Defense: Why cohesion money is hardly the solution.

The EU Commission is encouraging national authorities to make greater use of EU cohesion funds for armaments factories, chip factories and social housing in the future. If regional administrations or local authorities promote investments in such projects, they can expect higher advances and reimbursement of up to 100% of the costs from the EU budget as incentives.

In this way, the Commission wants to mobilize additional money for new priorities, such as defense and competitiveness. The structural funds make up around a third of the entire EU budget, with EUR 392 billion available for the 2021-2027 period. However, the funds have so far only been called up hesitantly in the member states: 38.5% had been firmly earmarked for investment projects by the end of 2024. In the 2014 to 2020 funding period, however, 75% of the funds had already been allocated in the fourth year.

It remains to be seen how high the additional investment volume will be as a result of the changes that will apply from 2026. The Commission is also not venturing an estimate. "It is difficult to predict how the member states will react," said a Commission official. The Commission itself expects to make additional advances of around EUR 16 billion in the coming year.

Experts doubt the effectiveness of the initiative. "The problem is not a shortage, but a surplus," says Thomas Schwab from the Bertelsmann Stiftung. In many places, the responsible authorities are more than busy spending the billions from the Corona Recovery and Resilience Facility (ARF). Now the overburdened administrative structures are facing even more tasks.

Schwab also criticizes a further inflation of the objectives of the cohesion policy, which is actually intended to harmonize living conditions in the EU. "We won't achieve any of the goals with homeopathic doses," he warns.

The Commission, on the other hand, is relying on the new incentives. If the national authorities support projects in one of the five new priorities next year, they can receive 30% of the funding amount as an advance from the Regional Development Fund, for example. Normally, advances only amount to 0.5 percent of the costs, which poses major financing challenges for poorer regions in particular. "This will inject a lot of liquidity into the system," said the official. If the member states redirect their programs to a greater extent, the advance sum can be even higher.

Member states are also allowed to support large companies regardless of their location if they build new munitions factories, for example. Schwab criticizes that this contradicts the aim of supporting small and medium-sized companies and is more likely to help economically strong regions. The Commission emphasizes that this does not change the strict control of state aid.

Mark Speich, State Secretary for Federal and European Affairs in North Rhine-Westphalia, reacted cautiously: "I can understand this if it facilitates investment and innovation in the arms industry – as long as the regions remain involved in shaping the programs." Representatives of the regions fear that the Commission wants to take greater control over the allocation of funds. The responsible Vice-President Raffaele Fitto rejected this yesterday.

The debate could intensify in the course of the negotiations on the next Multiannual Financial Framework (MFF). Commission President Ursula von der Leyen wants to propose a reform of the MFF in the summer. In a communication in February, the Commission announced that each member state should develop a plan with reforms and investments together with the Brussels authority, which should then also guide the disbursement of EU funds.

Cohesion beneficiaries are critical of this. Member states fear that the Commission will be strengthened. Regions fear that they will lose their influence over the use of funds. 16 Member States from Southern, Central and Eastern Europe warned in a joint non-paper that a weakened cohesion policy would have "systemic negative consequences for the Union," which would lead to "dissatisfaction and growing imbalances." In their opinion, cohesion policy should

• be financed at least as strongly as before,

• continue to be based on the per capita economic strength of the regions, and

• be geared towards the needs of the regions in a "shared management" mode.

However, if these conditions are to be met, it will be difficult to revise the cohesion policy in line with von der Leyen's ideas.