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Economic development – investing in the just transition

Long-term investment, skills for the green transition, and innovation are key to ensuring that our cities have the economic and human resources to deliver on ambitious local and European initiatives. As change-makers and hubs of innovation, cities are the places where these developments happen, but more engagement, funding and flexibility from the EU will be vital to boost local initiatives.

Long-term investment, skills for the green transition, and innovation are key to ensuring that our cities have the economic and human resources to deliver on ambitious local and European initiatives. As change-makers and hubs of innovation, cities are the places where these developments happen, but more engagement, funding and flexibility from the EU will be vital to boost local initiatives.

How can EU rules promote local investments?
Cities make proposals

As highlighted in the results of the Eurocities Pulse Mayors Survey 2023, the economic recovery represented both one of the top three challenges for mayors in 2022, and a top three priority for 2023 – with climate action being the top priority overall. When city governments have the opportunity to leverage funds to further Europe’s transition towards climate neutrality while promoting social cohesion and justice, they move in a bold and effective manner. Cities are not only the place where most people live, but also the site where most impact can be made with the right investments.

However, research shows that there is an enormous gap between the funds at cities’ disposal and the investments required to meet local and European goals for inclusive sustainability. The European Investment Bank found that 70% of cities lacked the resources for necessary investments in social, digital and climate infrastructure. This is further supported by the results of the Eurocities Pulse Mayors Survey, which shows that while these three areas are among the top four areas, along with sustainable mobility (second), in which mayors believe EU funding can make the biggest impact, they are also areas where mayors do not anticipate having enough resources in the next five years – with roughly one third of all respondents saying this is the case for climate change and energy transition, and for fighting urban poverty and social exclusion.

In fact, the level of long-term investment available to cities has been decreasing for more than a decade, a trajectory that continued in 2022. Local governments are enthusiastic to turn the tide, and have outlined several proposals for European policy makers that could successfully enable economically and environmentally sustainable investment.

As Ben Rogers points out in his guest essay for this publication, cities predate national governments by hundreds, sometimes thousands of years. This could be the reason that cities tend to be better at taking a long-term view, and consistently advocate for investing in our shared future. Despite many great initiatives conceived and put in place, long-term investment in sustainable and social infrastructure is often blocked by lack of access to finance. Eurocities has thus argued for more flexible spending rules and better access to funds, highlighting documented investment gaps that stand between Europe and its Green Deal goals.

Underpinning everything is long-term, sustainable economic growth.

– Juhana Vartiainen Mayor of Helsinki

Eurocities has recommended that more money from Europe should go directly to local projects on sustainable development and social and economic transition. They suggest that finding more direct routes to fund cities is the best way to ensure that European funds effectively solve the issues for which they were intended.

This can be done by combining existing funds and redirecting unused money from the EU’s post-covid recovery funding. The EU Mission for 100 Climate Neutral and Smart Cities by 2030, launched in 2022, could serve as a model for more direct and expansive collaboration between cities and the European Commission.

Cities also need more help from Europe to encourage private investors to back things like green energy, digital technology, and social infrastructure projects. This can be done through tools like bonds, mutual investment programmes, and investment platforms. Cities often flex their funding muscles by making small initial investments in underfunded fields to attract private finance, or by guaranteeing bank loans for sustainable projects. However, to continue serving this important role, they also need more financial flexibility.

The European rules around debt and macroeconomic governance, such as the Stability and Growth Pact, should therefore be changed so that local communities have more fiscal leeway to make long term investments that help with environmental and social changes.

The European Commission’s proposed redesign of the pact includes a mechanism for member states to obtain more financial flexibility if they complete national investment plans, along the same model as was required for the EU’s Recovery and Resilience Funds after the pandemic.

As the place where these plans will be implemented, cities are demanding a greater involvement in the plans’ development. At a minimum, the EU should ensure that national plans are in line with the core European goals of the just and green transition, which cities are already working hard to realise, despite some national-level divergence.

With all the money, all the resources we use, we have the big goal of making our cities more sustainable. We are taking care of our residents not only by investing in infrastructure and energy, but also cohesion and wellbeing.

– Mina Arve, Mayor of Turku

Stability and Growth Pact

The European Union is set to revise its fiscal and economic framework, with a shift in focus from fiscal discipline to sustainable growth through strategic investment. This is a timely shift, as Europe faces an investment gap of up to €150bn in social infrastructure, including healthcare, education and affordable housing.

Two-thirds of government investment in the EU is carried out by sub-national governments, yet the EU still lacks serious requirements for the expertise of local government to be engaged when deciding how investment is prioritised or budgetary cuts are made by member states.

Eurocities has welcomed the proposed shift in the EU’s economic framework but argue that it does not go far enough. While the plans include a net expenditure rule focusing on the medium term and new national plans to ensure debt is brought into a sustainable path within four years, mayors argue that these plans do not involve all relevant public investors and are not properly targeted towards the EU’s climate and digital goals.

Cities would like to see a more intelligent and targeted approach that is coordinated through all levels of government: local, national and European. Specifically, cities have asked to see long-term investment in a fair green transition excluded from debt calculations. This would mean that such investments would not be limited by EU regulations in the same way that other kinds of debt are.

Innovation in cities

Cities play a crucial role in innovation. However, the New European Innovation Agenda does not acknowledge the breadth of this role. The agenda has five flagships: funding for scale ups; enabling innovation; accelerating and strengthening innovation; fostering, attracting and retaining talent; and improving policy making. The role of cities is only acknowledged in that final flagship, but their involvement in all these areas is great.

For example, testbeds, small areas where innovations are designed and implemented with a view to a potential broader application, are frequently employed by cities to foster innovation. For testbeds, cities design the legislative or regulatory framework that allows them to flower, but they also deliver practical support. They establish connections between companies, academia, civil society and other actors, and they also often provide funding for the early stages of innovation. This funding is essential for small businesses to try out new solutions in the wild.

In Aix Marseille Provence Metropolitan Area, for example, the city has its own accelerator which it uses to help entrepreneurs develop business plans and understand the local market and regulatory environment. The city also puts entrepreneurs and small businesses in touch with potential investors and clients, and helps to fund their initial endeavours.

At the same time, Aix Marseille links this activity with the research of the local university, and facilitates exchange between the many other accelerators, incubators and public and private bodies engaged in fostering innovation.

Cities also get involved in developing new skills, putting populations and businesses in contact with each other to reskill and upskill to meet market needs, and attract foreign talent. In Helsinki, the city is anticipating future needs of the architecture and construction industries by helping educators design curriculums that include innovative sustainable materials and building practices. Utrecht is working hard on attracting and retaining talent by implementing a programme to find meaningful employment for their spouses, who are themselves often skilled professionals.

As active enablers of innovation through funding, connecting players, helping with skills development, and innovating directly themselves, cities do much more than just set generic policy frameworks in which innovation happens. They are also vital in guiding the forces of innovation towards pressing issues like climate change, sustainability, and creating just and inclusive societies. The New European Innovation Agenda must acknowledge this.

We have put a great emphasis on systematic work on talent attraction and skills development. 40-60% of investors decision about where to base themselves is based on talent availability. This is the priority.

– Linda Ozola, Deputy Mayor of Riga

EU driven city recovery plans

The EU made historic levels of funding available for the post-covid recovery. Recognising the essential role of local governments in recovery, the Commission mandated that cities should be consulted in the creation of the National Recovery and Resilience Plans. Unfortunately, despite some impressive cooperation, for example between the Italian national government and its cities, over 63% of cities surveyed by Eurocities evaluated the process put in place by their government to consult cities as insufficient, with only 5% evaluating it as ‘good.’

According to results collected by Eurocities, in their submissions last year to the national recovery plans, 79% of cities proposed projects on public transport services, 53% included projects on renovation, and 47% wanted to go forward with the digitalisation of education and public services.

In Florence, for example, initial funding was quickly channelled into creating four new schools, built with sustainability in mind. The schools will incorporate design ideas such as natural lighting and better ventilation, rainwater recovery and a green system to protect against smog, high temperatures and noise.

The early lockdowns gave a strong impetus to further develop ideas such as the ‘15-minute city,’ which is being championed by the likes of Paris. Milan, for example, has mapped access to essential services, especially healthcare, and is taking steps to ensure that citizens can access this within a 15-minute walk of their place of residence.

Amsterdam is focussing on the ‘doughnut model’ for its post-Covid recovery. This idea, developed by economist Kate Raworth, holds that the principle of economic activity is to meet the core needs of all people, while staying within the environmental boundaries of the planet. This especially concerns resource use, and, Amsterdam, already a champion of the circular economy, aims to become fully circular by 2050.

Overall, the Recovery and Resilience Plans were a missed opportunity to engage cities, and therefore to advance collaborative efforts towards the twin digital and sustainable just transitions. Nonetheless, the new national investment plans proposed as part of the redesigned Stability and Growth Pact may be an opportunity to learn from previous mistakes.

There are issues about capacity in cities, especially in the smaller-sized ones. One message that I would like to send the European Commission’s Recovery and Resilience Fund taskforce is that municipalities need capacity to develop and manage projects.

– Anna Lisa Boni, Deputy Mayor of Bologna


What would a recovery from the Covid-19 pandemic look like if cities received the funding to put their visions in place? Eurocities’ #MoreThanRecovery campaign highlighted the work of cities to build back better.

Espoo has launched a recovery programme called Restart Espoo, which uses open-source data and AI to foster business growth, promote sustainability, and identify impactful local actions in areas such as social and environmental development.

Bologna plans to spend the €3.2 billion in European Union recovery funds that it is set to receive on sustainable mobility, regenerating public areas and public infrastructure, modernising and expanding school infrastructure, and fostering social and economic development.

Riga aims to reduce pollution and encourage people to use public transport as part of its climate change strategy, with €150 million secured from the European Union’s Recovery and Resilience Fund to improve its transport infrastructure, establish a low-emission zone, and attract private investors to fund future projects.

Gaining access to the recovery funds will help ensure the long-term success of these city-driven projects. On a broader scale, capitalising on the natural cooperation between cities could be beneficial for developing pan-European projects – the legislation that set out the National Resilience and Recovery Plans gave seven flagship challenges on areas such as digitalisation and energy efficiency, and encourages cross-border cooperation to meet them. At city level, including through networks like Eurocities, there are existing trans-national relationships that could be levied for this purpose.

Harri Paananen. Director, Economic Development at the City of Espoo