Why convergence remains elusive: an institutional political economy perspective on EU cohesion policy

Abstract

This paper analyzes EU Cohesion Policy from a political economy and institutional economics perspective. It focuses on how institutional structures and capabilities shape economic resilience within the European Union’s multilevel governance system. Rather than evaluating the outcomes of cohesion in terms of success or failure, the analysis conceptualizes the policy as an evolving institutional experiment at the macro (European), meso (national), and micro (regional) levels, whose effects are mediated by domestic governance capacity, collective learning, and crisis management practices. Using policy documents, statistical evidence, and semi-structured interviews with senior political and administrative officials, the paper examines how EU-level rules and institutions interact with national political and administrative systems during periods of economic expansion and crisis. Using Greece as a case study, the paper finds that Cohesion Policy has contributed to macroeconomic stabilization, infrastructure provision, and administrative professionalism over time. However, its developmental impact has been limited in the long run because transformative and efficiently adaptable institutions are more complex and difficult to achieve than increasing funding volumes or improving absorption rates. Crisis-related conditionalities strengthened monitoring and procedural efficiency, but also short-term compliance and risk-aversion in decision making and project selection. The analysis highlights how inertia poses challenges for resilience emerging from the interaction between institutional capacities for learning and innovation in development policy across governance levels. As argued, to understand differentiated cohesion outcomes, attention must shift from financial inputs to the political economy relations and processes through which resilience is constructed, constrained, and “distributed” unevenly across member states.

1 Introduction

Strong institutions are widely recognised as a fundamental determinant of adaptive economic structures, inclusive and sustainable development, and long-term socioeconomic resilience. Drawing on Institutional Economics and Political Economy, the literature emphasises that governance capacity, administrative effectiveness, transparency, and accountability shape not only growth outcomes but also trust in democratic institutions, market competition, and the efficient allocation of public resources (North, 1990; Acemoglu and Robinson, 2013; United Nations, 2015). Institutions mediate the translation of policy objectives into actual outcomes, often succeeding a result, among typical formal compliance and substantive effectiveness. Recent institutional approaches further highlight the significance of intangible factors, such as knowledge, learning, innovation, skills, and creativity, in explaining regional disparities and the uneven impact of policies (e.g., Andres and Chapain, 2013; Balland and Boschma, 2022).

EU Cohesion Policy (CP) constitutes the European Union (EU)’s principal instrument for reducing socioeconomic disparities and promoting geographically balanced development. Economic, social, and territorial cohesion is a core objective of European integration, formally enshrined in Article 3 of the Treaty on European Union. Implemented through a complex system of multi-level governance, CP relies heavily on national and subnational administrative capacities. Although increasingly aligned with the Sustainable Development Goals and framed around resilience and structural transformation¹, its effectiveness remains though, uneven across states and regions (European Commission, 2024a, b). Especially transmission channels are considered a “black box” even for experts and experienced technocrats, as empirical/conceptual evaluations are sensitive first to the methodological choices of the investigator, and second, to the variations of real evaluation practices across states [European Commission, 2025; Crescenzi and Giua, 2016; European Policies Research Centre (EPRC), 2015]. Thus, there is no universal technique to achieve absolute robustness and comparability of estimated impacts.

Greece constitutes a critical case for analysing the institutional determinants of CP effects. Since its accession to the European Economic Community in the 1980s, it has been among the largest recipients of EU structural funds, with average annual transfers of 2.4–3.3% of GDP (Liargovas and Huliaras, 2018). Despite this sustained and significant inflow, Greece has persistently underperformed relative to comparable Southern European economies, including those hit hard by the Eurozone crisis. In 2023, GDP per capita stood at around 69% of the EU average, only slightly above its mid-1990s level.

This “developmental lag” is often attributed to enduring weaknesses in public policy, administration, and overall state capacity to correct failures and regulate the laws of the market (Andreou, 2010; Kazakos, 2010, 2011; Tsoulfidis, 2013; Giannitsis, 2025). Institutional deficiencies are also seen as contributing to the sovereign debt crisis of 2009–2010 when Greece had been a focal point of asymmetric shock and fiscal adjustment in the context of the Eurozone (Liargovas et al., 2017; Ladi, 2021). In the post-crisis period, institutional reform and improved public governance have been framed as necessary conditions for recovery, economic resiliency and fiscal balance (OECD, 2024). By contrast, other scholars argue that EU “solidarity” is insufficient for economies that are historically positioned outside the core of the European capitalism, and they consider competitiveness gaps as systemic features rooted in the EU political economy and the design of European institutions (e.g. Hadjimichalis, 2019).

Adopting an institutional political economy perspective, European CP is examined as mediated by domestic governance structures and policy-learning processes over time. Τhe analysis is context-specific, and thus asserts no generalizability of findings across the EU, using Greece as a case through which to identify the mechanisms by which domestic institutional configurations and internally reproduced relations interact with supranational policy frameworks. This country-focused approach aims to generate analytical insights into the differentiations of the effectiveness and geographic varieties of impact of externally driven and common European policies.

The paper draws from a combination of primary and secondary sources, including policy documents, statistical evidence, and semi-structured interviews, with a focus on institutional political and economic factors and constraints that shape development outcomes. Greece illustrates both the limits and potential of CP and of contemporary empirical and theoretical paradigms on place-based development. Weak institutional capacity is interpreted as rooted in the historical organisational and hierarchical structure of the state itself.

2 Τheoretical and empirical framework

2.1 Developmental institutions, collective learning and policy change

New institutional economics places institutions, both formal (laws, regulations, contracts) and informal (norms, conventions, beliefs), at the centre of economic behaviour and system performance. In contrast to neoclassical theory, which assumes frictionless markets and fully rational actors, institutional analysis explicitly incorporates transaction costs, bounded rationality, uncertainty, and power relations. Economic outcomes are thus understood as embedded in historically specific institutional arrangements rather than as the direct result of market equilibria or individual optimisation.

Building on North’s (1990) seminal contribution, economic performance is interpreted as the outcome of evolving capabilities, with learning processes at the core of development dynamics. Central to this approach is the concept of “adaptive efficiency,” that is the capacity of societies to accumulate knowledge about “how to get things done” while maintaining institutions flexible enough to respond to shocks and pervasive uncertainty. Adaptive efficiency does not emerge automatically from markets but is produced through historically embedded institutional structures that shape incentives, expectations, and behaviour over time.

Institutional analysis also contributes decisively to political economy by incorporating power relations, historical conditions, and political processes into explanations of collective decision-making over production, distribution, and resource allocation. Governments are not treated as neutral arbiters but as strategic actors whose incentives are shaped by political competition and rent-seeking. As North (1990) again argues, states frequently behave opportunistically, maximising the rents of groups with privileged access to decision-making, and only rarely design institutional frameworks that consistently promote productive activity. This insight highlights both the difficulty of institutional reform and the limits of technocratic policy prescriptions detached from political realities. As North bluntly observes (p. 67):

We know a lot about polities but not how to fix them. We do not have any clear understanding of “what makes polities work” in the same sense we do about how economic markets work.

A core theoretical contribution of institutional analysis is the concept also, of “path dependency.” Once established, institutions tend to persist due to increasing returns, high switching costs, and deeply embedded behavioural norms. Consequently, policy reforms often produce limited, delayed, or unintended effects, even when formal rules change. Institutional change is typically incremental, politically mediated, and shaped by historical legacies rather than rapid or externally imposed. This perspective helps explain why similar policy interventions yield divergent results across countries, regions, and sectors.

Acemoglu and Robinson (2013) further develop this argument by identifying institutions as key determinants of long-term development and inequality. Inefficient institutions may persist because they benefit powerful actors, are costly to dismantle, or are reinforced by complementary economic and social structures. Their distinction between inclusive and extractive institutions provides a powerful analytical lens for understanding how governance arrangements shape growth trajectories, inequality, and policy effectiveness. Political institutions are central in this process, as they determine how power and rents are distributed and, in turn, how economic institutions evolve.

Subsequent scholarship has introduced a stronger temporal dimension to institutional theory. Pierson (2004) emphasises timing, critical junctures, and feedback effects, showing how early policy choices can lock societies into specific institutional paths. Mahoney and Thelen (2010) further refine the analysis of change by identifying gradual modes such as layering, drift, conversion, and displacement. Their framework is particularly useful for distinguishing between formal compliance and substantive transformation, and for analysing institutional adaptation without fundamental shifts in underlying power relations.

Within this literature, institutional or state administrative capacity denotes the institutional, human, and organizational resources and competences that enable public authorities to design, implement, and evaluate policies effectively, especially in multi-level governance settings (OECD, 2010; European Commission, 2020). This notion extends beyond strictly administrative tasks to include relational, political, and knowledge-creation dimensions (Wu et al., 2015). Collective and social capabilities are therefore closely linked to institutional quality and are widely recognised as determinants of policy coherence, consistency, and cross-level coordination (Domorenok et al., 2021).

Furthermore, collective learning closely related to social learning (Reed et al., 2010) plays a pivotal role in institutional change when embedded in policymaking organisations and governance systems. Through such processes, dispersed individual knowledge is transformed into shared interpretive frameworks that guide collective action and strategic orientation (Garavan and Carbery, 2012). In conditions of high uncertainty and complexity, learning allows a shift away from linear or technocratic policymaking towards more adaptive and reflexive governance (Habermas, 1979; Muro and Jeffrey, 2006). However, learning is neither automatic nor uniformly transformative. As Plümer (2024) explains, learning leads to policy change only when it is politically supported, structurally embedded, and aligned with the formal processes of decision-making. More often, it results in incremental or technical adjustments and less often it brings on paradigmatic transformation.

2.2 EU cohesion policy: significance, evolution and impact

The evolution of the European Union’s CP mirrors the broader political, economic, and ideological transformations of European integration since the mid-1980s. Although the objective of Economic and Social Cohesion was formally introduced by the Single European Act in 1986, CP was institutionally consolidated with the 1988 reform of the Structural Funds. This consolidation responded to widening regional disparities following successive enlargements and was shaped by both deepening economic integration and shifting politico-ideological orientations (Andrikopoulou, 1995; Yioti-Papadaki, 2004; Molle, 2007; McCann and Varga, 2015).

Two main phases of CP development up to the late 2010s are distinguished in literature (e.g., Andreou, 2018). The first, extending from the EU’s early years to the mid-1990s, framed CP as a compensatory mechanism designed to offset the uneven effects of market integration. During this period, economic objectives gradually took precedence over social and territorial concerns, reflecting persistent tensions between efficiency and spatial justice (Andrikopoulou, 2003). The second (1994–2014) was characterised by reforms that sought to combine competitiveness enhancement with inequality reduction, an inherently contradictory dual mandate that shaped policy priorities and instruments (Yioti-Papadaki, 2018).

The economic crisis of 2009–2010 marked a critical turning point. Under the Europe 2020 strategy, CP was reoriented toward an investment-driven model promoting “smart, sustainable and inclusive growth.” This shift exposed a core contradiction in the European political economy: the dilution of CP’s redistributive role occurred precisely when crisis-hit and member states required enhanced fiscal support (Thielemann, 2002). The European Commission (EC) nonetheless recognised the stabilising effect of structural funds in sustaining public expenditure in countries under severe fiscal constraint, such as Greece (European Commission, 2010, 2017).

A competitiveness-oriented turn was reinforced in the 2014–2020 programming period through thematic concentration and closer alignment with Europe 2020 objectives (European Commission, 2014), continuing the earlier “Lisbonisation” of cohesion policy. Although official EU documentation indicates that the bulk of resources remained directed toward less developed regions, conditionalities intensified. Macroeconomic conditionality, formalised in Regulation (EU) No 1303/2013 (Article 23), linked cohesion funding to EU economic governance via the European Semester. At the same time, overall CP resources were reduced relative to the previous period, further constraining its redistributive capacity.

A third phase emerged after 2020. Due to the COVID-19 pandemic and subsequent geopolitical shocks, cohesion funds were rapidly reprogrammed during 2020–2021, to support health systems and SMEs liquidity, effectively transforming CP into a counter-cyclical stabilisation instrument. The 2021–2027 Multiannual Financial Framework reconfigured CP within a dual architecture, combining traditional cohesion funding with the Recovery and Resilience Facility, which introduced a more centralised, performance-based governance and more centralized model that largely bypassed regional structures (Christou et al., 2025). Post-2023 crises (energy insecurity, inflation, and the war in Ukraine) have further redirected cohesion resources toward strategic EU-wide priorities, intensifying trade-offs between regional equity and geopolitical objectives (European Commission, 2025).

These tensions are illustrated in Table 1, which summarizes the allocation of resources under European CP across seven programming periods (multiannual budget cycles). The table captures three key dimensions over time: first, the scale of funding (total EU allocations); second, targeting (the share directed to less developed regions and through specific funds); and third, intensity (per capita support in less developed areas). As shown, total resources increased substantially from €75 billion to €392 billion (an increase of over 420%), particularly in the context of successive enlargements, before stabilizing more recently due to fiscal and political constraints discussed above. While funding was initially highly concentrated on less developed regions (73.2% in the first period), it has gradually diversified, reflecting a shift from a predominantly redistributive and cohesion-oriented logic toward greater emphasis on effectiveness and competitiveness.

Furthermore, the growing role of the Cohesion Fund and the increase in per capita support to less developed regions indicate a continued commitment to reducing disparities, particularly as inequality has increasingly shifted toward newer Central and Eastern European member states.

Overall, successive enlargements, as well as constant institutional deepening and compromise over competing priorities have introduced a more complex and strategically hybrid policy model.

For Greece, a state, at the European periphery CP has long functioned as an important mechanism of structural assistance in the course of the global and European integration of its domestic economy (Andrikopoulou, 1995; Ooghe and Keating, 1994). The country’s experience illustrates in a way the enduring tensions² between ambitions on the one side, for a more “Social Europe” and on the other, for a more neoliberal structure governed by monetarist principles (Hadjimichalis, 2019; Hassel, 2014).

As shown in Table 2, allocations to Greece increase over time, particularly during the first three programming periods, reflecting its position among top priority “convergence economies” within the EU. As overall funding expands, Greece maintains a substantial share, 10–11%, until 2006. Thereafter, its percentage declines markedly, particularly following Eastern enlargement, eventually falling to approximately 3.7%. This pattern reflects a policy that has expanded significantly in scale while progressively rebalancing priorities to match the needs across old and new member states and their regions.

Research on CP evaluation broadly follows two strands in literature. The first, largely policy-oriented, is reflected in the EC cohesion reports, which assess convergence and divergence trends using macroeconomic and selected social, economic and other indicators. Within this framework, CP is consistently portrayed as a key instrument for balanced growth, with the prevailing assumption that regional inequalities would have been substantially deeper in its absence. Empirical evidence suggests progress in terms of convergence, from the mid-1980s until the global financial crisis, driven mainly by faster growth in less developed regions, before being abruptly reversed after 2009, with particularly severe effects in Southern Europe and Greece (European Commission, 2007, 2010, 2014).

While the macroeconomic rationale for CP is widely accepted, debates persist over resource adequacy and policy orientation (Bradley, 2006; Cappelen et al., 2003; Leonardi, 2006), especially after rising post-crisis inequalities prompted calls for policy reorientation (Iammarino et al., 2017). Other perspectives focus on the political economy of the EU, emphasising uneven power, political relations and institutional constraints. Early work highlighted the role of ideology and political dynamics in shaping CP (Andrikopoulou, 1995; Borras and Johansen, 2001), while more recent analyses focus on institutional capacity as well as governance quality as enabling factors for effective use of the funds. Evidence indicates that CP effectiveness correlates positively with institutional quality, yet less developed regions continue to lag behind even in this respect (European Commission, 2017, 2022, 2024a, 2024b). Overall, CP manages to mitigate social costs ex post but cannot fundamentally alter the productive specialisation of the member states economies, revealing a persistent paradox at the heart of EU integration (Crescenzi and Giua, 2020).

An investigation of inequalities, based on the evolution of GDP per capita (EU = 100) and its dispersion in the EU, shows that convergence has been limited, partial and uneven. As presented in Table 3 Spain and Portugal record moderate improvement, while Greece initially converges, from 66.5 in 1995 to 82.4 in 2005, but subsequently reverses sharply, declining to 57 by 2025. Ireland emerges as a clear outlier, reaching levels around 250, thereby distorting aggregate patterns. Signs of divergence are evident even within the Eurozone, whose average declines from 120.3 to 107.8.

The period 2010–2015, following the European sovereign debt crisis, constitutes a structural break, as Greece loses more than 20 index points, while Spain and Portugal largely stagnate. Dispersion remains persistently high, with the range exceeding 250 and the standard deviation stable at approximately 66–70, indicating no meaningful reduction in inequality. Although the volatility index (Coefficient of Variation) declines from 102 to 76, suggesting some homogenization (less variation of values) around the mean, disparities remain structurally entrenched.

In sum, the evidence does not support strong convergence during the three decades (1995–2025). Rather, it points to fragile and reversible gains alongside persistent divergence within the Euro area.

3 A note on methodology

The study employs a research design that integrates both secondary and primary data. Secondary sources comprise academic literature, policy documents, evaluation reports, statistical data and selected press material relevant to EU CP in Greece. Primary data were collected through qualitative research and semi-structured interviews with five senior political and administrative officials involved in the design and implementation of policy at the national or/and regional level.

Semi-structured interviews are used thus, as complementary sources of empirical evidence, and aim to enrich the interpretation. This qualitative technique was selected to capture the perspectives of human agents and of a political and administrative elite, regarding institutional capacity and institutional change. A common interview guide was developed, including questions on the weaknesses and strengths, as well as challenges and potential of political institutions and public administration across the policy cycle. The latter is explained in the political science literature by Jones (1970), grounded on Lasswell’s (1956) conception and functional analytical approach. Under this perspective, alternative aspects of decision analysis were discussed. More precisely, discussion evolved around issues such as the identification of needs—agenda setting, formulation and legitimation of decisions, as well as implementation, monitoring and evaluation of policy. Particular attention was paid to atypical governance rules, informal practices, incentive structures, administrative capacities and skills of the human force within the public sector. Interviews were conducted in a conversational manner to encourage reflexive and candid responses.

The sample of key informants included executives positioned at the interface between political decision-making and administrative execution. Among the interviewees were one former Minister and former Member of Parliament, two former senior government executives serving as high-level political appointees (Heads of General and Special Secretariats), and two representatives of the regional self-government authorities (one elected counselor and one senior executive –public servant at a relevant unit in one of the 13 Greek Regional Authorities). All interviewees held senior positions of responsibility and served at some level of governance (central state or regional) under either left wing or center-right wing governments. They all had tasks related to development policy design, implementation or evaluation and management of European structural funds, during the decade of the dual crisis (economic and pandemic, 2011–2021) and they all have had participation in cross-country negotiations or communication with European peers in community forums. Additionally, all of them had multifaceted experience or special knowledge concerning public policy and administration, through various roles (e.g., as experts or consultants, elected in other status in the past, at the central or regional self-governance institutions).

All interviews were anonymised and analysed thematically, with special emphasis placed on identifying recurrent patterns and underlying mechanisms. Thus, attributing views, failures and successes to specific organisations or individuals was not among the targets and is irrelevant to the subject of this research. Interviews were conducted between June and December 2025.

4 Key economic indicators on Greece

In this section key economic indicators are investigated further to explain the general country-specific context. Table 4 presents the main trends in Greece from 1974—following the restoration of democracy after the military junta—through to the present, covering a period of re-engagement with European integration and subsequent participation in the EU. Yearly averages are reported for key indicators across three phases: the “Metapolitefsi” (restoration of democratic regime) period, the “modernization” and intensive Europeanization period, and the era of multiple crises and tentative recovery.

The data reveal a clear structural transformation across the three periods, with improving income level, but weakening overall macroeconomic status over time. Overall, a transition from a high-inflation, investment-driven, and demographically expanding economy to one that is externally oriented, demographically shrinking, macroeconomically stable, but investment-constrained and growth-fragile. The post-2010 period marks clearly a structural break, as adjustment improves nominal stability but at the cost of long-term growth capacity.

More precisely:

First, in demographic terms, population growth slows and turns negative (from 0.8% to −0.5%), while net migration shifts from strongly positive to negative. This indicates a transition from demographic expansion to contraction, consistent with post-crisis emigration dynamics. Urbanisation follows a similar pattern, effectively stagnating after 2010.

Second, income increase is evident but decoupled from growth. GNI per capita (PPS) increases substantially across all periods, yet GDP growth weakens dramatically—from 2.2% (1993–2010) to −0.7% (2011–2023). This pattern suggests that early convergence as discussed above, was not structurally sustained and was reversed especially during the crisis period.

Third, the data point to macroeconomic stabilization alongside economic stagnation. Inflation declines sharply (from 18.4 to 0.7%), reflecting monetary stability priorities, but this coincides with declining investment (gross capital formation falls from 30.3 to 14%), indicating weakened productive capacity.

Fourth, there is a clear shift in economic structure and external orientation. The shares of agriculture and industry decline, while exports and imports rise significantly (exports more than double as % of GDP). However, the persistent trade gap suggests continued external dependence despite greater openness.

Finally, state reconfiguration is visible but not developmental. Military spending declines moderately, while FDI inflows increase substantially. Yet this rise in FDI is not matched by domestic investment, reinforcing concerns about weak endogenous growth dynamics.

5 Cohesion policy and the case of Greece

5.1 Early implementation and institutional constraints (1980’s–2000’s)

Since its accession to the European Economic Community (EEC) in 1981, Greece has been a major beneficiary of European Community support and CP funding. Until the mid-2000s, all Greek regions were classified as less developed, qualifying for maximum assistance under Objective 1 and Convergence Objectives. Following the 2004 enlargement and the associated “statistical effect,” several regions were reclassified. Consequently, in the 2007–2013 period, eight regions retained full convergence support, while five—including Attica and parts of Macedonia—entered transition arrangements after exceeding 75% of the EU average GDP per capita³.

Initial large-scale interventions were implemented through the Integrated Mediterranean Programmes (1986–1993), followed by three Community Support Frameworks (1989–2006). Subsequent reforms introduced National Strategic Reference Frameworks for 2007–2013 and Partnership Agreements for 2014–2020, with financing channelled through the European Structural and Investment Funds (ERDF, ESF, Cohesion Fund, EAFRD, EMFF)⁴.

According to our interviewees the greatest deficiencies in policy implementation and development strategy should be sought in these first steps. As cited, the first integrated programmes “were not really programmes, nor integrated,” as the public administration had not at that point of the MIPs and “Delors Packages” (1980s–1990s) the capacity nor the culture to encompass professional planning and apply strategic analysis. As explained:

“The policy proposals of the different bodies were adjusted to what was later called conditionalities, i.e. the conditions set by the EU to supply the funds. What would be the right thing to do? The contrary. Greece should already have, and every region should already have, a development plan […] And then, one could say, fine. Now we are given the opportunity to absorb let’s say, 100 million. Fine, these are our objectives, these are the projects put in priority. We could now place the 100 million to the 1st priority. If another 100 million come, we will place it to the 2nd priority. Next time, maybe we will be able to finance the 3rd priority. That didn't happen."

Following this path, as explained also later on, Greece absorbed substantial resources over successive programming periods. Structural fund assistance amounted to approximately €8.2 billion in 1989–1993, rising progressively to €20.4 billion in 2007–2013 and reaching €38.8 billion during the peak of the economic recession⁵. Cumulatively, Greece received around €71 billion in Community Support between 1989–2013. Additional €15 billion euros were allocated for the 2014–2020 period. Of this sum, half was directed toward less developed regions such as Eastern Macedonia and Thrace, Central Macedonia, Thessaly, Epirus, and Western Greece. Comparable beneficiary countries⁶ during earlier phases, particularly prior to the 2004 enlargement, included Spain, Portugal, Italy, and Ireland.

EU regional policy has been implemented in Greece through multiannual, multi-operational development programmes aligned over time with EU Structural and Investment Fund regulations. Programme design almost from the beginning, typically followed a structured framework of objectives, priority axes, and performance indicators to support budgeting, monitoring, and evaluation. Implementation relied on a combination of EU and national public expenditure as well as private participation, while other complementary financing instruments, were also used. Various horizontal initiatives, direct community investments or development loans from the EU have been also substantial means for the promotion of research and innovation, protection of the environment, cultural development, wellbeing in cities, social inclusion, etc.

Every programming period, the Greek framework integrated national development priorities with European objectives, in a peculiar way as found, with a poor emphasis on strategic foresight, and an impressive lack of vision for future development. In addition, scientific planning principles were often ignored. Our respondents explain that the above are related to the centralized character of the state and the timely dominance of the political agents over other internal or external players in the public policy system, which are also documented in literature (Sotiropoulos and Dalakou, 2021). As cited:

"European money was seen as a gift from heaven. They came as if to solve long-standing historical problems of regional development. Of course, we mean a kind of regional development, with a central arm. It was not the Regions making decisions. It was the State making decisions, that is, the ministry for Economic Development, that is, the Minister."

Across the programming cycles, a wide range of policies were implemented, spanning entrepreneurship, public administration reform, infrastructure development, environmental protection, education and health support, and agricultural and rural development. Core priorities consistently included transport and public infrastructure, business competitiveness, human capital development, and the improvement of living conditions in rural and peripheral regions, with the aim of reducing regional imbalances.⁷.

Nevertheless, another peculiarity concerned the allocation of funds between development priorities. Lack of inclusive strategic planning and interference of the political personnel on policy objectives have been evident also in the structure of plans and consequently in the content of selected actions and projects. As put in the interviewees, the funds were placed either in large – mega public investments either on very small projects “in a chaotic distribution, dispersed here and there” throughout the Greek periphery with no obvious internal coherence or explicit targeting. This “patch-work” though, had its pros and cons. On the one hand, it proved as a useful tactic for the absorption of political pressure and for paying attention to specialized local needs. On the other hand, this could be seen a paradigmatic avoidance of a scientific mode of planning. As explained by another respondent:

"All these European funds came to help toward regional development in two major areas. One, emblematic large projects, like a highway or a dam. The second is the exact opposite. We observe the dispersion of large sums into very small projects. Small projects without a multiplier effect, without a significant return, without impact on regional development, just to satisfy everyone involved […] and this deprived resources that would be channeled into productive projects"

Despite this early-stage disposition toward micro projects that would relief needs in the Greek periphery, over time, resource allocation became increasingly concentrated on large infrastructure projects and national-level interventions, particularly in the more dynamic economic regions. This shift was driven by short-term imperatives, notably preparations for the Athens 2004 Olympic Games, and by the strategic objective of achieving nominal convergence following Greece’s entry into the Economic and Monetary Union (Drakaki, 2015). During the 2000s, transport infrastructure had a dominant share of funding. In addition, the allocation of funds gradually from this point on, was concentrated to the national—sectoral operational programmes instead of the regional (Lolos, 2009). The latter absorb the last two decades around 30% of total funds.

Development priorities mattered also, in another way. As put by one of the respondents, a great problem in the use of funds, has been its allocation on sectors and activities of low value added. Large public works were impressive and had obvious benefits for citizens and thus were important in political terms. On the other hand, tourism as a dominant national industry, received a large share of the total support. As explained:

"The absorption [of the European funds] served for preserving the track of the Greek economy, which was already skewed […] Three NSRFs were given to mega projects, roughly. Greece has used these resources to finance not only SMEs as other European countries did, but also to finance investments in luxury five-star hotels […] From the beginning, planning was problematic, due to the influence of the big business sector, and due to the inability or lack of political will to carve out a different direction."

Overall, low productivity gains after several decades has been considered the most disappointing fact, according to the participants in this research. This was not a random effect and it is easy to explain. No-strategy in reality reflected a market friendly strategy or else a “stability strategy” and the preferences of the political personnel of almost all governments of the Metapolitefsi.

"Overall, this view prevailed, that the market should drive us, wherever it wants to drive us. As our country is gifted with sun and sea, we should do tourism and specialize in services […] We have therefore emphasized our abilities in the services sector and we have never allowed a more balanced economic structure to thrive."

Ιn this trajectory, as put, the economy was found in a dead-end. Weakened secondary and primary sectors of production constitute a significant factor explaining external trade and financial imbalances. As aptly cited: “Afterall, we import goods to sell them to the tourists.”

5.2 Crisis, conditionality and governance reform (2009–2020)

The sovereign debt crisis brought fiscal surveillance from international institutions, and strengthened external conditionalities associated with EU and Troika programmes (Featherstone, 2015; Scharpf, 2011). This constituted a critical juncture in for public administration and CP in Greece (Pierson, 2004). From 2009 onwards, structural European assistance became increasingly embedded within the broader framework of fiscal “tidying up” and improving macroeconomics. Formal conditionalities intensified, reshaping incentives, control mechanisms, and administrative practices around CP implementation. While the crisis did not alter the formal objectives of Policy, it substantially transformed its modalities and implementation environment (Bachtler et al., 2013).

In this context, CP evolved from a predominantly development-oriented instrument into a hybrid policy combining investment support with macroeconomic stabilization objectives. Priorities shifted towards rapid absorption, fiscal adjustment, and strict demonstrable compliance with the regulative European framework, reflecting heightened concerns over credibility, financial irregularities, and administrative inefficiency (European Commission, (2014/2017); Mendez and Bachtler, 2017).

One significant reform in Greece was the concentration of control and management authorities, for improved monitoring of public spending and increased efficiency of the use of structural funds. Administrative authorities over available resources progressively gathered in the Ministry of Economic Development, which established specialized coordinating units in all ministries. This was an effort to address long-standing administrative fragmentation and implementation delays (OECD, 2011; Featherstone and Papadimitriou, 2015) and most importantly to achieve sound financial management, crucial for the uninterrupted absorption of funds and also for proving fiscal consolidation (Christophilopoulou, 2021; Ladi, 2021).

This emphasis on cuts and strict public spending has been an important legacy of the crisis, as also explained in the interviews. A newly introduced “thrift” became a core element in the administration culture, as explained in an interview:

"The crisis did not bring any major Public Administration reform. Besides, the NSRF system was already well functioning and organized. A secondary consequence, however, was that the Greek administration system had been training itself on austerity for almost a decade. This emphasis on cuts, and savings, has gone very deep into our culture. And this became problematic when we came out of the crisis and we had to spend money."

Management systems were upgraded to reinforce monitoring, auditing, and reporting functions. Procedural standardisation, enhanced ex ante conditionalities, and stricter compliance checks were introduced. The European Commission assumed a more direct role in implementation through technical assistance, task forces, and intensified supervision of programmes’ execution (European Commission, 2019) but also had been very helpful, as noticed by a participant in the survey:

"Europe helped a lot with the disbursement of resources, especially in 2015 a very difficult year. There was a very active and positive support from the European Structural Funds and the European Investment Bank, to facilitate Greece through the crisis, especially within the 3rd Memorandum."

Crisis-related reforms had a positive impact on absorption and the timely disbursement of funds. As simplified procedures, such as fast-track project selection, and the reprogramming of resources towards “mature” and low-risk projects became common practices in this period, improved absorption rates were achieved, particularly by the end of the 2007–2013 and 2014–2020 programming periods (European Commission, 2014/2017). It should be noted also, that high absorption had been a success of the NSRFs managing authorities that had been exemplary in fulfilling their tasks, as discussed in almost all interviews. In this frame, maladministration, or misuse or illegal use of the funds is not identified as a problem by the respondents. Although isolated cases cannot be ruled out, in general (not a Greek originality), for the last almost two decades, “you always know, where even the last single euro is spent”.

As aptly observed by another respondent:

"Both the institutions and the procedures regarding the management of funds have the potential for transparent and efficient use of the resources. They were made to absorb. This was even more evident during the crisis."

Nevertheless, this acceleration had also some drawbacks. As it often favoured short-term, readily implementable projects over more complex and institutionally demanding investments, project selection increasingly reflected direct political preferences and favored sloppy planning, against strategic vision and foresight. Administrative feasibility and risk aversion were prime considerations, rather than long-term impact or structural transformation, a fact that is consistent with findings in the broader literature on cohesion (Barca, 2009; Bachtler et al., 2013).

As already mentioned, some of the interviewees stressed planning weaknesses such as the polarization of the allocated funds around mega projects of high visibility and impact, and numerous microprojects to politically attend local and special social needs. Nevertheless, the emphasis on “mature projects” has been a dubious practice. This sustained the economy and development mode on track and stresses even better, the significance of path-dependency. First of all, as explained, the political personnel maintain a protagonistic role in the selection of projects and actions and consequently in the formulation of policy:

"Those are not elements of a clientelistic type of system, in the sense that the projects in the Minister's birth region will proceed faster. In our cases, all typical procedures for selecting or shaping projects are politically controlled.”

Additionally, political will is found to be aligned to that of the market. Projects become mature in a random process, as a precise institutional mechanism or some institutional framework to make selected projects mature does not exist. Stability becomes a product of weak learning, in this sense. As a responded marks path-dependency is at play here:

"The economy that is moving toward one direction is already preparing its investment plans. From the perspective of the politicians or the public administration executives, the rationale is simple. We can only choose from projects which are already there, which are in a way mature. This created a condition and mechanisms of strong reproduction.”

Despite the above practices, we observe during the same peiod, a significant improvement in administrative professionalism. Investments in digital information systems, monitoring tools, and staff training enhanced procedural efficiency and transparency within managing authorities (OECD, 2015). Standardised workflows and reporting practices were increasingly aligned with EU requirements, strengthening formal administrative capacity almost everywhere in the public sector. A notable example is the Ministry of Digital Governance⁸ founded in 2019 which imported innovative tools and reforms to support horizontally all government institutions and public services.

Nevertheless, this improvement was “shallow” or intensely uneven across levels of governance. Central authorities not only in Greece, benefited disproportionately from technical assistance and expertise, while regional and local administrations were lagging behind, and this reinforced vertical asymmetries within the cohesion governance system (Mendez and Bachtler, 2017). In Greece, for example, progress is evident, yet uneven, at all levels of government. The root of the problem lies in the excessive concentration of power within the state. Greece continues to isolate itself from international decentralization efforts and remains one of the most centralized countries in the world (Karvounis, 2021). This is contrary to constitutional provisions and the requirements of the European Charter of Local Self-Government (signed by the member States of the Council of Europe in October 1985). As described, even the crisis did not bring any significant breakthrough on this respect:

"The crisis deprived resources, deprived an organism of blood, as if it withered. And when we came out of the crisis, everything came back to what it was. We did not change in this respect. A self-fulfilling prophecy is at play here. We do not address the Regions because they do not have the abilities to plan, or to implement. Since they do not have the abilities, we do not ask them to participate. And because we do not ask them to participate, they do not learn. And because they do not learn, we complain, why don’t they learn?"

Administrative restructuring and high staff turnover, exacerbated by austerity measures undermined further institutional memory and learning capabilities (OECD, 2015; OECD, 2024). Crisis governance strengthened centralization of decision making and management of resources in an already over-centralized political-administrative system with little power of local and regional government (Karvounis and Tzemopoulou, 2021). Economic governance and structural policy planning became more hierarchical and less participatory, weakening place-based development logic underpinning CP (Barca, 2009; Bachtler et al., 2013).

Αs put by a respondent, especially organizations at the local level of governance (municipalities) and less those at the regional level, as well as some organisations of the broader public sector, historically known as the «great patients», failed to adjust. Business consultants have had a major role in the provision of some sort of assistance, although this trend has been shrinking further the capabilities of the local and regional authorities operating closer to citizens.

"We have a system that functions well on the surface but struggles underneath. That is why so many efforts have been made to empower and assist the final beneficiaries."

This centralisation–compliance trade-off is important. Improved short-term implementation outcomes reflect almost absent bottom-up planning, policy reflection for innovation and change and actual institutional adjustment. In this context, crisis-induced reforms had limited effects on deeper institutional structures. They primarily targeted as already analyzed, control, oversight, and rule adherence rather than incentive realignment, inter-organisational coordination, or strategic foresight. Formal compliance intensified, while gains in policy effectiveness and institutional learning remained poor (see also Mahoney and Thelen, 2010; Featherstone, 2015). As put in an interview:

"The lessons we take [after every evaluation cycle] are very poor and when they are taken, they have short legs. […]. When a change is tried out, there is a huge weakness for it to remain in the same direction. In the next programming period, the previous situation can return very easily, just because the political correlations have changed."

Overall, organisations adopt formal rules without altering underlying behavioural norms or power relations. In its essence, policy is designed and run by politicians and less by beraucrats and specialized technocrats, even under heightened conditionalities. External agents’ pressures, fragmented responsibilities, and weak inter-ministerial coordination persist, limiting further the transformative potential of the reforms (Featherstone and Papadimitriou, 2015). While typical compliance had been necessary and had a positive fiscal and macroeconomic impact, it did not fundamentally change incentives or behaviours to allow a change towards “better institutions.” As described in an interview, this politically driven mode of planning:

"It has produced its own know-how. People have been trained to function in this way and it is very difficult to bring change. At the same time, the same pattern crowds out other activities that would be necessary [like promoting research and development for new ideas on policy]"

5.3 Unintended effects and the national adjustment of policy

Based on the previous analysis, a key indirect and unintented effect of the European policy concerns the progressive obsolescence of the domestic (national) structural regional and development policy instruments. Since the early 1990s, EU co-financed programmes and structural support effectively became the primary if not exclusive instruments for economic development policy in Greece, aside from the “Development Law” supporting smaller-scale private investments.

As domestic policies increasingly aligned with EU regulations, other policy tools aimed at enhancing productivity, restructuring production, or addressing regional disparities were marginalised or abandoned. By the early 1990s, long-term development planning had disappeared, and the Community Support Frameworks (CSFs) and the National Strategic Reference Frameworks (NSRFs) became the reference policy documents for domestic structural policy. These were complemented by financial stability programmes, embedding a monetarist rationale of fiscal discipline and consolidation linked to Economic and Monetary Union (EMU) participation (Stathakis, 2007, 2011).

This transition has been interpreted by several scholars as part of a broader shift from a welfare-state to a neoliberal or “night-watchman” state (Milonakis et al., 2021; Liakos et al., 2024). While similar transformation occurred across Europe, in other cases EU funded interventions were harmonically combined with domestic regional and development plans. For example, in Northwest Europe or Germany regional institutions and non-state actors were systematically integrated into policy design and implementation (European Policies Research Center, 2002; Thielemann, 2002). As put by a respondent:

"In the case of Greece, for different reasons that are partly objective, i.e. a situation of constant fiscal tightening, but also because that’s the way we have known to do things […] European resources did not come to complement the national strategies, simply because the latter did not exist. They shaped national strategies.”

Fiscal constraints further reinforced state withdrawal from development and structural issues of the economy. As put in an interview, crisis was “a major upheaval. You knew that those funds were actually the only available for public and social expenditure” Consequently, priority was given to the most urgent needs, as the resources were missing. Convergence requirements under the Stability and Growth Pact, followed by austerity measures imposed during the sovereign debt crisis, severely limited national public investment. Between 2008 and 2013, public investment in Greece declined by up to 60%, compared to an EU average of around 20% (European Union, 2014), making EU co-financed projects virtually the only available development funding channel.

These institutional dynamics had profound structural economic consequences. Greece’s post-accession growth model became heavily reliant on constructions, tourism, retail, and personal services, alongside other speculative activities in finance and real estate. This production structure increased vulnerability to external shocks and deepened the regional problem, reinforcing the dominance of Athens within the economy (Drakaki, 2017; Vaitsos and Missos, 2018). Cohesion funds contributed to enhancing public infrastructure and human capital but did not alter the underlying specialization nor the country’s position in the global value chains or international division of labour (Lambrianidis, 2024). As described by a participant:

"The economy is a steamroller and therefore incentives are not enough to change the trends. We needed a comprehensive approach that would find this equation of financing, this formula able to change the structure of the economy."

As suggested, learning requires first, training of the political staff on the importance of development planning. This aversion to planning and strategic thought, is not an “accident.” Instead:

"We do it this way out of perception. We don't believe in planning. I know, says the minister. I know, says the Member of Parliament. I know, says the mayor. And when the time comes to allocate resources, the political staff do not consult the plan; they don’t open the book, they just say, I know the real needs. Everyone believes them, or even better, everyone submits to them. Because you could not suppose that they are convincing, since there are no arguments. It’s the “Yes, Man” philosophy"

According to one view in literature (Huliaras and Petropoulos, 2016). domestic politics and rent-seeking behaviours of some agents further distorted CP outcomes. As EU funds became the main source of financing public investment, the state budget was relegated to a residual role, enabling opportunistic project selection and weak prioritization. This view, is not supported according to our findings, as all respondents perceive that the managing system of European funds operates well, in terms of personnel and processes. As explained further by an interviewee these units “they act like a castle inside the great castle of the public sector. They perform well, and stand out as role models for the rest of the system, even though they have little effect changing the rest of the system”.

Bureaucracy continues to represent a significant challenge across all levels of governance and public administration. This hinders coordination with the private sector’s needs and planning, creating further obstacles to innovation and productive investments in the domestic economy. This was captured by one of the respondents who explained that

“The time and pace of the programmes does not comply to that of the business. Procedures are arduous, rigid and slow, and this fact often brings disappointment to those who choose to submit project proposals”.

To conclude, limited administrative capacity at the bottom of the governance ladder and weak policy learning kept the policy impact constrained. In the same time, poor learning and inflexibility and inability to change, limited the long-term development and productivity gains.

6 Weak learning, inertia and an open window of opportunity: the need to rethink development and dare for change

Analysis supports the argument that EU CP generates “nationalised effects,” as transmission is filtered through and adapted to domestic political, administrative, and institutional structures. Although crisis-induced conditionalities intensified formal control, monitoring, and compliance, it had limited impact on building capabilities related to strategic foresight, knowledge production and reproduction, and collective social or even policy learning.

Findings confirm thus that CP does not operate uniformly across member states. Instead, the policy cycle, effectiveness, and developmental impact are shaped by country-specific features that may hinder or encourage institutional learning and limit or boost long-term productivity and development outcomes. This implies that CP evaluation in academic scholarship at least, should also endorse, except macroeconomic assessments, qualitatitive perspectives focusing on the views and experience of a broad range of political and economic agents. Except policy makers and top administrative executives, research could also emphasize the perceptions, incentives or behaviours of entrepreneurs, representatives of the social partners, labour organisations, industrial unions, or civil society, in order to capture how policy is embedded in domestic political economies.

In the Greek case, “failure” to converge, as shown, cannot be explained by corruption, deliberate mismanagement of EU funds, insufficient financial resources, or low absorption rates. Rather, the core weakness lies first, in poor learning capacity and second, in the constant lack of long-term vision. As explained by an interviewee:

"Without strategic objectives, how will you really do the evaluation? While we perform ex-ante, ex-post, and ongoing evaluations very well, it is difficult to draw conclusions from these formal and mandatory evaluations, useful for the next programming period. That is impossible. Rather, technocrats mumble some basics, but as soon as it goes to the political level, everything evaporates.”

Although policy learning occurs in a slow pace and gradually through the experience of the use of funds and the diffusion of best practices and community guidelines, Europeanisation has largely taken the form of ritual or formal compliance, while at the same time, CP itself has evolved and changed. It has shifted from a long-term structural instrument aimed at convergence and balanced growth into a more flexible, overstretched policy that can be easily embedded within the increasingly centralised European institutions and strict monitoring frameworks. This transformation raises fundamental questions regarding whether the policy is enhancing its effectiveness or whether it gradually dilutes its foundational purpose.

An additional constraint, that has to be stressed, is that despite the consistent reflection and incessant debate on the future directions of CP, even the notion of Cohesion, is not of a common understanding between main participants in the course of European Integration.

"Blocs of countries interpret cohesion differently. We've simply found a term that encompasses the needs of many, perhaps even those with opposing interests. We see it as a means of providing for basic needs and fundamental infrastructure, but at a time when the CP is moving away from that."

Asymmetries within the Economic and Monetary Union (EMU) significantly condition cohesion outcomes and in addition several other policies, such as macroeconomic or social policy, play a decisive role in distributing resources and treating unevenness within a politically, economically, and socially ununiform European territory (Hadjimichalis, 2019; Petrakos and Psycharis, 2016). Keeping the previous in mind, there is always the big question with no easy answer Is this policy efficient to address inequalities and bring development to the less developed?. As argued here, instead of focusing in the one side of story (EU) we can focus on both (EU-country member). As noted in one of the interviews:

"We had our chances. This is the reality. […] If we choose to persist on the big questions about where Europe is going, in relation to the CP, we risk asking for a letter of forgiveness. Since they don't give us that much as we lose, so we are not to blame for anything. This is a wrong approach. Okay, that's the environment. What did we do in that environment?"

In this respect, non- convergence should be attributed to the political economy of the EU and EMU’s institutional design, and to the limited dynamic capabilities of the Greek state to assume an active developmental “mission” in the sense given by Mazzucato (2021). Development policy was deactivated at a time when EU governance increasingly prioritised monetarist and competitiveness-oriented principles. Weak coordination between the state local and regional administrative authorities and the private sector, and other social groups and stakeholders, alongside bureaucratic inertia (outside the “castle” of the managing authorities of the European funds), further undermined the potential for resilient and inclusive growth.

Applying Plümer’s (2024) framework of learning-induced policy change helps clarify this argument. In Greece, policy and institutional learning has been predominantly instrumental, producing procedural and administrative improvements without altering core objectives or policy priorities. It has occurred through changing attitudes and stands but not to a point that it could change outcomes. Innovation in policy formation or social partnership has been also missing in any of the consistent structural reforms. Overall, the Greek paradigm demonstrates that learning and institutional adjustment can be extensive but conditional: it may help stabilise political economic structure and institutions but not necessarily transforms them. This is still a significant “success,” as argued here, an achievement, rather than a failure of policy.

7 Conclusion

This paper evaluates the efficacy of EU Cohesion Policy (CP) through a critical institutional economic lens, emphasising domestic structures in a European context and the role of incentives, capabilities, values, and collective know-how in shaping development outcomes. The analysis foregrounds the beliefs and experiences of political and administrative actors, discussing the ways, a common—supranational policy is fundamentally conditioned by institutional dynamics, historical trajectories, and political economy constraints within member states.

The focal point of this study is state institutional capacity; future research would be needed to explore further policy developments at the regional and local levels. A more thorough investigation could yield additional insights into local governance as well as into the operational mechanisms of a place-based policy framework, within highly centralized institutional contexts. CP is conceptualised as an “institutional experiment” in both Greece and the EU, functioning as a redistributive supranational mechanism and a cornerstone of European integration. A core finding is that Greece’s institutional adjustment has been largely formal rather than substantive, marked by intermittent progress. As CP is absorbed into the domestic institutional framework, it is reshaped to fit a paradigm of strong centralisation around state and government and top political authority across any territorial level. This structure is associated with limited strategic foresight and innovation in policy design, formation and implementation for the purpose of economic development.

The analysis challenges the rentier-state hypothesis by showing that corruption, clientistic relations or misuse of EU funds and malpractices and even continuous external trade imbalances could not suffice to explain the persistency of non-convergence. Imported European know-how and gradual improvements regarding administrative capacity have been evident (Sotiropoulos and Dalakou, 2021) and proved by higher absorption and technical compliance over time. Nevertheless, institutional rigidity and missed opportunities on building a social consensus on development priorities have been important. Since the 1990s, fiscal consolidation, the great recession, and international supervision have constrained further the state’s capacity to pursue or plan a coherent long-term economic development strategy. As one interviewee put it:

"This kind of planning comes mainly from the political system […] It is dominated by partisanship, and by the political perceptions of the Metapolitefsi. This kind of planning reserves an important role for the central government. In its heart, it’s a Keynesian mode of planning. It whispers something about social participation but is not able to involve society."

While CP constitutes a substantial source of structural support, it is not a substitute for coherent national development planning. Moreover, contemporary trends, such as increased centralization of decision-making, declining cohesion resources, and shifting strategic priorities at the EU level further limit its transformative role at the level of a member state. As has been demonstrated in this study, for Greece, not only does technical operational excellence in the public administration matter, but also collective learning and capacity building, in order to drive economic change. Afterall, the challenge is to achieve systemic “adaptive efficiency,” as defined by North, at all levels of governance.

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