EU structural funds. Franco Praussello University of Genoa

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1 EU structural funds Franco Praussello University of Genoa 1

2 Regional Policy Bridging the prosperity gap The European Union may be one of the richest parts of the world, but there are big internal disparities of income and opportunity between its regions. Through its regional policy, the EU transfers resources from affluent to poorer areas. The aim is to modernise backward regions so that they can catch up with the rest of the Union. 2

3 Mains steps The countries signing the Treaty of Rome refer in its preamble to the need to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing among the various regions and the backwardness of the less-favoured regions Setting-up of two sector-based funds: the European Social Fund (ESF) and the European Agricultural Guidance and Guarantee Fund (EAGGF). 3

4 Mains steps Creation of the European Regional Development Fund (ERDF) to redistribute part of the Member States budget contributions to the poorest regions The Single European Act lays the basis for a genuine cohesion policy designed to off set the burden of the single market for the southern countries and other less-favoured regions The European Council in Brussels in February 1988 overhauls the operation of the Solidarity Funds (now referred to as the Structural Funds) and allocates ECU 68 billion to them (at 1997 prices) The Treaty of the European Union, which came into force in 1993, designates cohesion as one of the main objectives of the Union, alongside economic and monetary union and the single market. It also establishes the creation of the Cohesion Fund to support projects in the fields of the environment and transport in the least prosperous Member States. 4

5 Mains steps The Edinburgh European Council (December 1993) allocates almost 200 billion ECU (at 1997 prices), one third of the Community budget, to cohesion policy. Alongside the Structural Funds, a new Financial Instrument for Fisheries Guidance (FIFG) is created. The Berlin European Council (March 1999) reforms the Structural Funds and adjusts the operation of the Cohesion Fund. These funds will receive over EUR 30 billion per year between 2000 and 2006, i.e. EUR 213 billion over seven years. The Instrument for Structural Policies for Pre-accession (ISPA) and the Special Accession Programme for Agriculture and Rural Development (Sapard) complements the Phare programme that has been in existence for seven years to promote economic and social development and environmental protection in the applicant countries in central and eastern Europe. 5

6 Mains steps The European Council in Lisbon (March 2000) adopts a strategy focused on employment and designed to make the Union the most competitive and dynamic knowledge-based economy in the world by the year The Gothenburg Council (June 2001) completed this strategy by linking it with sustainable development The European Council in Copenhagen (December 2002) leads to an agreement on the conditions for the accesion of 10 new Member States to the Union The European Commission presents its proposals for the reform of cohesion policy for the period : A new partnership for cohesion: convergence, competitiveness, cooperation. On 1 May, accession to the European Union of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. 6

7 Solidarity and cohesion Regional policy is an instrument of financial solidarity and a powerful force for cohesion and economic integration. Solidarity seeks to bring tangible benefits to citizens and regions that are least well-off. Cohesion underlines the principle that we all benefit from narrowing the gaps of income and wealth between our regions. Large differences in prosperity levels exist both between and within EU countries. The most prosperous regions in terms of GDP per capita (the standard measure of wellbeing) are all urban London, Brussels and Hamburg. The wealthiest country, Luxembourg, is more than seven times richer than Romania and Bulgaria, the poorest and newest EU members. The dynamic effects of EU membership, coupled with a vigorous and targeted regional policy, can bring results. The case of Ireland is particularly heartening. Its GDP, which was 64% of the EU average when it joined in 1973, is now one of the highest in the Union. One priority of regional policy is to bring living standards in the countries which have joined the EU since 2004 up to the EU average as quickly as possible. 7

8 The causes of inequality Regional inequalities have various causes. They may result from longstanding handicaps imposed by geographic remoteness or by more recent social and economic change, or a combination of both. The impact of these disadvantages is frequently evident in social deprivation, poor quality schools, higher joblessness and inadequate infrastructures. In the case of some EU states, part of the handicap is a legacy of their former centrally-planned economic systems. 8

9 GDP disparities 9

10 The disadvantaged regions Taken together, the disadvantaged regions (Objectives 1 and 2) are home to some 225 million inhabitants, or almost 50 % of the population of the Union of the Twenty-five. 10

11 Objective 1 The less-developed regions Objective 1 involves those regions in which GDP per head does not reach 75 % of the average for the Union. The regions covered by this objective in the Europe of the Fifteen exceed the 75 % level of the average GDP of the Twenty-five by simple statistics. They nonetheless remained just as much benefi ciaries of the aid called for in the programming period. 11

12 New member states In addition to these regions, Objective 1 covers the entire territory of the new Member States with the exception of Bratislava, Prague and Cyprus, which receive aid under Objectives 2 and 3. It also covers regions with very low population density (fewer than eight inhabitants per square kilometre) in Finland and Sweden and the regions on the extreme periphery 12

13 Obstacles to development The following are the principal obstacles to development in the regions in Objective 1: a low level of general investment; unemployment rates often higher than average; a lack of services for businesses and communities; a lack of the basic infrastructure necessary for economic activities. 13

14 Objective 2 The areas undergoing economic and social restructuring The four types of area in Objective 2 are facing the following difficulties: changes in the key sectors and decline of employment in the areas of industrial activity and services; a situation of economic and social crisis and the deterioration of neighbourhoods in the urban areas; a decline of traditional activities and depopulation of rural areas; a crisis due to the decline of employment in the fi sheries sector in areas that depend economically on fi shing. 14

15 The Cohesion Fund countries These are the least prosperous countries, which have a gross national product (GNP) of less than 90 % of the average for the Union, where environmental and transportation infrastructures require significant investment. In addition to Greece, Portugal and Spain, the Cohesion Fund today covers all the new Member States whose needs in these two areas are particularly great. 15

16 Objective 3 Individuals in difficulty on the employment market European aid through ESF to deal with employment and human resources targets unemployed young people, underqualified workers, the long-term unemployed and all those individuals facing inequalities of access to employment and vocational training. All social categories at risk on the employment market for reasons involving discrimination associated with gender, race or ethnic origin, religion, a physical or mental disability, age or sexual orientation are taken into account. Individuals receiving assistance are equally likely to live in disadvantaged or prosperous regions. 16

17 The cost of success Regional policy is about investing in people. The EU has used the entry of these countries to reorganise and restructure its regional spending. In the period from 2007 to 2013, regional spending will account for 36% of the EU budget. In cash terms, this represents spending over the seven years of nearly 350 billion. The effort focuses on three objectives: convergence, competitiveness and cooperation, which are grouped together in what is now termed Cohesion Policy. The priority focus is on the central and east European members plus the regions of the other EU states that have special needs. The 12 countries which have joined since 2004 will receive 51% of total regional spending between 2007 and 2013, although they represent less than one quarter of the total EU population. The money comes from three difference sources, according to the nature of the assistance and the type of beneficiary. 17

18 Main structural funds The European Regional Development Fund (ERDF) covers programmes involving general infrastructure, innovation, and investments. Money from the ERDF is available to the poorest regions across the EU. The European Social Fund (ESF) pays for vocational training projects and other kinds of employment assistance, and jobcreation programmes. As with the ERDF, all EU countries are eligible for ESF assistance. The Cohesion Fund covers environmental and transport infrastructure projects as well as the development of renewable energy. Funding from this source is reserved for countries whose living standards are less than 90% of the EU average. This means the 12 recent newcomers plus Portugal and Greece. Spain, which benefited under earlier Cohesion Fund operations, is being phased out. 18

19 How it is spent The bulk of regional spending is reserved for regions with a GDP below 75% of the Union average to help improve their infrastructures and develop their economic and human potential. This concerns 17 of the 27 EU countries. On the other hand, all 27 are eligible for funding to support innovation and research, sustainable development, and job training in their less advanced regions. A small amount goes to cross-border and inter-regional cooperation projects. 19

20 Regional funding shares 20

21 Creating growth and jobs The idea is for regional policy to dove-tail with the EU s so-called Lisbon agenda to promote growth and jobs by Making countries and regions more attractive for investments by improving accessibility, providing quality services and preserving environmental potential; Encouraging innovation, entrepreneurship and the knowledge economy through the development of information and communications technologies; Creating more and better jobs by attracting more people into employment, improving workers adaptability and increasing investment in human capital. 21