Every year, the European Union funnels 50 billion € (one third of its total budget) to its poorer regions in the EU as catch-up funds. For many regions this money constitutes an important part of public investments. But because the funds are primarily directed at the poorest regions, regions that get richer receive less money over time. That is why governors of these regions started redrawing region boundaries. This is how EU money flows and provokes statistical gerrymandering, European style.

People familiar with the geography and economics of Europe know where the rich, developed countries are: they are mostly situated in Western and Northern Europe. On the map below, the developed countries are shaded in purple, less developed countries are in shades of orange. These colors are used throughout this article. Their exact meaning is not very important yet here, but they will be explained later on.

For a long time, one of the policies of the EU has been to create more “cohesion”, eurocrat jargon for poorer and less developed regions catching up with the developed ones. An easy solution for EU policy makers would have been to just funnel EU money from developed countries to less developed ones. But the policy makers were smarter and knew from maps like the one below that rich countries also have poor regions and poor countries also have richer regions.

Notice the geographical divisions in Italy (developed north, less developed south), Belgium (the same) and Germany (developed west, less developed east), and the islands of development that are the regions containing the capitals (Spain, France, UK, Poland, Romania, Slovakia, …)

TODO: mark capitals with a dot

This breakdown in 276 regions is what the European Union uses to distribute its catch-up funds for the construction of transport infrastructure, the construction of schools and hospitals and research and development projects, for example. Poorer regions get a bigger share of the 50 billion € that is distributed annualy, and have to cofund less of total project costs.

Here is what every region received in catch up funds in the ten years from 2007 until 2016 (numbers for 2016 are only partial). Andalucia is the region that received the most money: it ‘absorbed’ more than 15 billion € spread over 10 years.

Of course, population should be taken into account. The following map shows total funding per capita per year for the period 2007-2016 (numbers for 2016 are only partial, numbers are in €/capita/year).

To illustrate the importance of the catch-up funds for some regions, the following map shows the total funds received in 2015 (the most recent year with complete data available) as a percentage of regional GDP. For some regions, the funds amount to more than 5 percent of the gdp.

So for many regions the catch-up funds are a very important part of the economy and crucial for public investments.

Let’s return to the map indicating the economic development of every region.

Let’s skip the geography for now and focus on the numbers. In the below chart, every circle is a region and diamonds represent country averages. Regions containing the country capital are marked with a dot. The regions are ordered according to their economic development, measured as the regional gdp compared to the EU average. The EU average is set to 100, so a region with an economic development score of 90 has a gdp of 90 % of the EU average.

It is clear that the range of regionaleconomic development is quite big for many countries: national averages hide a very big diversity in regional economic development. In almost all countries, regions containing the country capital (dotted circles) are much more developed than the other regions of the country.

The goal of the EU Cohesion policy is convergence: narrowing the gap between rich and poor regions by shifting the poor regions on the chart to the right. Did that happen? Let’s take a look at how the regions developed over the past 10 years. We sort them based on their gdp relative to the EU average in 2016 and connect them with a line to where they were in 2007. Every circle gets a “trail”: trails to the left of the circle indicate faster economic growth compared to the EU average, trails to the right mean slower economic growth than the EU average (or even economic decline).

A lot of the regions at the bottom of the chart shifted to the right: the poorer regions in the EU grew faster than the average of the whole of the Union. Regions in eastern member states like Bulgaria, Romania, Hungary and especially Poland benefited a lot from joining the EU in 2004 and 2007. These are also the countries where the catch-up funds amount to a considerable proportion of regional gdp.

But a lot of the less developed regions shifted to the left, and many of the regions in development actually transformed into less developed regions. The financial and economical crisis that started in 2008 hit many regions hard, especially in Greece and Spain. The effect of the crisis wiped out all effects of the efforts of the EU to create more cohesion between its regions. Signs of convergence between regional gdp’s were only picked up again recently, but many regions are still struggling to reach their pre-crisis levels of gdp.

POSSIBLE EXTRA: Maybe I should highlight the “lagging regions”" (received a lot of money but are stuck at the left of the chart), the “middle income trap countries” (stuck in the middle)

The colors on the charts and maps in this article represent the classes of economic development. The boundaries of these classes weren’t chosen arbitrarily. They are actually very important in determining how much money each region can receive and how much money each region should invest itself, on top of the EU subsidies. Regions with a gdp (=> link to background information on price corrected gdp/capita) lower than 75% of the EU average are considered “less developed” and receive the most money. They only have to cofund 15 % of the total development project costs, so the EU pays 85 % of the costs. Regions with a gdp between 75 and 90% of have to pay 40 % of the project costs themselves and regions above the 90 % threshold pay half of the project costs themselves.

Do you see the three regions indicated on the chart with an arrow? Those are the regions from the title of this article. Now suppose you are the governor of one of these regions, well above above or on the brink of exceeding the thresholds to receive money from the Cohesion funds as a less developed region. And you know 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 relatively 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, is excluded from the full benefits of the catch-up funds. So… what if you could split your region into one very rich one and a poor one, that would actually be eligible to receive more money?

That is what actually happened in the regions from the title of this article. Let’s take a closer look at them.

The first one is Lithuania. For the EU, the country of Lithuania was a single region and its gdp in 2016 was exactly 75% of the EU average. So if its economy catches up a little more, it will lose its status as less developed region and miss out on a lot of money.

The capital Vilnius, in the southeast of the country is economically the most developed region of the country and is lifting the country’s gdp over the 75% threshold, bringing the eligibility for the catch-up funds of the poorer regions of the country in jeopardy. That is why the Lithuanian government asked the EU to split the country into 2 EU regions, separating the rich(er) capital from the poorer rest of the country, which would maintain its full access to the catch-up funds.

The same has happened in Hungary, where the capital Budapest was lifting the surrounding Pest county into ineligibility for the catch-up funds. Both were part of the Central Hungary region, but they are now separate regions.

And the Poles have done the same with their capital Warsaw:

TO ADD: ANIMATION OF DOT PLOT, WITH 3 REGIONS SPLITTING UP

##What does it mean to split up regions?

Every three years, the EU asks its members states if they want to revise the boundaries of their regions. Member states can propose changes, which the EU then checks against these criteria:

If these criteria are met, the EU can decide to approve the new region boundaries. But creating new regions is not free for member states: member states have to report a wide variety of statistics at the regional level. Not only do they have to report on the regional gdp, they also have to provide numbers on demography, employment, education and poverty. And this obligation is retroactive: after a new region is created, historical time series for all statistics for the new region have to be reported to the EU within 2 years. Collection of this data can mean a big investment for some regions.

As capital cities and their hinterlands do work quite differently socio-economically, splitting them up and collecting statistics on both parts separately and designing policy specifically makes some sense. But it also means that the management of EU development projects is delegated to poorer regions governments. And those governments not always have the adequate capacity to manage these.

Splitting regions into poorer and richer regions contributes to less cohesion: usually one dot in the middle of the chart is replaced by a new one on the left and another new one on the right of the chart.

##Reforms

The EU catch-up funds are organised in a 7 year cycle, and the current funding period of 2013-2020 is nearing its end. The rules for receiving money from the funds in the following period (2021-2027) are currently discussed, and will probably be decided on before the elections for the European Parliament in May 2019. One proposal on the table is to not only focus anymore on gdp numbers for determining how much money a region can receive and at what rate it has to contribute itself. Gdp will remain the dominant factor (that is why 3 regions split themselves up), but to reflect the reality on the ground a bit more, statistics on education levels and youth unemployment will also be taken into account, as will policies on climate change and migration.

Of course, to really reflect the situation on the ground, and assure that money actually flows to the poorest areas, a more finegrained geographical subdivision should be used: just like rich countries have less developed regions, rich regions may also have less developed areas that could benefit from public investment projects. But this would lead to some scaling problems: collecting the necessary statistics on a more finegrained subdivision of the territory would be very costly, and managing the funds and projects could become very complicated. So the EU opted to work with the middle scale regions of 800.000 to 3 million inhabitants. This subdivision will always have some arbitrariness to it, and that is why regions can amend their boundaries, and even split up, to bring the flow of the catch-up funds more in line with the situation on the ground.

One of the other reforms of the catch-up funds in the next funding cycle, is to put more emphasis on communication to improve the visibility of the funds and to make the funds and their working better known to the public. The Pudding is at your service, EU ;-)