Closing the gap between the poorer and richer is the goal of the EU Cohesion Policy. Each year, more than 50 billion euro (more than 1 third of the EU budget) of catch-up aid is invested in projects like road building, school construction and tourism development in the poorest parts of the Union. How poor a region is determines how much money it can receive. But what happens when you reward poor regions to be poor? They try to stay poor.

1. What is ‘poor’?

The economic development of a country is often measured by its gross domestic product (gdp). It is the value of all goods and services produced in a country over a certain time period (usually a year or a quarter). This chart shows the gdp’s for all European countries, with the lowest gdp on the left and the highest on the right.

So the European countries with the highest gdp are Germany, the UK and France. That makes sense: they have the biggest populations, so they have more people to produce goods and services. If we want to find out what the richest and poorest countries are, we need to take population into account:

Quite a different picture: the richest countries are Luxembourg and Ireland, the poorest are Bulgaria and Romania. But we aren’t quite there yet. In some countries, the cost of housing, food and transport is much more elevated then in others. If we take that into account, the chart looks like this:

It is this measure, the gdp per inhabitant corrected for cost of living, that the EU uses to determine how poor and how rich regions are. If we take the above chart and scale the numbers so that the average gdp per inhabitant for the whole of the EU equals 100, we get the following picture:

2. Countries, regions and catch-up funds

On the map, we see that the Nordic countries and the countries in center of Europe are the rich countries (in green). Poorer countries (in red) are in the east and the south of the continent. Also note Iceland, Norway and Switzerland: they are not part of the EU.

But maps like the one above can give a false impression: wealth and economic development are not uniformly distributed throughout countries and hidden behind the national averages are big regional differences. The following map shows the 276 regions of the EU and uses the same color key as the map above to show rich and poor regions.

The poorer regions are mostly in eastern and southern Europe, but there are also poor regions in the UK and France, for example. Pockets of prosperity are present in Eastern Europe: these are the capital regions of the Eastern European countries.

Also note the economic development gaps in Belgium and Italy (both North vs South) and in Germany and Spain (East vs West).

Let’s return to the chart, to be able to better compare regions. [ANIMATE MAP TO CHART?]

Let’s split the countries up into regions. [ANIMATE REGIONS IN INTO THE CHART]

It is clear that the national averages do not represent the wide range that exist in regional economic development. For example:

Now the whole point of the EU Cohesion Policy is to shift the dots on the left of the chart more to the right. For this, EU money is spent primarily on the regions with a gdp that is less than 75 % of the EU average. Regions with a gdp between 75 and 90 % of the EU average are also eligible to receive Cohesion money.

3. The charts that suggest creative bookkeeping

Now suppose you are the governor of one of the poor regions and you have a steady stream of EU money pouring into your region every year. And your region is doing well and getting more economically developed. But suddenly you notice that you are becoming too developed: your region’s gdp is about to pass the threshold for fund eligibility. Wouldn’t it be nice to apply some creative accounting and keep your gdp at 69 % of the EU average and keep receiving money instead of have a gdp of 71 % of the EU average and loose all those funds?

The data suggests that this is happening. If we stack the dots of the chart above, we get the following:

Do you notice the clear spike, just before the 75 % threshold? It looks like an unnatural number of regions are juuuuuust poor enough to be eligible for the EU Cohesion money.

Of course this could also be due to coincidence. Let’s check how the distribution looks like for all regions, over all years.

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The spike just before 75% is a little less outspoken, but this time we also see a spike just before the 90% threshold.

Now let’s take a look at the data for all years again and plot it by year.

Clear spikes are visible for the years 2012, 2015 and 2016. TODO: FIND OUT BASED ON WHAT YEARS ELIGIBILITY IS CALCULATED => ASK JOHN WALSH

4. Gerrymandering, EU style

Now suppose you are the governor of another EU region, which is well above the eligibility thresholds for the Cohesion funds. But your regional gdp is also hiding a big gap in prosperity at a smaller geographical scale: one part of your region hosts the country capital and is very rich, while the other part of your region is quite poor and its gdp is actually well below the thresholds. But the wealthy part of your region is lifting the average up so high, that the region as a whole, including the poor part, can not count on the EU money. So… what if you could split your region into one very rich one and a poor one that would actually be eligible to receive the money?

This is what is happening with Central Hungary, the region containing the rich capital of Budapest, but also containing the poor county of Pest that is surrounding the capital.

[ANIMATION: choropleth of Hungarian regional GDP, with and without the split of Central Hungary]

Even before Hungary joined the EU in 2004, there were plans to split Central Hungary into 2 separate administrative units, so Pest could count on European catch-up aid in the future. But splitting a region is not easy: the EU requires regions to be real administrative units (with their own executive and administration), the necessary statistical data (like the gdp) need to be collected for the new regions and regions should have between 800.000 and 3 million inhabitants. Budapest and Pest would meet this last requirement, but the split of the regions also needs to be motivated to the EU. WHAT IS THE CURRENT STATUS OF THE SPLIT? ARE THERE ANY PRECEDENTS/SIMILAR REGIONS (London? Other European capital regions?)? => ASK JOHN WALSH

5. The future

Whenever thresholds are used for funds eligibility, you’ll see creative bookkeeping and fiddling with boundaries pop up. The EU, its regions and the Cohesion funds are no different: data suggests that at least some regions “adjust” their gdp to end just below the thresholds of 75% and 90% of the EU average. And the Budapest/Pest situation shows how administrative boundaries are arbitrary but can make all the difference. While the split of Budapest and Pest could well be completely legitimate, creative bookkeeping is more problematic: regions should have a level playing field when it comes to distribution of funds.

For the next funding period of 2021-2027, eligibility rules will be adapted. Among other reforms (on which a decision is expected in the coming months), gdp will not be the only statistic to determine funds eligibility anymore: youth unemployment, educational level, climate change, and the reception and integration of migrants will probably also determine region eligibility. Probably a good thing, but some might just see more opportunities for creative bookkeeping and statistics.