The Recovery & Resilience Fund: an economic stimulus at the expense of territorial cohesion?

With the pandemic having widely different impacts across regions and social groups, a crucial question is whether the EU’s Recovery and Resilience Fund will not just support recovery but also promote greater economic, social and territorial cohesion. This blog discusses how Member States have approached the development of National Recovery and Resilience Plans and the implications for regional and local development. We find that NRRPs do not include territorial cohesion as significant objective, may lead to delays in Cohesion Policy spending, and pursuing synergies between the RRF and Cohesion Policy faces significant obstacles.

Less than eight months after the European Commission published its first guidance on implementing the Recovery and Resilience Fund, almost all Member States have submitted their National Recovery and Resilience Plans (see table below). The Recovery and Resilience Facility is making €672.5 billion in loans and grants available to support reforms and investments undertaken by Member States. The aim is to mitigate the economic and social impact of the coronavirus pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions.

The scope of the Recovery and Resilience Fund (RRF) includes among its ‘pillars’ support for economic, social and territorial cohesion (Art. 3 of the RRF Regulation). In drawing up their National Recovery and Resilience Plans (NRRPs), Member States are encouraged by the European Commission’s guidance to undertake investments that contribute to cohesion. Further, in both the Regulation (Art. 28) and Commission guidance, Member States are required to foster synergies and promote strong coordination between Recovery and Resilience Plans and the programming of Cohesion Policy.

Table 1: RRF allocations to Member States and submission status

Sources: LSE europpblog 18.5.2021; European Commission, Recovery and Resilience Facility – latest news, 2.6.2021; European Commission (2021) The EU’s 2021-2027 long-term Budget and NextGenerationEU: Facts and Figures.

1. Strategic and institutional coordination

The political importance and profile of the RRF, and its contribution to national recovery plans, is reflected in the lead role being taken on NRRPs by Prime Ministers and Ministers of Finance in many countries. Member States with larger allocations generally have an interministerial committee/commission to coordinate relevant areas of NRRP investment. In several cases, the management of NRRPs and Cohesion Policy are in the same ministry, with a view to utilising the same systems and procedures insofar as possible. More common is a separation of management responsibility for the NRRPs and PAs, with various types of mechanisms (working groups, committees etc.) to facilitate cooperation. In countries with smaller allocations, the coordination mechanisms are less institutionalised, relying on operational cooperation between relevant units in different ministries.

In several Member States, the experience to date appears to be one of close and effective cooperation between NRRP and Cohesion Policy departments in the drafting of plans including several cases of integrated drafting of NRRPs and PAs, but this is not universal. One difficulty has been the prioritisation of the ‘hard’ deadline for NRRPs, in some cases leading to the programming of the PAs being partially suspended or given a lower priority, leading to delays.

The RRF requires engagement with partners (in line with national frameworks), particularly in the preparation of programmes, but this is less of an obligation than the partnership principle in Cohesion Policy. In a small group of countries, regional and/or local governments have actively participated in the development of NRRPs and are envisaged as having a major role in implementation arrangements, although the details are not always elaborated in plans. Elsewhere, subnational actors, civil society and the private sector have been largely involved (so far) only as consultees, at the outset of the drafting process or on draft plans, or project proposers. In part, this reflects the dominance of national measures and the responsibility for reforms and investments at national level.

2. Demarcation of funding allocations

Commission guidance recommends that decisions on the use of the RRF versus Cohesion Policy are guided by eligibility, allocations, national/regional competences, the availability of mature projects, and investment size. In practice, decisions on funding under NRRPs or PAs are being influenced by three main questions:

  • eligibility – what are we allowed to finance?
  • absorption – what are we able to spend and control?
  • administration – where is it easier to spend within the timeframe?

Other factors that have played a part in decisions are the obligatory links of the planned investment to systemic reforms, the prioritisation of mature projects, and whether the appropriate legal competences are in place to guarantee milestones and targets.

Demarcation of investment decisions is being undertaken according to several criteria, with a mix-and-match approach based on:

  • investment scale/type: especially in countries with smaller Cohesion Policy allocations, the RRF is being used to finance national and major reforms and large-scale investment projects, while Structural Funds are being used for smaller projects and soft measures;
  • beneficiary size or type (public, private): there is some evidence of RRF use focusing more on larger companies, and Structural Funds supporting SMEs;
  • eligibility: RRF is being used to fund investments ineligible for Cohesion Policy either because of thematic concentration conditions, regional eligibility status (MDR/TR) or type of project; and
  • timing: certain investments are being funded under NRRPs in the first part of the period, and with Cohesion Policy thereafter.

3. Economic, Social and Territorial Cohesion

Although economic, social and territorial cohesion are explicitly in the scope and objectives of the RRF, cohesion does not appear to be a significant objective of NRRPs. For the most part they follow a ‘sectoral logic’ with a focus on maximising national economic recovery and growth. Primacy is given to investments that promote the green and digital transitions which require minimum thresholds of expenditure. While cohesion is in many cases (broadly) mentioned among the general objectives / expected impacts of the NRRPs, there is often a lack of detail on how this will be delivered, as well as a lack of performance and impact assessment information.

An explicit territorial dimension of the RRF is often limited or absent. Among the exceptions are a minority of Member States where there is a part-regionalised approach to implementation or ring-fenced allocations are being allocated to regional and local governments or for certain areas (e.g. urban), albeit often focused on green and digital transitions, and with regional envelopes sometimes left unspecified. A weak territorial dimension of the RRF has potential implications for Cohesion Policy and territorial cohesion, including reducing the role of sub-national levels and undermining the multi-level governance principle. To varying degrees, this has the potential to reduce the place-sensitivity of interventions, widen territorial disparities, undermine the principle of thematic concentration, and limit the territorial element of the European Semester.

However, several Member States have acknowledged that a more explicit territorial dimension may emerge as the NRRPs are implemented, and in the development of project selection criteria and projects. There is also an important indirect impact on cohesion arising from NRRP spending on infrastructure gaps and connectivity deficits (e.g. roads / railway networks, broadband access, digital skills, water management, support for sanitation, urban energy poverty / energy efficiency / heating, urban regeneration, sustainable urban mobility, housing) or addressing social inequalities (social inclusion / poverty, access to healthcare, education), which tend to be in disadvantaged regions, urban neighbourhoods and other localities.

The nature of investment support included in some NRRPs implies spending in specific types of territories. Examples include support for organic farming / ecological agriculture / green transition in agriculture; sustainable forest management; revitalisation of former industrial areas; transition of areas affected by phasing-out of coal or lignite; support for tourist regions or regions with specific (e.g. cultural or natural) endowments; specific measures dedicated to overseas territories or islands; targeted support for deprived/lagging towns and villages; and measures related to mitigating climate change and natural hazards.

References to the correlation of RRF interventions with Cohesion Policy-supported integrated territorial approaches are also present in some cases. For example, there are cases of RRF measures intended to be implemented using (or ensuring links with) Cohesion Policy investments under ITI or SUD interventions.

4. Complimentaries and Synergies

The positive opportunities from complementary action between NRRPs and PAs are potentially threefold in the view of Member States.

  • Although the objectives differ, the significant thematic overlap between the RRF and Cohesion Policy – notably the common focus on green and digital transitions – can be exploited to coordinate investments and achieve additional impacts. Both RRF and Cohesion Policy are powerful tools and cumulatively have substantial investment power in several Member State (see figure below). They have the potential to enable more articulated and coherent public policies, which are crucial for the effective delivery of European policies and instruments.
  • A coherent strategic approach can enable Member States to use the RRF to implement Country-Specific Recommendations that are too broad for Cohesion Policy. The RRF is providing an opportunity to improve the framework conditions for investment (in some countries mobilising long-needed reforms) comparable to the role of enabling conditions in Cohesion policy, that improve the conditions for (and effectiveness of) EU funding.
  • In some cases, there may be scope to ‘export’ the governance logic, management and control approach, and performance framework of Cohesion Policy to other policy areas.

However, Member States perceive substantial challenges in achieving potential synergies.

  • The demands of effective strategic and operational coordination are considerable, with limited time to embed inter-institutional cooperation mechanisms and effective working relations where these do not already exist.
  • The differences in the PA/OPs and the NRRP drafting timetables are, in some cases, hindering effective institutional coordination, and limiting the scope for synergies.
  • The use of Cohesion Policy institutional / management and implementation systems and procedures (or their elements) in the implementation of the NRRP measures is in some cases viewed as a way to ensure the synergy of implemented activities, avoid double financing and promote consistency, but the practical application of this may be complicated e.g. due to the lack of necessary resources and capacities.
Table 2: RRF grants and Cohesion Policy allocations (€ bn)

  • The thematic overlap between Cohesion Policy and RRF increases the risk of rivalry and double funding, making clear demarcation crucial for avoiding overlaps. Some themes, including green and digital transition, present particular concerns in terms of overlaps. In addition, the broad scope of RRF thematic coverage is considered to embody complexity making it more challenging to define focus and ensure coordination with Cohesion Policy interventions.
  • In some Member States, there have been difficulties in overcoming internal perceptions of the RRF and Cohesion Policy as ‘investment funds’ and a lack of commitment to associated reforms, although the reform commitment has increased in recent weeks under pressure from the Commission.
  • Although the RRF has demanding rules and conditions on financial control, monitoring and evaluation, audit, etc., they are perceived as less onerous than under Cohesion Policy. Indeed, ESIF have stricter rules in areas such as enabling conditions, monitoring and evaluation, financial management, performance framework and thematic concentration. This may make the possibility of allocating additional resources to the RRF more appealing, to the detriment of the absorption and territorial dimension of Cohesion Policy.
  • The potential prioritisation of the RRF funding over ESIF due to the pressure on delivering quick implementation / absorption (e.g. emergency nature, shorter lifespan, tight timetable for NRRPs) may reduce attention and capacity to deal with the programming and implementation of the ESI funding 2021-27, contributing to future delays, absorption issues, as well as a reduction of cohesion resources in the post-2027 period.
  • The possibilities for transferring resources under shared management to RRF raise concerns over shifts in funding away from Cohesion Policy to the benefit of centrally managed instruments, which, along with a reduction of cohesion resources, may increase centralisation at Member State level and undermine the ESIF governance model, based on the partnership principle.

5. Conclusions

The planning and submission of NRRPs within a tight timeframe represents a substantial achievement for the EU. If the NRRPs are implemented as planned, they will give a substantial boost to investment and reforms, contributing both to the immediate recovery of EU economies as well as supporting the longer term goal of ‘building back better’ and meeting EU goals for green and digital transitions.

Less clear are the implications for cohesion, and there must be significant concerns about whether and how NRRPs interact with Cohesion Policy – for three reasons. First, many NRRPs do not have economic, social and territorial cohesion as an explicit goal. Insofar as cohesion is mentioned, there is a lack of information on how it is interpreted and will be delivered. The involvement of subnational partners and a territorial dimension to planned spending varies greatly across Member States. There are generally no well-defined indications for assessing the cohesion impact of the NRRPs.

Second, the political importance of the NRRPs – often coordinated at prime minister or finance minister levels – and the imperative of the RRF achieving (and being seen to achieve) its ambitious goals may be damaging for Cohesion Policy. Submission of the NRRPs has already been prioritised over the programming of PAs and OPs. The scale of RRF investment support and reforms to be implemented by specific milestones will put administrative capacities under severe strain, potentially diverting resources away from the implementation of Cohesion Policy programmes.

Lastly, there is both a regulatory and cultural gap between the RRF and Cohesion Policy. The Cohesion Policy model of multi-level governance, performance framework, and financial management is much more complex than under the RRF. The experience of implementing the different RRF model, with lighter touch regulatory obligations and expectations, is likely to prompt a debate whether Cohesion Policy rules could be similarly rationalised post-2027. It may also encourage a more prescriptive and centralised approach to Cohesion Policy, weakening further its scope for a place-based policy response to regional and local development opportunities and challenges.

 

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