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30/08/2016

Regional policy in the EU: A midterm healthcheck

Regional Policy

Regional policy in the EU: A midterm healthcheck

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EU regional policy is designed to level out economic and social disparities in the 27 member states. At the halfway point of its current regional budgetary period (2007-2013), the European Commission conducted a review assessing how well each EU country is faring in its use of cohesion funds.

Background

Regional policy, or cohesion policy, for the 2007-2013 period accounts for approximately a third (35.7%) of the total EU budget.  A full list of EU regions and their respective funding eligibility is available here.

The majority of regional funds go to so-called Objective 1 regions, i.e. those whose gross domestic product (GDP) is below 75% of the EU average. According to the European Commission, "Objective 1 of the Structural Funds is the main priority of the European Union's cohesion policy".

With the accession of ten new member states in 2004 , most beneficiaries of Objective 1 status are now located in Central and Eastern Europe (see table: Breakdown of Community aid to the new member states 2004-2006). 

For the current regional programming period, the European Commission proposed a new legislative package in order to concentrate structural and cohesion fund spending on Lisbon (innovation, growth and jobs) and Gothenburg (sustainable development) goals.

Now, halfway through the current budgetary period which ends in 2013, the Commission has conducted a mid-term review of the current policy, assessing EU member states country-by-country to analyse how well they are succeeding in using cohesion funds (EurActiv 01/04/10).

Click here for the latest news on European Regional Policy from EurActiv.

Issues

The report, launched by EU Regional Policy Commissioner Johannes Hahn and Employment Commissioner László Andor in March 2010, assesses for the first time the rate of progress of each EU member state in delivering agreed EU objectives.

These goals include not only the so-called "absorption rate" of member states – i.e. how much of their total funds they have used, and how quickly they have used them – but also how well they have used the funds to achieve specific EU targets beyond the traditional cohesion mandate of improving infrastructure such as roads and railways. These "earmarked" funds are targeted for strategic objectives such as the push to increase innovation, promote green technologies or create new jobs.

On average across the EU, more than 27% of funding for the 2007-2013 period has already been allocated to specific projects - amounting to a total investment of more than €93 billion so far.

Name and shame?

Commissioners Hahn and Andor maintained a jovial tone when launching the strategic report in March 2010, repeatedly emphasising the positives in different countries.

However, officials told EurActiv that there was an element of "name and shame" in the country-by-country comparison, particularly for those countries that fell below the average absorption rate of 27%.

Don't read too much into statistics, warns Commission

In addition, officials have been at pains to point out that while the report did provide a "useful" comparative snapshot, the data should not be viewed as infallible. 

"Caution should be exercised when making direct comparisons between member states, because although the Commission requested data corresponding to how the situation stood on 30 September 2009, some countries chose to send data extracted on other dates," a communication explained.

Differences of several months could influence the volume of allocations made to a particular sector (see Czech Republic below), while "concepts and practices of project selection also vary between member states, with particular regional and national procedures playing an important role in selection," they added.

Country by country

A number of countries, from a near-even mix of the 'old' EU 15 and post-enlargement 'new' EU 12, had particularly high rates of absorption. According to Commission sources, this tends to be the case in countries that have the most effective structures in place.

For example, nine of the EU 15 had higher than average rates: Belgium (61.1%), Denmark (30%) Finland (31.7%),  Ireland (51.8%), Italy (38%), The Netherlands (55.8%), Portugal (38%), Sweden (48.5%) and the UK (35,2%).

Meanwhile, from the new EU 12, seven countries - Cyprus (42.3%), Estonia (52.3%), Hungary (46.3%), Lithuania (35.4%), Latvia (36.9%),  Malta (48.7%) and Slovenia (42.2%) - were ahead of the curve.

For the purposes of understanding the challenges involved in using EU funds, this dossier will focus on the countries which had lower than average rates, and analyse why this was the case, starting with EurActiv network countries.

Czech Republic: Too much focus on infrastructure

According to EurActiv.cz, the country's managing authority for EU regional funds - the Ministry for Regional Development - as well as experts dispute the undertone of the statistics, which indicate that the Czech absorption rate (21%) is below the EU average.

Officials complained that the numbers were compiled in September 2009 and the country’s performance had improved significantly since then.

The performance of Czech operational programmes in allocating money to projects saw a dramatic improvement in late 2009. By the beginning of 2009, Czech authorities had only been able to allocate 2.2 billion Czech koruna (CZK), approximately 84.6 million euro.

However, by February 2010 the total amount had reached 106.8 billion CZK, equivalent to some 4.11 billion euro.

EurActiv.cz reports that this significant jump was in large part due to the new caretaker government led by Jan Fischer, which made more effective use of EU funding one of its main priorities of upon taking office in May 2009.

Since then, the government has adopted many measures aimed at accelerating access to EU funding, such as removing various legal and administrative obstacles, and improving cooperation and exchange of best practices among managing authorities of individual operational programmes.

Commenting on the Czech situation, Peter Zahradník from the EU funding department of ?eská spo?itelna bank said Czech operational programmes were not overly focused on fulfilling Lisbon Strategy goals, but rather on funding infrastructure projects aimed at catching up with more developed EU regions.

This could prove to be a problem in the future, the expert warns. He argued that in the post-2013 period, cohesion policy "will not tolerate" funding which focuses solely on large infrastructure projects and neglects the strategic use of funds to achieve EU goals.

He believes that at the moment, Czechs "do not get the idea of the Lisbon goals" and authors of individual projects tend to prefer tangible investments in buildings or machinery above those in technology transfer, innovation, or lifelong learning. "This could become our handicap in the future," Zahradník concluded.

France: 'Learning delay' in shifting priorities

EurActiv France reported that despite delays at the beginning of the 2007-2013 programming period, France performed "generally well" in its use of EU funds.

France's use of funds rate (26%) was slightly below the EU average, but this was attributed to a number of factors by DATAR, the interministerial delegation responsible for various regional issues.

Firstly, the economic crisis was seen as a factor, because SMEs – the primary target group for this round of funding – were struggling financially and lacked the resources to put together projects.

Also, due to the earmarking of a chunk of the funds for Lisbon Strategy targets, there was a "learning delay" for managing authorities.

Hungary: Regional disparities persist

According to EurActiv Hungary, at the 2010 half-way juncture the country appears to be well ahead of the curve with an absorption rate of 47%.

However, Péter Oravecz, spokesperson for the National Development Agency in Hungary, cautioned that for new member states, the true picture for the 2007-13 financial programming period will only emerge in 2015, because the new countries have two years after 2013 to use all the committed money.

Although the European Commission report emphasises that absorption rates have been slowed down by the global crisis, Péter Oravecz stressed that the "tendering spirit was not halted by the recession" in Hungary. This statement is underlined in the Commission report by the data concerning Hungary. A communication (1 April 2010) from the National Development Agency calls this achievement "outstanding among other member states with similar funds at their disposal".

Regional disparities in terms of GDP, however, have not decreased since the beginning of the decade and the dominance of Budapest has not been affected, says the National Strategy Report (NSR). 

Romania: Still lagging behind

Romania is lagging behind and the country is second-to-bottom among EU countries when it comes to allocating sums for selected projects, with a rate of 14%, EurActiv Romania reported. Only Greece had a lower absorption rate.

Like most "new" EU countries receiving cohesion funds, Romania mostly selected projects that finance road transport, leaving out rail transport.

In terms of projects selected in the field of energy, Romania is in the group of countries with major delays or no visible progress. Romania is also lagging behind badly when it comes to risk prevention investments in the field of the environment.

According to the Commission, problems persist with regard to the capacity of Romanian managing structures. Accessing European funds is still too complicated, meaning that not enough applications come to the table.

Another challenge is the lack of financial resources for public and private co-financing investment, in particular in the transport sector. Public/private joint ventures are seen as crucial to the development of laggard regions.

Bulgaria: Mixed results

Bulgaria's experience with EU regional funds is seen as a mixed bag, with some good work intermingled with endemic corruption and misappropriation of Brussels money.

The Commission stressed that despite a low absorption rate of 20%, there were many positive aspects to the country's experience, such as the Bulgarian government and administration's "considerable efforts" to develop effective management and control systems for EU funds.

A number of actions have been taken to simplify procedures and enhance public awareness. Some results are encouraging: with a 30% contracting rate, the Bulgarian regional development programme has been the best performing ERDF Operational Programme.

However, the administrative capacity of the Bulgarian authorities still needs to be strengthened, said the EU executive. Concerns persist related to the lack of progress in certain areas, particularly transport – where there are excessively short project pipelines - and environment projects, and an absence of strategic focus among calls for proposals leaves room for improvement.

Germany: On track but time to speed up

Despite Germany's comparatively low rate of absorption (19.3%), the Commission believes the country is very well positioned to achieve its strategic objectives. The EU programmes in question complement and reinforce all relevant national initiatives, and are broadly in line with overarching EU strategies such as the Lisbon Strategy, the European Strategy for Sustainable Development (Gothenburg Strategy) and the European Employment Strategy.

The low rate is attributed to the slow progress of some managing authorities, who "need to speed up implementation on the ground". The visibility of some programmes for citizens or potential beneficiaries is another area for further improvement, the EU executive said.

Greece: Hampered by national co-financing

Greece's progress is "very limited", according to the Commission. Only €2.4 billion (11.9%) of the country's total allocation of €20 billion had been allocated to projects by November 2009.

Greece's dire public finances are largely to blame. Insufficient liquidity, which manifested itself in public finances as early as mid-2008, has hampered national co-financing.

Delays have been compounded by other problems such as the relatively long amounts of time needed to develop infrastructural projects. Results indicate a higher degree overall in the take-up for the ERDF. Activation of European Social Fund and cohesion funding has been substantially lower.

The new socialist government, in place since October 2009, has announced the revision of existing structures and procedures and the simplification of the country's management and control systems.

Poland: EU funds helping to cope with crisis

As the EU's overwhelmingly largest recipient of EU regional funds – the country will receive 67 billion euro in the 2007-2013 period, with Spain next in line at 35 billion - Poland is being watched closely.

Poland's regional development minister claimed in February 2010 that Poland's use of EU funding had been the most efficient of all new member states (EurActiv 01/03/10).

While the European Commission did not quite go this far, officials did indicate that the "stable flow of cohesion policy investment has been highlighted as a critical factor in helping Poland cope successfully with the economic crisis".

The country's relatively low absorption rate (19.4%) was not viewed as a major issue, and was again blamed on the timing of the measurement. At time of writing, the rate has already jumped to over 31%.

The sources cautioned that there is nonetheless a need to accelerate the implementation of major infrastructure projects which constitute the bulk of cohesion policy funding in Poland. Progress also needs to be stepped up in the rail sector, energy, ICT and on support for measures to promote integration of excluded groups in the labour market.

Asked whether Poland could lose large chunks of its vast 67 billion euro allocation for the 2007-2013 period if it did not sufficiently speed up its take-up rate, Johannes Hahn replied that "you still have time, but not a lot of it" to play catch-up.

Slovakia: Many good practices

Similarly to Poland, the Commission considers Slovakia's low absorption rate (18.6%) to be more a question of statistical timing than evidence of any real structural flaws.

"The relatively limited progress in implementation by the cut-off point for the report reflects the fact that the initial years [of the 2007-2013 period] were dedicated to the preparation of institutions and systems," officials said.

They praised a plethora of good practices currently in place in Slovakia, ranging from key advances in areas such as infrastructure and regional accessibility, to active take-up of funds to support improving access to employment, and "notable progress" towards Lisbon earmarking targets such as support for R&D, SMEs and energy efficiency.

All that is lacking, they argued, is a little urgency to speed up the absorption rate.

Positions

"Policy evaluation is a topic of growing importance for cohesion policy," said Dirk Ahner, director-general at the European Commission's regional policy department, at a Brussels event launching a report which evaluated regional funding in the previous budget period (2000-2006).

"Speaking to managing authorities and project managers shows that methods used for the delivery of cohesion policy are feeding into the ways domestic policies are run - monitoring, evaluation, multi-year planning all hone practices that can be used elsewhere. Cohesion Policy is bringing new forms of legislation and methods of implementation into the administrations of regions, towns and villages across Europe," he added.

EU Regional Policy Commissioner Johannes Hahn said: "This report is a new feature for cohesion policy. It puts into practice our ambition to establish a robust system for the delivery of structural fund investments during the programming period. The global economic crisis has obviously had an impact upon implementation. However, the overall picture is positive. It shows cohesion policy is successful in investing in regions." 

"Delivery of the agreed strategies is being put in place at a good pace, with progress in key sectors such as Research & Development and innovation particularly encouraging. Member states now have to move forward and improve the implementation of programmes," Hahn said.

Commissioner for Employment, Social Affairs and Inclusion László Andor argued that the mid-term review offered a generally positive assessment of regional’s policy ability to create jobs amidst the economic crisis. "The training and up-skilling offered by the European Social Fund to people looking for work is progressing and bearing fruit. But more can be done to help those hit hardest by the downturn. Member states need to step up investments, especially in the area of social inclusion and institutional capacity building so that they can run programmes effectively," he said.

He added: "The crisis has proven the relevance and value of the European Social Fund when we see that the measures most resorted to have been active labour market policies to get people into work."

Poland's Minister of Regional Development El?bieta Bie?kowska said that, viewed from her country's perspective, while "Cohesion Policy has been a significant accelerator during prosperity," it also "turned out to be a powerful shield against the disastrous effects of the economic downturn. Public and private enterprises turned to European funds in the face of limited credit".

"In my opinion," she added, "cohesion policy was a sort of oil that kept the economic engine running".