The European Union

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The European Union

• Economics Policies
• Regional and Social Policy

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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

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European Regional Policy

• The regional problems are extremely divers
• 1994-9 4 main types of problems
• Lagging regions
• GDP lt 75 of EU Average
• Objective 1
• 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
• 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

• 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
• 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.

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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

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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

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European Regional Policy
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European Regional Policy

• Structural Funds
• European Regional Development Fund
• European Social Fund
• EAGGF-Guidance
• Financial Instrument for Fisheries Guidance

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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

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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)

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European Regional Policy
Objective 1994-9 Budget
1 93.972
2 15.360
3 4 15.180
5 a 6.919
5 b 6.862
6 0.697
Community Initiatives 14.051
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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)
• ...

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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 EUROs in 1999

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European Regional Policy

• 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

• 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

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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

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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

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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

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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
• Community initiatives have been reduced from 13
  to 3 and their budget from 9 to 5

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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

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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