From the 1970s, in the days of the European Economic Community through to the 21st century European Union, regional policy was seen as a necessary means to address regional imbalances. With the Lisbon Treaty came the idea of "territorial cohesion" as an aim of the Union, alongside economic and social cohesion. Differences in living standards and life opportunities between different parts of the Union should not be so great as to undermine cohesion. Territorial cohesion was the spatial expression of the European model of society, a normative concept that injected concerns for social welfare and equity and sustainable development into the pursuit of economic growth and competitiveness. To this end, the key aim of Cohesion Policy was to support poorer regions on a path towards "convergence" with better off regions.
The financial crisis has resulted in a significant change in priorities, in which the ideals of territorial cohesion have been sidelined. This is a point I made in a blog a few months ago, in relation to the austerity policies being forced on to Greece. Now a new report, authored by people working within the European Commission's Directorate for Regional and Urban Policy (DG-REGIO) provides a measured account of how, and in what ways, Cohesion Policy has been profoundly reformed.
From convergence to widening disparities
For a long period regional disparities within Europe were shrinking. The financial crisis ended that. Not just in UK, but across Europe, the policy narrative was seized by those who had created the crisis and their political allies. Banks had to be saved, their private debts converted to sovreign debts, to be repaid by abandoning the transfer payments that sustained the European social model.
The report from the DG-REGIO staff does not put it as bluntly as that, of course. Rather it tells how the crisis "triggered fundamental changes in European economic governance" and how Cohesion Policy was "mobilised to support the EU's reform agenda in all regions".
The authors provide an exemplary historical summary of how these fundamental changes were effected. Previously there were no ex ante conditionalities - in crude terms, if you were a poor region you qualified to receive EU funds for regional development. Now there are macroeconomic conditions that must be met, and many of them are beyond the influence of regions. Thus national governments have to be on the right side of the Excessive Deficits Procedure - in other words implementing public spending cuts. There are other sticks too - e.g. the Excessive Imbalances Procedure - which give the Commission powers to suspend the flow of EU funds if macro-economic actions are seen as unsatisfactory.
The authors trace three phases through this transition from a regional policy serving the regions to a non-regional policy to enforce the deflationary policies which have been a drag anchor on EU economies in recent years (again my words, not their's). Phase 1, in 2008-9, they characterise as "reflection and consultation". This was the period when the Commission supported a fiscal stimulus to drive recovery from the crash. As part of this strategy, Structural and Cohesion Funds were released expeditiously. The Barca Report made the case for place-based development. The underpinning idea is succinctly explained as follows:
"The paradigm to a place-based approach to regional development is based on the assumption that market failures create inefficiencies and persistent social exclusion in specific places. These deficiencies can be addressed by tailoring interventions and economic institutions to local conditions, by extracting and building on local knowledge and by fostering bottom-up development."
But it was also the Barca Report that set in train the idea of national level conditionalities.
Phase 2, during 2010-11, saw a deepening crisis within the Eurozone, and growing fears amongst lenders that Greece, Ireland and Portugal might not be able to repay the sovreign debts thay had taken on. There was some easing on co-financing to help crisis countries, but also a significant shift within funds towards R and D and innovation, business support, roads, sustainable energy and youth unemployment, and away from railways, ICT, environment, education, training and capacity building. This was also the period of Europe 2020, the EU's recovery plan, based on "smart, sustainable and inclusive growth", and of haggling over future budgets.
Phase 3 (2011-13) saw the full absorption of Cohesion Policy within the new (orthodox) economic governance structures, amidst new fiscal crises in Cyprus, Spain and Greece. The drafting of post-2013 Cohesion policy was contested. The "Friends of Cohesion" amounted to 16 Member States, all net beneficiaries, who were opposed by eight "Friends of better spending" who were net contributors. It was this latter group which insisted on macroeconomic conditionality. With EU budgets being cut, they could afford to play the long game, and wait for their opponents to concede.
The European Parliament opposed macroeconomic conditionality. Reasonably enough they argued that it amounts to a tool of punishment, branded against regional and local governments for the sins of their national governments. Though the parliament won a number of mitigating concessions in the end they had to give way as a final compromise was reached.
Europe's new political economy
The full report from the DG-Regio team is more extensive and sophisticated than my summary in this blog. Notably it makes no mention of "territorial cohesion" except in the title of the more recent Cohesion Reports. The territorial dimension is trumped by the spatially blind perspective of economoic orthodoxy. While nobody can argue that previous spending through Cohesion Policy was faultless, or that there is no case for monitoring results, I suggest that the story contains two lessons.
Firstly, that there has been a fundamental change in the EU's approach to regional inequalities, with traditional regional policy and the later concept of territorial cohesion sidelined in favour of a set of macroeconomic policies that continue to punish economically weaker countries and regions. These same policies have seen the economic recovery in Europe significantly lag behind that in USA (and be out of kilter with the direction that the IMF is now pointing in).
Secondly, to understand what is going on we need a political economy perspective. The changes enforced were triggered by the financial crisis but have a strong political and spatial dimension too. The winners are those institutions who lend money. They are based in the capitals and finance districts, who act as cheerleaders for them. The losers are the secondary cities, the poorer regions and democracy itself.