“the regions facing the crisis” · ad-hoc crisis surveys based on direct contacts and telephone...

CRPMNTP090030 A1

“THE REGIONS FACING THE CRISIS”

RESULTS OF THE CPMR INQUIRY

AUGUST 2009

Technical Paper from the CPMR General Secretariat – “The Regions Facing the Crisis” - Results of the CPMR Inquiry

Reference CRPMNTP090030 A1 – June 2009 - p. 1

TABLE

1. INTRODUCTION ..................................................................................................................................... 2

2. ECONOMIC AND SOCIAL GLOBAL CONTEXT: MAIN FEATURES......................................... 3

3. FROM GLOBAL TO LOCAL: THE IMPACTS OF THE CRISIS WITHIN THE REGIONS...... 5

3.1. How 25 European Regions with different features understand the crisis .............................................. 5 3.2. Detailed analysis ..................................................................................................................................... 8

4. REGIONAL RESPONSES TO THE CRISIS ARE WIDE-RANGING........................................... 21

4.1. Overview............................................................................................................................................... 21 4.2. Detailed analysis ................................................................................................................................... 22 4.3. Role of the EU Structural Funds in tackling the crisis ........................................................................ 31 4.4. Coordination with national and European recovery plans ................................................................... 38

5. PROSPECTIVE CORNER: THE 1ST LESSONS TO BE DRAWN FOR THE FUTURE............. 42

ANNEXES ..................................................................................................................................................... 44



1. INTRODUCTION

CPMR context and initiative

On the occasion of the CPMR Political Bureau in Aarhus (DK) in January 2009, several Regions requested the General Secretariat to set an exchange platform on the impact of the current financial, economic and social crisis on Regions, and to make their expectations on the possible consequences on EU policies and budget heard by the European and national institutions.

In this respect, two events will be organised in the course of 2009:

- A policy workshop which will take place on 16th July 2009 in Brussels, the aim of which is to pool and compare the measures implemented by regional leaders with a view to identifying good practices and stumbling blocks.

- A seminar on “European responses to the crisis: what do the Regions expect?” on 27th November 2009 in Marseille.

A questionnaire-based inquiry has been carried out with a view to giving inputs to both events. Additional desk-research work has been performed in order to gather information on other Regions where relevant data and material was made available.

Objective of the document

25 answers to the questionnaire have been received to date. Additional desk research allowed us to gather extra information for 8 Regions1. Information is mainly of a qualitative nature and often based on perceptions, given that in most Regions data on the socio-economic impacts of the crisis are either not available or being collected and processed. It is also worth noting that it gives a picture of situations which, given the quick and uncertain change in the economic climate, are likely to evolve quickly.

This document therefore does not aim to draw any comprehensive analysis or general conclusion from this inquiry. Nevertheless, the broad geographical coverage and diverse socio-economic and institutional features of respondent Regions help to shed light on a sample of interesting and diverse regional experiences, be it in terms of impacts of the crisis or measures and mechanisms which have been set and implemented to tackle the crisis and anticipate the recovery.

1 See List of respondents in Annex 1



2. ECONOMIC AND SOCIAL GLOBAL CONTEXT: MAIN FEATURES

The following paragraphs aim at giving a short overview of the general economic context, in the light of which the regional experiences must be seen.

2009, black year for everyone

Economic forecasts issued by the main International organizations confirm that the crisis will reach its peak in 2009 (fig.1). No part of the world seems to be left unaffected, but the negative impacts on the various macroeconomic indicators are extremely unequal across continents and countries (fig. 1,2 and 3); global convergence is set to accelerate with China and India to catch up at a greater pace during the crisis (fig 1).

Fig.1 – GDP Growth (% change on preceding year – Main world competitors 2007-2014 projections (Source: IMF Outlook 2009)

Fig.2 – GDP per head change 2008-2010 (volume in USD)– EU Countries, candidate and EFTA countries and other global competitors (Source: DG ECFIN Economic forecast – Spring 2009)

-6000

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-4000

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RO

HU

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2007 2008 2009 2010 2011 2012 2013 2014

% change on preceding year



The crisis is unfolding with an unprecedented simultaneous fall of all major macro-economic indicators as shown by fig. 3. The chart shows that the peak of the crisis should be between the 1st and 2nd quarters 2009. In June, oil prices started increasing again after three quarters of sharp decline. This might be the first signal of slowing recession. Recovery in the EU, however, should not start earlier than 2010 and is expected to take place at a very slow pace (fig.4).

Fig.3 – EU major macroeconomic indicators cumulative quarterly percentage change based on 2007 IVQ value

Worsening forecasts for 2010

The weakness of both growth and trade at the turn of 2009 leads to increasing uncertainties on the growth outlook for 2010. This situation explains why all forecasts are worsening between spring 2008 and 2009 (fig.3).

Fig. 4 – Worsening EU indicators since spring 2008(Source: DG ECFIN Economic Forecasts)

The crisis is also a crisis of confidence. In this respect, fig. 5 and 6 show that although the decisions made in London by the G20 and national recovery plans seem to have a positive impact on the confidence of the markets, this is not the case for EU public opinion, more than half of which thinks that the crisis will still

-20

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2008 2009 2010

% change based on 2007 IVQ value

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Unemployment Private consump.

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GDP UNEMPLOYMENT INVESTMENTS

% Spring 08 Forecast Autumn 08 Forecast January 08 Interim Forecast Spring 09 Forecast



have a major impact on their personal situation in 5 years (58% today), and more than 80% think it will have an impact on the world economy.

Fig. 5 – Euro Stoxx 50 rate May 2008 / May 2009 (source: www.boursorama.com, extraction date 09/06/09)

Fig. 6 – Eurobarometer “The Europeans and the financial crisis” – Jan/Feb. 2009

3. FROM GLOBAL TO LOCAL: THE IMPACTS OF THE CRISIS WITHIN THE REGIONS

3.1. How 25 European Regions with different features understand the crisis

Profiles of responding Regions

Basic socio-economic profiles of the Regions which participated in the inquiry are quite diverse, as Table 1 and Figure 8 show2. Moreover, they belong to different institutional patterns: some of them come from unitary States (EL and UK (England)), others from decentralized unitary states (DK, SE, NO), others from decentralized towards regionalized states (PL, FR), others from regionalized states (IT and ES). Some enjoy special status within their national administrative systems (Friuli V. Giulia, Principado de Asturias, Illes Balears and Västra Götaland). The Scottish counties are administrative units within an autonomous region. Their level of autonomy, powers and financial resources are therefore very dissimilar. The Portuguese respondent Region (CCDR Lisboa e Vale do Tejo) and partially the two respondent Greek Periferies (Anatoliki Makedonia kai Thraki and Ionia Nisia) are de-concentrated non-elected bodies with different characteristics in comparison to the other Regions as they are directly dependent on the central government.

2 Data tables in annex

http://www.boursorama.com/



Fig 7 – Geographical distribution of respondent Regions

CPMR Regions CPMR Regions having answered to the questionnaire

5 out of the 25 Regions are covered by the Convergence objective and 15 by the Competitiveness and Employment Objective. 2 are Phasing-out Regions, 1 is Phasing-in and 2 two are very different non-EU Regions (see Table 1).

Fig8 – Profile of respondents

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Source: Eurostat database



Table 1 Status of the surveyed regions and their distribution across NUTS levels

NUTS level Status

NUTS I NUTS II NUTS III

Podlaskie (PL) Puglia (IT) A. Makedonia-Thraki (EL) Ionia Nisia (EL)

Convergence

Cornwall (UK) Wales (UK)

Basse Normandie (FR) Österbotten (FI) Region Midtjylland (DK)

Friuli V. Giulia (IT) Itä-Uusimaa (FI) Toscana (IT) Aberdeen City (UK, Scotland)) Illes Balears (ES) Västra Götaland (SE)

Lisboa e Vale do Tejo (PT) Hampshire (UK) Pays de la Loire (FR) Somerset (UK)

Competitiveness and Employment

PACA (FR) Phasing out Principado de Asturias (ES) Shetland Islands (UK, Scotland)

Phasing in Castilla y Leon

Nordland (NO) Non EU

Primorsko goranska (HR)

How Regions understand the crisis? New instruments to get sound data

Understanding the implications of the current economic crisis on their socio-economic tissue is considered as a high priority by the majority of Regions (table 2).

Table 2 Instruments and approaches adopted by the Regions to understand and monitor the crisis

Approach Region

Regional task-forces to produce regular evidence and monitoring of the economic situation at regional and local level

Podlaskie, Cornwall, Wales, Friuli VG, Bretagne, PACA, P. de la Loire, Asturias, Castillia y León, I. Balears, Somerset, Västra Götaland

Evidence based to support the elaboration of a Regional Recovery Plan Somerset Conjunctural/quarter analysis and survey Friuli V. G., Castillia y León, Illes Balears More frequent collection of data and statistics on a monthly or weekly basis

Monthly: PACA, Cornwall, Toscana, Illes Balears; Weekly: Västra Götaland;

Ad-hoc crisis surveys based on direct contacts and telephone interviews with local businesses, organizations, other economic and social partners

Region Midtjylland, Västra Götaland

Ad-hoc studies aimed at understanding the impact of the crisis on the Region or in specific territories particularly affected by the crisis

Pays de la Loire, PACA, Västra Götaland

Strengthened forecast exercises to reduce business and investment uncertainty

Region Midtjylland, Pays de la Loire

Periodical analyses of the economic performance of specific economic sectors and repercussions for the overall regional economy

PACA, Castilla y León and Aberdeen City, Västra Götaland

Increased multi-tier cooperation between national, regional and local authorities with new governance and partnership practices aimed at demonstrating evidence of the recession at different territorial levels

Cornwall, Aberdeen City, Illes Balears, Somerset; Västra Götaland

As a general rule, they take a light approach to assessing the crisis impacts as they are quite aware that there are strong uncertainties on its possible repercussions in the medium and long term. Moreover, availability of reliable and accurate up to date regional data very much depends on the level at which they are usually collected within member states, and on competence and tasks that Regions perform in the field of regional development and spatial planning.

Most Regions, hence, stressed that no reliable data addressing the nature and amplitude of the impact of the crisis is available yet (e.g. Ionia Nisia). In other contexts the measurement of the economic and social impact of the crisis is undertaken at a central level. It is the case in Greek Regions, where the National Statistic Service of Greece, the Ministry of Economy and the Bank of Greece are responsible for the measurement of the impact and draw all the necessary analyses (See also Croatia). Finally, no specific regional analysis or data collection



seems to have been carried out in any of the Finnish regions which participated in the survey (i.e. Itä-Uusimaa, Päijät-Häme and Österbotten) as well as in Shetland Islands, Hampshire and Nordland.

Box 1 - Understanding the crisis: examples from some respondent Regions

1. The case of Provence-Alpes-Côte d’Azur (PACA): the Region of PACA has established in co-ordination with the national government a new task force (Dispositive de veille) to understand the impact of the crisis on territories as well as across major economic sectors. This task force brings together all major institutional and socio-economic partners. The most interesting feature is the Observatoire Régional des métiers, which allows for a monthly collection of data and statistics relating to specific sectors and territories particularly hit by the economic crisis. The major monitored sectors are the wood, food, iron and steel processing industries and the service sector. The task force has also been entrusted with monitoring the social repercussions of the crisis on the most fragile population categories. On the basis of this regular monitoring exercise decisions upon new emergency measures and anti-crisis interventions are made by the Region.

2. The case of Illes Balears: the regional government of Illes Balears has started operating towards strengthening its mechanisms for monitoring and analysing the economic situation in the Region already in 2008. Apart from the monthly and quarterly analysis published through specific regional bulletins, the Region has established a specific task force, i.e. the Mesa en Seguimiento de la Economia de las Illes Balears made up of representatives of the regional administration and the main socio-economic partners. This task force is charged with monitoring and analysing the economic situations in the Region and proposes relevant measures to support economic recovery. This task force is complemented by the Observatorio Social de la Crisis en Mallorca, designed to monitor the evolution of the employment situation in the Region and assist people throughout the process of re-integration into the labour market. The latter should be operational by the end of 2010.

3. Region Midtjylland: the Region of Central Denmark is carrying out a crisis survey based on phone interviews with 500 private companies. The survey should give insight into topics such as: how is the companies’ availability of credit and finance; do the companies postpone or cancel their investment plans; do customers cancel orders due to the crisis; are the companies forced to lay off employees and if so is it blue collar workers or white collar workers. Full results are expected to be available soon, but this survey already reveals private enterprise development in the number of employees in the last 3 months - and their expectations for development in the next 6 months. In addition, the survey includes corporate expectations for the recruitment situation and the key challenges for businesses in the coming year. Twice a year, Central Denmark Employment Region assesses the balance between supply and demand on the labour market in the Central Denmark Region. At the same time Central Denmark Employment Region provides a forecast for the trend in employment and unemployment. Only Danish version available at: www.brmidtjylland.dk/graphics/dokumenter/arbejdsmarkedsoverblik/2009/arbejdsmarkedsoverblik%201.%20halvår%202009.pdf

3.2. Detailed analysis

Territorially differentiated impacts both among and within Regions

The initial credit crunch has definitely spread out from the financial and housing sectors and now impacts most sectors of regional economies, leading to a severe downfall in industrial production, in particular in export-orientated sectors, and more generally in the production of goods connected to the service sector. Consequently all Regions can observe a slowdown in consumer spending, while many companies face bankruptcy or plan to scale down their investments. Increase in both the absolute and relative number of unemployed caused by companies cutting down staff, and a sharp reduction in vacancies is also a widespread phenomenon across European Regions (see below).

Behind this general picture, this inquiry discloses a highly diversified panorama. Whereas a certain number of Regions reported to have slid into technical recession (i.e. two consecutive quarters of negative growth) already in 2008 and are now confronted with deep turbulences and persistent negative socio-economic repercussions because they combine several vulnerability factors (Toscana, Castilla y Leon, Västra-Götaland), some have suffered far less (Shetland Islands, Aberdeen City and Päijät-Häme). Some others are already experiencing the crisis (Cornwall, P. Asturias and Somerset) while others namely those Regions reliant on seasonal activities (tourism in Ionia Nisia and seasonal fishing activities in Nordland) are expecting the signs of the crisis to unfold in the upcoming months, even though the extent of their intensity

http://no.wikipedia.org/wiki/Nordland

http://www.brmidtjylland.dk/graphics/dokumenter/arbejdsmarkedsoverblik/2009/arbejdsmarkedsoverblik 1. halv�r 2009.pdf



remains critical to estimate. Other Regions, despite struggling with rising unemployment, closure of firms and some kind of fall-offs in investments, have witnessed a lower negative impact on their territory compared to indicators and projections for the country as a whole (P. de Asturias, Somerset, Cornwall, Ionia Nisia, Itä-Uusimaa, Aberdeen City and Shetland Is.). Whereas in certain cases, (Somerset and P. de Asturias), this could be explained by the fact that in these Regions economic change, whether growth or recession, has historically tended to impact slower on the socio economic tissue, in others a lower vulnerability to risk is mainly due to better financial conditions and particular economic structure (i.e. more domestically-orientated, diversified economic tissues, characteristics of the territorial development patterns, elasticity of the local economy to shocks of an exogenous nature, and last but not least, less relevance of highly hit economic sectors such as the motor industry, construction and financial services).

Table 2 provides an overview of how the crisis is being felt within the surveyed Regions. With the only exception of the community of the Shetland Is., the survey shows that the economic recession has left no territory immune, with Italian, Spanish, English and some Scandinavian Regions to be apparently the most affected among the Regions concerned. French and Scandinavian Regions seem to be witnessing negative impact on specific sectors, whereas Regions in Greece, Scotland and Poland seem to suffer to a lesser extent.

Table 3 Perceived/expected impact of the crisis on the Regions

No impact Low impact Medium generalized impact

Medium-strong impact mainly on few specific sectors

Strong generalized impact

-Shetland Is. - Aberdeen City - Ionia Nisia

- A Makedonia- Thraki - Pays de la Loire - Podlaskie - Itä-Uusimaa - Primorsko-goranska - Region Midtjylland - Principado de Asturias - Friuli V. Giulia - PACA

- Basse Normandie - Österbotten - Päijät-Häme - Nordland (exp); - Blekinge County - Bretagne

- Toscana - Puglia - Illes Balears – Castillia y León - Cornwall - Hampshire - Lisboa-Vale do Tejo - Somerset - Västra Götaland - Wales

International trade is contracting rapidly and is expected to decelerate further in 2009. Recent analyses from major international organizations3 reveal that the initial impact of the global slowdown has been strongest in the most export-orientated economies, but that they have been differently affected by the collapse in global demand.

Box 3 - The economic crisis in export-orientated regions

In Päijät-Häme, the crisis of the export-orientated mechanical wood processing sector led to major negative implications on other wood-related sectors and the mechanical engineering sector, both facing important staff cuts and temporary closure of factories and industrial establishments;

In Österbotten, the key industrial and manufacture activity linked to the production of pleasure boats (another hard-hit sector in Europe) had to severely reduce its production to cope with collapsing demand for maritime yachts and pleasure boats. Major impact on unemployment rate and social safety net payments has been reported, although the latter are the responsibility of central government and municipalities in Finland and not of the Regions;

In Friuli Venezia Giulia, major export-orientated sectors such as the wood processing, the iron and steel industry (as the demand for raw material from the automobile sector has decreased sharply) and the household appliance industry in particular in the Pordenone, Gorizia and Udine provinces are all facing serious difficulties, and has led to a significant increase in both ordinary and extraordinary redundancy payments along with a sharp reduction in the number of vacancies.

3 See European Commission DG Ecofin, Spring Economic Forecast 4 May 2009, International Monetary Fund, Economic Projections, April 2009 and OECD Database.




Consequently, Regions whose economic activity is largely orientated towards export have all undergone a sharp decline in industrial production already in the last two quarters of 2008. Some export-oriented Regions, however, have visibly suffered far more than others either as a consequence of the fact that they export goods and services connected to economic sectors which are affected by deep downfall in global demand, or due to particularly severe economic downturn in the countries and regions to which they export, or a combination of the two. In contrast, Regions and territories with a limited outward orientation and a larger presence of public economy seem to be less exposed to the negative economic cycle. In contrast, while some export-oriented Regions should benefit from the increase in global demands already in the last two quarters of 2009 and should be witnessing faster economic recovery with some positive growth in 2010, the process of economic recovery is expected to be far slower in the latter.

Some Regions pointed to the fact that the crisis manifests itself in different ways within the regional boundaries. In this respect territorial and sectoral patterns do matter. Some Regions are big in size and population, with diversified territorial features within their borders associated with a diverse economic tissue (Cornwall, Toscana, Friuli V. Giulia, PACA, Basse Normandie and Bretagne, but also Österbotten). These regions clearly pointed to differentiated impacts within their territory as different economic sectors are associated with different geographical areas.

Declining industrial districts are among the most threatened areas. They are indeed likely to be hit by further disinvestments and relocation of major local industries to developing regions. In districts and industrial areas which were already declining prior to the crisis and struggling to get financial backing from the public sector to support reinvestment and restructuring processes, evidence shows that the crisis will have severe repercussions (examples in Box 4).

Box 4 - Differentiated impact within Regions - Some cases

In the Österbotten Region located along the western Baltic coast of Finland, the crisis has strongly affected the northern part of the Region where most of its key industrial and manufacture activity linked to the production of pleasure boats is suffering an unprecedented increase in the number of redundancies. The depression is perceived fairly less in the central part of the region, where the energy cluster is more dominating. However, it is worth noticing that the energy industry is expected to suffer a sharp decrease in its commissions in 2010, after a year 2009 which is the most positive for a long period. The Västra- Götaland Region is the hub of Sweden’s industrial production. Situated in Western Sweden, it combines both a big export channel with the port of Göteborg and a large automotive cluster with the headquarters and production facilities for Volvo cars and Saab, both owned by American corporations facing bankruptcy, and largely dependent on export (87% of Volvo’s cars and 80% of Saab’s cars are sold on the international market). Västra Götaland’s future competitiveness is to a large extent based on this advanced knowledge based industry and service sector. This may be jeopardized if the automotive industry would be denied the possibility to develop during the current recession. Not only will manufacturing be affected, but also the service production sector that delivers knowledge to the automotive industry. Central research projects within the fields of safety, quality, environment and energy adjustment may be threatened.

In Tuscany, the chemical sector is the most seriously affected in the Lucca and Arezzo districts, while the textile and the broader clothing sector are severely hit in the Prato and Empoli districts, and the petro-chemical industry is struggling in the Livorno and Massa provinces. The latter is also affected by the crisis in the marble production chain, which however results from structural factors rather than cyclical. Other provinces are less affected, in particular the Pisa and Firenze provinces where a more diversified economic tissue and the good performance of some important branches such as the leading highly-competitive pharmaceutical sector are suffering less from the crisis. Data on the first quarter 2009 show that the two neighboring provinces of Siena and Grosseto are also facing severe difficulties in spite of the fact that they are notoriously less prone to follow national and international cyclical conjunctures.



Box 5 - Industrial districts in decline: the case of the fish processing districts in the Aberdeen area (Scotland) and the industrial district of Rodopi in Anatoliki Makedonia kai Thraki, Greece.

The fish processing sector in Aberdeen City (Scotland) is located within areas of industrial decline which had been identified for substantial property redevelopment during 2009/10. As a result of the economic downturn however, these developments are no longer proceeding. Many fish processing businesses were looking to realise development values for their premises to support reinvestment or retrial from the sector. Due to the pending redevelopment, most of these fish processing businesses have not adequately maintained or invested in their premises. The uncertain economic outlook of the fishing industry will restrict investment, and there is a high risk of substantial industrial decline that will have an environmental impact on adjoining businesses and a major development that is underway;

The industrial area of Rodopi in the central-northern part of Trace (A. Makedonia-Thraki region). The industrial area of Rodopi has been struggling in recent years due to investment largely concentrated in the prefecture of Kavala, which has become in turn a leading centre of agricultural and industrial activity. On the other hand, Rodopi, together with Xanti and Evros, has remained one of the poorest areas in Greece and has to contend with the typical problems of a backward economy. During the last decade, a large number of firms either closed down or moved to neighbouring regions such as West Balkans, Bulgaria and Turkey where production costs are significantly lower. The Region highlighted its concerns about the not unlikely possibility that the process of closure of firms and manufactures in the Rodopi area may accelerate even further during the crisis, bringing about severe repercussions for the entire region.

Few economic sectors left unaffected

Depending on Regions’ profiles and specific economic characteristics, the crisis is impacting economic sectors in different ways. Regions which are highly dependent on hard industry, the motor industry, petrol-chemical industries, construction and financial services are the most severely affected due to the collapse in global demand of those goods and services. Nevertheless, Table 3 shows that the crisis has widely spread out across several economic sectors and sub-sectors.

Table 4 Most affected economic sectors on surveyed regions

Mining

Food processing

(including fisheries)

Wood processing

(inc. furniture & paper)

Construction Housing

Automotive industry

(including supplier)

Textile industry

Iron & steel industry

Maritime industry

(shipyards including

pleasure boats)

Chemical industry

(including

pharmaceutical)

Electronics (inc.

semiconductors)

Engineering

Transport / Logistics

Financial

sector/banking

Services

Commerce/Retail

Tourism (including

hotels/ restaurants)

Oil/Petrochemical

Podlaskie X X X X Ionia Nisia X X A. Mak-Thraki X X X Toscana X X X X X X X Friuli V. Giulia X X X X Puglia X X B. Normandie X X X Pays de la Loire X X X X X X PACA X X X X X X X X X Österbotten X X X Itä-Uusimaa X X Päijät-Häme X X Cornwall X X X X X Aberdeen City X X X Hampshire X X X Somerset X X X Shetland Is. No particular impact across sectors Västra Götaland X X P. de Asturias X



Mining

Food processing

(including fisheries)

Wood processing

(inc. furniture & paper)

Construction Housing

Automotive industry

(including supplier)

Textile industry

Iron & steel industry

Maritime industry

(shipyards including

pleasure boats)

Chemical industry

(including

pharmaceutical)

Electronics (inc.

semiconductors)

Engineering

Transport / Logistics

Financial

sector/banking

Services

Commerce/Retail

Tourism (including

hotels/ restaurants)

Oil/Petrochemical

Illes Balears X X X Castillia y León X X X Lisboa V. Tejo X Nordland X X Bretagne X X Aquitaine X X X X Blekinge County X Halland X X X

12 Regions have mentioned the automotive sector as one of the most severely hit. 11 Regions stressed the difficulties of their housing market while 8 very diverse Regions pointed to the wood and wood processing chain sector, another 6 to the maritime industry (in particular shipyards including the production of pleasure boats) whereas 5 Regions are witnessing difficulties in their agribusiness and fisheries sectors. The retail sector has been also frequently mentioned with Regions concerned by the possible negative repercussions on medium-sized and small towns largely depending on retail (Hampshire, A. Makedonia-Thraki and Puglia). In every Region, apart from major automotive companies, the SMEs are those which are facing more business closures, staff cuts and large redundancies4.

Credit restrictions are making it extremely difficult for small and micro businesses, the most vulnerable segment of the private sector, to obtain working capital and funds as the lending institutions have become aggressively risk adverse. Regions highly dependent on the micro-business sector, like Cornwall, Illes Balears, Hampshire and some provinces in Toscana, Umbria, Puglia and Friuli V.G., are suffering significantly from this negative conjuncture. The broader service sector has been generally performing rather satisfactorily in 2008- beginning of 2009, but as recently received questionnaires seem to suggest, this sector is starting to be hit in these past months (French Regions and Itä-Uusimaa). The extent of this recent negative performance of the service sector still needs to be assessed.

There are few sectors which seem not to have been particularly hit by the crisis. Respondent Regions pointed to the renewable energy sector (Toscana and Österbotten), others to the quality-oriented agri-business sector (B. Normandie, Cornwall, Toscana). The biotechnology sector is also performing well in Finland.

The same economic sector can be very differently impacted depending on the Region in which it is based. The pharmaceutical sector is a clear example: although this tends to be a non cyclical sector, some regions (Friuli V.G.) have reported major difficulties of their pharmaceutical industries, while it is going on developing in other Regions thanks to its strong aptitude to innovate shown during the past years (PACA, Toscana). The financial sector is another example, with most English Regions underlining the difficulties of their financial branch and banks, whereas others, like Itä-Uusimaa, have expressly reported no particular difficulties within Finland’s Capital Region. Other examples are agribusiness, engineering, services and tourism.

The tourism sector is indeed an interesting case, which has been addressed in most peripheral maritime Regions. This sector makes indeed a more or less significant contribution to most economies, even though only two (Ionia Nisia and Illes Balears) have in visitors’ traffic their principal source of income. In this respect, with the summer season approaching, Greek and Spanish Regions, which are amongst Europe's leading tourist destinations, are predicted to suffer to the highest extent (a decline of 30% in summer 2009 for

4 In our questionnaire we asked Regions to list the most affected economic sectors. Therefore if some relevant economic sectors were not mentioned by respondent Regions this does not necessarily entail that they have remained immune, but instead that, in that specific Region, they are suffering to a lesser extent in comparison to other economic sectors.




both countries is expected, meaning that nearly 1 million people would be hit by unemployment)5. Although more optimistic projections talk about a summer season with a number of visitors in Spain and Greece matching that of 2008 (when a fall in arrivals was already significant in comparison to 2007), most tourists are expected to spend far less. Being strongly tourism oriented, Ionia Nisia Region has reported that, to date, no significant impact is being felt at the moment in the climate of recession, but they expect many hotels to be empty and their local communities to be highly affected in the coming months. This together with the lack of specific data led the Region to take anticipatory measures to mitigate the possible effects of the crisis during the summer (see box 5). In other Regions where the tourism and recreation industry is more diversified and not limited to the summer season (Toscana, Pays de la Loire and PACA), the negative impact on this sector is being perceived to a lesser degree. In Cornwall, the broad tourism sector in general, and the holiday home rental market in particular, are showing strong indications of a good season ahead, perhaps benefiting from the Sterling favourable fluctuations against the US Dollar and Euro.

Box 6 - Ionia Nisia’s early measures to tackle the crisis

Even though no sign of the crisis is yet visible in the Ionia Nisia, the Region has taken a series of anticipatory measures in order to boost tourist traffic, which are part of a broader informal action plan:

a) Price- and product-oriented measures such as reduction in prices, better holiday package deals in cooperation with several tourism agencies are already in place;

b) Regulatory measures, concerning private sector funding, to improve tourism services (the Central Government is funding private initiatives from national funds as stated in Greek legislation);

c) Coordinated and intense promotional activities that include participation in major Tourism expeditions, increased budget in promotional expenditures such as advertisements in TV radio and magazines, participation of the Region in a series of “seminars at sea” the aim of which was to promote tourism in Ionia Nisia. The EU is funding Tourism Promotion Budget (€4M).

The region will evaluate the situation at the end of tourism season and form a recovery plan.

A broad range of tangible economic and social effects on regional economy

The responding Regions reported very different and interrelated signs which are directly or indirectly related to the economic turmoil. They also revealed that financial and economic conditions prior to the crisis are a strategic element to be taken into account when assessing how the recession is shaping regional economies and their labour market, as well as when attempting to understand how long the recovery process might take within European countries and Regions. Hence, although temporary or permanent closure of firms, increase in redundancies, staff cuts, declining private investments due to falling domestic and external demand and a reduced number of business start-ups are amongst the most tangible signs of the recession reported by all Regions (with the only exception being Shetland Islands) the patterns, intensity, indirect effects and the expected length of the recovery process are very different.

5 Preliminary United Nations World Tourism Organization (UNWTO) figures for the first months of 2009 indicate a continuation of the negative growth already experienced in the second half of 2008. Destinations all around the world have suffered from a decrease in demand in major source markets. With the exception of Africa and both Central and South America, who all posted positive results in the range of 3-5 percent. So far, northern, southern and Mediterranean Europe, north-east Asia, south Asia, and the Middle East are amongst the most affected sub-regions.



Table 5 Tangible outward economic signs of the recession on surveyed regions

Closure of firms/bankrupts

Closure of micro-small

enterprises in retailing,

Staff cuts

Temporary closures of

firms

Fall in industrial

production

Temporary reduction of

working time

Reduction in the use of

temporary staff

Sharp fall in investments

Increased companies debts

Reduction in the number

of new staff hired in the

public sector

Exceptional Increase in

redundancies

Strong fall in exports/lack

of business

Strong fall in visitors

Low activity in the housing

market

Reduced share of business

start-ups

Lack of liquidity/credit

restrictions

Podlaskie X X X X X X

Ionia Nisia To date no impact. In case the crisis affects the region’s economy the possible effects will include, staff cuts, closures, salary reductions and a drop in construction activity in the Region.

A. Mak.- Thraki X X X X X X X X Toscana X X X X X X X X X Friuli V.G. X X X X X X X X Puglia X X X X X X X B.Normandie X X X X X X Pays de la Loire X PACA X X X X X X X Midtjylland X X Österbotten X X Itä-Uusimaa X X Päijät-Häme X X X Aberdeen C. X X X X Cornwall X X X X X X X X Hampshire X X X X X X Somerset X X

Shetland Is. To date the effects of the crisis have been fairly minimal. There is the perception that several local, independent retailers may be struggling a little, but there is no confirmed evidence of this.

V. Götaland X X X X P. de Asturias X X X X X Illes Balears X X X X X Castillia y León X X X X X Nordland X X X X X P. Goranska X X X Aquitaine X Halland X X X X

Although the responses to our questionnaire must be assessed against the socio-economic conditions existing within the Region, there are important differences in the way the crisis is affecting the economic activity, as well as in the way Regions perceive the crisis. Whereas businesses are struggling almost everywhere because of falling domestic and external demand, in some Regions the private sector is still performing sufficiently well. The Finnish Regions for instance underlined that the crisis is more external demand-led than financial-led as the financial institutions entered the crisis with quite high reserves in comparison to the other European countries, and businesses still have access to credit. In contrast, in Anatoliki Makedonia-Thraki, despite the fact that the financial sector has been affected only to a limited extent in Greece, inadequate liquidity and credit restrictions are the major cause of staff cuts and closure of firms. SMEs and micro-businesses seem to be suffering to the highest degree from significant restrictions in obtaining credits (Podlaskie, Toscana and Friuli V. Giulia).

Permanent or temporary closures of firms have been reported by 13 Regions as one of the principal outward signs of the crisis. The first consequence has been a sharp reduction in terms of utilization of production capacity (it stood at 75% in Friuli V Giulia and 71% in B. Normandie in January 2009, whereas it was at 85% in both Regions in January 2007)6. This has led to exceptional staff cuts (16 Regions) together with other phenomena such as reductions of the use of temporary staff (5 Regions) and reduction of working hours (3 Regions). Falling demand for goods and services is leading to exceptionally growing redundancies (12

6 Data for B. Normandie are provided by the Institute National de la Statistique et des études économiques, data for Friuli V.G. from Confindustria Friuli Venezia Giulia.




Regions) and lack of business (12 Regions). However, whereas in some Regions this, together with credit restrictions, has resulted in firms’ scaling down planned investments (Aberdeen City, Cornwall and A. Makedonia-Thraki), in other Regions private investment is still performing quite well (PACA). As it will be discussed in paragraph 4, measures to support local private investments throughout constitute one of the key interventions of regional anti-crisis packages.

Some Regions are also concerned by businesses perceiving the crisis as an opportunity to relocate to lower wage countries and regions (A. Makedonia kai Thraki and PACA).

Most seriously hit are usually the weakest categories of workers such as those in temporary contracts, newly employed and more generally the under 25’s, low skilled and immigrants. Consequently, unemployment among these categories is rising far above the average in almost all Regions concerned. Regions whose sizeable share of working population is made up of low skilled and immigrants or where a large use of temporary contracts is made are expected to experience a sharp increase in unemployment accompanied by strong negative social repercussions due to crowding out of the weakest members of the society (Halland, East of England, Västra Götaland and Basse Normandie)

The survey also reveals that the negative effect of the declining global market is not only limited to the supply side, but that it is also evident in the retail sector, where micro and small businesses are under strong pressure to remain profitable, in sectors like clothing, automotive dealers, hotel trade and catering. Regions are also carefully considering the possible implications of the reduced activity of their key economic sectors for the wider business community (Bretagne and Västra Götaland relating to the automotive sector, Aberdeen city and the Shire its Oil and gas operators, see box 7).

Box 7 - 10th Oil and Gas survey in the Aberdeen area

Aberdeen and Grampian Chamber of Commerce published its 10th Oil and Gas Survey in February 2009. It is based on responses from Oil and Gas operators and contractors to identify trends including activity levels, investment, skills supply, contractual matters and new market developments. The findings are used to identify how the performance of this sector might impact the wider business community in North-East Scotland and the rest of the UK. Among the key findings are: The majority of operators expect to reduce total employment levels in 2009, with some reduction in the use of contact and temporary staff. A net balance of contractors expect to increase total and permanent employment in 2009, but likewise expect to make less use of temporary and contract staff. Spend on R&D continued to rise through 2008, but declines are expected over the next two years.

Social impact: which long-term consequences of the widespread rise in unemployment?

Regional along with local and municipal authorities are on the front line when it comes to coping with the social impact of the crisis. They are indeed the first to be affected by closure of firms, staff cuts, salary reductions and therefore rising unemployment and increasing household debt; moreover they often have institutional competences to deal with these issues.

The following table summarizes the most significant social and labour market consequences which are occurring within Regions participating in the survey.



Table 6 Social and labour market effects of the recession on surveyed regions

Exceptionally rising

unemployment

Salary reductions

New labour market entrants

unable to find work

Decrease of citizens income

Reduced domestic

demands of goods and

services, including public

Increase in insecure work

Increasing household

debt/difficulties in paying

mortgages includnig financial

obligations.

Strong increase in claims

for benefit payments

Sharp decline in job

vacancies

House repossession

Difficulties in accessing

credit for households

Rising poverty/difficulties in

accessing basic services

Increasing insecurity and

tensions

Increases in homelessness

and housing waiting lists

Podlaskie X X X

Ionia Nisia No visible signs of the crisis are yet detected. In this case also if the crisis strikes in our region, households budgets will be affected, unemployment will rise etc.

A. Makedonia -Thraki X Toscana X X X X X Friuli V. Giulia X X X X Puglia X X X X X Basse Normandie X Pays de la Loire X PACA X X X X Region Midtjylland X Österbotten X Päijät-Häme X Itä-Uusimaa X X X Aberdeen city-Shire X X X Cornwall X X X X X X X X Hampshire X X X X X X X X Somerset X X X X X X X Västra Götaland X X Shetland Islands No social signs but unemployment is slightly increasing Principado de Asturias X X Illes Balears Castillia y León X X X Lisboa -Vale do Tejo Nordland X Primorsko-goranska No data but significant social consequences expected East of England X X Bretagne X Halland X

The table shows that unemployment, although to varying extents, has increased in almost every surveyed Region (19 highlighted a sharp increase in the unemployment rate although in some cases this is due to reduced industrial activities in specific sectors, mainly construction and automotive), resulting in more people making claims for benefit payments, with an increased number of citizens becoming eligible for free or reduced-cost access to services, or failing to pay debts and financial obligations. This is leading to an unprecedented pressure on regional budgets, in particular in those Regions whose revenues are strongly dependent on economic activity (see following section). The large majority of Regions highlighted that although the impact of the recession on the labour market is remarkable, the intensity and patterns of the crisis on the social sector for the time being may worsen in the coming month in various economic sectors.

The Regions are expecting further increases in unemployment rates in 2009 and well into 2010 as this is one of the last and slowest macro-economic indicators to recover in a period of recession. According to the data available, the most affected among the surveyed regions in terms of rising (registered) unemployment rates are Hampshire with 130% increase (to be explained by the fact that it was very low 1.1% while now it has reached around 2.5%), Illes Balears, Västra Götaland, and Castillia y León with 55.5%, 48.3% and 44.8%7 increases respectively in April 2009 compared to April 2008. Unemployment is expecting to affect Regions

7 These figures deal with the changes in the number of registered unemployed and therefore do not give a precise idea of the absolute number of unemployed.




to a greatly varying extent. The same rule applies to Regions of the same country, as shown by figure 9 which presents projections for Spanish Regions. North-east Spain (Aragon and Catalunya) is to witness the highest relative increase in unemployment rate.

Fig.9 – Unemployment rate 2007-2009 (left scale) and % change over the some period (right scale) across 17 Spanish Regions (Source: Fundación de las Cajas de Ahorros)

0

5

10

15

20

25

I. C

anar

ias

Extr

emad

ura

And

aluc

iaC

atal

unya

Cas

tilla

la M

anch

a

SPA

INC

Val

enci

ana

Cas

tilla

y L

eon

P. A

stur

ias

Gal

icia

Mur

cia

C. M

adrid

Ara

gon

Can

tabr

iaI.

Bal

eare

sP.

Vas

co

La R

ioja

unem

ploy

men

t rat

e, %

tota

l act

ive

popu

latio

n

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

160,0

180,0

200,0

% in

crea

se 2

007-

20092007 2009 % increase

national % incraese 2007-2009

Young people, low skilled and workers with temporary/limited contract of employment are the most affected categories facing unemployment and difficulties in re-entering the labour market (in particular in Scandinavian and English Regions as well as Pays de la Loire in France).

Box 8 - How buoyant the labour market is in recession periods. The case of Cornwall vis-à-vis the South Western NUTS I region and the UK

The vacancy to claimant count ratio, which shows the number of vacancies per claimant, is a crude measure of how buoyant the jobs market is. Currently the ratio in Cornwall stands at 0.2. This is lower than for the South West Region (0.28) and Britain (0.22). The February 2009 figures are also all well below the figures for February 2008. Analysis of the figures could be used to highlight those areas of Cornwall where the gap between vacancies and claimants is higher. The St. Blazey area is one area with limited vacancies compared to the number of claimants in the area. Overall, there are few places where there are more vacancies than claimants.

Fig 10 Ratio between claimants and vacancies, comparison UK, South West England and Cornwall

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

United Kingdom South West Region Cornwall

ratio

betwee

n cliaman

ts and

vac

ancies

February 2008

January 2009

February 2009

Source: Cornwall and Isles of Scilly Economic Forum, Economy Monitoring – Monthly Update March 2009: http://www.economicforum.org.uk/economic-recession.htm



Whereas in Västra Götaland and Castillia y León this figure is mainly due to the crisis of their automotive sector and its supply chains, in the latter rising unemployment is basically due to the combined effect of a sharp decline in the housing market activity and a decline in visitors, the large share of regional GDP being made out of tourism.. In some regions (e.g. East of England) the total unemployment level has remained fairly stable and as from February 2009 has started to decrease. Rising unemployment rates seems to be mainly due to new labour market entrants not able to find work. Other Regions seem not to have witnessed strong increase in unemployment even though other socio-economic indicators are performing rather disappointingly (e.g. Lisboa e Vale do Tejo).

The social impact of the crisis is not limited to rising unemployment though. The effects of the crisis on individuals vary in nature. Most Regions underlined households’ growing inability to maintain payment of their mortgages (Toscana, Cornwall, Podlaskie, Hampshire, Puglia and Castilla y León) and difficulties in accessing credit (Toscana, Friuli V. Giulia, Puglia, Hampshire and P. de Asturias) as one of the major outward signs of the crisis, whereas others pointed to a further increase in insecure working contracts (Puglia) or increasing demand for services (Somerset). Consequently, whereas on the one hand growing house repossession is becoming a widespread trend across Regions, on the other hand the lack of credit to potential buyers is hitting the housing market to a significant extent with stagnating or declining sales overall. Additional burden on the regional budget and other consequences such as growing social insecurity, poverty, difficulties in access to basic services such as education and health are also underlined by various Regions.

Increase in the effects of crime and fear of safety experienced by different groups (e.g. older people, migrant workers, etc.) is not an uncommon situation (Itä-Uusimaa and UK Regions). Somerset, for instance pointed to acquisitive crime (e.g. theft and robbery), alcohol-related violence, including an increase in anti-social or criminal behaviour exacerbated by the increased rural isolation of young people as well as increase in incidences of domestic abuse due to increased household pressures.

Recent economic migrants returning to their home countries is becoming a widespread phenomenon, although it seems to be particularly evident in the UK due to the combined effect of reduced availability of jobs and depreciation of the Sterling.

Impacts on regional public finances

According to EC DG Ecofin (Spring 2009 projections) the crisis is expected to have a strong impact on public finances with sizable increases in fiscal deficit in 2009 and well further into 2010. The budget deficit is set to more than double in 2009 in the EU (from 2.3% of GDP in 2008 to 6%) and to increase further in 2010 (to 7¼%), ensuing from both the impact of the economic slowdown itself and the sizeable discretionary budgetary stimulus to support economic activity.

Regional fiscal balance is expected to face substantial deterioration as a combined effect of reducing operating revenues and increasing expenditures. The impact of the recession is not uniform however, as specific characteristics of regional fiscal systems, source of revenues and structure of expenditures vary considerably across EU Regions. As fleshed out in Table 6, the most affected revenue items are direct tax revenue from both personal and corporate income (Västra Götaland observed that every additional percentage point in unemployment rate results in decreasing tax revenue of some 150 million SEK, some 13.9 mil EUR) as well as VAT, revenue from planning applications and public services (e.g. parking fees, public transportation, waste facilities, recreation services etc.). Whereas the intensity in the decline of revenues varies from a Region to another, their relative importance as a regional source of income also differs significantly across Regions. Central government subsidies amount to an important share of regional revenues in Scandinavian, French, Polish and Croatian Regions, so that the not unlikely reduction in size of this transfer might have severe repercussions on regional fiscal balance. From the responses to our questionnaire, it seems that regional budgets whose large share of income comes from taxes (direct and indirect) and charges on public services will be facing the strongest revenue reduction far more than those reliant on national transfers, at least in the short run.

A common concern is linked to the uncertainty about the future, as the highly volatile economic circumstances make it difficult to predict changes in revenues and therefore plan expenditure. Whereas this is even more challenging for 2010, a common trend seems to suggest that whereas the strongest impact on expenditure is expected in 2009, that on revenues is expected in 2010 and in some cases even in 2011 due to the normal lag (1 or 2 years) that exists between the time most taxes are collected (see box 9).



We are quite aware that it is too early to provide a comprehensive analysis of the impact of the economic recession on revenue and expenditure in 2009 and especially 2010. Nevertheless, information provided by the Regions allow for a tentative insight into its early effects. The following table summarizes the expected impact of the current crisis on regional public finances.

Table 7- Expected impact of the crisis on regional fiscal balance in terms of revenues and expenditures

Impact on regional public finance Impact on revenues Impact on expenditure

Regions

Revenue

from direct

taxes

Revenue

from indirect

taxes

Public

services

reduction

Reduced

National

subsides

Others

More Social

services

Additional

investments

Unemploy-

ment

subsides

Cornwall M S M M M M Podlaskie S M L Ionia Nisia To date no reliable estimations To date no reliable estimations A. Mak. Thraki No projection M Toscana To date no information S Friuli V. Giulia M M S Puglia M M M S Pays de la Loire M S M S S PACA L S M S R. Midtjylland To date no information To date no information Österbotten M M Päijät-Häme S M Itä-Uusimaa No projection M Aberdeen City L M Hampshire M M M Somerset S S S V. Götaland S

M Impact on regional public finance

Impact on revenues Impact on expenditure

Regions

Revenue

from direct

taxes

Revenue

from indirect

taxes

Public

services

reduction

Reduced

National

subsides

Others

More Social

services

Additional

investments

Unemploy-

ment

subsides

Shetland Is. Expected a slight decrease Probably a slight increase P. de Asturias S M S M S Is. Baleares S S S S S S Castilla y León S S S S S Nordland S To date no information P. Goranska S

To date no information NB: S=strong, M=medium, L=low

A first overview of the impact of the crisis on regional budgets shows a very diversified panorama. Regional governments in many countries are under pressure due to the combined effect of falling local tax receipts (basically all Regions), declining interim rates, fees and income from a variety of traded services (Spanish and UK Regions) and interest revenues and fewer central government grants (Spanish Regions, Primorsko-Goranska, Podlaskie). Some interesting points emerged from the questionnaires we have received:

a) In some Regions already struggling with limited budgets, and where no additional resources from the central government have been transferred, a further economization of expenditures seems to represent the only feasible solution. In Podlaskie, for instance, the possibility to fulfil even the basic regional tasks will be a challenge in 2009-2010 and so will be the implementation of already planned medical facilities (amounting to some 250 mil PLN some 56 mil EUR.), the accomplishment of which is required to meet EU requirements by 2012. In Puglia, the foreseen reduction in national transfers is expected to affect regional expenditure in important budget areas such as health care, social services and benefits, education and culture;




b) Regions in the UK may rely on stable and predictable central government funding so that no difficulties are expected on this side in 2009-2010. However, Somerset County Council observed that as the latest comprehensive spending review period comes to an end on 31/3/2011, from 2011 the central government grant is predicted to be significantly cut as nationally the impact of repaying borrowing takes effect;

c) As many Regions have as a major source of income Regional Taxes, falling collection rates are putting serious constraints on budget (Spanish and Italian Regions, English Counties);

d) The collapse of the housing market is also affecting Regional revenues due to reduced income from planning applications (in UK and Spain);

e) Various Regions are experiencing significant reductions in earnings from investments as interest rates have hit record lows (English Regions, Asturias).

Box 9 - How the crisis is affecting different revenue sources in CPMR member Regions: the case of PACA

As far as indirect revenue issues are concerned, mainly TIPP (Taxe intérieure de consommation sur les produits pétroliers), new car registrations and contributions to training development, the Region is expecting a sharp decline.

In contrast, in 2009 direct revenue sources (professional taxes, property taxes) are predicted to be only slightly affected by the crisis. In particular, thanks to the good performance of private investment in 2007 (2009 basis being calculated on the basis of declarations made concerning the year 2007), revenues from professional taxes should increase in the present year. Revenues from property taxes should also not be decreasing this year as a consequence of the fact that new builds and expansions of premises and offices has increased by 1% in 2008 as well as of the re-valuation of rental values (+2.5%).

In 2010, however, income from direct revenue sources should strongly decrease as a result of the crisis affecting the housing market (and therefore, less income from property tax) and the sharp reduction in business investments taking place in 2009 (i.e. less income from professional tax).

Allocations. National transfers as regards the VAT compensation Fund (FCTVA) are normally allocated with a 2 year time-lag meaning that 2008 transfers from the FCTVA to PACA Region referred to investment expenditures undertaken in 2006. Within the framework of the Recovery Plan, the national government has foreseen an advanced transfer from the FCTVA in favour of those regional and local authorities which commit themselves to increasing their level of investments in 2009. If the Region respects this commitment, this derogation entailing an anticipated transfer will become permanent. Taking into account the strong investment effort of PACA Region foreseen by the 2009 budget, it is highly likely that the Region will be one of the beneficiaries of these advanced transfers, which are estimated at some EUR 31 mil to be added to the due FCTVA transfer of some EUR 30 mil concerning the year 2009.

Against this background of falling regional revenues, choosing the option of substantial cuts to community services and increases in taxes and charges would lead to deflationary effects including reductions in employment and the slowing of the private sector economy to the point where rises in tax rates would not necessarily result in increased government revenues. As a consequence:

a) The majority of regional governments opted to go on stimulating economic activity and employment even though it entails, in some cases, budgeting for a deficit in 2009 and 2010 (e.g. Västra Götaland, Castilla y Leon and Illes Balears);

b) Some Regions have re-adjusted the regional budget giving priority to urgent most-needed measures over expenditure with low or not immediate relevant impact on real economy and labour market, or with no social added value (Castilla y Leon, Somerset);

c) Strengthening efficiency in public spending through rationalization, partnerships and increasing innovative methods of service delivery (Somerset);

d) Aberdeen City has decided upon slowing the rate of capital expenditure on some major projects to deal in part with the projected reduction in revenues;



e) Some Regions have opted for budgetary reductions. Budget reduction by some 3% in 2009-2010 is being considered by Itä-Uusimaa. The Region has not incurred any additional investments as economic recovery is being pursued through the national budget. Some anti-cyclical measures (i.e. benefit payments) are taken at municipal level;

f) Some relying on healthy fiscal systems or benefiting from positive balances in the budget accumulated in the past years have made efforts in order to increase budgets to meet greater demand and support additional investments (e.g. PACA and P. de Asturias).

Some Regions have undertaken reviews of revenues and expenditure schemes, whereas others, despite not ruling out such a possibility in the future, have decided not to make any relevant alteration in the regional budget (Västra Götaland). This issue will be further investigated in the following section.

Box 10 - Expected impact of the crisis on the regional public budget: P. de Asturias and Västra Götaland

The adverse economic circumstances are expected to have major consequences for Regional administrations. Some regional administration, however, will be suffering far less than other and thanks to the combined effect of prosperous growth and rigorous fiscal policies over the previous years are now well equipped to respond to the crisis by injecting unprecedented financial flows into the regional economy to support citizens and the business community, while bolstering public investments.

Principado de Asturias: A strong reduction in budgetary revenues resulting from the combined drop in tax revenues and national allocations is expected. Moreover, the stagnation of the property market is having a strong impact on revenues coming from death taxes, transfer tax and stamp duty which amount to a large share of the regional budget. Revenues from VAT and Vehicle Registration Tax will decline substantially due to falling domestic consumptions, which in turn is a direct consequence of exceptionally rising unemployment and growing household debts. Notwithstanding, the healthy public finance resulting from years of prosperous growth accompanied by scrupulous fiscal policies have made it possible for the Region to adopt for 2009 the largest budget of its entire history. It amounts to some EUR 4 394 mil, corresponding to a 7.68% increase on the preceding year. This has made it possible for the Region to allocate an additional EUR 226 mil to mobilize more than EUR 515 mil for anti-crisis interventions. In addition, taking into account extra-budgetary resources, it will be possible to increase the level of public procurement by 43% in 2009 (which brings the total public procurement expenditure up to EUR 828 mil). The Region will also accelerate the realization of public works through 97 refurbishment projects.

Västra Götaland: Tax revenue will diminish in the coming years due to increased unemployment and reduced consumption. Tax revenue is Region’s primary source of income, and every percent of increased unemployment results in decreasing tax revenue of 150 million SEK. The budget for the years 2009-2010 has already been decided upon, and as of now no alteration in the regional budget is proposed. Although the extent of the crisis has not yet been fully estimated, future changes in the regional budget may not be ruled out. In the past years, the Region has been able to produce a positive balance in the budget. Therefore there is adequate cover for the diminishing tax revenue. Though they expect to present figures in the red in forthcoming years, the regional budget will not be affected. Support for unemployment is a national question and will not burden the regional budget, although increasing socioeconomic costs as an indirect effect of the crisis are expected. The Region’s major budgetary expense is healthcare, and people with an uncertain future in their workplace and/or with lower economic standards tend to suffer the most in these situations.

4. REGIONAL RESPONSES TO THE CRISIS ARE WIDE-RANGING

4.1. Overview

The Regions covered by this survey differ from each other in terms of competences, political and administrative autonomy, and thus in terms of their actual possibility to put in place effective mechanisms and tools to respond to the crisis. The actual exercise of competences and powers is furthermore dependent on the Regions’ financial autonomy.



Despite these differences and independently of their room for manoeuvre, a considerable number of Regions has strongly reacted to the crisis by putting in place new mechanisms of a different nature, with a view to stimulating the regional economy and the labour market. While Italian and Spanish Regions together with Wales were in a position to mobilize important budgetary resources and regulatory measures to tackle the crisis within their territory, other Regions whose competences in regional economic development affairs are far more limited by the law, have adopted major anti-crisis schemes, sometimes associated with appreciable budgetary efforts (PACA).

Although budgetary measures and additional investments represent indeed the most effective and visible ways of supporting the regional economy and stimulating the labour market during times of economic stagnation, other means of interventions, such as regulatory and governance measures, should not be overlooked as they may well equally have important positive impacts in terms of rebuilding confidence, as well as creating more favourable conditions for businesses and investments.

Every EU country has adopted its package of stimulation measures. Although sometimes quite different in nature they include measures such as huge interventions in the financial/banking sector to rebuild confidence and create a good climate for private investors, major investments in infrastructure, the reduction of national taxes and levies, including VAT, the increase of social benefits and, last but not least, financial support for specific industries - mainly the automotive industry. Regions, however, thanks to their proximity to citizens and businesses, may be more effective in combating the crisis in the real economy, and our survey has largely confirmed that they have been operating quite actively in this sense.

Fig. 11 - Relation between impact (real or perceived) of the crisis and intensity of regional response (real/planned or potential)

impact of the crisis

regi

onal

res

pons

e

Shetland Is. (UK, Scotland)

Primorsko-Goranska (HR)

R. Midtjylland (DK)Nordland (NO)

Aberdeen City (UK, Scotland)

Friuli V. Giulia (IT)

Toscana (IT)

Cornwall (UK)

A. Makedonia k. Thraki (EL)

Itä-Uusimaa (FI)

Västra Götaland (SE) Österbotten (FI)

P. d Asturias (ES)

Podlaskie (PL)

Ionian Is. (EL)

PACA (FR)Bretagne (FR)

B. Normandie (FR)

Päijät-Häme (FI)

Wales (UK)

Castilla y Leon (ES)

I. Balears (ES)

Puglia (IT)

Pays de la Loire (FR)

Stockholm (SE)

East of England (UK)

Lisboa Vale do Tejo (PT)

Somerset (UK)

Hampshire (UK)

Unitary States

Regionalized States

Decentralized Unitary States

Decentralized States

NB Nordland and Ionia Nisia, impact expected to increase in the following months

4.2. Detailed analysis

Nature and organization of regional measures

In line with their competences, financial means available and intensity of the signs of the crisis, Regions have taken steps in different directions. Measures, be they budgetary, regulatory or governance-related in nature, may be broken down into two major categories: short-term counter-cyclical measures and medium-long term structural measures. In line with the EU Recovery Plan, they are all called upon to play a strategic role in supporting economic recovery. The following table fleshes out the measures adopted or in the process of being adopted by the respondent Regions.



Table 8 Existence of a regional recovery plan and reasons for not adopting one

The table shows that only few Regions have put in place a comprehensive package of measures which, as shown by the following table, includes a combination of both counter-cyclical and structural measures adjusted to the needs of their economies. In 7 Regions these measures are part of a regional recovery plan or something very close to it. In 4 Regions however (Cornwall, Podlaskie, Ionia Nisia and Basse Normandie) various important anti-crisis measures have been adopted, though they do not amount to a comprehensive package, because either the Region is not competent in the field of economic development and labour market, or the measures in place were deemed still valid under changed economic conditions.

These Regions, which are also the biggest in size among the ones concerned, have, with the partial exception of the French Regions, wide-ranging competences and sizeable regional budgets, not to mention the strong involvement and responsibilities they have as managing authorities of their ERDF and ESF operational programmes. The adoption of regional recovery packages are the visible signs of the key role these Regions can play in helping the real economy move from recession to recovery.

Some Regions with a view to efficiently tackling the crisis have exceptionally gone beyond their ordinary competences (Pays de la Loire and Castilla y Leon), shouldering unprecedented budgetary efforts to make the difference in the regional economy.

Other Regions, for a number of reasons, have not taken action towards adopting a regional recovery plan. In most cases they either lack competence or believe that no need for a comprehensive recovery plan was perceived. Croatian, Greek and Portuguese Regions do not have adequate competences allowing them to adopt a Regional recovery plan, but they are somehow involved implementing parts of the national plan. The overall national recovery plan remains, however, rather centralized and Regions seem not be playing an active role in implementing anti-crisis measures.

There are a certain number of regions that, although for various reasons (e.g. lack of competence, financial means etc.) have not adopted any regional recovery plan, have implemented specific measures to address particular sectors or population categories;

Anti-crisis measures, whether part of a recovery plan or not, adopted by the Regions are very different in various aspects: nature and scope of the intervention, intensity, target groups/sectors, partners involved, etc.

Regional Recovery Plan

In Place or not Nature of the plan/Reasons for not adopting a plan Regions

1. The Region has adopted a comprehensive Regional Recovery Plan or Regional anti-crisis laws

Puglia Toscana Friuli V. G. P. de Asturias Illes Balears Yes a regional

recovery plan has been adopted

2. The Regions has adopted a certain number of interventions which even if not representing per se a Regional Recovery Plan it is somehow equivalent to a regional anti-crisis package

Castilla y Leon PACA Pays de la Loire

1. The region has adopted specific measures to support specific sectors/population categories but they are not part of a comprehensive regional development plan;

Cornwall Somerset Podlaskie Ionia Nisia B. Normandie

2. The measures already foreseen are still valid and effective in this period of recession

Osterbotten Päijät-Häme Itä-Uusimaa V. Götaland

3. Not adequate financial means to be mobilized on the regional level;

Podlaskie P.goronska

4. The region lacks competence in regional economic development, labour market and social policy

Ionia Nisia A Mak-Thraki R Midtjylland Osterbotten Aberdeen City Hampshire Lisboa-V. Tejo

5. No particular need for a regional recovery plan Podlaskie Päijät-Häme Itä-Uusimaa Aberdeen C. Shetland Is. Nordland

No comprehensive Regional Recovery Plan has been adopted

6. It might possibly be adopted in the future should any form of regional adaptation of the national plan be necessary

Västra Götaland



The following table summarizes the main interventions put in place by the surveyed regions by differentiating between structural and counter-cyclical measures.

Table 9 Overview of counter-cyclical and structural measures adopted by the regions participating in the survey

COUNTER CYCLICAL STRUCTURAL MEDIUM TERM Public investments

1 Supporting investment in public buildings and infrastructure to stimulate the labour market throughout the recession by creating new jobs (almost all regions although through different sources Structural Funds, national, regional resources or combination of the three) 2. Supporting the construction sector Päijät-Häme - P. de Asturias – Castilla y Leon – Pays de la Loire

3. Bolstering smart-investments environmental sustainability: energy efficiency, renewable energies, innovation etc. (almost all regions although through different sources Structural Funds, national, regional resources or combination of the three)

Support to businesses and SMEs 1.Access to credit for SMEs through establishment of new guarantee funds for easy access to credit in particular for SMEs Umbria - PACA - Friuli V. Giulia - Principado de Asturias - Aquitaine – Basse Normandie - Puglia – Aberdeen City – Illes Balears

2 Support to internationalization of businesses Aberdeen City – Pays de la Loire - Puglia

3.Favorable loans schemes and credit lines to support business start-ups in highly innovation orientated sectors and with potential for additional creation of jobs PACA – Cornwall (through South West Loans Fund)

4 Favourable loans schemes for businesses to preserve jobs PACA – Pays de la Loire

5 Support for recapitalization of businesses Umbria - Friuli V. Giulia 6 Tax break and special terms for certain categories of SMEs Friuli V. Giulia - Principado de Asturias - B. Normandie – I. Balears

7 Financial aids for business and micro-business start-up Puglia – Illes Balears 8 Investment support to SMEs investing in energy efficiency and shift to renewable energy Puglia

Labour market interventions

Passive labour market interventions Active labour market interventions

1. Support for unemployment, extraordinary redundancy payments to alleviate the negative impact of the crisis on labour force Toscana - Friuli V. Giulia - Umbria - Cornwall

2. Investing in new skills to match the labour market needs through Lifelong Learning PACA - Friuli V. Giulia

3. Support to vocational training for employees and employers in SMEs PACA - P. de Asturias - Aberdeen (in the construction sector) Illes Balears

4 Redundancy retraining in areas of employment growth Aberdeen City

5. Incentives to businesses hiring permanent staff or turning temporary job contracts into permanent positions Friuli V Giulia – Pays de la Loire

Social interventions 1. Reduction or suspension of payments of taxes/financial obligations and tax benefits for most disadvantaged groups Umbria - PACA - Friuli V. Giulia – Aberdeen City – Illes Balears

2. Suspension of mortgage repayments for the first house Umbria - Principado de Asturias 3. Reduction of public service charges including for health and education services PACA - Umbria - Illes Baleares – Pays de la Loire 4. Regional funds to increase the self-sufficiency of low-income Umbria

BUDGETARY /FISCAL MEASURES

5. Improving access to affordable financial products and services through the mainstream banking services or alternative credit saving options. Aberdeen City – Puglia



1. Re-prioritizing investments giving precedence to high-return investments in terms of job creation economic stimulus. Päijät-Häme - Anatoliki Makedonia kai Thraki - Umbria – Pays de la Loire – Illes Balears 2. Reducing administrative burdens for businesses Friuli V. Giulia - Puglia – Castilla y Leaon – Illes Balears

REGULATORY

MEASURES

3. Measures to improve efficiency in public spending including in the allocation of EU funds Umbria - Principado de Asturias – Puglia – Illes Balears

1. Establishment/strengthening of new governance methods Principado de Asturias – Hampshire – PACA – Illes Balears 2. Strengthened national-regional partnership A. Makedonia k. Thraki – Cornwall – Hampshire – Somerset – Castilla y Leon – Illes Balears 3. Partnership with other regions Cornwall (within the South Western partnership)

GOVERNANCE

MEASURES

4. Setting up new partnerships with private actors, socio-economic partners, other public authorities, etc. Österbotten - Päijät-Häme - PACA - Friuli V. Giulia - Principado de Asturias - Cornwall – Aberdeen City – Pays de la Loire

The measures fleshed out in table 9 take account of both new measures as well as anticipation of measures already planned.

Although the majority of Regions has focused the attention on anti-cyclical interventions aimed at supporting the population and the business community throughout the recession, several Regions have combined conjunctural extraordinary measures while laying additional emphasis on green investments and skills upgrading, seeing the crisis as an opportunity to enhance regional competitiveness in key highly-innovative sectors.

As adopting mere counter-cyclical interventions is not a regional competence in several EU Member States, most of the respondent Regions highlighted that important regional interventions will be made in smart investments with the Structural Funds called upon to play a strategic role. Some Regions have highlighted that the medium-term plans include measures which are still valid and effective under changed economic conditions (see Table 7). As they do not represent additional interventions, such measures and plans already adopted before the crisis unfolded are not included in this analysis, although they are equally important to sustaining regional recovery.

Some regions have also established new initiatives to improve access and enhance the capacity of money advice and information services in support to people experiencing financial hardship (for instance the Income Maximisation and Money Advice in the Community set up by Aberdeen City Council and the advice services proposed by the Economic Action Group in Hampshire, see box 11).

In other contexts, Regions implement actions which are part of the national recovery plan (e.g. Greece where the 13 NUTS II de-concentrated regional authorities are basically responsible for vertical co-ordination of economic policy). In Cornwall the Region participated in the preparation of the South West England recovery plan which is now being implemented.

COUNTER CYCLICAL STRUCTURAL MEDIUM TERM



Box 11 - Some examples of innovative action to support regional economy

1. Issuing Regional bonds to raise cash in Pays de la Loire: The Region of Pays de la Loire has adopted an innovative action to support public investments throughout the recession. This action consists of bonds issued to finance the construction of new schools and to inject money into the business support mechanism. The measure is being taken due to the financial crisis which is making it difficult to secure funding from banks. Authority bosses aim to raise between EUR 40-80 mil in what is expected to be a low-risk venture for investors.

2. Support package for independent retailers in Hampshire County Council: This proposal puts forward a number of measures aimed at supporting independent retailers through training, marketing support and workshops. It is aimed at addressing the difficulties faced by those who have no corporate support or large scale marketing organisation behind them. It uses the opportunity of peer to peer support and specialist business training facilities to help squeeze costs out of smaller businesses and boost turnover. It will also show how effective use of the Internet can reach new markets building on the expertise of Hampshire. The programme will be undertaken with the collaboration of other Councils and local town centre managers. Estimated cost amounting to £ 80 000.

3. The Bando per le microimprese in Puglia Region: This measure provides the highest level of incentives for micro-enterprises in Italy. By targeting young people aged 18-25, women, long-term unemployed, people who are at risk of losing their job, as well as precarious workers up to 35 years of age having successfully completed vocational training courses, the Region intends to provide exceptional financial support for self-entrepreneurship. This includes up to EUR 400 000 for a micro-business start-up, EUR 150 000 of which for fixed capital and equipment, and 250 000 to cover expenditures such as salaries, leasing, bills and therefore all operational costs related to the functioning of the enterprises. This unprecedented system of incentives will involve EUR 50 mil sufficient to mobilize up to EUR 100 mil for investments in micro-business start-up.

4. The « Intervention Régionale pour l’Investissement Social » in PACA Region: the social question in the Region has been the focus of specific attention. In close cooperation with the social partners, the Region has decided to adopt a special fund for vocational training IRIS (Intervention Régionale pour l’Investissement Social), specifically designed to support the low skilled throughout the crisis. EUR 6 mil have been invested into this fund.

Budgetary aspects of anti-crisis measures

Robust money injections through public investments account for the largest part of regional anti-crisis efforts even though the emphasis on smart investments is different across Regions. Although the crisis has had severe impact on regional budgets, several Regions have made significant efforts towards ensuring a high level of investments to stimulate local economy and support citizens and businesses. Particular attention is paid to SMEs by mobilizing additional financial resources and taking advantage of the frontloaded ERDF and ESF payments granted by the Commission to speed up programme implementation.

The majority of surveyed Regions, in coherence with their financial possibilities, have made additional investments. The most important budgetary measures are set out in detail in the following table. Some additional categorization is presented further on.

Table 10 Emergency budgetary measures and investments to counteract the recession and financial source. Some examples from surveyed Regions

Additional investments REGIONS Through Structural

Funds/ Through Regional Budget

Through transfers from the national budget

Cornwall

£10 mil of ESF funds have been used to support five schemes supporting those

made redundant and seeking employment



Additional investments

REGIONS Through Structural Funds/

Through Regional Budget Through transfers from the

national budget

Podlaskie

Additional funds have been ensured within the national

recovery plan with emphasis on labour market and building (trust

capital)

Ionia Nisia

The region is undertaking measures to sustain visitors’ flow

during the summer

The national government is funding private initiatives

A Maked-Thraki

Measures to support tourism

Toscana

EUR 105 mil from the ESF to be used to finance social counter cyclical safety net payments

Additional EUR 68 mil to support

anti-crisis measures

To date EUR 60 mil allocated to the region to complement the ESF

resources shifted to finance safety-net payments.

Friuli VG

EUR 25 mil to be used to finance social counter cyclical safety net payments

EUR 311 mil to speed up public investments in support to public works and infrastructure; EUR 50 mil to support capital structure of local SMEs with turnover not exceeding EUR 10 million; EUR 50 mil to support SMEs

To date 16 mil EUR allocated to the region to complement the ESF resources shifted to finance safety-net payments.

B. Normandie

Employment & Training Plan EUR 15 mil SMEs Plan EUR 12 mil

Pays de la Loire

Additional EUR 259 mil for regional investments (anticipation of investments); EUR 900 000 for training; EUR 200 000 enhancing value of young people; EUR 500 000 springboard employment; EUR 640 000 emergency aid to students and apprentices; (see box 11)

EUR 80mil for investments as part of the French National Recovery

Plan

PACA

Increased allocation for investments (+ 2% total budget EUR 650 mil in 2009) plus anticipation of investments

Additional EUR 400 mil in 2009 within the framework of the State-Region Contract

Aberdeen City

Setting up new advice services to access credit, training courses and low/no cost leisure and recreational activities

Hampshire

Support package for independent retailers £ 80 000; Network of Smarter Working Centres £100 000; Support for work experience and volunteering opportunities £50 000; support for business apprenticeships £195 000

Somerset £200,000 to finance new actions

included in the Recovery Plan

V. Götaland EUR 9.3 mil (public infrastructure)

Principado de Asturias

Budget 2009: EUR 515 mil more than in 2008 (+7.68%). 253 mil EUR is directly concerned with anti-crisis measures out of which -95 mil to stimulate employment; -147.9 mil to support SMEs in the construction sector.



Additional investments

REGIONS Through Structural Funds/

Through Regional Budget Through transfers from the

national budget

Illes. Balears EUR 16. 2 mil Regional

contribution to the Regional Recovery Plan

EUR 4.45 mil National Contribution to the Regional Recovery Plan

EUR 625 000 for vocational training EUR 6 mil for incentives to buy new cars

Castillia y León (see box 10)

a) Increase of resources over 2009-2011 for SMEs investments (total EUR 620 mil); b) Additional EUR 40 mil for rural infrastructure; c) EUR 215 mil for local development projects in 44 areas;

Nordland 317 mil NKR (public

infrastructure)

Bretagne

Additional EUR 30 mil (+10% of foreseen budget for 2009) to support investments in public works and renewable energies in public buildings

NB: Data are based exclusively on what Regions have reported in the questionnaires.

From a quick overview it appears that at least some Regions have really made big efforts to mobilize resources to finance anti-crisis measures. In most of cases we are dealing with anticipation of previously decided interventions (PACA), in others with additional resources (mainly transfers from national budgets V. Götaland, Nordland). In a majority of other cases we can observe a combination of the two (Castilla y Leon, Puglia, Bretagne and Pays de la Loire).

Box 12 - Pays de la Loire emergency budgetary measures

The Pays de la Loire Region has increased its budgetary effort to include new measures to tackle the exceptional economic conditions by putting strong emphasis on skills upgrading:

a) Additional EUR 900 000 to strengthen the Regional Training Programme; b) EUR 200 000 to finance a programme to enhance the value of young people within enterprises; c) Additional EUR 500 000 to widen the scope of “springboard employment”; d) EUR 640 000 to finance emergency aid to students and apprentices facing economic difficulties;

Moreover, the Region has decided upon measures supporting three particularly affected industrial chains, i.e. automotive, iron and steel and wood processing. In order to stimulate the regional economy, the Region will immediately anticipate EUR 259 mil of already planned investments included in the regional multiannual investment plan (2005-2010). Through these financial resources the Region will carry out the following investments:

Construction of 4 high schools €164M Construction of a Social-work-based Vocational Centre €18M Construction of infrastructure for Research activities €26M Support to private works €8M Transport infrastructures €2.4M Regional loans for industrial redeployment, regional innovation platforms €30M Contribution to student housing €4M Local investments €6.5M

Some remarks need to be made:

a) Italian and Spanish Regions have much room for manoeuvre and can mobilize additional and re-direct regional resources towards most-needed investments and counter-cyclical interventions. The regional budget of Asturias in 2009 will be the biggest in the entire history of the Region amounting to EUR 4 394 million (+7.68% increase on the previous year) which has been made available thanks




to the good conditions of the regional fiscal system (see box 10). Major budget increases have been witnessed also in Toscana, Bretagne and PACA.

b) In Scandinavian countries, the central administration is playing a major role. Additional financial support is transferred to the regional authorities for the purpose of stimulating the labour market via investments in restoration of infrastructure, maintenance of public buildings in the educational and health sector and related measures. Some NKR 317 million in Nordland Region and SEK 100 million in V. Götaland have been transferred by the Norwegian and the Swedish governments respectively for the purposes mentioned above. The structural funds, where available, are therefore not likely to be supporting additional investments (this being investment in infrastructure which is not eligible in Competitiveness and Employment Objective regions) and their role will probably remain unchanged. Increased allocation from the central budget is also taking place in PACA Region where out of the additional EUR 400 mil allocated within the framework of the State-Region Contract, EUR 150 mil will be further invested in ongoing rail infrastructure projects (Alpes-Aix-Briançon and Cannes, Antibes-Cannes-Nice and Marseille-Aubagne-Toulon) , EUR 200 mil will be used to increase investments in university and research infrastructure;

c) In Poland, Greece and Croatia, Regions that are particularly lagging behind will be struggling to a large extent as they have limited leeway to make final decision on the allocation of resources. Podlaskie Region pointed to the fact that in this context there is the risk that planned investments may not be meeting citizens’ real needs and the recovery of the regional economy may take longer than elsewhere;

d) In England the central government through the RDAs is mobilizing resources to be allocated to regional interventions, mainly support to SMEs through loans and guarantee funds, and the Regions are involved via partnership agreements.

Partnerships and new governance mechanisms

Box 13 Partnerships between the Regions and regional partners: examples from CPMR Regions:

1. P. de Asturias: Strong partnerships between the Region and the local business sectors and major multinational companies, to avoid investments in R&D and innovation being cut or postponed because of the crisis;

2. Illes Balears: The Mesa de Seguimiento de la Economía Balear, brings together representatives from Trade Unions and businesses to provide an on-going monitoring of the socio-economic situation in the Balearic Islands and put new initiatives forward. A Regional Pact for competitiveness, employment and social cohesion has been signed by the Region and the major socio-economic partners in order to define the major strategic lines for intervention in the Autonomous Community;

3. P.-Goranska: The Region has adopted a number of measures in strong partnership with various actors: with banks to create favourable credits for enterprises; with the Croatian Employment Institute to stimulate scarce job-profile creation; with employers’ associations, Croatian Chamber of Economy, Rijeka Business Academy and Croatian Union of Self-government Authorities for employers’ training programmes; with the Centre for Mountainous Agriculture and the Centre for Sustainable Development of Islands for agriculture programmes; with the RDA for new Regional insurance instruments;

4. Somerset County Council: In December 2008, Somerset CC convened a task force to monitor and review the implications of the downturn for Somerset and develop Somerset’s Recovery Plan. The task force combines both internal and external stakeholders from a wide range of professional disciplines. The CC’s Economy and Europe Group has coordinated the development of the Regional Recovery Plan on behalf of partners and will lead many of the activities identified in the plan. Quarterly reports will be made to the Chief Executive, Leader of the Council and executive Portfolio Holder for Economic Development about the implementation of the action plan. Given the fluidity of the economic climate this will provide opportunities to revise and add new actions to the action plan where required.

5. Västra Götaland: The Region is working closely with both employment services, universities and other forms of faculty to make sure that workers given notice is given the necessary support when applying for new jobs;

6. Puglia: an agreement between the Region and the Banking System has been reached. Lending to SMEs and households will be increased by 10.6% corresponding to some EUR 1.260 bil. This will bring the total lending capacity of the regional banking sector to more than EUR 13.85 bil. Through this agreement the



regional banks have committed themselves to providing more loans within a shorter time and at a reduced cost, and strengthening the overall transparency of the procedure by informing the borrowers through the institutional web site of Regione Puglia.

7. PACA: The Regional “dispositive de résistance à la crise” relies strongly on partnership mechanisms: a) wide mobilization of regional actors such as clusters, local government, entrepreneurs, trade unions and consular chambers; b) setting up a crisis-monitoring task force in close co-operation with socio-economic partners; c) associating banks and credit institutions to set up advantageous credit tailored to enterprises’ needs in times of crisis. A strong involvement of social partners has been ensured as part of the 10 measures to support the labour market and labour force skills in a particular way in relation to the IRIS (Intervention Régionale pour l’Investissement Social) which has a budget of around EUR 6 mil.

Various Regions have worked towards strengthening existing or building new partnership structures and governance mechanisms to ensure a more coordinated response to the crisis at regional level.

While one can witness a broad and generalised intensification of partnerships and governance mechanisms, they differ across Regions in terms of structure, objectives and nature of the partners involved. The process of setting up partnerships and governance structures within or between Regions follows specific patterns across countries and even across Regions of the same country. Traditions, inter-institutional and multi-tier relations, and the nature of the socio-economic dialogue with local partners seem to influence to a large extent the ways European Regions are involved in national governance practices as well as the ways Regions themselves organize their own partnerships within and outside their boundaries.

While the examples listed in box 13 are of course not exhaustive, it can be highlighted that while some Regions have largely involved the socio-economic partners in monitoring the crisis (Hampshire, Somerset, PACA), in the discussions over the anti-crisis measures (e.g. Nordland, P. Goranska, Puglia, Friuli VG) or both (P. Asturias, Illes Balears, PACA) others have opted for more restricted platform thereby limiting partnership mechanisms to specific sectors or areas particularly hit by the crisis (e.g. Päijät-Häme). In other contexts, no partnerships seem to have been established to coordinate action to mitigate the crisis (Podlaskie, Shetland Is., Aberdeen City, Österbotten, R. Midtjylland, B. Normandie and A. Makedonia kai Thraki). Other Regions have involved financial partners to strengthen and coordinate interventions in support to businesses (mainly SMEs) thereby overcoming the lack of liquidity and bolstering investments (Castilla y Leon, Puglia, Friuli V. G., PACA, Ionian Islands). Partnerships have also been enlarged so as to include universities and research institutions (P. Goranska, Nordland and Västra Götaland);

Certain Regions have strengthened co-operation with neighbouring Regions to provide better coordination and a stronger response to the crisis. The Region of Basse-Normandie has enhanced its cooperation with the neighbouring Region of Haute-Normandie, entailing the establishment of a second capital risk fund financed through the ERDF global grant the Region is currently managing. The Principado de Asturias is strengthening the co-operation with the other four Regions of north-west Spain within the framework of the Concorcio Galatea part of the Enterprise Europe Network. Cooperation between English neighbouring counties has also been strengthened through the existing/new partnership mechanisms established at NUTS II level.

Box 14 - The South-West Regional Partnership in UK (www.swretg.org.uk/)

Cornwall Council is involved in the broader regional partnership established by the South West Regional Government (NUTS I) including the NUTS II Convergence Regions of Cornwall and the Isles of Scilly and the remaining competitiveness regions of South West England.

With a view to co-ordinately respond to the economic recession, a South West Regional Economic Task Group has been created to help Government and the regions involved understand the impact of the economic downturn, and to ensure that the South West responds effectively. Chaired by the Regional Minister, the Group includes representation from the Government Office, South West of England Regional Development Agency, Jobcentre Plus, Learning and Skills Council, Housing and Communities Agency, regional and local authorities and NHS South West, along with representatives from business, trade unions and the voluntary sector.

The Group is part of a broader partnership which includes, at the national level, the National Economic

http://www.swretg.org.uk/



Council (NEC) which is tasked with coordinating economic policy. Next to this, a Regional Economic Council has been established to ensure issues and areas of concern to regions are heard and acted upon within Government. It operates with a Council of Regional Ministers. Regional Ministers will now play a crucial role in supporting regional delivery, making the links between the NEC and what is happening on the ground at regional and sub-regional where ad-hoc Regional Economic Task Groups have been established.

The South West partnership has recently agreed upon the establishment of the South West Loans Fund to support viable growth businesses in South West England that have been unable to secure finance from conventional sources. The fund will provide loans of up to £250,000 on fully commercial terms. The £10million (£5 million have been set aside for business growth support in Cornwall) fund has been established jointly by the South West of England Regional Development Agency, the Cornwall and the Isles of Scilly Convergence Operational Programme ERDF 2007-2013 and the South West of England, excluding Cornwall and the Isles of Scilly, Competitiveness and Employment Programme ERDF 2007-2013.

4.3. Role of the EU Structural Funds in tackling the crisis

In the framework of a sharp decrease in public revenues, it is interesting to have a look at the role played by the structural funds in the regional measures. This section on structural funds touches upon a number of issues which have surfaced from the results of our enquiry:

a) Dichotomy between counter-cyclical/structural measures: is it legitimate to let money sleep because it is supposed to be structural when public resources are scarce?

b) The trade-off between speeding-up the implementation of programmes and limited availability of public and private match funding:

c) To what extent should the Operational programmes (hereinafter Ops) be re-adjusted? the risk of mismatch between planned needs and new needs;

d) Coordination between the national recovery plans and the structural funds: to what extent can the structural funds contribute to economic recovery within the framework set by the national governments?

e) Convergence/competitiveness Regions, different frameworks=different challenges?;

f) Regions managing Ops and Regions with low involvement in implementing and delivering Ops: different approaches to Structural Funds use to mitigate the crisis.

These issues are the key to understanding the way Regions place themselves within the broader debate on the role of structural funds to respond to the economic crisis. Some are subject to major controversy as to the use of structural funds, others result from the shortcomings of the current frameworks, while some others are directly related to competence issues and have much more to do with governance patterns within specific national contexts. Throughout the following sections, these issues will emerge and will be discussed in more detail.

Changing the OPs to better tackle the crisis? Different regional approaches

Regional behaviours on this point are very diverse. Almost all Regions attach huge importance to the structural funds as valuable and strategic means to sustain the recovery process. Only one Region (Itä-Uusimaa) expressly underlined that since the amount of structural funds is quite small they do not have a significant role to play in this context.

ERDF and ESF programmes were designed under different economic conditions with planned measures and investments not expected to be carried out in a climate of recession. To respond to the need to take into account the changed and uncertain economic climate, the Commission in Autumn 2008 allowed for a more flexible implementation of OPs, so that they may be appropriately re-adjusted to address most urgent needs and support economic recovery while maintaining their strong focus on the Lisbon and Gothenburg priorities. This has been accompanied by additional advance payments to ease speed-up of programme implementation and ensure faster injection of money into the local economies.

Our analysis, however, has revealed that, so far, the large majority of Regions has not considered making any relevant change aimed at transferring funding between priority axes and refocusing the regional



framework, but they might do so in the future should circumstances dictate. Table 11 shows that not all Regions share the view that since the OPs were drafted in a different economic climate, they are now in need of revision in order to adjust to the new challenges resulting from the crisis.

Table 11 - Which role for the Structural Funds?

When dealing with the structural funds and their role vis-à-vis the changed economic climate and thus the possibility to re-adjust the Ops for the year 2007-2013, one has to be aware of the different competences that Regions which participated in the survey have in ERDF and ESF programme management and implementation. Out of the 25 respondent Regions only 6 (Toscana, Friuli V.G., Puglia, Illes Balears, Castilla y Leon, P. de Asturias) are full managing authorities of both ERDF and ESF regional programmes, two only of ERDF (Lisboa e Vale do Tejo and Podlaskie), others manage only a quota of the ERDF (French and Greek Regions) and/or ESF (French Regions, Podlaskie and some English counties) through regional envelopes or via the global grants system, with the majority of respondent Regions lacking sufficient power to make adjustments to the ERDF and ESF programmes in spite of the fact that they are somehow involved in implementing the programmes.

In this respect, it should be underlined that although English Regions (i.e. Counties) lack competence in Ops management, they are somehow engaged in regional discussions and consultation on possible re-programming of the South West (to which Cornwall and Somerset belong) and South East (to which Hampshire belongs) financial envelopes. Different patterns of involvement apply to the ERDF, which is regionalized and ESF whose implementation system is far more centralized.

Similar involvements have been reported by our Swedish and Finnish Regions which took part in this exercise. Some of those Regions, however, lamented that the priorities selected at the National level have limited the possible scope of activities at sub-national level so that some key areas of need cannot be addressed through the current programming framework (Somerset and Aberdeen City in relation to the ESF).

Approach Reasoning Regions 1. The structural funds are not counter-cyclical measures, so that no changes in the legislation governing them is likely to be passed, nor any transfer of money to ad-hoc anti-crisis measures is for the time being foreshadowed.

Österbotten

2. The measures contained in the operational programmes are still valid during this recession period as they hugely invest in key areas which are fundamental for economic recovery

Ionia Nisia Puglia P. de Asturias Illes Balears (ERDF)

3 Structural funds amount for a very small share or regional investments

Päijät-Häme

4. It is unlikely that the Ops themselves will be changed but delivery on the ground is likely to be re-adapted

East of England (ESF)

Operational programmes have not been changed

5. Ops may be changed in the future should circumstances dictate Ionia Nisia East of England (ESF)

1. The structural funds are fundamental to economic development and to support recovery, investments and labour market dynamism a certain re-prioritization of interventions along with speeding-up of project approvals and implementation is needed. In some cases also new measures have been included in the Ops.

A. Mak-Thraki Illes Balears (ESF) Podlaskie; Toscana B. Normandie (ERDF)

Ops have been partially revised to better adapt to the needs of changed economic circumstances

2. Some shift in priorities have been made/will be made to readjust the Ops to the changed economic conditions

Lisboa V. do Tejo Itä-Uusimaa (ESF) V. Götaland (ESF)

1 The structural funds approach should be reviewed so as to take account of the need to spend money in investments that would allow for rapid consumption of resources, including “ancient type” of interventions

PACA

2. The structural funds system should be made more flexible to make it easier for the private sector to access funds.

Cornwall

Ops need/would need readjustment to suit the new economic climate

3. The structural funds should be made more flexible to better suit changing local needs and allowing on-going shift in priorities

Somerset



It is against this background of different regional competences in structural funds implementation that the following considerations should be weighed up. Hereunder follow some interesting remarks:

a) Whereas a radical re-adjustment of the Ops has been largely ruled out by our respondent Regions (only some English Counties and PACA would be in favour of a strong programme re-adaptation so as to better suit new needs), a number of Regions have made some important partial amendments to the programmes (B. Normandie (ERDF), Toscana, A. Makedonia kai Thraki, Podlaskie, Itä-Uusimaa, Lisboa e Vale do Tejo and Västra Götaland ESF);

b) It is interesting to note that various Regions not managing Ops are asking for important adjustments to the way structural funds spending has been planned. They lament mismatch between programmed needs and new needs (Devon, Somerset, Cornwall), inadequate criteria for local eligibility for funding (Aberdeenshire Council ESF), need for more decentralization as regional/local needs are very diverse (Podlaskie);

c) Other Regions share the view that structural funds priorities should not be modified as a result of a changed economic climate. Their approach to counteracting the crisis relies on two main pillars, namely, important national transfers to support public investments and stimulate labor market on the one hand, and the national social welfare system which has an automatic countercyclical mechanism on the other hand (Österbotten region highlighted that, for instance, unemployment benefits are paid to a larger extent when there is high unemployment but these are national not regional measures). The structural funds will be playing a key role in supporting medium term investments through active labour market interventions and investments in innovation, research and environmentally friendly projects;

d) A different approach has been adopted by PACA Region which has put the accent on ensuring that structural funds resources are rapidly spent on investments which can ensure a fast consumption of money, thereby avoiding de-commitment and delays in implementing the programmes. This issue touches the very heart of the structural funds philosophy and raises the questions of whether it is legitimate to concentrate the large amount of ERDF investments in Competitiveness Regions on the so-called Lisbon priorities, whereas the changed economic climate would require fast injections of money into rapid interventions (infrastructure, construction, etc.). The rigid philosophy of the structural funds (mainly ERDF), observed PACA region, has resulted in almost all measures included in the National Recovery Plan not being eligible for ERDF and ESF support, and this has led in turn to a clear mismatch between new and previously planned needs.

e) Other Regions adopted a different view and, after long discussion with the national government, decided upon using the ESF to combine active labour market interventions with passive interventions, i.e. extraordinary unemployment payments, which are notoriously counter-cyclical measures. A highly controversial agreement between the State and the Regions was reached in Italy last February with EUR 2.25 bill. from the regional ESF envelopes (some EUR 7 billion over the 2007-13 period) being shifted to co-financing extraordinary passive labour market interventions with an additional 5 bill. being provided by the national government. In Cornwall the ESF is also financing schemes supporting those made redundant and seeking employment;

f) An overview of questionnaire responses would suggest that Regions consider the ESF more flexible and better suited to the need for a re-allocation of priorities within the Ops, whereas the ERDF appears more rigid and adjustments more critical to make.

What has to change?

Regulatory measures aimed at streamlining programme implementation include:

a) cutting off burdens on final beneficiaries;

b) simplifying rules for applying for projects co-financed by the structural funds and awarding projects;

c) widening the eligibility to more beneficiaries so as to include sectors, activities and population categories previously excluded and now in need of assistance (e.g. the automotive sector in Lisboa and Vale do Tejo ERDF programme as well as broadened eligibility for subsidies in favour of energy efficiency actions in Pays de la Loire, tourism in Anatoliki Makedonia kai Thraki) ;

d) higher co-financing rates to alleviate financial burdens on beneficiaries lacking sufficient match funding (Pays de la Loire in relation to specific measures).



These measures are viewed both as a strategic tool allowing for more efficiency in spending and as a way towards less administrative costs for both public administration and final beneficiaries.

The following table summarizes the main adjustments made by the regions to their OPs for ERDF and ESF

Table 12 - Readjusting ERDF and ESF programmes: what the Regions are doing

Adding new measures

Re-orientation of

measures

Accelerate programme

implementation

(speeding up call for

proposals/tenders etc)

Increasing expenditure

focusing on education

and training for

innovative sectors

Speeding up the

completion of projects

already in the pipeline

Higher co-financing

rates,

Integration of projects

Increasingly resorting

to revolving funds

Giving priority to

short term projects

Simplified rules for

projects receiving SF

Widening the range of

eligible beneficiaries

Putting additional

emphasis on high-

quality projects

Cornwall X X X X X Podlaskie X X X X Ionia Nisia No significant change to the way structural funds are used A Mak.-Thraki X X X X X X Toscana X X X X Friuli V. Giulia X X X X X Puglia X B. Normandie X P. de la Loire X X X X PACA X X X Österbotten No significant change for the time being Päijät-Häme X X Itä-Uusimaa V. Götaland X X X P. de Asturias X X Illes Balears X X X Castilla y Leon X X Lisboa-V. Tejo X X Bretagne X Zeeland X X

Speeding up programme implementation is regarded as a key issue by the large majority of respondent Regions. In this respect, Regions are trying to take full advantage of advance payments received by the Commission in order to meet expenditure targets. At the same time, in order to avoid automatic de-commitment, and thus some EU funding loss, basically all Regions charged with direct responsibilities for managing ERDF/ESF operational programmes (or a quota of ERDF/ESF envelopes) have already taken action with a view to accelerating both ERDF and ESF delivery. As we will see in the following section, however, identifying additional match funding is increasingly becoming an issue. In order to avoid losses resulting from projects failing to achieve the spending targets being passed on to the Ops, Regions are trying to ease and rationalize the allocation of money to projects by adopting various regulatory measures while widening the scope of the programmes to the extent allowed by the ERDF and ESF Regulations.



Box 15 - Streamlining Operational programmes in A. Makedonia kai Thraki (Convergence objective)

Through the Regional Operational Programme 2007-2013, the Region undertook regulatory and governance-related measures in order to accelerate the call for tenders of ROP 2007-2013, targeting mainly the infrastructure sector and the tourism sector.

a) In particular, the MA of the ROP 2007-2013 in coordination with the Ministry of Economy, simplified the processes for funds administration by final beneficiaries for the new programming period

b) The MA of the ROP accelerated also the specification of the measures in order to continue with the call for tenders. This specification increased from 33% to 65% and the call for tenders increased from 14% to 33%;

c) Revision of the ROP in order to include a measure for the support of the tourism sector

During the Steering Committee of the ROP 2007-2013 which was held in March, it was decided to give the MA of the ROP the ability to publish decisions concerning the integration of projects that are 20% over the initial eligible co-financing public expense of the respective priority axes.

Apart from the measures listed above, some Regions are indeed putting more emphasis on the innovative way of delivering programmes. In this respect some are considering resorting to revolving JEREMIE-type funds to a higher extent (Friuli V.G., PACA), others are putting more emphasis on programme’s core priorities (Päijät-Häme Toscana), other Regions are considering focusing on high-quality projects and innovative approaches are being promoted even more than previously (Basse Normandie where a study as been commissioned to identify strategies for making the ERDF op more focused on innovation).

In Toscana, to maximize the use of EU funds, the Region has decided upon the recovery of EU funds which have not been used within a year with a view to re-targeting them to projects which may have positive repercussions on regional development in the short-term.

Box 16 - Making the best out of structural funds in Competitiveness regions: the case of Regione Toscana in Italy

The economic meltdown has hit Toscana severely. It is one of the most affected Italian regions with widespread negative repercussions across sectors (only services seem not to have been significantly affected) .One of the measures complementing the Regional recovery plan for Toscana Region is speeding up the use of structural funds allocations available for the 2007-2013. Toscana region has been allocated some EUR 1 127 million under the ERDF envelope (out of which 30% are EU resources, 45% and 25% national and regional/local co-financing respectively), out of which, EUR 604 mil (some 55% of the overall allocation) will be spent by the end of 2010. This represents a massive acceleration of investments which will lead to a significant injection of money into the real economy. The EUR 604 mil is broken down as follows:

- EUR 222 mil to support R&D, technologic transfer and innovation; - EUR 52 mil to support environmentally friendly projects; - EUR 29.6 mil to support competitiveness and sustainability of the regional energy system; - EUR 147.7 to support infrastructure, transportation and ICT; - EUR 152.6 mil to support sustainable development and valorisation of territorial resources.

The Region has also accelerated the launch of the ESF operational programme 2007-2013 which will invest some EUR 650 mil in the Region. After the agreement reached with the national government, regions accepted to transfer a quota of the ESF envelope to finance unemployment payments. In this respect Regione Toscana has transferred EUR 105 mil (complemented by EUR 60 mil coming from the national government).



The specific issue of finding match funding

The crisis raises the issue of the difficulty in finding appropriate match funding, without which structural funds become unused money with the risk of being de-committed. Although the economic crisis may impinge upon the absorption capacity of Convergence Regions, speeding up structural funds investments remains an issue also in Competitiveness Regions. Österbotten region, where the share of EU funds is as low as 0.1% of regional GDP (it is more than 3% in Podlaskie), for instance, interestingly reported that difficulties in raising match funding are being encountered (on this point also Basse-Normandie, Hampshire and Somerset). In the East of England regional authorities are concerned by the possible impact of huge exchange rate fluctuations between the Sterling and the Euro on structural funds programmes which in turn can have significant influences on the availability of match funding.

The role of the structural funds is vital to the regional economy of Convergence regions, although no need for changes in the way interventions are prioritized is felt at the moment as both the ERDF and ESF operational programmes are already importantly focused on interventions supporting public investments in key sectors and the labour market. Major adaptations are being basically concerned with speeding up the spending and utilization of funds thereby exploiting the availability of advanced payments made by the EC to member states. This view is shared by all Convergence Regions included in the survey with the exception of Cornwall. In this respect, Puglia region highlighted that all operational programmes were adopted when the economic recession was already being anticipated and although its intensity was expected to be lower, the programmes were eventually fine-tuned so as to take account of a possible period of economic crisis. .

Some additional points could be fleshed out:

a) need for successful lobbying to guarantee match funding for Convergence programme (e.g. Cornwall and Podlaskie, where regional power to make decision on allocating financial resources is limited);

b) reducing co-financing rates for regional authorities (Somerset) ;

c) ensuring that final beneficiaries are able to mobilize adequate co-financing (East of England, Itä-Uusimaa);

d) re-prioritize a number of activities to adapt to the downturn (basically all Convergence regions);

e) re-establishing a climate of confidence to ensure stability and certainty of investments realization making sure that the private sector is effectively able to contribute towards co-financing (Podlaskie);

f) switching from the N+2 to N+3 rule at least for the first programming years (PACA, Illes Balears);

Some Regions witnessing particular strong difficulties in specific sectors may also consider inviting the national government to apply for exceptional support from the European Globalization Adjustment Fund (e.g. Basse-Normandie should the already problematic situation of the automotive industry worsen further in the coming months).

Box 17 - The challenge of matching EU funds in a time of economic recession. Some examples from CPMR member Regions

1. Somerset County Council (Competitiveness and Employment Objective)

The current economic situation is putting pressure on Council’s cash flow, making the “spend now claim later” approach required by structural funds increasingly difficult to support. Loss of revenue and increasing demand on services during the economic downturn reduces the County Council’s capacity to develop, deliver and match-fund European projects. For example, where Local Authorities had foreseen land or assets as match-funding contributions, their depreciation in value could prevent projects going ahead. As a result, UK regions will not reap the true value and benefit of EU programmes. Bringing programmes forward, whilst in some measure is helpful, does not address regions’ ability to match-fund and take advantage of this. Somerset County Council supports measures that take into account the benefits of reducing co-financing rates.

2. Illes Balears (Competitiveness and Employment Objective)

Illes Balears highlighted the problems related to the implementation of the ESF in a period of recession by referring to two issues. The first is related to the need to co-finance ESF projects. In a period of recession the demand for ESF co-financed interventions increases and this poses serious problems of regional



finances already affected by declining revenues. On the other hand the lack of flexibility which characterizes the ESF means that several more urgent needs fall outside the scope of ESF eligible actions. The need to address these urgent needs while bringing forwards structural funds programmes in order to avoid de-commitment is therefore one of the major challenges the Illes Balears Region.is being confronted with.

3. Podlaskie Voivodship (Convergence Objective)

The needs of self-government units in the Region of Podlaskie, which has one of the lowest GDP per head, are bigger than in the other Regions. It seems that proposed financial resources from the EU for particular measures do not always meet the most urgent needs. The basic needs are investments in roads and medical facilities as those which have already been planned are not sufficient. Self-governing Regions are not entitled to make decisions on the allocation of financial resources. Structural funds may stimulate development. Possibility of subsidizing the new investments means stability and certainty of their realization. Speeding up the spending of structural funds is a factor which aims to boost the economy. Investments which are co-financed by the EU do not guarantee income although they meet the basic needs of inhabitants.

Exploiting the other opportunities of the European Recovery Plan: what the Region are doing

State Aids

One of the fields in which our Regions are playing an active role is that of State Aids. The higher flexibility in granting state aid and the agreements made on the State Aid simplification gave Regions the possibility to support specific sectors with a focus on SMEs and to adopt specific measures to strengthen their action in support of the regional economy. There are a number of Regions among the ones included in this survey that have already taken advantage of these opportunities and have either passed important legislation on state aid granting or are about to do so (Puglia, Toscana, Asturias, Castilla y Leon).

Toscana Region, for instance, in line with the new Regulation EC n. 800/2008 has adopted a number of regional laws providing for temporary higher intensity regional state aids in support of the strongly hit handicrafts sector. Puglia Region has also adopted a number of regional laws including new de minimis provisions aimed at regulating public aids up to EUR 200 000 to be granted to the same SME over a 3-year period; a new state aid scheme for business start-up (see Box 11); new provisions providing for public aid to SMEs up to EUR 7.5 mil to be invested in energy efficiency, co-generation and renewable energy sources.

In Spain Regions are awaiting the Commission’s approval of the national extraordinary state aid measures for enterprises elaborated by the national Ministry of Industry, on the basis of which some Regions (Castilla y Leon, Asturias) intend to adopt more flexible conditions for granting public aid.

Some Regions may take advantage of this higher flexibility in granting public aid in the future to tackle exceptional circumstances that may arise in the ensuing months (A. Makedonia kai Thraki) ;

Other Regions highlighted that decisions regarding state aid are entirely up to the national government to be taken (Scandinavian Regions). Effective exploitation of the opportunities presented by the Plan will therefore depend on successful lobbying and governance channels between the regional governments and the competent national authorities. In Norway, for instance, the EFTA Surveillance Authority has just authorized a Norwegian temporary aid scheme till December 2010 to grant compatible aids up to EUR 500 000 to help businesses deal with the economic crisis. The state aid scheme will be allocated through the national and regional Innovation Norway, but it will not involve regional authorities.

Some other Regions remarked that they are not intending to revise state aid schemes to take account of the Commission’s derogations (Illes Balears, B. Normandie, Österbotten).

Partnership with EIB

In response to the request of member states, the European Investment Bank adopted in December 2008 its Corporate Operational Plan 2009-2011 where it set out increased lending targets and other practical measures to mitigate the current financial and economic crisis. Apart from a EUR 5 billion increase in lending to SMEs, the Bank has foreseen additional lending within the energy and climate change package amounting to EUR 6bn per year. This includes a clean transport facility for the automotive and other



transport industries, their original equipment manufacturers and component suppliers. The facility will target significant CO2 reduction through research, development and innovation expenditure, as well as tangible fixed assets in related infrastructure and production plants.

Respondent Regions have not yet made a decision on whether to request additional EIB interventions, though they consider it likely to occur if circumstances require further injections of liquidity into the regional economy. P de Asturias has already undertaken important commitments to support anti-crisis interventions entailing a strong co-operation between the region, the national Ministry of Economy and Industry and the EIB. The EIB is co-investing in big water infrastructure projects whilst other commitments are being negotiated. For smaller Regions, however, EIB funds might not be accessible enough, as intervention takes place on too large a scale and there is no advantage in comparison with mainstream bank loans.

Box 18 - How can structural Funds better support economic recovery in Convergence regions? The view of Cornwall region

Initiatives raised under the EU recovery plan will assist in boosting demand and restoring confidence in European economies. Proposals which accelerate payments to Member States in 2009 for facilitating access to Structural Funds, accelerate the implementation of major projects by accepting payment claims before a project has been formally approved by the European Commission; simplify eligibility rules to allow flat-rate reimbursements for certain overheads; simplify the treatment of advances paid to beneficiaries in the form of state aids; revamping the technical support initiative called JASPERS in order to reinforce its operational capability and extend the accessibility to its services, and explore new opportunities under the JEREMIE financial instrument to accelerate the spending in areas such as energy efficiency and SMEs support will all be of importance to Cornwall.

4.4. Coordination with national and European recovery plans

Involving Regions in the preparation of national recovery plans and coordination between regional and national recovery Plans

Surveyed regions are very diverse in nature and accordingly their involvement in the various policy-making processes at national level varies significantly. The current crisis has indeed called upon national governments to take urgent measures with a view to tackling the crisis. In every EU country, the Regional level plays a strategic role in implementing and delivering the measures included in the National Recovery Plan. The need to act urgently, however, may have led to a certain re-centralization of the decision-making process in some countries, as the option to take in regional views and contributions might not have been regarded as a priority.

The following table summarizes Regions’ views about the way they participated in the preparation of the National Recovery Plan and includes some comments on the issue of coordination between the national and regional recovery plans.

Table 13 Coordination with the National Recovery Plan

Involvement during the preparation of the National Recovery Plan Region Strong Satisfactory Weak/no

Coordination with the regional plan

Cornwall Through the South

West Regional Economic Task Group

Podlaskie Self-government

authorities were not involved in Poland

So far the Region has noticed no negative effect

in implementing the national plan



Involvement during the preparation of the National Recovery Plan

Region Strong Satisfactory Weak/no

Coordination with the regional plan

A. Makedonia Thraki

Consultation with the respective Ministries and local authorities

Good by means of

continued consultations

Toscana

Active participation in the State-Regions Conference to agree on various measures to be implemented by

the regions.

Friuli V. Giulia

Active participation in the State-Regions Conference to agree on various measures to be implemented by

the regions.

Very good coordination

Puglia

The national government tends to oppose the regional system rather than involve Regions in strategic choices

Not satisfactory as the National Recovery Plan is

too confused to be coordinated with regional

actions

Basse Normandie

The Region has not

been involved

Pays de la Loire Good involvement in

identification of investments

PACA

No, except some information of major investment projects included within the Contract du projet

Lack of coordination the Region is not sufficiently

engaged

Österbotten

The Region is participating in the relevant political

process

Itä-Uusimaa No involvement

Päijät-Häme Only to decide on regional projects priority order

Quite satisfactory, but too little role for the local and

regional level

Aberdeen City submission to

Convention of Scottish Local Authorities

Somerset

Good through the broader South West UK

partnership

good

Västra Götaland closely working with

the government good coordination

Principado de Asturias

Good coordination

The regional recovery plan is largely in line

with the national and EU recovery plans

Illes Balears

Through continuous contacts and

consultations with national ministries.

The National Plan has recognized the structural differences of the Balearic

Islands’ economy Castilla y Leon Good Good Nordland By way of consultations Good

Primorsko-goranska

No involvement Lack of coordination. The

Region is not being consulted.




As far as Regional involvement during the preparation of the National Recovery Plan is concerned, the picture is once again rather diverse.

Although we are quite aware of the political issues at stake here, it is clear that in some countries the regional level has been largely overlooked if we compare it, for example, to the way Regions were associated during the preparation of the National Strategic Reference Framework (NSRF).

The need to enact quick anti-crisis measures in certain contexts has resulted in Regions not having been either involved or consulted during the preparation of the National Recovery Plan (Itä-Uusimaa, Primorso-goranska) even in countries where Regions are now playing significant role in economic development and also structural funds management (Poland).

Other Regions have been involved by means of consultation and their role varies from being basically limited to exchanging information on the implementation of specific measures adopted by the central government (PACA, Greek Regions, Itä-Uusimaa) to larger involvement with regular government-regions consultations also via ad-hoc partnership platforms (Scandinavian and English Regions).

In other contexts, not only have the Regions actively participated to a significant extent in drawing up the plan, but they also have a sizeable role to play as authorities responsible for the management of ERDF/ESF operational programmes (Italian and Spanish Regions). Italian regions were also involved through the State-Regions Conference (Conferenza Stato-Regioni) in the broad discussion over the use of a quota of ESF allocation to finance safety net mechanisms after the assent of the EC.

Their degree of satisfaction as regards coordination between the national and the regional plan is rather different ranging from very good (Friuli V. Giulia) to disappointing (Puglia). In this regard, some Regions although basically satisfied with the overall coordination between national and regional measures are asking for a greater role for the Regions (Päijät-Häme).

Box 19 – State-Region coordination: example from Västra-Götaland Region

On October 2, 2008, the county governor of Västra Götaland and a member of the Regional executive board were on appointed coordinators of public and private actions in order to respond to the crisis. Their main task was to coordinate public and private measures in order to reduce the effects of the crisis. In this context, they addressed a broad range of topics such as education and training for students, in-service training and retraining for employees, incentives to demand and stimulation of investments in sectors such as the automotive industry but also the housing and construction sector and the wind energy sector. The coordinators issued a common report to the Swedish government on the coordination of actions, in which they emphasize the importance of the broad participation of actors (including local employment offices and business communities, local and regional authorities, educational institutions and national agencies) in the coordination process on the local as well as on the regional level.

Box 20 - State-Region coordination: examples from South West England

The case of UK (http://www.southwestrda.org.uk/sectors/economic-downturn/national-regional.shtm)

National Economic Council (NEC) The NEC is tasked with co-ordinating economic policy across Government. Chaired by the Prime Minister, this full Cabinet committee will meet twice weekly and will focus on helping people and businesses deal with the current economic uncertainties. The NEC will focus on every part of the UK, looking at the best approach for coordination of economic policies across Government that address the ongoing challenges. The NEC will take advice from external experts across different sectors of the economy and be informed, at a regional level, by the new Regional Economic Council.

Regional Economic Council (REC) A REC has been established at national level to ensure issues and areas of concern to regions are heard and acted upon within Government. The REC will meet quarterly and be chaired by the Secretary of State for BERR and the Chancellor. The membership will include Regional Ministers, Regional Development Agency (RDA) Chairs and representatives of business and the trade unions. There will be strong links between the NEC and the REC.

http://www.southwestrda.org.uk/sectors/economic-downturn/national-regional.shtm



Council of Regional Ministers (CRM) A CRM has been established to operate alongside the REC, but will seek the views of a wider range of regional stakeholders. Meeting fortnightly, the REC will be chaired by the Minister for the Cabinet Office and will: a) discuss common issues, take action where appropriate, and make recommendations to the REC and the NEC; b) act as a conduit to the REC and NEC for information gathered by regional ministers as part of their work in their region; c) facilitate the dissemination of key messages by Regional Ministers, including from the NEC and REC

South West Regional Economic Task Group Regional Ministers have been asked to chair region-level groups or task forces to better understand the impact of the economic crisis and respond to local / regional 'economic shocks'. These will meet monthly, and will include representation from the Government Office, Regional Development Agency, Jobcentre Plus, Learning and Skills Council, Housing and Communities Agency and Trades Union Congress, along with business and local authority representatives.

The EU Recovery Plan and its coordination with the National Recovery Plans

Generally speaking, it seems that Regions taking part in the survey keep a positive attitude towards the European recovery plan launched in November 2008. Regions highly welcomed the flexibility of the plan (e.g. Österbotten, Västra Götaland, Anatoliki Makedonia kai Thraki), its balanced mix of counter-cyclical interventions and intelligent investments (Friuli V. Giulia), its strong focus on smart investments to support sustainable development in the medium-long term such as R&D, renewable energy and environmental sustainability (Västra Götaland and Friuli V. Giulia). Castilla y Leon stressed that the Plan is largely in line with the measures already adopted in 2008 by the Region to provide a first response to the crisis.

Some Regions, however, highlighted a number of concerns which range from inadequate financial resources (Podlaskie) and mismatch between proposed measures and regional real needs (Is. Baleares, Castilla y Leon and Podlaskie) to a certain lack of consideration of the territorial implications linked to the implementation of the Plan. In this respect we highlight the following remarks:

a) Pays de la Loire stressed that the strong focus of the Plan on specific economic sectors such as the automotive, construction and energy sectors risks on the regional scale overlooking other sectors which may not receive the necessary attention and support during this period of recession;

b) Illes Balears lamented the Commission’s failure to take into consideration territorial and geographical factors (i.e. insularity) when adopting the recovery plan;

c) Even more critical was the approach adopted by Puglia and PACA, with the former emphasizing a certain lack of coordination and the latter a scarce consideration of regional and territorial objectives within the European Recovery Plan;

The issue of coordination between the National and the European Recovery Plan is also regarded as positive by the majority of Regions which participated in the survey. When asked to comment on this point, the Regions have largely focused their attention on the actual possibilities presented by the National Recovery Plan to use the structural funds in the way envisaged by the EU Recovery Plan. On this point, some Regions regretted a certain lack of coordination due to the fact that while the EU foresees a major role for the structural funds, the way they have been conceived makes the interventions adopted within the National Recovery Plan beyond the eligibility for structural funds assistance (PACA).

The structural funds certainly play a key role within the EU Recovery Plan. Whereas the majority of Regions have welcomed the more flexible approach adopted by the Commission, some are asking for additional flexibility in the rules governing the funds:

a) In particular Cornwall is asking for further clarification and relaxation of Article 55 which would allow for a major increase in potential for the programme in the region. The application of Article 55, even after raising the threshold to €1m, is regarded as a disincentive to engagement in the programme from both a capital and a revenue perspective. A further rising of the threshold is therefore needed as the current threshold is undermining certainty and driving private sector investors away from applying to the programme;

b) Somerset County Council is stressing the fact that although overall flexibility has been increased, the Commission has overlooked the need to identify ways of bringing programmes forwards by



ensuring that regions and local authorities are able to find adequate co-financing resources. Somerset County Council supports therefore measures that take into account the benefits of reducing co-financing rates;

c) Some Regions are asking for more simplification of procedures as the implementation of structural funds is too complicated with the administrative burden being too heavy and costly (Itä-Uusimaa);

d) Other Regions have largely welcomed the Commission’s decision to allow for an extension of the deadline for eligible expenditures relating to 2000-2006 programmes and have successfully had this possibility accepted by the Commission itself. This has made it easier for them to absorb the remaining share of their financial envelope which would be otherwise de-committed, as finding the necessary co-financing by 31 December 2008 was not possible due to the changed economic climate (Puglia).

5. PROSPECTIVE CORNER: THE 1ST LESSONS TO BE DRAWN FOR THE FUTURE

A major part of our survey was dedicated to Regions’ conclusions to be drawn from the current negative economic cycle and their future expectations in terms of both regional governance and policy guidelines vis-à-vis the already-launched debate on post 2013 cohesion policy. A quick overview of questionnaire responses shows that not only do the Regions see the crisis as a threat to their socio-economic fabric, but also and sometimes more importantly as a real opportunity to rethink regional approaches to development and systems of governance.

a) The crisis has demonstrated that although better placed to meet local population needs and act in a more tangible manner, Regions do not always have at their disposal sufficient competences and financial means to take steps in an effective way. Regions have therefore highlighted the need for:

- Greater decentralization (Primorsko Goranska);

- More rationalization, clarification of responsibilities and adequate financial means to carry out their duties (French Regions);

g) A more flexible financial framework should be put in place so as to better respond to unforeseen developments. The current economic crisis has shown that economic circumstances may change considerably within a seven-year funding period, thus the management of funding programmes should include provisions for flexible measures that can respond to changing needs (Päijät-Häme, Somerset, Friuli V. G.);

h) Enhancing the ability of regional authorities to act and re-act with a shorter “reaction time” so as to increase the responsiveness of public interventions to address local needs. In this respect the issue at stake is to overcome the trade-off between strengthening regional responsiveness and the need to ensure that measures are adopted following more consensual decision processes (Castilla y Leon, Pays de la Loire, Friuli V.G.);

i) Several Regions understand the crisis as an opportunity to promote diversification of the regional economy (Castilla y Leon), fostering self-entrepreneurship in innovative sectors (Puglia) or in order to make the regional economy less vulnerable to external shocks;

While the crisis is affecting EU countries and regions at EU level, the debate on the 2014+ cohesion policy has already started. In this respect, some regions have highlighted the following:

a) the need for more indicators apart from regional GDP to be used for eligibility criteria (e.g. Anatoliki Makedonia K. Thraki);

b) the present binary classification system, remarked Cornwall, is harsh for those regions which are above, but close to, 75 per cent of the EU average income. This harshness is likely to be increased if the present system is retained to cover economic conditions like those we are currently experiencing. Creating additional categories would help to palliate these effects in that no Region would face the sudden transition from the high intensity of funding for a Convergence region to the low intensity of Competitiveness;



c) the need for a more flexible approach to Structural Funds programming and spending allowing to promptly respond to changing economic climates or emerging circumstances (Friuli V. Giulia, PACA) ;

d) more power to be given to regional and local authorities in managing and implementing structural funds (Aberdeen City, Päijät-Häme);

e) strengthened inter-level cooperation to enhance the efficiency of structural funds spending (P. Asturias)

f) the Region of Illes Balears focuses its attention on the importance of strengthening the territorial dimension of European policies in general and Cohesion policy in particular, lamenting the lack of consideration for territories such as small- and medium-sized islands, whose possibilities to foster economic diversification, achieve economies and access basic socio-economic services are far more limited in comparison to other European territories. European policies should therefore take into full account the specific territorial needs when shaping intervention, as failing to do so may seriously lead to increasing regional vulnerability and reduce economic competitiveness;

This quick overview on Regions’ expectations in the light of the debate on the post-2013 Cohesion policy has revealed that whereas almost all Regions believe that this policy should be better adapted to regional specificities and, thus, more flexibility should be ensured as the economic crisis has clearly shown that needs and priorities may change very rapidly, they share divergent views as to the way the policy should be re-organized for the following programming cycle.



ANNEXES

QUESTIONNAIRE “HOW ARE THE REGIONS TACKLING THE FINANCIAL AND ECONOMIC CRISIS?”

(16 March 2009)

1. THE CRISIS IN YOUR REGION

1.1 - Has any analysis been made of the economic and social impact of the crisis in your Region or on certain economic sectors in your Region? If so, please indicate references.

1.2 - Economic impact of the crisis

What are the tangible outward signs of the crisis in your Region in economic terms (staff cuts or redundancies in firms; closures; credit restrictions, etc.)?

Please indicate if possible some elements of a global analysis as well as some elements relating to a particular economic sector.

1.3 - Social impact of the crisis What are the tangible outward signs of the crisis in your Region in social terms (levels of short–time working, unemployment; household debt, etc.)?

1.4 - Other examples:

2. REGIONAL MEASURES TO DEAL WITH THE CRISIS 2.1 - Overview

2.1.1 - What emergency measures has your Region put in place to tackle the problems mentioned above? Please specify whether these are:

� Budgetary, regulatory, or governance measures (partnerships); � Measures aimed at whole economic sectors / population categories, or specific measures targeting

certain economic sectors/ population categories.

2.1.2 - Has your Region incurred additional investment because of the crisis? Is this new investment, or earlier than anticipated use of already planned investment?

2.1.3 - Are these measures part of a formal regional action plan or recovery plan? If so, please indicate any relevant document(s).

2.2 - Budgetary measures

2.2.1. - Please give details, for each budgetary measure, of its objective and the corresponding amount

Measure Objective Amount of funding TOTAL

2.2.2 - Are these actions co-financed: � By the European Union’s Structural Funds? If so, how (under which funds, for what amount)? If

not, why not? � By your central government? If so, how?

2.2.3 - Are these actions implemented through a partnership: � With the private sector (firms, banks, other partners)? If so, do they give rise to particular

commitments on the part of the beneficiary firms or banks?

� With other Regions?

2.3 - Governance / Partnerships: has your Region put in place any ad hoc processes/ structures/ partnerships to tackle the crisis? If so, please describe these. What are the results?

2.4 - What other types of measures has your Region put in place?



3. THE REGION’S BUDGET

3.1 - To what extent do you think the revenue of the regional budget (tax revenue, central government funding, other sources, etc.) will be affected by the crisis? In the year 2009? In the following years?

3.2 - To what extent do you think that the expenditure of the regional budget will be affected by the crisis? In 2009? In the following years?

3.3 - What role do the EU Structural Funds play in this context? (Provide leeway? Guaranteed income? etc.)

4. COORDINATION WITH THE EU’S RECOVERY PLAN

4.1 - Coordination with your central government’s recovery plan

4.1.1 - Has your Region been involved in the preparation of a recovery plan by your central government? If so, in what way?

4.1.2 - Do you consider the central government’s recovery plan to be adequately coordinated with your (formal or informal) regional recovery plan? In what way(s)?

4.2 - Coordination with the EU’s economic recovery plan

The European Union’s economic recovery plan, launched on 26 November 2008, envisaged a number of short- and long-term measures to tackle the crisis and prepare the European economy for an upturn. This plan, now being debated in the European Parliament, should be implemented without delay.

4.2.1 - Do you think the European economic recovery plan is satisfactory? In particular: - do you consider that the measures proposed correspond to your Region’s needs? - do you consider that the financial amounts are adequate? - do you consider that the flexibility proposed is adequate?

4.2.2 - Do you consider the European economic recovery plan to be adequately coordinated with your central government’s recovery plan? In what way(s)?

4.2.3 - Do you think that the measures in your regional ERDF and ESF operational programmes for 2007-2013 are still valid in this time of crisis? Are you planning to re-programme them, as the EU recovery plan proposes? If so, why and in what way(s)?

4.2.4 - Are you planning to use other possibilities offered by the EU economy recovery plan (greater flexibility for state aid, pre-financing of Structural Fund programmes, EIB loans)?

5. FUTURE EXPECTATIONS OF THE REGIONS

5.1 - What initial conclusions do you draw from the current situation with regard to EU policy guidelines for the post-2013 period, especially on the future regional policy?

5.2 - What conclusions do you draw from the current situation in terms of regional governance?



List of respondents

Regions Aberdeen City and Shire Area UK Principado de Asturias ES Balearic Islands ES Basse Normandie FR Castilla y Leon ES Central Denmark (Midtjylland) DK Cornwall UK East Macedonia and Thrace EL Friuli Venezia Giulia IT Hampshire UK Ionian Islands EL Itä-Uusimaa FI Lisbon and Tajo Valley PT North Norway NO Ostrobothnia FI Païjat-Häme FI Pays de la Loire FR Podlaskie PL Primorsko Goranska HR Provence-Alpes-Côte d’Azur FR Puglia IT Shetland Islands UK Somerset UK Tuscany IT Västra-Götaland SE Wales UK

“the regions facing the crisis” · ad-hoc crisis surveys based on direct contacts and telephone...

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