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
2.2 Assessing the effects of Community intervention (1994-99)
Objective 1: Catching-up and modernisation
Structural support for Objective 1 regions lies at the heart of cohesion
policy in the Union. Accordingly, it is essential to assess its effects
as rigorously as possible. There has been significant convergence of GDP
per head in Objective 1 regions over the past 10 years, but this in itself
does not necessarily signify that the policy has been effective. Nevertheless,
it is possible to demonstrate that Community assistance has had positive
and long-lasting effects in both increasing economic growth and strengthening
underlying structural factors which determine competitiveness and, therefore,
future potential growth.
Macroeconomic impact: significant effects on growth, less on employment
Structural assistance has had significant effects in boosting economic
growth in the countries and regions for which analysis is possible. Over
the period 1994 to 1999, the gap in GDP per head has been closed considerably
in a number of countries. In Ireland, Portugal and Spain, annual GDP growth
over the these five years was well above the EU average (almost 1 percentage
point above in the latter two and 6½ points above in Ireland).
Investment growth was also higher, laying the basis for growth in the
Transfers from the Structural Funds added directly to demand and economic
activity, but more importantly, since they were concentrated on investment
in both physical and human capital, they were aimed at increasing growth
potential in the medium and long-term.
Recent evaluations of the Community Support Frameworks (CSFs) in the
last two programming periods indicate that the estimated effect on growth
was highest in Greece and Portugal, where the level of GDP rose by 9.9%
and 8.5%, respectively, over and above what would have been expected in
the absence of assistance (Table 17). The
estimates for Ireland (3.7% higher) and Spain (3.1%) are lower, but still
significant. Increased growth resulted in lower unemployment, particularly
in Greece, though also in higher productivity growth in the manufacturing
The estimates of the 'supply-side' effects on growth are of the same order
as the direct effects on demand and become predominant in the longer-term
as the strengthening of productive potential boosts output.
Improvements in competitiveness
Although structural policies are ultimately judged in terms of their
effect in narrowing regional disparities in GDP per head and employment,
it is their impact on the underlying factors which determine economic
development which is a prime consideration. Substantial progress has been
achieved in improving basic infrastructure in weaker regions, but imbalances
persist in RTD, access to know-how, the Information Society and continuing
training, and the quality of the environment. The Structural and Cohesion
Funds make a significant contribution to correct these disparities.
Transport infrastructure -improving accessibility
An efficient transport system is essential to regional development.
Investment in improving the system, however, needs to take account of
the balance between different modes of transport (road versus rail) and
the potential effect on the environment.
Transport accounts for over half of total investment in infrastructure.
Investment in improving the transport network in the cohesion countries
and southern Italy over the period 1994-99 amounted to over EUR 40 billion,
a third of which went to Spain. This was largely concentrated on roads
(around 56%), while just under a quarter of expenditure went on railways
(around 23%). In Spain and Ireland, roads accounted for a larger proportion
of investment than elsewhere (73% and 68%, respectively) (Graph
35 and Graph 36, where expenditure includes
financing from the Structural and Cohesion Funds and EIB lending for regional
development, and Table A.36, in annex).
This investment served to reduce disparities in transport between these
countries and the rest of the EU significantly, especially in respect
of roads and the standard of the rail network (high-speed trains, electrification
and double-track). As a result, accessibility was improved through reductions
in travel time, by around 20% on average in Spain (largely through improving
the road network) and 70% in respect of rail freight in Portugal (Table
18), and better links were established between the least prosperous
areas and other parts of the country and, indeed, of Europe (eg through
motorways in Spain). In addition, access to ultra-peripheral areas (French
DOMs) was improved through the construction or upgrading of airports.
In many cases, use of the Structural Funds gave rise to private sector
investment and the establishment of public-private partnerships (as, for
example, in the construction and management of roads in Portugal, the
port of Gioia Tauro in Italy and Spata airport and the Rion-Antirion bridge
in Greece). In addition, the construction of infrastructure financed partly
with EU assistance resulted in net job creation of around 900,000 persons
a year (in full-time equivalent terms), mainly in Objective 1 regions.
The Cohesion Funds have made a significant contribution to transport
improvements through financing projects included in national and regional
economic development programmes, most of which involved a specific assessment
of the environmental impact. As a result, they have reinforced beneficial
effects of ERDF intervention and helped to reduce regional disparities
further. According to a recent study (carried out by the London School
of Economics in 1997),1 they have increased employment
and private investment significantly in recipient regions, with large
spillover effects in neighbouring ones. The estimated effect of 9 projects
in Spain, with a total investment of EUR 2.5 billion, was to add around
0.6% to both GDP and employment in the medium-term (equivalent to some
However, the need for investment in infrastructure remains. Analysis
carried out for the European Spatial Development Perspective indicates
that while investment in peripheral regions has improved accessibility,
it has been accompanied by similar investment in neighbouring regions
and more central ones (in rail networks, for example), which can counteract
any relative gain. The overall effect of such investment, moreover, depends
on what other measures are taken to stimulate economic activity in the
Supporting SMEs : critical to regional competitiveness
Supporting SMEs is a priority of EU policy since they are a vital source
of competitiveness and job creation, especially in Objective 1 regions.
The Structural Funds provide support in a variety of ways, including through
services (information, training and guidance, in particular) and help
in financial engineering as well as through financial assistance. Over
the period 1994 to 1999, an estimated EUR 14 billion (14.5% of total funds
for Objective 1) went to these kinds of measure (see Tables
A.38 and A.39, in annex). Over 500,000
firms (16% of the total in eligible regions) were assisted through direct
aids (over a third of total, finance) and other measures.2
Evidence, in the form of an EU-wide evaluation, based on surveys and
case-studies, suggests that the Structural Funds had a significant effect
on SMEs over the last programming period. In the absence of Community
support, it is estimated that 70% of investment projects would have either
not taken place at all, or been smaller in scale or postponed and that
assistance contributed to creating more than 300,000 additional jobs,
even after taking account of 'deadweight' and substitution effects. The
evidence also emphasises the potential of financial engineering schemes
as an intsrument of intervention, even though they might take a long time
to be established in regions where financial services are weak.
EU support of SMEs has demonstrated a specific added-value in many respects.
First, it has added to the funds available at national level. Secondly,
co-financed measures have often addressed the structural problems SMEs
face, in particular, by providing business services (eg in respect of
innovation and technology) and introducing new practices (eg financial
engineering). Thirdly, in a number of countries, it has enabled SMEs to
become an 'instrument' for regional development and procedures for selecting
and implementing projects to be improved.
On the other hand, the evidence indicates that assistance has been concentrated
mainly on providing grants rather than loans and risk capital, which might
improve the sustainability and cost-effectiveness of schemes. It also
indicates a need to improve the targeting of assistance, in particular,
through the creation of specialist intermediaries in the private sector,
preferably organised on a decentralised 'one-stop shop' basis. Experience
demonstrates that these tend to make schemes more accessible and provide
quicker appraisal and better delivery of SME projects by integrating direct
aid and services.
Research, Technological Development and Innovation (RTDI): a strengthening
of regional capacity
As noted in Chapter 1, the gap in RTDI between the most developed and
the least developed regions is much wider than in income per head. The
concentration of these activities in the more dynamic regions is a key
aspect of the 'virtuous circle' as regards growth, competitiveness and
employment. By contrast, less dynamic regions have a scientific and technological
system which is still afflicted by structural problems, by low RTDI expenditure;
excessive concentration on Government research rather than on stimulating
private sector demand for innovation; inadequate resources to maintain
the existing infrastructure; strong dependence on external (Community)
sources of finance and excessive concentration of research activities
in and around capital cities (Lisbon, Athens and Dublin).
According to an evaluation of 52 Objective 1 and 6 regions for the period
1994 to 1999, structural intervention seems to have had beneficial effects,
especially on infrastructure. In Greece, for example, the effect was particularly
significant in Crete, where universities and research centres were strengthened,
and in Central Macedonia, through closer cooperation between local industry
(chemicals and textiles) and Government research centres.
In broader terms, when assessing the effect of the Structural Funds, it
is important to distinguish between different types of region, defined
by their potential for innovation, as measured by the extent of cooperation
between research institutions and businesses. In these terms, most Objective
1 regions are below the highest level and around a third can be described
as 'technological deserts.' The performance of regions, however, is affected
by the national features of the country in which they are located as well
as by the growth rate and other factors. The position from which they
start affects their development path, especially as regards the weakest
regions. Regional differences in performance indicate that the policies
implemented have been successful in some cases (Lisbon and Ireland) and
failed in others (Attiki), while yet other regions seem to have developed
independently of their innovative capacity (in particular, tourist regions
like the Canary islands) (Table 19).
At the same time, the effect in Objective 1 regions cannot be limited
to the expansion of the research base, even if it is natural to focus
on this because of the scale of the technology gap. In a number of Member
States and regions, increased effort has been devoted to strengthening
human capital by increasing the number of qualified researchers and giving
greater importance to the establishment of networks between industry and
universities, technology transfer and support for the demands of business.
Accordingly, in Ireland, after the mid-term review, increased attention
was focused on company research and development as well as on the training
of researchers. Co-financed measures have served to increase the amount
of RTD in industry significantly, more than 400 firms being assisted,
many of which had not undertaken RTD before, and 300 firms participating
in research training. Increased industrial awareness, therefore, has helped
to strengthen the relationship between public research and the private
A further example is the CDTI (Centre for Industrial Technological Development),
which was set up in Spain to support technological development in firms
in Objective 1 regions by providing funds which are reimbursable if projects
are successful. The 243 projects approved have involved investment in
RTD of EUR 240 million and 1,622 full-time researchers. From the 108 projects
completed, around 74% of the funds provided will be reimbursed.
Furthermore, effort still needs to be made to increase the efficiency
with which funds are used and managed. The most innovative measures have
frequently been insufficiently exploited because of the relative complexity
of the procedures for implementing them, as well as, on occasion, difficulties
in finding projects of sufficient quality to justify financing. This may
have contributed to reducing the efficiency and effect of the Structural
Funds. In addition, there is still inadequate follow-up and evaluation
of projects. These problems apart, the implementation of genuinely innovative
measures can be useful for addressing the difficulties noted above; but
they need to be based on active partnership between public and private
sectors and entail an appropriate division of responsibility between the
Union, Member States and regions. 3
RIS: a proactive innovation approach
The Commission has also helped to develop the innovative capacity of
regions through a number of pilot actions. Since 1994, 32 regions have
received funds under Article 10 of the ERDF for developing RIS projects
(regional innovation strategies).4 These involve
private-public partnership and are intended as a response to the needs
of businesses, specifically SMEs, to innovate. Over the past 5 years,
over 5000 SMEs have undergone technology audits and/or interviews. Hundreds
of RDTI organisations have been consulted in the process of formulating
strategies and implementing action plans.
RIS has produced significant results in the form of the creation of new
regional partnerships and joint working methods, the strengthening of
the innovative process and the launching of new innovation projects within
firms. For example, in Castilla y Leon, almost 800 firms took part in
a series of meetings to decide the type of RIS to be implemented. A total
amount of EUR 447 million was committed for the first four years of implementation
(1997 to 2000), increasing technological expenditure in the region from
0.8% of GDP in 1997 to 1% in 2000.
These initiatives were succeeded by a new generation of projects, RIS+.
The Commission has also developed a database (RINNO - Regional Innovation
Observatory) to list and describe all public incentives for innovation
in EU regions so as to encourage the transfer of innovation.
The information society: focus on telecommunication infrastructure
The potential of the Information Society for improving regional competitiveness
and social cohesion is recognised by the Structural Funds. The rapid diffusion
of information and telecommunication technologies opens up new development
opportunities for the less advantaged regions, in particular, by facilitating
a more efficient location of investment, given the differences in costs
and access to markets. Regions can also benefit from these technologies
by exploiting their own areas of specialisation and attracting new, higher
valued-added activities. Moreover, since these can be located outside
urban areas, they are a means of helping to achieve more balanced development
across the EU.
The proportion of the Structural Funds devoted to investment in telecommunications
is relatively small, at only around 2% of the total spending, 1.5% on
infrastructure and 0.3% on stimulating the demand for services and applications.5
The focus has, therefore, been on improving the basic system and narrowing
disparities between peripheral regions and the rest of the Union through
the digitalisation of networks and improving the quality of service.
Technological change and the liberalisation of telecommunication markets
are driving factors towards a more coherent and integrated approach, aimed
at furthering the development of the Information Society, especially as
most investment in the sector is highly profitable. The Structural Funds
need, therefore, to be focused on stimulating demand, developing new skills,
raising the awareness of all those involved and implementing new high
value-added applications while giving strategic priority to regional balance.
RISI: a catalyst for regional development
Through its integrated approach, the RISI 7has
had a major effect in boosting the creation of specialised know-how and
jobs in the regions. In Nord-Pas-de-Calais it has been a catalyst for
the development of new skills and know-how, new activities and an enterprise
culture. This is recognised by virtually all those involved in regional
development and is reflected in the integration of various information
technology measures (distance-learning and training, business development,
health care, cultural activities, cyber-centres, public services, websites
and transport) into the regional programmes.
Human resources: helping people into work and strengthening education
and training systems
In the main countries with Objective 1 regions, structural policies
have helped to strengthen active labour market measures, education and
training systems and the links between training and job placement. The
focus has been on integrating training with other types of action, giving
increased importance to disadvantaged groups and targeting assistance
on these, adjusting training to the needs of the labour market, adopting
a 'customer-oriented' approach and improving the quality of training.
Examples of actions include support for qualification and accreditation
systems, developing technical teaching in upper secondary and higher education,
improving infrastructure, providing continuing training to teachers and
trainers and trying to reduce the rate of school drop-out.
Overall, the ESF has been a catalyst in modernising education and labour
market policies in different countries. ESF co-funded activities, and
the need to comply with the administrative requirements for receipt of
funds, have helped to encourage the development of mechanisms for the
better planning of policies, better coordination and improved relations
between the institutions involved. As a result, a single, standard reference
framework emerged between the fund-giving agencies and the regions, which
facilitated the dissemination of techniques for implementing social and
economic policy. Best practices identified by evaluators include greater
transparency in policy implementation, a strengthening of the capacity
to manage at local and regional level and closer links between public
policy and labour market needs.
In Spain, part of the added-value of the ESF was seen as providing support
for the reform of technical secondary education (by, for example, developing
work experience modules, introducing guidance and advice systems and taking
responsibility for disadvantaged students). The rationale for ESF intervention
and the scope of this remain relevant, given that a minority of students
undertake technical secondary education and the amount of expenditure
allocated to it is still relatively small.
In Portugal, the ESF helped improve the educational system by widening
the range of paths which students could follow and by giving priority
to quality. The training of teachers and trainers, both in primary and
secondary education (49.3% of teachers) and at university level (grants
for postgraduate courses) appears to be one of the major contributions
of the programme. Widening the range of educational and training paths
seems to have strengthened links between secondary education and labour
market needs and improved career guidance arrangements in schools. Indeed,
the support given to the training of 'medium level' technicians created
an alternative to traditional general education and provided skills which
were directly applicable on the labour market.
In Italy, the ESF has enabled the quality of technical streams to be
improved, through the gradual introduction of training for teachers (50%
of all vocational education teachers were covered), work experience modules
(30% of the total length of courses) and new training methods and programmes.
Environment: a key role in developing water supply infrastructure
In the case of environmental measures, the effects of structural intervention
in the cohesion countries and the Mezzogiorno need to be distinguished
from those in other parts of the Union.
In the cohesion countries, the proportion of households connected to drinkable
water supply and main drainage is still much lower than elsewhere in the
EU. This not only reduces the quality of life of the people concerned,
but also has a damaging effect on the potential for economic development,
and on tourism, in particular.
Many regions in the Mediterranean suffer from a shortage of water, especially
in the Mezzogiorno, where only 26% of the population is connected to drinkable
water supply throughout the year. Main drainage is also inadequate, while
in urban areas, environmental conditions are usually very poor, and not
enough is done to make people more aware of the issues involved and of
the need to manage the environment effectively.
These problems have adverse effects on the economy, as well as society,
and conflict with the aim of pursuing a sustainable development path.
Nevertheless, outside large cities, and except in a few areas of Spain
and Ireland, the low level of industrial development means that toxic
gas emissions tend to be less of a problem than generally in northern
In the north of the EU - in the new German Länder, in particular
- the main problems stem from industrialisation, which has left a legacy
of soil contamination, pollution and urban degradation. This had a damaging
effect on the image of many regions with traditional industries and reduces
their capacity to attract investment from outside. In rural areas - in
the Netherlands and Ireland, in particular - however, agriculture is a
major source of pollution.
During the period 1994 to 1999, environmental investment financed from
the Structural Funds amounted to over EUR 9 billion, around 9% of the
total funds for Objective 1. Over the same period, 20% of EIB loans went
to environmental projects, totalling EUR 1 billion in the cohesion countries
and almost EUR 3 billion elsewhere in the Union (mainly in the UK on water
In the cohesion countries, the Structural Funds played a major role in
improving water supply and distribution systems as well as those for waste
water treatment. In Greece, the number of urban areas connected to main
drainage almost doubled between 1993 and 1999, increasing the population
covered to over 70%. In Ireland, the proportion covered rose from 44%
in 1991 to 80% in 1999. In Portugal, the population connected to drinkable
water supply rose from 61% in 1989 to 95% in 1999 and that connected to
main drainage from 55% in 1990 to 90% in 1999.
The Funds also helped to increase water supply in regions with a serious
shortage. In Italy, for example, supply was expanded by over a third over
the programming period.
In the case of the Cohesion Fund, ex-post evaluation of a representative
sample of environmental projects generally indicated satisfactory results,
though a number of problems were identified in respect of the management
of water reserves. In particular, it appeared often to be difficult for
small-scale projects to improve supply and become self-financing. The
most significant environmental benefits were identified in respect of
water supply projects, in particular those concerned with better management
of reserves (projects in Sevilla and Lough Mask in Ireland, for example).
In areas severely affected by drought, moreover, water loss was considerably
reduced in a number of cases.
Beyond the immediate effects on the quality of life, especially of those
living in the less developed parts of the Union, the investment has also
given rise to wider benefits:
- significant progress in the extent of compliance with Community directives:
for example, in 1999, Ireland attained the standards imposed by the
directive on drinking water;
- a reduction in potential constraints on the development of agriculture,
industry and tourism;
- growing awareness of the need for integrated environmental policies
The areas in which it was possible to verify that improvements had been
made - and much remains to be done - consist mainly of municipal waste
treatment, the designation and management of protected natural areas,
the implementation of specific means for controlling air pollution (Greece)
and the degradation of rivers, from intensification of agricultural activity
(Ireland) and from a low level of water flow in industrial areas (Portugal).
- London School of Economics, The socio-economic impact
of projects financed by the Cohesion Fund, 1999.
- Over a third of SMEs in the Union (around 18 million)
are located in areas eligible for Structural Funds assistance, of which
3 million are in Objective 1 regions.
- COM (1998)275, 'Reinforcing cohesion and competitiveness
through research, technological development and innovation', Communication
of the Commission 12.06.1998.
- RITTS (Regional strategies for innovation and technology
transfer) have been financed under the Innovation Programme of the 4th
- COM (97) 7, 'Economic and social cohesion and the
information society', Commission Communication.
- European Commission, 'From telecommunications to
the information society: evaluation criteria for the 2000-2006 programmes',
Technical Document n°2, 1999.
- RISI (Regional information Society Initiatives) were
financed under Article 10 of the ERDF and Article 6 of the ESF.