Since the onset of the 2008 crisis, it has become clear that European Union Cohesion policy has failed to reach its main objective of reducing disparities between the levels of development of the various regions. Economic cohesion has deteriorated as income convergence has given way to economic polarisation between the north-western core and the southern and eastern periphery. Social cohesion is undermined by skyrocketing unemployment and growing income inequality. And in terms of territorial cohesion, the trend towards divergence of per capita gross domestic product at the regional level has continued. This lack of convergence must primarily be attributed to policy incoherence, with monetary, fiscal, exchange rate, financial and trade policies frequently operating at cross-purposes, thus swamping any positive effects Cohesion policy may have had. As a result, Cohesion policy suffers from the micro_macro paradox so typical of development aid policies, in which a high percentage of successfully completed projects proves very compatible with the macro-level absence of convergence. The immediate reason for the exacerbation of regional divergence is the decision by the creditor countries and the European Central Bank to eschew default and debt restructuring and to ensure continued debt service through means of harsh austerity,with strongly negative effects on economic and social cohesion. But the failure to sustain regional convergence has deeper roots. The creation of the common currency, in combination with a single market in financial services, create massive macroeconomic imbalances alongside an almost permanent real revaluation of many peripheral countries. Moreover, the European approach to transition has pushed much of Eastern Europe into the role of manufacturing low to mid-tech goods for the core countries, thus springing a middle-income trap.