Reflections on the Third Cohesion Report on Economic and Social Cohesion EPRC Regional Development Seminar Series 27 February 2004 John Bachtler European Policies Research Centre

New developments and implications  Context: EC financial perspective  Context: Reform debate  The Third Cohesion Report  Rationale for EU cohesion policy  Cohesion policy priorities –Convergence –Competitiveness and employment –Territorial cooperation  State aids  Implementation

EC financial perspective

Reform debate – Member State positions Rationalisation ‘Status quo’ Expansion UK, Ger, NL, Swe, Aus, Den Be, Fr, Fin, Ire, Ita, Lux Portugal, Spain, Greece New Member States

Reform debate – main policy options Option 1 – EC model  keep or expand a well-funded EU regional policy  EU continues to intervene in regional problems across Europe  promotion of convergence and competitiveness Option 2 – Net payer model  limit EU regional policy to the poorest countries (“cohesion model”) or poorest regions (“concentration model”)  richer countries deal with their own regional problems  reduction in contributions to the EU budget

The Third Cohesion Report  Article 159 of EU Treaty requires report every three years  Aim: to report on the progress towards economic and social cohesion and the means for achieving it  Review of: –Trends in economic and social cohesion –Impact of Member States policies –Impact of Community policies –Impact and added value of structural policies

Convergence with the EU15 GDP 2.5% > EU15GDP 1.5% > EU 15 N Slovenia-- Cyprus-- Czech Republic-- Hungary Slovak Republic Estonia Lithuania Poland Latvia Bulgaria2040+ Romania2040+

EU cohesion policy - rationale Why is cohesion policy needed?  Reducing disparities: growth and cohesion are mutually supportive  Compensation: cohesion policy helps spread the benefits of other EU policies  Balanced development: cohesion policy reduces pressures of over-concentration and bottlenecks A new philosophy?  Past: objectives of convergence and restructuring – time- limited, geographically focused policy  Future: objective of balanced development – a permanent policy, for all regions

EU cohesion policy - structure Three priorities for Structural and Cohesion Funds: 1. Convergence: growth and job creation in the least development Member States and regions (78% of budget) 2. Regional competitiveness and employment (18%) –anticipating and promoting regional change –helping people to anticipate and respond to change 3. European territorial cooperation: harmonious and balanced development of the EU territory (4%) Community Initiatives mainstreamed Rural development organised under the CAP

Convergence priority  Less-developed regions (Objective 1) –strict application of 75% per capita criterion –no other criteria; sparse population regions excluded –increase in coverage from 22% of EU15 population ( ) to 25.6% ( ) of EU25 population (116.6 million people)  Statistical effect regions (O1 in EU15 but not in EU25) –5.2% of EU25 population (23.7 million people) –seven-year transition period –support higher than current O1 phase-out regions (ie. €126+ per head pa) –special provisions for national regional aid  Cohesion Fund –strict application of 90% of EU GNP –all new Member States (except Cyprus), Portugal, Greece –no provision for statistical effect (Spain)  Special programme for outermost regions

Competitiveness and employment priority  Budget: €61 bn (18% of cohesion policy allocation)  Coverage: –O1 transitional regions (‘phase in’ regions) »3.6% of EU25 population (16.4 mill population) »six-year transitional period »regional programmes (ERDF/ESF) –All other regions »no zoning at EU level »funding divided 50:50 between: u regional competitiveness programmes (ERDF) u national employment programmes (ESF)

Competitiveness and employment priority  Allocations to Member States –not specified –possible starting point of existing O2/O3 funding? –use of GDP, employment, unemployment?  Allocations within Member States –Thematic concentration: innovation/R&D; accessibility; environment –Geographical concentration – references to: »industrial, urban and rural areas »use of territorial criteria for regions with geographical handicaps »more emphasis on cities »take account of sparse population (also higher EC contribution) –Resource concentration: “rules on minimum financial volume of programmes and priorities”

Competitiveness and employment priority  Implications: –sizeable amount of “Objective 2/3” funding –thematic concentration may not be major constraint »fits with ‘Smart Successful Scotland’ strategy »some repackaging of existing interventions possible »gaps: tourism? community development? »“maximum of three themes” –requirements for geographical targeting are implicit rather than explicit –Member States will have different approaches to geographical concentration: »top-down versus bottom-up »‘blank sheet’ versus status quo

Territorial cooperation priority  Significant increase in funding – 4% of budget (€13.5 bn)  Coverage: –Cross-border cooperation (all land and maritime borders) –New Neighbourhood Instrument on external borders –Trans-national cooperation  Interregional cooperation integrated into regional programmes  EC-organised networks of regions and cities  Implications: –definition of maritime borders –major redefinition of spending priorities - more on infrastructure –may be a problem of co-financing

State aids – radical changes  Pressures: –limit population coverage in EU-25 –need for flexibility in current rigid guidelines –need to reduce aid intensities –move away from investment aid to large enterprises  Radical changes to State aids: –less-developed regions: Article 87(3)(a) –statistical effect regions: Move from Art 87(3)(a) to 87(3)(c) –other regions: no maps; consistency with “applicable state aid rules” –simplification of rules – aid amounts (LETS) and aid impacts (LASA)  Implications: –no regional aid outside Article 87(3)(a) areas? –problems with implementing programmes?

Implementation  Simplification: –Three funds (ERDF, ESF, Cohesion Fund) –Mono-fund programmes –New planning framework »EU Cohesion Policy Strategy adopted by Council »National Development Strategy by each Member State »National/Regional Operational Programmes (‘short documents’ at ‘high priority level’) »No Programming Complement »Annual reporting to Council –Devolution of financial control (within limits) –Simplification of financial management

Implementation  Retention of key programming principles  More accountability –retention of N+2 and performance reserve –“more rigorous monitoring mechanisms” –redefinition of evaluation tasks to be “more strategic and results oriented “  More emphasis on partnership –further decentralisation to “partnerships on the ground” –“tripartite contracts” of Member States, regions and local authorities –more involvement of social partners and civil society  ERDF and ESF: independent or coherent?  Structural Funds and rural development: coordinated?

Implementation  Implications: –Higher profile for cohesion policy at Council level –Devolution of responsibility to Member States but more ‘accountability’ –Genuine simplification – but limited –New challenges for programme managers: »continued accountability for financial absorption »new accountability for policy results

EC timetable  May 2004: European Cohesion Forum  July 2005: EC legislative proposals  End 2005: Council and Parliament decision  2006 preparation of programmes  1 January 2007: start of new programmes

Conclusions Key messages:  A new philosophy of cohesion policy: balanced development  Increase in funding for cohesion policy  Three priorities: convergence, competitiveness, cooperation  All regions eligible for funding  Thematic focus on innovation, accessibility and environment  Radical changes to State aid control  Rationalisation of implementation but more accountability