Under what conditions? How the narrative of EMU fiscal stability is reshaping cohesion policy’s EU solidarity

Niccolò Donati

Based on a Research Article by Niccolò Donati

Full publication: ‘Under what conditions? How the narrative of EMU fiscal stability is reshaping Cohesion policy’s EU solidarity’, Journal of European Integration, https://doi.org/10.1080/07036337.2022.2119226

Cohesion policy is the largest investment policy of the EU. It has a substantial redistributive component that allows for the transfer of fiscal resources from the more to less developed regions in the EU, thus creating a large pattern of fiscal solidarity among and within the member states. How this redistribution came to be is, per se, no less than a miracle. Differently from any federal entity, no central authority has ever coerced the EU member states into pooling together fiscal resources. Moreover, these resources are renegotiated every seven years, so that the member states could change their mind every so often. And yet, the Cohesion Policy budget has never decreased in absolute terms since 1988. Adding to the puzzle, when we observe Cohesion Policy’s evolution over a long period, we notice that the very idea of solidarity underpinning Cohesion Policy has changed; while in 1988 Cohesion Policy was largely unconditional, today’s Cohesion Policy has many conditionalities, relating to sensitive political factors like macroeconomic policy and the rule of law. Funds can be suspended if a member state is not compliant with some of the EU basic principles concerning the rule of law or macroeconomic stability.

Why has Cohesion Policy has followed this trajectory? In explaining Cohesion Policy evolution in general, and macroeconomic conditionality in particular, we must look at (mainly) three elements: the context of the Cohesion Policy reform, the interests involved in the reform itself, and the values upheld by the decision-makers.

Setting the scene

Cohesion Policy reform does not take place in a vacuum. When negotiating the reform of the Cohesion Policy budget, it often comes naturally to look at the other relevant reforms that are taking place in the EU, and to discursively relate the Cohesion reform to them as ‘ancillary policy’. In other words, Cohesion Policy is presented as instrumental to the success of other EU reforms. One such reform is that of Economic and Monetary Union: in particular, the Maastricht Treaty in 1992 invoked the expansion of Cohesion Policy in function of ‘structural policy’ to assist the less affluent Member States in their convergence programmes to enter the Euro. In 2013, Cohesion Policy was front-loaded to assists the EMU Members that, in the context of the Sovereign Debt Crisis, were falling behind due to the credit crunch and were unable to keep-up with Cohesion investments.

Follow the money

Cohesion Policy’s budget is paramount in each Cohesion reform. Money is not everything, but we can agree that money make cohesion easier. As such, many Cohesion reforms had followed a similar pattern: the wealthy Northern European Member States versus the less affluent Southern European Member States in a tug-of-war for a more generous or more ‘frugal’ budget. Things are even more complex: while the northerners have to gain more from economic integration, southerners had to go through painful domestic reforms. Hence, what we do observe in the intergovernmental arena is a tit-for-tat politics: during the 1988 and 1993 Cohesion reform, in exchange for the acquiescence to economic integration, the Southern Member States asked for more Cohesion funding, so to compensate the negative effects of the reforms.

What about ideas?

The material (functional spillovers and/or interests) constellations may be not sufficient to fully explain the process of Cohesion Policy reform: ideas and values are important as well. This becomes clear when looking at the 1993 and 2013 reform, where the value of solidarity clashed with that of responsibility. What was debated was not just the role of Cohesion Policy vis-à-vis the EMU reform — how should it support the structural convergence of the Member States — or how Cohesion Budget could help to square the interests of different groups of Member States — debtor vs creditor and so on. No: what was debated, at a more fundamental level, were the guiding principles in the economic integration: in particular, the role of solidarity vs. responsibility. Should the Member States be responsible of their economic situation? Or should the EU allow for some level of fiscal insurance, pursued through fiscal transfers? From such debate, the Member States decided to firstly create Cohesion Fund’s economic conditionality in 1993, and to extend it to all Cohesion Policy in 2013. Conditionality was considered the middle ground between solidarity and responsibility: the fiscal transfers were possible, but only at certain conditions that were compatible with EU or EMU general principles. In this way, the conception of solidarity underpinning Cohesion Policy followed a slow but steady transformation across the years.

In conclusion

Cohesion Policy reform is a complex process that can be better understood as the interplay of three rationalities — the theoretical/functional, the instrumental/economic, and the axiological rationality. Member States accept to pool fiscal resources as a way to reduce intergovernmental tensions in the wider context of economic integration (or other major EU changes, such as the Eastern Enlargement). Against the backdrop of material constellations, the Member States often fight battles of ideas and values: they had to decide the model of intervention of Cohesion Policy (for instance, place-based vs. sectoral logic) and how much Cohesion transfers would shelter individual Member States from the weight of their own choices in the economic sphere. In the long term, coupled with the transformation the EMU underwent, the value of responsibility had the better. Thus, Cohesion Policy’s solidarity went from unconditional to conditional, as the policy is carving for itself a role in the economic governance of the EU.

This project is funded with a Synergy Grant by the European Research Council under Grant Agreement n. 810356. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Research Council. Neither the European Union nor the granting authority can be held responsible for them.