Water and defence - but not bullets: EU reallocates regional funds

Water resilience, housing and defence are among priorities to which the European Commission on Tuesday urged member states to reallocate EU regional funds as part of a mid-term evaluation, but the executive stressed that funding weaponry would be off limits.

This assessment aims to evaluate the performance, effectiveness, and efficiency of funds totalling nearly €370 billion for the 2021-2027 programming period, representing a significant portion of the EU’s long-term budget.

Traditionally, these funds are designed to reduce economic, social, and territorial disparities across EU regions by supporting investments in infrastructure and innovation.

However, since the programme's approval in 2022, global circumstances have shifted, presenting new challenges for regions.

Commission Executive Vice President Raffaele Fitto, who oversees cohesion policy, said adapting the allocation of these resources to emerging priorities is essential. “This proposal is a way to allow the use of resources and to adapt them to these new priorities,” Fitto said.

Member states are now encouraged to reallocate part of their 2021-2027 cohesion funds to five key investment areas: competitiveness and decarbonisation, defence, affordable housing, water resilience, and energy transition across all EU regions.

Not a way to fund EU rearmament

The potential redirection of funds toward defence sparked debate among EU member states and regional authorities ahead of the proposal's official presentation.

Initial speculation that these funds might be reallocated for defence purposes has been partially confirmed, as the Commission has, for the first time, opened the possibility of using regional funds for defence-related investments.

Currently, such investments are mostly restricted to dual-use technologies and infrastructure, such as transport networks.

“We propose that member states and regions can use cohesion funds to support certain defence actions,” Fitto said.

However, the proposal’s impact on the defence sector remains limited. It would only allow member states and regions to use existing funds to enhance productive capacities in defence enterprises and build resilient infrastructure to improve military mobility.

“This has nothing to do with the purchase of weapons. I want to emphasise this because otherwise, we risk discussing things that do not correspond to the truth,” he added.

Water resilience and affordable housing

Another major focus of the Commission’s proposal is addressing the housing investment gap by providing financial incentives for member states and regions to direct funding toward affordable housing.

The objective is to significantly increase cohesion policy resources allocated to affordable housing over the coming years. “In all my meetings with mayors and ministers, housing was a priority, and it is important to push in this direction,” Fitto said.

Member states and regions will be able to leverage public and private financing to expand affordable housing supply through the forthcoming pan-European Investment Platform for affordable and sustainable housing.

Water resilience is another area where the Commission is proposing enhanced measures. The European Regional Development Fund (ERDF) objectives have been revised to support investments that secure water access, promote sustainable water management, and strengthen water resilience.

This includes improving water efficiency, increasing digitisation of water infrastructure, and mitigating the impacts of drought and desertification, while ensuring compliance with the Urban Wastewater Treatment Directive.

Freedom for countries

Member states have the discretion to redirect their cohesion funds toward the EU’s strategic priorities or to maintain their current allocations.

“It is a free choice of member states, not a decision imposed by the Commission,” Fitto explained in a press conference.

To encourage reallocation, the Commission is offering better financing conditions and greater flexibility. For example, reprogrammed resources dedicated to these strategic objectives will benefit from an additional one-time pre-financing of 30% in 2026 and the possibility of up to 100% EU financing.

Member states and regions must submit their proposed amendments to the cohesion programmes within two months of the revised legislation’s entry into force.

 The Commission will assess these amendments and collaborate with national and regional authorities to adopt the revised programmes.

The reprogramming process is expected to be completed by the end of 2025, allowing the updated programmes to be implemented from 2026 onwards.