Cohesion policy may be described as s a part of redistribution policies according to Margrave’s typology of the goals of public expenditure. The main aim of redistribution is to promote equality or in other words to reduce inequality among different subjects, i.e. the reduction of disparities between different regions and social groups in the EU.

As far as the EU budget is created due to a balanced-budget principle, that means revenue must equal or exceed expenditure, it is necessary to be able to promote already mentioned equality within EU – referring to Article 2 of the Treaty on European Union, which consists of objectives of the European Union, e. g. promoting economic and social progress, a high level of employment, achieving balanced and sustainable development, through the strengthening of economic and social cohesion and to Article 158 of the Treaty establishing the European Community, which reads as following: …strengthening of its economic and social cohesion – but within the budgetary framework taking into account for instance coming enlargement, growing discontent of netto payers.
The cohesion policy is along with the CAP one of the two main expenditure categories. In the period of time between 1988 and 1999 the expenditure on the cohesion policy increased from under 20 per cent of the EU budget to over 35 per cent. Together with the CAP it comprises cca. 81 per cent of the expenditures of the EU budget.

For the abovementioned goals the EU might use following funds:

The European Regional Development Fund – accounted for 49 per cent of the 1994-99 cohesion budget

The European Social Fund – accounted for 30 per cent of the 1994-99 cohesion budget

The Guidance Section of the European Agricultural Guidance and Guarantee Fund – accounted for 180 per cent of the 1994-99 cohesion budget

The Financial Instrument for Fisheries – accounted for 3 per cent of the 1994-99 cohesion budget

In 1999 reform has increased the concentration of assistance and therefore introduced a new system of priority objectives:

Objective 1 promotes the development and structural adjustment of regions whose development is lagging behind, i.e. whose average per capita GDP is below 75% of the European Union average.

The new Objective also covers the most remote regions (the French overseas departments, the Azores, Madeira and the Canary Islands) as well as the areas eligible under the former Objective 6 created pursuant to the Act of Accession of Austria, Finland and Sweden. As was previously the case, two thirds of the Structural Fund operations come under

Objective 1. Almost 20% of the Union's total population should benefit from the measures taken under this Objective;

Objective 2 contributes to the economic and social conversion of regions in structural difficulties other than those eligible for the new Objective 1. This Objective brings together the former Objectives 2 and 5(b) and other areas facing the need for economic diversification: overall it will cover areas undergoing economic change, declining rural areas, depressed areas dependent on fisheries and urban areas in difficulty. No more than 18% of the Union's population will be covered by this Objective;

Objective 3 gathers together all the measures for human resource development outside the regions eligible for Objective 1. This Objective carries over the former Objectives 3 and 4. It is the reference framework for all the measures taken under the new Title on employment in the Treaty of Amsterdam and under the European Employment Strategy

In addition to the expenditure under these objectives, the Commission has set up separate “Community Initiatives”, which are also funded by the structural funds. E. G. to stimulate cross-border, trans-national and inter-regional cooperation; to promote rural development through the initiatives of local action groups; to provide for the development of new ways of combating all forms of discrimination and inequality as regards access to the labour market; to encourages the economic and social regeneration of towns, cities and suburbs in crisis. In addition to the structural funds, there was established a Cohesion Fund in 1994. Two types of projects are supported by the fund: environmental protection, and transport and other infrastructure networks.

Through cohesion policy, there are significant fiscal transfers through the EU budget from taxpayers in the wealthier regions of the EU (in Belgium, the Netherlands, Luxemburg, Austria, northern Italy, the Paris basin, southern Germany, the south of England and southern Scandinavia) to the four cohesion states (Ireland, Portugal, Greece and Spain) and the poorer regions in the wealthier states (particularly Southern Italy and Eastern Germany).

However it has to be mentioned, that not only the poor ones get the aid from the funds, in fact every EU member state receives resources from cohesion policy budget.

The total appropriation for the Structural Funds and the Cohesion Fund stands at EURO 213 billion.

Challenges for the future

In Commission’s opinion fundamental structural reform is not an option, but a necessity. There is a need to improve aid strategies and budget allocations to ensure that they reflect the needs of the beneficiaries and priorities. This must remain a core task of the Commission administration. The Union's enlargement will raise very serious problems for economic and social cohesion, given the considerable development lag in their regions compared to the current 15 Member States. Enlargement will increase the Union's diversity, posing some problems of adjustment for both regions and sectors; this will require adequate preparation. After accession, the Structural Funds programmes and the Cohesion Fund projects will replace pre-accession assistance, due regard being taken to each country's capacity to absorb this funding.

2002 will be an important year in terms of the preparation for accession, including the designation of appropriate structures by the candidate countries to implement the Structural Funds. In conformity with the established road map to accession, the most advanced candidate countries are to submit their first draft development plan, which will be analysed by and discussed with the Commission. The DG Regional Policy will also take the lead in drafting further guidance for the candidate countries with respect to their Structural Funds programmes. The participation of candidate countries in Interreg programmes is a first realistic experience and more attention will be given to their internal cross-border programmes.

Cohesion policy should continue to target the least developed regions after enlargement. While a number of alternative ways for identifying these regions has been put forward, there does not seem to a viable alternative synthetic indicator to that of GDP per head, as currently used for Objective 1.

While the need to target aid on the regions in the candidate countries is generally uncontested, the Objective 1 regions in the existing fifteen Member States - that would otherwise lose their priority status as their relative prosperity increases in an enlarged EU - should not experience a cut-off of aid, especially where this is due to the statistical effect of enlargement.

Another challenge with regard to the reform of structural policy is between, on the one hand, the national and regional authorities who typically wish to reduce the administrative overhead involved in managing European interventions, and, on the other hand, European institutions such as the Council, the Parliament, and the European Court of Auditors that seek a reinforcement of controls on the use of European taxpayers’ money. Meanwhile, the Commission is convinced that question of the simplification of European programmes merits additional examination, in an effort to identify mechanisms capable of reconciling the further decentralisation of responsibilities with greater incentives towards efficiency and sound management.

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Cohesion policy and its main challenges for the future of the European Union