can have a major impact on (in)eligibility for lagging status (see Figure V.A below), 
an issue aggravated by the volatility of regional economic circumstances in the current economic 
crisis. Furthermore, as a result of the accession of Bulgaria and Romania by the end of the 2007-
13  period,  a  new,  strong  “statistical  effect”  is  at  work  which  would  exclude  several  Regions 
without them necessarily having actually improved in absolute terms. Modulating the impact of 
the  75  per  cent  threshold  would  also  permit  the  current  special  provisions  made  for  phasing-in 
and phasing-out Regions to be discontinued. 

Fig. V.1- Growth of GDP per head 2000-2004 and GDP per head 2004 

Source: Fourth Cohesion Report. 

On  the  basis  of  the  above  discussion,  the  main  territorial  focus  of  post-2014  cohesion  policy 
would look as follows. 

•  Lagging countries and Regions. Lagging countries, with less than 90 per cent of EU GDP per 
head,  and  lagging  Regions  with  less  than  75  per  cent  of  EU  GDP  per  head.  A  secondary 
category of “transition Regions” (lagging Regions with between 75 and 75+X per cent of EU 
GDP  per  head)  would  also  qualify  for  lagging  status  with  lower  per  capital  financial 
allocations.  The  label  –  “lagging”  -  is  used  for  this  primary  focus  of  the  policy,  in  order  to 
replace ambiguous terms such as “Objective 1” or “Convergence”362.  

•  All other (non-lagging) Regions. All Regions with more than 75+X per cent of EU GDP per 

capita. The label “non-lagging” is used for this secondary focus of the policy. 

361  Disentangling  decisions  on  policy  from  decisions  on  the  net  balances  of  Member  States,  as  several 
commentators have suggested, would possibly create a scope for a debate on indicators and units used for 
allocating resources. 
362  On  the  ambiguity  of  “convergence”  and  of  the  term  used  for  non-lagging  regions  –  “regional 
competitiveness and employment” – see section I.3.  

 159

 
 
 
                                                      
These two categories could absorb a similar proportion of funding to their shares in the current 
period, and about 96-97 per cent of total resources. The remaining share would be allocated, as in 
the  current  period,  to  a  third  focus  of  support:  Territorial  cooperation  (see  below).  For  all  the 
territorial  categories,  a  small  reserve  would  be  set  aside  for  Commission-managed  Territorial 
innovative  actions,  aimed  at  boosting  innovative  policy  methodologies  in  different  fields  of 
action (see pillar 6). 

Territorial  cooperation  should  focus  much  more  strongly  on  strategic  interventions  with  a 
verifiable impact. 

Territorial  cooperation  should  be  maintained  as  the  destination  of  a  small  share  of  Cohesion 
policy funds; we propose that this should be raised from the current 2.5 per cent to 3-4 per cent. 
In spite of a lack of quantified evidence on its effects, there is a consensus - shared by this Report 
-  that  in  this  field  the  EU  can  add  value  by  dealing  with  relevant,  over-the-border 
interdependencies and promoting cooperation networks and collaborative learning involving both 
public and private actors. However, for that to happen, some significant changes are necessary. 

•  The overall EU strategy on territorial cooperation would form part of the EU framework (see 
pillar 2). On this basis, each Member State would outline its own strategy. In establishing a 
strategic regional cooperation or cross-border cooperation programme, interventions should be 
focussed  on  clear  objectives,  with  verifiable  results  (taking  account  of  experience  with  the 
enhanced obligations in this regard for the current period). 

•  Transnational/cross-border  programmes 

should  be  conditional  on  a 

supportive 
political/policy  framework  being  established  by  the  participating  Member  States363  to 
demonstrate that the EU programme is part of a wider strategy of cross-border or transnational 
cooperation (including complementary actions – potentially smaller projects - financed wholly 
by the Member States) and that it has the political commitment and resources of Member State 
authorities  at  national,  regional  and  local  levels.  The  exceptions  are  where  EU-funded 
programmes are being funded for the first time, and on external borders. 

•  Transnational/cross-border  programmes  should  dedicate  a  significant  share  of  resources  to 
supporting  the  core  EU  priorities,  complementing  (and  adding  value  to)  the  priority-based 
interventions being undertaken by cooperating regions through other EU funds. 

•  Funding  for  inter-regional  cooperation  should  concentrate  on  network  funding  for  regional 
and local organisations (development agencies, local authorities, universities, research centres, 
associations  of  social  partners,  etc.)  to  create  or  to  strengthen  networks  with  the  specific 
purpose of better pursuing the objectives of one (or more) of the core priorities, conditional on 
tangible  and  measurable  outcomes  and  subject  to  periodic,  independent  evaluation;  the 
possibility  of  learning  projects  should  be  considered  -  time-limited  partnerships  of  regional 
and  local  organisations,  with  emphasis  on  learning  about  the  core  priorities  and  with  active 
involvement of Commission services as knowledge broker364. 

•  Legal and administrative barriers to more intensive cooperation should be reviewed, with the 
aim of allocating transnational and cross-border funding to programmes rather than individual 
Member States. State aid control provisions – which currently require participating Member 
States  to  notify  aid  schemes  separately  –  should  also  be  reviewed  in  collaboration  with  DG 

363 An existing example is the Baltic Sea Strategy. 
364 In order to maximise the scope for policy learning, it would be important that the Commission’s role in 
facilitating knowledge exchange goes beyond conferences and databases. In line with the proposals made 
for the Commission later in pillar 7, the role should involve a brokerage function whereby the Commission 
filters  and  transfers  knowledge  to  individual  countries  and  regions  in  a  form  which  meets  specific 
circumstances and needs. 

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Competition with a view to exploring how aid control procedures might be more supportive of 
territorial cooperation. 

•  Monitoring by the Commission, and evaluation, must be strongly improved, including efforts 

to design of a system of impact evaluation, geared to this complex field of action.  

The management of Trans-European Networks should be reviewed to enable a more strategic 
and coherence approach to TENS planning and investment. Putting all TENS resources in a 
single fund is a possible solution  

Trans-European Networks (TENS) have a vital role to play in ensuring connectivity and network 
development  in  key  infrastructures.  The  Treaty  contains  a  special  title (Title XV, Articles 154-
156)  devoted  to  TENS,  covering  the  areas  of  transport,  telecommunications  and  energy. 
However,  progress  has  been  relatively  slow  and  plagued  by  a  range  of  financial,  strategic  and 
operational problems365. Cohesion policy provides a major share of the EU funding for TENS: 43 
billion  euro  (about  11  per  cent  of  the  whole  cohesion  policy  budget,  half  of  the  resources 
allocated to transport) in the current programming period. On the specific issue of TENS funding 
through  cohesion  policy  it  has  been  argued366  that  the  nature  of  the  programming  process,  in 
which  individual  countries  individually  define  their  own  priorities,  automatically  lead  to  cross-
border coordination failures. Moreover, countries tend to place greater priority on investing in a 
connection  to  the  core  of  Europe  than  in  a  missing  link  toward  more  peripheral  neighbouring 
countries,  thus  exacerbating  the  accessibility  advantage  of  the  core.  Lastly,  the  contribution  of 
infrastructure  spending  in  lagging  Regions  to  the  reduction  of  regional  disparities  in  the  EU  is 
disputed. 

It  has  been  suggested  that  the  whole  of  TENS  funding  could  be  brought  within  the  Cohesion 
Fund. However, given the policy and strategic expertise required to plan and manage the TENS, a 
preferable option would be to create a single fund for TENS. This would represent a significant 
transfer  of  budgetary  resources,  with  implications  also  for  the  management  of  TENS  in  the 
Member States. It would be important, therefore, for TENS to be managed as a “Structural Fund” 
under  the  same  European  strategic  framework  as  the  Regional  Fund  (ERDF),  and  with  TENS 
investments  coordinated  with  Member  State  cohesion  policy  strategies  to  ensure  a  territorially 
coherent approach to maximising the benefit of new transport networks.  

Architecture of the Funds: the current configuration of Funds should be largely retained but 
with  more  coherence  between  EU  interventions  promoting  a  place-based/territorial  approach 
to development. 

Faced with the present fragmentation of Funds – three within cohesion policy and two outside it 
–  and  the  need  for  integrated  projects  to  use  more  than  one  of  them,  with  different  rules  and 
through different programmes, pressure has been mounting for a merger of the Funds. The most 
widespread  concern  is  with  the  separation  of  the  Rural  Development  component  of  the 
Agriculture-Rural Fund (EARDF) from the whole of cohesion policy. 

365  The  following  problems  have  been  identified:  under-investment  by  the  Member  States;  long 
implementation  delays,  particularly  concerning  cross-border  cooperation  projects  (which  face  inherent 
difficulties  due  to  their  intergovernmental  nature);  insufficient  financial  and  operational  coordination 
between Member States on projects along a single axis; generally inadequate concentration, selectivity and 
coordination of the projects selected; low financial participation from the private sector. See Van Miert, K. 
(2003); Commission of the European Communities (2007e); European Commission (2008e). 
366 Ecorys (2006). 

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While  the  optimal  technical  solution  might  be  to  have  all  funding  instruments  merged  or 
coordinated  in  a  single  Fund  under  one  Directorate-General,  this  would  require  such  a 
readjustment of human resources and of the organisation of the Commission – in order to make 
sure that no accumulated knowledge is dispersed – that this hypothesis is hardly feasible, if not 
potentially disruptive. Therefore, it would be more appropriate to conceive a partial readjustment 
of the architecture of the Funds along the following lines: 

•  the  operation  of  cohesion  policy  within  a  strategic  (place-based)  territorial  framework  (see 
further  details  in  pillar  2)  with  common  strategic  objectives  and  priorities,  consistency  of 
guidelines  and  a  clear  division  of  responsibility  for  different  types  of  intervention;  the 
systematic  use  of  different  Funds  for  the  same  core  priority,  would  require  and  produce  a 
much stronger strategic integration of the different Funds, namely of the social and regional 
Funds; 

•  adaptation of the current architecture of cohesion policy: 

–  to  promote  a  full  integration  of  the  interventions  financed  by  the  Regional  and  Social 
Funds,  and  a  strategic  cooperation  of  DG  REGIO  and  DG  EMPL  by  combining  the 
social and the territorial agenda; 

–  to align fully the objectives and rules of the ERDF and Cohesion Fund; 

–  to  bring  the  rural  development  actions  of  the  EARDF,  the  territorial  actions  of  the 
Fisheries  Fund  (EFF)  and  any  other  Commission  interventions  to  support  territorial 
development under the umbrella policy heading of cohesion policy, as Structural Funds; 

–  to  ensure  that  each  type  of  intervention  is  allocated  to  one  Fund  only  (although  not 

eliminating the current provisions for cross-financing). 

•  common  rules  and  procedures  for  all  the  Funds  (building  on  the  harmonisation  of  the 
Regional  and  Social  Funds  rules)  with  respect  to  eligible  expenditure,  management, 
monitoring, reporting and financial management obligations which would facilitate the use of 
different Funds in the same schemes or projects; 

•  provision  of  Member  States  with  maximum  flexibility  to  allocate  resources  between  the 

different Funds in line with the objectives of the strategic framework (see below). 

V.2.  A new EU strategic framework for cohesion policy  

The  effectiveness  of  cohesion  policy,  as  with  any  place-based  development  policy,  depends  on 
the balance between conditionality and subsidiarity of its multilevel governance system. In this 
respect,  compared  to  the  reference  model  discussed  in  chapter  I,  the  governance  of  cohesion 
policy presents some key problems that need to be addressed (section II.4).  

Both  of  the  present  “contracts”  agreed  by  the  Commission  with  Member  States  and  Regions  - 
part  of  the  National  Strategic  Reference  Framework  and  the  Operational  Programmes  –  do  not 
provide  the  Commission  with  an  adequate  commitment  by  the  Member  State  (Regions),  while 
raising great concerns among Member States about the Commission infringing subsidiarity. Both 
types of contracts generally fail to specify clear objectives and targets, which tend to be relegated 
to  the  latter  stages  of  the  programme  approval  process,  and  to  explain  satisfactorily  the 
relationship  between  planned  actions  and  targets  and  the  institutional  conditions  necessary  for 
results to be achieved. Both the quality of the indicators and the meaningfulness of the targets are 
so doubtful that no summary statistics can be derived (section II.3.2). More generally, this Report 
has  identified  a  methodological  failure  to  deal  appropriately  with  the  profoundly  incomplete 
information  available  to  both  the  Commission  and  Member  States  (Regions)  at  the  time  of 
drawing up the current programmes.  

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The changes proposed by this Report converge in creating the appropriate conditions for greater 
effectiveness of the contract between the Commission and Member States, through: 

•  a greater focus on objectives, for both core and non-core priorities, enhanced by the clear-cut 
distinction between efficiency and social inclusion, and strengthened by an improved learning 
process (pillar 7); 

•  the focus of a large share of resources on a few core priorities (chapter IV and pillars 1 and 4), 

allowing the Commission to concentrate and to qualify its effort; 

•  a greater mobilisation of local actors (pillar 6) and a greater EU-wide political oversight (pillar 
10),  raising  the  pressure  on  results  and  the  external  assessment  of  outcomes  both  at  the 
bottom and at the top level; 

•  a  stronger  Commission,  made  more  credible  by  the  flexibility  of  the  spending  deadlines 
(pillar 5)  and  by  a  shift  away  from  audit  (pillar  9),  and  made  more  effective  by  a 
reorganisation  and  an  investment  in  human  resources  (pillar  8)  and  by  adjustments  in  the 
architecture of the funds which can allow more internal coordination (pillar 1). 

However,  for  all  these  improvements  to  come  together  and  be  effective,  the  present  system  of 
“contracts”  must  be  revised.  This  Report  argues  that  a  new  type  of  contractual  agreement 
between  the  Commission  and  Member  States  (Regions)  is  required,  which  focuses  on 
performance  and,  for  the  core  priorities,  on  the  general  institutional  pre-requisites.  It  can  give 
both Member States and Regions greater freedom for implementation and more certainty in their 
choices,  allowing  for  the  design  of  solutions  tailored  to  regions,  in  return  for  credible  and 
verifiable  commitments  on  outcomes  and  on  the  institutional  conditions  for  those  actions  to  be 
achieved.  These  commitments  must  rely  on  the  design  of  appropriate  ways  to  deal  with 
incomplete information incompleteness through a tailor-made approach. They must be the result 
of a genuine strategic debate on priorities and objectives. And they must be embodied in a unified 
contractual  agreement  for  each  Member  State  (including  Territorial  cooperation)  and  a  unified 
reporting/monitoring system. 

A  new  kind  of  strategic  dialogue  between  the  Member  States  and  European  institutions  is 
required to mobilise knowledge and political debate, to produce a coherent European Strategic 
Development Framework, and to identify the core priorities. 

One of the cornerstones of the proposals in this Report is a genuine dialogue among the Member 
States and European institutions on a strategic framework for cohesion policy. The intention is to 
begin the process earlier – to allow more time for reflection and debate – and also to engage the 
Member States more fully in the development of EU-level objectives and priorities.  

The  development  of  a  strategic  framework  would  begin  with  an  EU-level  strategic  debate  in 
2010-12367  in  the  Parliament  and  Council  on  the  role  of  cohesion  policy  post-2014  with  the 
objective of producing a European Strategic Development Framework document. An indicative 
outline of how such a debate might be managed is as follows. 

•  The debate would start with an analytical document – the Fifth Cohesion Report – published 
by  Autumn  2010  which  would  set  out:  the  state  of  territorial  development  in  the  EU,  with 
reference  to  both  capacity  underutilisation  (inefficiency)  and  to  social  exclusion;  the  main 
projected  challenges  to  European  development  which  call  for  a  place-based  approach;  a 
preliminary proposal for “core priorities” for post-2014 intervention, justified on the basis of 
EU-wide  relevance  (the  value  they  can  add  for  the  Union  and  its  citizens),  place-basedness 
and  verifiability  (as  defined  in  chapter  IV);  an  assessment  of  the  performance  of  cohesion 

367 The references to specific dates in the following description are indicative. 

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policy  in  the  2007-13  period  (thus  far),  notably  whether  it  has  overcome  the  limitations 
discussed in chapter II; and a proposal for key  changes in the governance of the policy. An 
open debate would be organised on the Report. 

•  As part of the debate, each Member State and its Regions would draw up (by Autumn 2011) a 
National  strategic  assessment  of  regional/territorial/place-based/spatial  development 
challenges  and  policies  at  domestic  level.  This  would  be  prepared  in  partnership  with  local 
partners. Where such an assessment has already been done, the document could be based on 
(or  comprise)  an  existing  national/regional  strategic  assessment.  The  strategic  assessment 
would  include:  an  analysis  of  the  main  territorial  development  needs  and  challenges,  with 
distinct reference to situations of underused capacities (inefficiency) and of social exclusion; a 
description  of  the  priorities,  objectives  and  main  interventions  of  national  development 
policies;  an  assessment  of  their  effectiveness,  with  particular  reference  to  the  use  of  impact 
evaluations; and a description of the most promising progress achieved in the construction and 
use of outcome indicators and targets. Member States would also propose, with reference to 
the  Fifth  Cohesion  Report,  priorities  where  the  need/scope  for  cohesion  policy  to  make  an 
impact in their territory is greatest, and methodological innovations that could be introduced 
in order to increase the focus on results. 

This is a key change: bringing the drafting of a Member State strategic framework forward to 
earlier in the cycle allows a “bottom up” dimension to be incorporated into the preparation of 
the EU-level framework. However, the purpose is not to pre-empt decisions on the priorities 
for  allocating  funding  within  a  Member  State  –  which  would  only  be  decided  once  the 
financial perspective had been agreed. 

•  The debate would be animated by a temporary Place-based Policy Group established in the 
first  half  of  2010.  This  would  comprise  a  group  of  senior  officials368  from  Member  States, 
international experts (in topics such as economic development, urban and rural development, 
inequality,  impact  evaluation),  a senior official appointed by the Committee of the Regions, 
and  senior  representatives  of  the  Commission’s  Directorates-General  in  charge  of  cohesion 
policy  or  engaged  in  issues  with  strong  territorial  effects  (particularly  with  reference  to  the 
proposed core priorities). This composition would allow the Group to “take into account the 
territorial  impact  of  major  strategies  and  sector-based  policies”369  and  to  maximise  the 
coherence  of  Commission  policies  and  intervention.  The  Group  would  be  chaired  by  the 
Secretary-General of the European Commission. Its general task would be to make proposals 
for  the  European  Strategic  Development  Framework,  especially  on  the  core  priorities  for 
cohesion policy, on the territorial dimension of other relevant Community policies, and on key 
governance issues370. 

368 In order to keep the Group manageable, it would be preferable for only a limited number of national 
officials to participate (although representative of the diverse development situations across the EU). The 
proposals of this temporary Policy Group would be submitted to the new Council Committee for cohesion 
policy  envisaged  in  V.10  (via  its  technical  sub-committee)  on  which  all  Member  States  would  be 
represented. 
369 This is the first condition set by the document adopted by Ministers responsible for spatial planning and 
cohesion policy (at the meeting organised in Marseille by the French Presidency in November 2008) for 
implementing  the  territorial  agenda.  The  document  notes  that  “Experience  shows  that  the  European 
Union’s sector-based policies often have effects which run counter to the cohesion goals”. 
370 Prepared by a sub-group, specific governance issues would include those discussed in the ten pillars of 
this chapter: design and use of outcome indicators and targets; design of incentive mechanisms linked to 
targets; criteria and institutional requirements for a successful, place-based development policy for the core 
priorities;  methodologies  of  impact  evaluation  for  integrated  projects;  the  application  of  new  types  of 
instruments (such as the financial instruments introduced in the current period to lever greater involvement 
of the private sector) etc. The Group would also be endowed with a budget to set an agenda for empirical 
analysis, for surveys on issues where the scarce availability of information represents a serious impediment 
to the design of appropriate governance changes, and for workshops. 

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•  On the basis of the strategic debate, by Spring 2012 the Commission would draft the above-
mentioned European Strategic Development Framework and accompanying set of regulations. 
The draft regulations would introduce the key changes to policy governance. Taking account 
of  other  relevant  EU  and  Member  States  policies,  the  Framework  would  specify  the 
contribution that cohesion policy (and other relevant Community policies) would aim to make 
during 2014-20 to the territorial development objectives of the Union, with reference to both 
efficiency and social inclusion.  

Based on this process, the Framework would present the conceptual perspective to be adopted by 
EU cohesion policy. It would set out a limited number (3-4) of core priorities, for both efficiency 
and  social  inclusion,  providing  a  clear  justification  for  them,  based  on  the  criteria  discussed  in 
chapter  IV,  and  their  main  objectives.  For  each  core  priority  and  for  the  other  main  issues 
relevant for cohesion policy, it would set a limited group of core outcome indicators, benchmarks 
and  targets  against  which  progress  could  be  measured,  and  a  methodological  system  to  ensure 
their  quality,  timely  updating  and  broad  diffusion.  In  doing  so  it  would  take  advantage  of  the 
experience  accumulated  through  the  Open  Method  of  Coordination,  of  the  proposals  made  in 
Member  State  Strategic  Assessments  and  by  the  Policy  Group371.  For  the  core  priorities,  the 
Framework  would  outline  the  general  principles  which  should  inspire  the  national  institutional 
frameworks with which Member States (Regions) would tackle each core priority (pillar 4). The 
Framework  would  also  pinpoint  the  main  requisites  that  interventions  must  have  to  be  truly 
place-based  and  the  major  policy  innovations  that  would  be  expected  to  characterise  cohesion 
policy  in  the  post-2013  period:  particular  relevance  would  be  given  to  impact  evaluation  and 
local actor mobilisation (pillars 7 and 8). 

The debate and adoption of the Framework by the Parliament and the Council would take place 
during  2012,  simultaneously with the negotiation and approval of the new financial framework 
and  of  the  cohesion  policy  regulation.  The  size  and  territorial  allocation  of  cohesion  policy 
resources, the European Strategic Development Framework and the regulation would need to be 
agreed  simultaneously.  As  the  Report  has  argued,  the  experience  of  previous  negotiations  has 
shown  that,  once  the  financial  agreement  is  reached,  the  focus  of  each  Member  State  on  the 
effectiveness  of  cohesion  policy  in  the  other  Member  States  rapidly  evaporates.  This  tends  to 
create  a  perverse  collusion  of  all  countries  on  the  selection  of  rules  (in  the  regulation)  and  of 
policy content (in the framework) that weakens conditionalities and the pursuit of EU-wide goals.  

V.3.  A new contractual relationship, implementation and reporting aimed at results 

Strategic  development  contracts:  the  “strategic  development  contract”  between  each  Member 
State  (Regions)  and  the  Commission  should  find  a  better  balance  of  conditionality  and 
subsidiarity,  focus  much  more  on  performance  and  provide  room  for  adapting  institutional 
changes to contexts which greatly differ among Member States (and sometimes Regions). 

For each country of the Union, the Member State (Regions) would conclude a National Strategic 
Development Contract (or Contract) with the Commission, a document formally approved by the 
Commission committing the Member State (Regions) to a strategy and to results for the use of 
the  funds.  This  builds  on  the  strategic  approach  used  in  the  current  period,  by  significantly 

371 The Laeken indicators for several variables of social inclusion; the Barcelona targets for child care; the 
employment and unemployment targets with reference to the European Employment Strategy guidelines: 
these and other examples illustrate the now-common EU practice to set EU-wide targets for some relevant 
indicators capturing the political objectives. Compared to this experience, care is necessary on two specific 
points. First, as section IV.4 made clear, fixing one target can wrongly induce policy-makers to focus on 
one  aspect  only  of  a  policy  that  should  be  broader.  Second,  while  setting  the  same  target  for  all  EU 
countries  responds  to  the  idea  that  EU  citizens  increasingly  combine  national  and  EU  standards,  it  can 
introduce a bias, as EU citizens do still largely look at national standards, and a particular target can be a 
very limited aim for some, and an excessive one for others. Hence, it is suggested that the EU-wide target 
should only be indicative, leaving each Member State to set its own. 

 165

 
                                                      
changing  its  content  and  turning  the  strategic  contract  from  a  “reference  instrument”  into  an 
agreement  on  objectives  and  means,  where  Member  State  and  Regions  commit  themselves  to 
quantified  and  verifiable  objectives,  coherent  with  the  goals  of  the  European  Strategic 
Development Framework. It would exploit existing national institutions, where they are adequate 
for achieving the objectives of the core priorities, and adjust the existing ones or build new ones 
where  institutions  are  weak.  This  should  give  Member  States  (Regions)  flexibility  as  to  how 
results  are  achieved  and  the  institutions  and  instruments  that  are  used.  The  role  of  the 
Commission would be to focus on ensuring the verifiability of the objectives and the adequacy of 
institutional capacity or institutional changes (when necessary) and on assessing performance. 

The process of contract planning would begin in the latter stages of the current period. On release 
of  a  draft  version  of  the  European  Strategic  Development  Framework,  the  Member  State  and 
Regions in each country would draw up a draft National Strategic Development Contract during 
2012 and early 2013 (in consultation with relevant partners). This would be based on the strategic 
assessment previously undertaken (see pillar 2 above) and represent a draft version of the final 
contract with the Commission, with a similar content. Its key function would be to set out the use 
of  EU  funding  and  targets.  In  this  process,  the  Commission  would  undertake  a  strategic 
consultancy  role  in  providing:  expert  assessment  of  proposals/drafts;  contribution  of  ideas, 
innovations;  and intermediation with all the relevant Directorates-General. The intention would 
be  to  maximise  the  scope  for  lesson-drawing  and  reduce  problems  during  the  adoption  phase. 
Compared  to  the  current  programming  period,  when  a  similar  role  was  conceived,  the 
effectiveness of this function would be enhanced both by the different content of the document at 
stake  (see  below),  much  more  focused  on  results  and  institutional  requirements,  and  by  the 
strengthening of the Commission strategic expertise (pillar 8). The relevance of this phase would 
be enhanced by the Commission’s commitment that issues agreed with Member States (Regions) 
during this phase would not be re-opened during the approval phase without good cause.  

The  draft  National  Strategic  Development  Contract  would  be  finalised  by  each  Member  State 
once  the  financial  perspective  for  the  post  2013  period  had  been  agreed.  It  would  then  be 
submitted to the Commission to allow the approval (contracting) process to start. The document 
would be subject to expert assessment by the Commission.  

Where the Commission has major doubts, it could launch an independent ex ante evaluation of all 
or  part  of  the  Contract  with  a  view  to  (re)assessing  the  proposed  deployment  of  funding.  The 
Strategic  Development  Contract  would  then  be  agreed  between  the  Commission  and  Member 
States  (Regions),  by  the  end  of  2013.  If  no  agreement  were  possible  for  some  aspects,  the 
Commission  could  adopt  a  part  of  the  Contract  (e.g.  relating  to  specific  Regions)  or  adopt  it 
“subject to conditions” such as payment in tranches subject to review (e.g. after three years), or 
special  monitoring/reporting  conditions.  Regarding  the  implementation  capacity  and  the 
institutional  framework  needed  to  pursue  the  core  priorities,  the  Commission  could  ask  the 
Member State to submit an Implementation Report on some or all of the implementation issues 
(see below). For the core priorities, Member States (Regions) could be required to shift resources 
to other fields of intervention. 

All  the  commitments  of  the  Member  State  (Regions)  would  be  embodied  in  the  Contract, 
including  commitments  to  Territorial  Cooperation.  The  Contract  would  specify  the  role  of  the 
Regions  (as  currently),  and  Regions would be co-signatories of the Contract wherever required 
by constitutional, administrative or de-facto political arrangements. In order to allow flexibility 
and  capacity  of  adjustment  to  external  shocks,  or  to  take  account  of  the  results  of  endogenous 
learning,  Member  States  would  have  the  option  to  request  a  revision  of  the  Contract  from  the 
third year of the funding period onwards. 

The  Contract  would  include  one  or  more  Operational  Programmes,  the  number  and  type  of 
Operational Programmes being determined by the objectives and priorities of intervention and the 
constitutional/institutional  arrangements  of  Member  States  (see  below).  The  Operational 
Programmes  would  also  be  adopted  by  the  Commission.  The  sequencing  of  Contract  and 

 166

 
Operational  Programme  preparation  could  differ,  depending  on  Member  State  governance 
arrangements, but adoption of the two would normally take place at the same time. In the case of 
small  Member  States,  and/or  where  small  national  allocations  of  EU  funding  are  involved,  the 
Programmes would not necessarily be required. 

Content of the Contract 

The  contract  would  have  a  logical  structure  very  different  from  the  current  National  Strategic 
Reference  Framework.  It  would  begin  with  the  core  priorities,  objectives  and  the  targets 
established, and then it would describe how these goals are expected to be achieved, in terms of 
actions, institutions and methods. This could be brief and pertinent; where relevant background 
and  analytical  information  had  already  been  covered  in  the  strategic  assessment  this  would  not 
need  to  be  repeated.  In  particular,  unlike  the  present  “contract”,  it  would  not  have  lengthy 
descriptions of existing weaknesses and potentials.  

Specifically, the content required on the use of funding would encompass: 

• 

• 

• 

• 

the  choice  of  priorities  (both  core  and  non-core)  and  the  specific  objectives  of  the 
funding, separately for efficiency and social inclusion, for each type of territory (lagging 
and  non-lagging)  and  their  contribution  to  the  objectives  of  the  European  Strategic 
Development Framework; 

the targets established for each priority (for the end year and for the intermediate years) 
both  for  the  indicative  “core  outcome  indicators”  specified  by  the  European  Strategic 
Development Framework and for a system of indicators selected at national or regional 
level  according  to  rigorous  requirement372  and  with  timely  measurement,  plus  the 
commitment to a wide accessibility and communication of information on indicators and 
targets and (for relevant social inclusion actions) to the promotion of community-based 
indicators at local level; 

the allocation of funding by priority for each type of territory, justified with reference to 
the  above  objectives  and  targets  and  to  other  territorial  development  criteria;  and  the 
corresponding  allocation  of  funding  by  management  authorities  (NUTS  2  Regions  and 
other  authorities),  appropriately  justified;  and  the  amount  of  national  co-financing  for 
each priority; 

a commitment to the strategy through which the Member State (Regions) is planning to 
achieve, for each priority (core and non–core) those objectives and targets; this would be 
in  the  form  of  a  narrative  (supported  with  reference  to  the  European  Strategic 
Development  Framework  and  to  previous  interventions  and  results)  describing:  (i)  the 
main typologies of interventions that the Member State (Regions) is planning to finance, 
with reference to their place-basedness373; (ii) the methods for selecting the places where 
interventions  will  be  concentrated;  (iii)  the  institutional framework in place, or that the 
Member  State  (Regions)  commits  itself  to  build,  for  pursuing  the  priority  effectively 

372 See for example the requirements for indicators of social inclusion in section IV.2. 
373 The level of detail would vary significantly depending on the type of intervention, since the limits of the 
information that Member States (Regions) themselves have when launching a new strategy strongly differ 
according to types of interventions. For example, in the case of major infrastructure (e.g. railways, which 
might  be  chosen  as  the  appropriate  intervention  to  improve  accessibility),  it  is  likely  that  achieving  the 
objectives during the period would require a Member State (Region) to have already identified a precise 
list  of  projects  at  the  time  of  Contract  preparation.  The  absence  of  such  a  list  could  suggest  that  the 
commitment is not credible. In most other cases, it could be appropriate for the Member State to commit to 
typologies  of  intervention.  For  example,  in  the  case  of  Innovation  a  Member  State  could  commit  to  use 
typologies  of  incentive  mechanisms  such  as  those  outlined  in  section  IV.3.1.  On  these  issues  see,  for 
example, the Report working-papers by Casavola, P. (2009) and Bonaccorsi, A. (2009). 

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(only  for  the  core  priorities,  see  pillar  4);  (iv)  the  causal  factors/relationships  through 
which  the  objectives/targets  are  expected  to  be  met  and  the  expected  timing  of  their 
achievement. 

• 

a commitment to financial additionality and to policy additionality (see pillar 5); 

Other specific requirements on implementation and reporting would be as follows: 

• 

Implementation capacity. As now, decisions on management and implementation would 
be the responsibility of the Member State (Regions). The Member State (Regions) would 
provide  evidence  that the necessary human resources, skills and structure/system are in 
place,  or  will  be  established  for  the  proposed  EU  interventions,  to  enable  the  strategic 
management, the generation and selection of projects, control, monitoring and evaluation 
of  funding  according  to  sound  management  principles,  norms  and  standards  and  to 
deliver the proposed outcomes374.  

•  Partnership.  The  Member  State  would  describe  how  the  partnership  principle  has been 
applied in the development of the strategy and decisions on the allocation of EU funding, 
as  well  as  how  will  be  applied  in  the  implementation  of  the  contract.375  A  particular 
emphasis  would  be  put  on  how  managing  authorities  are  planning  to  promote  at  local 
level  experimentalism  and  mobilisation  (pillar 6),  and  to  create  the  appropriate  balance 
between encouraging local actors’ commitment and discouraging rent-seeking. 

•  Reporting and evaluation. The Member State (Regions) would commit to a single system 
of reporting to the Commission, based on annual reports to the Commission on progress 
in meeting the outcomes (see below). The Member State (Regions) would also commit to 
the  design  and  implementation  of  a  system  of  evaluation,  utilising  prospective  impact 
evaluation whenever possible (pillar 7). 

This  structure  allows  an  appropriate  application  of  the  principles  of  proportionality  and 
diversification.  The  number  and  range  of  targets,  the  detail  of  the  ex  ante  assessment,  and  the 
amount  of  information  required  on  implementation  capacity,  partnership  and  reporting  and 
evaluation,  would  be  related  to  the  size  of  the  financial  allocations.  The  commitments  to 
institutional changes would take into account the starting conditions of different Member States 
and Regions. 

Operational Programmes 

The Operational Programmes would explain how the general strategy is based on, or adapted to, 
the specific needs and potentials of specific places and regions in line with existing Member State 
institutional  arrangements.  For  example,  in  Member  States  with  federal  or  devolved  structures, 
the  Programmes  would  provide  the  building  blocks  for  the  Contract.  As  in  the  current  period, 
therefore, Operational Programmes would be drawn up for the main areas of policy intervention 
in lagging and non-lagging Regions and adopted as described above. 

As in the case of the Contract, Operational Programmes would move from a clear-cut description 
of core priorities and objectives and then move to the strategy to achieve them. In particular they 
would  specify:  the  objectives/targets  of  each  of  the  priorities;  the  allocation  of  funding  to  all 
priorities,  and  the  main  criteria  for  allocating  funding  to  places/regions;  the  main typologies of 
interventions,  with  an  emphasis  on  their  place-basedness;  a  narrative  on  how  the  interventions 

374 Specific EU management and implementation processes would only need to be in place where national 
institutional arrangements are weak or undeveloped. 
375 In line with the policy concept of this Report, Member States (Regions) will describe here the methods 
that they are planning to adopt in order to ensure that their interventions will actually elicit at local level 
the knowledge and the preferences of local actors, a condition for tailoring them to specific contexts.  

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will  achieve  targets,  and  the  timescales  for  these  to  come  about.  On  the  issues  of  the 
implementation, institutional capacity, partnership, reporting, robustness of the indicator system, 
and  on  impact  evaluation,  the  Operational  Programmes  would  be  simply  commit  to  follow  the 
commitments of the overall Contract. Again, the level of detail required would be proportionate 
to the scale of EU funding involved. 

Operational Programmes could be drawn up at the level of administrative Regions or at national 
level,  as  is  currently  the  case.  However,  reflecting  the  requirement  for  “policy  additionality” 
below (pillar 5), it is anticipated that regional Operational Programmes would not necessarily be 
restricted  to  the  boundaries  of  administrative  Regions.  For  example,  promoting  innovation 
through cluster strategies might warrant a Programme for two or more neighbouring regions to 
ensure  a  critical  mass  of research centres, universities and firms; and addressing environmental 
hazards could require a new or distinctive geographical approach. In the context of an appropriate 
definition of places, endogenous to the policy process (as required by the territorial dimension of 
cohesion  policy)  –  and  of  the  need  to  think  afresh  about  the  development  needs  of  peripheral, 
mountainous  or  island  areas  –  and  with  reference  to  the  spatial  strategies  that  some 
countries/regions have drawn up, new territorial boundaries as a basis for the Programmes might 
also be considered.  

Administrative  and  institutional  implementation:  the  Commission’s  assessment  would  be 
proportionate, differentiated and focused on the capacity to produce results. 

When the Contract is adopted, the Commission would have the option of asking Member States 
to  submit  an  Implementation  Report  demonstrating  that  the  capacity  and  the  institutional 
framework  for  the  core  priorities  exist  to  implement  the  chosen  interventions  effectively.  This 
Report  would  cover  those  aspects  of  the  implementation  capacity  where  the  Commission  had 
concerns  which  were  not  resolved  during  the  adoption  of  the  Contract.  The  Report  would 
certainly  be  required  in  cases  where  the  institutional  framework  for  a  core  priority  was  not  in 
place  and  a  commitment  needed  to  be  given  for  its  future  construction.  The  key  feature  of  the 
Implementation  Report  would  be  a  focus  on  performance,  rather  than  formal  compliance  with 
detailed  prescriptions,  i.e.  demonstrating  that  the  human  resources,  skills  and  administrative 
structure/systems are in place for the implementation of the Contract.  

In  cases  where,  on  the  basis  of  the  Report,  the  Commission  still  has  concerns  about 
implementation  capacity  –  based  for  example  on  a  lack  of  Member  State  experience  with 
implementing  certain  interventions,  previous  problems  with  implementing  the  Funds,  or  other 
known administrative or institutional deficiencies in the Member State – the Commission would 
undertake its own Implementation Assessment. This assessment would focus on specific areas of 
intervention  (e.g.  certain  priorities,  particular  implementing  bodies)  or  on  the  administrative 
capacity  for  a  programme  or  the  Funds  in  the  Member  State  as  a  whole.  In  such  cases,  the 
Commission would assess the adequacy/quality of Member State implementation structures and 
processes  (the  mechanisms  implemented  for  selecting  projects;  effective  financial management, 
control  and  audit;  reporting;  monitoring;  evaluation).  For  the  core  priorities,  the  assessment  (if 
required) would extend to the national (or regional) institutional framework to which the Member 
State  had  committed  itself  in  the  Contract  for  tackling  each  priority  (point  d-iii;  see  pillar  4). 
Existing provisions by which the Commission is currently required to give specific approval, in 
the absence of on-the-ground information, would not be a standard obligation376. 

The  Commission’s  approach  to  this  task  would  be  differentiated.  The  content  of  the  Member 
State’s  Implementation  Report  and  the  extent  of  the  Implementation  Assessment  (if  required) 
would  be  proportional  to  the  level  of  EU  resources,  the  degree  to  which  public  management 

376 A relevant example is the system concerning “major projects” (projects whose total cost exceeds €25 
million for environment and €50 million in other fields), which Member States currently have to submit to 
the Commission for approval. This kind of provision would only be required where the Commission has 
concerns about the quality of management and implementation (see below). 

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principles  and  administrative  norms/standards  are  already  applied  in  the  Member  State  for 
domestic  policy  interventions,  and  the  experiences  with  administrative  capacity  for  managing 
cohesion policy in the current period.  

Where the Commission deemed the implementation capacity to be satisfactory – either at the time 
of  adopting  the  Contract  or  subsequently  following  the  Implementation  Report/Assessment  -  a 
“contract  of  confidence”  (applied  to  assurance  of  the  methodology  and  quality  of  audit  in  the 
2000-06 period) would be applied to the whole of the implementation system and agreed between 
the Commission and a Member State. Minor weaknesses would lead to a provisional contract of 
confidence  subject  to  deficiencies  being  addressed  within  a  specified  time  period.  Major 
deficiencies would require an action plan to be implemented by the Member State (overseen by 
the Commission), with funding potentially having to be shifted to other priorities, and some or (at 
worst)  all  funding  delayed/phased  until  deficiencies  are  addressed.  In  certain  cases,  the 
Commission  could  require  approval  or  oversight  of  major  projects or a “special purpose body” 
(e.g.  administrative  agency)  to  be  established  operating  at  arm’s  length  from  Member  State 
government bodies with responsibility for specified management or implementation tasks. 

Reporting: a tool, focussed on results, to promote a high-level political debate 

A periodic review of progress would play a central role, coupled with the other proposals of this 
Report, in raising the quality of EU-wide public and political debate on the results of cohesion 
policy.  

Every  year,  after  the  third  year,  each  Member  State  would  prepare  a  brief,  unified  Strategic 
report  on  results,  presenting  the  results  so  far  achieved  compared  to  the  objectives  and  targets 
established in the contract. The emphasis on indicators, results and the comparison with targets 
would mark a difference from previous and current experiences (the “Strategic Reports” for years 
2010  and  2013).  Variation  of  outcomes  in  relation  to  targets  would  be  explained/justified.  A 
synthesis would be provided (with appropriate accessible references) of the on-going activity of 
prospective  impact  evaluation  (pillar  7).  The  report  would  also  include:  information  on  the 
implementation  of  financial  and  policy  additionality,  including  a  brief  description  of  the  most 
innovative  interventions  or  methodologies;  and  a  web-site  reference  for  the  outcome  indicators 
data-base; brief assessment of the main obstacles and risks of the strategy.  

The Commission would ensure the translation of each Report into the working languages of the 
Union. On each Report the Commission would prepare a brief Opinion; it would also prepare a 
general  Summary  Report.  The  country  Reports,  the  Opinions  and  the  Summary  Report  would 
represent the basis for the high-level political debate both in the European Parliament and in the 
Council discussed under pillar 10. 

V.4.  A strengthened governance for the core priorities 

The core priorities play a very important role in the revised architecture. They would: absorb a 
large  share  of  the  funds;  catalyse  much  of  the  focus  on  results;  be  supported  by  Territorial 
Cooperation; and be a focus for strengthened Commission support. Both in the strategic planning 
process and in the Contract described in the previous section, core priorities are given privileged 
attention and are subject to strengthened conditionalities. It is useful to collate and describe these 
aspects. 

Appropriate institutional framework: a critical factor for the governance of the core priorities 
is  to  ensure  that  the  adequate  institutional  framework  is  in  place  for  Member  States  to  meet 
their objectives. 

They would also explain how the Member State (Regions) is planning to finance the public goods 
and  services  promoted  by  the  EU  funded  interventions  after  the  EU-funded  intervention  has 
ended. 

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The strengthened governance first emphasises the importance of Member States (Regions) having 
in place (or making a commitment to) the appropriate institutional framework for EU funds to be 
spent effectively (see point d-iii of the Contract). Apart from the required implementation system 
(which is the concern of the Implementation Report), support for each core priority would require 
that  each  Member  State  (Region)  has  in  place  or  develops,  where  necessary,  an  institutional 
framework  suitable  for  pursuing  that  priority.  On  the  basis  of  international  experience,  the 
Commission would set out principles in the European Strategic Development Framework (pillar 
2) in the form of principles on institutional conditions for each of the priorities.  

Member  States  (Regions)  would  be  required  to  argue  ex-ante  in  the  Contract  (and/or  in  the 
Operational Programmes), for each core priority, how the institutional framework relevant for the 
implementation of the priority meets these principles. The discussion with a Commission “core 
priority  task-force”  (pillar  8)  would  represent  a  significant  part  of  the  negotiation  for  the 
agreement  on  the  Contract.  In  extreme  cases,  if  no  agreement  were  to  be  achieved  on  a  given 
priority,  Member  States  (Regions)  might  be  required  to  shift  the  allocation  of  funds  to  other 
priorities.  The  principles  would  also  be  used  by  the  Commission  for  its  implementation 
assessment within one year of the Contract, analysing the adequacy of Member State institutional 
frameworks for implementing the core priorities, and for working with Member State authorities 
eventually to identify the adjustments to be made. 

The  institutional  capacity  for  implementing  the  core  priorities  would  be  the  subject  of  specific 
and  critical  attention  as  part  of  the  process  of  agreeing  a  “contract  of  confidence”.  It  is 
particularly  with  respect  to  the  core  priorities  that  the  above-mentioned  steps  for  addressing 
identified deficiencies would be employed, notably a requirement for them to be rectified within 
specific time periods, the imposition of conditions on the provision of funding, or – in extreme 
cases – the requirement for special management arrangements to be put in places or funding to be 
shifted to other priorities 

Experience  and  evaluation  evidence  show  that  it  is  weaknesses  of  the  institutional  framework 
which are often responsible for the failure of interventions to be effective. There is, of course, no 
general  de-contextualised  recipe  on  how  to  design  “best  practice”  institutions:  “best-practice 
institutions  are,  almost  by  definition,  non-contextual  and  do  not  take  into  account  … 
complications”377. It would therefore be highly inappropriate for the EU level to decide what the 
institutions relevant for each priority should look like in a particular Member State. Nevertheless, 
international  debate  and  EU  methods,  such  as  experience  under  the  Open  Method  of 
Coordination,  have  brought  about  a  degree  of  consensus  in  most  fields  on  some  general 
principles  to  be  followed  for  institutions  to  implement  certain  policies.  These  principles  often 
allow  the  exclusion  of  solutions  that  have  failed  repeatedly,  the  comparison  of  alternative 
solutions,  and  the  focus  of  policy  effort  on  relevant  issues,  and  they  are  continuously  renewed 
through the experience emerging from implementation378. 

377 Rodrik, D. (2008b). “Complications” are defined as the effects that any institution has on development 
constraints  other  than  those  they  directly  addressed:  for  example,  strengthening  judicial  enforcement – a 
seemingly uncontroversial and oft-advocated institutional requirement for any policy or for the market to 
be successful - can undermine relational contracts based on trust and repeated interaction. 
378 As an example, the principles developed by the OECD and progressively updated on “what institutions 
make  schools  successful”,  represent  an  example  of  these  broad  principles.  They  can  still  be  questioned, 
and appropriately so, as reflecting one cultural model, one typology of context, more than another, but they 
have  a  powerful  capacity:  not  to  recommend  (generally)  best  practices,  but  to  engineer  powerfully  an 
active  public  debate  on  alternative  ways:  to  deal  with  a  by-now-agreed  set  of  institutional  issues;  to 
promote public action and comparability across seemingly incomparable contexts; and to be continuously 
enriched by this debate. It should be noted, with reference to the proposals made in Section V.7, that all 
this  is  possible  thanks  to  a  strong  investment  in  human  resources  and  the  high  credibility  acquired 
internationally by the task-force which runs it. 

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This is the role that the principles agreed in the Strategic Framework would be asked to play, and 
the  Commission  would  be  entrusted  with 
their 
operationalisation.  In  order  to  play this enhanced role, the Commission would need to undergo 
the reorganisation and investment in human resources outlined under pillar 8.  

the  responsibility  of  vouching  for 

Focus  on  targets  and  performance:  the  core  priorities  should  be  subject  to  performance 
monitoring – separate from evaluation – to track their progress in meeting targets. 

A second set of strengthened conditionalities would enhance the ex ante focus on targets and the 
ex  post  verification  of  performance,  an  area  where  cohesion  policy  has  proved  so  far  to  be 
particularly weak. 

The performance management system proposed here – using outcome indicators and targets - has 
a central but limited purpose: to ensure more focus on the objectives chosen by policy-makers in 
their support of the core priorities. A concentration of the policy debate on targets can create a 
strong motivation for policy-makers (both officials and politicians) to provide a reasonable and 
accurate narrative on why and how targets were achieved, missed or exceeded. 

The proposals should not be confused with the evaluation of impact (addressed under pillar 7). 
As  the  review  of  international  and  European  experience  has  noted  (see  section  I.4),  outcome 
indicators  cannot  measure  policy  impact,  as  they  cannot  identify  causal  factors:  they  simply 
measure what happened to the objectives while policy was being implemented. Nor can they be 
used to evaluate/stigmatise those who manage the interventions, as their performance is only one 
of  the  many  determinants  of  results.  Further,  an  exclusive,  automatic  focus  on  one  particular 
indicator (as a measure of the “success” of an objective) can have distorting effects by diverting 
public attention or policy action away from other relevant dimensions of the objective.  

It  is  also  evident  that  the  use  of  target-based financial incentives must be used with great care. 
This high-stake use of targets is suitable in specific contexts when the targets concern outcomes 
that are the direct result of identifiable cohesion policy interventions. However, even here, they 
may have unintended consequences or perverse effects. In most other cases, where outcomes are 
influenced  by  several  factors,  largely  outwith  the  control  of  policy-makers,  the  incentive  can 
produce  considerable  bias  and/or  may  induce  great  prudence  on  the  part  of  policy-makers  in 
setting targets. Equally, experience shows that in, some cases, the effects can be positive and can 
induce a better selection of projects – even in the case of innovation, where the incompleteness of 
information is very high (see section IV.3.1)379. 

Therefore,  the  solution  lies  in  not imposing any  EU-wide financial incentives linked to targets, 
but in promoting the verification of results for the core priorities in the following ways. 

•  Creating  for  the  core  priorities  a  high-standard  system  of  indicators  and  targets  and  an 
indicator  data-base,  fully  accessible  by  the  public..  This  would  exploit  the  extensive 
knowledge accumulated in previous EU policy practices (especially in the context of the Open 
Method of Coordination) – for the objective of social inclusion, see section IV.2). 

•  Promoting  (starting  with  the  work  of  the  proposed  Policy  Group)  an  intensive  exchange  of 
experience  between  the  cohesion  policy  community,  other  policy  communities  and  the 
academic community on the use of financial incentives. It would include creating a “clearing 
house” in the Commission for documentation on all the most relevant experiences. 

•  Encouraging  Member  States  (Regions)  to  adopt  cautiously  and  voluntarily  systems  of 
sanctions/rewards linked to targets. This would include the provision of advice and technical 
assistance  on  their  construction  and  use,  and  allowing  –  as  in  the  present  Regulation  -  the 

379 See the Report working-paper by Bonaccorsi, A. annexed to this Report. 

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creation of a performance reserve (of three percent of the total allocation) for this purpose as 
part of the contract380. 

•  Promoting a public debate at all levels on the targets and progress. This could be through: the 
publication  by  the  Commission  of  multi-language  annual  “Indicators  and  targets  survey”, 
clearly presenting the core indicators and those chosen by Member States, as well as baselines 
and  target  values;  publication  of  the  progress  made  for  the  main  indicators  in  the  annual 
reports  submitted  for  discussion  to  the  EU  level  (see  pillar  10);  and  (from  the  third  year 
onwards) an annual “scoreboard of progress” to allow some basic ranking of Member States 
(Regions) in meeting targets. 

•  Evaluating  lack  of  performance.  When  targets  for  the  core  priorities  are  not  being  met  and 
cannot  be  justified  on  the  basis  of  unforeseen  external  circumstances  or  of  convincing 
arguments (concerning, as is often the case, an overestimation of policy effectiveness), an in-
depth  performance  assessment/evaluation  would  be  undertaken  by  the  Commission  together 
with  the  Member  State  to  identify  problems  and  find  solutions.  Where  the  Member  State 
resists  either  the  evaluation  or  implementing  recommendations,  financial  penalties  would 
accrue  (up  to  the  suspension  of  payments).  This  decision  would  later  be  assessed  by  the 
permanent Council set according to pillar 10. 

V.5. 

Promoting additional, innovative and flexible spending 

The effectiveness of financial additionality: the financial additionality requirement should be 
strengthened and simplified, by extending it to all funds, linking it to the Stability and Growth 
pact, making it more accountable, and abolishing automatic sections. 

The  existing  requirement  that  cohesion  policy  expenditure  should  not  replace  domestic 
expenditure - that it should rather be “additional” - can help in preventing the improper use of the 
EU intervention and increase the opportunity for the policy to make an identifiable contribution. 
By  committing  a  Member  State  to  announce  publicly  the  domestic  public  expenditure  that  the 
country  would  have  realised  if  no  EU  assistance  had  taken  place,  and  to  monitor  the  actual 
implementation of spending net of cohesion policy funds, additionality should have two positive 
effects. On the one hand, it should help prevent Member States from using the inflows of public 
funds to reduce domestic public expenditure and taxation, turning the EU intervention into a tool 
for unchecked tax competition with other Member States. On the other hand, it should increase 
the scope for the EU budget actually to increase the amount of resources at the disposal of the 
targeted areas.  

This Report supports the additionality requirement, but, in view of the serious limits discussed in 
section II.4, argues that its effectiveness should be strongly increased through some key changes 
inspired by the following principles: 

•  more transparency and accountability (by building on the improvements made in the current 

period); 

•  exclusion of any automatic sanction, a discretionary sanction being foreseen only in a special 

circumstance;  

•  introduction of an explicit linkage with the Stability and Growth Pact;  

380  This  would  exert  a  moral  suasion  for  the  adoption  of  such  systems  in  cases  where  the  effects  on 
outcomes are relatively traceable (and less distorting). It could be of benefit for those countries or regions 
where  the  weakness  of  the  public  debate  and  of  the  mobilisation  of  local  actors  inhibits  other,  “softer” 
ways of focusing the efforts of administrators on objectives. The adoption of such systems of incentives 
could  facilitate  Commission  to  agreement  on  a  “contract  of  confidence”  after  the  implementation 
assessment. 

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•  extension of the requirement to all funds and foci of cohesion policy;  

•  annual public information and motivation of any divergence. 

The  aim  of  the  proposed new system is to ensure high visibility and intense debate both at the 
moment  of  fixing  the  ex-ante  targets  and  during  implementation.  This  would  be  achieved  by 
making  the  procedure  simpler,  giving  less  room  for  arbitrary  measurements  and  establishing  a 
strong linkage with macroeconomic issues. 

The  first  step  would  be  to  eliminate  any  reference,  even  only  “as  a  general  rule”,  to  past 
expenditure  –  currently,  the  “average  annual  expenditure  in  real  terms  attained  during  the 
previous  programming  period”  (Regulation  1083/2006,  art  15/3)  –  as  a  way  of  establishing  a 
floor for the level of expenditure in the programme period. Gross fixed capital formation (which 
is the major part of the expenditure financed by cohesion policy) changes significantly both with 
the short-term cycle and with long-term structural cycles, and what is “adequate” or “inadequate” 
can  be  decided  only  case  by  case.  Any  automatic  threshold  can  either  be  too  low  or  too  high. 
Given the complexity of current measurement procedures, the adoption of an automatic threshold 
creates an incentive to use the discretion of interpretation as a way of adjusting to problems. A 
better solution is to increase the verifiability of the variable used for the additionality target and 
to rely on domestic public opinion as a check on its meaningfulness. 

Second, through changes of Regulations and/or through the interpretation of existing ones, a clear 
link should be established between the information provided by Member States in their Stability 
Programmes according to Council Regulation 1466/97 on the Stability and Growth Pact (section 
2) and the information on additionality provided according to the cohesion policy regulation. At 
the moment, the Stability Programmes must report, together with the medium-term objective for 
the  budgetary  position,  “variables  which  are  relevant  for  the  stability  programme  such  as 
government  investment  expenditure  …”  (Art.  2,  letter  b).  Public  expenditure  eligible  under 
cohesion  policy  includes  basically  all  items  which  in  the  current  national  accounts  are  part  of 
“gross  capital  formation”,  plus  some  current  public  expenditure  relative  to  human  capital.  The 
first variable refers to the country as a whole; the latter to the macro-area targeted by cohesion 
policy381.  By  working  on  both  definitions,  and  possibly  extending  the  proviso  of  the  1466/97 
Regulation (to add a breakdown of gross capital formation) and/or accepting (for the additionality 
rule)  the  reference  to  a  subset  only  of  the  cohesion  policy  expenditure,  a  way  can  be  found  to 
make  sure  that  the  commitment  to  additionality  undertaken  by  the  Member  State  as  part  of  its 
commitment to stability (for the period in which they overlap)382. 

The proposal is self-evident. Public investments simultaneously play a dual role: they worsen the 
accounts;  and  they  increase  the  resources  for  development  policy.  Thereby,  they  influence  two 
distinct "pacts" that Member States have with the Union. The trade-off between the two opposite 
aims should be accountable and publicly debated. This is the best guarantee for cohesion policy 
that the targets for additionality are set appropriately and that adequate pressure from all sides is 
exerted on their achievement. This is also why – in a third step – any automatic sanction for the 
failure to achieve the targets should be eliminated (see below). The main sanction is the political 
one that policy-makers risk in the domestic political market. 

A  further  advantage  of  this  revised  mode  of  application  is  that  it  can  be  used  regardless  of  the 
size  of  the  cohesion  policy  contribution.  Even  when  this  contribution  amounts  to  a  very  small 
share  of  total  capital  public  expenditure  capita  –  say  around  5  per  cent,  as  is  the  case  in  many 

381 A further issue is represented by the definition of “public” used in the two systems: the boundaries of 
public  sector  used  in  the  cohesion  policy  framework  are  now  broader  than  the  concept  of  “general 
government” used in the stability framework. But work is now being done at Eurostat for establishing an 
agreed list of “public entities” and broadening the concept used in the stability context. 
382 Every Member State would also release information on the list of institutional units used to define the 
“public sector” and on the items used to produce its estimates. 

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non-lagging  Regions  –  it  is  still  useful  and  feasible  to  make  an  additionality  commitment. 
Therefore, the Report strongly recommends, as a fourth point, to extend the proviso to all funds 
and types of territory, i.e. also to lagging countries and non-lagging regions. 

Finally,  coherent  with  the  annual  information  for  the  Stability  Pact,  Member  States  would 
provide annual information on the implementation of the financial additionality commitment in 
their  cohesion  policy  reporting  (see  below).  In  the  report,  Member  States  would  justify  any 
divergence  of  the  actual  additionality  from  the  target  level.  In  particular,  if  there  were  to  be  a 
persistent (two consecutive years) negative gap, Member States would need to show that the gap 
was not the result of a country reconciling an intentional reduction in taxation with respecting the 
Stability and Growth Pact ceilings. If a Member State failed to provide an adequate justification, 
a procedure for financial sanctions would have to be in place as a last resort, potentially via the 
Committee proposed under pillar 10. 

The present possibility of formally revising the additionality commitment in the fourth year “if 
the  economic  situation  in  the  Member  State  concerned  has  significantly  changed”  would  be 
maintained,  by  making  sure  that  full  information  is  circulated  on  this  decision  and  on  its 
motivations, so as to exclude the above circumstances from being considered acceptable.  

Policy  additionality:  Member  States  should  be  encouraged  to  use  the  funds  in  ways  which 
justify  the  rationale  for  the  EU  to  run  this  policy  –  adding  value  -  and  the  need  to  be 
innovative.  

The degree of “policy additionality” of cohesion policy is not given significant weight under the 
current approach. The DG REGIO guidance on ex-ante evaluation provides criteria for defining 
added  value,  and  ex-ante  evaluations  are  required  to  look  at  Community  added  value  for  all 
programmes. However, this does not appear to have been accorded much attention in many ex-
ante  evaluation  reports,  which  restrict  themselves  to  weakly  substantiated  assertions  or  a 
restatement of expected outcomes. 

Several  of  this  Report’s  proposals  -  the  emphasis  on  objectives,  the  concentration  on  core 
priorities, the strengthening of the conceptual model, the stress placed on the EU contribution to a 
place-based  approach  –  should  provide  an  opportunity  for  Member  States,  Regions  and  the 
Commission to focus their attention on whether cohesion policy:  

(i) 

(ii) 

actually  embodies  the  values  which  justify  its  existence  -  sustainability  of  the  Union, 
additional capacity to deal with interdependencies, additional credibility; and 

is  producing  the  innovations  in  the  policy  process  as  part  of  the  conceptual  model 
discussed in chapter I. 

We propose that the National Strategic Development Contract describes how the proposed use of 
cohesion policy funds will add policy value in these two respects (see pillar 2, proviso e) of the 
Contract);  and  that  in  the  annual  Strategic  Report  on  results,  each  Member  State  (Regions) 
assesses how the programmes are faring in that respect. 

In terms of the rationales for EU cohesion policy (section I.3), examples of policy additionality 
would be: a measurable change of attitude of EU citizens on the Union’s capacity to address their 
needs  (in  specific  fields  or  in  general)  or  in  the  consensus  for  market  integration;  addressing 
priorities  (especially  the  core  ones)  that  were  previously  not  adequately  addressed;  avoiding 
beggar-my-neighbour  policies  or  the  exploitation  of  cross-border  interdependencies;  and 
increasing capacity to prevent exogenous interventions in lagging areas from being captured by 
local rent-seekers. 

In terms of place-based policy innovations, examples of policy additionality would be (see also 
pillars 6 and 7):  

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•  experimentation  and  piloting  of  new  integrated  packages  of  interventions  to  respond  to 
inefficiency  or  social  exclusion  traps  of  particular  complexity  (unused  and  degrading 
knowledge base, intense impact of migration, strong climate changes, etc); 

•  implementing policy interventions using different territorial/place-based approaches, with new 
or distinctive geographies, such as urban-rural links, city-regions, environmental hazard areas, 
city networks, inter-region clusters, or other joint/multi-region actions; 

•  implementing  interventions  using  new  or  innovative  delivery  mechanisms (such as financial 

engineering instruments); or 

•  the development of innovative or experimental methods for monitoring and evaluation, based 

on the use of community based indicators and of prospective impact evaluation. 

Flexible  spending  deadlines:  the  automatic  decommitment  rule  should  be  retained but at the 
level of the Member State, to ensure that it does not discourage innovative interventions and 
projects 

The  automatic  decommitment  rule  has  a  clear  advantage.  In  a  multilevel  governance  system, 
where  decisions  often  require  the  agreement  of  several  actors,  setting  deadlines  and  linking 
sanctions  to  their  violation  create  an  incentive  for  those  actors  to  bring  negotiations  to  a  close 
and/or  to  be  more  efficient.  But,  as  noted  in  section  II.4  and  as  was  pointed  out  in  the  policy-
maker  seminars  conducted  for  this  Report383,  the  rule  has  led  financial  absorption  being 
prioritized over project quality, has inhibited innovation and has eroded Commission’ credibility 
in promoting quality. 

This  Report  recommends  retention  of  the  decommitment  rule  but  giving  Member  States  the 
option of applying the rule at the level of the whole Member State (or, alternatively, of macro-
areas:  the  block  of  lagging  regions  and  the  block  of  non-lagging  regions  of  every  country). 
Within  countries,  the  different  authorities  managing  the  funds  would  be  able  to  adopt  different 
spending  strategies,  according  to  (for  example)  the  priorities  and  capacity  of  Regions,  and  the 
complexity, timescales and innovativeness of projects. This would provide greater flexibility for 
the  system  and  accommodate  different  situations  and  propensity  for  risk,  while  retaining  the 
general effect of creating an incentive for efficiency. The Member State would provide an overall 
coordination  function  for  the  financial  plans  of  the  different  authorities  –  as  in  a  ‘market  for 
credit’  where demand and supply must be balanced - so as to ensure both compliance with the 
overall deadline and an orderly internal system. 

National co-financing: the present system of national co-financing should be retained. 

The  present  system  of  national  co-financing,  whereby  national  resources  are  committed,  as  a 
specified proportion of total funding, to the priorities that have been selected for EU assistance 
(rather  than  to  individual  projects),  seems  appropriate.  Although  it  does  not  reduce  the  moral 
hazard  linked  to  the  transfer  of  funds  -  as  it  allows  a  Member  State  (Region)  to invest its own 
public resources in projects which are different from those financed with EU funds - it increases 
the coherence of EU and national strategies. Furthermore, co-financing gives adequate flexibility 
to  Member  States  (Regions).  Therefore,  we  consider  that  it  should  be  retained  in  the  present 
form. One of the issues for the proposed Policy Group (see pillar 2) would be to consider, in the 
light of the selected core priorities, whether the rates of national co-financing should be modified. 

383 See the Report Seminar Paper. 

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V.6. 

Promoting experimentalism and mobilising local actors 

The  scope  for  cohesion  policy  to  promote  policy  innovation,  experimentation  and  learning 
should be further exploited. 

A place-based approach ultimately relies on the capacity of external interventions to promote (in 
the  target  places/regions)  a  process  for  eliciting  the  knowledge  and  preferences  of  individuals, 
facilitating innovative actors and new ideas, and designing projects for the production of public 
goods and services. As chapter I argued, innovation and overcoming institutional inertia traps are 
the justifications for a place-based approach. An effort must be made to improve cohesion policy 
in  this  direction,  where,  as  chapter  II  has  argued,  its  potential  is  under-exploited.  More 
experimentalism  is  needed,  defined  as  the  opportunity  to  experiment  with  solutions  while 
exercising  mutual  monitoring,  a  greater  capacity  to  promote  innovators  and  to  avoid  favouring 
old or new rent-seekers. A better balance must be found between creating an incentive for local 
actors  to  reveal  information,  to  risk  and  to  invest,  possibly  through  “special-purpose  bodies”384 
(territorial pacts among different local authorities and private partners, networks, local agencies), 
and being captured by those actors, as the guarantee of a secure flow of resources independent of 
results can often do385.  

Several proposals made by this Report have the capacity to move in this direction. The focus of a 
large share of resources on a few core priorities, a sharper definition of objectives with a clear-cut 
distinction  between  efficiency  and  social  inclusion,  and  a  strong  focus  on  these  objectives 
consistently  pursued  by  the  Commission  would  facilitate  public  debate  and  participation.  Of 
particular  use  would  be  an  improvement  to  the  system  of  indicators  and  targets  and  the 
development  of  modern  ways  for  EU  citizens 
learn  and  to  be  interested  about 
indicators/targets.  Additionally,  in  the  contract  with  the  Commission  Member  States  (Regions) 
would  also  be  asked  to  commit,  whenever  feasible,  to  the  promotion,  through  appropriate 
financial resources and technical assistance, of community-based indicators selected at local level 
for  specific  projects,  and  usable  for  monitoring  their  objectives  and  results.  On  the  whole,  a 
growing body of international experience shows how effective systems of indicators linked to the 
policy  process  can  be  in  focusing  administrators  and  public  debate  on  objectives  that  actually 
correspond to people’s preferences386. 

to 

A second relevant contribution would come from the commitment of Member States (Regions), 
in  their  contract  with  the  Commission,  to  design  appropriate  methods  for  eliciting  and 
aggregating at local level the knowledge and the preferences of local actors, to promote at local 
level  experimentalism  and  mobilisation  and  to  create  the  appropriate  balance  between 
encouraging local actors’ commitment and discouraging rent-seeking. A significant contribution 
can  also  come  from  the  improvement  of  the  learning  process  through  prospective  impact 
evaluation described under pillar 7.  

An  additional  factor  that  can  improve  the  mobilisation  of  all  actors  and  the  emergence  of 
innovators  is  a  greater  role  and  scope  of  the  Commission  in  pursuing  this  task.  This  can  be 
achieved in two ways. 

•  First,  the  EU  should  build  on  the  effectiveness  of  its  previous  initiative  to  reserve  a  small 
share  of  funding  to  Innovative  territorial  actions  under  each  of  the  allocations  to  lagging 
Region, non-lagging Regions and territorial cooperation. An indicative figure of no less than 
0.1 per cent of the overall budget (equivalent to 350 million euro in the current period) should 
be  allocated  to  this  task.  These  actions  would  be  explicitly  designed  to  develop  and 

384 See section I.4. 
385  On  this  issue,  see  also  the  Report  Working  Paper  by  Farole,  T.,  Rodríguez-Pose,  A.  and  Storper,  M. 
(2009). 
386  See  the  Report  Working  Paper  by  Alkire,  S.  and  Sarwar,  M.  (2009).  See  also  the  OECD  website 
OECD.org/progress (section “Knowledge base”). 

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experiment innovative forms of place-based policy intervention which meet the core priorities. 
The  objectives  of  the  innovative  actions  would  be  developed  collaboratively  by  the 
Commission services to promote cross-sectoral thinking (e.g. with the Directorate General for 
Research,  Environment  or  Education)  on  issues  such  as  regional  innovation  systems, 
integrated  regional  adaptation  to  climate  change,  or  methodologies  for  adult  education. 
Funding would be allocated – without national allocations - on a competitive basis to the "best 
projects", a key criterion being that practical lessons are generated. 

•  Second, the opportunity would be given to the Commission (and formally recognised) to exert 
a  more  active  and  direct  role  in  raising  public  awareness  at  local  level,  by  organising  high-
quality workshops and bringing international expertise to places of particular relevance for the 
core  priorities;  and  by  directly  organising,  in  selected  places,  pilot  experimental  impact 
evaluations. The Regions for Economic Change initiative could be further developed for the 
core priorities, by focusing attention also on quantitative results, on their comparability, on a 
systematic comparison of methodologies for intervention and for assessing impact. 

The  actual  achievement  of  these  changes  relies,  once  again,  on  a  strengthened  capacity  of  the 
Commission (pillar 8).  

Finally, the promotion of experimentalism and of a greater mobilisation of local actors depend on 
how  much  both  sub-national  public  institutions  and  private  actors  can  make  their  views, 
assessments and contributions known in an effective way at EU level. Regions already have the 
opportunity  to  do  so,  either  as  direct  interlocutors  with  the  Commission  on  the  Operational 
Programmes, or through the Committee of Regions, which would play an enhanced role both in 
the process leading to the European Strategic Development Framework (pillar 2) and in the high-
level political process (pillar 10). The opening up of debate on the progress and achievements of 
the policy should also allow the views of sub-regional public actors and interest groups – such as 
economic  and  social  partners,  NGOs,  environmental,  voluntary  and  equality  bodies,  other 
representatives of civil society – to be made known. 

V.7. 

Promoting the learning process: a move towards prospective impact evaluation 

Prospective impact evaluation should be promoted at Commission and Member State levels as 
a  distinctive  tool  of  cohesion  policy,  to  be  designed  in  tandem  with  policy  design;  while 
improving  in  the  long-term  the  knowledge  on  “what  works”  and  “for  whom”,  it  can  have  a 
relevant disciplinary effect in the short-term. 

Cohesion  policy  has  invested  significantly  in  the  learning  process:  in  creating  networks, 
facilitating exchange of experience, and promoting evaluation. As chapter II showed, the policy 
has produced relevant results, but improvements are much-needed in two directions: the capacity 
to apply lessons must be strengthened; and the failure to develop knowledge on “what works”, 
i.e. on whether interventions are producing effects, and “for whom” must be remedied. 

The first of the two steps forward is strongly linked to the key changes discussed in the previous 
sections.  A  greater  policy  focus  on  core  priorities,  a  streamlined  reporting  system  centred  on 
results,  and  a  strengthened  political  debate  (at  local  and  EU  levels),  would  increase  the 
opportunity for using what has been learnt in policy-making. Through the initiatives discussed in 
the previous section, the Commission could contribute to this result by promoting the systematic 
and  thorough  analysis  of  experience  and  their  careful  use  in  different  contexts.  An  important 
contribution would also come from a stronger investment by the Commission in the conceptual 
issues  relating  to  the  place-based  approach  and  in  general  to  the  theories  of  economic 
development, on the methodologies for an effective governance and on the empirical analysis of 
results (see section V.8).  

The second step, aimed at understanding the effects produced by specific interventions, requires a 
dedicated  effort.  Several  improvements  can  be  made  in  the  area  of  evaluation.  The  Report  has 

 178

 
chosen  to  focus  on  this  one,  where  a  change  is  particularly  needed  and  significant  disciplinary 
effects can be obtained.  

The  complex  methodological  issues  which  characterise  the  use  of  a  counterfactual  approach  in 
the  context  of  cohesion  policy  (see  section  I.4)387,  suggest  that  the  effort  to  promote  impact 
evaluation as one of the methodological backbones of cohesion policy must at the same time be 
visionary and humble. Visionary, since it must create the technical, administrative and political 
momentum for impact evaluation to be actually pursued as an important source of information. 
Humble, since building this technical capacity requires time, without expectation of a “quick fix” 
able  to  provide  uncontroversial  answers  on  which  parts  of  cohesion  policy  are  working  and 
where. 

Cohesion  policy  is  often  about  large  programmes  comprising  a  mix  of  interventions;  these 
interventions are often (and should be more often) made up of bundles of different public goods 
and services; interventions are by definition (or should be) tailored to places. These are difficult 
conditions for impact evaluation to be performed. It will take several years of trial-and-error in 
systematically using impact evaluation techniques for a large enough body of results to exist to 
draw some general conclusions. But, the timescale of cohesion policy is precisely the long term. 
And, in the meantime, the process of designing and implementing impact evaluation, more than 
its  actual  results,  can  become,  place-by-place,  an  instrument  helping,  in  the  context  of  agents’ 
mobilisation (section V.6), to make policy more focused and knowledge based; i.e. it can have a 
relevant disciplinary effect. 

The  experience  of  several  countries  and  the  assessment  conducted  in  preparing  the  Report 
(involving  international  experts,  the  Evaluation  Unit  of  DG  REGIO  and  evaluators  of  some 
Member States)388 suggests that the promotion of impact evaluation as a central tool of cohesion 
policy should be centred on the following guidelines. 

•  Rigorous  separation  from  the  use  of  indicators.  As  we  have  seen  (section  I.4),  outcome 
indicators and impact evaluation respond to two radically different tasks: the first represents a 
tool to focus policymaker and public attention on objectives and to monitor what happened to 
objective-indicators while interventions are being implemented; the latter represents a tool to 
learn  about  whether  specific  interventions  have  had  an  effect  on  a  given  dimension.  Unlike 
what has happened so far (section II.4), these two functions must not be confused. 

•  A focus on counterfactual methods. Several methodologies exist to estimate impacts. It should 
be  a  first  task  of  the  cohesion  policy  evaluation  framework  not  only  to  ensure  room  for  all 
appropriate  methodologies,  but  to  promote  high-level,  cross-country,  public  debate  on  the 
conceptual  foundations,  limits  and  advantages  and  applicability  of  different  methodologies. 
Whenever the conditions exist, “counterfactual” methods should be used where the impact of 
interventions is assessed by comparing what happened to the beneficiaries to what happened 
to a “sufficiently comparable” group not exposed to the policy (the counterfactual)389. 

•  Prospective  impact  evaluation.  To  facilitate  and  to  make  more  effective  the  counterfactual 
approach,  it  must  be  used  prospectively  (designing  impact  evaluation  in  tandem  with  policy 
design),  not  retrospectively  (designing  and  conducting  it  after policy has been designed and 

387 See also the Report Working Paper by Morton, M.H. (2009). 
388  See  the  Report  Working  Paper  by  Morton,  M.  (2009),  which  partly  draws  on  the  contributions  of 
Arianna  Legovini,  Alberto  Martini  and  Robert  Walker  at  the  work-shop  held  on  impact  evaluation. 
Proposals also benefit from the hearings conducted by the Commission on “The evaluation of the effects of 
public policies” (chaired by Alberto Martini and Ugo Trivellato) appointed by the “Consiglio italiano per 
le Scienze Sociali”. 
389  As  we  have  seen  in  section  I.4,  place-based  policies  present  counterfactual  methods  with  particular 
challenges  that  call  for  a  strong  analytical  effort,  a  close-knit  relationship  between  policy-makers  and 
experts, and an experimental approach.  

 179

 
                                                      
implemented).  By  making  explicit  the  expected  results  and  the  linkages between means and 
ends on which the intervention is based, and by building a strategy for learning about policy 
effects, impact evaluation can contribute to the extraction of knowledge at local level and to 
the clear identification of objectives in policy design. Relevant disciplinary effects can in this 
case be expected in the short term, before the  interventions are implemented and the effects 
are assessed. 

•  Experimenting  randomisation.  If  the  beneficiaries  of  the  intervention  are  chosen  at  random 
among  those  eligible,  impact  evaluation  is  facilitated  because  what  happens  to  those  not 
exposed  credibly  approximates  the  counterfactual.  Although  randomisation  is  not  always 
appropriate or possible, it should not be rejected as an option for cohesion policy interventions 
and  then  for  their  evaluation.  Once  we  take  into  account  how  little  we  know  about  policy 
effects,  two  things  become  clear.  First,  true  uncertainty  exists  on  whether  interventions  are 
beneficial or harmful: being excluded from a (tested) intervention could be an advantage, and 
no  moral  problem  is  involved  in  limiting  interventions  to  some  units  or  groups  randomly 
selected (see chapter I, Box I.A). Second, cohesion policy, with its long-term perspective and 
contractual/partnership  framework,  is  a  good  policy  space  where  randomisation  can  be 
experimented,  since  the  requirement  of  “respect  for  persons”  has  more  room  for  being 
satisfied  (see  again  chapter  I,  Box  I.A).  The  simultaneous  adoption,  in  different  and 
comparable  places,  of  distinct  alternatives  is  also  a  practice  suitable  to  the  cohesion  policy 
environment. 

•  Commission role: clearing house and think tank. The Commission is needed to play a central 
role in making impact evaluation a backbone of cohesion policy. While keeping the present 
arrangements,  by  which  the  evaluation  responsibility  is  largely  entrusted  to  Member  States 
(Regions) – which would have to make significant investments in competences to cope with 
the  new  task  -  the  Commission  would:  (a)  adjust  its  guidelines  clearly  identifying  the 
functions of indicators separately from impact evaluation; (b) promote methodological debate 
and analytical innovations; (c) promote the use of counterfactual impact evaluation along the 
lines outlined above and provide technical assistance; (d) conduct pilot studies, possibly with 
Member States (Regions); and (e) create an EU "clearing house" for collecting, filtering and 
making  accessible  the  studies  performed  according  to  some  criteria.  These  functions  could 
already  be  tested  in  the  current  programming  period,  developing  some  preliminary  moves 
made in recent months by DG REGIO (see Box V.A). In order to perform this new role, the 
Commission would invest in strengthening its in-house evaluation units. 

•  Data availability. The availability of data is often a constraint in the use of impact evaluation. 
Many of the necessary data could (or can only) be collected in the process of implementing 
the interventions which they should help evaluating, but they fail to be collected because their 
need is not identified in time. The prospective use of impact evaluation and the involvement 
of  beneficiaries  in  its  design  should  help  in  addressing  this  limit.  But  the  possibility  should 
also be considered of introducing in the Regulation a proviso that further facilitates this timely 
decision  to  collect  information.  This  proviso  would  not  make  impact  evaluation  into  a 
"requirement", to avoid the risk of turning it into a procedural compliance, but it could open 
up  a  "window  of  opportunity"  for  policy-makers  and  partners  to  decide  whether  to  include 
into  the  requirements  of  the  intervention  the  collection  of  data  for  impact  evaluation  (and 
which data), or formally to decide not to do it. 

V.8.  Refocusing and strengthening the role of the Commission as a centre of competence 

The  specialist  knowledge  resources  and  skills  of  the  Commission  should  be  strengthened  to 
allow  it  to  provide  more  effective  support  to  Member  States  in  policy  development  and 
implementation. 

Most  of  the  proposals  in  this  Report  have  major  implications  for  the  Commission,  and 
particularly for those Directorates-General with a direct or indirect role in cohesion policy. Some 

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of the functions outlined in the previous sections are (at least in part) similar to present functions; 
others are new. Overall, the Commission is being called on to play a more ambitious and difficult 
role  than  today.  This  role  requires  a  more  coordinated  and  coherent  approach  to  territorial 
development  issues,  a  reorganisation  of  its  engagement  with  Member  States,  as  well  as  the 
specialised  human  resources  and  the  capacity  to  be  highly  credible  both  as  a  tough  contract 
partner  and  as  a  think  tank.  If  the  Commission  were  to  fail  in  this  role,  the  effectiveness  and 
feasibility  of  most  proposals  would  be  compromised.  The  architecture  proposed  by  this  Report 
would  not  hold.  A  strong  political  compromise  is  required  to  strengthen  the  role  of  the 
Commission, a task which is technically feasible. 

First, as part of the strategic planning process for the proposed European Strategic Development 
Framework (pillar 2), it is important for the Commission to strengthen its internal coordination in 
establishing  priorities  and  ensuring  the  coherence  of  relevant  policies  and  interventions.  There 
are  two  Directorates  that  already  have  responsibility  for  cohesion  policy  (DG  REGIO  and  DG 
EMPL), two others whose territorial development support should be brought within the cohesion 
policy framework (DG AGRI – with respect to the rural development support, and DG MARE – 
for the territorial actions of the Fisheries Fund) and several other Directorates whose intervention 
have  a  strong  territorial  impact.  The  Report  proposes  that  a  strong,  high-level  inter-services 
group, chaired by the Secretary-General, should ensure tighter coordination in both the strategic 
design and implementation of territorial development policies run by different Directorates. This 
is  a  pre-requisite  for  an  appropriate  implementation  of  the  enhanced  territorial  dimension  of 
cohesion. 

Second, at operational level, the Commission needs to consider how best to address the concerns 
of  Member  States  regarding  “administrative  compartmentalisation”  on  issues  which  require  an 
integrated  (or  at  least  coordinated)  approach:  this  is  a  condition  for  the  Commission  to  deal 
appropriately with Member States own tendency to compartmentalise. Core priorities relating to 
issues such as innovation or migration cut across the responsibilities of several Directorates; there 
are  also  “horizontal”  policies  in  areas  like  State  aids  or  environmental  regulation  which  are 
influential for the operation of cohesion policy. Although inter-services cooperation already takes 
place, the Commission needs to review its organisational structure to facilitate better integrated or 
cooperative  working.  A  related  challenge  is  how  to  ensure  more  coordination  and  cooperation 
between the geographical units of different Directorates, not only for the purposes of information 
sharing  but  also  to  enable  a  more  coherent  administrative  approach  to  working  with  Member 
State authorities. 

Third, and most important, the complex skills required by the more strategic and enhanced role 
proposed for the Commission in this Report, including some highly specialised ones (relating to 
the  core  priorities,  indicators  and  targets,  impact  evaluation,  etc)  can  be  appreciated  by  briefly 
reviewing some of the key functions entrusted to the Commission:  

•  first  mover  in  the  strategic  debate,  development  of  a  conceptual  framework,  open  dialogue 

with academia and Member States experts; 

•  preparation  of  the  European  Strategic  Development  Framework,  including  an  outline  of  the 

institutional principles and the choice of EU-wide core targets; 

•  provision  of  strategic  advice  to  Member  States  in  drafting  the  Strategic  Development 

Contracts, and Operational Programmes, especially on the core priorities; 

•  negotiation  of  the  Strategic  Development  Contracts,  especially  on  the  core  priorities 

(indicators, targets, institutional requirements); 

•  implementation  assessments;  agreement  on  contracts  of  confidence;  oversight  of  special 
management conditions; advice and support for administration capacity- building, especially 
in the creation/development of management and implementation processes; 

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•  evaluation – especially development of impact evaluation; 

•  selection of the core indicators, advice and monitoring on the quality of the overall indicator 
system,  preparation  of  the  indicators  and  targets  survey;  progress  scoreboard;  assessment  of 
Member States results;  

•  knowledge brokerage – facilitating policy learning between countries/regions; 

•  promoter  of  experimental  approach  and  innovative  methodologies  for  the  mobilisation  of 

actors at local level; and 

•  direct management of Innovative territorial actions. 

It is beyond the task of this Report to assess what changes should be implemented in the relevant 
Directorates-General  of  the  Commission  in  order  to  meet  these  challenges.  However,  with 
reference to DG REGIO, which has an overall responsibility for the policy, some broad lines of 
action  are  outlined  for  future  discussion  in  Box  V.B.  Particular  stress  is  placed  on  the 
establishment  of  high-level,  specialist  task  forces  (with  officials  belonging  to  different 
Directorates)  for  the  core  priorities:  teams  of  about  20  experts  dedicated  full-time  to  activities 
related  to  the  core  priorities,  strongly  interacting  with  the  geographical  units  in  charge  of 
negotiation.  For  this  purpose  and  for  the  others  a  major  investment  in  human  resources  is 
required, accompanied by changes in the internal organisation of the Directorate. If the course of 
action envisaged by the Report were to be adopted, these changes should be launched in 2010, 
since their effects require time to materialise. 

Box V.B: Indicative developments in the human resources and the organisation of DG REGIO to play 
the role of a ‘centre of competence’ 

•  Establishment  of  specialist  task-forces  for  the  core  priorities  –  highly  qualified  experts  in  the  core 
priorities  (  for  example  in  innovation,  or  migration).with  expertise  on  policy,  measurement,  institutions, 
etc, and a capacity to tailor the analysis to specific contexts: due to the different thematic issues involved 
in  every  core  priority  (for  example,  in  the  case  of  migration,  together  with  regional  and  social  affairs 
relations  with  countries  outside  the  EU,  education,  health,  etc.),  the  experts  should  belong  to  different 
directorates (for example, in the case of migration, together with the Directorate for Regional policy and 
for Employment and Social Services, also those for External Relations, Education and Culture, Health). 

• 

Induction training of staff in the concepts of place-based development, the specialist themes/priorities of 
the policy, the different regional policy systems/contexts in Member States and regions, the theory and use 
of indicators/targets/incentives. 

•  Upgrading of the evaluation department to enable a more intensive programme of evaluation, especially 
with respect to the core priorities, to build the clearing-house for impact evaluation studies, and to put at 
the disposal of Member States a think-tank on impact evaluation. 

•  Creation  of  administration 

administration 
teams  –  with 
(management/implementation processes of the policy) to undertake implementation appraisals and provide 
support  to  Member  State  administrations,  if  necessary  through  the  co-management  of  interventions 
targeting the core priorities. 

in  public 

expertise 

support 

•  Upgrading of the knowledge/skills of geographical units – ‘country executives’ with in-depth knowledge 
of the countries/regions, policies, institutional structures i.e. capable of being highly informed interlocutors 
and as well as intermediation with Member States; 

• 

Integrated organisational structure/mechanisms – to ensure that the task-forces for core priorities and the 
administration support teams work closely together with geographical units, both within the Directorate-
General and with other Directorates-General. 

•  Creation of a research department with the remit of establishing a permanent bridge with academics and 

 182

 
policy  researchers  internationally,  especially  in  the  themes  of  economic  and  social  development, 
regional/spatial/urban/rural/place-based  policies,  being  updated  on  theoretical  and  empirical  advances, 
producing  original  research  and  commissioning  some,  investing  in  gaps  of  relevance  to  the  Directorate, 
providing continuous briefing to Directorate staff and disseminating information. 

Significant  systemic  changes  of  the  kind  envisaged  in  this  Report,  will  require  a  similar 
commitment from the Member States and Regions. The organisation of policy responsibilities in 
the  Commission  often  mirrors  the  institutional  arrangements  (and  associated  coordination 
barriers) at Member State level. Similarly, the deficits in knowledge and skills identified here – 
especially  with  respect  to  complex  policy  challenges  and  integrated  development  -  are  also 
evident at Member State level. The investments in skills to be made at Member State and Region 
level represent a further reason why the reform presented in this Report can succeed only if it is a 
result  of a high political compromise where Member States and Regions play a committed and 
substantive role. 

V.9.  Addressing financial management and control 

Greater effectiveness and lower costs of the regulatory, control system is a critical component 
of a more effective governance of the policy. 

Regularity  in  the  disbursement  of  EU  financial  resources  represents  one  of  the  requisites  of 
cohesion policy performance. This involves reducing financial errors to a “minimum”, including 
both errors directly affecting the amount to be paid and those that could lead to this result. 

As shown by Section II.4, the costs borne by the Commission and by Member States (in terms of 
administrative burden and uncertainty) do not seem to prevent today a high intensity of errors, as 
assessed  by  the  European  Court  of  Auditors  (Court).  Furthermore,  the  estimates  of  high  errors 
tend  to  become,  in  the  absence  of  adequate  analysis  of  performance  and  results,  the  main 
quantitative information available for debate in the European Parliament and among the public. 
They raise doubts about the effectiveness of cohesion policy, and they put at risk the budgetary 
discharge procedure. The Commission, holding ultimate responsibility for the correct use of the 
funds, comes under recurring and increasing pressure. Dealing with this pressure, the enhanced 
supervisory role, and the need to assess Member State compliance with the rules, puts a strain on 
the  available  human  resources  and  crowds  out  the  time,  the  capacity  and  the  incentive  for  the 
Commission’s  Directorates  to  deal  with  strategic  tasks  and  with  the  monitoring  of  policy 
performance.  

Improvements might come from the new rules on the regulatory control system introduced for the 
current  programme  period,  whereby  Member  States  are  entrusted  with  further  responsibility  to 
ensure its proper operation by delivering a formal annual audit assurance.390 The issue of how to 
further  improve  the  present  arrangements  is  also  the  subject  of  several  proposals  by  Member 
States and the object of analysis by Commission services on the basis of the work of an ad hoc 
group of the Commission and Member States.  

It  goes  beyond  the  remit  of  this  Report  to  present  proposals  on  this  issue.  However,  it  is 
important  to  emphasise  that  the  key  changes  proposed  by  this  Report  assume  a  solution  of  the 
problem. In particular, they assume that the administrative audit costs of the Directorates-General 
in charge of cohesion policy will be either reduced enough, or will be considered as extra costs to 
be borne by the Commission as a whole, so as to allow adequate resources to be freed up in those 
Directorates to create room for the core priority task-forces and the other important investments 
in human resources. In this context, it is appropriate to review briefly the main proposals being 
put forward. 

390 First data on the effects of these changes will become available in 2010.  

 183

 
 
                                                      
Some  proposals  refer  to  what  are  probably  the  two  main  causes  of  the  combination  of  high 
marginal  costs  of  control  and  high  errors.  First,  cohesion  policy,  due  to  the  Commission’s 
ultimate  responsibility,  represents  the  most  important  case  in  which  the  Commission  (and  the 
Court)  have  the  opportunity  systematically  to  audit  expenditure  by  Member  States:  cohesion 
policy  ends  up  being  the  "filter"  through  which  a  general  failure  of  Member  States  to  comply 
with EU Directives – for example, on procurement or the environment – comes to light. Second, 
multilevel  governance,  due  to  the  multiplicity  of  rules  and  "contracts",  and  to  shared 
management, and, in the case of cohesion policy, to the multiplicity of control levels, is bound to 
increase the opportunity for uncertainty on the appropriate interpretation of rules and thereby for 
errors.  

The first problem explains the request by some Member States for the control system of cohesion 
policy not to become the occasion for addressing failures which have to do with other, horizontal 
policies of the Commission. However, one cannot expect the Commission to "look away" when 
encountering  breaches  of  Directives.  As  for  the  second  problem  -shared  management  –  it  is 
currently  being  addressed  at  EU  level  through  an  Inter-institutional  debate  with  the  Council, 
Parliament and the Court of Auditors, initiated in December 2008 by the Commission proposal to 
raise  the  tolerable  risk  of  error  (now  at  2  per  cent)391.  The  proposal  builds  on  the  Court  of 
Auditors 2004 Opinion that “Any control System is a trade-off between the cost of operating the 
defined intensity of checks on the one hand, and the benefit these procedures bring on the other. 
In  the  Community  context  the  benefit  involves  reducing  the  risk  that  funds  are  wasted  and 
containing  the  risk  of  error  to  a  tolerable  level.  It  is  likely  that  the  level  of  tolerable  error  or 
irregularity would vary between different budgetary areas, depending on both the cost of controls 
as well as the inherent risk of transactions containing errors or irregularities”. A methodology is 
then proposed to choose the “tolerable risk of error” as a value lying between “the current error 
rate,  as  adjusted  to  take  into  account  of  possible  improvements  [at  limited  or  no  significant 
additional cost] in existing controls” and the “theoretical tolerable risk point”, an estimate based 
on  Member  States  data  of  the  point  at  which  the  marginal  cost  of  control  equals  the  marginal 
benefit.  

An  example  is  presented  in  the  Commission  proposal  for  the  Regional  fund  (ERDF).  The 
adjusted  current  error  rate  is  estimated  at  9  per  cent  (down  from  11  per  cent),  while  the 
theoretical tolerable risk point is estimated at 4 per cent: the latter would require an annual cost of 
control of about 1 billion euro, or 3.5 per cent of total cohesion policy expenditure (compared to 
the  current  0.7  per  cent  figure).  In  order  to  account  for  this  very  high  (theoretical)  increase  in 
control costs, the intermediate value for the actual yearly “tolerable risk” is suggested at “around 
5  per  cent”.  An  additional  option,  specific  to  the  multi-annual  nature  of  cohesion  policy 
expenditure, would be to put the yearly tolerable value at a higher level: annual interim payments 
are in effect provisional and become definite at closure when the final amount of the Community 
contribution  to  the  policy  is  determined  and  when  all  control  processes  for  the  detection  and 
removal  of  errors  have  had  a  chance  to  operate,  thus  reducing  the  residual  error  rate.  The 
tolerable risk of error might therefore be higher for the interim payments than for final payment. 

Other proposals are also being made to address the control issue. One proposal begins with the 
observation  that  the  emphasis  on  financial  irregularities  distracts  attention  from  the  issue  of 
performance, and it suggests a radically new system whereby reimbursement would take place on 
the basis of the achievement of agreed outputs, rather than of the proof of some costs. Once the 
delivery of the output had been confirmed, the agreed amount of public funding would be paid 
out without the need to audit the actual costs of the project. In fact, no improvements could be 
expected from this proposal, which shifts the control function to a far more complex requirement 
for evidence: that the ‘agreed output’ has actually been delivered392. This would also leave open 

391 See Commission of the European Communities (2008g). 
392 Standard costs of output would have to be defined, running into problems of price differences across 
places, and, even more so (for the majority of public investments), of defining quality-equivalent “output”. 

 184

 
                                                      
the  need  to  audit  compliance  with  Directives  (procurement,  etc.).  The  objective  of  making 
cohesion  policy  more  results-oriented  must  not  overlap  (as  section  I.4  made  clear)  with  the 
problem of ensuring efficient and regular policy implementation. The first of these two objectives 
must be dealt with by improvements to the indicator and target system and by a strong investment 
in impact evaluation (see pillars 3,4 and 7). 

Some room for improvement could come from various proposals on simplification. In particular, 
a limited effect, for small projects and relative to certain types of costs (overheads etc.), can come 
from  a  greater  use  of  flat  rates  or  lump  sums  for  particular  types  or  items  of  expenditure393. 
Improvement  could  also  come,  according  to  some  proposals,  by  avoiding  the  tendency  of 
"reinterpreting"  past  rules  in  the  light  of  clarification  which  have  been  brought  about  by  new 
rules: this is relevant since several programme periods, with different rules, always overlap at any 
point  in  time.  More  doubtful  is  that  any  significant  contribution  could  come  from  a  further 
decentralisation  of  eligibility  rules.  The  other  hypothesis, to replace national and regional rules 
with a limited set of eligibility rules at EU level (advanced for Territorial Cooperation) needs to 
be considered from a legal point of view. Room for further application of proportionality has also 
been suggested. 

Two further proposals are directly aimed at creating an incentive for Member States to make the 
control  system  more  efficient  and  at  reducing  their  audit  costs.  Currently,  payment  claims  are 
normally settled at the end of the seven-year period. Therefore, in the early years of a programme 
period, Member States do not have an incentive to be concerned about the effectiveness of their 
control system. It is suggested that an annual system of error rates could be introduced, exactly 
matching the Court’s approach, by which transfers to Member States are withheld if a threshold 
is passed. This would require the annual error rate to be broken down by Member States and the 
threshold to be agreed. The second proposal has to do with the fact that currently, due to various 
provisions,  a  share  of  cohesion  policy  projects  is  compulsory  audited  by  Member  States  that 
exceeds  the  share  for  national  projects.  A  cap  could  be  put  on  the  share  of  funds  or  projects 
audited. 

If,  as  could  be  the  case,  it  became  clear  that  a  coherent  combination  of  the  above  proposals 
(considered  to  be  feasible  and  effective)  were  not  to  produce  the  desired  effect  on  both  the 
administrative costs of auditing and its effectiveness, some further, more general solution should 
be considered. In particular, if the EU maintains the position that – as the Court observed in its 
2006  Annual  Report  –  “national  declarations  that  systems  are  functioning  as  required  by  EU 
regulations  may  not  in  itself  provide  assurance  about  the  legality  and  regularity  of  the 
transactions concerned”, and if the consolidated interpretation of the new Treaty did not make it 
possible for Member States to have an enhanced responsibility for control, a way would need to 
be  found  to  reduce  or  to  account  appropriately  for394  the  administrative  audit  costs  of  the 
Directorates responsible for cohesion policy.  

V.10.  Reinforcing the high-level political system of checks and balances 

A  high-level  political  and  policy  debate  on  cohesion  policy,  through  an  appropriate  Council 
configuration, is required to drive the strategic direction and performance of the policy. 

393 This is included in the current proposal for modifying the 2007-2013 ERDF and ESF regulations. 
394  Those  costs  could  be  considered,  not  as  costs  of  cohesion  policy,  but  as  costs  of  the  EU  as  a  whole 
(because of the “filter” role they play for all EU policies and Directives, see Section II.4), and additional 
human resources could be required by the Directorates in charge of cohesion policy. 

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Cohesion policy is by far the largest development policy of the EU. It is also of great financial 
and  strategic  relevance  by  international  standards.  As  the  Report  has  shown,  the  development 
policy  of  the  United  States  pursues  similar  efficiency  and  equity  objectives  although  with  a 
different  approach  and  larger  scale  than  the  EU  policy  approach,  but  it  is  not  governed  by  a 
distinctive  strategic  framework  and  its  management  in  Washington  is  not  as  concentrated  as  in 
Brussels.  By  comparison,  the  EU-wide  political  debate  on  cohesion  policy  appears  absolutely 
inadequate  and  largely  limited  to  the  policy  community  that  deals  with  it:  administrators, 
beneficiaries, Ministers, and numerous experts.  

Except  at  the  time  of  budget  negotiations,  when  a  strong,  political  EU-wide  interest  arises, 
largely concentrated on financial issues, the bridges between the cohesion policy community and 
“the  rest  of  the  world”  are  tenuous.  The  linkage  with  the  Lisbon  Agenda  tends  to  be  mostly 
formal,  while  no  linkage  exists  (except  for  the  Cohesion  Fund)  with  the  Stability  and  Growth 
Pact.  Similarly,  the  conceptual  and  methodological  advances  made  in  the  realm  of  the  Open 
Method of Coordination are often not transferred to cohesion policy. The policy does play a role 
in the recent European Economy Recovery Plan; it also plays a part in important debates taking 
place  on  sectoral  issues,  but  exclusively  as  a  source of funding, as cohesion policy is the main 
(sometimes  the  only)  EU  financing  available.  What  is  lacking  is  a  debate  about  whether  a 
particular  way  of  “spending  public  funds”,  the  place-based  approach  employed  by  cohesion 
policy,  adds  value  compared  to  sectoral  or  national  approaches.  And  when  and  where  it  is 
effective.  The  same  failure  is  visible  in  academic  debates,  where  a  line  often  separates  the 
‘cohesion  policy  experts’  from  the  rest  of  academia  engaged  with  issues  of  growth  and 
development. 

The  serious  limitations,  illustrated  by  this  Report,  in  the  availability  of  evidence  on  cohesion 
policy  results  have  certainly  played  a  relevant  role  in  discouraging  public  debate,  as  have  the 
limitations  of  the  reporting  system.  They  hamper  the  possibility  of:  Member  States  reviewing 
each  other’s  progress;  the  European  Parliament  and  the  Council  discussing  results;  and  the 
Commissioners in charge of cohesion policy debating policy with their fellow Commissioners. It 
has  a  negative  effect  on  the  dialogue  within  the  cohesion  policy  community.  But  the  lack  of 
appropriate  Council  configurations  to  ensure  a  continuous,  high-level  debate  has  also  played  a 
role,  by  failing  to  create  a  political  demand  for  timely  information  on  objectives,  targets  and 
results and for good reporting. 

The architecture of the changes proposed by this Report is intended to make policy choices more 
open  for debate and to improve the supply of information: the concentration on core priorities; 
the clarification between efficiency and social inclusion; the focus of contracts between Member 
States (Regions) and the Commission on objectives, indicators and targets; the commitment to a 
system of impact evaluation; the streamlining of the reporting system; and the linkage with the 
Stability and Growth Pact via additionality. These changes need to be complemented by changes 
on  the  demand  side.  A  high-level  political  and  policy  debate  has  to  be  organised.  A  stronger 
system  of  checks  and  balances  between  the  Commission,  the  European  Parliament  and  the 
Council has to be put in place. 

The turning point for ensuring a continuous high-level debate would be the creation of a formal 
Council  for  Cohesion  Policy,  possibly  under  the  General  Affairs  Council.  This  would  be 
composed  of  those  national  Ministers  with  responsibility  for  cohesion  policy  (potentially  more 
than one Minister in some Member States). As is currently the case in the informal meetings of 
Ministers, the right of representation could be extended to Regions from federal Member States 
and those with devolved administrations.395  

395  Participation  of  the  Committee  of  the  Regions  could  also  be  considered,  potentially  with  the 
responsibility of representing – and facilitating a dialogue with – regional and local authorities and urban, 
rural and other networks. 

 186

 
                                                      
The  Cohesion  policy  Council  could  meet  between  two  and  four  times  a  year,  and  it  would 
substitute for the present bi-annual informal meetings of regional policy Ministers. Its main tasks 
would  be:  (a)  to  give  a  political  assessment  of  the  National  Strategic  Development  Contracts, 
once  they  have  been  approved  by  the  Commission,  of  their  choices  and  of  the  way  they 
implement  the  European  Strategic  Development  Framework;  (b)  to  examine  and  debate  the 
progress shown by the Indicators and targets survey, prepared annually by the Commission, and 
(from the third year onwards) by the Scoreboard of progress for the core priorities); (c) to assess 
the content of the Strategic report on results, produced annually (from the third year onwards) by 
Member States and of the related Opinions and Summary report prepared by the Commission; (d) 
to assess the specific situations where a special intervention is needed by the Commission396; and 
(e) to give a general political assessment of policy implementation and of the coordination with 
other EU and national policies, with particular attention to their territorial impact.397  

The  permanent  Council  formation  would  issue  recommendations  on  the  choices  and  lack  of 
choices,  and  on  the  results  and  lack  of  results  of  both  the  Commission  and  the  Member  States 
(Regions). Its activity would be supported by the work of a permanent high-level technical group 
or 
of 
senior  Member 
regional/territorial/spatial/place-based  policies).  This  group  could  organise  its  activity  in  sub-
groups of relevant countries that could allow the implementation of a peer review methodology.  

committee 

composed 

(directors 

officials 

State 

of 

The  streamlining  of  the  contracts  between  Members  States  (Regions)  and  the  Commission  and 
the new system of reporting would enable the European Parliament (through its own committees) 
to play an enhanced role. In particular, the Parliament would contribute views through opinions, 
notably on the National Strategic Development Contracts and the annual reports. In the context of 
the proviso of the new draft Treaty according to which the “Commission shall also submit to the 
European Parliament and to the Council an evaluation report on the Union’s finances based on 
the  results  achieved”  (amended  art.  275),  the  Summary  report  prepared  annually  by  the 
Commission on the results of cohesion policy should play a central role. As in other policy areas, 
the Parliament would build close links with the Cohesion policy Committee. 

Meetings  of  the  Council  formation  should  be  preceded  by  meetings  of  both  the  Committee  of 
Regions and of the Economic and Social Committee, which could issue opinions on the annual 
Reports prepared by Member States.  

The architecture suggested here needs to be built gradually, starting with this programme period. 
A  possibility  would  be  to  create  an  Informal  high-level  group,  assigning  to  it  the  strategic 
assessment and the review of results of current policy on the basis of the more limited flow of 
information now available. This would, in itself, represent a move forward, as currently only two 
regular  opportunities  exist  for  Member  State  administrators  to  meet:  the  Structural  Actions 
Working  Group;  and  the  Coordination  Committee  of  the  Funds,  which  is  primarily  concerned 
with  regulatory  issues,  implementing  rules  and  programming  decisions.  New  methodologies 
could be tested and the group could be involved, after the Fifth Cohesion Report, and by making 
use of the results of the Place-based Policy Group described in section V.2, in the debate on the 
design of the new strategy. 

Finally, strengthening the strategic debate obviously needs to involve each Member State. In this 
respect, a difficulty is that responsibility for development and for cohesion policy in EU countries 

396 In particular: actions taken for deficiencies emerged from the Implementation assessment; approval of 
contracts  subject  to  conditions  due  to  inadequate  institutional  setting;  results  of  in-depth  performance 
assessments due to the unmotivated failure to achieve targets; financial sanctions for those Member States 
which, in the case of a persistent (two consecutive years) negative gap between the targets for spending set 
for financial additionality and actual spending, fail to show that the gap was not the result of the country 
reconciling an intentional reduction in taxation with respecting the Stability and Growth Pact ceilings. 
397  On  this  issue,  see  again  the  document  adopted  by  Ministers  responsible  for  spatial  planning  and 
cohesion policy (at the meeting organised in Marseille by the French Presidency in November 2008). 

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is  often  divided  between  different  government  departments  and  policy  areas,  and  between 
national and sub-national levels, with weak or inconsistent coordination. Monitoring committees 
of cohesion policy – originally intended to provide a strategic oversight of the programmes – are 
generally  pre-occupied  with  administrative  and technical issues. Consideration should therefore 
be given to each Member State establishing a high-level national strategic forum (where this does 
not  already  exist)  –  at  both  political  and  administrator  levels  –  to  ensure  strategic  oversight  of 
cohesion  policy,  notably  the  development  of  strategic  assessment  of  national  territorial 
development  policies,  the  development  of  national/regional  strategic  programmes,  performance 
assessment and coordination of contributions to the EU-level debates.  

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