1. The European Union Economics & Policies Regional and Social Policy

2. Tom Verbeke2 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 1997 Unemployment – 10 best regions: on average 3.6% – 10 worst performing regions: 28,1%

3. Tom Verbeke3

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5. 5 European Regional Policy 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)

6. Tom Verbeke6 European Regional Policy – 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

7. Tom Verbeke7 European Regional Policy 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

8. Tom Verbeke8 European Regional Policy – 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.

9. Tom Verbeke9 European Regional Policy 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

10. Tom Verbeke10 European Regional Policy 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

11. Tom Verbeke11 European Regional Policy

12. Tom Verbeke12 European Regional Policy Structural Funds – European Regional Development Fund – European Social Fund – EAGGF-Guidance – Financial Instrument for Fisheries Guidance

13. Tom Verbeke13 European Regional Policy 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

14. Tom Verbeke14 European Regional Policy – 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)

15. Tom Verbeke15 European Regional Policy Objective1994-9 Budget 193.972 215.360 3 & 415.180 5 a6.919 5 b6.862 60.697 Community Initiatives14.051

16. Tom Verbeke16 European Regional Policy 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) –...

17. Tom Verbeke17 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

18. Tom Verbeke18 European Regional Policy 4 principles of EU Regional Policy – Multi-annual programs – Partnership – Subsidiarity – Additionality

19. Tom Verbeke19 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

20. Tom Verbeke20 European Regional Policy Partnership – The EU is committed to the maximum devolution of power (subsidiarity) – Strong dialogues between all partners at all levels Additionality – Some governments have been accused of responding to EU funding with cutting back own expenditure

21. Tom Verbeke21 European Regional Policy 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

22. Tom Verbeke22 European Regional Policy 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

23. Tom Verbeke23 European Regional Policy 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

24. Tom Verbeke24 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 Community initiatives have been reduced from 13 to 3 and their budget from 9% to 5%

25. Tom Verbeke25 European Regional Policy 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

26. Tom Verbeke26 European Regional Policy 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