Transcript The European Union

The European Union
Economics & Policies
Regional and Social Policy
European 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
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1997 Unemployment
– 10 best regions: on average 3.6%
– 10 worst performing regions: 28,1%
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European Regional Policy
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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
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Declining industrial areas: objective 2
Certain rural areas: objective 5b
Sub-artic regions (objective 6)
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European Regional Policy
– Core-pheriphery pattern
 A high percentage of more prosperous regions lie at
the geographical center
 The golden triangle
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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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European Regional Policy
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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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European Regional Policy
– Divergence forces
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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)
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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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European Regional Policy
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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
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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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European Regional Policy
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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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European Regional Policy
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European Regional Policy
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Structural Funds
– European Regional Development Fund
– European Social Fund
– EAGGF-Guidance
– Financial Instrument for Fisheries Guidance
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European Regional Policy
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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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European Regional Policy
– Objective 4:
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Facilitating the adaptation of workers to industrial changes and
to changes in production systems
ESF
– Objective 5:
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(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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European Regional Policy
Objective
1994-9 Budget
93.972
15.360
15.180
6.919
6.862
0.697
14.051
1
2
3&4
5a
5b
6
Community Initiatives
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European Regional Policy
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Community initiatives have been wide
ranging and included: designed to tackle
specific problems
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RECHAR (coal mining areas)
RESIDER (iron and steel areas)
PESCA (fishing communities)
INTERREG (cross-border initiatives)
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European Regional Policy
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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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European Regional Policy
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4 principles of EU Regional Policy
– Multi-annual programs
– Partnership
– Subsidiarity
– Additionality
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European Regional Policy
– 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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European Regional Policy
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Partnership
– The EU is committed to the maximum
devolution of power (subsidiarity)
– Strong dialogues between all partners at all
levels
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Additionality
– Some governments have been accused of
responding to EU funding with cutting back
own expenditure
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European Regional Policy
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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)
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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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European Regional Policy
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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
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Start at billion 6.45 billion EURO per annum
Rise to 16.78 billion EURO by 2006
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European Regional Policy
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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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European Regional Policy
– 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
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Community initiatives have been reduced from 13 to
3 and their budget from 9% to 5%
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European Regional Policy
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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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European Regional Policy
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The issue of under-funding
– Structural funds are small: 0,46% of European GDP
– No redistributive transfers
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Australia, Canada, Switserland or the US: about 40% of
regional income differentials are eliminated through regional
transfers
– Equalisation of disparities of equal opportunities
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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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