Financial instruments - what is their territorial impact?

Financial instruments will continue to play a prominent role in EU policy post-2020 under both EU Cohesion policy and the proposed InvestEU programme. However, the increased use of FIs across a number of policy areas has resulted in a complex intervention landscape. An important issue is how the various funding streams using FIs should be articulated to best deliver on EU policy objectives, and in the present context, to address Cohesion policy objectives. Inherent in this is the potential for tension between administrative capacity requirements, on the one hand, and the need for financial instruments to be tailored to specific local conditions and consistent with the subsidiarity principle, on the other. 

ESPON has finalized a major study on financial instruments and territorial cohesion. The research has provided first-ever pan European territorial analysis of the ESIF financial instruments. Its focus was primarily on 2007 – 2013 programming period investments in final recipients at NUTS 2 level. 

The project has benefitted from a unique unpublished data set from the European Commission and data gathered through a European-wide Managing Authority survey. It also contains 5 case studies on the use of ESIF financial instruments at the regional level in Italy, Spain, Poland, Sweden and a separate case study on FIs in Norway was carried out as well.

The main objective of the research was twofold, firstly, to regionalize ESIF FI data in order to understand the territorial uptake and, secondly, to provide insights on the added value of financial instruments in terms of territorial cohesion. The configuration of Operational Programmes offering FIs differs greatly between countries, for instance, in some FIs are offered under Regional Operational Programmes that coincide with a single NUTS 2 region, but in others under National Operational Programmes covering multiple NUTS 2 regions. Thus, the territorial landscape of ESIF financial instruments is hugely complex.

The key findings from the project are:

  • In terms of FI ‘uptake’, there are ‘pockets’ of high absolute and high relative uptake in a number of regions in Italy, the United Kingdom, Belgium, Greece, Bulgaria and Germany. By contrast, the regions where there is low absolute and low relative uptake are extensive, covering France, Sweden, Finland, much of Germany and Denmark, as well as parts of Spain and Romania.
  • In territorial terms, most financial instruments appear spatially neutral, but some explicitly seek to offset regional or local disadvantage. Financial instruments also differ widely in domestic importance.
  • Case studies indicated that financial instruments generated a positive impact in terms of diversification of sources of financing both for enterprises and for urban projects, especially in those regions that suffered from strong financial constraints during the financial crisis. Other positive outcomes observed included the generation of an innovative and entrepreneurial culture in the territory and know-how transfer among the actors involved.
  • Even in policy areas such as SME development where financial instruments are prevalent and their role is self-evident, grants often have an essential part to play.
  • Financial instruments have the potential simply to reinforce existing spatial disparities in access to finance because of the pressure to disburse budgets and avoid decommitment. There appear to be comparatively few examples of FIs that proactively target disadvantaged areas.
  • In the context of territorial cohesion there is a need to be clear about what the policy objectives actually are, and potentially accept that there may be a trade-off between a focus on disadvantaged regions and some of the benefits of financial instruments e.g. FIs may be more costly to implement in more remote regions.
  • The quality of the data collected on financial instruments, even in mandatory annual reporting, is poor: the information is often incomplete, error-prone or cannot easily be reconciled with other indicators.

To summarize, according to the ESPON study, except for Norway, systematic evidence on the impact of ESIF financial instruments is absent. In addition, there is no consistent territorial pattern of the use of ESIF financial instruments, thus it is hard to build a narrative; domestic context is a key to understanding the uptake of FI. Problem regions could benefit from simplification in the use of financial instruments, however, they also need to be riskier in executing public policies.

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