From Policy Takers to Policy Makers.: Adapting EU Cohesion Policy to the Needs of the New Member States

From Policy Takers
to Policy Makers
Adapting EU Cohesion Policy
to the Needs of the New
Member States

From Policy Takers to Policy Makers
Adapting EU Cohesion Policy to the Needs of the
New Member States

CONTENTS

1 BACKGROUND AND OBJECTIVES 5
1.1 Enlargement and Cohesion: the issues 5
1.2 Objective and framework 7
REFERENCES 10

2 COHESION POLICY—RETROSPECT AND PROSPECT 11
2.1 Regional policy in the EU—need, logic and rationale 11
2.2 The impact of the policies in EU15 18
2.3 The present and future European Cohesion Policy 22
REFERENCES 29

3 REGIONAL DEVELOPMENTS IN THE NEW MEMBERS AND CANDIDATE COUNTRIES
OF THE EUROPEAN UNION 33
3.1 Introduction 33
3.2 Economic growth and regional disparities in the NMS 33
3.3 Economic structure and regional disparities 39
3.4 Employment rates and employment growth 43
3.5 Distribution of FDI and infrastructural facilities across the regions 47
3.6 Problem regions 51
3.7 Summary and conclusions 53
REFERENCES 56

4 POLAND AND COHESION POLICY 59
4.1 Introduction 59
4.2 Lessons learned and future implications from the pre-accession instruments 60
4.3 Controversial accession negotiation issues 62
4.4 Polish problems linked to the conditionality of the Structural Funds 63
4.5 What should be done? 70
REFERENCES 85

5 HUNGARY AND COHESION POLICY 89
5.1 Introduction 89
5.2 Experiences and background of the use of pre-accession funds 89
5.3 Past and present problems and challenges 92
5.4 The need for a re-structuring of the budget 93
5.5 Regional policy challenges and problems of the regional classiﬁcation 95
5.6 Involving potential participants: the private sector and the municipalities 101
5.7 The need for a new budget line: trans-border infrastructure and environment in the NMS 102
5.8 Hungarian interests—some summary remarks 103
REFERENCES 108

6 THE CZECH REPUBLIC AND COHESION POLICY 109
6.1 Introduction 109
6.2 Pre-accession funds 110
6.3 EU regional policy in negotiation process 117
6.4 Czech stance towards new EC regulation drafts on regional policy 118
6.5 Priorities of the Czech government for 2007 - 2013 121
6.6 Expert view on situation in the Czech Republic 125
6.7 Conclusions 134
REFERENCES 136

7 SLOVAKIA AND COHESION POLICY 141
7.2 The experience of Slovakia with pre-accession support 142
7.3 Cohesion Policy in the accession negotiations 145
7.4 Selected problems, barriers and obstacles related to Cohesion Policy in Slovakia 147
7.5 A Slovak perspective 153
7.6 Conclusions 161
REFERENCES 162

8 LATVIA AND COHESION POLICY 163
8.2 Latvia’s experience with pre-accession support 164
8.3 Issues relating to Cohesion Policy in the accession negotiation process 165
8.4 Problems with current Cohesion Policy 166
8.5 Latvia’s development and structural policy: actual vs optimal? 167
8.6 A Latvian perspective on the Commission’s 2007 – 2013 proposal 171
8.7 Conclusions 174
REFERENCES 177

9 FROM POLICY TAKERS TO POLICY MAKERS 179
9.1 The stage set 179
9.2 Summary of national contributions 181
9.3 The starting position 184
9.4 The system adapted: country preferences revealed 192
9.5 The conclusions: a simpliﬁed and growth oriented ECP for the NMS 198
REFERENCES 205

1 Background and objectives

1 BACKGROUND AND OBJECTIVES

Daniel Tarschys and Jonas Eriksson*

1.1 Enlargement and cohesion:
the issues

1.1.1 Introduction

The accession of Cyprus, Czech Republic, Historically, every national campaign for
Estonia, Hungary, Latvia, Lithuania, Malta, membership has contained an element of
Poland, Slovakia and Slovenia to the EU on “over-sell” which is likely to generate some
1 May 2004 represents an impressive his- disenchantment in the aftermath of acces-
toric achievement but also an unprecedent- sion. In this situation, there is inevitably
ed challenge. a strong interest in the size of the specific
cash flows between the EU and its member
The enlargement is first and foremost a states. The immediate success of the ac-
political process, breaking down barri- cession and the dexterity of national nego-
ers in Europe and paving the way for an tiators are gauged by their ability to “bring
“ever closer union” between its peoples. It home the bacon”. With agricultural policy
is fuelled by the yearning for peace, secu- virtually locked for the next ten years, a
rity and stability. But enlargement is also lot of attention is paid to Cohesion Policy
an economic process, and the prospects which every Member State, old and new,
for growing prosperity have always been tends to examine with an eye to its own net
a powerful motive for entry into the Un- position.
ion. Throughout the new Member States
(NMS) there are high expectations as to the Easy to measure, the cash flows offer ap-
material returns of the step just taken. This parently precise quantitative indicators of
presents a dilemma to policy-makers who the impact of EU membership. Other se-
are very much aware that many of the ef- quels are more intangible, or more long-
fects of memberships are mainly structural term, or more difficult to attribute to the
and long-term but who also feel the pres- very accession. Many consequences of Eu-
sure of their electorates to deliver short- ropean integration are linked to institution-
term results. al and legal changes, increased mobility
and the benefits of expanding markets and
foreign investments. All of these develop-
*
ments need to be taken into account when
Daniel Tarschys is Professor of Political Sci- it comes to assessing whether we attain the
ence at Stockholm University and Jonas Eriksson
is assistant researcher at the Swedish Institute for goal set in 2003, when the European Coun-
European Policy Studies cil stated that “making a success of enlarge-

5

From Policy Takers to Policy Makers: Adapting EU Cohesion Policy to the Needs of the New Member States

ment remains the key priority for the years Financial Framework will have important
to come.1” consequences regarding both revenues and
expenditures; and for new as well as old
Enlargement has led to signiﬁcantly greater Member States. Taking into account that
disparities within the EU. Even though eco- EU25 has an additional number of lagging
nomic growth on average has been stronger regions and at the same time a lower ag-
in the Central and East European Countries gregate per capita income than EU15, the
(CEEC) over the last decade—implying stage is set for an active debate on the fu-
that there is some economic convergence— ture of the European Cohesion Policy.
GDP per capita differences between new
and old Member States are still substantial. In the views of one study,3 there are mainly
This situation will be even more accentu- three aspects that underline the need for a
ated by the likely accession of Bulgaria and Cohesion Policy reform. First, the enlarge-
Romania in 2007, the very year that the ment brought with it a doubling of the so-
next Financial Framework will come into cio-economic disparities and decreased the
force. average EU GDP per capita by 12.5 per-
cent.4 At the same time, the economic and
In February 2004, three months before the social problems remain in the regions that
enlargement, the European Commission now face a scaling down of assistance from
(henceforth the Commission) presented its the Structural Funds. Second, the progress
proposal for the Financial Framework for made in the Lisbon Strategy,5 as described
the years 2007 – 2013. This proposal was in detail in the Kok Report,6 has thus far
accompanied by the Third Cohesion Report, been a disappointment. Third, a number of
which outlined the Commission’s proposal institutional changes are underway, most
for the future European Structural and Co- importantly the new Constitutional Treaty,
hesion Policy (ECP).2 The budget proposal with a shift of emphasis for the ECP to-
implies an increase of the EU budget by 31 wards territorial cohesion.
percent by 2013 compared to 2006, while
the proposed new guidelines for Cohesion A fourth aspect may be added which will
Policy shift the focus of EU regional poli- constitute the point of departure for this
cy in important areas. The implications of
the two documents and the positions of the 3
Bachtler and Wishlade (2004).
respective Member States in the Financial 4
COM (2004b).
Framework and ECP reform debate will be 5
The Lisbon Strategy is a common effort that was
discussed below. Needless to say, the fu- initiated at the Lisbon European Council in 2000,
ture Cohesion Policy and the 2007 – 2013 which aims at “making EU the most dynamic and
competitive knowledge-based economy in the
1
CEU (2003), p. 7. World by the year 2010”.
6
2
We will use the term Structural Policy and Cohe- Kok et al. (2004). The report concluded that
sion Policy interchangeably throughout this study, although external events had been unfavourable
without making any distinction as regards the to growth in the EU Member States, the Member
meaning of the two concepts. However, the study States themselves were also responsible for the
predominantly addresses the contents of the new slow progress by failing to act on the Lisbon Strat-
budget post, Sustainable Development, in the Com- egy. The report also called for greater involvement
mission’s proposal for the 2007 – 2013 Financial of the regional and local levels. See also COM
Framework, in particular the post “Cohesion for (2005a) for the mid-term review of the Lisbon
growth and employment” (see chapter 2). Strategy.

6


study. When the new Member States nego- ply extending the present system to the
tiated their terms of accession, their influ- new Member States, especially the CEEC
ence over the European Cohesion Policy Member States (CEECMS). By focusing
was limited. What was open to discussion on five of the CEECMS, this collaborative
was mainly a set of modalities for adjust- project involving researchers from two old
ment and phasing-in, but there was no room and five new Member States will attempt to
for questioning the principal parameters of give new insights into the expected effects
the policy package. The candidates met a of the ECP in its current shape and form on
ready-made model which had evolved from the respective CEECMS economies. It will
earlier stages in European integration. also suggest possible modifications of the
present policy with a view of making it bet-
In fact, several different stages. While some ter adapted to the needs of the new Member
elements in the present Cohesion Policy States.
may be traced back to the very first decades
of European integration, its most signifi-
cant parts were developed in the 1980s in 1.2 Objective and framework
conjunction with the key decisions on the
internal market and the monetary union. The ECP purports to make a genuine and
Other important provisions were added in positive contribution to cohesion in the EU.
connection with previous accessions, start- As we will see below, however, it has to
ing with the UK and Ireland and continuing be recognised that although the ECP may
with the entry of first Spain and Portugal and come to play a crucial role in EU27, un-
then Austria, Finland and Sweden. Further resolved issues remain in both its structure
elements were added with the perspective and in the formulation of its objectives. As
of Eastern enlargement, particularly the al- noted, the new Member States landed in a
location absorption cap of four percent of a policy framework formulated and decided
Member States’ GDP.7 Even though the ab- long before they could assert any influence
sorption cap applies in all Member States, on its foundations. With the insight that re-
it is “only likely to bite in the new Member gional disparities widened after the enlarge-
States.8” ment, it begs the question: how is an opti-
mal European Cohesion Policy designed in
While it is easy to grasp the importance the perspective of the new Member States?
of formulating a successful ECP in the
perspective of the new Member States, it The present collaborative project seeks to
is essential that the ECP promotes growth disentangle this complex problem. In addi-
rather than alters the natural growth path tion to the Swedish Institute for European
expected from countries with initially low Policy Studies (SIEPS) and the Vienna In-
GDP per capita levels. Taking into ac- stitute for International Economic Studies
count the historic evolution and outcome (WIIW), five renowned research institutes
of the ECP, there is every reason to care- in Czech Republic (EUROPEUM Institute
fully evaluate the consequences of sim- for European Policy), Hungary (Institute
for World Economics of the Hungarian
7
For a survey of the evolution of EU Structural Academy of Sciences, IWE), Latvia (Baltic
Policy, see Tarschys (2003). International Centre for Economic Policy
8
Bachtler and Wishlade (2004), p. 23. Studies, BICEPS), Poland (Center for So-

7


cial and Economic Research, CASE) and were based on well founded considera-
Slovakia (Institute of Slovak and World tions of how to optimally design Cohesion
Economy of Slovak Academy of Sciences, Policy from each country’s point of view.
ISWE SAS) have agreed to address a com- Hence the second objective is to single out
mon set of questions. The problem formula- and describe which questions and contro-
tion has been designed so that the first three versies arose in the accession negotiations
questions give a natural introduction to the with various.
last, and most important, question of how
a future European Cohesion Policy should Third, several governments have com-
be designed to best suit the new Member plained that the conditionality of the policy
States. may influence national policies. In par-
ticular, the method of “matching funding”
First, it is reasonable to assume that some may cause modification of policy objec-
implications of the effects of the European tives and, topped up with the amount of red
Cohesion Policy on the new Member States tape involved in European regional policy,
can be derived from the experience of the give rise to budgetary strain.9 Regardless of
use of the pre-accession instruments. Even whether this is a serious problem, the pros
though the pre-accession assistance dif- and cons of the present framework have
fers from the ECP in important aspects, the to be evaluated and balanced against the
similarities between them increased as ac- need for assistance, on the one hand, and
cession drew nearer. The experience of the the principle of additionality and the need
pre-accession support can also serve to in- for evaluation and monitoring, on the other.
dicate possible future problems of Cohesion The objective is thus to examine whether
Policy in the new Member States, in terms the policy in its current shape causes prob-
of its benefits and drawbacks regarding im- lems as regards its design.
plementation. The first objective of the na-
tional contributions is therefore to describe This brings us to the essential problem to
what experience the particular country has be examined in this study: the future of
had of the pre-accession EU assistance. the European Cohesion Policy in the new
Member States. The institutes have worked
A second indication of how the Cohesion along the lines of a scenario where the coun-
Policy can be improved may be derived try under scrutiny may dispose freely of the
from the various positions and wishes ex- sum foreseen for it in the Commission’s
pressed in the accession process. The entry 2007 – 2013 Financial Framework. Given
of the ten new Member States crowned a its own priorities for national development,
long period of arduous negotiations about how would these resources be used?
the terms of their accession, closing chapter
after chapter in an extensive catalogue of
requirements. Even though there may have 9
Assistance from the Structural Funds and the Co-
existed many differences of opinions in hesion Fund must be co-financed by the Member
each and every candidate country, articulat- States. The idea behind this so called “additional-
ity” is that EU regional policy should complement,
ed in a variety of domestic political prom-
rather than reduce, a Member State’s own regional
ises—e.g. due to the influence of internal policy efforts. This presents the new Member
pressure groups—a reasonable assumption States with a specific problem, an issue that we will
is that the consolidated official positions return to on numerous occasions in this study.

8


This opens up several matters to consider. In chapters 4 to 8, the respective institutes
First of all, an examination of which pri- respond to the problem formulation outlined
orities will prevail has to be undertaken. in the beginning of the first chapter. Chap-
Second, consideration must be given to ter 4 examines the case of Poland, chapter
relations between different targets and am- 5 Hungary, chapter 6 the Czech Republic,
bitions. Though the European Cohesion chapter 7 Slovakia and chapter 8 Latvia.
Policy is sometimes presented as a single-
objective policy intended to promote “cohe- Finally, the ninth chapter summarises and
sion”, it has in effect a much more complex analyses the main findings of the respective
goal structure and the relationship between country studies. On the basis of the results,
its multiple objectives may be construed in the chapter will aim at drawing certain con-
several different ways. To offer but one ex- clusions for the future of European Struc-
ample: while some measures may promote tural and Cohesion Policy.
both growth and intra-national conver-
gence, others (such as investments in trans-
port infrastructure close to the capital) may
promote national growth while also leading
to greater inter-regional disparities, at least
in the short run.

Given the specific needs of the respective
countries examined; how should the system
be designed in order to function optimally
from each Member States’ point of view?
This will be the main focus of this study.

1.2.1 Basic outline of the study

The next chapter gives a brief account of
the outcome the ECP; describes and dis-
cusses the causes that underlie the need for
a European regional policy; and provides
an overview of the present reform debate.
The third chapter provides an overview of
the development of regional disparities, as
regards levels and growth in income lev-
els, economic structural developments, the
role of agriculture, industrial restructuring,
development of the services sector and de-
velopments of regional clusters, the role of
Foreign Direct Investment (FDI), and the
relative dynamics of productivity growth
and industrial structural change.

9


References
Bachtler, J., and Wishlade, F., 2004, Searching for Consensus: The Debate on Reforming
EU Cohesion Policy, European Policies Research Paper, European Policies Research Cen-
tre, University of Strathclyde, November 2004.

Council of the European Union, 2003, Multiannual Strategic Programme of the Council
2006 – 2006, Brussels, 8 December 2003, POLGEN 85.

European Commission, 2004b, A New Partnership for Cohesion: Convergence, Competi-
tiveness, Cooperation, Third Report on Economic and Social Cohesion, February 2004.

European Commission, 2005a, Working Together for Growth and Jobs: A New Start for the
Lisbon Strategy, Communication to the spring European Council, Brussels, February 2005.

Kok, W., et al., 2004, Facing the Challenge: The Lisbon Strategy for Growth and Employ-
ment, Report from the High Level Group chaired by Wim Kok, November 2004.

Tarschys, D., 2003a, Reinventing Cohesion: The Future of European Structural Policy,
Sieps report 2003:17, Stockholm 2003.

10

2 Cohesion Policy: Retrospect and prospect

2 COHESION POLICY: RETROSPECT AND PROSPECT

Jonas Eriksson

2.1 Regional policy in the EU
– need, logic and rationale

The economic and social differences and pending on how they are measured. For ex-
the territorial imbalances prevailing in the ample, the indicator used as a basis for as-
Union today are seemingly sufficient rea- sistance from the Structural Funds is GDP
sons for a European regional policy. How- per capita in Purchasing Power Standards
ever, a number of aspects should be consid- (PPS). Further distinctions are however de-
ered before we accept this argument, all of sirable. One might argue that the optimal
which will be dealt with in the remainder of indicator should not only take into account
this section. the cost of living in the various regions, but
also taxes, transfers and public expendi-
First of all, we need to get a better picture tures, as well as private capital flows.1 Emi-
of what is meant by economic and social grants often come to the aid of relatives in
disparities. The European Cohesion Policy impoverished areas by sending them part
predominantly addresses issues of econom- of their salaries earned in richer areas and
ic efficiency, income levels and employ- remittances make up a considerable part of
ment, but the choice of indicators to use the resources available for consumption in
for measuring regional inequalities is by no some regions (and extra-EU countries).2
means an obvious one. Second, there is a
need to show what constitutes the optimal However, although gaps within the EU may
level—regional, national or supranation- be exaggerated, it is certainly clear that
al—from which to conduct and implement significant regional disparities exist and
specific factors of regional policy. Finally, that the disparities have been further pro-
and most importantly, sending money into a nounced, to say the least, after the most re-
region may have adverse effects. Obvious- cent enlargement. The accession of Bulgaria
ly, the Structural Policy should not strive and Romania—and the possible future ac-
toward goals that either offset each other or cession of Croatia, other Balkan countries
are incompatible with one another. and Turkey—will not improve the picture.
The second chapter, which delves deeper
into the economic and social situation in
2.1.1 Regional disparities in the Union
1
Tarschys (2003a).
2
Unsurprisingly, these arguments have been
Troublesome as they might appear in re- brought forward by EUROCITIES, a network of
ported statistics, disparities between re- the larger European cities; see for example Häupl
gions may be understated or overstated de- (2003).

11


the EU25, provides ample evidence of the listed factors are present in the Union today,
extent of the problem. the endeavour to reduce regional disparities
is arguably justiﬁed.
The determinants of regional disparities
have been studied from many angles and
by scholars in several disciplines. The ap- 2.1.2 The C’s: Convergence, Com-
proaches to it span a wide spectrum from petitiveness and Cohesion
exclusively economic to predominantly
cultural. As regards the economic deter- Although the concept of “economic and so-
minants, it is possible to single out at least cial cohesion” is mentioned in the Treaty
four basic, but intertwining, elements.3 of Rome, it was more or less forgotten un-
1. There might be a lack of development til refreshed and put in use by the Delors
in many regions as a consequence of Commission in the 1980s. As such, “co-
the existence of large agricultural sec- hesion” is intertwined with the concept of
tors and the lack of an industrialisation “convergence”. Allegedly, the ECP will
process with large scale industries. boost growth and employment, i.e. pro-
2. Less developed areas tend to be geo- mote convergence between regions, which
graphically remote and, accordingly, in turn will lead to greater cohesion in the
transportation costs are high. Union.
3. As new regions emerge, agents of in-
dustries meet competition they are una- It has to be recognised, however, that the
ble to counter and therefore experience connection between growth and the reduc-
a loss of competitiveness. tion of real income disparities is complex.
4. Economic integration may result in the Taking into account that the ECP accord-
agglomeration of industries, further ing to the Commission’s proposal should
reinforcing the lack of development not only reduce income disparities, but also
when removal of barriers leads to eco- promote employment, sustainable develop-
nomic concentration in border areas. ment and, most notably, increase the EU’s
competitiveness, further complications are
There are also factors that that add to the added to the equation. We will therefore de-
problem indirectly, such as the ageing vote some space to discuss, in turn, conver-
population in the EU and, particularly in gence, competitiveness and cohesion. Our
the CEECMS, the marked slowdown of discussion should not be seen as an attempt
the population growth. The CEECMS are to exhaust the issue, but one needs to be
forecasted to experience negative popula- aware of the pitfalls of the phrases invoked
tion growth in the future.4 Since major cit- in the discussion on the future ECP.
ies and capitals tend to attract the younger
and better educated part of the population, Convergence
it may further accentuate regional polariza-
tion. Thus, as it is clear that all of the above By convergence, according to the standard
neo-classical model, we mean a process
3
Begg (2003).
of higher growth in countries with com-
4
See, for example, forecasts from the U.S. Census paratively lower capital to labour ratios,
Bureau (2004). i.e. countries that have a lower GDP per

12


capita level should grow faster than richer Arguments that emanate from new econom-
countries. This is in the economic literature ic geography further add to the complex-
known as “β-convergence”.5 However, the ity of the regional policy domain. In these
relationship between β-convergence and the models, economies of scale are a source of
dispersion of real per capita incomes, or “σ- concentration of production. If transport
convergence”, is less than clear-cut: it can costs (real transport costs or artificial trans-
be shown that β-convergence is a necessary port costs such as customs or other costs for
but not sufficient condition for σ-conver- crossing a border) are high, each country
gence, i.e. there may be β-convergence but will only produce enough to serve its own
no σ-convergence.6 market. If costs fall, the gains from econo-
mies of scale can be realised by concentrat-
Moreover, different theoretical models ing the production. It will be most profit-
produce very different results. According able to concentrate production to the largest
to one theory,7 initial regional imbalances market, since this minimises total transport
may be enhanced by the integration proc- costs—and wages may therefore be higher.
ess. The idea is that regions with a highly However, if transportation costs continue
skilled labour force tend to attract more to fall, it is less important to produce in
R&D investments, while such investments the large market and a wage difference be-
in turn attract skilled labour. Highly skilled tween countries will not be sustainable. In
workers therefore tend to move away from the first case, a lowering of transportation
less productive areas.8 In the celebrated costs through integration may lead to diver-
Heckscher-Ohlin-Samuelson models, by gence in real incomes between countries; in
contrast, the integration process will cause the second case to convergence.10
convergence through an equalisation of
factor returns when barriers to trade are re- The Commission’s Third Report on Eco-
moved.9 nomic and Social Cohesion recognises that
there may be a trade-off between national
5
This is also called absolute convergence.
and regional convergence in the first stages
6
A similar distinction can also be made as regards of catching up, especially because of ag-
the concept of “competitiveness”: “a nation or re- glomeration effects. A telling example is
gion may be composed of highly competitive firms Ireland, which has experienced high na-
in the microeconomic sense but if these firms are tional growth and a strong concentration
engaged in activities that create low value-added
per worker then it will not make the economy com-
of economic activities in Dublin, whilst
petitive in the macro-economic sense.” See Martin regional disparities in the three other “co-
(2003), p. 2 – 34 (40). See also below. hesion countries” have largely remained at
7
This is called “circular and cumulative causa- the same levels. In fact, according to a one
tion”; see Myrdahl (1957). report, Ireland, together with Finland, has
8
Myrdahl therefore recommended active regional
policies to promote “spread effects”, for example
shown most divergence among the EU15
through FDI or development funds; see Martin Member States between 1980 and 2001.
(2003). The third cohesion report points out, how-
9
It should be noted that this equalisation rests on ever, that “the extent to which a trade-off of
the assumptions of constant returns to scale, no this kind exists depends in part on the spa-
market distortions and perfect mobility of produc-
tion factors; see, for example, Markusen et al.
tial distribution of economic activity and
(1995). Convergence may also result from the “the
life-cycle of the product” model; see Molle (2001). 10
See for example Krugman and Venables (1995).

13


of settlements across the country in ques- sence of barriers to trade.14
tion.11” However, the observation seems
less relevant for the new Member States Competitiveness
where the spatial distribution of economic
activity often was decided by the central A related distinction as made above regard-
planning authority (see, for instance, chap- ing β-convergence and σ-convergence can
ters 6 and 7). also be made with respect to “competitive-
ness”. As pointed out by Ronald L. Mar-
While economists still struggle with the tin,15 there is no clear link between micro-
problem of explaining the concept of eco- economic and macroeconomic competitive-
nomic growth, there is agreement that ness. If the economy consists of firms that
growth is conditional on what is often re- are competitive in their own markets, but
ferred to as “technological progress”, that the output produced represents low added
is to say, improvements in the production value per worker, the economy as a whole
process that enhance productivity. In other will not be competitive. In fact, Paul Krug-
words, supply side factors that improve the man goes so far as to say that the search for
production process improve a country’s (or macroeconomic competitiveness is a “dan-
region’s) long term growth. However, the gerous obsession”, and that
phrase “technological progress” should be
interpreted in the widest sense. It could im- [i]t is simply not the case that the world’s
ply, for example, both methods of produc- leading nations are to any important degree
in economic competition with each other, or
tion and effects from individual or corpo- that any of their major economic problems
rate networks.12 Similarly, economists have can be attributed to failures to compete on
come some way in their search for an en- world markets.16
vironment that facilitates a maximum out-
come from different growth factors. Above If there is any distinction to be made be-
all, empirical studies13 point at factors such tween macroeconomic and regional com-
as investments in physical and human capi- petitiveness, furthermore, the latter should
tal (education and research) in the context arguably be the primary concern with re-
of a stable political environment, institu- spect to European regional policy. Unfortu-
tions such as property rights, and the ab- nately, as Martin concludes,

[t]here is no single theoretical perspective
11
that captures the full complexity of the no-
COM (2004b), p. 149. tion of ‘regional competitiveness’. The
12
Eliasson and Westerlund (2003). overview of both theoretical and empirical
13
In the sensitivity analyses carried out by Levine literature confirms the […] notion that com-
and Renelt (1992), only three out of 50 variables
survived the tests; initial GDP per capita, physical
investments as a share of GDP and human capital. 14
Barriers in the sense discussed here include barri-
A similar, though less strict, analysis by Sala- ers to goods, services, labour and capital. Arguably
í-Martin (1997), gave 22 out of 58 statistically (and sometimes forgotten), the integration process,
significant variables, among others the three men- which have removed numerous obstacles, may in
tioned variables and institutional circumstances fact have played the prominent role where conver-
such as a country’s geographic position. This sug- gence between countries and between regions has
gests that regional policy in remote areas may ben- been observed.
efit from a focus on reallocation, rather than active 15
Martin (2003).
measures that aim to promote economic growth. 16
Krugman (1994), p. 30.

14


petitiveness is a difficult and often confus- dations that would result in an increased
ing term – especially so at the regional level. competitiveness with regard to this “fourth
The term ‘competitiveness’ often raises more
questions than answers, perhaps one reason
category” remains to be solved.
why the term has only relatively recently
infiltrated the language of macro-economic Cohesion
theory and regional economics alike.17
The third concept, and the ultimate aim of
The concept of competitiveness rather be- European regional policy, “cohesion”, is
comes a question of outcome and, as such, one which can be given a multitude of in-
Martin argues that some lessons can be terpretations. As a starting point, the Com-
learned from the empirical exercise car- mission’s view on cohesion, here provided
ried out in his report. Above all, the report by Hall et al., distinguishes,
stresses that regional policy makers should
adopt measures that take into account the between inequalities between countries, and
stage of development in a particular region. particularly between the so called Cohesion
Four (Greece, Ireland, Portugal and Spain)
That is to say, “there is no ‘one-size-fits-all and the rest of the Union; inequalities be-
policy’.18” Martin uses a trisected typology tween regions within the EU; and inequali-
divided into “Regions as production sites” ties between individuals (“social cohesion”).
(lower to medium income levels), “Regions […] Greater cohesion implies that incomes,
as sources of increasing returns” (high and employment, and economic opportunities
grow faster for groups in weaker areas with
sustainable income levels) and “Regions as low incomes than for groups in richer areas
hubs of knowledge” (mainly major cities with high incomes.20
and capitals, with relatively high wages),
with different priorities depending on the An advantage of this definition is the exclu-
type of region.19 sion of non-economic factors: cohesion is
improved when lagging regions, on all lev-
Even though the typology and policy rec- els in the Union, catch up with non-lagging
ommendation make sense on many levels, regions. That is to say, they converge in the
the aftertaste of this discussion is a bit sour, traditional sense by growing faster.
and for two reasons. Not only, firstly, is it
difficult to define regional competitiveness, However, there are at least three drawbacks
but, secondly, insights as to the factors that related to this line of reasoning:
would promote competitiveness in regions 1. As noted—and the essential point from
that do not qualify for any of the three above much research on economic growth—it
categories, such as the least developed re- is not at all clear whether the promotion
gions in the CEECMS, is lacking. Thus, of regional convergence within Mem-
the problem of finding policy recommen- ber States (or within the Union) with
any certainty will promote economic
17
Martin (2003), p. 7-1 (170). and social cohesion between the Mem-
18
Martin (2003), p. 7-5 (174). ber States’ (or the Union’s) regions
19
Martin (2003). In the first category policy mak- and/or between the Member States, and
ers should emphasise economic governance, in- vice versa.
ternationalisation and accessibility; in the second
2. The definition provided by Hall et al.
category innovation and entrepreneurship; and, in
the third category, more or less all four mentioned
20
factors should be promoted. Hall et al. (2001), p. 5.

15


may be too narrow, in that it leaves out clusion that the ECP has failed to promote
important aspects of the European inte- economic and social cohesion in the EU.
gration process. We return to this point Tendencies to even further divergence may
below. have been counteracted. Furthermore, con-
3. Convergence may also be attained by a vergence has in fact taken place between
decline in growth in higher developed the EU Member States and—although to a
areas and less developed regions may much lesser extent—between the Union re-
in that sense still “grow faster”. gions. However, the role and the success of
the ECP in this respect are unclear.
An alternative way of conceptualizing co-
hesion is to divide it into the four catego- What the discussion boils down to—with
ries economic, social, political and cultural special attention paid to the fast-growing
cohesion.21 The point of departure is the CEECMS, where we today are witness-
idea that these four categories will capture ing emerging growth poles and increased
the essence of what creates, constitutes and regional disparities, that is to say, an indi-
maintains a political community such as cation of β-convergence without σ-conver-
the nation state, or indeed, the European gence—is that the link between conver-
Union. It can be argued that none will work gence, competitiveness and cohesion is not
without the other. That is to say, to achieve self-evident. The supposition that the three
the goals of economic and social cohesion, concepts are mutually supportive is highly
both political and cultural cohesion are of questionable, especially in the short run.
the essence—and while economic growth
can create the need for social measures,
political and cultural cohesion should be 2.1.3 Rationale for policy: European
viewed as a precondition for economic de- added value
velopment.22 This perception of cohesion
may also be more in line with the perceived As argued by Midelfart-Knarvik and Over-
benefits (or “added value”) of the Structur- man, there is justification for regional pol-
al Funds as they are interpreted by the EU icy when market forces move an economy
Member States and programme manage- in a “direction that is not desirable in terms
ment authorities, a point to which we will of either efficiency or welfare.23” Thus, the
return in the next section. polarization at the regional level in the EU
arguably justifies active intervention. Not-
Even though the regional tension within withstanding the evidence of marked re-
Member States, with few exceptions, has gional disparities, however, a rationale for a
been accentuated in later years, implying regional policy on the European level can-
that we have in fact moved farther away not be found in this fact alone. A European
from cohesion in some parts of the Union, regional policy should at the very least pro-
it would be presumptuous to draw the con- duce an outcome that transcends that which
can be accomplished at the national level.
21
Tarschys (2003a).
22
The list of characteristics in which the four con-
Both the Commission and the EU Member
cepts intertwine is long; see Tarschys (2003a). The
report also argues that far too little attention has States share the view that the future Euro-
been paid to political and cultural cohesion, par-
ticularly the latter. 23
Midelfart-Knarvik and Overman (2002), p. 349.

16


pean regional policy should maximise the tempt at summing up the added value of the
added value of the Structural Funds, par- Structural Funds. The point of departure
ticularly outside Objective 1 assistance. for their definition is that added value is
According to one Commission document, “something which has been enabled [with],
regional policy is justified “when the ac- or which could not have been done [with-
tions of member States are not sufficient out], […] Community assistance.27”
(the criterion of need) and when benefits
are generated for the entire Union (effec- The concept of added value is in the report
tiveness criterion).24” classified into five different categories. The
first category, Cohesion added value, is
All of the EU15 Member States have ex- perhaps the most obvious category; it is the
pressed appreciation of at least some of added value that comes from the reduction
the effects the Structural Funds have had of economic and social disparities in the
in their respective countries. For example, Union. We will discuss in some detail the
it has been pointed out that the ECP has successfulness of the ECP in this respect in
improved strategic planning, development the next section.
and evaluation at the regional level; that it
has facilitated more cooperation between Political added value concerns the visibil-
regions and Member States; that it has, in ity on several levels in the Member States’
many cases, both improved regional cohe- societies. Allegedly, support from the
sion and increased local and regional em- Structural Funds has increased the support
ployment; that it has made the EU more for European integration. However, while
visible in the respective Member States; regional beneficiaries may have become
and that it has brought added value from its more positive in their attitudes toward
role as a bridge between richer and poorer both the political and the economic inte-
regions in the Union.25 gration process, scepticism against further
integration has remained or even increased
As pointed out by the IQ-net, a network of in some of the regions and countries that
analysts and practitioners engaged in pro- have received least support from the Struc-
gramme management authorities across tural Funds. Increasing assistance from the
Europe, Structural Funds to these Member States
would be difficult since they are among
[a]dded value is not a simple concept. It at- the richest in the EU. Thus, political added
tempts to capture both the quantitative impact value may certainly be considered a posi-
and qualitative effects of the European Com-
munity contribution to regional development tive side-effect of the ECP in supported ar-
through the Structural Funds, for example eas; but any such gains should be weighed
with respect to the ‘Community method’ for about similar to losses made in other areas.
implementing programmes. As such, it en-
tails considerable subjectivity.26 Policy added value stems from the strate-
gic improvements made as regards regional
The IQ-net has nevertheless made an at-
27
Bachtler and Taylor (2003), p. 7. One should per-
24
COM (2004e), p. 1. haps go so far as to say that added value is some-
25
Bachtler and Taylor (2003). thing which has been enabled with, and could not
26
Bachtler and Taylor (2003), p. 1. have been done without, Community assistance.

17


policymaking. However, there is some adds significant value in comparison to
disagreement as to whether the Structural domestic initiatives.32” However, this lat-
Funds have altered policy priorities for the ter view mainly concerns the effects of the
better or the worse. The UK government Structural Funds in the UK regions, rather
in particular has expressed concern of the than in the Union as a whole.
latter.28 The argument is that the temptation
to receive financial support from the ECP To sum up the perceived added value of the
may lead to policy distortions if national or Structural Funds in the respective Member
regional funds are diverted to co-financing States, the positive effects concern above
projects that would otherwise receive low all cooperation, learning, strategic planning
priority. and implementation efficiency. The “de-
tracted value” of the Structural Funds, on
Another form of added value comes from the other hand, is allegedly related to distor-
the partnership principle. This operational tions to national policy priorities; excessive
added value gives foremost a better qual- bureaucracy and costly management and
ity to regional interventions. The spoke in implementation; and poor coordination be-
the wheel seems to be the sheer amount of tween supranational, national and regional
bureaucracy involved, which is both costly levels. Even though it is fair to say that the
and demanding. Again, the mentioned po- net contributors for rather obvious reasons
sition paper from the UK Treasury has ex- are less positive in their attitudes toward
pressed concern of a deficient coordination the ECP than are the beneficiaries, judging
of the assistance at the regional, national by its proposal the Commission seems to
and supranational level.29 have listened to the complaints voiced by
the former group of countries.
Finally, learning added value is the en-
couragement of “[a]nalysis, reflection and
learning […] through regulatory require- 2.2 The impact of the policies in
ments placed on programmes to monitor EU15
and evaluate their activities.30”
The ECP has arguably made a number of
The EU Member States differ somewhat positive contributions in the EU. As noted,
in their views on the added value of the all of the EU15 Member States have ex-
Structural Funds. The Greek government pressed appreciation of at least some of the
maintains the view that “the added value effects the policy has had in their respective
of regional cohesion policies has already countries, even though there remain unre-
proven to be highly significant.31” The UK solved issues where the ECP may actually
government, by contrast, has criticised the have had a negative effect. As noted, there
Structural Funds for their “lack of flexibil- has been a long-standing concern of the
ity” and goes so far as to claim that “it is burden imposed on recipients through the
not clear that the use of Structural Funds specific conditionality of the ECP. Moreo-
ver, there are many signs that the ECP suf-
28
fers from goal congestion, in that it strives
UK Treasury (2003)
29
UK Treasury (2003)
30
Bachtler and Taylor (2003), p. 40.
31 32
Cited in Bachtler and Taylor (2003), p. 4. UK Treasury (2003), p. 19.

18


towards fulfilling too many objectives.33 small part due to Structural and Cohesion
This approach makes it difficult to evaluate Funds assistance. According to the Com-
and pin down the real effects of the policy. mission’s simulations, “GDP in real terms
As Wim Kok has said of the Lisbon Proc- in 1999 was some 2.2% higher in Greece
ess: “Lisbon is about everything and thus than it otherwise would have been, while in
about nothing.34” Spain the figure was 1.4%, in Ireland 2.8%
and in Portugal, 4.7%.36”
An issue that has already been touched upon
is the paradox that may result from regional As regards Objective 1 assistance, which
interventions. The gains expected from a represents the bulk of the support from the
deepening of the integration are principally Structural Funds, the Commission claims
related to a) structural change and a more that the assistance is likely to lead to anoth-
efficient allocation of resources and b) the er 700,000 jobs created and that the faster
accumulation of additional resources.35 The growth witnessed in the Objective 1 regions
role of the ECP has been to aid regions in bears a positive relationship with structural
the Member States manage the transition aid. In the case of the Objective 1 regions
process when such structural change have in Germany and Italy, however, the report
occurred. However, regional measures may concludes that “growth seems to have been
also have unintended consequences, such depressed by low growth in the rest of the
as the distortion of local markets. In other country.37”
words, the ECP may upset economic incen-
tives, alter desired outcomes and produce There are, however, obvious drawbacks
suboptimal results. with these reports. The micro perspective
employed in the studies conducted by im-
Notwithstanding the allegations of policy plementing authorities and organisations
alterations, excessive bureaucracy and prevents the authors from discovering ef-
goal congestion, empirical evidence on the fects of the policy that cannot be ascer-
outcome of the ECP is mixed. On the one tained by examining specific sectors, areas
hand, indication of its results is witnessed or projects. For example, if the employment
by those most affected by it. Reports by level increases in an area as a consequence
implementing authorities and organisa- of funding, a serious examination of the ef-
tions that are involved in the programming fects will have to take into account crowd-
impress upon us the great success of the ing out from higher wages.
Structural Funds. These reports are com-
plemented by evaluations carried out by The problem with the Commission’s re-
the Commission, above all the cohesion reports is rather one of credibility: one would
ports. The Third Report on Economic and like to express caution to those taking the
Social Cohesion concludes that GDP per estimates reported above at face value. For
capita growth was higher in the Cohesion example, in the Sapir report, in which a
Four (Greece, Ireland, Portugal and Spain) high-level study group under Professor An-
than the EU average, and that this was in no dré Sapir tries to lay down the lines for fu-
ture growth promoting policies in the Un-
33
Tarschys (2003b).
34 36
Kok et al. (2004). COM (2004b), p. 148.
35 37
See Midelfart-Knarvik and Overman (2002). COM (2004b), p. 148.

19


ion, the authors claim that,38 ent students of European regional policy,
examining particularly the effects on indus-
[i]n practice, […] there is simply not enough try location from integration. These surpris-
relevant regional GDP data for statistical pro- ingly few papers tend to moderate the con-
cedures to distinguish the effects of cohesion
policies in the absence of data on other re- clusions on whether the ECP has been suc-
gional characteristics, such as initial income, cessful in its objectives. Midelfart-Knarvik
human capital, local industrial structures, and Overman examine whether assistance
quality of local administration, the peripheral from the Structural Funds has facilitated
nature of the region, and of random influenc- structural change and whether the EU has
es. The net result is that it is not possible to
establish conclusively what the relative per- been successful in improving the function-
formance of these regions would have been ing of state aid in its Member States.42 Their
in the absence of EU cohesion policy and results indicate that the assistance has in
other policies.39 fact acted counter to the first point, even
though the Commission has been success-
The same report also examined the empiri- ful on the latter. They find that the ECP has
cal outcome of the ECP. The poor data qual- not been able to prevent regional polariza-
ity notwithstanding, the authors concluded tion, i.e. the ECP has been unsuccessful in
that the ECP had played some role in boost- delivering economic and social cohesion.
ing growth in the regions that had received Furthermore, the most direct result of EU
funding, but that, expenditure has been the distortion of the
location of R&D industries by attracting
during the catching-up process, increasing re- them into areas without the proper endow-
gional disparities within the poorer countries ment of high-skilled workers.43
may also emerge. However, this phenom-
enon may be mitigated by national growth
and could be eased by national rather than The authors also argue that there is still a
EU policies (such as social transfer schemes, motive for a European regional policy. If
labour market and wage policy, etc).40 the aim is to improve the situation of peo-
ple in the poorest regions in the EU, the
The recommendation from this report was ECP should employ a strategy with three
to focus on low-income countries (rather objectives. First, it should try to focus sup-
than low income regions), and it goes on port so that the poorer countries are helped
to suggest that the future regional policy in changing endowments and specialise
in this respect should have two objectives. according to their comparative advantage.
First, it should promote institution-build- Second, the policy should seek to ease this
ing, thus improving the administrative ca- comparative advantage dispersion by re-
pacity in Member States and, second, sus-
42
tain “high investment rates in human and Midelfart-Knarvik and Overman (2002). Articles
92 – 93 (Aids granted by States) of the EEC Treaty
physical capital.41” empower the Commission to supervise state aid in
the EU Member States. The purpose is to realise
There has also been research by independ- the full potential of the common market and pre-
vent Member States from giving aid that counteract
38
For a critique of the Commission’s assertions in these forces.
43
the cohesion reports; see also Tarschys (2003). Midelfart-Knarvik and Overman (2002). Ireland
39
Sapir et al. (2003), p. 60. is a good case in point, where the ECP seems to
40
Sapir et al. (2003), p. 146. have had an additional effect due to Ireland’s large
41
Sapir et al. (2003), p. 146 – 147. investments in education.

20


moving factor price distortions. Third, la- any one company as new plants were estab-
bour mobility should be encouraged so that lished.45
the end result is an efficient location of both
firms and production factors. Regional initiatives in Italy, by contrast,
have been “half-hearted”, given too little
A report from Centre for Economic Policy time, suffered from a lack of consistency
Research (CEPR),44 carried out in 2000, ex- and have not had the same concentration
amines the cases of Ireland and Italy (the on specific sectors as in Ireland.46
Mezzogiorno region). The historic outcome
of regional policy in the two countries has The approach the CEPR report recom-
differed significantly: where regional poli- mends to meet the effects of deeper inte-
cy has succeeded in Ireland, it has been a gration should, among other things, invest
failure in Italy. What makes the compari- in schooling and lifelong learning; create
son interesting is the relative uniformity of an entrepreneurship friendly tax and regu-
current regional interventions in the two latory system; endorse labour market poli-
countries. As noted in the CEPR report, one cies that allow wages to adjust according to
aspect of Structural Policy is the copying of productivity trends; welcome international
behaviour at the national level. The Italian investments; and remove barriers to capital
approach has changed over time to increas- and labour movements.47
ingly resemble Irish policies.
In sum, the ECP seems to have promoted
According to the authors of this report, the cohesion in the least developed regions,
success of Ireland owes to the promotion but at a high cost given the meagre results.
of two sectors: electronics and pharma- There is also disagreement as to the size
ceuticals. The CEPR report argues that the of the effects, as it is difficult to trace the
concept that made the Irish government’s specific effects of funding due among other
investments less of a gamble was the fact things to poor data quality. Moreover, the
that it chose to concentrate on these sec- ECP may have had negative effects in that
tors after industries had already been estab- it has not been an effective means of pro-
lished. Thus, moting an optimal localisation of R&D in-
dustries.
[e]lectronics may not have been an obvi-
ously good bet for Ireland before the Intel
and Microsoft investments arrived, but once
they had done so, Ireland was well advised
45
to promote them for all it was worth. Success Braunerhjelm et al. (2000), p. 89. The massive
was facilitated by their willingness, along FDI inflow from the US is to a large extent ex-
with other global companies, to assist ac- plained by the close ties between the two countries.
46
tively in the promotion of further investment Braunerhjelm et al. (2000).
47
in the Irish electronics sector. This they did Braunerhjelm et al. (2000). Indeed, examples
in the interests of developing the electron- of lingering protectionism are not difficult to find.
ics agglomeration, while ensuring that there One example is the Services Directive, which in
was not excessive poaching of labour from certain Member States has come under heavy fire.
Another much debated element of protectionist be-
haviour among EU15 Member States concerns the
restrictions on labour migration from the CEECMS
imposed in all but three of the EU15 Member
44
Braunerhjelm et al. (2000). States.

21


2.3 The present and future these countries, except France,48 is that the
European Cohesion Policy proposed budget ceiling goes hand in hand
with a reform of the ECP. A middle position
in the debate is taken by Finland, Ireland
2.3.1 The debate on the 2007 and Italy, which seek a less restrictive ap-
– 2013 Financial Framework proach. Italy in particular is becoming one
of the largest contributors to the EU budget
Even though this study focuses on the cur- and, given its current economic situation,
rent and future ECP, the debate and negoti- is cautious on budget issues. The Italian
ations on the 2007 – 2013 Financial Frame- government maintains the view that both
work will have implications for Cohesion lagging and non-lagging regions should be
Policy. The Common Agricultural Policy eligible for assistance from the Structural
(CAP)—which takes up nearly half of the Funds.49
Union’s budget—is more or less non-nego-
tiable so far as the Financial Framework is In its proposal for the next Financial Frame-
concerned. Any major budget change, ac- work, the Commission has reduced the
cordingly, is likely to affect the ECP. number of budget headings to ﬁve. The ﬁrst

Table 2.1 Financial Framework overview (€ million in 2004 prices)
2006 2007 2008 2009 2010 2011 2012 2013
1. Sustainable growth 47 582 59 675 62 795 65 800 68 235 70 660 73 715 76 785
Share of total appropriations for commitments 0.394 0.447 0.453 0.460 0.465 0.470 0.478 0.485
1a. Competitiveness for growth and employment 8 791 12 105 14 390 16 680 18 965 21 250 23 540 25 825
1b. Cohesion for growth and employment 38 791 47 570 48 405 49 120 49 270 49 410 50 175 50 960
2. Sustainable management and protection of
natural resources (incl. CAP) 56 015 57 180 57 900 58 115 57 980 57 850 57 805 57 805
3. Citizenship, freedom, security and justice 1 381 1 630 2 015 2 330 2 645 2 970 3 295 3 620
4. The EU as a global partner 11 232 11 400 12 175 12 945 13 720 14 495 15 115 15 740
5. Administration 3 436 3 675 3 815 3 950 4 090 4 225 4 365 4 500
Total appropriations for commitments 120 688 133 560 138 700 143 140 146 670 150 200 154 315 158 450
Source: COM (2004a)

The Commission—supported foremost by heading in Table 2.1, Sustainable growth,
Belgium, Greece, Hungary, Lithuania, Por- encompasses Cohesion Policy (Cohesion
tugal and Spain—has taken an expansionis- for growth and employment) and EU fund-
tic view as regards the Financial Framework,
48
proposing an increase in the total budget by The French government has expressed its caution
against a radical reform of the Cohesion Policy and
31 percent in 2013 compared to 2006 (see
therefore places itself in the “intermediate posi-
table 2.1). The opposite view is taken by tion” with Finland, Ireland and Italy. A common
Austria, France, Germany, the Netherlands, view among the “group of six” is that a budget
Sweden and the UK. This “group of six”, all exceeding one percent of GNI will increasingly
of them among the richer Member States, deprive the new Member States of assistance, due
to the four percent absorption cap. This argument
has jointly proposed a budget ceiling of one
notwithstanding, the reasons for wanting a reform
percent of Gross National Income (GNI). vary; see Bachtler and Wishlade (2004).
The lowest common denominator among 49
See Bachtler and Wishlade (2004).

22


Table 2.2 Absorption limits, Berlin formula allocations and current
allocations (€ million in 2004 prices)
4% absorption Share of Regional convergence* Share of Annual allocation Share of
limits total (%) Berlin formula total (%) 2000/04 – 06 total (%)
EU25 463 566.6 100.00 380 481.3 100.00 42 126.3 100.00
EU15 440 572.5 95.04 82 996.4 21.81 33 411.1 79.31
NMS10 22 994.0 4.96 297 485.0 78.19 8 715.2 20.69
Cyprus 612.3 0.13 0.0 0.00 40.5 0.10
Czech Republic 4 159.9 0.90 32 688.6 8.59 934.6 2.22
Estonia 428.4 0.09 3 938.6 1.04 248.1 0.59
Hungary 3 993.0 0.86 34 250.4 9.00 1 142.9 2.71
Latvia 480.8 0.10 12 474.2 3.28 415.9 0.99
Lithuania 899.9 0.19 17 242.9 4.53 548.4 1.30
Malta 210.5 0.05 0.0 0.00 31.7 0.08
Poland 9 330.8 2.01 170 727.5 44.87 4 564.1 10.83
Slovenia 1 255.3 0.27 3 096.3 0.81 162.6 0.39
Slovak Republic 1 623.3 0.35 23 066.5 6.06 626.3 1.49

Austria 10 516.7 2.27 0.0 0.00 291.5 0.69
Belgium 12 669.9 2.73 0.0 0.00 321.4 0.76
Denmark 8 862.4 1.91 0.0 0.00 129.6 0.31
Germany 98 195.2 21.18 10 806.4 2.84 4 699.4 11.16
Greece 7 680.7 1.66 12 623.1 3.32 3 923.9 9.31
Finland 6 731.0 1.45 0.0 0.00 334.4 0.79
France 72 977.9 15.74 2 963.8 0.78 2 471.2 5.87
Ireland 6 617.2 1.43 0.0 0.00 599.8 1.42
Italy 61 402.1 13.25 21 364.1 5.62 4674 11.10
Luxembourg 1 120.8 0.24 0.0 0.00 14.5 0.03
Netherlands 20 683.3 4.46 0.0 0.00 508.3 1.21
Portugal 6 170.8 1.33 16 828.2 4.42 3 599.4 8.54
Spain 36 928.8 7.97 17 605.8 4.63 8 878.8 21.08
Sweden 12 652.4 2.73 0.0 0.00 350.6 0.83
UK 77 363.1 16.69 804.9 0.21 2 614.3 6.21
*
Regional Convergence and Employment objective (former Objective 1)
Source: Bachtler & Wishlade (2004) and own calculations

ing for implementing the Lisbon Strategy more than a third to CAP, and the residual,
(Competitiveness for growth and employ- about 15 percent, for the remaining posts.
ment). The total financial resources under
1b are €336.3 billion in 2004 prices, or 0.41 The respective Member States’ allocations
percent of EU27 GNI.50 resulting from the Commission’s proposal
are not easy to derive. An attempt has nev-
Cohesion Policy in the Commission’s pro- ertheless been undertaken by the European
posal (1b) will increase by ca 23 percent Policy Research Centre (EPRC).51 Part of
in 2007 and ca 31 percent in 2013, com- the difficulty in deriving the estimates lies
pared to 2006. By contrast, CAP, which is in the fact that the Commission has not
included under the second heading, will in- been explicit as to the method used in its
crease by only ca 2 percent by 2007 and ca calculations, while part of it lies in the fact
3 percent by 2013, compared to 2006. In that an application of the Berlin formula52
other words, this post will basically remain produces results that are incompatible with
fixed throughout the period 2007 – 2013.
Thus, the division of resources in the Com- 51
Bachtler and Wishlade (2004).
mission’s proposal is roughly almost a half 52
The Berlin formula determines the annual
to Cohesion (and competitiveness) Policy, amount of aid in eligible regions and is calculated
as (regional GDP per capita - Community average)
× regional disparity coefficient × national prosper-
50
An additional €8.6 billion is planned to cover ity coefficient + € 100 per person unemployed in
for the new Solidarity Fund and the Commission’s excess of the Convergence region average; see
administrative expenditure. Bachtler and Wishlade (2004), p. 26.

23


Table 2.3 Budget-adjusted estimates for 2007 – 2013 (2004 prices)
Convergence objective Share of Annual Convergence Cohesion Fund estimates Share of Cohesion Fund annual
allocations 2007 - 2013 (€Mn) total (%) objective per capita (€) 2007 - 2013 (€Mn) total (%) per capita allocations (€)
EU25 165 721.0 100.00 195.5 54 873.0 100.00 67.0
EU15 82 021.0 49.49 217.1 6 055.0 11.03 40.7
NMS10 83 700.0 50.51 173.2 48 818.0 88.97 93.3

Cyprus 0.0 0.00 0.0 308.7 0.56 62.9
Czech Republic 9 197.2 5.55 145.0 5 376.3 9.80 75.1
Estonia 1 108.2 0.67 116.1 1 775.0 3.23 185.9
Hungary 9 636.7 5.82 187.1 6 392.5 11.65 89.6
Latvia 3 509.7 2.12 212.9 2 964.7 5.40 179.8
Lithuania 4 851.4 2.93 199.1 3 498.5 6.38 143.6
Malta 0.0 0.00 0.0 128.6 0.23 46.8
Poland 48 035.7 28.99 177.6 24 007.1 43.75 88.8
Slovenia 871.2 0.53 62.5 1 086.8 1.98 77.9
Slovak Republic 9 790.0 5.91 193.9 3 279.8 5.98 87.1

Austria 0.0 0.00 2.3 0.0 0.00 0.0
Belgium 0.0 0.00 2.7 0.0 0.00 0.0
Denmark 0.0 0.00 1.9 0.0 0.00 0.0
Germany 10 679.4 6.44 21.2 0.0 0.00 0.0
Greece 12 474.8 7.53 1.7 3 027.5 5.52 39.5
Finland 0.0 0.00 1.5 0.0 0.00 0.0
France 2 928.9 1.77 15.7 0.0 0.00 0.0
Ireland 0.0 0.00 1.4 0.0 0.00 0.0
Italy 21 113.1 12.74 13.2 0.0 0.00 0.0
Luxembourg 0.0 0.00 0.2 0.0 0.00 0.0
Netherlands 0.0 0.00 4.5 0.0 0.00 0.0
Portugal 16 630.4 10.04 1.3 3 027.5 5.52 42.0
Spain 17 398.9 10.50 8.0 0.0 0.00 0.0
Sweden 0.0 0.00 2.7 0.0 0.00 0.0
UK 795.5 0.48 16.7 0.0 0.00 0.0
Source: Bachtler & Wishlade (2004) and own calculations

both the four percent absorption cap and State,54 the fourth column the annual allo-
the overall Financial Framework as set out cations according to the Convergence ob-
in the Commission’s proposal of July 2004. jective and the penultimate column shows
Hence the Berlin formula can only be ap- the annual 2004 – 2006 allocations.
plied to the EU15 Member States.
Clearly, the absorption cap, rather than the
The calculations carried out by the EPRC Berlin formula, will determine the Conver-
have been reproduced in Table 2.2 and Ta- gence objective allocations in the CEEC-
ble 2.3. It is important to note that these cal- MS.55
culations should be interpreted as estimates
and not as the actual allocations. Apart from The respective Member States’ allocations
the problem of deriving the estimates, the 54
Total 2007 – 2013 allocations were divided by
data used in the Commission’s calculations seven in the cases of absorption limits and the Con-
were probably more recent and the EPRC vergence priority. The calculations were carried out
calculations do not include Bulgaria or Ro- under the assumption that the CEECMS will grow
mania.53 The second column in table table at an annual rate of 4.1 percent, while the EU15
2.2, “4% absorption limits”, shows each Member States will grow at 2.2 percent annually.
55
COM (2004f). Note that the absorption cap also
Member State’s annual GDP in purchas- applies for both the Cohesion Fund and the rural
ing power standards (PPS-GDP) multiplied development and ﬁsheries instruments. The cap-
by 0.04, i.e. the maximum amount of as- ping of assistance from the Structural Funds is
sistance that can be given to each Member mainly motivated by a) the respective Member
States’ ability to make effective use of assistance
and b) the ability to absorb the assistance given the
53
Bachtler and Wishlade (2004). principle of additionality.

24


in the EPRC calculations have been de- Convergence and Employment objective
rived by applying the Berlin formula on the (78.54 percent of Cohesion for Growth
EU15 Member States, followed by a mul- and Employment, post 1b in table 1.1, or €
tiplication of the respective allocations to 264.1 billion, replacing Objective 1; hence-
the new Member States by a factor of 0.28. forth Convergence objective); a Regional
The results are displayed in table 1.3, along Competitiveness and Employment objective
with calculations for the national conver- (17.22 percent of post 1b, or € 57.9 billion,
gence objective (Cohesion Fund). replacing Objectives 2 and 3; henceforth
Competitiveness objective); and a Europe-
Two aspects in particular from the EPRC an Territorial Cooperation objective (3.94
exercise are worth commenting on. First, percent of post 1b, or € 13.2 billion; hence-
the average per capita allocations are much forth Territorial objective), respectively.58
lower in the CEECMS compared to EU15. The three objectives will be supported by
Were the size of the regional gaps to be the ﬁnancial resources of the European
considered, regional assistance to the new Regional Development Fund (ERDF), the
Member States would be a great deal larger European Social Fund (ESF) and the Cohe-
than in the Commission’s proposal. On the sion Fund.
other hand, the absorption capacity must
also be considered, although it is likely to Regions eligible for assistance under the
increase over time. Second, a number of Convergence objective would as previ-
countries will lose much of the support they ously be those with a GDP per capita level
were given under the 2000 – 2006 Finan- below 75 percent of the Community aver-
cial Framework.56 age. However, the Commission has pro-
posed that temporary resources (85 percent
in 2007 and then phased out by steps of 5
2.3.2 The debate on the future ECP percent) are made available from the Struc-
tural Funds for regions in the EU15 that
In its proposal for the future Cohesion would have received support had the base
Policy, the Commission has replaced the for calculation been the EU15 rather than
former three objectives57 with a Regional the EU25. The aim of the Convergence
objective is to “promote growth-enhanc-
56
ing conditions and factors leading to real
Member States with phase-out (“statistical ef-
fect”) regions in the Commission’s proposal are convergence. Strategies should plan for the
Belgium, Germany, Greece, Spain, Italy, Malta, development of long-term competitiveness
Portugal and the UK. The only CEECMS to re- and employment.59”
ceive Competitiveness and Employment allocations
are Czech Republic and Slovak Republic.
57
The programmes under this objective would
The bulk of the present ECP assistance is chan-
nelled through the Objectives 1, 2 and 3. Objective be supported by the resources of all three
1 supports development in the less prosperous re- funds, where support from the Cohesion
gions; Objective 2 supports the revitalising of areas Fund, as before, would be given to Mem-
faced with structural difﬁculties that lead to high ber States with a Gross National Product
unemployment; and Objective 3 supports the im-
(GNP) below 90 percent of the Commu-
provement of education, training and employment
policies and systems in regions not eligible under
Objective 1 assistance; see, for example, http://eu- 58
COM (2004b).
ropa.eu.int/comm/regional_policy/index_en.htm. 59
COM (2004c).

25

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