Cohesion Policy in the European Union

Cohesion Policy in the European Union

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Cohesion Policy in the European Union The Building of Europe By Robert Leonardi

Robert Leonardi 2005 Softcover reprint of the hardcover 1st edition 2005 978-1-4039-4955-4 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-52581-2 ISBN 978-0-230-50386-1 (ebook) DOI 10.1057/9780230503861 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Leonardi, Robert, 1945 Cohesion policy in the European Union : the building of Europe / by Robert Leonardi. p. cm. Includes bibliographical references and index. 1. European Union. 2. Political planning European Union countries. 3. Decentralization in government European Union countries. 4. Regionalism European Union countries. 5. Regional disparities European Union countries. 6. European Union countries Economic policy. 7. Social policy European Union countries. I. Title. JN30.L464 2005 341.242 2 dc22 2004063676 10 9 8 7 6 5 4 3 2 1 14 13 12 11 10 09 08 07 06 05

In memory of Emil Noel, past Secretary General of the Commission and President of the European University Institute, who as a friend and mentor encouraged me to begin in 1988 the study of cohesion policy in the European Union.

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Contents List of Figures List of Tables Acknowledgements Preface: by Romano Prodi viii ix xi xii Chapter 1 Cohesion and Regional Policies in the European Union 1 Chapter 2 The CSF Revolution: The Origins and Structure of 33 EU Cohesion Policy Chapter 3 Cohesion Policy as Learning: The Planning Process 67 and Administrative Responses Chapter 4 Have Regions Converged? Sigma and Beta Convergence 89 in Objective 1 and Other EU Regions between 1988 and 1999 Chapter 5 Is the Italian Mezzogiorno in Line with Other 107 Objective 1 Regions in Europe? Chapter 6 The Challenge of Enlargement and Cohesion in the 140 Ten New Member States Chapter 7 Conclusions: The Constitutionalization of the 173 European Union and the Future of Cohesion Policy Notes 191 Index 212 vii

List of Figures Figure 1.1 Definitional components of the concepts of cohesion, 10 convergence and integration Figure 1.2 Dynamics of the cohesion model 12 Figure 2.1 Comparisons of national regional policy and EU 38 cohesion policy: before and after 1989 Figure 3.1 Conceptual framework for the multi-level and 70 multi-phase governance of EU cohesion policy Figure 3.2 Analytical framework for the implementation of 81 the EU s cohesion policy by type of response, administrative dimension and type of impact Figure 4.1 Upward convergence by poorer regions 96 Figure 4.2 Dispersion of GDP per capita in EU15 regions, 1988 1999 99 Figure 4.3 Dispersion of GDP per capita in Objective 1 regions, 100 1988 1999 Figure 4.4 Comparison of GDP density function by three 101 regional groupings, 1988 and 1999 Figure 4.5 EU unemployment rates (%) for EU15 and Objective 1 103 regions, 1988 2000 Figure 4.6 EU employment rates (%) for EU15 and Objective 1 103 regions, 1988 2000 Figure 4.7 EU activity rates (%) for EU15 and Objective 1 regions, 104 1988 2000 Figure 5.1 Variation of GDP for the regions of the Mezzogiorno, 112 1963 1999 Figure 5.2 GDP per capita differentials by macro areas vis-à-vis 115 Italian average, 1981 2000 (% PPS values) Figure 5.3 GDP per capita differentials (southern regions vis-à-vis 115 Italian average), 1981 2000 (% Euro fixed prices 1995 values) Figure 5.4 lnvestment/gdp ratio (Mezzogiorno and 117 North-Central regions) Figure 5.5 Differentials in investments per capita by Macro 118 areas vis-à-vis the Italian average, 1980 2000 (% Euro fixed price 1995 values) Figure 5.6 The socio-political logic of the production of 136 common versus individual goods Figure 7.1 Proposed reform of cohesion policy, 2007 2013 187 Figure 7.2 Comparison of 2000 2006 and 2007 2013 financial 189 instruments and objectives viii

List of Tables Table 1.1 EU population covered by territorialized cohesion 16 policies, 1989 2006 and beyond Table 1.2 Allocation per country of Objective 1 funds, 16 2000 2006 Table 1.3 Comparison of expenditures for agriculture and 26 cohesion policies between 1989 and 1999 (MECU) Table 1.4 Impact of enlargement on the number of Objective 1 28 regions among EU15 based on 2000 GDP per capita in PPS figures Table 1.5 Annual GDP growth in four cohesion countries, 28 1988 2002 Table 2.1 ERDF allocations to EEC-10, 1975 1984 (% of total 42 allocations) Table 2.2 ERDF allocations from 1975 1987 (MECU in current 43 prices) Table 2.3 Overall distribution of the Structural Funds 1989 93 51 (MECU in current prices) Table 2.4 Total allocations for 1989 1993 CSFs in terms of SF, 55 EIB, private and national contributions (MECU in current prices) Table 2.5 Overall distribution of Structural Funds, 1994 99 57 (MECU in current prices) Table 2.6 Total allocations for 1994 1999 CSFs in terms of SF, 59 EIB, private and national contributions (MECU in current prices) Table 2.7 Overall distribution of the Structural Funds 2000 2006 63 (MEUR in 1999 prices) Table 3.1 Structural Funds expenditures by country with 87 Objective 1 regions 1989 1993 and 1994 1999 (MECU in current prices) Table 4.1 Beta and sigma convergence across time and countries 97 Table 4.2 Beta convergence in Objective 1 and Non-Objective 1 100 regions, 1988 1999 Table 5.1 Comparison of GDP per capita (PPS) in Objective 1 110 regions in 1989, 1994 and 2001 Table 5.2 Employment rates and unemployment levels in 119 Objective 1 regions, 2002 Table 5.3 Number and types of crimes reported to the Italian 127 national police, 1999 ix

x List of Tables Table 5.4 Criminal activity carried out by organized crime 129 in Italy s eight southern regions, 1995 2001 (per 100,000 inhabitants) Table 5.5 Structural Funds expenditures in Italian Objective 1 131 regions, 1989 2006 Table 5.6 Change in GDP in Italy s southern regions, 1999 2002 134 Table 6.1 Annual GDP growth rates (%) of new member states 152 and candidate states, 1990 2002 Table 6.2 Inflation rates (%) in new member states and 154 candidate states, 1990 2002 Table 6.3 Unemployment rates (%) in new member states and 155 candidate states, 1990 2002 Table 6.4a Levels of foreign trade and FDI in new member states 156 and candidate states, 1998 and 2002 Table 6.4b FDI and EU percentage (1989 2001) 157 Table 6.5 State of public finances in the new member states 158 and candidate states, 1996 2002 Table 6.6 The state of negotiations for enlargement as of 161 9 October 2002 with twelve candidate states Table 6.7 2004 2006 budget for new member states (MEURO 169 in 2002 prices) Table 6.8 Structural Funds allocated for the ten new member 170 states, 2004 2006 (MEURO in 2003 prices)

Acknowledgements I would like to thank the members of the Economic and Social Cohesion Laboratory who have helped me gather much of the data presented in this volume. A special thanks goes to Simona Milio, Garbiele Amorosi, Francesco Boccia, Michele Limosani, Fabrizio Fasulo, Diego Artuso and Marcello Leonardi. xi

Preface In 2004 the European Union witnessed the most extensive enlargement ever undertaken. With the increase in the number of member states from the previous fifteen to the current twenty-five, the European Union has extended the reach of its socio-economic policies to new geographic areas. Eight of the ten countries are located in Central and Eastern Europe, the part of Europe that before 1989 was behind the Iron Curtain. The other two countries are located in the middle of the Mediterranean Sea and provide a significant southern thrust to EU activities. With the entry of Cyprus, an historic change has taken place. Turkish and Greek Cypriots have begun talking to each other for the first time since 1974 even if that dialogue has not yet achieved the full unification of the island. Enlargement carries with it an important number of innovations in the definition of the European Union s institutional structure and policies. I would add that the current enlargement has contributed not only to redefining Europe as an economic and political entity but also to reformulating its role in the world. The expansion of the EU to twenty-five member states has helped to advance the European unification process, which was launched by the founding fathers (Monnet, Spinelli, Schuman, Adenhaur, Spaak, DeGasperi) at the beginning of the 1950s. But it has also served to reinforce the main principles that have characterized the European Union from the outset. The first of these principles is the re-unification of the European continent based on a policy of peace and prosperity. As Jean Monnet initially defined the logic of integration to make war in Europe unthinkable, the increase of membership from fifteen to twenty-five and eventually to more than thirty states represents the attempt to create for Europe a common institutional, economic and political structure. Further expansion of the EU into southeastern Europe and the Balkans will help to consolidate the unification of Europe s national commercial and financial markets within the structure of the Single Market and the Single Currency. The second principle of European integration has been to raise the level of well-being in Europe. Since the launch of the Single Market in 1993 and the enlargement process Europe that expanded the EU from the original six to the current twenty-five member states, Europe has witnessed a significant increase in intra-european trade. One of the direct outcomes of the expansion process has been the increase in foreign direct investments by European firms in the economies of the candidate states and those countries expected to eventually join the Union. The launch of the Single Currency has had a parallel effect in the stabilization of even the national xii

Preface xiii currencies that have remained outside of the euro zone. Thus, the creation of the euro has had beneficial impacts on interest rates and exchange rates for both the EU members and non-members of the euro zone. As a consequence, the prospects of joining the European Union has served to eliminate many of the uncertainties associated with international confidence in the national currencies of small and intermediate sized states along the EU borders that are waiting to join the expanding Union. The expansion of the European Union has served to consolidate a more stable and prosperous European market for the new member states as well as expanding the opportunities of trade and investment on the part of the old member states. Thirdly, enlargement has helped to redefine Europe s role in international economic and financial affairs. The Europe of twenty-five member states has become a major player at the international level, both in terms of economic as well as political issues. Expansion of the borders of the Europe Union toward the east and the south has encouraged the development of a clearer policy toward its neighbours and increased its ability to co-operate effectively in influencing developments. Finally, enlargement has also placed an emphasis on the political role of the European Union internally and externally. As has been evident ever since the 2000 Nice European Council, enlargement has pushed forward the agenda on the definition of a political Europe and the need to redefine internal operations on the basis of a new European Constitution. But this book is not merely an analysis of enlargement and the activities of the current Commission. Instead, it asks the basic question of what has been the role of cohesion policy in the expansion of the membership of the EU toward the south and east? Has the track record of the EU s cohesion policy since 1989 served to attract new member states or has its role been neutral or negative in nature? The book argues convincingly that the cohesion policy has served as one of the main attractions for joining the Union on the part of the less developed countries on the EU s southern and eastern borders. Is this because the cohesion policy represents another means of subsidizing uncompetitive firms or handouts to citizens? This book argues to the contrary that the cohesion policy has assumed since the beginning the political objective of laying down the principle of mutual solidarity. The concept of solidarity has been translated by the reform of the Structural Funds in 1988 into the goal of achieving economic and social cohesion throughout Europe on the basis of a policy of economic restructuring and growth in the most backward areas. In fact, since 1989 the cohesion policy has concentrated on those Objective 1 regions with the greatest needs to stimulate economic growth, productive investments and job creation. What have been the results of this policy? Have the backward regions made strides forward? Have they grown faster than the European average?

xiv Preface Has the gap in levels of socio-economic well-being been reduced and are formerly backward regions better off today than they were in 1989? The results that are presented in the book argue clearly that the EU s cohesion policy has had a significant impact in terms of improving levels of socio-economic well-being in the formerly less developed areas. In the most recent list of Objective 1 areas we have seen the exit of a number of regions that before were previously problematic: Abruzzo and Molise in Italy, Cantabria in Spain, Lisbon-Tagus Valley in Portugal, the entire southeastern part of Ireland, the Highlands and Islands of Scotland and Northern Ireland, Corsica and Valenciennes in France, Flevoland in Holland, and Hainault in Belgium. During the next planning period after 2006 another large contingent of current Objective 1 regions in Portugal, Spain and Greece will also exit. Such a record of performance holds the prospect that the new states and regions that have entered the Union in 2004 will also have the prospect in the short to medium term of building-up their economic base and employment opportunities through the consolidation of the public-private partnership that is at the heart of the cohesion policy. The book also critically looks at the European, national and regional responses to the cohesion policy across the Objective 1 and 2 regions and argues that there has not always been an optimal response on the part of the administrative structure and that policy learning is an important but often forgotten aspect of innovation in policy making and implementation. The book argues convincingly that the ability to learn does not always correlate with levels of socio-economic development nor does learning take place immediately or only once during the lifetime of a policy. Thus, countries with weak economies but a strong will to develop may be able to grow at rates that will allow them to significantly converge toward the European average in terms of socio-economic well-being and employment rates in the short to medium term rather than having to wait decades for economic restructuring to take place. The analysis contained in the book has been very useful in the debate undertaken on the future of cohesion policy in the 2007 2013 period. The evidence presented in Chapter 4 makes a convincing case that the convergence witnessed at the European level is due in large part to the convergence of the EU s Objective 1 areas. This conclusion was confirmed in the data presented in the Commission s Third Cohesion Report. Another valuable insight is the emphasis placed on the institutional response to the policy at the national and regional levels. Up until now the assumption has been that long standing member states have had all of the necessary administrative capacity to successfully implement the cohesion policy in their less developed areas. The book shows that this has not always been the case. Both new as well as older member states have had to rethink their administrative approaches to regional policy in order to maximize returns and impacts. In the new member states the goal of building national

Preface xv institutional capacity will be carried forward through the aid provided by the Structural Funds, and new programmes are on the horizon to help build greater capacity also at the regional and local levels. Cohesion policy has helped political and administrative leaders to understand that it is no longer acceptable for policy making and implementation to be focused only at the national level. Regional and local levels need to be involved if development is to be sustainable over time and capable of using the endogenous potential that is available in Europe s countries and regions. Finally, the book makes a convincing argument that the major objectives of my presidency introduction of the single currency, enlargement, and the Constitution are interconnected and constitute integral parts of the political objectives of European integration. In this manner, the book makes a contribution not only for the students of cohesion policy, but it also informs policy makers of their role in making certain that the general objectives of European integration (solidarity, unity, and the building of common institutions) are not forgotten in the conflicts over budgets, the allocation of resources, and the minutia of policy making. This Commission has not forgot these objectives, and they represent the legacy that will be passed on to the new Commission that takes office in November. Romano Prodi, Brussels, 15 April 2004

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