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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 28).

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.

Objective 1

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).

Objective 2

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 average pattern.

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 Community intervention.

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 aids.

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 applicable.

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 preceding period.

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 detail below.

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 in railways.5

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 infrastructure projects.

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.



BACK
  1. Commission Decision of 1st July 1999 (complete source)
  2. Eligibility criteria defined by Article 4 of the general regulation 1260/99
  3. Commission Communication to the Member States on regional policy and competition policy: strengthening their concentration and their coherence OJEC C90 26.03.98
  4. European Commission, Structural and Cohesion Funds, Guidelines for programmes in the period 2000-2006, COM (1999) 344 final
  5. European Commission, Report on the Cohesion Fund (1999) [title]


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