Things to know about European funds to spend those of the NRP well

An analysis of EU structural funds data from the last seven years highlights weaknesses and problems in the use of these resources. A lesson in view of the arrival of the money from the Recovery fund

The Berlaymont building in Brussels, headquarters of the European Commission (photo: Luca Zorloni for Wired) During the last seven years of the European Union budget, which ended in 2020, the spending power of the member states (28, including Brexit Great Britain) followed at least contradictory trends. The data is relevant, in the days following the approval of the Italian National Recovery and Resilience Plan (Pnrr) by the European Commission which released the first tranche of 25 billion euros. The money from the Recovery fund is additional resources to the European budget for the seven-year period 2021-2027. This is 221.1 billion euros which will, among other things, extend the programs financed by the structural funds which expired last year.

There are five European structural funds: the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Fund for Rural Development and the European Maritime and Fisheries Fund. Like all instruments of the Community budget, the structural funds are allocated in seven years. The recovery fund programs, on the other hand, will only be available for a limited period.

Who knows how to spend

The European structural funds programs are shared by the state. Usually, the accounting criterion for determining how good a country has been at spending its funds is to understand how much it has spent in total, including state co-ownership. However, by measuring the amount spent exclusively on the basis of European funds, we discover a different picture from the commonplace, as shown in the next graph.

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Considering only the funds coming from the European Union, the best are the Luxembourgers. In the Grand Duchy, 240% of the amount made available by Brussels is spent. Italy stops at 82%.

According to the accounting criteria used, Italy spends around 50% of the total allocated structural funds. From this point of view, the one who spends the most is Ireland, which reaches 76%. Italy, however, is not an isolated case. The United Kingdom, for example, when it was still part of the Union, did not go beyond 55.1%. Great Britain had a performance similar to that of Italy even considering only the funds made available by European institutions. In this case, London stopped at 89.4%.

Those who have less spend better

So far we have treated the various countries as if they were recipients of the same share of European funds. It is not so. European regions (and consequently Member States) receive a different share of funds, depending on their degree of regional development. Over the past seven years, this mechanism has rewarded Italy, Poland and Spain.

As the next graph shows, however, it seems that the countries that spend more efficiently are those that receive the least. This generalization does not only concern Italy, but also the other major European recipients of structural funds.

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The figures made available by the Structural Funds open data portal in terms of expenditure are cumulative. For this reason, the graph shows the progression of final financing, as if it were a completion bar. The European budget undergoes adjustments while it is in force, which is why the length of the bar of total funds allocated varies over the years.

Regarding the efficiency of spending, some recurring themes can be noted in the main receiving countries. structural funds. Countries that take the most money could do more to use the funds they themselves allocate. In Poland 47 billion was not spent, in Italy 36. However, even if the money had been spent in full, there would always be the problem of understanding the impact on economic systems. And, in this sense, the Union cannot be relied upon to understand it.

Understanding how to spend

For the seven-year period 2014-2020, for example, the monitoring of the European institutions has focuses on the percentage of achievement of the objectives of the various programs. For the previous seven years, however, the Commission has made available a more interesting dataset that perfectly shows the philosophy with which Brussels evaluates its initiatives. The data is summarized from the next table.

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Here we see how many things the Structural Funds have done for European citizens on the ground. The table shows how many kilometers of roads and railways have been built, how many jobs have been created in startups or how many people have used new water or sewage services. However, there is no study on the specific impact from a macroeconomic point of view. For example, how much have European policies affected the employment of a region? Based on these data, we cannot know.

What we see with the previous table are details that allow the European institutions to demonstrate that they have done something, consolidating themselves from a political point of view. And this is where measuring the impact of European funds becomes an issue that cannot be dealt with exclusively by the institutions of the Union, but rather by the academic world.

The impact of funds

On Google Scholar, a search engine dedicated to research, there are 1.7 million results for the English search key for "impact of the European structural funds". For example, the Slovak economist Vojtovič Sergej concludes, in his 2016 study, that small and medium-sized enterprises in the new member states use European structural funds inefficiently because they lack the necessary human capital.

A another study, this time Greek, shows how the structural funds (between 1990 and 2005) have triggered a virtuous effect on the Hellenic regions, improving regional convergence even where the funds do not arrive directly, through a spillover effect between different areas. A research by the University of Calabria on European funds between 1995 and 2006, on the other hand, shows how the division between North and South has not been affected by European spending, arriving at crucial considerations on the subject.

Francesco Aiello and Valeria Pupo of the Calabrian university in 2008: "Reading the results leads us to conclude that the structural funds have not changed the structural conditions that determine the long-term growth of the Italian regions and, consequently, have only slightly contributed to resolving the problem of the fracture between North and South ". Is this generalization still valid thirteen years later? Probably yes, as the next graph shows.

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The above chart is a series of scatter charts. As intimidating as it may seem at a superficial glance, in reality it tries to understand, for every euro spent, how much unemployment varies in a given Italian region. Each region is represented by a point.

In 2005, every billion euros invested was accompanied by a drop in unemployment of almost one percentage point. In 2013, on the other hand, every billion euros was paid an increase in unemployment of 1.25 percentage points. In 2015, every € 1 billion spent coincided with a 0.73 percentage point drop in unemployment. In 2016, unemployment grew by 0.8 percentage points for every billion euros spent. This noise and this (apparent) variability in the effectiveness of European spending have several explanations.

Between 2005 and 2006 the only seven-year European budget agreed before the enlargement to the East was closed. structural funds, with greater intervention in the countries of the former Warsaw Pact, may explain part of the reduction in the effectiveness of European funds.

Secondly, the regional administrations to which European funds are destined have changed their political color and administrative staff. It is therefore not out of place to think that good spending practices have been lost in the last 15 years.

Thirdly, unemployment does not depend only on European investments but is the product of economic performance in general, so it is possible to hypothesize that the European funds have not produced a constant reduction in unemployment as this also depends on the overall macroeconomic framework.

Furthermore, it can be hypothesized that the relationships that, from time to time, occur between European spending and changes in unemployment are random and that, therefore, European funding is not the right tool, if the policy objective is to reduce the employment gap between the North and South of the country. The trend lines of the previous charts not only should have a consistent trend for all the years considered. The lines should not depend on where the regions receiving the most funds are positioned which are, as the isolated points towards the right of the graph show, the regions of the South.

Policies against unemployment

An analysis of employment trends since 1993 shows that, in fact, European investments hardly affect unemployment. Over the past 30 years, the gap between North and South has not closed. Furthermore, a generalized decline in unemployment between the 1990s and 2008 was accompanied by a very serious employment crisis which, even before the pandemic, had not been able to be remedied.

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In this graph we see that, especially since 2008, the gap between southern and northern regions is widening. In addition, unemployment has risen everywhere since 2013 despite European efforts. This perhaps, more than anything else, shows how the structural funds alone are not able to allow an economic revival but, rather, they trigger mechanisms of dependence of the territories towards European funds that are difficult to mitigate over time.

European funds go to support regional economies that perform below the European average. This means that they reward the poorest regions which, however, do not feel incentivized to spend structural funds productively and, therefore, risk becoming addicted to funding from European institutions to achieve limited objectives that cannot be financed by national public spending. br>
This is one of the points on which the 2009 study of the University of Calabria insists which, to this idea adds another: human capital is a crucial aspect of the spending capacity of funds. Are European funds the right tool to get out of the crisis? We will find out, perhaps, at the end of the next seven years, even if the data seen so far does not bode well. Despite public statements, the history of managing European funds in Italy has not been a great success. And not because the funds are not used. How much because, perhaps, they cannot replace the thing that matters most: a national policy that seeks to support employment and income without waiting for Brussels' magic wand.


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