EU regional policy after enlargement

The EU’s regional policy will come under
pressure when the Union enlarges to 10 mostly poor new Member
States in May 2004. The Commission is expected to present its
first proposals for the 2007-2013 EU budget by the end of 2003,
with Regional Policy Commissioner Michel Barnier insisting on
undiminished regional development aid.

Background

The EU's regional policy is based on
financial solidarity between the Member States whose
contributions to the Union's budget go to the less
prosperous regions and social groups.

For the 2000-2006 period, these
transfers will account for one third of the EU budget, or
213 billion euro. 195 billion euro will be spent by the
four Structural Funds (the European Regional Development
Fund, the European Social Fund, the Financial Instrument
for Fisheries Guidance and the Guidance Section of the
European Agricultural Guidance and Guarantee Fund), 18
billion euro will be spent by the Cohesion Fund.

The Structural Funds focus on the
following priorities:

  • 70% of the funding goes to regions whose
    development is lagging behind (Objective 1);
  • 11.5% of the funding assists economic and social
    conversion in areas experiencing structural
    difficulties (Objective 2);
  • 12.3% of the funding promotes the modernisation of
    training systems and the creation of employment outside
    the Objective 1 regions where such measures form part
    of the strategies for catching up (Objective 3).

There are also four Community
Initiatives seeking common solutions to specific
problems. They spend 5.35% of the funding for the
Structural Funds on:

  • cross-border, transnational and interregional
    cooperation (Interreg III);
  • sustainable development of cities and declining
    urban areas (Urban II);
  • rural development through local initiatives (Leader
    +);
  • combating inequalities and discrimination in access
    to the labour market (Equal).

The Structural Funds finance
multi-annual programmes which constitute development
strategies drawn up in a partnership with the regions,
the Member States and the European Commission. The main
objective of the programmes is to:

  • develop infrastructure, such as transport and
    energy;
  • extend telecommunications services;
  • help firms and provide training workers;
  • disseminate the tools and know-how of the
    information society.

In addition to the Structural Funds,
there is the Cohesion Fund, which provides direct finance
for specific projects relating to environmental and
transport infrastructure in Spain, Greece, Ireland and
Portugal.

The 10 Central and Eastern European
candidate countries have received millions in EU
development aid throughout the pre-ac cession period. The
future Member States have been receiving EU assistance
under the current instruments:

  • the PHARE programme (from 1989) to improve
    institutions, administrations and public bodies to
    ensure the correct application of EU law and to assist
    new investments in the social and economic sectors
    where they are most needed (infrastructure, business,
    social measures);
  • the SAPARD programme (Special Accession Programme
    for Agriculture and Rural Development; from 2000) to
    support the efforts to join the Union's Common
    Agricultural Policy;
  • the ISPA programme (Instrument for Structural
    Policies for pre-Accession; from 2000) to finance the
    construction of large projects in environmental
    protection and transport.

 

Issues

Enlargement will greatly increase the
wealth gap within the EU. Once enlarged to 25 Member
States, the EU will have to spend 50 per cent more on the
poorest areas after 2007 in order to boost the
development of the new members without reducing EU aid to
the poorest regions in the current Union, according to
the Commission's second progress report on economic
cohesion from January 2003.

The report will form the basis for the
Commission's proposals for the Union's next seven-year
budget plan for the period between 2007 and 2013.
According to the report, the EU should increase its
spending on structural funds for poor regions by 14
billion euro, from 33 billion euro today to 47 billion
euro after 2007.

Currently 48 regions are receiving
structural aid from the EU, because their GDP falls below
75 per cent of the Community average. After enlargement,
the wealth gap between the richest 10 per cent and the
poorest 10 per cent of the regions will increase
significantly. In terms of per capita GDP, this ratio
will increase from 2.5 today to 4.4 in an EU of 25.
Accordingly, in an EU of 25 Member States, almost every
fourth citizen (i.e., 116 million people) will live in a
region posting GDP figures below 75 per cent of the
Community average.

The report divides the enlarged EU
into three groups:

  •  
  • the eight candidate countries with the lowest per
    capita income (Poland, Hungary, the Czech Republic,
    Slovakia, Lithuania, Latvia, Estonia and Malta) will
    have one fifth of the EU population but only 42 per
    cent of the per capita GDP;
  • Spain, Portugal, Greece, Slovenia and Cyprus will
    have 13 per cent of the total EU population and an
    average 71 per cent of GDP per capita;
  • the remaining 12 current Member States will account
    for 66 per cent of the total EU population and 115 per
    cent of the EU average GDP per capita.

The Commission proposes to concentrate
most EU funds on the first group, and to phase out aid to
old EU states gradually up to 2013.

The Commission has identified three
major challenges for the enlarged EU's cohesion
policy:

  • Development disparities will be
    magnified:

    The population and surface area of the EU will increase
    by one third, but GDP by a mere 5% when 12 new members
    join the EU. A new group of States will emerge in the
    enlarged Union: those with income of less than 40% of
    the EU average.

  • The centre of gravity of cohesion policy will
    shift to eastern Europe:

    In a Union of 25 Member States, 116 million inhabitants
    (25% of the population) will live in areas where the
    GDP per capita will be lower than 75% of the EU
    average.

  • The present inequalities in the Union of 15
    will not vanish:

    It will be necessary to contribute to the development
    of the regions most in need, but also to continue
    providing assistance for the enduring difficulties in
    the current Member States.

The Commission urged the 10 new Member
States to urgently improve their management of the
Structural and Cohesion Funds. In a Communication adopted
on 16 July 2003, the Commission identified 10 areas in
which the acceding countries need to speedily improve i n
order to ensure the smooth absorption of the EU's
solidarity funding:

  • public procurement;
  • institutional arrangements and inter-ministerial
    co-ordination;
  • financial management and control;
  • accounting systems;
  • recruitment of additional staff;
  • programme negotiations;
  • project preparation;
  • partnership, meaning the involvement of the
    relevant economic and social actors in programme
    design;
  • monitoring systems;
  • sources of national co-financing.

 

Positions

Germany, France, Britain and the
Netherlands

will come under pressure to increase their contributions
for the EU regional policy. In light of the projected
shifts in aid flows, the current main recipients of EU
regional aid -
Spain, Portugal, Ireland and Greece

- will have to put up with a significant loss of aid.

The British government

revealed its plans for a reform of the European regional
policy in March 2003. Under the proposal, the EU would be
stripped of powers to give aid for the poorest regions.
Britain believes that the cost of the EU's regional
policy will increase by 50 percent and will become
unsustainable once the Union grows from 15 to 25 members
in 2004. The UK is concerned that its poorest regions
will loose billions of regional aid at the expense of 10
new EU members. The British Government argues that
decisions on regional spending should be made at a local
level. This would allow Britain to repatriate 1.5 billion
pounds a year from the EU budget. The UK now contributes
3.6 billion euro to the EU's annual budget, and receives
aid payments worth about 2 billion euro.

Under the UK proposal,
Spain and Ireland

would loose regional aid altogether. Only the poorest
parts of Greece and Portugal, and the future east
European Member States would be eligible to receive
regional aid.

The Commission

rejected the British plan, describing it as "selfish and
unrealistic". However, the
Netherlands and Germany

, both big net contributors to the EU budget, have taken
a similar position, arguing that the existing Member
States should no longer rely on regional aid from
Brussels.

A
high-level expert group

delivered a study on 17 July 2003 proposing the
re-nationalisation of the CAP and regional funding, while
introducing more flexibility into the EU's budgetary
policy. The report, commissioned by Commission President
Romano Prodi in July 2002, reviewed the EU's economic
policy and concluded that growth should be made the first
priority as the lack of it could risk further European
integration.

Commissioner for Regional Policy Michel
Barnier

was irritated by the report's calling into question of
cohesion policy and its proposals to re-nationalise this
policy. The report's conclusions "have not taken account
of reality", said Mr Barnier. Coinciding with the launch
of the study of the high-level group on economic
governance, the Commission published a new evaluation
study demonstrating the contribution of the Structural
Funds to higher growth, new jobs and sustainable
development in the least developed regions. Mr Barnier
defends the EU's regional policy, insisting that it "is
symbolic of a certain ideal in the European Union, which
is not just a big market". "Certain people want to devote
less money to this policy when the EU enlarges... the
enlarged Europe is going to become much more fractured,
much more unequal," warned Barnier. He suggested raising
Member States' contributions for the policy to 0.45 per
cent of gross domestic product from 0.32 per cent now,
with two-thirds of the funds devoted to the poorest
regions and the rest to development of areas such as
inner cities that would not otherwise qualify.

The CPB Netherlands Bureau for Economic Policy
Analysis

stated in its analysis of the EU cohesion poli cy that
European cohesion policy is less successful than it could
be. Cohesion policy aims at reducing differences in GDP
per capita between regions within the European Union.
According to the CPB, the actual growth record of
recipient regions reveals that the benefits of the EU
cohesion policy are of a limited extent. "For some of the
poorest regions in Europe this means they miss out on
half a percentage point of annual economic growth,"
states the CPB study. The CPB suggests three alternative
options for reform of the EU cohesion policy: to
strengthen the monitoring and control over the use of
cohesion support by the European Commission; to move to a
system in which funds are allocated to projects (instead
of being allocated to regions); to replace the cohesion
policy by a system of fiscal transfers from rich to poor
countries.

A study by the Spanish Foundation for the Studies
of Applied Economy (FEDEA)

states that enlargement is expected to have, at least
temporarily, a negative impact on the Spanish economy.
Spain may become less attractive for foreign direct
investment and trade as a result of competition from the
new Member States. Furthermore, there is likely to be a
reduction of the Spanish share of EU structural and
agricultural support. Moreover, the Spanish economy is
not expected to benefit so much from the expansion of the
single market, as it has relatively little direct trade
and investment flows with accession countries.
Nevertheless, if Spanish economic agents reacted and
decided to increase its exchanges with future Member
States, the impact of enlargement in the Spanish economy
could be improved.

A study by the
German Institute for Economic Research
(DIW)

states that the enlargement should be taken as an
opportunity to carry out the long needed reform of both
the Common Agricultural Policy (CAP) and the EU
structural policy. The DIW paper proposes a concentration
of the EU's structural support on the poorer Member
States. According to the study, only Spain and Greece
would suffer from such a reform.

 

Timeline

The Commission will initiate the debate
on the 2007-2012 financial perspectives at the end of
2003.

The EU will negotiate future EU
development programmes with each of the acceding countries
before the end of 2003 (see our

).

The new Member States are eligible for
assistance from the Structural and Cohesion Funds from 1
January 2004. They are due to receive 22 billion euro in
the period 2004-2006.  

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