The European UnionThe European Union
Economics & Policies
Regional and Social Policy
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European Regional PolicyEuropean Regional Policy
1996 GDP per capita– 10 richest regions 3.1 times the higher then the
bottom 10– This is twice the level found in the US
1997 Unemployment– 10 best regions: on average 3.6%– 10 worst performing regions: 28,1%
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Tom Verbeke 4
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European Regional PolicyEuropean Regional Policy
The regional problems are extremely divers– 1994-9: 4 main types of problems
Lagging regions – GDP < 75% of EU Average
– Objective 1
Declining industrial areas: objective 2 Certain rural areas: objective 5b Sub-artic regions (objective 6)
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European Regional PolicyEuropean Regional Policy
– Core-pheriphery pattern A high percentage of more prosperous regions lie at
the geographical center The golden triangle
The centralizing is probably the outcome of two sets of countervailing forces:– One set tends to cause convergence– The other divergence
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European Regional PolicyEuropean Regional Policy
Convergence: a series of automatic equilibrating processes which occur in a freely functioning market– Free trade in goods and services will lead to
regions specialising in the production and the export of goods and services in which they have a comparative advantage
– These effects are reinforced by the free movement of factors of production
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European Regional PolicyEuropean Regional Policy
– Divergence forces Economies of scale: conentration of production at larger plants
can lead to great efficiency gains Localization and agglomeration economies
– Localization economies: firms in the same industry locate close to one another
– Agglomeration economies: firms from different industries locate close to one another (transport or financial facilities)
Intra-industry trade and dominant market positions: modern trade theory questions the ability of regions to share equally in the growth associated with freer trade. Intra-industry trade has shown the most rapid growth among more prosperous regions.
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European Regional PolicyEuropean Regional Policy
Lack of competitiveness in peripherical regions due to poor location, weak infrastructure, low-skill labour forces, local tax, ...
Selective labour migration: – the freeing of labour mobility stimulates migration from
peripherical regions towards the core– Migration is selective: the yound and skilled
Currency: nations with peripherical regions could realign exchange rates but as those realignments became less frequent, peripherical regions were especially hurt
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European Regional PolicyEuropean Regional Policy
Evidence from the US:– Long term integration is associated with
convergence of regional disparities rather than divergence
– Convergence forces eventually come to predominate
– BUT: US has a larger central budget
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European Regional PolicyEuropean Regional Policy
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European Regional PolicyEuropean Regional Policy
Structural Funds– European Regional Development Fund– European Social Fund– EAGGF-Guidance– Financial Instrument for Fisheries Guidance
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European Regional PolicyEuropean Regional Policy
Structural funds were given the task collectively to attain six priority objectives:– Objective 1: ERDF, ESF, EAGGF and FIFG– Objective 2: ERDF and ESF– Objective 3
Long term unemployment Facilitating the integration of young people ESF
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European Regional PolicyEuropean Regional Policy
– Objective 4: Facilitating the adaptation of workers to industrial changes and
to changes in production systems ESF
– Objective 5: (a) adjustment of agricultural structures (EAGGF and FIFG) (b) development and structural adjustment (ERDF, ESF and
EFGGF)
– Objective 6: extremely low population density (ERDF, ESF, EAGGF and FIFG)
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European Regional PolicyEuropean Regional Policy
Objective 1994-9 Budget
1 93.972
2 15.360
3 & 4 15.180
5 a 6.919
5 b 6.862
6 0.697
Community Initiatives 14.051
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European Regional PolicyEuropean Regional Policy
Community initiatives have been wide ranging and included: designed to tackle specific problems– RECHAR (coal mining areas)– RESIDER (iron and steel areas)– PESCA (fishing communities)– INTERREG (cross-border initiatives)– ...
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European Regional Policy European Regional Policy
Cohesion Fund– Assist NATIONS with a GDP of less then 90%
of average EUROPEAN GDP– Greece, Ireland, Portugal and Spain– 3 billion EURO’s in 1999
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European Regional PolicyEuropean Regional Policy
4 principles of EU Regional Policy– Multi-annual programs– Partnership– Subsidiarity– Additionality
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European Regional PolicyEuropean Regional Policy
– Assistance through multi-annual programmes Key to the development of each programme is the
drawing up of a Single Programming Document (SPD) or Community Support Framework (CSF)
– Strategic plans
– Responsibility of the regional and local organisations
– Contains an analysis of the strenghts and weaknesses of the region together with a development strategy and an analysis of how it should be financed
– Typically a group of projects
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European Regional PolicyEuropean Regional Policy
Partnership– The EU is committed to the maximum
devolution of power (subsidiarity)– Strong dialogues between all partners at all
levelsAdditionality
– Some governments have been accused of responding to EU funding with cutting back own expenditure
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European Regional PolicyEuropean Regional Policy
ERP and the future– Enlargement:
Challenge to the structural funds:– Virtually all of the CEEC countries are eligible for the
highest rates of the structural funds (only two regions had GDP per capital in excess of 75% of EU average: Prague and Bratislava)
Challenge to the CAP– Countries such as Poland and Hungary have large
agricultural activities in those areas with high intervention prices
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European Regional PolicyEuropean Regional Policy
Estimated extra costs for the structural funds: 13 billion ECU per annum
Financial perspective 2000-6 (Berlin)– Pre-accession aid: 3.12 billion EURO untill
2006– Post-accession allocations
Start at billion 6.45 billion EURO per annum Rise to 16.78 billion EURO by 2006
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European Regional PolicyEuropean Regional Policy
Changes to the current system– Reduction in the areas eligible for assistance
The 6 priority objectives have been cut back to three– New Objective 1: Lagging regions
• Old Objective 1
• Objective 6
• Coverage has dropped from 25% to 20% of the population of EU15
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European Regional PolicyEuropean Regional Policy
– New Objective 2: Economic and social conversion of Regions in Structural crisis
• Coverage is reduced from 25% to 18% of the population of the EU15
– New Objective 3: Human resources
• Objective 3 and 4
• Regions not covered by objective 1 and 2
Community initiatives have been reduced from 13 to 3 and their budget from 9% to 5%
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European Regional PolicyEuropean Regional Policy
EMU:– Convergence criteria
Edinburgh Summit: increase structural funding Add Cohesion Fund
– 2000-... Structural funds will have to cope with regional
impacts of eastern enlargement as well as with the impact of the new strains imposed by the full monetary union
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European Regional PolicyEuropean Regional Policy
The issue of under-funding– Structural funds are small: 0,46% of European GDP– No redistributive transfers
Australia, Canada, Switserland or the US: about 40% of regional income differentials are eliminated through regional transfers
– Equalisation of disparities of equal opportunities Given the issue of under-funding what should the primary task
of European Regional Policy be:– A policy designed to prop up depressed areas– A policy designed to allow depressed areas to compete on an
equal footing with other areas