Breaking the traps: Smarter regional allocation of EU cohesion spending 2028-2034

The Commission’s proposal for National and Regional Partnership Plans (NRPPs) could offer a fresh start for the EU’s cohesion policy after 2028. Given the mixed results and implementation difficulties of current cohesion instruments, the reform ambition is welcomed. However, some shortcomings of the proposal need to be addressed. In particular, the proposed regional allocation relies too narrowly on the category of less developed regions defined by regional GDP levels. This approach overlooks emerging and future regional divergences and allows too much national leeway. This Policy Brief therefore proposes a broader category of challenged regions that accounts not only for regional prosperity but also for development traps and regional vulnerabilities arising from demographic change and the green transition. Such a recalibration of the regional distribution would better equip the NRPPs to address current and future cohesion challenges in the EU.

Introduction

The European Commission’s proposal for the EU budget after 2028 could mark a turning point for the EU’s cohesion policy. Social, economic, and territorial cohesion has been supported for decades through long-established instruments, such as the European Social Fund, the European Regional Development Fund, and the Cohesion Fund. The importance of cohesion policy is also evident in financial terms, with roughly a third of the total current EU budget devoted to it. Now the EU Commission proposes fundamental changes: the National and Regional Partnership Plans (NRPP) would consolidate several existing funds under a single plan, cut available spending and reshape a well-established governance structure.

The record of the current cohesion policy funds underscores the need to break new ground. While upward convergence is visible in many economic and social indicators, the actual effects of cohesion policy remain equivocal. Newly emerging regional gaps are poorly addressed by current cohesion spending and are likely to widen as structural transitions accelerate. Implementation challenges including very slow absorption rates further hamper the policy’s impact.

The Commission’s proposal is a promising starting point but needs strengthening on several fronts. A key element is the plan to grant member states much greater flexibility in how they allocate funds across regions. Under the new system, member states would have to reserve spending for less-developed regions with a GDP per capita below 75% of the EU average income. Beyond that, however, they would gain considerable discretion over how to distribute the remaining funds within their national plans.

The narrow focus on less-developed regions does not reflect the reality of Europe’s cohesion challenges. By relying solely on EU-wide GDP as a yardstick, the Commission’s proposal overlooks widening disparities within countries. It is also blind to emerging divides linked to the green transition and demographic change. Moreover, the new system would effectively abandon EU-level regional steering for a large group of member states: eleven countries have no regions below the 75% GDP threshold and would therefore receive EU funds without any conditions on where those resources should be spent.

To fix this, negotiators should broaden the definition of ‘challenged regions’ in the new framework. Put simply, a larger share of NRPP funds should be reserved not only for regions below the EU-wide GDP benchmark, but also for those lagging behind their national peers or facing structural challenges linked to the green transition and demographic change. Expanding the category in this way would offer a pragmatic path to safeguard the new flexibility while also ensuring that the NRPPs genuinely support regions most in need.

Cohesion policy’s mixed record calls for reform

Cohesion policy has long been the cornerstone of EU support for lagging regions. At its core, laid down in Article 174 TFEU, the policy seeks to promote harmonious development by reducing social, economic, and territorial disparities across the Union. And indeed, the EU emphasises in its 9th Cohesion Report that economic differences have narrowed steadily since the EU’s major enlargement in 2004, with the new member states raising their average per capita GDP from just over half of the EU mean to almost four-fifths by 2023. While it remains unclear how much of this progress can be directly attributed to cohesion spending, these EU funds remain a vital source of public investment in many member states. To take the example of Bulgaria, EU cohesion funds make up around 2% of annual GDP in its current budget cycle. While some studies have found GDP multipliers below 1, others suggest that each euro invested yields almost three euros in additional GDP over 30 years. Upward convergence of the most disadvantaged regions is also visible in many social indicators. In less developed regions, the average unemployment rate fell about eight percentage points from 2013 to 2022, a reduction even larger than in more developed regions.

However, these positive developments should not conceal serious shortcomings of the EU’s current cohesion policy. Challenges in implementation severely limit the policy’s effectiveness. Weak regional capacities, such as limited administrative capabilities and political instability, can prevent cohesion spending from being fully and effectively absorbed (e.g., Santos, Conte, Molica 2024; Hansum 2025). An incomplete use of funds but also a predominant focus on expenditure deadlines often undermines their potential. As a result, the impact of cohesion policy varies widely across the bloc and can even exacerbate existing regional disparities (e.g., Di Caro, Fratesi 2021).

Blind spots in the current regional distribution of cohesion spending undermine its core objective of reducing disparities in territorial development. While convergence across member states has progressed, regional polarisation within many countries is increasing. The established allocation of EU cohesion funds – based on a region’s GDP measured against an EU benchmark – overlooks these more nuanced dynamics. This shortcoming is particularly evident in wealthier countries where regions that remain above the GDP cut-off miss out on extra cohesion support. However, particularly in more affluent member states such as France, an increasing number of regions find themselves caught in ‘development traps’, unable to sustain their economic dynamism in terms of income, productivity, and employment while also lagging behind national and EU GDP growth (Figure 1; e.g., Diemer, Iammarino, Rodríguez-Pose, Storper 2022). In practice

In practice, economic growth and improved social conditions are often concentrated in urban regions, leaving the population in rural and remote areas with fewer opportunities. For example, adults in urban areas are twice as likely to participate in formal education and training as those living in more rural regions (Eurostat).

With major structural changes looming, distributing cohesion spending effectively will become an even greater challenge. Crucially, opportunities and risks associated with the green transition and demographic changes are unevenly spread across regions. For instance, while some rural areas are gaining from renewable energy production, fossil fuel-dependent regions risk job losses and painful restructuring (as argued in a recent JDC Policy Paper and shown in Figure 2). Countries and regions also vary greatly in their demographic outlook. For some countries, the EU estimates a decline of over 20% of the population of working age by 2040. Regions with significant ageing, and those affected by high outward migration, face talent shortages that can put severe strains on the economy. However, as with development traps, regions facing the greatest risks from decarbonisation and shrinking populations are often not those prioritised in the allocation system of today’s cohesion policy.

A far-reaching Commission proposal for the next funding period

Given the current (and foreseeable) shortcomings of cohesion policy, several high-level reports, including those from Mario Draghi and Enrico Letta, have already been calling for reform. In the context of an ambitious proposal of the next Multiannual Financial Framework (MFF) 2028–2034 (analysed in detail in a recent JDC Policy Brief), the Commission takes up the thread and pitches substantial changes for cohesion policy, particularly when it comes to governance and regional allocation.

Cohesion spending is folded into an encompassing fund. The Commission proposal merges 14 previously separate funds covering cohesion, agriculture, and migration (alongside other smaller programmes under shared management) into a single €771bn (in 2025 prices) ‘European Fund for economic, social and territorial cohesion, agriculture and rural, fisheries and maritime, prosperity and security’ – shortened to ‘the Fund’. Alongside a directly managed Facility for Union-led initiatives and crises (€64bn), the bulk of this fund would be spent through 27 National and Regional Partnership Plans in shared management. Additionally, loans to the tune of €150bn through the new ‘Catalyst Europe’ scheme are available for implementing the NRP plans.

The suggested governance of the NRPPs provides ample national legroom for choosing priorities. National governments would be responsible for drafting each one NRPP and, following assessment by the Commission and approval by the Council, implementing it. The NRPPs replace previous stand-alone fund-specific programmes, including those currently managed at the regional level in some member states. National governments largely decide what to fund. They can allocate their NRPP envelope not only to cohesion goals but also to areas like agriculture, migration, and security. Earmarking is also streamlined: 38% of the NRPPs must go towards direct income support for farmers, 14% to social objectives, and 43% to climate- and environment-related goals. Overall, cohesion, fisheries, rural communities, and tourism plus Interreg will receive around 15% less funding in real terms in 2028–2034 than in 2021–2027. This gap will widen if member states divert more NRPP funds to farmers, migration, or security. Merging overlapping programmes and giving more scope for tailoring measures to the national context could increase efficiency. On the flipside, however, greater discretion over allocation risks capture by powerful interests, while centralised negotiations may sideline regional and local actors and priorities.

Moreover, a performance-based governance approach is introduced, clearly drawing on the Recovery and Resilience Facility (RFF). Member states would set reform and investment goals in their NRPPs, taking into account recommendations in the European Semester and other EU guidelines. Instead of the current cost-based approach, funding would be disbursed to member states once agreed investment targets and milestones are met. Payments could also be suspended for violations of the rule of law or fundamental rights. The RRF blueprint shows both the approach’s promises and its limits, with success hinging on many details like clear milestones and rigorous evaluation. If the Commission successfully addresses these issues, the shift to a performance-based approach could refocus attention from merely spending funds on time to delivering tangible results and advancing broader EU priorities.

The suggested NRPPs change not only governance, but also how funds are distributed. A new, simplified key allocates national NRPP budgets. However, since gross national income (GNI) per capita is kept as a main distribution criterion as in today’s cohesion policy, the resulting distribution remains close to the status quo (illustrated also in a JDC Policy Brief).

But changes are more far-reaching when it comes to the regional distribution. National minimum allocations only remain for the category of less developed regions with a per capita GDP below 75% of the EU average (Figure 5). These regions are guaranteed at least €218bn, about 9% less in real terms compared to what they receive in the current cohesion spending.

At the same time, fixed shares are no longer assigned to transition, more developed, or outermost regions. And territories most affected by the progress towards climate neutrality also no longer receive dedicated funding. This marks a shift from 2021–2027, during which the newly established Just Transition Fund (JTF) provided targeted support to areas heavily dependent on fossil fuels or with industries emitting high levels of greenhouse gases (Figure 4). By contrast, once the minimum funding amount for less developed regions has been met, the Commission’s NRPP proposal leaves all further regional allocations at the national discretion.

The problem with the lack of regional steering

The Commission’s ambitious reform proposal offers a long-awaited chance to move beyond the current standstill in cohesion policy. Yet, some shortcomings need to be addressed, particularly an overly narrow and short-sighted understanding of regional divergences and diluted territorial steering.

The focus on less developed regions fails to acknowledge an increasingly complex picture of regional disparities. Earmarking (that is, reserving) part of the NRP plans’ budget for regions with a per capita GDP below 75% of the EU average ensures that the areas with the lowest levels of economic prosperity in the bloc receive a substantial share. However, assessing economic performance solely against an EU benchmark overlooks the increasing polarisation between regions within member states. This especially holds true for more affluent member states where a rising number of regions in ‘development traps’ are struggling to maintain economic dynamism, even though their GDP exceeds the 75% threshold (Figure 1; e.g., Diemer, Iammarino, Rodríguez-Pose, Storper 2022). This territorial polarisation also has political consequences, as it has been found to fuel Euroscepticism. However, cohesion spending for the regions concerned could help counter this trend, as the funds tend to foster satisfaction with the European Union.

The suggested region category also lacks a more future-oriented, dynamic dimension. European regions face diverging structural challenges and opportunities, including those arising from the green transition and demographic changes. These structural changes affect regions very differently: some areas benefit from renewables and green jobs while others are grappling with job losses in emission-intensive industries, shrinking workforces and talent gaps. This illustrative list shows how regional development depends on multiple and volatile factors. Relying exclusively on today’s GDP and discontinuing targeted instruments like the JTF would forfeit the chance to take preventive action amid accelerating structural shifts. A modernised form of cohesion spending could also help maintain public backing for the EU’s strategic priorities – support for the green transition, for example, has been shown to weaken where its costs are borne unevenly.

With the proposed, pared-down requirements, the EU would have insufficient control over the territorial targeting of cohesion spending. This is especially evident in member states made up entirely of transition or more developed regions, which would not be subject to any earmarked distribution under the current Commission proposal. Eleven member states (up from two today) would effectively be left without any territorial steering, giving them full discretion over the regional distribution of their NRPP budget. This is risky, as domestic political or sectoral interests could override considerations of regional development. This is particularly relevant given the greater flexibility for member states in terms of content, which, if used primarily for policy priorities like competitiveness, could further disadvantage lagging regions.

Towards an updated regional distribution of cohesion spending

The Commission’s proposed regional NRPP distribution should be revised to more effectively address within-country polarisation, anticipate broader structural shifts, and safeguard adequate EU steering. Achieving this requires moving beyond the proposed single category of less developed regions which relies solely on a simple GDP-based comparison. Instead, a broader set of factors should determine a region’s eligibility for earmarked funding.

Numerous potential indicators have been discussed, covering challenges linked to, for instance, decelerating economic growth, the green and digital transition, migration, or a region’s proximity to sensitive borders. But there is a trade-off between more granular categorisation and preserving feasibility and clarity. A further tension arises between detailed territorial assessments – like those currently undertaken for the JTF – which risk politicisation, and transparent formulas, which may fail to capture regional complexities. The approach put forward in this Policy Brief aims to strike this balance with a new single category based on a broader set of indicators. It should be seen as one pragmatic option among several viable ways to refine the Commission’s proposal.

This Policy Brief proposes an expanded category of ‘challenged regions’ for the territorial allocation in the NRP plans for 2028–2034. The category of less developed regions would be replaced and its minimum financial envelope adapted accordingly. Challenged regions would be those with a relatively poor economic position, but also those in socio-economic, green, and demographic development traps.

Four factors seem especially relevant for current and potential regional disparities, as consistently noted in recent key assessments, including the report of the high-level group on the future of cohesion policy. First, targeting regions with the lowest per capita GDP across the EU maintains the classic cohesion logic of upward convergence, Second, acknowledging lagging regions within individual member states addresses the issue of internal polarisation. Third, regional allocation should take into account regional risks arising from decarbonization. And finally, future place-based policies must take demographic dynamics into account, as population ageing and decline increasingly shape regional socio-economic prospects. In practice, using available data and thresholds that ensure a sensible number of eligible regions, challenged regions could, for instance, be defined as follows:

• Less developed regions have a per capita GDP below 75% of the EU-27 average, measured in purchasing power standards 2021–2023.
• Regions in development traps are underperforming in terms of growth in their per capita GDP and in terms of productivity and employment. Focusing on within-country divergence, a region qualifies if it has remained below 35% of the respective national average over the preceding ten years.
• Regions in green structural traps face particularly high socio-economic risks to decarbonisation, considering regional reliance on energy jobs, fossil fuel-production sectors, and differences in sensitivity and adaptative capacity. Regions with a risk index above 40% qualify (further details in Box 2).
• Regions in a demographic structural trap have a shrinking working-age population and a tertiary education take-up that lags behind the EU average (further details in Box 2). Such regions experience declining competitiveness, limiting their potential for economic growth.

A broader targeting of regions should be matched by a larger reserved budget. In the Commission’s proposal, 87 less developed regions receive around 28% of the NRP plans’ budget, corresponding to their share of the EU population. Under the new definition, 123 challenged regions (Figures 6 and 7) would account for 45% of the population. Hence, a sensible budgetary envelope would be 45% of the NRP plans – around €314bn – for challenged regions. Given that many regions face multiple challenges, this figure should be viewed as a floor rather than a ceiling. Alternatively, additional earmarking could ensure that multiply affected regions receive more funding, albeit at the expense of greater complexity and reduced national discretion.

Importantly, this more broad-ranging EU-wide earmarking does not alter the overall envelope allocated to each member state. Some member states would consist almost entirely of eligible regions, as is already the case under the current Commission approach. While this naturally limits territorial steering within these countries, it shows that the 43% EU-wide earmark still leaves ample room for national discretion. This holds especially as national governments retain broad leeway over how funds are used within each region. In this context of greater flexibility, the higher and more nuanced earmarking ensures that a commensurate share of the National and Regional Partnership Plans serves lagging regions.

Outlook

The Multiannual Financial Framework 2028–2034 offers a rare opportunity for cohesion policy to overcome inertia and implement much needed reforms. The upcoming negotiations should focus on improving the proposal now on the table. In this spirit, the regional distribution of funds in the National and Regional Partnership Plans needs to be refined. This Policy Brief proposes moving beyond the narrow definition of less developed regions toward a broader concept of challenged regions that acknowledges socio-economic, green and demographic structural risks. By tackling both current and future regional divergences, this approach ensures that spending effectively advances cohesion policy’s core mission of upward convergence and equal opportunities across the Union. Such fine-tuning of the current Commission proposal ensures that cohesion policy rises to the challenges of the decades ahead.

^{CC Photo: Vizag Explore, Source: Unsplash}