Transcript 4. Regional Policy and EU Enlargement

REGIONAL POLICY
Valanta Milliou
[email protected]
http://www.aueb.gr/users/milliou/teaching.html
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1. Introduction
2. Justification
3. Practice
4. Regional Policy and EU Enlargement
5. Recent Developments
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1. Introduction
3
Regional Policy
One of the EU priorities is the existence of equal incomes and
economic growth in its member-states and its regions.
This is clearly stated in the preamble of the founding treaty of the
EEC (Treaty of Rome, 1957):
‘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-favored
regions.’
→
Attempt to fulfill the above through the Regional Policy (RP).
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Regional Policy (cont.)
More than 1/3 of the EU budget is allocated to the Regional Policy.
Regional Policy:
 Aims
to reduce gaps in development among the regions
 Works

to improve disparities among the wellbeing of citizens
Helps lagging regions to…
- catch up
- restructure declining industrial regions
- diversify the economies of rural areas with declining
agriculture
- revitalize declining neighborhoods in the cities.
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Regional Policy (cont.)

Seeks to generate new resources by investment

It sets job creation and the reduction of long-run unemployment as
its primary concern.
In other words, the Regional Policy seeks to strengthen the
economic, social and territorial ‘cohesion’ of the EU.
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Inequalities in EU
Europe is highly centralised in
terms of economic activity:
‘core’ regions (W.
Germany, Benelux, N.E. France,
S.E. England) have 14% of the
land, 33% of the population &
50% of EU GDP.
 The
Centrality of EU25
Regions
Periphery
Intermediate
Core
The ‘periphery’ regions have
65% of the land, 40% of the
population & just 20% of EU
GDP.

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Inequalities in EU (cont.)
Why should we be interested in the distribution of economic
activities?
Their distribution affects importantly the wellbeing of the EU
citizens. E.g.:
The unemployment rate in the ‘periphery’ regions is much higher
than the one in the ‘core’ regions.

Youth unemployment rate: 134.2% in ‘periphery’ regions, 60.5%
in ‘core’ regions (2001, EU27=100)
The income of the citizens in the ‘periphery’ regions is much
lower than in the ‘core’ regions.

More specifically:
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Inequalities in EU (cont.)
250
200
EU25=100
150
100
50
0
lu ie dk at nl uk be se fr fi de it es cy gr sl pt mt cz hu sk ee pl lt lv bg ro tr us
2003: Average per capita national GDP (corrected for prices) relative to the
average per capita GDP of ΕU25=100
Very uneven income distribution geographically :
.
Luxembourg 215%, Ireland 132%, Bulgaria 26%
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Inequalities in EU (cont.)
<50
Income distribution even
more uneven at regional
level:
EUR27 = 100
50 - 75
75 - 90
90 - 100
100 - 125
 125
1/4 of ΕU27 population in 64
regions have per capita GDP below
the 75% of the EU average.

13% of EU15 population have per
capita GDP below the 75% of the EU
average.

(less even within the nations)
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Inequalities in EU (cont.)
Strong regional contrasts in:
- Portugal (Lisbon and the North vs. the South and Centre)
- France (Paris vs. the rest)
- Spain (Northeast and Madrid vs. South and West)
- UK (South vs. North)
- Germany (South vs. North)
- Sweden (South vs. North)
- Belgium (North vs. South)
No regional contrasts in:
- The Netherlands
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Inequalities in EU (cont.)
French example:
-Ile de France (Paris) has
almost 1/3 of all economic
activity (GDP).
- Per capita incomes (not
shown) are 158% of EU15
average.
- Mediterranee has 10% of
GDP, 12% of population.
• GDP/pop only 86%
of EU15 average.
Outre-Mer are former French
colonies (poor islands in
Caribbean, etc.).
Outre-Mer
Mediterranee
Centre-Est
Sud-Ouest
GDP share
Pop share
Ouest
Est
Nord - Pas-de-Calais
Bassin Parisien
Ile de France
0.00 0.05 0.10 0.15 0.20 0.25 0.30
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2. Justification
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Theoretical Justifications
Theoretical explanations can be divided into two large groups:
– Agglomeration theories and models
– Dispersion theories and models
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Agglomeration Theories

Endogenous growth theory:
Concentration of economic activity as a result of:
- Increasing returns to scale to investment in human capital and
R&D
- Concentration of these factors in core areas to the detriment
of the periphery
- Especially as a result of economic integration
A regional policy is needed in order to counterbalance this tendency
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Agglomeration Theories (cont.)

New economic geography:
Concentration of economic activity as a result of:
- Trade as a substitute for factor mobility
- Once we allow for factor mobility, clustering is likely to occur as a result of the
prevalence of agglomeration forces:
- Technological externalities
- Specialised labour skills and labour turnover
- Firm level scale economies
- Transport costs: As they fall, greater competition & dispersion forces less
strong
A regional policy is needed in order to counterbalance this tendency.
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Dispersion Theories

Classical Ricardian trade theory:
– Factor endowment is less important
– Integration leads to a rearrangement of economic activity
– Investment and innovation will flow to low cost areas
– Labour will flow to high cost areas
– Disparities will even out and policies are not needed
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Dispersion Theories (cont.)

Neoclassical growth theories:
– Investment as the only endogenous factor (technology is
exogenous)
– Decreasing returns to scale will lead to convergence
– Even without economic integration
– No need for regional policies
→
Economic theory is inconclusive about the territorial impact of
economic integration
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Other Justifications
- Equity and fairness
- Efficiency (location patterns inefficient)
e.g. unemployed resources, congestion
- Coordination
(i.e. need supranational coordination to be effective)
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3. Practice
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Short History Review
1957: The preamble of the Treaty of Rome refers 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-favored
regions.’
1958: European Social Fund (ESF) and the European Agricultural
Guidance and Guarantee Fund (EAGGF) are established.
1965: First Commission Communication on Regional Policy:
conclusions of the three groups of experts.
1968: Creation of the Directorate-General for Regional Policy.
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Short History Review (cont.)
1975: Creation of the European Regional Development Fund
(ERDF).
1986: The Single European Act lays the basis for a genuine cohesion
policy designed to offset the burden of the single market for the
southern countries and other less-favoured regions.
1989: The European Council in 1988 overhauls the operation of the
Solidarity Funds (now referred to as the Structural Funds) and
allocates ECU 68 billion to them.
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Short History Review (cont.)
1992: The Treaty of the European Union 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 i the least
prosperous Member States.
1994–99: The Edinburgh European Council (1993) allocates almost
200 billion ECU, one third of the Community budget, to cohesion
policy.
Alongside the Structural Funds, a new Financial Instrument for
Fisheries Guidance (FIFG) is created.
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Short History Review (cont.)
1999: The Berlin European Council reforms the Structural Funds
and adjusts the operation of the Cohesion Fund. These funds will
receive over 30 billion euros per year between 2000 and 2006.
2004: On 18 February, the European Commission presents its
proposals for the reform of cohesion policy for the period 2007–13:
‘A new partnership for cohesion: convergence, competitiveness,
cooperation.’
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The Funds
There are 5 main funds that financially support the Regional Policy
of the EU.
Four Structural Funds:
- European Regional Development Fund (ERDF)
- European Social Fund (ESF)
- European Agricultural Guidance and Guarantee Fund (EAGGF Guidance Section)
- Financial Instrument for Fisheries Guidance (FIFG)
And
- Cohesion Fund
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The Funds (cont.)
The European Regional Development Fund (ERDF):
Promotes economic and social cohesion within the EU.
Finances investment leading to the creation of new jobs,
infrastructure improvements, local development initiatives and the
activities of small and medium-sized businesses
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The Funds (cont.)
The European Social Fund (ESF):
Focuses on employment policy.
Aims to prevent unemployment and to develop human resources.
Promotes integration of the labour market.
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The Funds (cont.)
The European Agricultural Guidance and Guarantee Fund
(EAGGF - Guidance Section):
Helps in both the development and the structural adjustment of rural
areas whose development is lagging behind.
Improves the efficiency of their structures for producing, processing
and marketing agricultural and forest products.
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The Funds (cont.)
The Financial Instrument for Fisheries Guidance (FIFG):
Focuses on the structural reform of the fisheries industry to achieve
a sustainable balance between fishery resources and their
exploitation.
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The Funds (cont.)
The Cohesion Fund:
Established to provide financial contribution to projects in the fields
of environment and trans-European networks.
Four beneficiaries: Countries whose GNP per capita is below 90%
of the EU average
– Ireland
– Greece
– Portugal
– Spain
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Priority Objectives
Objective 1:
Promotes the development and structural adjustment of regions
whose development is lagging behind, i.e. whose average per capita
GDP is less than 75% of the EU average.
Covers the most remote regions (the French overseas departments,
the Azores, Madeira and the Canary Islands) as well as the areas
with low population density created by the Act of Accession of
Austria, Finland and Sweden.
Two thirds of Structural Fund operations concentrate on Objective 1.
Almost 20% of the EU's total population is affected by measures
taken under this Objective.
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Priority Objectives (cont.)
Objective 2:
Contributes to the economic and social conversion of regions in
structural difficulties other than those eligible for the Objective 1.
Covers areas undergoing economic change, declining rural areas,
depressed areas dependent on fisheries and urban areas in difficulty.
About 11.5% of the Structural funds operations concentrate on
Objective 2.
No more than 18% of the Union's population is covered by this
Objective.
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Priority Objectives (cont.)
Objective 3:
Gathers together all the measures for human resource development
(e.g. training) outside the regions eligible for Objective 1.
The people that are eligible for financial support can be either in rich
or poor regions.
About 12.3% of the structural funds operations concentrate on
Objective 3.
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The Community Initiatives
Besides the 3 objectives, the regional policy of the EU includes a
number of community initiatives. For the period 2000-06, these
initiatives were:
- Interreg III, which aims to stimulate cross-border, transnational and
inter-regional cooperation;
- Leader+, which promotes rural development;
- Equal, which provides for the development of new ways of
combating all forms of discrimination and inequality in access to the
labour market;
- Urban II, which encourages the economic and social regeneration of
declining towns, cities and suburbs.
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Community Support Frameworks
They lay down the general strategy for ERDF assistance in a certain
number of regions within a Member-state.
The Community Support Frameworks are documents approved by
the Commission following appraisal of the plans presented by the
interested member state. They contain descriptions of the strategy
and priorities of the action, its specific objectives, the participation
of the Funds and other financial resources.
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4. Regional Policy and EU
Enlargement
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Number of Member-States
The number of EU member-states has changed over the
years.
1957: 6 Benelux, Germany, France, Italy
1973: 9 + Denmark, Irland, UK
1981: 10 + Greece
1986: 12 + Spain, Portugal
1995: 15 + Sweden, Finland, Austria
2004: 25 + Cyprus, Chech Republic, Estonia, Hungary
Leetonia, Malta, Lithuania, Poland, Slovakia, Slovenia
2007: 27 + Bulgaria, Roumania
???? : ? + Ukrania, ...
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2004 Enlargement
The regional problems of the EU got worse with the accession of 10
new members.
The new member states (except Cyprus and Slovenia) are poorer
than the member-states of EU15.
250
200
EU25=100
150
100
50
0
lu ie dk at nl uk be se fr fi de it es cy gr sl pt mt cz hu sk ee pl lt lv bg ro tr us
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2004 Enlargement (cont.)
Difficulties that arise:
– The cost could increase significantly.
– Some poor regions of the EU15 now appear relatively rich:
→
The entry pushes the per capita GDP above the average of EU25.
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2004 Enlargement (cont.)
Most of the new member-states
have a per capita GDP lower
than the 75% of EU25.
Regions below 75% in EU25
Regions “statistically” above 75%
Regions above 75% in EU15
Others
Some regions which with the
enlargement exceeded the 75%
of EU25 and were in danger of
loosing the status of being
regions
of
Objective
1
(“statistical effect”):
Since the 2000-06 programme
was “locked” their funding was
not affected.
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5. Recent Developments
41
2007-13 Programme
2004: On 18 February, the European Commission presents its
proposals for the reform of cohesion policy for the period 2007–13:
‘A new partnership for cohesion: convergence, competitiveness,
cooperation.’
308 billions euros for the regional policy of the new period.
51.3% will go to the new memeber-states.
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Objectives
Convergence: support employment growth and job creation in
the Member States and least developed regions
This objective will involve primarily the regions in which GDP per
inhabitant is less than 75 % of the Community average (84 regions).
To counter the ‘statistical effect’ of the enlargement, temporary
support is proposed for the regions in which GDP per capita would
have been less than 75 % of the Community average calculated for
the EU15 (16 regions).
81.5 % of the budget for regional policy.
Member-states whose GDP is less than 90 % of the EU average will
be eligible for the Cohesion Fund, which will continue to finance
programmes in the areas of transportation and the environment.
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Objectives (cont.)
Regional competitiveness and employment: anticipate and
encourage the change
The regional policy outside the most disadvantaged member-states and regions
will have two fundamental objectives:
1.It will use the regional programmes to assist regions and regional authorities to
anticipate and promote economic change in industrial, urban and rural areas and to
strengthen their competitiveness and attractiveness.
2. It will use national programmes to assist people in preparing and adapting to
economic development in keeping with the priorities established in the European
strategy for employment by supporting policies targeting full employment, the
quality and productivity of work and social integration.
168 regions and 16% of the budget for regional policy.
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Objectives (cont.)
European territorial cooperation: ensure harmonious and
balanced development throughout the entire Union
On the basis of the experience acquired in the Interreg initiative, the report calls
for the pursuit of a policy promoting harmonious and balanced integration
through the territory of the EU by supporting cooperation at cross-border and
transnational level.
Cross-border cooperation would involve in principle all regions adjacent to
internal or external land or maritime borders. This involves essentially the search
for common solutions to common problems by means of cooperation among the
responsible authorities of neighbouring bodies involved in such areas as the
development of urban, rural and coastal areas, strengthening economic relations
and networking small and medium-sized enterprises.
2.5% of the budget for regional policy.
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