The importance of ensuring high levels of absorption for the structural and cohesion funds, especially in the deprived regions, is crucial. In such a context, there have been identified the drivers of and possible difficulties associated to the absorption capacity of a Member State and its regions, following the processes currently taking place in Romania. The purpose of the paper is to identify and analyze the drivers that optimize the use of the absorption capacity of structural funds as well as the main problems that affect the absorption capacity and full use of funds in certain regions and institutional environments.structural funds, absorption capacity, financial allocation, regional development

Andreas KOLODZIEJAK

Gheorghe GHERGHINESCU

Oana GHERGHINESCU

English

Research Papers in Economics

60                                                                          Finance – Challenges of the Future 
 
Introductory remarks 
 
The main focus of the cohesion 
policy and its instruments between 2007 
and 2013 is on ensuring more growth 
and jobs for all regions and cities of the 
European Union
1. During this period, the 
greatest investment ever made by the EU 
through cohesion instruments is worth 
over 300 billion euros (in 2004 prices) to 
support regional growth agendas and to 
stimulate job creation. Out of this 
amount, 82% will be concentrated on the 
“Convergence” objective, under which 
the poorest Member States and regions 
are eligible. In the remaining regions, 
about 16% of the Structural Funds will be 
concentrated to support innovation, 
sustainable development, better 
accessibility and training projects under 
the “Regional Competitiveness and 
Employment” objective. Another 2.5% 
finally are available for cross-border, 
transnational and interregional 
cooperation under the “European 
Territorial Cooperation” objective. Certain 
spending targets have been agreed upon 
to pursue the objectives of the Growth 
and Jobs Agenda: In the case of the 
“Convergence” objective, the target is 
60%, and in the case of the “Regional 
Competitiveness and Employment” 
                                                           
1  European Commision (2006), “Fourth progress 
report on cohesion – The Growth and Jobs Strategy 
and the Reform of European cohesion policy”, 
Brussels. 
 
 
objective, the target is 75% of the total 
available funding, which needs to be 
“earmarked” for interventions supporting, 
e.g. research and innovation, the 
information society and sustainable 
development. 
The functioning and 
implementation of the Structural Funds is 
based on four principles: 
1. Concentration of measures on 
the priority objectives for development. 
2. Programming, which results in 
multi-annual development programmes, 
the result of a process leading to a 
decision taken thorough partnership. The 
process has a number of stages. The 
adopted measures then become the 
responsibility of the managing authority. 
3. Partnership, which implies the 
closest possible co-operation between 
the Commission and the appropriate 
authorities at national, regional or local 
level in each Member State from the 
preparatory stage to the implementation 
of measures. 
4.  Additionality, which means 
that Community assistance, 
complements the contributions of the 
Member States rather than reducing 
them. Except for special reasons, the 
Member States must maintain public 
spending on each Objective at no less 
than the level reached in the preceding 
period. 
Furthermore, relations between 
the Commission and the member States 
are governed by the principle of 
subsidiarity, which is enshrined in the 
 
CONSIDERATIONS ON POTENTIAL DETERMINANTS OF 
STRUCTURAL AND COHESION FUNDS ABSORPTION 
 
Lect. Oana GHERGHINESCU, PhD 
University of Craiova 
Prof. Andreas KOLODZIEJAK, PhD 
European Commission, Brussels 
Ec. Gheorghe GHERGHINESCU 
National Bank of Romania, Craiova Branch Year VII, No.7/2008                                                                                                      61 
Treaty of Maastricht. In general terms, 
this means that a higher authority may 
not and must not act if an objective can 
be achieved satisfactorily at a lower level. 
One consequence of this is that it is up to 
the managing authorities appointed by 
the Member States to select the projects 
to be financed and to supervise their 
implementation. 
The role of structural funds 
(transfers from the EU budget) in regional 
development has been designed for 
various reasons, mainly because markets 
left by themselves might fail to ensure 
economic growth due to externalities 
(infrastructure, environment issues), 
market rigidities (lack of labor market 
mobility), and incomplete information. In 
such a context, the importance of 
ensuring high levels of absorption, 
especially in the deprived regions, is 
crucial. 
The priorities of the new financing 
framework 2007-2013 are different from 
the ones of the Agenda 2000, which had 
been focused on preparing the round of 
enlargement from 2004. The main 
differences result from introducing the 
reform of the Common Agricultural Policy 
and the increase in the efficiency of the 
structural funds and the cohesion fund in 
the less developed regions and Member 
States. 
The financing framework 2007-
2013 aims at strengthening the success 
of the enlargement process and the 
increase in the EU competitiveness, 
stimulating economic growth at European 
level, job creation, developing the 
concept of European citizenship and 
strengthening the role of the EU at global 
level. 
During the period 2007-2013, the 
cohesion policy will benefit of 35,7% of 
the total EU budget, which in current 
prices equals to approximately 350 bill. 
euro. The allocation of these funds at 
European level is done according to 
objectives and Member States (Table 1).  
 
 
 
Table 1 - Allocation of structural and 
cohesion funds per Member State 
 
Member state  Structural and 
cohesion funds 
allocation (mill. 
Euro) 
Austria 1.461 
Bulgaria 6.853 
Belgium 2.258 
Czech Republic  26.692 
Cyprus 640 
Denmark 613 
Estonia 3.456 
Finland 1.716 
France 14.319 
Germany 26.340 
Greece 20.420 
Irland 901 
Italy 28.812 
Latvia 4.620 
Lithuania 6.885 
Luxembourg 65 
Malta 855 
Great Britain  10.613 
The Netherlands  1.907 
Poland 67.284 
Portugal 21.511 
Romania 19.668 
Slovak Republic  11.588 
Slovenia 4.205 
Spain 35.517 
Sweeden 1.891 
Hungary 25.307 
 
Every Member State has the 
obligation to prepare, according to the 
Community Strategic Guidelines for 
Cohesion, a national strategic reference 
framework (NSRF), which defines the 
chosen strategy by the respective 
Member State proposing the list of 
operational programmes to be 
implemented with the aid of structural 
funds. The European Commission further 
validates parts of the NSRF as well as 
every single operational programme. The 
operational programmes present the 
priorities of the Member States and/or 
their regions as well as the details 
regarding the programming phase. For 
the period 2007-2013, approximately 450 
operational programmes have been 62                                                                          Finance – Challenges of the Future 
adopted by the European Commission. 
The economic and social partners, as 
well as civil society actively take part in 
the programming and management of the 
operational programmes. 
In Romania, the background for 
elaborating the NSRF 2007-2013 has 
been ensured by the National 
Development Plan 2007-2013, approved 
by the Romanian Government in 
december 2005. Even though the NSRF 
makes use of and synthesizes the main 
issues included in the analysis and 
strategy of the NDP, they are not taken 
as such, but restructured according to the 
3 priorities and the 11 lines of action 
(Community Strategic Guidelines). 
The NSRF has established 4 
thematic priorities: 
1. Developing basic infrastructure 
according to European standards; 
2. Improving long-term 
competitiveness of the Romanian 
economy; 
3. Development and more efficient 
use of the human capital; 
4. Buiding a more efficient 
administrative capacity. 
A territorial priority has been 
also identified, which aims at promoting a 
balanced development of the entire 
territory, by creating the background for 
the development of the regions lagging 
behind and by taking advantage of the 
regional development potential. 
As regards the financial allocation 
on sectors of the NSRF 2007-2013, 
these are shown in Figure 1. 
 
Figure 1 - Financial allocation on sectors of the NSRF 2007-2013 (mill. euro) 
Regrouping these fields on 3 
broader categories - basic 
infrastructure, human resources and 
productive investments, there can be 
idenified the following breakdown of 
structural and cohesion funds allocation 
(Figure 2). 
 
Figure 2 - Financial allocation on main fields (%)Year VII, No.7/2008                                                                                                      63 
Taking into account the same 
structure for distribution, the situation 
differs among Member States. 
The following figure shows the 
cases of some “old” and “new” Member 
States (Figure 3). 
 
Figure 3 - Financial allocation on main fields in some “old” and “new” Member 
States (%)
 
                     Spain                                                              Greece 
 
 
   
                              Poland                                                             Slovenia 
 
Two main trends can be 
distinguished: 
1. in “old” Member States there is 
a high weight of funds allocated to 
productive investments in the total 
allocation of structural and cohesion 
funds. In the majority of these states, this 
kind of investments overpass the ones in 
basic infrastructure; 
2. In “new” Member States, 
Romania herewith included, the largest 
share of funds is allocated to 
investments in infrastructure. 
We can not, however, speak about 
a model of optimum allocation of 
financial resources from structural and 
cohesion funds just because this 
structure and, consequently, their 
absorption, are much influenced by the 
national specific factors, which have 
been taken into account when drawing 
the NSRF and the operational 
programmes.  
The concept of absorption capacity 
 
The issue of absorption capacity 
is receiving increased attention from 
policy makers at EC level as well as from 
policy makers at national levels. 
Efficiency and minimizing the risks of 
shortfalls must be the decisive argument 
in choosing options for the management 
and implementation of Structural Funds. 
A general definition of absorption 
capacity  is “the extent to which a 
member state is able to fully spend in an 
effective and efficient way the allocated 
financial resources from the Structural 
Funds”. 
The absorption rate illustrates the 
absorption capacity and is defined as 
“the level of spending as a percentage of 
the total amount of Structural Funds 
available”. Achieving an absorption rate 
of 100% or close to this level means that 64                                                                          Finance – Challenges of the Future 
all funds that have been allocated to a 
country have been fully spent. 
Throughout the EU the threat of 
underspending  when implementing 
Structural Funds programmes is a 
common problem. Underspending arises 
from a situation where available and 
needed funds are not being fully used. 
This situation is commonly referred to as 
a lack of ‘absorption capacity’. 
In the above-mentioned context, 
there have been identified the drivers of 
and possible difficulties associated to the 
absorption capacity of a Member State 
and its regions, following the processes 
currently taking place in Romania. 
The purpose of the paper is to 
identify and analyze the drivers that 
optimize the use of the absorption 
capacity of structural funds as well as the 
main problems that affect the absorption 
capacity and full use of funds in certain 
regions and institutional environments. 
 
Main drivers of absorption capacity 
 
In general three main factors 
determine the absorption capacity at 
national level: 
• the amount of Structural Funds 
allocated – taking into account the 
overall allocation as well as the regional 
and sectoral breakdown into operational 
programmes included in the National 
Reference Strategic Framework 2007-
2013; 
• the managerial-administrative 
situation at both programme and project 
level; 
• the public and private co-
financing situation according to the levels 
negotiated between the European 
Commission and the Member State. 
In line with these main factors 
three more specific definitions of 
absorption capacity can be provided: 
1. The macroeconomic absorption 
capacity, which can be defined and 
measured in terms of GDP; 
2. The managerial-administrative 
absorption capacity which can be 
defined as the abilities and skills of 
central, regional and local authorities to 
prepare acceptable plans, programmes, 
and projects in due time, to decide on 
programmes and projects, to arrange the 
co-ordination among the principal 
partners, to cope with the vast amount of 
administrative and reporting paperwork 
required by the Commission, and to 
finance and supervise implementation 
properly, avoiding fraud as far as 
possible. 
3. The financial absorption 
capacity, which means the ability to co-
finance EU supported programmes and 
projects, to plan and guarantee these 
national contributions in multi-annual 
budgets, and to collect these 
contributions from several partners, 
interested in a programme or project. 
While the ability to co-finance is easily to 
be supported at government level, the 
private co-financing is more problematic 
as private beneficiaries find it more 
difficult to identify the financial resources 
that are necessary in order to cover the 
amounts required by several operational 
programmes. 
 
Bottlenecks affecting the absorption 
capacity of Member States and 
regions in the European Union 
 
The main obstacles and problems 
affecting the absorption processes in the 
Member States and regions that benefit 
from the structural funds can be 
classified according to the level where 
they occur. 
At national level, the main 
problems affecting optimal use of 
absorption capacity include: lack of 
stability of institutional, legal and political 
environment for regional development in 
general; limited availability of national co-
finance for regional development from 
the sectoral line ministries; unclear 
responsibilities for and involvement in 
regional development issues by sectoral 
line ministries; weak links between 
bottom-up regional development plans 
and top-down national development plan; 
annual national budgets might conflict 
with multi-annual planning framework for 
Structural Funds. Year VII, No.7/2008                                                                                                      65 
The analysis at regional level must 
take into account specific bottlenecks 
deriving from the particular institutional 
characteristics and regional economic 
specificities like: limited experience with 
implementing projects, in particular within 
a programme context; wide variety in 
history, background and experience of 
the regional intermediate bodies involved 
in the management of the structural 
funds; wide variety in the organization of 
the intermediate bodies (ownership 
structures, public versus private 
functions, number and functions of staff, 
financial situation); limited availability of 
skilled staff in the regions; unclear 
position of intermediate bodies in relation 
to other organizations in the field of 
regional development, in particular the 
local SME support centres/advisors 
within individual municipalities; expertise 
at regional and local level is scattered 
over different organizations and 
individuals; the degree to which regional 
intermediate bodies are supported by the 
municipalities, in particular by local 
politicians. 
The same algorithm applies at 
local level where the following aspects 
have been identified: weak financial 
situation of the local beneficiaries/limited 
local budgets for public co-financing 
available; intermediate bodies of the 
management authorities in charge with 
the structural funds are not yet 
recognized as partners for economic 
development by the final beneficiaries; 
lack of experience with regional 
development thinking within 
municipalities (“think local, act local” 
instead of “think regional, act local”); 
focus on projects with direct, visible, 
local, short term impact rather than 
projects with indirect, less visible, 
regional and medium term impact; lack of 
local private co-financing possibilities, 
lack of risk capital; lack of banking 
products and services dedicated to cover 
the amount of private co-financing 
necessary for the projects budgets. 
The following issues should be 
also taken into account and properly 
managed in the attempt of maximizing 
structural funds absorption: managing 
authorities often do not recognize their 
role in Implementation needs to be an 
active one, not a passive one; there is a 
cultural resistance to delegation of both 
responsibilities and rights/powers; 
avoidance of ‘blame’ leads to avoidance 
of taking decisions; fear of failure results 
in no risk-taking and so no risk 
management; lack of experience and 
lack of confidence builds into a 
reluctance to seek help; lack of 
partnership culture (little understanding 
of shared objectives), too much focus on 
differences and non-existent or weakly 
developed partnership structures; pre-
Accession ‘hangover’ – many of the 
proposed implementation processes are 
rooted unnecessarily and unhelpfully in 
the pre-accession thinking and are 
detrimental to effective Structural Funds 
delivery. 
 
Structural Funds absorption in 
Romania – some recommendations 
 
Romania finds itself at the 
beginning of the second year of the 
programming interval with almost no 
money spent from the structural funds. 
One could assess that the main 
elements determining this situation 
include: 
- the delays in elaborating the 
operational programme by the 
management authorities from various 
ministries and in incorporating the 
feedback from the European 
Commission; these delays have been 
mainly due to the persistence of the 
approach used for the implementation of 
the pre-accession instruments for which 
the strategic planning has been 
designed, to a large extent, by the 
European Commission, not by the 
Romanian Government; 
- the delays in building a functional 
network of intermediate bodies and 
regional units in order to ensure the 
proper implementation of projects at 
grass-root level; 66                                                                          Finance – Challenges of the Future 
- the weak project management 
culture for both the public and private 
bodies; 
- the weak involvement of public 
authorities in capacity building for 
potential beneficiaries; 
-the reticence of certain 
beneficiaries vis-à-vis the low level of 
pre-financing offered by the structural 
funds and the high level of required co-
financing; 
- delays in elaborating the list of 
eligible costs and the payment and 
reimbursement procedures; 
- certain misunderstandings 
between the existing and the new bodies 
involved in the management of the 
structural funds and an insufficient level 
of training and qualification for the staff of 
certain intermediate bodies. 
Fortunately, for the few axes for 
which calls for proposals have been 
launched, there has been a satisfactory 
number and quality level of applications 
so there is a good starting point to 
envisage a good level of absorption for 
the remaining years of the programming 
interval. 
 
 
 
 
 
Bradley, J. 
Morgenroth, E. 
A Study of the Macro-Economic Impact of the Reform of EU Cohesion 
Policy, 2004, Ireland. 
Gherghinescu, O. 
Rinderu, P. 
Neagoe-Bacanu, D. 
Management of Structural Funds Projects, Universitaria Publishing 
House, 2008, Craiova. 
European 
Commision 
Fourth progress report on cohesion – The Growth and Jobs Strategy 
and the Reform of European cohesion policy, 2006, Brussels. 
Romanian 
Government 
National Development Plan 2007-2013; 
National Strategic Reference Framework 2007-2013. 
 
 
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Considerations on potential determinants of structural and cohesion funds absorption

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