‘Adapt, but don’t divert’, cohesion policy critics fear defence stealth funding

This article is part of our special report Cohesion under pressure, Hungary tests the EU’s red lines.

Cohesion Policy is the European Union’s most ambitious investment package, packing serious firepower with a budget of €392 billion for the 2021-2027 period. However, it now stands at a critical juncture, caught between responding to new challenges, such as defence and security, while maintaining its core mission.

Following the Ninth Report on Economic, Social and Territorial Cohesion, published in March last year, the European Commission recently published the Mid-Term Review of the Cohesion Policy, proposing targeted changes to align with strategic priorities.

These include five new priority areas: industrial competitiveness and decarbonisation, defence and security, affordable housing, water resilience, and energy transition.

The pivot is clearly not without justification. The Ninth Cohesion Report provides critical backing, showing that while income convergence at the national level has progressed markedly, intra-national regional disparities remain stubbornly persistent.

In this context, the emphasis on more targeted and flexible investment mechanisms aims to accelerate adaptation and transformation in lagging regions.

Implications for member states

The proposed adjustments offer potential benefits for both less developed and more advanced regions.

New provisions allow for greater flexibility in reallocating funds, particularly under the European Regional Development Fund (ERDF) and the Strategic Technologies for Europe Platform (STEP).

The removal of the 20 per cent ceiling for fund reallocation could enable more developed regions to benefit from cohesion financing.

At the same time, special incentives are being proposed for EU border regions most affected by geopolitical tensions. These include increased pre-financing and 100 per cent co-financing rates to support regions on the Eastern frontlines.

However, these shifts must be carefully balanced against the risk of diluting the original purpose of the Cohesion Policy.

The Ninth Report highlights enduring challenges in rural and depopulated areas, which continue to suffer from weak connectivity, demographic decline, and service deficits. Prioritising broader EU strategic objectives must not overshadow the need for territorial cohesion.

Adaptation vs continuity

According to critics, aligning cohesion funds with strategic EU priorities such as defence and industrial policy could divert resources from their primary purpose: reducing disparities.

The Ninth Cohesion Report reinforces this concern, noting that demographic ageing, urban-rural divides, and regional employment disparities remain deeply entrenched. Moreover, the report flags limitations in local governance capacity as a major obstacle to effective policy implementation.

Sub-national administrations, responsible for the bulk of cohesion investments, often lack the institutional strength and technical resources to manage complex funding programmes.

Without improvements in monitoring, accountability, and multilevel governance, new flexibility in fund allocation risks exacerbating inequality rather than alleviating it.

Policy militarised?

Despite concerns, the European Parliament voted in favour of the Ninth Report, with the Conservatives and Reformists Group welcoming the move as an “excellent signal”.

Ahead of the vote, the European People’s Party Group, the largest in the Parliament, had called for the modernisation of the policy, arguing against centralisation as a “strategic mistake”.

The EPP had also called for enhanced support for border regions along the EU’s eastern frontier, put under pressure due to Russia’s actions in Ukraine. Investments in these regions are an “imperative” for the security and cohesion of the entire union.

However, the Parliament’s support for allowing structural funds to be used for military purposes has also been met with criticism, as is the case with Sinn Féin. MEP Kathleen Funchion said it was “shameful” of the Parliament to “bless” the turning of the policy into a “tool for military spending”.

Funchion’s concern is not without merit. The Estonian government recently decided to channel €200 million of unused money from the Cohesion Policy Fund to strengthen the country’s defence capabilities over the coming years.

Although no military equipment or weaponry can be purchased with this money, they can support the development of defence industry infrastructure, military mobility, and comprehensive national defence capabilities.

Evolving the policy

But Europe’s escalating militarisation in response to global uncertainty and US unpredictability risks undermining internal cohesion unless it is paired with a clear strategic framework.

The bloc’s reaction to crises has led to fragmented policies, rising defence spending, and uneven socio-economic consequences across member states. These divergences, exacerbated by energy shifts and trade tensions, reveal a deeper strain on the EU’s ability to maintain unity.

Writing in The Geopolitical Monitor, political analyst Aspasia Fatsiadou argues in favour of the Cohesion Policy evolving beyond its traditional economic and regional focus to actively support strategic resilience.

This means reinforcing domestic solidarity, ensuring fair distribution of the burdens and benefits of militarisation, and aligning external ambitions with internal capacities.

Without such recalibration, Fatsiadou says that the Cohesion Policy risks being sidelined in the EU’s geopolitical turn, when in fact it should serve as a stabilising force in a fractured security and economic landscape.

[Edited By Brian Maguire | Euractiv's Advocacy Lab ]