The European Commission has urged member states to reallocate EU regional funds to address pressing issues such as water resilience, housing, and defence, as part of a mid-term evaluation of the nearly €370 billion budget for the 2021-2027 period. However, the funding of weaponry remains strictly off-limits under the new proposal.
Adapting to New Challenges
Traditionally, these funds have been used to reduce economic, social, and territorial disparities across EU regions by supporting infrastructure and innovation projects. However, given recent global shifts and economic challenges, the Commission believes a reallocation is necessary.
According to Raffaele Fitto, the Commission’s Executive Vice President for Cohesion Policy, this proposal is designed to help EU states adapt resources to new priorities and enhance competitiveness and sustainability.
Member states are encouraged to redirect part of their allocated funds into five key investment areas:
Competitiveness and decarbonisation
Defence-related investments
Affordable housing
Water resilience
Energy transition
Defence Investments: A Limited Scope
The decision to allow limited funding for defence-related projects has sparked debate. While speculation arose that EU funds could be used for military rearmament, the Commission clarified that the funds cannot be used to purchase weapons. Instead, the new policy allows countries to invest in defence-related infrastructure and dual-use technologies that also serve civilian purposes, such as improving transport networks for military mobility.
“We propose that member states and regions can use cohesion funds to support certain defence actions, but this does not involve purchasing arms,” Fitto stated, emphasizing that the primary focus remains on economic resilience.
Water Resilience and Affordable Housing in Focus
Beyond defence, the Commission is strongly pushing for increased investments in affordable housing. Housing shortages have been a growing concern across Europe, and the EU aims to expand funding opportunities for local and national governments to build sustainable and affordable homes.
“In all my meetings with mayors and ministers, housing was highlighted as a key priority. It is crucial that we move in this direction,” Fitto stated. The EU will introduce a pan-European Investment Platform to assist in financing sustainable housing initiatives.
Another key area is water resilience, which has become increasingly important due to climate change. The Commission plans to expand the European Regional Development Fund (ERDF) to support projects that:
Improve water access and management
Increase efficiency through digital infrastructure
Mitigate drought and desertification risks
Ensure compliance with the Urban Wastewater Treatment Directive
Flexibility for Member States
The Commission has left the decision to reallocate funds up to individual member states, rather than enforcing a mandatory shift. To encourage participation, the EU is offering:
Additional pre-financing of 30% in 2026 for reallocated funds
Up to 100% EU financing for strategic projects
Countries must submit their proposed reallocation plans within two months of the legislation taking effect, and the Commission expects the process to be finalized by the end of 2025, with implementation starting in 2026.
Reporter’s Take: A Necessary Reallocation, but Will It Be Enough?
The EU’s decision to redirect funding toward urgent issues like housing and water resilience is a step in the right direction. However, the inclusion of defence-related projects, even in a limited capacity, may trigger controversy among member states that prioritize economic and social development over military investments.
With climate change, inflation, and geopolitical uncertainties looming, will these reallocations be enough to stabilize Europe’s regions? Only time will tell.
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