All quiet in the West while the East is advancing, study shows

In most Western European countries, the income of the regions is not approaching - while the East is developing well. [EPA/FELIPE TRUEBA]

Statistically, the economic gap between European regions is narrowing. Nevertheless, the abandoned regions remain left behind – and in Western Europe there is stagnation. EURACTIV Germany reports.

In the Romanian region of West, a lot has happened since the country’s accession to the EU. The city of Timişoara, in particular, has become one of the economic centres of Romania.

Many jobs were created and wages increased. According to Eurostat, the region generated 60% of GDP per capita in 2016 compared to the EU as a whole. That may not sound like much, but it is noteworthy for a Romanian region. Only the capital Bucharest registered more.

The West region is not the only one in Europe that is getting better and better economically. Looking at the averages, the gap between affluent and poor regions within the EU decreases significantly, especially in the East, as a study by the Ifo Institute for Economic Research at the University of Munich concluded.

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European regions want an enhanced and inclusive Cohesion Policy that will make use of structural funds and more complementary mechanisms to address the current problems at their core. At the same time, the Committee of the Regions is asking for a concrete plan before the European elections in May 2019.

From a purely mathematical point of view, the economic approximation of the around 1,300 regions of the EU is even two and a half times as fast as the settlement within Germany.

“This is mainly due to the economic boom that we saw in Eastern Europe as a result of the EU enlargement in 2004 and 2007. These countries have benefited massively from their connection to the European single market. Of course, this affects the overall statistics, because we looked at the period from 2000 to 2014,” said Gabriel Felbermayr, the author of the ifo study.

Industry is driving growth in the East

Especially with the help of the structural funds, the EU wants to promote the development of disadvantaged regions. “However, our evidence shows that it is the internal market, much more than EU aid, that drives growth in Eastern Europe,” said Felbermayr.

After the EU enlargements in 2004 and 2007, numerous companies moved to cheaper Eastern Europe, where they set up new production facilities. However, this would hardly have been possible without the support of the structural funds, as it helped to expand the necessary infrastructure in weak regions.

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The Romanian regions will have received well over €30 billion from the EU in the current financial framework. In Timişoara, this has been proven: Nestlé, Continental, Philips, Linde – all of them are now producing there, profiting from the still relatively lower wages.

In order to better channel the EU’s cohesion funds, the German Institute for Economic Research (IWD) proposes a complete redistribution of funds: instead of shifting funds among all EU member states, EU structural funds should only go from “net contributors” to recipient countries.

Germany would then no longer pay €10.4 billion per year and receive €3.6 billion at the same time, but would only make a contribution of around €8 billion, according to the IWD calculation. This would be a way of cutting the EU’s cohesion budget without reducing the promotion of regions in the East.

No convergence of regions in the West

Although Western Europe is currently receiving funding from the structural funds, according to the Ifo study, this has not led to any notable convergence within these regions.

Looking at the 15 oldest EU member states, nothing is happening there except in crisis-ridden Greece and the UK. “Although in Europe, the divergences of the regions taken together are smaller, there has been no significant change in Western Europe since 2000,” said Felbermayr.

The GDP per capita stagnates, especially in southern regions, even though most countries have recovered since the crisis. The abandoned regions are thus left behind, according to ifo statistics.

Cretu: One legislation for cross-border projects

Corina Crețu, the EU Commissioner for Regional Policy, supports the possibility for two member states working on cross-border cooperation projects to voluntarily choose the legislation from one of the two countries.

However, economic growth is not a linear equation that depends on the level of investment, emphasizes Felbermayr. The regions of the EU have very different resources; their wealth depends on a variety of social, geographic or structural factors.

“There can never be an absolute approximation unless it is enforced by the state – and that does not help.” Felbermayr sees the key to the approximation of regions in the promotion of mobility – in East Germany; this was the decisive growth factor.

“If people have the opportunity to move to work in better-off areas, this will boost economic growth. But of course, this migration has a downside: if the poorer areas are left without infrastructure, people will eventually move away. “

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