By Patricia Wruuck, Julie Delanote, Peter McGoldrick, Emily Sinnott and Debora Revoltella
Increased divergence between people and regions across the European Union in the aftermath of the global financial and EU sovereign debt crisis led to serious concerns about a loss of trust in EU institutions, and in places ‘left behind’. Beyond the crisis-induced shock, pressure on inequality intensified as a result of megatrends, notably aging, digital technologies, global competition and climate change and pollution. Can this time be different?
The COVID-19 crisis has led to some widening of inequalities, for example in sectorally concentrated job losses or health outcomes by social strata. At the same time, it has triggered large public and EU support programmes to protect public investment and capital transfers, support firms and households, and mitigate risks of a protracted investment slowdown. What is more, the EU has committed to a joint agenda for recovery centred on green and digital transitions. The extent to which this will mitigate the risks of rising inequalities in the aftermath of the pandemic depends not least on support for cohesion.
Supporting cohesion in the post-pandemic environment
The European Union’s new cohesion policy aims to ensure that all parts of the EU can take part in the green and digital transition. Cohesion policy funds to boost EU economies’ ability to deal with longer-term structural shifts, together with the Next Generation EU funding package which aims to kick-start recovery, amount to over €1 trillion over 2021-2027. Yet the success in supporting economic catch up and convergence will depend on whether funds can be channeled to investments that effectively address gaps.
We use data from the European Investment Bank’s municipalities survey and the annual EIB Investment Survey (EIBIS) targeting firms across the EU to shed light on public and private investment needs, gaps and local abilities to advance on the transformation towards a smart and green economy. The analysis distinguishes between NUTS2 regions with GDP per capita below 75% of the EU average (less developed), between 75-100% (transition) and above (non-cohesion regions).
How are cohesion regions positioned?
Our results show that lower GDP per capita tends to coincide with less adequate investment levels. Basic infrastructure gaps are more severe and common in cohesion municipalities, especially in less developed regions. Gaps are shown for basic infrastructure, notably urban transport, social infrastructure, and water and waste utilities (Figure 1). For example, non-cohesion municipalities are one-third less likely to report gaps compared to less developed regions. Fewer than 1% find that investment in water and waste utilities is substantially lacking, compared to some 10% for cohesion regions.
Figure 1: Municipal Investment gaps (percentage of municipalities reporting gaps)