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European Economic Integration – 110451-0992 – 2014European Economic Integration – 110451-0992 – 2014

Prof. Dr. Günter S. Heiduk

VII Core Policy 3 Cohesion Policy (CP)

EU to focus funds for regional development on creating jobs and sustainable growth.

Source: http://ec.europa.eu/regional_policy/index_en.cfm

Cooperationbetween regions

Principle: Financial solidarity (to the less prosperous regions and social groups)

Cohesion: “The act or state of sticking together tightly” (Merriam-Webster)

Cohesion Policy: “…is aiming at ensuring economic, social and territorial cohesion across the EU. Its integrated approach has largely proven to be beneficial to most territories across

Europe, taking into account the different parameters that support the development of a region. Even if it is difficult to assess its precise impact, the tremendous contribution that cohesion policy makes to regional development and territorial cohesion in Europe should not be underestimated.”

Assembly of European Regions (2010). Cohesion in Europe: Regions Take Up the Challenge, p 3.

Transferring resources from wealthier to poorer parts of the EU.

“More growth and jobs for all regions and cities in the European Union – this message is in the heart of cohesion policy and its instruments between 2007 and 2013.” EU (2008). Working for the Regions.

New development paradigm: Shift of the development strategy from the national level toward the regional/local level (territorialization), thus emphasizing the mobilization of endogenous resources. Leonardi, R. (2006). Cohesion in the EU, 160.

New policy design: Multilevel governance

Causes of regional inequalities within the EU:Geographic remotenessEnlargement (“shock absorber” for new member states that are exposed to single market competition)

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Cohesion

Principles

• Concentration - of resources on the poorest regions and countries (81.9% of structural funds)- of effort (e.g. research and innivation; information society; energy; environment; transport; health; employment; social inclusion)- spending (e.g. one programme=one fund; co-financing ceilings)

• Programming Multi-annual national programmes; no funding for individual projects

• Partnership Collective process (European, regional, local authorities, socialpartners, organizations from civil society)

• Additionality Financing from the European structural funds may not replace national spending by a member country.The Commission agrees with each country upon the level of eligible public (or equivalent) spending to be maintained throughout the programming period, and checks on compliance in the middle of the programming period (2011), and at the end (2016).

A brief history of European Regional Policy

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Structural and Cohesion Funds 1975-2013

http://www.openeurope.org.uk/research/regional.pdf

Building regions in the EU

Eurostat (2010). Regional Yearbook, p 12.6

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The NUTS classification (Nomenclature of territorial units for statistics) is a hierarchical system for dividing up the economic territory of the EU for the purpose of :

The collection, development and harmonisation of EU regional statistics.

Socio-economic analyses of the region

NUTS 1: major socio-economic regionsNUTS 2: basic regions for the application of regional policiesNUTS 3: small regions for specific diagnoses

Framing of EU regional policies.

Regions eligible for aid from the Structural Funds (Objective 1) have been classified at NUTS 2 level.

Areas eligible under the other priority objectives have mainly been classified at NUTS 3 level.

The Cohesion report has so far mainly been prepared at NUTS 2 level

NUTS 1 - 3

NUTS 1 Regions

NUTS 2 Regions

NUTS 3 Regions

Country NUTS 1 NUTS 2 NUTS 3

EU-27 97 271 1303

Germany 16 39 429

Italy 5 21 107

NUTS 1-3 Regions: Examples

Germany: NUTS 3 regions (districts)(yellow: urban; white: rural)

Italy: NUTS 2 + 3 regions

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GDP per inhabitants in PPS by NUTS 2 regions, 2010 (% of EU average, EU-27 = 100)Range of the highest to lowest region; capital city market in greenin a country

Dispersion of Regional GDP per inhabitant, in PPS, NUTS level 2, 2000 and 2009

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Employment rate, persons aged 20-64 year sby NUTS 2 regions, 2010

Dispersion of regional employment rates (persons aged 15 to 64 years) at NUTS 2 level (%)

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Unemployment rate, persons aged 15 to 74 year, by NUTS 2 regions, 2011 (%)

Dispersion of unemployment rates (persons aged 15 to 74 years) at NUTS 2 level (%)

GDP per Inhabitant, in Purchasing Power Standard (PPS), Highest and Lowest NUTS 2 Regions within Each Country, 2008

Source: EUROSTAT, news release, 46/2013.

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Disposable Income of private households per inhabitant (in PPCS), highest andlowest NUTS 2 regions within each country, 2008

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Degree of Regional Specialisation by Activity, EU-27 and Norway, by NUTS 2 Regions,2008 (%, share of non-financial business economic employment)

At-risk-of-poverty or social exclusion rate, 2011 and 2012

Source: EUROSTAT, ilc_peps01

Regional policy in the past

Annual resources of the Structural Funds and the Cohesion Fund, 1988-2006

Regional Policy 2000 – 2006:

European Regional Policy is conducted through two main types of funds. On the one hand, there are the European Structural Funds (€ 195 bn), which account for the main share (91.55 %) of Regional Policy expenditure.

The Cohesion Fund resources amount to about €2.5 billion per year from 2000 to 2006, (a total of €18 billion at 1999 prices), or 8.45% of Regional Policy expenditure.

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The Structural Funds 2000-2006

European Regional Development Funds (ERDF), whose principal objective is to promote economic and social cohesion within the European Union through the reduction of imbalances between regions or social groups

European Social Fund (ESF), the main financial instrument allowing the Union to realise the strategic objectives of its employment policy

European Agricultural Guidance and Guarantee Fund (EAGGF - Guidance Section), which contributes to the structural reform of the agriculture sector and to the

development of rural areas

Financial Instrument for Fisheries Guidance (FIFG), the specific Fund for the structural reform of the fisheries sector

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  Objective 1

Outside Objective 1 regions

Objective 2

Objective 3

Interreg III

Urban II Leader + Equal

ERDF X   X   X X    

ESF X   X X       X

EAGGF X X         X  

FIFG X X            

The Structural Funds 2000-2006

Leader achievements:a diversity ofterritorial experience

 EQUAL

·        Objective 1: 70% of the funding goes to regions whose development is lagging behind (GDP per capita < 75% of EU-Average). They are home to 22% of the population of the Union.

Objective 2:  11.5% of the funding assists economic and social conversion in areas experiencing structural difficulties. 18% of the population of the Union lives in such areas.

Objective 3: 12.3% of the funding promotes the modernization of training systems and the creation of employment outside the Objective 1 regions.

Community initiatives:  5.35% of the funding is spent on Community Initiatives seeking common solutions to specific problems, such as:·        cross-border, transnational and interregional cooperation (Interreg III); ·        sustainable development of cities and declining urban areas (Urban II); ·        rural development through local initiatives (Leader +); ·        combating inequalities and discrimination in access to the labor market (Equal).

Fisheries: 0.5% are allocated to the adjustment of fisheries structures outside Objective 1 regions.

Innovation: 0.51% of funds are spent as provisions for innovative actions to promote and experiment with new ideas on development.

Regional Policy, 2000 – 2006, 213 billion Euro

European Structural Funds: 195 billion Euro

Cohesion Fund: 18 billion Euro - improving the environment and developing the transport infrastructure in Member States whose per capita GNP is below 90% of the Community average.

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0 €

5.000 €

10.000 €

15.000 €

20.000 €

25.000 €

30.000 €

35.000 €

40.000 €

45.000 €

Spai

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Ger

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Port

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Fran

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Belg

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Den

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Structural Funds by 15 „Old“ Member States, 2000 – 2006 (billion Euro)

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Structural Funds by 10 “New“ Member States, 2004 – 2006 (billion Euro)

0 €1 €2 €3 €4 €5 €6 €7 €8 €9 €

10 €11 €12 €

Po

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Cze

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epu

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Slo

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Lith

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Latv

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Cyp

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Mal

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8400 km of rail built or improved

5100 km of road built or improved

Access to clean drinking water for 20 million more people

Training for 10 million people each year

Over 1 million jobs created

GDP/capita up 5 % in newer Member States

Results of EU Cohesion Policy(figures from 2000-2006 period)

Source: European Commission, General presentation on proposals for Cohesion Policy 2014-2020,

Evaluating the Regional and Cohesion Policy

Criteria: Beta convergence by a regression analysis (per capita income of a chosen period of time is estimated of a function of the initital levelof per capita income)

Indicator: Growth of GDP per head

Problems: - Causality between growth and regional/cohesion policy measures - Dependency on country/region-specific environment - Evaluation of qualitiative effects (e.g. solidarity) - Defining regions (esp. regions without governmental institutions) - Territorialization of policy measures - Multilevel governance and administrative capacity

EU‘s conclusion regarding the first phase: “ Between 1994 and 2001, growth of GDP per head in objective 1 regions taken together average almost 3% a year in real terms against just over 2% in the rest of the EU.“

European Commisison (2004). Third Cohesion Report, p ix.

Results 1988-1999: 8 out of 59 objective 1 regions (GDP/capita below 75% of EU average) achieved after 8 years a level above 75%: Abruzzo, Molise, Lisbon-Setubal, Cantabria, Corsica, Northern Ireland, Scottish Highlands, major parts of Ireland. 35

Evaluating the Regional and Cohesion Policy

Beta convergence for Objective 1 and non-Objective 1 regions, 1988-1999

(1/T)*log(Yit/Yi0) = α + β*log Yi0 + γ*Xit + uit

Yit = real per capita income of a country in i at time tYi0 = initial per capita incomeXit = set of structural exogenous variables influencing the

growth of per capita income T = time in which the dynamics of convergence is measureduit = stochastic errorα = constant term

Orlik, A (2003). Real Convergence and its differentMeasures

Leonardi, R (2006). Cohesion in the European Union. Regional Studies, 40/2, 162.

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Evaluating the Regional and Cohesion Policy

Interpretation of the beta-covergence:- When comparing the performance of the Objective 1 regions,much greater convergence rates are found compared with whathas been reported within nation states.- Overall EU convergence has been driven, to a great extent, bythe convergence of the Objective 1 regions toward the EU meanwhereas the non-Objective 1 regions remained substantiallystable.- Convergence is a fairly slow process.

The comparison with convergence before 1988 shows that countriessuch as Ireland, Portugal, Greece, Spain have progressed considerablysince they joined the EU and were in receipt of Cohesion policy funding.

These countries’ performance in terms of GDP was consistent with the positive development of the employment.

Low performing regions were Mezzogiorno, Germany’s East Bundesländer,France overseas territories, several regions in Spain (Andalucia, Galicia)

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Objectives, Structural Funds and Instruments 2007-2013

The ERDF aims to strengthen economic and social cohesion in the European Union by correcting imbalances between its regions. In short, the ERDF finances:direct aid to investments in companies (in particular SMEs) to create sustainable jobs;infrastructures linked notably to research and innovation, telecommunications, environment, energy and transport;financial instruments (capital risk funds, local development funds, etc.) to support regional and local development and to foster cooperation between towns and regions; technical assistance measures.

The ESF sets out to improve employment and job opportunities in the European Union. It intervenes in the framework of the Convergence and Regional Competitiveness and Employment objectivesThe ESF supports actions in Member States in the following areas:adapting workers and enterprises: lifelong learning schemes, designing and spreading innovative working organisations;access to employment for job seekers, the unemployed, women and migrants;social integration of disadvantaged people and combating discrimination in the job market;strengthening human capital by reforming education systems and setting up a network of teaching establishments.

The Cohesion Fund is aimed at Member States whose Gross National Income (GNI) per inhabitant is less than 90% of the Community average. It serves to reduce their economic and social shortfall, as well as to stabilise their economy. It supports actions in the framework of the Convergence objective. It is now subject to the same rules of programming, management and monitoring as the ESF and the ERDF.For the 2007-2013 period the Cohesion Fund concerns Bulgaria, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia. Spain is eligible to a phase-out fund only as its GNI per inhabitant is less than the average of the EU-15.The Cohesion Fund finances activities under the following categories:trans-European transport networks, notably priority projects of European interest as identified by the Union;environment; here, Cohesion Fund can also support projects related to energy or transport, as long as they clearly present a benefit to the environment: energy efficiency, use of renewable energy, developing rail transport, supporting intermodality, strengthening public transport, etc.

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Structural and Cohesion Funds 2007-2013

•The European Regional Development Fund (ERDF) The ERDF aims at encouraging regional development, economic change, enhanced

competitiveness and territorial co-operation throughout the EU.

• The European Social Fund (ESF) The ESF is meant to focus on employment, social inclusion and tackling discrimination.

• The Cohesion Fund This fund applies only to member states with a Gross National Income (GNI) of less than 90%

of the EU average, and covers the new member states as well as Greece and Portugal. Spain will be eligible for the Cohesion Fund on a transitional basis. The Cohesion Fund invests in the

environment and trans-European transport networks.

• These funds, in turn, are meant to meet three different main “objectives”:

1) Convergence (previously called Objective One): ERDF; ESF and Cohesion Fund. 2) Regional Competitiveness and Employment (previously called Objective Two): ERDF; ESF. 3) European Territorial Co-operation (ERDF).

• The amount each member state gets is negotiated among the governments for a seven year period. Each fund has a national “managing authority” – i.e. a government department – through which the money is channeled. EU regulations govern how and to whom money can be granted. The grants are first paid out by the managing authorities, and the Commission then reimburses the member states. The Commission audits about five percent of the projects and has the right to withhold funds. • Each project that wants grants from the SCF must find “matching funds” from other sources than the EU, such as the national governments or private actors, usually amounting to around the same amount as that given by the EU. http://www.openeurope.org.uk/research/regional.pdf

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Objectives of European Regional Policy 2007-2013

Convergence – solidarity among regionsThe aim is to reduce regional disparities in Europe by helping those regions whose per capita gross domestic product (GDP) is less than 75% of the EU to catch up with the ones which are better off.Some regions in the EU as constituted before the two most recent enlargements are now above the 75% threshold simply because the EU average GDP has fallen with the addition of the newest member countries. Those regions still need help from the cohesion policy, so they now receive "phasing out" support until 2013.Number of regions concerned: 99Number of Europeans concerned: 170 millionTotal amount: €283.3bn (81.5% of total budget)Type of projects funded: improving basic infrastructure, helping businesses, water and waste treatment, high-speed internet connection, training, job creation, etc. Regional Competitiveness and EmploymentThe aim is to create jobs by promoting competitiveness and making the regions concerned more attractive to businesses and investors. This objective covers all regions in Europe not covered by the convergence objective. In other words, it is Intended to help the richer regions perform even better with a view to creating an knock-on effect for the whole of the EU to encourage more balanced development in these regions by eliminating any remaining pockets of poverty. Some regions, which used to be under the 75% threshold that would qualify them for inclusion in the convergence group, receive extra funding to help them "phase in" to their new objective. Number of regions concerned: 172Number of Europeans concerned: 330 millionTotal amount: €55bn (16% of total budget)Type of projects funded: development of clean transport, support for research centres, universities, small businesses and start-ups, training, job creation, etc. European territorial cooperationThe aim is to encourage cooperation across borders.

Structural Funds 2007 – 2013: Eligible areas in the EU under the Convergence Objectiveand the European Competitiveness and Employment Objective

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Structural and Cohesion Funds 2007-2013

http://www.openeurope.org.uk/research/regional.pdf

Cross-border programmes under the European Territorial Cooperation Objective

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Example: Operational Programme 'Development of Eastern Poland'

Operational Programme 'Development of Eastern Poland'

On 2 October 2007, the European Commission approved the Operational Programme entitled “Development of Eastern Poland” for the period 2007-13. The Operational Programme falls within the framework laid out for the Convergence Objective and has a total budget of around €2.7 billion. Community investment for five Polish regions (Warmińsko-Mazurskie, Podlaskie, Lubelskie, Podkarpackie and Świętokrzyskie) through the European Regional Development Fund (ERDF) amounts to some €2.3 billion. This represents approximately 3.4% of the total EU investment earmarked for Poland under the Cohesion Policy for 2007-13

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Priority Axis EU Contribution National Public Contribution

Total Public Contribution

Modern Economy 789 957 284 139 404 227 929 361 511

Information Society Infrastructure

255 119 659 45 021 117 300 140 776

Regional Growth Centres 452 621 636 79 874 407 532 496 043

Transport Infrastructure 660 381 359 116 537 887 776 919 246

Sustainable Tourism based on Natural Assets

47 500 000 8 382 353 55 882 353

Technical Assistance 68 213 812 12 037 732 80 251 544

Total 2 273 793 750 401 257 723 2 675 051 473

Example: Operational Programme 'Development of Eastern Poland'

Breakdown of finances by priority axis (euro):

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Example: Cross-border Cooperation Poland - Germany

Project example: Collegium Polonicum, Collegium UniversalumEach morning, with a student card in their hand, they cross the border between Germany and Poland on the Oder River and divide their lives and studies between the two countries. This is the reality that students of the Viadrina European University in Frankfurt-am-Oder have been living since the university's creation in 1991. The Union with Poland grew even closer with the opening in 1993 of the Collegium Polonicum in Slubice where German students could sign up for a post-graduate programme devoted to Polish law. The idea arose as early as 1991 of creating, in collaboration with the Adam Mickiewicz University in Poznan, an institute for studies and research on the cultures, languages, economy and society of Eastern Europe. The Collegium Polonicum has, in addition to classrooms and the AMICUS student hall, rooms for tutorial classes and a library boasting 6 000 books and 260 periodicals devoted to Eastern Europe: a genuine gold mine for the students and academic researchers. The courses taught there are intended to complement the programmes organised by the two founding universities. The students analyse the problems of the border regions or the impact of economic upheavals on the Central and Eastern European countries, study the different constitutional laws of these countries as well as international law and may also take language courses.

This cross-border training programme opens up excellent prospects for employment in international organisations, in corporations, in the media or in the field of city and regional planning. The labour market problems on either side of the Oder are also being dealt with by the "Science and Labour World" cooperation centre of the Viadrina European University, nearby. The centre monitors the trends in cross-border relations and ensures collaboration between the German and Polish trade unions on the Interregional Trade Union Board.

The new school attracts students and teachers, not only from Germany and Poland but also from the Czech Republic, France, Italy and even Russia and many other countries. It is therefore an important academic and cultural meeting point and a centre of intellectual and human influence for Europe.

Total cost 48 000 000 euros EU contribution 8 850 000 euros

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EU Cohesion Policy 2014-2020

Source: European Commission

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“Ambitious but realistic” proposals issued by the Commissionin June 2011 for the Multiannual Financial Framework (MFF) 2014-2020

Cohesion Policy

33 % (€336 billion)

ConnectingEurope Facility4 % (€40 billion)

Other policies(agriculture, research,

external etc.)63 % (€649 billion)

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Cohesion Policy 2013 + Selection of Priorities

Integrated approach: “Cohesion policy is aiming at ensuring economic, social and territorial cohesion across the EU.“

Multilevel governance: “Voluntary regions should be able to enter into a three-party agreement/contract with their Member State and the European Union.”

New category: “Should transition regions become a full category, it should be named as a 4th objective, in order to keep the architecture clear. The criteria for this objective should therefore be made as fair as possible and straightforward enough to avoid any ambiguity on the status of one region or another.“

Additional indicators: “It seems clear however that cohesion policy is about much more than just increasing GDP per head…there is consequently an urgent data gap to fill in order to adequately distribute European funding…Increased effort should be dedicated to researching in the area of measuring the combination of wealth, competitiveness, sustainability and well-being.”

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Cohesion Policy 2013 + Selection of Priorities

Principles and rules: Conditionality Rewarding efficient regions with areserve fund

Partnership Better participation of regional authorities

Efficiency Simplifying the management of structuralfunds

Uncertainty Reducing the room for interpretation by the different authorities amongst others.

Evaluation Better assessing the quality of theprogrammes‘ implementation

Partnership Simplifying the the involvement of theprivate sector

Coordination Coherence between rural development and cohesion policy; stronger integrationbetween ESF and ERDF

The Future of Cohesion Policy – 2014-2020

Legislative proposals for cohesion policy during the period 2014-2020 were adopted by the European Commission on 6 October 2011. These will be discussed by the Council and European Parliament during 2012-2013. The new Regulations should enter into force in 2014.

The Fifths Cohesion Report, adopted in November 2010, set out ideas on how cohesion policy might be reformed, including:- focusing resources on a few priorities closely linked to the Europe 2020 strategy- defining clear and measurable targets,- strengthening regulatory and institutional frameworks,- conditionality and incentives,- increasing the leverage effect of investments,- private sector finance,- simplification of the management rules,- concentrating on the poorest Member States and regions.

NEWS:Working paper on “A New regional Competitiveness Index: Theory, Methods and Findings” Brochure “Simplifying Cohesion Policy for 2014-2020”RegioStars Awards 2013 (http://ec.europa.eu/regional_policy/index_en.htm) http://ec.europa.eu/regional_policy/what/future/index_en.cfm

56Source: http://ec.europa.eu/regional_policy/sources/docgener/informat/country2012/maps/2_poverty_target.png

57Source: http://ec.europa.eu/regional_policy/sources/docgener/informat/country2012/maps/4_employment_target.png

58Source: European Commission (2012), Country Fact Sheet – Polska.

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If convergence will ever happen: WHEN?

Result of an OECD report: “..regional disparities are not falling, or at best are declining very slowly. At the current rate of convergence it would take 170 years to half divergence across theregions in the EU.“

http://www.openeurope.org.uk/research/regional.pdf

OECD (2007). Economic Survey of the European Union 2007. Paris.