European regional development fund

The European Regional Development Fund, or ERDF, is one of the Structural Funds adopted by the European Union and, according to the European Commission, is one of the main financial instruments of the EU’s cohesion policy (Kołodziejski 2022, p. 1).

The aim of this fund, as stated by the European Commission, is to help fill the gap in the level of development among the different EU regions, and to improve living standards in the disadvantaged ones.

According with the European Commission and the European Investment Bank, alongside the purpose of this fund is also strengthening economic, social, and territorial cohesion in the European Union, so the projects implemented under the ERDF relate to supporting the development and structural adjustment of regions with development delays and contributing to the transformation of declining industrial regions. Particular attention is given to regions that suffer from severe and persistent natural or demographic disadvantages, such that are geographically isolated or that have low population density.

History and Legal bases of the ERDF

We can find the legal pillar of the ERDF in the articles 174 to 178 of the Treaty on the Functioning of the European Union (TFEU).

The European Regional Development Fund has its roots in the Treaty of Rome of 1957 that had been committed to balanced regional development as a means for achieving integration and reducing the differences between various regions of the European Economic Community.

After years of discussions, with the enlargement of the EEC, the first comprehensive guidelines for a regional policy had been proposed by the Commission in 1973. Early moves towards establishing a Regional Development Fund were however delayed by international monetary turmoil and the oil crisis, that according to Dall’Erba (2003) "revealed to the Community the necessity of a solidarity policy in order to help rural periphery and the least prosperous regions of the newly integrated countries". So finally in 1974 the agreement to establish this fund was reached and become effective and operative in 1975.

This and the other structural funds of the European Union have been reformed through the years.

According to Kołodziejski M. (2022), the regulation of the ERDF and the Cohesion Fund for the 2021-2027 period was not only about finding an agreement between the different EU countries during the meeting of the Council of the European Union, but it was subject to the ordinary legislative procedure, under which the European Parliament has full rights to propose modifications. During the negotiations for the 2021-2027 period of the EU cohesion policy, the European Parliament succeeded in raising the amount of co-financing for projects and improving the flexibility in applying the rules. Additionally, it has improved ERDF support for cities and integrated urban policies, and as a result, today the total budget of ERDF for the period 2021-2027 amounts to €226.05 billion.

Objectives, thematic concentration, and financial rules

This fund is articulated in different objectives, and intervention areas and is subjected to different rules about how the fund should be distributed and used.

Looking at the Article 176 of TFEU we know that the European Regional Development Fund is intended to help to redress the main regional imbalances in the European Union by supporting the development and structural adjustment of regions whose development is lagging behind and operating in converting declining industrial regions.

As previously stated, the European territorial cooperation, and investing for growth and jobs are the core objectives of the European Regional Development Fund. Lecarte (2017) provides us with a synthesis of how resources are distributed: The resources assigned to the first goal have been differently allocated to three different categories of regions considering the level of development of those regions: those regions that are more developed, so that have a GDP per capita that is above 90% of the EU average; those in transition, have a GDP per capita between 75% and 90% of the EU average; and those that are less developed, whose GDP per capita is lower than 75% of the EU average.

The ERDF also supports sustainable urban development. According to Kołodziejski (2020) over the 2014-2020 period, in order to address the economic, environmental, climatic, demographic, and social concerns facing urban areas, at least 5% of the ERDF allocation for each Member State had to be earmarked for integrated actions for sustainable urban development.

Looking at the Official Journal of the European Union at the Regulation (EU) 2021/1058 Of The European Parliament And Of The Council of 24 June 2021 on the European Regional Development Fund and on the Cohesion Fund it’s easy to understand how the ERDF operate considering specific intervention areas identified considering the core strategic goals of this fund.

These areas of investment are called thematic concentration and the EEC for the period 2014-2020 identified four spending priorities:

• Research and innovation;
• Information and communication technologies;
• Small and medium-sized enterprises (SMEs);
• The promotion of a low-carbon economy.

To invest in those categories, as reported both from Lecarte (2017) and Kołodziejski(2022), you have to follow some rules. Depending on the type of regions being supported, different levels of concentration are needed. The promotion of a low-carbon economy must get at least 20% of the funding in more developed regions, and at least 80% of the funds must go toward at least two of the goals reported above. Considering transition regions, at least two of these goals must get at least 60% of the ERDF funds, and the promotion of a low-carbon economy must receive at least 15% of those funds. Less developed areas must devote at least 50% of their ERDF funds to at least two of these goals, and at least 12% must go toward fostering a low-carbon economy.

Also, the level of co-financing changes based on the development level of the regions receiving the EU funds. In the less-developed regions (and outermost regions), the European Regional Development fund can finance up to 85% of the cost of the project. In the transition regions, this can be up to 60% of the cost of the project, and in the more-developed regions up to 50%.

In 2021, the EU entered a new multi-annual programming period. Marek Kołodziejski (2022) states that rules for the ERDF in the 2021-2027 period are established in and alongside the thematic concentration for the top two priorities: support for innovation, the digital economy and SMEs delivered through a smart specialization strategy (PO1); and a greener, low-carbon and circular economy (PO2). The new cohesion policy also included a list of initiatives that the ERDF will not fund. It entails the construction or decommissioning of nuclear power plants, airport infrastructure (excepted in isolated areas), and some waste management activities (e.g. landfill).

In conclusion for the 2021-2027 programming period the European Commission and the European Union Parliament had decided also to change the percentage of co-financing of projects, and up to today, we have that less-developed regions will benefit from co-financing rates of up to 85% of the cost of the projects. Co-financing rates for transition regions and for more-developed regions will be up to 60% and 40% respectively.

Footnotes

European regional development fund — recommended articles

European social fund — Tourist policy — International Monetary Fund — Carbon budget — Taxation principles — Environmental policy — European Coal and Steel Community — Etatism — Charitable foundation

References

• Dall’Erba S. (2003). European Regional Development Policies: History and Current Issues. European Union Center, University of Illinois at Urbana-Champaign, Champaign, Illinois, 1-5.
• European Regional Development Fund turns 40, European Commission (18/03/2015).
• European Regional Development Fund (ERDF), European Commission, 2020.
• Kołodziejski M. (2022). European Regional Development Fund (ERDF). Fact Sheets on the European Union, European Parliament.
• Lecarte J. (2017). The current key topics of cohesion policy2 - European Regional Development Fund (ERDF), Fact Sheets on the European Union, 6-8.
• Regulation (EU) 2021/1058 of the European Parliament and of the Council of 24 June 2021 on the European Regional Development Fund and on the Cohesion Fund, Official Journal of the European Union (30/6/2021).
• The European Regional Development Fund Financial instruments (2015), fi-compass, European Commission, European Investment Bank.

Author: Paolo Baruffi

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