Institutional and Governance Review

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Actionable Regulatory Governance Indicators for UE Regions

2018-06-13, World Bank

The European Union’s Cohesion Policy is its biggest investment instrument. It supports the Europe 2020 strategy of smart, sustainable, and inclusive growth. With a budget of €351.8 billion for 2014–2020, the Cohesion Policy accounts for around one-third of the EU budget. The Cohesion Policy is primarily implemented through investments in EU regions and cities. Local and regional governments in the EU are responsible for more than half of all public investment. There is a growing focus on the importance of good governance to ensure effective implementation. The European Commission’s 6th Cohesion Policy report notes that governance problems not only delay the implementation of Cohesion Policy programs but also reduce the impact of these investments. The report states: ‘a lower standard of governance can affect the impact of Cohesion Policy both directly and indirectly. In the first place, it can reduce expenditure if programs fail to invest all the funding available. Secondly, it can lead to a less coherent or appropriate strategy for a country or region. Thirdly, it may lead to lower quality projects being selected for funding or to the best projects not applying for support at all. Fourthly, it may result in a lower leverage effect because the private sector is less willing to co-finance investment.’ The purpose of this report is to develop and test a set of actionable indicators for the regulatory frameworks of EU regions. Deregulatory measures focusing on ‘fixing broken regulations’ are a necessary and important element of investment climate reforms. However, gains from one-off initiatives aimed at cutting costs and procedures are often reversed if the responsible institutions, tools, and incentives are not changed.