regional policy – outline

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Regional policy – Outline Economic and legal framework

problem regions reasons for European action first steps of a policy economic and social cohesion

Coordination of national and Community policies transparency of regional aid coordination instruments for national policies coordination of Community policies

Coordination of Community financial instruments reform of the Structural Funds method of structural operations Community Initiatives ERDF

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Why is there a regional policy? Localization conditions for economic activities

natural endowments deliberate policy to change conditions (eg. infrastructure)

The relation between national and Community regional policies it is the Member States who have to solve regional problems the Community coordinates in order to avoid competition for assistance

between Member States

The main objectives: to reduce existing regional disparities by transferring Community resources in order to achieve economic and social cohesion

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Economic & legal framework With the advent of industrial revolution new

localization factors came to the fore: energy sources raw materials waterways, harbour sites

Infrastructures acquired importance “External economies”

advantages that do not impose specific costs on undertakings

Concentration of economic activities can lead to disadvantages:

pollution congestion

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Economic & legal framework – 2 The importance of given localization factors change

over time The phenomenon of globalization

international competitiveness is based much less on static comparative advantages (territorial concentration, natural endowments) but on

qualitative dynamic parameters factor mobility social consensus information the capacity to combine factors effectively

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I. Problem regions Three types of problem regions:

whose development is lagging behind where declining industrial activities are dominant where agriculture dominates

What is common in these three types? Excessive dependence on a limited range of traditional economic

activities which cannot provide sufficient productivity employment and income

Common consequences: relatively low per capita GDP high and prolonged unemployment continuous outward flow of population

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I. Problem regions“Regions whose development is lagging behind”

Definition: where p.c. GDP is < 75% of Community average A combination of handicaps:

insufficient or run-down infrastructure weak or outdated industrial structures agriculture where archaic structures prevail population outflow combined with urban decay unemployment (especially of the young and uneducated)

Usually situated at the periphery of their country or the European Union

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I. Problem regionsDeclining industrial areas

A large part of the population employed in declining industrial sectors: coal-mining, steel, shipbuilding, textiles cause:

exhaustion of natural resources competition from substitutes competition of low-wage countries

Very high population density Pollution Lasting unemployment

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I. Problem regionsRural areas 20% of the territory but only 9% of the population low population density poor diversification of industry and services lack of employment possibilities outflow of population adverse geographic factors

remoteness insularity mountainous situation

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I. Reasons for European action The effects of market mechanisms on regional differences

increasing differences concentration

What do MSs do to decrease regional differences? improve the infrastructure and social & educational development

of backward regions grant tax incentives and subsidies to investors in poor regions

A Community cannot tolerate wide disparities across the regions

The Community’s regional policy can canalize more funds into underdeveloped/declining regions prevent unhealthy competition of subsidies formulate guidelines and set priorities at European level

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I. First steps of a policy Article 2 of the EEC Treaty: The Community shall have as its

task, i.a., to promote throughout its territory a harmonious development of economic activities. the EIB should help regions in need in catching up derogation in Art. 87 (state aid): national aid to regions where the

standard of living is abnormally low may be considered to be in compliance with the common market.

Regional policy efforts appeared in the mid-1960s 1971: resolution (in the framework of the Werner Plan) 1975: European Regional Development Fund 1975: creation of a Regional Policy Committee

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I. Economic and social cohesion Swift development in the wake of the internal market plan 1986/87: SEA

introduction of regional policy acknowledging its role in economic and social cohesion

1988: Delors I Package (CAP reform, reform of Community financing and of Structural Funds)

1989: new regional policy, ECU 64 bn for 1989–1993 1992: Maastricht Treaty: strengthening of economic and

social cohesion is a fundamental objective of the Union 1992: Delors II Package – roughly doubling the resources

devoted to regional development in the 1994- 1999 period (ECU 13 bn in 1988–1994 25 bn p.a.)

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I. Economic and social cohesion EMU and regional disparities

budgetary discipline affecting the possibilities of state investments

Cohesion Fund to contribute to environment and transport infrastructure projects in MSs with a p.c. GDP < 90% of the Community average

(Greece, Spain, Portugal, Ireland) which are implementing a programme to comply with the conditions

of economic convergence (Maastricht criteria)

Agenda 2000 assistance has to be maintained in the period 2000–2006

230 bn for the actual Member States 45 bn for the six prospective Member States

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II. Coordination of national and Community policies Economic and social cohesion is more than just giving subsidy to poor

regions: coherent action through coordinating national and Community

economic policies Community policy complements national efforts economic and social cohesion has multiple ties with other

Community policies

agriculture fisheries environment trans-European networks

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II. National and Community policies – 2 The Treaty of Rome gave Commission the right to monitor

the regional policies of the Member States Art. 87: any aid which distorts or threatens to distort

competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

Exemptions: “aid to promote the economic development of areas where the

standard of living is abnormally low or where there is serious underemployment”

“aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest”

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II. Transparency of regional aid Art. 88: the Commission shall, in cooperation with the Member

States, keep under constant review all systems of aid existing in those states

C. has to be notified by all plans to grant or alter aid Commission can either approve or amend these plans Non-complying MSs can be taken to the Court of Justice SEA: even rich countries can pursue regional policies The Commission’s aim:

ensuring the concentration of aid in the poorest regions maintaining a differential in aid intensity between regions

Eligible regions and ceilings (30–75%) are determined

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II. Coordination instruments for national policies Commission determines

priority areas possible resource levels brings “European value added” by proposing adjustments in the

measures being implemented by MSs

Framework for structural fund aid: Community Support Frameworks (CSF) NSRF (2007–2013) Single Programming Documents (SPD) Reg. Policy Comm. (1975) gives opinion of CSF & SPD

Committee of the Regions (1993) – coordination of regional policies in the fields of: education, culture, public health, trans-European networks, cohesion

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II. Coordination instruments for national policies Commission has a databank on regional development

programmes and aid systems Commission compiles every three years a progress report on the

situation and socio-economic evolution of the Community’s regions

Innovative measures & pilot projects experiments 1994–1999

interregional cooperation inside and outside the Community (ECOS and Ouverture)

planning of the Community territory innovation in regional economic development development of urban policies

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II. Coordination of Community policies Several Community policies have regional impacts

agriculture, social policy, research programmes, Single Market Programme

1979: Regional impact assessment (AIR) Structural Funds: attention is devoted to environment,

competition and public procurement Business and Innovation Centres (BICs) (>100) multi-

service assistance to innovative SMEs Community initiatives

contribute to resolving problems directly related to other Community policies

promote the application of C policies at the level of the regions solving of problems common to certain categories of regions

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III. Coordination of Community financial instruments European Social Fund (ESF) European Agricultural Guarantee and Guidance Fund

(FEOGA) Guidance Section changed since 2007 European Regional Development Fund (ERDF) Financial Instruments for Fisheries Guidance (FIFG) Cohesion Fund ECSC and Euratom loans European Investment Bank (EIB)

prior to the foundation of ERDF the EIB was responsible for most of regional development financing

after that, 75% of its loans serves regional policy, transport, energy, telecommunications

the Maastricht Treaty confirms its importance and cooperation with the Structural Funds and other Community financing

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III. Reforms of the Structural Funds

1988: Council Regulation (with an eye to the Single Market) on the tasks of Structural Funds + EIB + other

1992: Edinburgh European Council determined the financing arrangements up to the end of the century

Delors II Package: 1/3 of the General Budget allocated for structural policy (ECU 141,471 mn)

coordination of the consequences & requirements of TEU, Cohesion Fund, FIFG – regulation of the Structural Funds amended

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III. Reforms of the Structural Funds Definition of the NUTS system (1988) Nomenclature des unités territoriales statistiques (Nomenclature of Units of Territorial Statistics)

NUTS 1: 77 (B: régions) NUTS 2: 206 (B: provinces) NUTS 3: 1031 (B: arrondissements) NUTS 4+5: local level

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III. Reform of the Structural FundsNumber of NUTS 2 regions of the Member States (1998)

11

1

38

13

18

26

1

20

1

129

7 68

35

0

5

10

15

20

25

30

35

40

B DK D EL E FR IR I L NL AT P SF S UK

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III. Reform of the Structural Funds

Priority objectives for the period 1994–1999 Objective 1: promote development and structural adjustment

of regions whose development is lagging behind (ERDF, ESF and EAGGF-Guidance)

Objective 2: conversion of regions, frontier-zone regions or parts of regions seriously affected by industrial decline (ERDF and ESF)

Objective 3: combat long-term unemployment, facilitate the occupational integration of young people and the integration into the employment of the socially excluded (ESF)

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Priority objectives for the period 1994–1999

Objective 4: facilitate the adaptation of workers to industrial change and the evolution of production systems

Objective 5a: speeding up the adaptation of agricultural structures (EAGGF) and fisheries structures (FIFG)

Objective 5b: facilitate the structural adjustment of rural areas (EAGGF, ESF, ERDF and FIFG)

Objective 6: promote the development of regions with extremely low population density and harsh climate of the Nordic countries

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31,3

15,8

39,1

100

82,9

47,6

100

55,8

41,6

24,2

40,6

100

53,6

24,6

41,950,6

0

20

40

60

80

100

120

Beneficiaries of EU regional policy, as per cent of population

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III. Reform of the Structural Funds Sources:

European Spatial Development Perspectives (ESDP) Berlin European Council (24-26 March 1999) Regulation (EC) No 1260/99

Objective 1: to promote the development and structural adjustment of regions whose development is lagging behind Average per capita GDP < 75% of EU average Also covers most remote regions: French overseas territories, Azores,

Madeira, Canary Islands Previous Objective 6 regions 2/3 of Structural Funds Operations come under Objective 1 Almost 20% of the EU’s total population have to benefit

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III. Reform of the Structural FundsObjective 2: to contribute to the economic and social conversion

of regions in structural difficulties (other than those eligible for the new Objective 1)

Former Objective 2 and 5b regions Eligible regions:

Areas undergoing economic change Declining rural areas Depressed areas dependent on fisheries Urban areas in difficulty

No more than 18% of the EU’s population will be covered Share of industry: max 10%, share of agriculture: max 5%.

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Objective 3: all measures for human resource development outside the regions eligible for Objective 1.

Former Objective 3 and 4 Framework for all the measures to be taken under the new

title on employment and under the European Employment Strategy

Art. 215: “Each Member State and the Community shall ... work towards developing a coordinated strategy for employment and particularly promoting a skilled, trained and adaptable work- force and labour markets responsive to economic change ...”

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III. Method of structural operations

Four principles of operation: concentration programming

multi-annual development plans (instead of projects) additionality

Community actions complement national measures partnership in

preparing the programmes (including research) financing the action follow-up impact assessment

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III. Method of structural operations Single Programming Document (SPD)

the Member State can request for this form (simplier) its content:

strategic priorities programming procedures

aid granted The form of financing:

co-financing operational programmes the Commission appoints an intermediary which tackles the global

subsidy The Community's share:

Obj. 1: 75% of the real costs, at least 50% of public expenditure Other: 50% of the total costs, at least 25% of public expenditure CF: 80-85%

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Community Initiatives 2000-2006

INTERREG (cross-border, transnational and interregional cooperation)

EQUAL (transnational cooperation to combat all forms of discrimination and inequalities in the labour market)

LEADER (rural development) URBAN* (regeneration of crisis-struck areas

in medium-sized and large towns)

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III. European Regional Development Fund

Activities redefined in 1988, 1993, 2000 and 2007 The Fund participates in the financing of productive investment to permit the creation or maintenance of permanent

jobs investment in infrastructure in Objective 1, 2, and 5b regions the development of indigenous potential (SME, services for enterprises,

transfer of technology, direct aid to investment) investment in education and health (Objective 1 regions) research and technological development productive investment + investment in infrastructure regional development operations, in particular in frontier regions preparatory, appraisal, monitoring and evaluation measures

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Cohesion Policy

Is 34% of EU budget (€ 336 billion for the period 2007-2013, at 2004 prices)

Is about 0.41% of Union GDP (with rural development and fisheries: 0.46%)

About 50-50 between current and new Member States

More than ¾ of the budget for regions and Member States lagging behind in development

Context Proportions of

expenditure

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Observations Significant convergence of cohesion countries Positive trend in Obj. 1 regions overall GDP, employment and productivity growth

above European average Modernisation of economic structures and

management methods Better governance at regional level Greater regional co-operation at European

level

Regional Policy

EUROPEAN COMMISSION

18/02/2004EN

ENEN

3535

Third Cohesion

report

Third Cohesion

report

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

SpainPortugalGreeceCohesion 3

GDP Growth in Cohesion CountriesGDP Growth in Cohesion CountriesGDP per head growth in Spain, Portugal and Greece between 1998 and 2002 GDP per head growth in Spain, Portugal and Greece between 1998 and 2002

compared to average GDP growth in EU15 compared to average GDP growth in EU15

GDP Growth in Cohesion CountriesGDP Growth in Cohesion CountriesGDP per head growth in Spain, Portugal and Greece between 1998 and 2002 GDP per head growth in Spain, Portugal and Greece between 1998 and 2002

compared to average GDP growth in EU15 compared to average GDP growth in EU15

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Impact of enlargement Population in the convergence objective goes from

84 million to 123 million

Development gap between regions doubles: average GDP in Obj. 1 is 69%: new MS 46%

Employment rate in EU 15 grew from 60% to 64% (1996 – 2002). In NMS 10 it was 56%: (59% in 1999)