Orsolya Farkas (Free University of Bolzano/Bozen)
Most often NGEU is discussed and analyzed around its financial and economic policy aspects, in relation to the green and digital transition. What is less often noted, yet not of minor relevance, is how economic and social cohesion might be affected by this massive financial intervention.
From a legal point of view, cohesion constitutes one of the goals of the EU as it emerges from art.3(3) TEU: “It shall promote economic, social and territorial cohesion, and solidarity among the Member States.” But perhaps more importantly, cohesion lays at the very foundation of a functioning democratic society: without it, in an economically and socially polarized society the continuous exercise of active citizenship becomes more difficult if not impossible. Proactive behaviour includes not only voting at elections, but also everyday activities such as respect for the environment, tolerance, and engagement in voluntary activities.
Therefore, cohesion as goal to be achieved requires constant attention and these reflections aim to shed light on if and how NGEU presents new challenges. To better understand the current situation, it seems worthwhile to recall shortly the evolution of the concept of cohesion throughout the European integration process and then turn towards the current novelties and speculate on emerging risks and positive prospects.
The founding fathers of the EEC firmly believed in market forces and that the establishment of the common market would foster balanced and harmonious economic development. The Rome Treaty hardly contained any social provisions, and the European Social Fund was set up in its original form as a mere compensation mechanism for geographical and professional mobility to promote the free movement of workers. The early functioning of the common market proved the expectations of the founding fathers, but at the beginning of the 1970s the worsening economic conditions made clear that the benefits of growth in terms of improved well-being were unevenly distributed: some regions and social groups (in particular low-skilled workers, older workers, and women) were negatively affected by the economic integration process. Thus, the ESF was reformed to support adaptation to structural change in labour markets and Community funds were made available to supplement national regional development policies.
Some years later, Delors in his White Paper clearly recognized that social consensus was needed for the completion of the internal market. This social consensus was to be achieved by the introduction of a new concept in the Single European Act: economic and social cohesion. The label sounds positive, suggesting a harmonious, hand-in-hand development of economic activities and social well-being. However, the definition spelled out by W. Molle in his book “The Economics of the European Integration; Theory, Practice, Policy” describes a different picture: “Cohesion is the degree to which disparities in social and economic welfare between different regions or groups within the Community are practically and socially tolerable.” Thus, the moment arrived when different conclusions were drawn from the same, original market-making ideology: without accompanying market-correcting measures social consensus could not be achieved to accept the costs of closer integration. In other words, this meant the redistribution of some of the benefits of economic growth with the goal to decrease disparities by addressing its root causes. This was the moment of the emergence of solidarity among the Member States. The practical implementation of cohesion happened throughout the deployment of various funds, such as the Regional Development Fund and the European Social Fund.
At the time of the establishment of the Economic and Monetary Union at Maastricht there was no doubt about the necessity of a further market correcting mechanism: the Cohesion Fund was set up to support those four poorest Member States in infrastructural and environmental investments at the time of (again) increased competition and monetary integration.
Following the gradual evolution and recognition of the importance of social and economic cohesion, the NGEU and its main operation instrument, the Recovery and Resilience Facility (RRF) seem to indicate a turning point. Indeed, Regulation 2021/241 establishing the RRF uses as its legal basis art.175 TFEU, that is cohesion policy. Also, two out of the six pillars which structure the policy areas falling within the scope of application of the RRF mention explicitly economic, social and territorial cohesion. Another pillar, policies for the next generation, such as education and skills, are also means to enhance cohesion. Arguably, cohesion in general is the overarching ambition of the RRF programme as a whole.
However, a closer look at the tasks assigned to the RRF shows a substantial shift in the meaning of cohesion.
This reinterpretation, or better, legal engineering was necessary in order to stretch the scope of application of art.175 TFEU. The RRF is called to guide the transformation of national economies with emphasis on green and digital transition. The core value is not to reduce disparities, but to make the EU more resilient to face future economic, social or environmental shocks and structural change in a fair, sustainable and inclusive way. Vulnerability is however extended to the whole EU including all regions and all social groups: cohesion in its traditional sense is not the primary aim.
But if resilience becomes the new meaning of cohesion, then this brings along some risks. Green and digital transition might widen the gap between poorer and richer regions, and new disparities in the labour market might arise. More advanced companies operating in more developed geographical areas might be better equipped to apply for funds successfully: they can be faster, smarter, with highly skilled human resources at their disposal. On the contrary, less developed regions are often less oriented towards innovation and less ready for transition, in many cases they lack the necessary professionals too. The much shorter life cycle of the NGEU projects compared to projects financed by the Structural Funds is another element which might help more competitive companies and regions to get funded.
A further risk of increasing disparities might come from the return to fiscal discipline and with more focus on competitiveness. Though this issue is not directly related to the RRF it is still relevant since restrictions on public investments typically put social cohesion in danger and negatively impact the effective exercise of social rights. It will be interesting to see how the contrasting priorities of the NGEU and the Growth and Stability Pact might work on the ground.
On a more optimistic side, despite the shift in the concept of cohesion and the new focus on resilience, the European policy maker has continued to pay attention to those who might be adversely affected by the structural changes promoted by NGEU. The Just Transition Fund provides support to regions, industries and workers facing the greatest challenges during the phasing-out of carbon-intense activities. The Regulation establishing the Fund uses as its legal basis art.175(3) TFEU and finances classical measures of cohesion policy. As a second example, the Social Climate Fund can be mentioned which aims to contribute to a socially fair transition to climate neutrality, to mitigate the impact on those households, micro-enterprises who face “energy poverty” and “transport poverty”. The Regulation itself is not based on cohesion policy, but it clearly confirms that kind of social sensibility and solidarity which have characterized EU cohesion policy since its establishment. Another interesting feature of this Fund is that its governance is built on the experience of the RRF.
These two Funds can manage far smaller financial envelopes than the NGEU, but they demonstrate the constant attention addressed to old and emerging disparities within the EU. As described in this post, cohesion is indispensable not only to maintain social and political consensus (and improve economic efficiency), but it is a crucial condition for functioning democratic societies.
Dr. Orsolya Farkas is a research fellow at the Free University of Bolzano/Bozen. She holds a Ph.D in Law from the European University Institute.
