Is Cohesion policy effective? Does it contribute to the reduction of development disparities, strengthening competitiveness and convergence in the EU? These questions raise after hearing about 351 billion EUR new budget of the policy, but what is cohesion policy and how did it develop? In this research paper, you will go through the basics of the Cohesion Policy until the latest developments and results it achieved. Nevertheless, before that, globalization is moving forward at an unprecedented pace, and technologies are evolving ever more rapidly. As a result, economies have to cope with continuous structural change (Molle 2007). The European Union is a successful integration experiment, with an increasing number of member countries and an unexpected depth of integration. According to many indicators, it is the largest economic region in the world, leading in many “beyond GDP” indicators representing wellbeing including non-material goals (Aigner 2012). In recent years, Europe has had to face a number of crises – economic, financial and political – with major issues being the revenue shortfall due to Brexit and the issue of immigration. The fifth enlargement of the European Union completed with the accession with Romania and Bulgaria means that regional disparities are greater than ever before (Molle 2007). As in the core of the idea of the EU is sustainable development and its aim is to make EU member countries strong and competitive on the world stage it became incisively important to develop tools and mechanisms for the less developed regions to help them catch up and develop in line with time. Those regions are now 274 and the idea of having smart, sustainable and inclusive growth (EU Commission) plans to achieve through regional development projects, which altogether form the Regional Policy or as often referred -The Cohesion policy of the European Union. As it was stated by Danuta Hübner – “The objective of economic and social cohesion was expressed in the Single European Act and became reality in 1988 with the adoption of the first regulation which gave birth to Cohesion Policy”.
As Cohesion Policy is a significant part of the EU budget, representing about one-third of the current 2014-2020 budget, the debate on the future funding for Cohesion Policy has come to the forefront in many political and economic discussions in the area. Hence, this paper’s aim is to analyze the idea of the policy, its history and development, concentrating mainly on the latest 2008-2013 period to find whether the convergence in EU is reached or not. Unfortunately, the nature of Cohesion policy itself is posing serious limitations to the econometric approach, which has usually been limited to the direct testing of the macroeconomic impact of the resources (Wostner et al. 2009). However, with this paper we start from analyzing the policy with the Balance of payments constrained growth rate (BPCGR) model, which proves the importance of the regional policy in order for an area to achieve long-run sustainable growth. The analysis will then proceed into the history, theory and development of the policy and will continue by looking into the actual effects of the EU’s regional policy. Both on the regional convergence and the positive catching-up of the periphery, using empirical data from the reports of regional projects that have been implemented in the frames of the policy, by concluding that the Cohesion Policy, in spite of having room for improvements in efficiency, should and needs to continue playing an important role in the EU’s policy package.
As it is defined by the European Commission – “Regional policy is a strategic investment policy targeting all EU regions and cities in order to boost their economic growth and improve people’s quality of life. It is also an expression of solidarity, focusing support on the less developed regions.” Therefore, Cohesion policy is an EU development policy, designed to reduce disparities in the development capacity of the regions and Member States lagging behind, while at the same time to contribute to a strengthened competitiveness and employment of all other areas. With €347 billion for 2008-2013 at its disposal it represented the second largest item in the EU budget, after the Common Agricultural Policy, which means that its effectiveness is a subject of great interest due to the potentially high opportunity costs these funds might have (Wostner et al. 2009). It finds its origins from 1957 in the Treaty of Rome founding the European Economic Community. In 1968, the Directorate-General for Regional Policy of the European Commission was created. The creation of the European Regional Development Fund happened in 1975 after which, in 1988, to adapt to the arrival of Greece (1981), Spain and Portugal (1986), the Structural Funds were integrated into an overarching cohesion policy, introducing key principles :
• focusing on the poorest and most backward regions
• multi-annual programming
• strategic orientation of investments
• involvement of regional and local partners