PART III - THE EU BUDGET AND THE CONTRIBUTION OF STRUCTURAL POLICIES
TO ECONOMIC AND SOCIAL COHESION
2 The contribution of structural policies to economic and social cohesion:
results and prospects
2.1 The financial effort to improve cohesion
The macroeconomic aspect of structural support
Community intervention in support of cohesion involves a significant
financial dimension. Structural and Cohesion Funds together account for
over a third of the budget for Community policies (Graph
This financial effort was significant in macroeconomic terms, especially
in Objective 1 regions (Table 9).Over the period
1994 to 1999, Community funding in Portugal amounted to 3.3% of GDP, in
Greece, 3.5% and in Ireland, 2.4%, all three countries consisting entirely
of Objective 1 regions. In the other countries with Objective 1 regions,
the figure varied between 0.2% of GDP (Germany) and 1.5% (Spain). Community
support of investment was even greater, accounting for almost 15% of total
investment in Greece, around 14% in Portugal, 10% in Ireland and 6% in
Spain. The implication is that, without Community transfers, economic
growth, to which investment is a major contributor, would have been less
in the cohesion countries. Transfers will, however, decline in scale over
the period 2000 to 2006, particularly in Ireland.
Consolidation of financial concentration in Objective 1 areas
Community structural policies have the effect of transferring budgetary
resources towards regions where development is lagging. The scale of intervention
in the cohesion countries is therefore considerably larger than in the
rest of the Union. Almost 70% of total allocations for the Structural
Funds for the period 2000-2006 (around EUR 136 billion) will go to Objective
1 regions compared to 68% in 1994-1999 (including Community Initiatives).
This financial concentration will enable the average intensity of aid
per inhabitant each year in Objective 1 regions to be maintained at the
same level as in 1999 (Table 10). These regions
will also receive funding from the Community Initiatives.
The use of an objective method for distributing over 97% of the Structural
Fund allocations between Member States has made it possible to maintain
the concentration of finance in the less prosperous countries and regions.
Accordingly, the less prosperous countries receive more aid per head (see
Graphs 29 and 30) and 60% of the Funds
go to regions which, together, account for 20% of EU GDP (Graphs
31 and 32).
Increased geographical concentration
One of the priorities of Agenda 2000 was to increase the geographical
concentration of support in the most disadvantaged areas of the Union,
as well as providing temporary support for regions where Community aid
is set to come to an end. In 2006, Objectives 1 and 2 will cover 41% of
EU population, a proportion close to the Commission's proposal in Agenda
2000, which was for a maximum figure of between 35% and 40%. This is the
highest degree of geographical concentration achieved since the reform
of the Structural Funds in 1988 (Table 11).
The increased geographical concentration is the result of the strict
application of the eligibility criterion for Objective 1 and the introduction
of ceilings on eligible population, decided by the Commission, for each
Member State as regards Objective 2.
For Objective 1 regions, the strict application of the 75% of average
EU GDP threshold, except for northern regions in Sweden and Finland which
were eligible for Objective 6 in the period 1995 to 1999, led to a coverage
rate of 22.2% of EU population (as against 24.6% in 1999). There is some
continuity with the earlier period, except for the regions eligible for
transitory support and the UK, for which the coverage rate has been increased
by almost half (see Table A.31 for the support
provided by country in the two programming periods, in annex).
For Objective 2 areas, the coverage rate was reduced to 18% of EU population
(from 25% in 1999 for Objectives 2 and 5b together). Within the population
ceilings decided by the Commission,1 Member States had
considerable room for manoeuvre in drawing up the list of eligible regions,
while complying with the obligation to ensure that at least 50% of the
population concerned fulfilled the so-called 'Community' criteria. The
areas adopted by the Commission, on the basis of Member State proposals,
cover 47% of the total population eligible for Objective 2 and consists
of the priority areas defined according to the Community criteria.2
(See Table A.32 for the support provided by country
in the two programming periods, in annex.)
Predominance of industrial and urban areas
Following the Commission decisions in 1999 and 2000, the distribution
between the four types of area will be very similar to that indicatively
agreed by the Council: industrial areas eligible for Objective 2 will
account for 8.5% EU population, rural areas, for 5.2%, urban areas, for
1.9%, areas dependent on fishing, for 0.3% and mixed areas, for 2.1%.
At the EU level, the share of rural areas in Objective 2 will therefore
be slightly higher than indicated in the regulations. In addition to the
measures implemented under the rural development policy supported by the
EAGGF-Guarantee section, Member States have judged it useful and necessary
to make the more vulnerable rural regions eligible for a wider range of
support measures from the ERDF and the ESF.
Although urban areas in decline appear to be under-represented, this
is not the case, since they are also included among industrial areas.
The same is true of the areas dependent on fishing, since in order to
be able to implement policies for restructuring in areas of sufficient
size, a number of Member States have included some ports in areas eligible
for assistance under rural or industrial criteria.
The distribution between different types of area varies markedly between
Member States. Urban areas are relatively important in Belgium, the Netherlands,
Luxembourg and the UK, while higher priority is given to rural areas in
Denmark, Sweden, France, Italy and Austria, and industrial areas predominate
in Germany and Spain. In Finland, the distribution is similar to the EU
Territorial continuity and fragmentation
Few areas not covered by either Objective 2 or Objective 5b during the
period 1994 to 1999 were proposed by Member States for eligibility under
any of the Objectives, these being estimated to have a population of around
9.4 million, only 16% of that eligible for Objective 2 for the period
2000 to 2006. This continuity of eligible areas suggests that Member States
considered the results achieved up until then were not sufficient to justify
ending EU support, even if accompanied by transitional assistance.
The general statement needs, however, to be qualified. Four Member States
(Germany, Belgium, Finland and the Netherlands) have in fact modified
the choice of areas for support significantly as compared with the 1994
to 1999 period, mainly to take advantage of the urban dimension of the
new Objective 2.
The intervention of the Structural Funds in urban areas in difficulty
should create the economic conditions for a reduction in crime and complement
specific policies for combating and preventing crime.
In addition, a considerable degree of fragmentation of eligible areas
is evident, reflecting Member States' attempts to maximise the overall
coverage of Objective 2. This could make it more difficult to implement
a policy of restructuring, given that it multiplies problems of distinguishing
between different areas and so complicates the management of programmes.
Such a fragmentation gives rise to the risk of diluting the effects of
Limited coherence with the maps of State regional aids
In the Commission's view, both Community and national intervention should
be concentrated in areas most in difficulty so as to provide the means
for their restructuring. Accordingly, it had recommended improving the
coherence between the map of State regional aids and that of areas eligible
for Objective 1 and 2 support.
In 1997, the Commission also adopted a "Communication on the links
between regional and competition policy"3
, in which it proposed a number of measures to improve the consistency
between the list of areas eligible for national regional aid and the list
of Objective 1 and 2 regions.
Many of the proposals formulated in this Communication have been implemented:
- The Commission aligned the duration of the regional aid maps on that
of the Objective 1 and 2 maps. Both lists now cover the same period,
namely 2000 to 2006.
- The criteria for eligibility under Objective 1 and Article 87(3)(a)
of the Treaty (aid to promote the economic development of lagging regions)
were harmonised, except for the former Objective 6 regions in Finland
and Sweden. Some of these low population density areas were granted
Objective 1 status in spite of the fact that they did have a per capita
GDP which was higher than 75% of the EU average. In order to ensure
full consistency between the Objective 1 map and the regional aid map,
all low population density areas with a GDP per head exceeding 75% of
the EU average have been granted Article 87(3)(c) status (aid to facilitate
the development of certain economic activities or areas).
- The 1997 Guidelines on national regional aid and the new Structural
Funds regulation gave Member States greater flexibility in proposing
Article 87(3)(c) and Objective 2 regions. In its Communication on the
links between regional and competition policy, the Commission invited
Member States to use this flexibility to ensure greater consistency
between the two lists. In order to facilitate this process, the Guidelines
provided that areas eligible under the Structural Funds may qualify
for the Article 87(3)(c) derogation.
In effect, in relation to Objective 2, the new Structural Funds regulation
adopted by the Council did not include this requirement for greater coherence
with the areas which benefit from derogations under Article 87.3c.
A comparison between the Objective 1 and 2 maps and the regional aid
maps for the period 2000 to 2006 shows that the geographical coherence
between the two maps has slightly improved compared to the situation in
the period 1994 to 1999 in all Member States except for Belgium (where
there was perfect coherence in the earlier period) and the UK, where,
together with Finland, France, the Netherlands, Sweden and Italy, the
lack of coherence remains marked (Table 12
, 13 and Table A.33,
in annex). The responsibility for this rests with the Member States.
This could threaten the restructuring of problem areas eligible for Objective
2 since they might not enjoy a significantly higher level of support than
those areas not covered by the Structural Funds but entitled to State
Thematic Concentration: the preponderance of spending on infrastructure
Concentration of expenditure on particular policy issues is aimed at
ensuring that the priorities defined in the programmes reflect both the
factors underlying economic growth and the EU's political priorities.4
There is almost universal consensus among economists on the types of action
which are likely to initiate a process of endogenous and sustainable growth.
Community structural measures, however, are selective, complementary to
those of Member States and not claimed to be solutions which are generally
For Objective 1 regions, the priority areas from a cohesion perspective,
there have been some changes in the distribution of the funds between
the three major areas of intervention - infrastructure, human resources
and productive investment (Table 14).
The share of spending on infrastructure has been increased for the period
2000-2006, to around 34% of the total (as against under 30% between 1994
and 1999), half of which is for transport networks, with high concentration
of investment in the cohesion countries because of existing needs. If
the Cohesion Fund is also taken into account, infrastructure represents
more than 40% of total investment allocated to Objective 1 regions.
While the share of expenditure allocated to investment in human resources
(around 24%) is due to decline slightly, higher priority is given to active
labour market policies and to strengthening education systems (especially
in Italy and Portugal).
The share of expenditure on productive investment (around 35%) has been
reduced markedly, particularly in the cohesion countries and Italy, because
of a decline in direct aid to industry as stricter rules are applied.
More specifically, Structural Funds play a major role in supporting environmental
protection, which accounts for over 10% of the total allocated for Objective
1. They are also directed towards improving access to peripheral regions
and developing training and research activities, which are essential to
the Information Society and which, because of national budget constraints,
could not be fully carried out without Community support. In Greece, for
example, investment in major transport networks in the 7 years of the
present programming period will be 1½ times larger than in the
In addition to the financial aspects, a number of qualitative changes
are also evident in the new programming period, such as increased support
for the information society and for sustainable development, two major
components of present regional policy. These issues are analysed in more
Additional support for national efforts
Over the period 1989 to 1993, overall public structural expenditure
in Objective 1 regions amounted to 1.3% of EU GDP, or to an average of
EUR 92 billion. The Structural Funds accounted for around 15% of this.
Over the period 1994 to 1999, structural expenditure in these regions
declined to EUR 82 billion, a reduction of 12% compared with the previous
period, despite an increase in spending from the Structural Funds of EUR
2 billion a year, or of 15%. The overall reduction is explained, on the
one hand, by the privatisation of public enterprises in Italy and Portugal,
in particular, and, on the other, by a reduction of almost half in German
expenditure in the new Länder, in order to bring it down to a level
comparable to that in other Member States.
The scale of public expenditure in support of development in Objective
1 regions varies considerably between Member States, though data need
to be interpreted with caution. As well as Sweden, where spending (EUR
6,000 per head) is well above that in other Member States, Germany increased
expenditure substantially over the period 1989 to 1993 in the new Länder
to EUR 41 billion, or EUR 2,500 per head, 2½ times the average
level in the Union. In Greece and Portugal, spending was much higher in
relation to their economic potential than elsewhere, at 5-7% of GDP, while
in other Member States (Germany, Spain, Italy and Ireland), the figure
was 3% of GDP or less. By contrast, in France, expenditure on structural
measures in Objective 1 regions in the 1994 to 1999 period amounted to
only 0.2% of GDP (EUR 2.3 billion), which still represented EUR 890 per
head in the regions concerned. The same total amount was spent in Ireland,
which meant expenditure per head over the country as a whole of EUR 650.
Member State forecasts for the period 2000 to 2006, show a rise in average
structural expenditure a year of 9%, to around EUR 90 billion. This increase
is necessary, if the level of public support for the catching-up process
in lagging region is to be maintained, though it appears to vary considerably
between Member States. In addition to Ireland, where a projected doubling
of expenditure is explained by the low level in the preceding period,
an increase of 30% is expected in Greece and a rise above the EU average
in Italy. In Germany, the forecast is for a reduction in structural expenditure
of 9% in the new Länder, for the same reason as in the previous period.
These forecasts, however, imply an overall reduction in structural expenditure
relative to GDP over the present programming period, except in a few Member
States (Greece, Ireland and Italy), despite favourable economic prospects
up to 2006.
The Cohesion Fund: improved balance between transport and the environment
A total amount of EUR 15,150 billion (at 1992 prices) were allocated
by the Edinburgh European Council to the Cohesion Fund for the period
1993 to 1999 for the Member States where GDP per head was below 90% of
the Community average. For the period 2000 to 2006, the Berlin European
Council allocated EUR 18 billion (at 1999 prices) to this Fund and decided
that eligibility should be re-examined halfway through the period in the
light of the outrun for GDP.
In terms of the distribution of funds between areas of investment, it
should be noted that a slightly larger share of expenditure went to environment
than to transport over the period 1993 to 1999, even if in Greece the
transport share was a little higher (Table 15).
Within environment, there was a significant increase in investment in
waste water facilities in order to meet the obligations imposed by Community
Directives, and within transport, increased importance was given to investment
The European Investment Bank: active support for regional development
The main means by which the European Investment Bank (EIB) assists regional
development is through loans for individual projects. These amounted to
over EUR 66 billion over the period 1994 to 1999, or 77% of the total
of such loans in the Union (Table A.34, in annex).
Most of them, 83%, went to the financing of infrastructure projects, in
transport, telecommunications and energy, which, in most cases, formed
part of major networks of European interest, which together accounted
for around 86% of all loans for infrastructure.
Loans for individual projects expanded by over 25% between 1994 and 1999.
The main growth, however, occurred in global loans (loans to financial
institutions for small and medium-scale projects), which amounted to EUR
20 billion over the period as whole, accounting for around 30% of total
EIB lending, and which more than doubled in terms of the annual amount
between the two years. These went mainly to financing productive activities,
in industry in particular, though also to helping to fund smaller scale
The complementarity between global loans and those for individual projects,
which stems from the capacity to adapt to the specific characteristics
of different projects and managers in different sectors and regions, has
been a strong point in the EIB's ability to support regional development.
The EIB's total lending for projects relating to regional development
was significantly higher in the period 1994 to 1999 than in the preceding
programming period, annual loans being almost 50% greater (Table
16). Although this increase was smaller than that recorded by the
Structural and Cohesion Funds as a whole, it still demonstrates a growing
commitment by the Bank to projects for strengthening cohesion and regional
development. The increase was most marked for projects in Objective 2
and 5b areas (lending rising by 71%), especially for those aimed at offsetting
industrial decline and containing unemployment.
The EIB plans to collaborate more closely with the Commission over the
period 2000 to 2006, in order to make the most of the potential complementarity
between its activities and Community structural aid. It will, in particular,
continue to support the creation and development of productive activities
in the more disadvantaged regions, not only by helping to finance these
directly, but also by supporting the services necessary for their development,
as well as improvements in infrastructure, especially those aimed at increasing
accessibility and energy supply. In addition, growing attention will be
focused on the competitiveness of firms in the context of the 'Innovation
2000' Initiative. Viewing regional development more widely, the same orientation
of policy will also apply to the candidate countries.
- Commission Decision of 1st July 1999 (complete source)
- Eligibility criteria defined by Article 4 of the
general regulation 1260/99
- Commission Communication to the Member States on
regional policy and competition policy: strengthening their concentration
and their coherence OJEC C90 26.03.98
- European Commission, Structural and Cohesion Funds,
Guidelines for programmes in the period 2000-2006, COM (1999) 344 final
- European Commission, Report on the Cohesion Fund