EU budget48

Main conclusions of the EU Budget event at the European Parliament 

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As the European Commission lays the groundwork for the next Multiannual Financial Framework (MFF) beyond 2027, the role of Local and Regional Governments has taken centre stage in Brussels. On 24 April, CEMR joined forces with Members of the European Parliament Vladimir Prebilič and Ľubica Karvašová to organise the high-level event “EU Budget: What Does the Future Hold for Multi-Level Governance?” 

The discussion comes in the wake of the Commission’s strategic communication, “The Road to the Next Multiannual Financial Framework”, which signals a potential shift in the architecture and the approach to the EU budget. What will the future EU budget look like, and how will EU funds be managed and by whom? These and other questions were discussed in this event, taking place at the European Parliament. 

Strong calls for local and regional involvement 

During the opening session, Vladimir Prebilič synthesised the next steps for the MFF proposal, focusing on the centralisation trends and the need to keep the regions at the centre of the design and implementation of Cohesion Policy, which must retain its long-term rationale and not be used for short-term crises. 

His view was echoed by L’ubica Karvašová‘s discourse, who underlined the need for the EU to work on both a global pillar, with defence and trade policies, and a socio-economic pillar, where Cohesion Policy is at the forefront. 

CEMR Co-President Christoph Schnaudigel recalled the central role of the Local and Regional Governments in the implementation of Cohesion Policy, and thus the need to be co-designers. 

Aligning EU priorities with local and regional needs 

The first panel discussed the interactions between EU-level priorities and local and regional governments’ investment priorities in view of the next long-term budget. 

Florentine Hopmeier, Deputy Head of Cabinet of Commissioner Serafin, confirmed that Commissioner Serafin is touring Europe to meet beneficiaries of EU funds and collect as much feedback and proposals as possible, but also insisted that the immediate challenge lies in the successful delivery of the current programming period. She recalled the difficult financial context lying ahead, with new priorities to be funded, together with the need to repay NextGeneration EU. The Commission must therefore work on the assumption of more constrained financial resources available. Hopmeier insisted on the need for more flexibility and the lessons learned from the Recovery and Resilience Facility (RRF), including the new approach linking investments and reforms. Finally, she concluded by reaffirming the Commission’s willingness for Local and Regional Governments to be involved and for the continuation of the Partnership Principle even in the presence of a single national plan. 

Maria Teresa Fabregas Fernandez, Director of the Task Force on Reform and Investment at the European Commission, came back on the lessons learned from the RFF, highlighting the added value of the holistic approach linking investments on EU priorities to reforms improving the impact of investments. She confirmed that the Commission has been warning Member States to involve Local and Regional Governments when reforms affect subnational authorities. 

Ester Borràs, from the Catalan government Delegate to the EU, warned about the risks of centralising decision-making with a single plan. She called for simplification, while recalling that centralisation is not simplification, and for harmonisation in the now fragmented EU funds. 

L’ubica Karvašová concluded the panel by suggesting a focus on impact rather than performance, and a two-tiered single plan: a national tier and a second tier for individual regional plans, using the Integrated Territorial Investment (ITI) model. She also pleaded for the institutions to reach a bigger budget in view of the increased investment needs of the Union, and emphasised that investments in social and educational infrastructure also contribute to competitiveness. 

Ensuring efficient implementation of the EU’s investment policy 

The second panel on ensuring both rapid and efficient implementation of the EU’s investment policy opened with Vasco Alves Cordeiro, Chair of the European Committee of the Regions’ (CoR) COTER Commission, presenting the CoR’s priorities for the next MFF, which can be summarised as “flexibility with predictability“. These include ceilings and rules to allow for the reallocation of funds, simplifying the work of managing and auditing authorities, and the need for qualitative criteria to assess the results of cohesion policy. Finally, he stressed the need to maintain the long-term investment perspective of cohesion policy. 

Kadri Uustal, Head of Unit for Cities, Communities and People at DG REGIO in the European Commission, provided additional information on the upcoming “ambitious policy agenda for cities”, as it will aim at supporting cities, not only in the framework of the Cohesion Policy, but even beyond. One of the first challenges for this will be to bring clarity to beneficiaries on the different programmes and initiatives targeting cities.  Uustal explained that the Commission is also exploring a better involvement of cities in EU legislation, given the important role of subnational governments in the effective implementation.  

CEMR co-president Christopher Schnaudigel recalled that Cohesion Policy is part of the EU treaties and must therefore remain a priority. He also warned that “we cannot achieve competitiveness without investing in the regions”. He recommended that Local and Regional Governments are closely associated in the drafting of the single national plans, pointing to the existing Partnership Agreements in the current Cohesion Policy framework as the model to follow in order to develop an investment plan that is both consistent at the national level, and fit for purpose at local and regional levels.  

Vladimir Prebilič started by recalling the benefits Cohesion Policy has brought to the many territories where it has been invested. He then shared insights from his ongoing work as rapporteur on the Committee on Regional Development in the European Parliament for the report on simplification of the Cohesion Policy funds. As solutions to be explored, he proposed improved and more systematic territorial impact assessments, a single set of rules for funding, and a stronger distinction between errors and fraud in auditing. 

Alva Finn, Executive Director of the European Liberal Forum, former member of the Commission’s expert group on the future of Cohesion Policy, suggested a full rebranding of the Cohesion Policy to increase its effectiveness and by in from citizens. Cohesion Policy is still the largest and most successful investment policy in the world, but it does need to be updated, using, for instance, smart conditionality. She advocated for cross-border and inter-European infrastructures to connect Europe and suggested integrating the place-based approach with a people-based one. 

In closing remarks, Karvašová called for co-responsibility, building on Cohesion Policy to fight Euroscepticism and gaining people’s support for the European project. This message was supported by Prebilič‘s appeal to the democratic decision-making model and by Schnaudigel, who concluded by recalling CEMR’s position paper on the subject and the launch of CEMR’s new campaign on the topic. 

Cohesion Policy mid-term review: is the glass half empty or half full? 

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The rationale for the Commission’s latest communication “A modernised Cohesion Policy: the mid-term review” is clear and compelling: the operational programmes of the Cohesion Policy  funds were negotiated four years ago: before a global pandemic, before the paradigm shift of massive EU joint borrowing, and before Russia’s war of aggression on Ukraine and its dramatic impact on inflation and cost of living. 

As Executive Vice President Raffaele Fitto reminded Members of the European Parliament’ Regional Development Committee on 9 April: the world has changed, and so too must the Union’s priorities and policies. 

This new proposal – yet another amendment to Cohesion Policy regulations in the last five years – intends to offer new spending possibilities for Managing Authorities. It does so by creating new specific objectives, expending the scope of eligible expenditures and beneficiaries in line with  five new key priorities identified by the Commission: 

1. Competitiveness and decarbonisation of industry 

2. Defence and security 

3. Affordable housing 

4. Water resilience 

5. Energy transition 

These are undeniably pressing issues: Mayors have long raised awareness on the housing crisis, and recent dramatic floods across Europe highlighted the urgency of climate-resilient water management systems.  

At the same time, it also reflects the new Commission’s political priorities: competitiveness and defence. One could be satisfied that including them within Cohesion Policy underlines the role of local and regional governments in fostering Europe’s competitiveness, driving strategies for local economic development and creating attractive environment for business to settle in European municipalities and regions. 

And yet… 

Despite its forward-looking intention, the mid-term review feels like a glass half empy or half full: the proposal does open new funding possibilities, to be used on voluntary basis by Member States or regions – depending on who the managing authority is. But the potential uptake of the amendments, at this advanced stage of the programming period, is likely to be limited – raising questions on the real added value of the entire proposal. It is also a risk to undermine previously agreed priorities with the addition of new eligible activities and eligible beneficiaries – with very attractive conditions (pre-financing, 100% co-financing from the EU), but without any additional budget. 

The Commission seems haunted by its initial decision to reduce the timeline for completion of programmes to two years (N+2) after the end of the period, down from the current programming period N+3 rule. This despite the assurance of Managing Authorities that they are still on track to spend all their budget – based on decades of experience managing Cohesion policy funds. For the Commission, it is still not fast enough. With this new proposal, the Commission not only opens new eligible investment areas, but also further opens the door to large enterprises, notably  defence companies to apply to Cohesion Policy funding, without requiring justifications on how these beneficiaries will contribute to the economic, social and territorial cohesion where they are located, thanks to EU funded investments. 

And this last point could be the most dramatical change to Cohesion Policy as we know it. While the uptake of this new reform is likely to remain low given that most of the funds are already committed, it should be seen as a preview of the Commission’s proposal for the next budget period: It is the return of “EU structural investment policy” except that the focus will be much less on the treaty objectives of economic, social and territorial cohesion, but more on the political priorities of the moment. Less on the partnership principle and multi-level governance, more on the private sector that has the capacity to spend large sums fast.  

This communication is not reassuring in terms of respect for the multi-level governance and partnership principle. As we saw with the Recovery and Resilience Facility, it’s not enough to mention “in partnership with national, regional and local authorities”. The Commission must put in place methodologies and binding requirements for the multi-level governance to actually take place. Yet in this mid-term review, the Commission does not even encourage Member States and managing authorities to discuss the reprogramming opportunities together with the stakeholders.  

Lessons learned 

A serious structural investment policy cannot afford to be subject to constant regulatory changes within a programming period. Real flexibility should not come from the Commission’s possibility to periodically change its own political priorities; but from the very design of the programmes where investments priorities would be defined from a bottom-up perspective, driven by local and regional governments who best understand their territories’ long-term and specific needs.  

While the EU certainly define broad strategic goals such as decarbonisation of the society, increasing competitiveness of all European territories or strengthening the resilience of public administration at all levels; it must avoid overly narrow thematic concentrations that limit the investment opportunities in municipalities and regions, and are not always fit for purpose on the ground.  

Only then can the next EU budget deliver both on common European objectives and the unique needs of each territory. 

Europe of the regions is dead,
long live Europe of the industries

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If you were still a “Europe of the regions” believer in spite of all the signs in the direction of re-nationalisation of European policies; the latest communication from the European Commission “A Competitiveness Compass for the EU” could leave the impression that it is the final blow to the idea that the European project also takes place at the local level, closer to the citizens.

There had been many warning signals: in the last years, the EU has changed the “delivery model” of its funds towards a de facto recentralisation. After the National CAP Strategic Plans, the National Social Climate Plans and the National Recovery and Resilience Plans, there was not much doubt anymore that the European Commission is looking to simplify the life of its own administration, with a single contact point in Member States, preferably budget Ministries. Then, however the Member States decide to organise and draft the national plans, in consultation or not with the subnational government levels and the most relevant stakeholders, this is outside of the Commission’s remit.

Mayors, counties or regions’ local leaders know the best their local ecosystem and the development opportunities in their territories. The Competitiveness framework should rely on them and suggest not another centralised national plan, but territorial competitiveness plans, ensuring a broad territorial coherence of investments for growth and competitiveness.  Yet, the few mentions of local and regional governments in the communication are to say that they should play their part in the simplification efforts and acceleration of administrative procedures at the service of the private sector.

With the new Competitiveness Compass, the Union at least reaffirms a common European objective that governments, at all levels, should follow. And there is a broad consensus that industrial renewal, research and innovation, transitioning to low carbon economies are all very important priorities that could contribute to improving life of Europeans – because that is the end goal, right? But there is one element critically missing for this vision to become true: a territorial vision.

Start-ups, universities, research labs, factories, all still need to be physically located somewhere: in a municipality, city, region. Somewhere with access to a fast broadband, somewhere with efficient mobility and transport solutions for employees commuting, receiving or shipping products, somewhere with good public services, ensuring a quality of life that would attract or retain the skilled workforce needed, and somewhere the taxes on these economic activities may contribute to a municipality’s revenues and therefore effectively benefit the entire local community[1].

And while the communication clearly identifies the need for public investments to de-risk and unlock private investments, it is completely overlooking the major role of local and regional governments to drive public investments. Subnational governments are responsible for 53% of the total public investment in the EU[2], and yet they are increasingly required to contribute to the fiscal consolidation efforts of Member States, steadily reducing their investment capacities.

One of the major risks with a complete lack of territorial vision, is the major downside of the Single Market: the concentration of capital, wealth and work forces in a few already attractive places, leaving entire regions behind the competitiveness run. The Cohesion Policy was created especially to prevent this type of concentration and channel EU public investments in places that would otherwise fail to attract businesses, investments or researchers.

And the Competitiveness Compass is probably just a foretaste of what the Commission is preparing for the entire architecture of EU funds in its next multi-annual financial framework. Writing in the communication “The Multiannual Financial Framework (MFF) proposal will be the opportunity to further streamline access to and simplify EU funding instruments – currently fragmented over too many programmes – across the board”, the Commission is confirming the leak and rumours in the direction of having a single national plan (yes, another one) for all currently shared management fund (i.e. all Cohesion Policy funds, and the Common Agricultural Policy). This could be a worst-case scenario: investments and reforms priorities decided at top European level that make no sense for the people and the places where the funds are spent. This is already happening with the European Semester[3].

The only solution to reconcile the overarching European goal of competitiveness, and the actual needs and priorities of Europeans wherever they want to live, is to enshrine multi-level governance in the competitiveness agenda and the upcoming long-term budget of the EU.

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[1] European Joint Research Centre, Local taxes on economic activity in municipalities in EU Member States, European Joint Research Centre, https://publications.jrc.ec.europa.eu/repository/handle/JRC129095

[2] OECD (2024) Subnational governments structure and finance, OECD, Paris, https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/subnational-finance-and-investment/subnational-governments-infrastructure-finance-2024.pdf/_jcr_content/renditions/original./subnational-governments-infrastructure-finance-2024.pdf

[3] CEMR, Top level decision – local consequences: The European Semester explained, 2024 https://ccre-cemr.org/wp-content/uploads/2024/11/EU-Semester-Study-2024.pdf

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