Italian expert: Regional funding must come with conditions

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How should the EU's cohesion policy be reformed to meet the challenges facing Europe's regions in the coming years? EURACTIV Czech Republic interviewed Fabrizio Barca, one of Europe's leading experts in the field of economics and regional development.

Fabrizio Barca is general director for development at Italy's Ministry of Economy and Finance.

Barca was the author of an influential report, published in 2009, setting out a series of proposals for reforming the European Union’s cohesion policy.

He was speaking to EURACTIV Czech Republic's chief editor, Jan Vitásek.

To read a shortened version of this interview, please click here.

The European Commission has launched a public consultation on the future of EU Cohesion Policy after 2013. What do you see as being the most significant problems with the current policy?

We have learned that the major problem has been too much attention to the financial and physical achievements of the policy and at the same time insufficient capacity to concentrate on real outcomes. People are not interested in how many bridges were built, or how many teaching hours were provided. They want to know how their lives are going to be improved.

The second issue has to do with the fact that throwing money at problems does not necessarily solve them. If institutional requirements or the capacity of local administration are not addressed, then money will not only fail to help but in some cases could even do damage.

This is the case when [the money] does not end up in the hands of innovators but instead goes to those very people who have already been badly using national public funds. I do not claim that such practices are widespread. Yet there is a need to set up some conditions for money to be disbursed.

You have called for improving the way that the impacts of interventions are measured. Could you tell us how this could be done, for example in the case of support for enterprises?

Support for enterprises is actually a good example of how you can use two different tools. The first option is to set a target, together with the managers of the programme and participating companies.

The target cannot be something such as the number of new employees, as is often the case. Quite obviously, when you have an investment you will have new employees. This is not a result. You should rather make sure that the result is permanent, and [ask] whether it would have happened anyway – even without EU money.

You must find good indicators. In cases where enterprises have a problem of credit rationing there is one classic indicator: improving access to credit. And this can be measured – based on interviews with the banking system and the companies. You can then say whether you permanently improved their relations with banks.

[The second tool is] impact evaluation. [This is] not as difficult as it sounds. In selecting companies to support you generally set a ranking, according to some parameters. Given the available amount of money, there will be a cut-off point: companies below that threshold will not get support and those above it will.

The companies around this point will be very similar and can be compared. So after a few years, you can compare those who did get the money with those who did not in terms of their access to credit, of their innovation, [and] of their overall performance. From this comparison you can say whether your support was useful or not.

Public administrators, politicians [and] companies know that they will be evaluated later on. So they will be concerned and have a greater incentive to do well: there is a disciplinary effect.

What happens if the evaluation shows that the support was ineffective?

The policy is about repetition and learning. The method does not change what has already happened. But in the years that follow there will be new measures and new money. This is why I [have] proposed flexibility in adjusting the policy according to results.

In your 2009 report ('An Agenda for a reformed Cohesion Policy'), you called for establishing a formal EU Council of Ministers for Regional Policy. What would be its role?

According to the Commission's proposal, each member state will have its own measurable targets and some [related] conditions. Every year, each country will prepare a report in which it assesses the progress towards the targets and [evaluates] the pace of progress and what reasons, if any, are preventing results from being achieved.

[The Fifth Cohesion Report (published by the Commission in November 2010)] will be discussed in the European Council and in the European Parliament, which will finally have a very relevant and active role to play.

Would this not simply increase the amount of administration?

No, this would not increase the administrative burden. These two bodies would not come up with decisions or modify rules or [impose] sanctions. They would rather issue political recommendations and keep their eye on the Commission, on member states and on regions.

Political recommendations do not interfere with the administrative process. Rather, it becomes a fundamental part of the political debate, because journalists can demand explanations from the Commission and member states, who mutually agree the contracts, and the general public finally gets to be well informed about actual outcomes – not just spending!

This is very important and it works backwards – in the same way as in my earlier example of impact evaluation – because the Commission and the member states, by knowing that somebody will carefully read their documents, will write their reports more convincingly and will have a stronger incentive to do well.

The Commission is not proposing to impose any kind of sanctions on those member states who don't reach their targets.

I do not think there should be any sanctions.

But on the other hand, there is a proposal to reward countries that perform well (the so-called 'performance reserve'). What do you think about this idea?

Personally, I have several doubts about a so-called 'performance reserve'. I think sanctions and rewards for the achievement of outcomes can be decided internally by [each] member state. But the 'performance reserve' is a whole new story with a big question mark.

The problem is that if we put aside a reserve [of money] over which member states will compete, we must set up some targets which should be comparable and present the same difficulty for everybody. But how will we find such an amazing indicator?

Regarding the concept of conditionality, have you seen any signs of doubt from the member states? Some might say, 'why should we be forced by 'Brussels' to adopt measures in areas that would normally be the responsibility of national or regional governments?'

Yes, I have heard this kind of criticism, but it looks to me unreasonable. Cohesion policy is financed by EU taxpayers' money so you need to be sure that the funds are being well used, and if a given institutional change is needed for policy to be effective, the member state must do it.

[Let's] take the case of the objectives related to education. From policy analysis done by the OECD (Organisation for Economic Co-operation and Development) we know that one of the conditions for the policy to be successful is to have a very good national system of evaluation as well as a reasonable system for selecting teachers.

It is not up to Brussels to decide what is reasonable and to design [the] evaluation system. But Brussels has a duty to ask every country to establish such a system, according to its specific institutional context.

In the current programming period (2007-2013) member states have often been asked to implement some 'institutional pre-conditions', but this has been taking place on a non-systematic basis, creating uncertainties for member states. The new system will allow [us] to clarify ex-ante (in advance), in the contracts between member states and the Commission, which institutional adjustments are needed.

Could conditionality also help to prevent cases – such as we have seen in recent years – where payments to a particular member state have been suspended or even cut off?

I will give you an example from Italy, because I can speak more freely about my own country, where a kind of conditionality has already been [put] in place.

In the area of waste disposal, Italy and the Commission had agreed (quite fortunately) in the current programming period that no EU money could be spent unless [certain] institutional requirements were satisfied. As these institutional requirements have never been met, not a penny of European taxpayers' money has been wrongly spent. This is the good part of the story.

The bad part of the story is that it was an ineffective method. The money was suspended for several years [but] the incentive for institutional change was not strong enough.

[Under] the new system, the Commission would give Italy one year to fix the problem. If the country did not comply, the Commission would give it two options: either it loses the money altogether or it must reallocate it to [a different area of investment].

In [this] new world, we would not only avoid some problems in the 'new' member states, but we would also help [all of the member states] to tackle institutional problems more quickly.

One important aspect of your proposals is the call for multi-level governance and a 'place-based approach'. Do you think this is something that could be applicable in all countries?

This is a very important issue for many places across Europe including several regions in the old member states – such as in the south of Italy. In many cases, a failure to improve public administration has prevented success.

I think that the solution is to make the 'capacity deficit' part of an EU-wide public debate – in the Council, in the European Parliament, [and] in the media. It should be known and [openly discussed] that particular public administrations, regions or groups of municipalities are actually playing the game according to the new rules [while] others are not.

This is part of what I call 'territorial competition'. [This means that] citizens can ask their [local and regional] authorities: why have you not achieved results when others [in similar areas] have done it?

Cohesion policy offers a common framework that gives us all, in a sense, the same language. Yet, this framework has not been exploited enough. Information on performance has not become a major part of the debate and consequently, for the good politicians, the [consequence] of pursuing this complex policy has not been adequately rewarding.

The Fifth Cohesion Report calls for a greater involvement of regional and local actors in forming the policy. But how should they be involved?

The answer lies in creating strong partnerships capable of producing results. And this should not be [just] a slogan! It should be based on the creation at all levels – national, regional, local – of a policy space where social and economic partners and active citizenship organisations can voice their support and dissent, can learn about results and suggest alternatives.

For this space to be filled, for the debate to be useful, we need, [as I have already said], a 'new metric', where targets are established for each project in terms of robust outcome indicators measuring relevant aspects of citizens' well-being.

But can we fully rely on member states to create this space for debate? In some member states there is a tendency for centralisation. In other cases, cohesion policy become very bureaucratic, a tool in the hands of a few experts. Therefore, I think that this is a time when the European Commission must come into the game as an external actor and 'stir the waters'.

I was therefore very glad to find in the Commission's proposals that there will be money for 'innovative actions' from Brussels. I do not think these actions will change the world, but they can give member states an incentive to do better. [With such] experiments you can show those countries where the local level is not really involved how to do that, and you can also find out whether the problem was a lack of willingness on a [national] or regional level.

In the past, the Commission experimented with initiatives such as URBAN [for sustainable urban development] or LEADER [for sustainable rural development], and similar initiatives could be launched again.

How should the design and development of the operational programmes take account of the need to involve local and regional actors? Should they be conceived as 'regional' or rather as 'sectoral' programmes?

In theory, there is nothing bad with a programme run from the centre, provided that it is not run in isolation from other ministries and from the regions which should have their say in the design of the programme. You can take Finland as an example of such a regional policy where both horizontal (among sectors) and vertical (among levels of government) coordination are promoted.

At the same time, setting up regional programmes does not mean that you have solved the problem. When the regional authorities assign their programmes to their sectoral expert and do not involve the municipalities, even these programmes can become very centralised. So the sectoral dilemma still needs to be solved even at the regional level.

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