Challenges, policy responses and prospects for the EU regions

Bert Kuby

Wolfgang Petzold

The impact of the COVID-19 pandemic will be felt in the EU for years, and there is the risk that it will increase economic and social disparities between its regions. This is a likely prospect not only because of the different regional dimensions of the pandemic - with its devastating effects on the economy and the labour market - but also because public finances at national and subnational levels provide different possibilities for policy responses from one country to another.

On 12 October 2020, the European Committee of the Regions (CoR) presented its first-ever EU Regional and Local Barometer report, which assesses the impact of COVID-19 and the way it is dealt with at different levels of government.

The report looks into:

the impact of the pandemic on health and the economic, social and environmental situation of EU regions and cities, and

the democracy and governance aspects of the crisis, and also provides a first assessment of policy responses at EU, national and subnational levels. A number of conclusions and recommendations are made that highlight the need for a coordinated, coherent and place-based approach to counterbalance the effects of the pandemic.

Since February 2020, the spread of the COVID-19 pandemic has continued to develop a certain geography in Europe and beyond. In doing so, it sheds light on significant regional disparities in health infrastructure and governance.

"women and young people seem to pay a higher price because of the time they spend caring for children and the elderly"

For example, the number of intensive care beds per 100,000 inhabitants is six times higher in Germany than in Portugal. Although the effects of such disparities on, for example, infection numbers and excess mortality are still to be fully understood, it is apparent that further coordination and cooperation across borders and different levels of government is necessary.

The effects of the lockdown measures during the second quarter of 2020 led to a decrease in the EU's GDP by 11.7%(12.1% in the euro area) and a decrease in employment in the EU by 2.6% (2.8% in the euro area).

This is by far the sharpest decrease ever measured, with large differences in economic downturn seen between countries, such as Spain (-17.4%) and Finland (-4.6%). For EU regions, projections made by the European Commission's Joint Research Centre show what lockdowns could mean for regional economies, with some regions in Greece, Italy and Spain possibly losing up to one quarter of their GDP in 2020 compared with 2019 levels.

A study commissioned by the CoR on Spatial Foresight assessed the regional characteristics of exposure and sensitivity to lockdowns and concluded that the potential impact of COVID-19 is, overall, substantially negative and territorially asymmetric.

The report also makes clear that unemployment and the social consequences of the crisis could affect some groups of society more than others. For example, women and young people seem to pay a higher price because of the time they spend caring for children and the elderly and the resultant loss of income.

"For France, Germany and Italy, the loss of subnational tax revenues is estimated to reach up to 10% of the annual total."

Moreover, an at-times widespread requirement for home online schooling and studying, as well as teleworking, has highlighted an uneven geography of digital infrastructure and services within and between countries. Many regions, cities and municipalities have made an effort to respond to such challenges and offer additional services. Since April 2020, the CoR and its members have provided a platform with over 300 projects and reports on dealing with health, economic and social challenges.

Policy responses and the state of public finances confirm these varied geographies as well. A survey carried out among regional and local authorities by the OECD and the CoR found that more than 80% of respondents expect increased stress on subnational public finances.

For France, Germany and Italy, the loss of subnational tax revenues is estimated to reach up to 10% of the annual total. In Germany, for example, the cost of federal and regional programmes addressing the COVID-19 crisis to help companies, the self-employed and employees through grants, loans, guarantees, etc. is estimated to be well over EUR 300 billion in 2020, which corresponds to just over 8% of Germany's 2019 GDP.

Overall, 25% of this funding is provided by regions and municipalities. According to the Brussels-based think tank Bruegel, Spain, Italy, Greece, Portugal and France are currently only able to spend less than half of the amount that Germany is providing in state aid.

On 21 July 2020, the EU heads of state and government agreed on a budget and recovery package of more than EUR 1,800 billion, which is currently being negotiated with the European Parliament. In the years to come, the complexity of EU funding will increase while reaching more than twice the volume of its current levels - temporarily exceeding 5% of GDP in some Member States.

For the sake of well-coordinated and coherent planning, the report argues that local and regional administrations should play a crucial role in programming and implementing future EU recovery funds.

EU citizens are crucial to the management of the crisis, and trust in politics is a prerequisite for this. In September, the CoR commissioned Kantar to carry out a public opinion survey on the views of 26,000 Europeans on the COVID-19 pandemic and the role of regional and local authorities.

They were asked online about trust in different levels of government, the authorities' capacity to tackle the economic and social impacts of the pandemic, and whether - and on which EU policies - regional and local authorities should have more influence.

The report and the survey are available at the webpage of the CoR