the european union economics & policies regional and social policy

The European UnionThe European Union

Economics & Policies

Regional and Social Policy

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European Regional PolicyEuropean Regional Policy

1996 GDP per capita– 10 richest regions 3.1 times the higher then the

bottom 10– This is twice the level found in the US

1997 Unemployment– 10 best regions: on average 3.6%– 10 worst performing regions: 28,1%

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The regional problems are extremely divers– 1994-9: 4 main types of problems

Lagging regions – GDP < 75% of EU Average

– Objective 1

Declining industrial areas: objective 2 Certain rural areas: objective 5b Sub-artic regions (objective 6)

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– Core-pheriphery pattern A high percentage of more prosperous regions lie at

the geographical center The golden triangle

The centralizing is probably the outcome of two sets of countervailing forces:– One set tends to cause convergence– The other divergence

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Convergence: a series of automatic equilibrating processes which occur in a freely functioning market– Free trade in goods and services will lead to

regions specialising in the production and the export of goods and services in which they have a comparative advantage

– These effects are reinforced by the free movement of factors of production

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– Divergence forces Economies of scale: conentration of production at larger plants

can lead to great efficiency gains Localization and agglomeration economies

– Localization economies: firms in the same industry locate close to one another

– Agglomeration economies: firms from different industries locate close to one another (transport or financial facilities)

Intra-industry trade and dominant market positions: modern trade theory questions the ability of regions to share equally in the growth associated with freer trade. Intra-industry trade has shown the most rapid growth among more prosperous regions.

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Lack of competitiveness in peripherical regions due to poor location, weak infrastructure, low-skill labour forces, local tax, ...

Selective labour migration: – the freeing of labour mobility stimulates migration from

peripherical regions towards the core– Migration is selective: the yound and skilled

Currency: nations with peripherical regions could realign exchange rates but as those realignments became less frequent, peripherical regions were especially hurt

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Evidence from the US:– Long term integration is associated with

convergence of regional disparities rather than divergence

– Convergence forces eventually come to predominate

– BUT: US has a larger central budget

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Structural Funds– European Regional Development Fund– European Social Fund– EAGGF-Guidance– Financial Instrument for Fisheries Guidance

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Structural funds were given the task collectively to attain six priority objectives:– Objective 1: ERDF, ESF, EAGGF and FIFG– Objective 2: ERDF and ESF– Objective 3

Long term unemployment Facilitating the integration of young people ESF

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– Objective 4: Facilitating the adaptation of workers to industrial changes and

to changes in production systems ESF

– Objective 5: (a) adjustment of agricultural structures (EAGGF and FIFG) (b) development and structural adjustment (ERDF, ESF and

EFGGF)

– Objective 6: extremely low population density (ERDF, ESF, EAGGF and FIFG)

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Objective 1994-9 Budget

1 93.972

2 15.360

3 & 4 15.180

5 a 6.919

5 b 6.862

6 0.697

Community Initiatives 14.051

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Community initiatives have been wide ranging and included: designed to tackle specific problems– RECHAR (coal mining areas)– RESIDER (iron and steel areas)– PESCA (fishing communities)– INTERREG (cross-border initiatives)– ...

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European Regional Policy European Regional Policy

Cohesion Fund– Assist NATIONS with a GDP of less then 90%

of average EUROPEAN GDP– Greece, Ireland, Portugal and Spain– 3 billion EURO’s in 1999

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4 principles of EU Regional Policy– Multi-annual programs– Partnership– Subsidiarity– Additionality

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– Assistance through multi-annual programmes Key to the development of each programme is the

drawing up of a Single Programming Document (SPD) or Community Support Framework (CSF)

– Strategic plans

– Responsibility of the regional and local organisations

– Contains an analysis of the strenghts and weaknesses of the region together with a development strategy and an analysis of how it should be financed

– Typically a group of projects

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Partnership– The EU is committed to the maximum

devolution of power (subsidiarity)– Strong dialogues between all partners at all

levelsAdditionality

– Some governments have been accused of responding to EU funding with cutting back own expenditure

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ERP and the future– Enlargement:

Challenge to the structural funds:– Virtually all of the CEEC countries are eligible for the

highest rates of the structural funds (only two regions had GDP per capital in excess of 75% of EU average: Prague and Bratislava)

Challenge to the CAP– Countries such as Poland and Hungary have large

agricultural activities in those areas with high intervention prices

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Estimated extra costs for the structural funds: 13 billion ECU per annum

Financial perspective 2000-6 (Berlin)– Pre-accession aid: 3.12 billion EURO untill

2006– Post-accession allocations

Start at billion 6.45 billion EURO per annum Rise to 16.78 billion EURO by 2006

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Changes to the current system– Reduction in the areas eligible for assistance

The 6 priority objectives have been cut back to three– New Objective 1: Lagging regions

• Old Objective 1

• Objective 6

• Coverage has dropped from 25% to 20% of the population of EU15

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– New Objective 2: Economic and social conversion of Regions in Structural crisis

• Coverage is reduced from 25% to 18% of the population of the EU15

– New Objective 3: Human resources

• Objective 3 and 4

• Regions not covered by objective 1 and 2

Community initiatives have been reduced from 13 to 3 and their budget from 9% to 5%

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EMU:– Convergence criteria

Edinburgh Summit: increase structural funding Add Cohesion Fund

– 2000-... Structural funds will have to cope with regional

impacts of eastern enlargement as well as with the impact of the new strains imposed by the full monetary union

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The issue of under-funding– Structural funds are small: 0,46% of European GDP– No redistributive transfers

Australia, Canada, Switserland or the US: about 40% of regional income differentials are eliminated through regional transfers

– Equalisation of disparities of equal opportunities Given the issue of under-funding what should the primary task

of European Regional Policy be:– A policy designed to prop up depressed areas– A policy designed to allow depressed areas to compete on an

equal footing with other areas

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