On January 1, 2018, Hungary split the region of Central Hungary, or Közép-Magyarország in Hungarian, into two new regions: the Budapest region (containing the capital of the same name) and the surrounding region of Pest.

EU Regions in Hungary, as of 31 December 2017

EU Regions in Hungary, as of 1 January 2018

This decision was made to increase the amount of funding received from the European Union, which dedicates a third of its budget (50 billion euros) to less economically developed regions for investments in infrastructure, such as schools and hospitals. Yet when regions improve economically, they no longer qualify for the same amount of funding. As a type of statistical gerrymandering, governors of these regions—like in Hungary—have redrawn their borders in order to keep the money flowing.

Why Budapest, Warsaw, and Lithuania split themselves in two

By Maarten Lambrechts

To understand why regions changed their borders, we first need to walk through how the European Union calculates wealth distribution.

If you’re familiar with the geography and economics of Europe, you might know that the more economically developed countries are situated in western and northern Europe. On the map, more developed countries are shaded in green and less developed countries are in shades of pink, denoting each country’s GDP. Each color corresponds to a threshold set by the EU, which we’ll explain in subsequent sections.

One of the European Union’s policies is to create more “cohesion,” which is jargon for economically catching up less economically developed regions to the developed ones. An easy solution would have been to funnel EU funding from developed countries to less developed ones, but even wealthy countries have less wealthy regions. Let’s see how development changes when we examine the 281 regions of the EU instead of looking at just the 28 countries on their own.

Notice the sub-country divisions: Italy (developed north, less developed south), Belgium (the same) and Germany (developed west, less developed east). There are also islands of development in regions containing country capitals (denoted by a black circle = • ): (Spain, France, UK, Poland, Romania, and Slovakia.

This regional breakdown is what the EU uses to distribute its “catch-up funds,” which is used to fund a subset of a country’s projects in transportation infrastructure, schools, and hospitals, as well as development of small firms, investments in a low-carbon economy, environmental projects, and training and education. The least developed regions get a bigger share of the 50 billion euros distributed annually and, as a result, have to cofund less of total project costs. More developed regions receive less money and pay more toward project costs. Yet how does the EU decide whether a region is less developed? Where are the lines drawn?

To better understand this, we turn the map into a chart. On the chart, every

represents a region
represents a country average
a region containing the country capital

The regions are ordered from left to right by their GDP.

A score of 100 represents the average GDP across all regions in the EU. A region with a score of 90 has a GDP that’s 90% of the EU average.

The region of Inner London-West is an outlier: its GDP is more than 600% of the EU average and, consequently, receives little in EU catch-up funds. Let’s zoom in so we can see more details for the other regions.

The range of regional economic development is quite high for many countries, and regions containing the country’s capital ⦿ are much more developed than others.

The 5 colors used on this chart (as well as the preceding maps) all correspond to EU funding thresholds. Regions with a GDP lower than 75% of the EU average are considered "less developed" and receive a higher allotment of the catch-up funds. In these regions, the EU pays 85% of all development project costs. Regions with a GDP between 75% and 90% have 60% of their project costs paid for by the EU. Other regions (between 90% and 100%, between 100% and 110%, between 110 and 125% or above 125% of the average) pay half of the project costs themselves.

Suppose you are the governor of a less developed region, and the EU has been funding 85% of your project costs. Also suppose your region is developing economically and increasing its GDP, and is now on the brink of receiving less EU funds. The math dictating how EU funds are distributed is not working in your favor.

What if you could split your region in two: one with a higher GDP and one that’s lower, with the latter now eligible for EU catch-up funds? The more developed part of your region was lifting up the GDP to such an extent that the that the region, as a whole, was excluded from the full benefits of EU catch-up funds.

Let's return to Hungary. The capital, Budapest, was lifting the surrounding area of Pest out of the "less developed region" category (< 75% EU average GDP). As a result, the entire region was not eligible for 85% of project funding by the EU.

Hungary proposed to the EU that it split the region of Central Hungary into two separate regions: the developed capital Budapest, and the less developed surrounding region of Pest.

How Hungary split its capital region

EU Regions in Hungary, as of 31 December 2017

EU Regions in Hungary, as of 1 January 2018

A similar situation occurred in Lithuania, which consisted of a single region. In 2016, its GDP was exactly 75% of the EU average. If its economy were to grow, it would lose its status as less developed region and thuss lose full access to the catch-up funds.

Lithuania’s capital, Vilnius, is economically the most developed part of the country and is lifting the country’s GDP over the 75% threshold, jeopardizing the catch-up funds that would be allocated toward the less developed areas of the country. So, the Lithuanian government split the country into two EU regions, separating the richer capital from the rest of the country, maintaining its privileged access to catch-up funds.

How Lithuania split itself in two

EU Regions Lithuania, 31 December 2017

EU Regions Lithuania, 1 January 2018

Poland has done the same with its capital, Warsaw, which has now also been separated into its own region.

How Poland split its capital region

EU Regions Poland, 31 December 2017

EU Regions Poland, 1 January 2018

What does it mean to split up regions?

Every three years, the EU asks its members states if they want to revise the boundaries of their regions. Member states can propose changes, which the EU then checks against certain criteria:

Modified or new regions should be existing administrative units, or an aggregation of smaller existing administrative units (i.e., use existing geographies)
There shouldn’t be any gaps in the national territory
Every region should have a population between 800,000 and 3 million people

If these criteria are met, the European Commission can decide to approve the new region’s boundaries. But creating new regions comes at a cost: member states have to report a wide variety of statistics for every region within its borders. Not only do they have to report on the regional GDP, but also demographics, employment statistics, as well as education and poverty statistics. And this obligation is retroactive: after a new region is created, historically reported statistics data must be submitted to the EU within 2 years. Collection of this data is a large investment.

Large cities and their surrounding areas often operate differently on a socioeconomic level; collecting statistics and designing policy on each region separately makes sense. But it also means that the management of EU projects is delegated to less developed regions’ governments, which do not always have the capacity to manage large investments.

Splitting regions can be seen as creating less cohesion: one dot in the middle of the chart is replaced by new ones on the left and right. But it allows for the catch-up funds to be better targeted toward the areas that need them most.

Reforms

The EU catch-up funds are organized in a 7-year cycle, and the current funding period of 2014–2020 is nearing its end. The rules for allocating funds in the following period (2021–2027) are currently under discussion, and they will be decided on after the elections for the European Parliament in May 2019. One proposal is to not focus exclusively on a region’s GDP to determine its eligibility for funding and the rate at which the EU contributes such resources. GDP will remain the dominant factor, but to reflect other realities, statistics on education and youth unemployment will also be taken into account, as will policies on climate change and migration.

Of course, to assure that money actually flows to the areas that need these resources most, a more fine-grained geographical subdivision should be used: just as rich countries have less developed regions, rich regions have less developed areas that could benefit from public investment. But this would lead to problems with scaling: collecting statistics on smaller subdivisions would be costly, and managing the funds and projects could become very complicated. So the EU opted to require regions to have 800,000 to 3 million inhabitants. While this threshold has some arbitrariness to it, regions can amend their boundaries and even split up in order to bring the flow of the catch-up funds more in line with the situation on the ground.

Finally, another reform for the next funding cycle is to emphasize communication, which is expected to help improve the visibility of the impact these funds make within communities.

Methods

The GDP numbers used by the EU to categorize regions are per capita and corrected for purchasing power. This means that a region’s GDP is divided by the number of inhabitants of the region and is then corrected for the cost of living in each region. In this way, regions with low wages but low cost of living can be better compared to regions were wages are high, but where it is more expensive to live. In the last step of the calculation, the EU average is set to 100 and all regional GDP numbers are made relative to the EU average.

The numbers used throughout this article are the 2017 regional GDP numbers (published in February 2019). For the regions that where split up, and for the maps showing the regions before the splitting of regions, the 2016 GDP numbers were used.

EU regions boundaries before (NUTS2013) and after (NUTS2016) splitting are published on the Eurostat website. All the data analysis files can also be found here.