title: FIRST REPORT FROM THE COMMISSION on economic and social cohesion

eurovoc_concepts:
Cohesion Fund
activity report
economic and social cohesion
economic policy
regional disparity

text: ni'vl['torn>iit*f,*% COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 06. 11. 1996 COM(96) 542 final First Cohesion Report (presented by the Commission) Table of Contents Executive summary Chapter 1 What do we mean by cohesion? Chapter 2 The convergence process and cohesion: recent trends 2. 1 2. 2 2. 3 Income and employment Social Cohesion Other dimensions of cohesion: quality of life and European citizenship Chapter 3 Member State policies and cohesion: an overview 3. 1 3. 2 3. 3 3. 4 3. 5 Introduction: weakening internal cohesion Macroeconomic policies Structural reforms and expenditure-based policies Redistribution Concluding remarks Chapter 4 The policies of the European Union 4. 1 4. 2 4. 3 4. 4 4. 5 Agriculture and fisheries policies The Single Market and competitiveness policies The network policies Quality of life policies Concluding remarks Chapter 5 Community structural policies and cohesion: a shared responsibility 5. 1 5. 2 5. 3 5. 4 Introduction The nature and purpose of community assistance A decade of achievement The delivery system: a force for change Chapter 6 Ways forward 6. 1 6. 2 6. 3 The ongoing need for European Union cohesion policies Raising effectiveness Policy Challenges l~ 3 - Table of Contents Chapter 7 Conclusions Statistical annex Sources and methods Executive Summary As provided for under Article 130B of the Treaty, the Commission presents its first cohesion report 'on the progress made towards achieving economic and so cial cohesion and on the manner in which the various means provided for in this article have contributed to it'. The report aims to answer four major questions: and Ireland — with income per head increasing from 66% to 74% of the Community average. Ireland has had the most remarkable performance with an aver age growth rate of 4. 5% a year between 1983 and 1995, followed by Spain with 3% and Portugal with 2. 6%. On the other hand, Sweden and Finland lost ground compared to the rest. • have economic and social disparities between Member States, regions and social groups nar rowed over time, leading to an improvement in 'the overall harmonious development' of the Union? • what has been the role and the achievements of Member States' policies in this respect? • how have the Union's non-structural policies re sponded to the Treaty obligation to take account of cohesion objectives? • what has been the effect of the Union's structural policies? In so doing, the Report attempts to draw out the implications for policy at both the Member State and Union levels. Social and economic fortunes The experience across the Union with regard ^ e m ployment was more mixed. In the country with the highest economic growth, Ireland, employment grew by a mere 0. 2% over the period 1983-93, although growth has accelerated more recently. Similar growth rates were recorded in many other Member States while the deep recession in Finland and Sweden led to an absolute decline in employment. Countries such as the Netherlands, Germany, Greece and Spain, succeeded in creating jobs at a higher rate than the average. In Portugal, Belgium, West Germany, the Netherlands and the UK employment creation, while variable, has nevertheless been sufficient to reduce the unemploy ment. In most other countries there have been increases in unemployment rates. These are most dramatic in Finland and Sweden as well as in two of the cohesion countries, Spain and Greece. In Spain, more than one in five of the work force is now unem ployed. Over the past decade, economic growth in the Union has averaged just over 2% a year, while employment has grown at 0. 5% a year. Some 7 million jobs have been created in net terms since 1983. Disparities in income per head between Member States have narrowed significantly over the same period. This is largely due to a catching up on the part of the cohesion countries — Spain, Portugal, Greece Income disparities between the regions of the Union have remained largely unchanged over time: in the 25 best-off regions income per head rose marginally from 140% of the Union average to 142% while there it increased in the 25 poorest regions from 53 to 55%. Nevertheless, the poorest — 'Objective 1' — regions as a group improved their average level of income per head by 2/2 per centage points from 64. 6% to 67. 2%. Executive Summary Over the past decade, regional income disparities widened in all Member States, in which they are measured, with the exception of the Netherlands. Similarly, regional differences in unemployment rates also increased within many Member States, with the UK as a notable exception. In France, Germany (West) and other countries this has gone hand-in- hand with a more unequal distribution of personal income and a fall in the share of wages in total income. Across the Union as a whole, the incidence of unem ployment has become much more uneven. While over the ten years, 1983 to 1993, the 25 regions with the lowest rates of unemployment were able to reduce their average rate even further from 4. 8% to 4. 6%, there has been a dramatic increase from 17. 2% to 22. 4% in the 25 regions with the highest rates. Moreover, unemployment tends to have the most serious effects on weaker social groups. Some 5 million young people, or 21 % of the total, are without a job. The propor tion of women in paid employment has increased largely due to the expansion of service employment and part- time working. On the other hand, the rate of unemploy ment of women remains, at 121/2%. considerably higher than that for men at 9%1/2- People without qualifications are particularly vulner able to long-term unemployment. Nearly half (49%) of the unemployed have been without a job for more than a year. In view of this, it is unsurprising that many people live below the poverty line. In several Member States their number has been rising, especially in the UK, Italy and France. Socio-economic trends are clearly not the only deter minants of the quality of life of the Union's people. The preservation of peace and respect for fundamental rights are real even if they are generally taken for granted. Nevertheless, they are an essential basis for the success of efforts aimed at the promotion of harmonious development. Years of work on indicators to measure quality of life in the broader sense, and the more recent reflections in the Union on the 'greening' of national accounts, have identified the limitations of conventional income measures such as GDP, even if as yet there is no operationally viable alternative. Overcoming these limitations would allow due account to be taken of environmental effects, and more broadly of the sus- tainability of economic development. Role and achievements of Member States' policies Member States' policies are the Union's primary instruments for achieving cohesion. In that sense, 'solidarity in the Union begins at home'. Moreover, Member States have the means at their disposal. Public spending accounts for between 40% and 60% of national GDP compared to the Community Budget of about 1. 2% of Union GDP. The measures undertaken by the Member States to strengthen cohesion have generally gone in the right direction. Macro-economic policies have brought about significant progress in nominal con vergence. Inflation rates have decreased to levels which are among the lowest in 30 years. In Portu gal, Spain, Italy and Greece, inflation has come down but remains above the Community average. Interest rates have also declined and the dif ferences between Member States have narrowed, thus improving the general climate for investment and growth. Public deficits and debt, however, remain a major causer for concern. Over the last decade the financial burden of debt repayment has increased on average by 1. 2 percentage points of GDP, and in Greece, Finland and Italy the rises has been even more dramatic. Through Member States' public expenditure and taxation, interregional transfers of resources take place. According to a specially commissioned study of seven countries (containing over 80% of the Union population) net transfers amount to 4% of the GDP of donor regions and 8% of that of recipient regions. These transfers have a signifi cant cohesion effect within Member States, reduc ing regional income disparities by 20-40%. A major explanation for this redistributive effect is the fact that Member States spend about 50-70% of total public expenditure on education, health, social security and welfare, housing and cultural activities. Expenditure on employment policies, regional policies, and RTD accounts for between 6 and 14% of the total. RTD spending is highest in relation to GDP in the more prosperous countries and is concentrated in the richest regions in all countries for which regional data exist. Executive Summary So far as employment policies are concerned, Member States have made a concerted effort to bring about improvements, concentrating on the five priority areas agreed at the Essen Summit in 1994: improving labour skills, promoting more em ployment intensive growth, reducing non-wage labour costs, improving the effectiveness of labour market policies and assisting those hardest hit by unemployment. The regional policies operated by Member States themselves cover some 46. 7% of the Union's total population. Around half cover the least developed regions (in the sense of Art. 92. 3. a of the Treaty). For these, the maximum aid levels vary between 30% and 75% of eligible investment expenditure. For national regional aids authorised under Art. 92. 3. c of the Treaty the maximum aid limits vary between 10-30%, only Finland and Sweden being permitted to go up to 35% for a small per centage of their population. These results in terms of population coverage and aid intensity are the outcome of actions by the Commission under competition rules to con trol population coverage and aid intensities ap plying to national aid schemes for regional purposes. The variation of aid intensities has helped the least favoured regions to compete for new investment, although, richer Member States can afford to use more public money to support new investment than poorer ones. Consequently, between 1989- 93, national regional state aid per capita was on average much higher in Eastern Germany and the Mezzogiorno in Italy than in the cohesion coun tries, with the result that two thirds of the total amount of regional national state aid in the Union is spent in Germany and Italy. The contribution of Community policies Due to their specific nature and objectives there are wide differences in the contribution which Community policies make to the attainment of cohesion objectives. Important examples are con sidered below. Social policies, education and vocational training Social policies favour by their nature the process of integration and cohesion. Their impact has been particularly important in labour law, health and security at work, free movement of people and equal opportunities for men and women. Beyond this and through, for example, the social dialogue, the Union has acted as a catalyst for the promotion of basic social rights and values. Support for edu cation and vocational training plays, with modest but well targeted spending, a similar role as cata lyst for stimulating the free movement of people, for raising competitiveness and for enhancing the opportunities of individuals. Environmental policies By promoting the notion of sustainable development, environmental policy is also directly relevant for cohe sion. The starting position of the cohesion countries is a favourable one and pollution is less in relation to both population and GDP than in the richer Member States. On the other hand, expenditure on environ mental protection is lower than anywhere else in the Union. The cohesion countries are faced with the huge task of implementing many environmental pol icy measures, covering for example, fuel quality standards, lower vehicle emissions, nitrates and water quality. Investment needs up to the year 2005 have been estimated to amount to 17 billion ECU for the four countries together. Expert studies come to the conclusion that environmental objectives can be met, with possible gains in GDP and employment, by introducing an appropriate package of fiscal measures, charges and public expenditure. RTD The RTD policy of the EU is aimed at promoting European competitiveness through scientific excel lence. RTD programmes have sought to exploit Euro pean potential in technology and innovation. This has meant a greater concentration of research activities in the major specialist centres most of which are in the North where a limited number of RTD-islands stand out. To counteract this, efforts have been made to integrate less-developed and more peripheral re gions. Research programmes have developed re search capabilities in weaker Member States and as a consequence, their institutes are becoming more Executive Summary involved, strengthening the scientific and technologi cal base of these countries and accelerating innova tion and economic development in the regions over the longer term. Internal Market and trade policy The most far-reaching of the Union's framework policies to raise competitiveness has been the Single Market Programme (SMP) which has swept away many of the obstacles to trade and created a ge nuinely integrated European economy. Fears that this would overwhelm the poorer countries have not been borne out in practice. Spain and Portugal appear to have been the- most successful in taking advantage of increases opportunities for exporting to their part ners. Ireland also appears to have benefited but the impact has been marginal for Greece and Southern Italy. There is a wide consensus on the positive effects of trade on growth and also, therefore, on employment. But the reduction of external protection needs to be accompanied by internal economic adjustment. High tariff industries account for almost half of industrial employment in Portugal and Greece, and the four cohesion countries are generally more vulnerable to trade liberalisation. All have trade deficits in services which is one of the sectors expected to benefit from the recent Uruguay Round liberalisation. Competition policy In applying rules on state aids for regional purposes, the Commission's objectives have been two-fold: en suring that aid is concentrated on the most disadvant aged regions and maintaining a differential in aid intensity between regions, to enable the poorest ones to compensate for their structural weaknesses. Network policies The net cohesion effect of EU transport, telecommuni cation and energy policy is difficult to assess. In all three areas, liberalisation is likely to reduce overall costs, leading to greater competitiveness and in creased growth and employment. The effects on the periphery depend largely on the extent of the reduc tion in transport or transmission costs brought about. In transport policy, cohesion countries stand to gain in absolute terms from trans-European networks but not necessarily in relative terms. With regard to tele communications policy, advanced services essential to the Information Society are not common in poorer regions because of their inferior infrastructure. There is, therefore, a risk of creating an Info-rich/lnfo-poor divide — with negative effects on the innovative ca pacity of the whole economy. Since the cohesion countries have relatively little domestic energysupply, however, they stand to benefit from energy liberalisa tion and better access to energy sources. The CAP and fisheries policy The Common Agricultural Policy (CAP)accountsfor about 50% of the Community budget and involves a significant redistribution of income between both re gions and individuals as a result of supporting farmers indirectly through market prices and directly through subsidies. According to estimates, the 1992 reform had a positive cohesion effect, with more cohesion countries receiving net transfers after than before. A detailed description of the situation and of possible explanations are provided in the report. Within many Member States, it is possible to discern a positive effect of the CAP on regional income dis tribution and this has increased after the 1992 reform; nevertheless, the pattern of net transfers is highly differentiated. Before the reform, some estimates in dicated that 80% of transfers went to the 20% most profitable farms; after the reform, gaps have been reduced, but not by as much as if the Commission's proposal to put ceilings on direct aids had been fully accepted. Although fishing is a relatively small sector of activity and employs comparatively few people, it can be very important in some of the less developed regions where alternative job opportunities are scarce. Fish eries policy, by supporting the restructuring of the industry in the face of limited fish stocks, will help to increase competitiveness and maintain jobs in the regions concerned over the medium-term. Effects of EU structural policies The main features of present EU structural policies are summarised in the Box. The 1988 reform of the Structural Funds has significantly increased their re- distributive effect in favour of the less prosperous Member States and regions. The main reason for this Executive Summary EU structural policies: main features ~ The Union has six major financial instruments with which to implement its structural policies: > the Regional Development Fund, the Social Fund, the EAGGF-Guidance, the financial,: ' instrument for fisheries guidance, the Cohesion, Fund and Joans fronrf the. European. , Investment Bank (EIB). the Cohesion Fund and the EIB are based on a project financing. approach and are governed by their own specific rules. The Structural Funds operate within \ à common framework based on the basic principles of concentration, programming, partnership and add'itionàlity. , - - ^1 ? ^^ ?>> • — 41 ;:^ *. *;fjru "^ ? " l^x J The resources for EÙ structural policies have Increased substantially from 3. 7 billion ECU ; in 1985 to 18. 3 billidn ECU in 1992 and to 33 billion ECUin 1999. For the period of 1994-99, around ,170 billion ECU is available from the Community's Budget for structural policies. This represents about a third of total Osmmunity spending and 0. 45% of Community GDP. = Over the decade 1989-99, spending amounts cumulatively to 6. 5% of annual Community GDP. A comparison makes its importance clear: MarshalfaJd to post-war Europe was equivalent to 1% of US GDP per year and amounted cumulatively (1948-51) to 4% of US The interventions of the Structural Funds are concentrated on four regional policy Objec tives which account for 85% of the funding:. / *X », v • ' Objective 1, for regions where development is lagging behind (about 70%); • Objective 2, for the adjustment of regions worst affected by industrial decline (11 %); • Objective 5b, for structural adjustment in rural areas (4%); - • Objective 6, for adjustment of sparsely populated areas (0. 5%). " Three objectives apply Community-wide, having no geographical limitations. They receive 15% of the funding: ^ '. S ^ • , Objective 3 focuses on long-term and youth unemployment; • Objective 4 assists the adaptation of workers to industrial change; • - Objective 5a promotes adjustment in the agricultural and fisheries sectors. 90% of the total volume of financé is decided upon at the initiative of Member States. For the period of 1994-99 more than 300 programmes were Égreed in partnership between the Member States and the Commission, about half of them for Objective 1. Some 9% of the finance is reserved for Community Initiatives. Under 13 different themes, there exist about 400 Community Initiative programmes. Some 1% of the finance is reserved for ' technical assistance and innovative measures. Most of this is decided by the Commission after calls for tender, ' -. ». *: ; / ; ,. :* •. Three broad areas of intervention are covered by the Union's structural policies; infrastruc ture, human resources and productive investment. Some 30% of the Structural Funds is spend on infrastructure investment in, for example, transport, telecommunications, energy, water supply and environmental protection. A further 30% is devoted to strengthening education and training systems and supporting labour market policies. The remaining 40% of total funding goes mainly on productive investment is much of it aimed at building a dynamic business environment and supporting investment aid schemes for industry, in t * :-\ - - * particular,'for small and medium-sized enterprises. ? v'v^Vr. y;:. ; - ^,' :-P\ " ; / Executive Summary But it is not only the poorest Member States which have benefited. Estimates show that around 30-40% of all funding that flows into the poorest Member States returns to the richer ones in the form of pur chase of know-how or capital equipment. Moreover, encouraging results have also been recorded for other Objectives. The poorer regions and social groups in many of the richer Member States have, with the help of the Union's structural policies, been encour aged to exploit economic opportunities. In Objective 2 regbns, for example, estimates suggest that the pro grammes created or maintained 530,000 jobs in netterms in the period 1989-93. For Objective 5b, the figure is an estimated 500,000 jobs for the period 1989-99. Objective 3 has financed between 2% and 15% of Member States' active labour market policies with a specific focus on reducing exclusion. In addition, through specific Community Initiatives, although with varying degrees of success, the Union has helped to target European problems, to identify new opportunities and to improve interregional and cross-border relations in order to tackle common problems. Part of the added value of EU policies relates to the emphasis on innovation linked to the specific qualities of the delivery system itself. It has helped Member States to target resources on the worst-affected areas and problems. Solutions are organised to regional and social problems through medium-term pro grammes which are focused on investment and inno vation. The specific features of Community interventions have in some cases enhanced policy changes and the development of new structures. An example of this is Objective 4's preventative ap proach to unemployment resulting from industrial change. The devolution of responsibilities is encour aged, in particular through partnerships formed with those who benefit most from the programmes. Addi tional financial resources are levered from public and private sources. A Europe-wide framework of oppor tunity has been created through co-operation across borders. Outlook The Union faces major challenges including globali sation, rapid technological change, EMU and was the creation of Objective 1 which was effectively designed to ensure that resources are concentrated on the regions with the lowest GDP per head. Under Objective 2, there is almost no equalisation effect for the period 1994-99 towards the regions worst af fected by industrial decline. In the revisions to the regulations in 1993, less weight was attached to these criteria compared to the previous period. In the first programming period, 1989-1993, an over all income equalisation (in terms of GDP per head) of 3% was achieved with transfers of 0. 3% of EU GDP. For the current programming period, funding equival ent of 0. 45% of EU GDP is estimated to result in an equalisation effect of 5%. The equalisation effect is, therefore, about 10 times the original amount of public. finance. This is similar to the income redistribution effect achieved by the "Finanzausgleich" in Germany in 1990 or, alternatively, twice as high as that for specific purpose grants in the USA. The primary purpose of Community transfers is not to redistribute money. Instead they are intended, through investment, to strengthen the economic base in recipient regions, including human capital formation. Union struc tural policies have contributed to a significant narrowing of the gaps between poorer and richer Member States. Structural Funds assistance in the 1989-93 programming period, are estimated to have increased growth by 0. 5% a year in the four cohesion countries, from 1. 7% to 2. 2%. Given the increase in assistance in the present pro gramming period (1994-99), the increase in growth may be even greater on average than 0. 5% per year. The number of jobs created or maintained during the first programming period is estimated at over 500,000; ie 2. 5% of the total. In Objective 1 regions, structural policies have brought about a general improvement in basic infra structure and helped to modernise their economic base. Concrete examples are numerous: in Greece, the number of towns with a waste water treatment system will more than double by 1999, thus serving 71% of the population. In Portugal, firms assisted by the Union have achieved productivity increases of around 5% per year and employment growth of 2. 5% per year. In total, more than 7,000 industrial projects have been undertaken with Union aid. In Ireland 50% of the students in post-compulsory secondary voca tional education have received Community assist ance. Some 14,000 km of major roads will have been built or upgraded in Spain by 1999. 10 Executive Summary enlargement. The European model of society remains the most appropriate framework for confronting them. Market forces and entrepreneurial initiative are necessary for seizing new opportunities. Solidarity and mutual support are an equally important basis for progress, not only for social reasons but also for optimising overall economic benefits since there is ample evidence of the detrimental effects of in equality on growth. Cohesion must therefore be further strengthened. Nevertheless, the report at this stage avoids making concrete proposals for change. Rather, a number of themes are identified as a basis for further discussion and common reflection. Their proper treatment, re specting fully of the principle of subsidiarity, should lead to better policy-making for enhanced cohesion in the future. For many Member States, the emergence of greater internal regional and social disparities will be a matter of concern. While the need for sound public finances is indisputable, major questions for policy-making arise: • how to secure sufficient investment, including in human resource development; • how to favour job creation; • how to make national structural and social pro grammes more effective in coping with widening disparities. For EU non-structural policies several themes need to be addressed, including: • • • for the CAP, how to put into practice the intention to continue reform in such a way that environmental and social benefits are further developed in the context of a more integrated rural development policy; for state aid policy, how to combine administrative simplification with stricter control on state aid ex penditure; for network policies, how to develop public service contracts/universal service obligations in parallel with progress on liberalisation of markets, and For EU structural policies, it is recognised that there is scope for improvements in effectiveness, for greater performance orientation and for enhancing their policy relevance. The main question to be ad dressed to make structural policies more effective are: • how to target scarce resources better on the most serious problems; • how to optimise the use of grants and loans and public and private funding; • how to simplify procedures; " • how to strengthen subsidiarity by clarifying the respective roles of Member States and the Union, to broaden participation at regional and local level and to involve with the social partners; • how to maintain sufficient flexibility to respond to new opportunities and challenges. Orientating structural, policies towards increasing performance depends on effective monitoring, con trol and evaluation. It requires further examination of the additionality of EU transfers, absorptive capa cities of the Member States, built-in incentives to promote quality and competition for scarce re sources. Enhancing policy relevance is an ongoing process which has already begun with the preparation of new Objective 2 Programmes for 1997-99 and which will be followed by the mid-term review, in particular for Objective 1. This will provide the basis for strategic thinking on future priorities. Finally, the general climate of financial rigour in Mem ber States has implications for the Union's policies. A major theme will be how to combine, in a balanced way, fiscal discipline with solidarity both with the poorest Member States and regions and with the most disadvantaged regions and people in the more pros perous Member States. • more generally, how to seize the opportunities for synergy between policies, including structural policies. 11 Executive Summary 12 Chapter 1 What do we mean by cohesion? The first Cohesion Report is presented in accordance with Article 130b of the Treaty on European Union. The Treaty calls on the Commission to 'submit a report to the European Parliament, the Council, the Econ omic and Social Committee and the Committee of the Regions every three years on the progress made towards achieving economic and social cohesion and on the manner in which the various means pro vided for in this Article [130b] have contributed to it'. The organisation of society in European countries reflects the values of the social market economy. This seeks to combine a system of economic organisation based on market forces, freedom of opportunity and enterprise with a commitment to the values of internal solidarity and mutual support which ensures open access of all members of society to services of general benefit and protection. With growing European integration, it is inevitable that the Union should increasingly share responsibility with the Member States for the maintenance of this European model of society. The Union, no less than the Member States, must also have the means at its disposal — the cohesion policies — to do so. Union's cohesion objective. General aims such as solidarity and mutual support must be distilled into substantive, and measurable, economic and social targets. In its methodological approach to economic and social cohesion the present Report takes as its inspir ation Article 130a of the Treaty on European Union where it is set in terms of 'harmonious development' with a specific geographical dimension: 'reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions, including rural areas'. This reflects an explicit recognition that wide disparities are intoler able in a community, if the term has any meaning at all. Imbalances do not just imply a poorer quality of life for the most disadvantaged regions and the lack of life-chances open to their citizens, but indicate an under-utilisation of human potential and a failure to take advantage of economic opportunities which could benefit the Union as a whole. Until now, the national and Community level policies to promote cohesion have not been subject to a single, comprehensive examination, although the Commission has reported from various perspectives: on the situation in the regions, employment and macroeconomic developments. The first Cohesion Report represents an opportunity to consider syste matically how policies at these different levels have contributed to European cohesion and to examine their interaction. A fundamental prerequisite for this analysis — if only for operational purposes — is to clarify the So far as the geographical dimension is concerned, the reduction of disparities between Member States and regions is held, following the Commission's 1993 White Paper on these themes, to mean convergence of basic incomes through higher GDP growth, of competitiveness and of employment. Improving the competitiveness of the weaker regions is particularly important in the context of the European Single Market. By permitting the free movement of goods and services, labour and capital, the Single Market has removed obstacles to trade creating conditions for faster growth in the Union as a whole and new opportunities for increased prosperity in its Member States. 13 Chapter 1 What do we mean by cohesion? So far as social cohesion is concerned, this is more difficult to define in operational terms. A starting point would be to link social cohesion with the objectives of the European model of society which is founded on the notion of the social market economy as de scribed above. The solidarity dimension is given practical effect through universal systems of social protection, regulation to correct market failure and systems of social dialogue. In addition, policies which promote solidarity and mutual support are them selves a factor in strengthening the productivity of European society and contributing to economic and social well-being. The promotion of social cohesion requires the reduc tion of the disparities which arise from unequal access to employment opportunities and to the re wards in the form of income. Such inequality tends to have serious social consequences through the mar ginalisation of sections of society such as the long- term unemployed, the young unemployed and the poor. The incidence of poverty is also a result of policy choices affecting inter-personal income transfers. These are all measurable aspects of social cohesion which are considered in the analysis of this report. More generally, it is important to underline that increasing cohesion in the Union is about change. Improvements in living standards and the reduction in economic and social disparities depend, to an important extent, on increases in productivity. How ever, increasing competitiveness almost inevitably implies change; the acceptance of new technologies, new ways of working, the need to learn new skills. This can give rise to adjustment problems in the labour market if economic growth is slow and job creation is insufficient to compensate for the productivity growth which derives from increased competitive ness. However, experience shows that 'freezing' existing economic structures to protect jobs is not a viable, lasting, solution. Delaying the introduction of change can make it a more difficult and painful pro cess later on. More than ever, national and regional economic perfor mance depends on flexibility in an ever more competitive, global marketplace. The evidence shows that countries and regions can combine improved productivity (high output per worker) and high levels of employment (the percentage of the working-age population in em ployment). Thé two are reconciled over time by the re-employment of workers in new activities. Innovation is at the heart of this process. Technological and organisa tional change and new demands generated both by this and by rising real income levels are factors which create new opportunities to replace the old. Changes in the composition of employment are part of the process t>y which successful countries grow and develop economi cally. This suggests that the aim must be to accelerate the rate at which new opportunities are created while attempting to ensure that labour force skills match requirements. Where the scale of redeployment is substantial or where workers have difficulty in finding new employment opportunities and the adjustment to change is slow, there may be a role for cohesion policies in attempting to reduce the rate at which jobs are lost in declining sectors. But the preceding ana lysis suggests that such an approach ought not to be generalised and ought not to be pursued for very long. While the report places much emphasis on quanti fying trends and policy impacts, it is important to be aware of the limits and risks of measurement in this context. First, it is necessary to avoid the wider political aims of the European Union for its citizens becoming reduced to a debate on the relative merits of different macro- and micro-economic policies. The Union's political goals of solidarity, mutual support and cohesion may be pursued through largely econ omic means, but, as underlined above, these goals, nevertheless, remain the irreducible ambitions which structure European society and help to determine its sense of identity. Secondly, although considerable strides have been made in the development of techniques of evaluation, economic policies inhabit a complex world where it is not always possible to quantify outcomes precisely or, indeed, to assign effects to particular causes. Thirdly, the outcomes tend to emerge over the longer term, perhaps especially in the EU context where cohesion policies address the often extremely disad vantaged position of the weakest Member States and regions with the aim of of improving the supply-side conditions for ecqnomic activity to develop. While the preceding represents the essentials of the operational approach to cohesion, four further points should be made. First, it is important to underline that cohesion is concerned with increasing economic 14 ined, from those which have a major budgetary signi ficance at the Community level — notably agriculture and research and development—to those which are largely concerned with establishing a common Com munity framework for the development of the sector — such as the policies to establish the Single market or to reinforce the European dimension in sectors such as transport, telecommunications and energy. The policies examined in this part do not have cohe sion as their primary objective but because they are concerned either directly or indirectly with issues such as competitiveness or quality of life they gener ally have cohesion effects. Chapter 5 of the Report examines the contribution of the Community's cohesion policies themselves. These have existed in their modern form since 1989, and the report presents the first extensive opportunity to evaluate their contribution — not only their direct impact on economic and social disparities, but also their wider contribution to improving the quality of life and giving substance to the idea of European citizen ship. Chapter 6"contains the Commission's reflections on the lessons learned from experience in the operation of cohesion policies, on the problems which have emerged and on the appropriate response to these. Finally, Chapter 7 summarises the main conclusions of the report. Chapter 1 What do we mean by cohesion? growth and new opportunities in the poorer regions and for disadvantaged social groups and does not imply a reduction in either growth or jobs for others ('negative convergence'). Secondly, improving econ omic circumstances is not an end in itself, but the means to an end. The creation of wealth should widen opportunity and raise living standards and the quality of life generally. In the European context, it should not only be a consequence of closer integeration but should also contribute to increasing the exchange of ideas across national borders and appreciation of the benefits of solidarity. Thirdly, it should heighten awareness of the need for development to be sustain able and for a long-term view to be taken of the use of natural resources. Fourthly, cohesion is not to be confused with harmoni sation or uniformity. Its sole aim is to achieve greater equality in economic and social opportunities. Cohesion and diversity are not conflicting objectives, but can be mutually reinforcing. Outline of report Chapter 2 quantifies the extent of the cohesion challenge: the nature and scale of economic and social disparities between Member States, re gions and social groups. It focuses on the gaps in income per head, competitiveness and unemploy ment between different parts of the Union, as well as the situation of disadvantaged social groups in relation to their access to employment and the related incidence of poverty. The remaining chapters of the Report consider the contribution of national and Community policies to reducing the gaps and hence to the promotion of convergence and cohesion. Chapter 3 contains observations on the contribution to cohesion of policies which are the responsibility of the Member States. Macro-economic policies to pro mote stability are examined in this context, as well as national policies designed to redistribute income at the interpersonal level or promote national and re gional competitiveness. Chapter 4 considers how the various policies of the Union in different sectors contribute to the achieve ment of cohesion. A wide range of policies is exam- 15 Chapter 1 What do we mean by cohesion? 16 Chapter 2 The convergence process and cohesion: recent trends The purpose of this chapter is to examine the extent of geographical and social disparities in the European Union with particular reference to income per head and employment. A key question is whether gaps between Member States, regions and social groups have tended to widen or narrow over time. According to a number of studies, convergence is a slow process and regional differences tend to be reduced by not more than 2% a year over the long-term. For convergence to occur, it is not enough for the situation in the weaker parts of the Union or the position of disadvantaged social groups to improve in absolute terms. Both must improve in relative terms, relative to other regions and more privileged groups. This chapter seeks, in the first instance, to quantify prevailing disparities. As outlined in Chapter 1, how ever, cohesion is also about more qualitative aspects — the sustainability of economic growth and the quality of European citizenship. These are discussed in the final section of the chapter. 2. 1 Income and employment The enlargement of the Community from six coun tries and a population of 175 million to 15 coun tries and a population of 370 million has been accompanied by an increase in its diversity, not least in socio-economic terms. Major differences exist between the Member States and regions in terms of incomes per head and their capacity to generate jobs. Cohesion between Member States Income per head At the Member State level, income per head today (as measured by per capita GDP in 1995) is sig nificantly — 10% or more — above the Union average in Belgium, Denmark, Luxembourg and Austria. It is also above average in Germany, France, Italy and the Netherlands, around the average in the UK and slightly below in Sweden and Finland. The remaining four Member States have income per head between 64% of the Union average (Greece) and 90% (Ireland). The 'cohe sion gap' is most clearly seen in the fact that average income per head in the two poorest Member States, Greece and Portugal, is some 40% below that in the four most prosperous Member States listed above. The gap is consider ably wider now than immediately before the first enlargement of the Community in 1973 when GDP per head in Germany at one extreme was only 25% above that in Italy at the other. But while the entry of Ireland in 1973, Greece in 1981 and Spain and Portugal in 1986 resulted on each occasion in the gap widening, the key issue is how these countries have fared compared to the other Member States over time. Taken as a whole, the economies of the Fifteen have grown at an average rate of just over 2% a year over the past two decades, though there have been considerable cyclical variations. This is slightly less than in the US over the same period but markedly slower than in Japan (though Japan has undergone prolonged recession over the 17 Chapter 2 The convergence process and cohesion: recent trends 1990s). It is, nevertheless equivalent to GDP dou bling every 30 years or so. the Union average to below in the space of a few years. One of the most striking features of economic devel opments over this period has been the closer integra tion of Member States as witnessed by the growth in trade between them, especially during the 1980s when for every country imports from other parts of the Community grew much faster than those from the rest of the world. For all Member States, trade with the rest of the Community now accounts for well over half of the total and for all apart from Germany, the UK, Ireland and Finland, for over 60%. There have been some differences, however, in the growth of individual Member States and — as discussed in the next section — regions (Graph 1 ). Since the beginning of the 1980s, four Member States, Spain, Ireland, Luxembourg and Portugal, have grown on average appreciably faster than the rest. For Spain and Portugal, growth accel erated in the period after their accession in 1986. For the rest, apart from Greece, Finland and Sweden, growth has been close to the average. In the case of Finland and Sweden, there has been a reversal of economic fortunes without precedent in the Union in the post-war years. Both experi enced a sharp fall in GDP in the early 1990s which led to their income per head declining from above This is particularly striking in the case of Sweden. Over the 10 years 1983 to 1993, GDP per head, measured in terms of purchasing power standards (PPS), declined from 12% above the Union average to 2% below. In Finland, GDP per head measured in the same terms was the same as the Union average in 1983 and 9% below in 1993. In both cases, the fall occurred largely after 1990 when output fell markedly. Both economies have experienced faster growth than the Union average since 1993, but they have some way to go to recover their former position among the wealthier European economies. The signs are espe cially positive for Finland where both investment and GDP have picked up strongly after several years of decline (though, asnoed below, this recovery is con centrated in certain regions). The Cohesion Four The relative growth of the four poorest Member States, Greece, Spain, Ireland and Portugal, is of particular relevance for cohesion. In 1983, the four had an average income per head of 66% of the Union average, and it remained at this level until after 1986 (the year of accession of Spain and Portugal). Since then, annual growth in the four has averaged just over GDP per head in Member States, 1983,1988 and 1993 1 180 PPS (EUR15=100) • 1983 • 1988 • 1993 180 160 140 120 100 80 60 40 20 0 Chapter 2 The convergence process and cohesion: recent trends one percentage point above average, giving rise to a slow but steady process of convergence with the rest of the Union. By 1993, GDP per head in the four reached 74% of the EU average, an increase over 10 years of 8 percentage points). In general, strong growth of the European economy has tended to favour convergence. This was the case in the second-half of the 1980s (Graph 2). On the other hand, the recession of the early 1990s greatly affected some of the weaker countries and disparities widened again. Since 1994, growth has resumed in the Union and in these countries. Growth of the Union economy as a whole means that the weakest Member States have, in effect, to hit a moving target to achieve convergence. Though they have tended to grow at an above average rate, convergence has been slow and the gap in income per head between them and the EU average diminished by only around a quarter in the 10 years 1983 to 1993. There have been marked differences in develop ments between the four. Ireland has recorded the fastest growth of any Member State in recent years, maintaining a high rate even during the recession in the early 1990s. GDP per head, which stood at 64% of the European average in 1983, increased to 80% by 1993, rising further to 90% in 1995 and at the present rate will overtake Finland in 1996/97. Relatively high rates of economic growth were also achieved in Spain and Portugal, where GDP per head increased by 7 and 13 percentage points, respec tively, relative to the Union average between 1983 and 1993. Both countries were particularly hard-hit by the recession, however, and their GDP per head remained largely unchanged relative to the average between 1993 and 1995. In Greece, GDP per head increased slightly relative to the rest of the Union between 1983 and 1993, from 62% of the average to 65%, though growth has tended to vary widely from year to year. Whereas in 1985, 1989 and 1991, it ex ceeded the Union average, at 3 to 4%, GDP fell in 1987 and 1993 and stagnated in 1990. The weak performances in 1987 and 1990 are particularly striking, since they were against a background of strong growth in the rest of Europe. Employment and unemployment The major economic challenge facing the Union is the persistence of high rates of unemployment. It is this feature above all which marks it apart from other major economies, specifically Japan and the US. It is a feature which dates back 20 years. From 1973 to 1985, unemployment in the Fifteen increased each year from an average of only 2% to 10%. Although the economic recovery in the second half of the 1980s brought unemployment down, it still left the rate only just below 8% in 1990 when the upturn came to an end. Unemployment peaked at over 11% in 1994 and in 1995, it was only slightly below this level, with over 18 million people unemployed. By contrast, the rate was under 6% in the US and 3% in Japan. Unemployment rates in Member States in 1995 varied considerably, from less than 5% in Luxembourg and Austria to 15% or more in Spain and Finland (Graph 3). They were also above average, at close to 12%, in France and Italy. While the present rate of unemployment in the Union is slightly above the level a decade ago, the number in employment is, nevertheless, higher. Despite the image to the contrary, net job creation has been higher over the past 10 years than in the previous 10 and the number employed in the Fifteen went up by almost 7 million over this period (although the employ ment rate — the proportion of the working age popu lation in jobs has remained unchanged). The rate of net job creation, however, has varied from year to year 2 Disparities in GDP per head and productivity, 1983-93 PPS (EUR15-100), standard deviation 35 20 10 Disparity In GDP per head (by region) 30 Disparity In GDP per head (by Member State) Disparity In GDP per person employed (by Member Stale) 1883 1984 19851988 1987 1988 1989 1990 1991 1992 1993 19 Chapter 2 The convergence process and cohesion: recent trends reflecting the effects of the cycle. Growth in jobs was particularly pronounced in the-second half of the 1980s when a total of 10 million net new jobs were created, a growth of 1 V2% per year. not much above the frictional levels associated with workers changing jobs. This remains broadly true for Austria, but in the fall in GDP in Finland and Sweden in the early 1990s was accompanied by large-scale job losses and dramatic rises in unemployment. In the period 1991 to 1994, however, the Fifteen lost an estimated 4 million jobs although employment started to grow again in 1995. However, at the same time, growth in employment has been accompanied by, and was a contributory factor in, the relatively rapid expansion of the labour force, predominantly among women. In the 1980s, labour force growth averaged nearly 1% a year, adding to the difficulty of reducing unemployment rates. In general, economic growth has tended to be less employment-intensive in the EU than in the US which has experienced job growth of 11/2% a year over the last decade or so, while in Japan the figure was just over 1% a year. In the Union, economic growth over the long-term, averaging just over 2% a year, has been associated with productivity growth of just under 2% a year and so has generated an increase in employment of around 72% a year. The 1995 enlargement of the EU added three Member States, where, throughout the 1970s and 1980s, un employment was much lower than elsewhere and two, Austria and Sweden, where unemployment was In Finland, the number employed fell by over 20% between 1990 and 1994, largely due to the fact that trade with the former Soviet Union collapsed, and unemployment soared from 3% to 18%, although as noted above, the economy has been recovering since and unemployment has fallen. In Sweden, there were similar difficulties, some of the problems being associated with delays in adjusting macroeconomic imbalances and with problems of international competitiveness in some industrial sectors. Employment fell by 13% between 1990 and 1994 while unemployment rose from under 2% to 10%. The Cohesion Four Unemployment in Spain — the highest in the Community—has tended to affect between one-sixth and onè-fifth of the labour force since the beginning of the 1980s, the proportion rising to almost a quarter in 1994. These fluctuations mirror the pattern of econ omic growth, unemployment declining significantly in the second half of the 1980s (when employment grew Unemployment rates in Member States, 1983,1988 and 1993 111983 11988 •1993;: -#25;: 20 15 10 % labour force 25 r 20 15 Excluding new Lander 10 20 B DK D GR ' E F ^ I R L #H ÏT L ' * N L l ï i ' A" ' P ^ F I N> "S'>. UK* !E15 Chapter 2 The convergence process and cohesion: recent trends by 31/2% a year) and significant increases in the 1990s (when employment fell by almost 2% a year). Austria with a second cluster in the Benelux countries and northern Germany. In the case of Ireland, where unemployment has also been traditionally high, the strong economic perfor mance over the past 10 years or so appears at last to be reducing the rate. Economic growth of nearly 5% a year in the period 1983 to 1993 was accompanied by growth in employment only slightly above the Union average. Unemployment remained around 15% of the labour force, though recently the numbers employed have risen markedly and unemployment fell to below 121A>% in 1995. Ireland is the only Member State where migration has been on a signifi cant scale over the past 15 years, net outward migra tion helping to keep down unemployment in the 1980s — facilitated by the existence of large Irish com munities in the UK, the US and, increasingly, other Member States of the Union — and net inward migra tion increasing the work force in the 1990s as the demand for labour has risen. Portuguese experience has been similar to that of Ireland insofar as rapid economic growth has not been matched by higher than average job creation. On the other hand, labour force growth in Portugal is much slower, partly because participation among women was already higher at the beginning of the 1980s and has increased by much less than in Ireland, and the rate of unemployment has remained below the EU average. The unemployment rate in Greece has also consistently been below average, though, in the 1990s, it has been 2-3 percentage points higher than in Portugal. Cohesion between Regions Income per head Disparities can be demonstrated in a number of ways. For example, a simple comparison between regions with the highest and lowest levels of income per head (again measured by per capita GDP in purchasing power standards) reveals that, in 1993, the average level in Hamburg (D), the most prosperous region in the Union, was 4 times that in Acores or Alentejo (P) and in Guadeloupe (F). Taking more representative groups, a comparison of the 10 richest and the 10 poorest regions indicates that, in 1993, in the former, average GDP per head was some 3. 3 times higher than that of the latter, though this was slightly less than a decade earlier when the figure was 3. 5 (Table 2. 5). Over the 10 years 1983 to 1993, growth in GDP has varied markedly between regions (Map 2). The dif ference in GDP per head between the 10 richest regions and the EU average has widened while the gap between the 10 poorest and the average has narrowed at a slightly faster rate. Excluding the new German Lander, the regions making up the two groups remained remarkably similar over the 10-year period. The top 10 regions were exactly the same in 1993 as in 1983, though rankings changed within this group. Half of these are (West) German regions while the rest are made up of five northern capital city regions: Bruxelles, lie de France, Wien, Luxembourg and Greater London. The bottom group was domi nated by the same group of Greek and Portuguese regions in 1993 as in 1983 together with the Départe ments d'Outre Mer (F). With German unification, however, one of the new Lander, Mecklenburg- Vorpommern, was included in this group in 1993, with three others being only just outside. Despite these considerable differences between Member States, economic disparities in the Union are most evident at the regional level and, in particular, between the centre and the periphery. Income per head is below or well below average in all the southern peripheral Mediterranean regions, including southern Italy, as well as in those on the eastern and northern periphery — in eastern Germany and northern and eastern Finland — and on the north western periphery, in Ireland and parts of the UK (Map 1). They are well above average in a cluster of regions in northern Italy, southern Germany and Enlarging the scope of the analysis to compare, for example, the top 25 and bottom 25 regions reveals a picture of relatively unchanging dis parities over the 10 year period, but with more changes in the regions making up the groups. The unchanging nature of regional disparities is confirmed by more formal statistical measures. For example, the average dispersion around the average, which provides summary information on differences between all regions and not just be tween the extremes, also shows little net change 21 Chapter 2 The convergence process and cohesion: recent trends Map 1 GDP per head by region (PPS), 1993 22 Chapter 2 The convergence process and cohesion: recent trends Map 2 Growth of GDP by region, 1983-93 23 Chapter 2 The convergence process and cohesion: recent trends over the 10 years to 1993 (Graph 2). Though there was a slight widening of disparities during the relatively unfavourable economic climate of the early 1980s, this was gradually reversed during the period of recovery between 1985 and 1989. Disparities then widened again with the entry of the new German Lander into the Union before narrowing again to reach virtually the same level as in 1983. The average disparity in incomes per head in the EU is twice that comparable regions in the US. Growth of income per head has tended to vary be tween regions according to their degree of depend ence on different sectors (Table 2. 5a). The regions most dependent on primary sector employment (mostly agriculture) — located in the four cohesion countries (Greece, Spain, Ireland and Portugal) and Finland — have GDP per head substantially below the level in the rest of the Union and have experienced slower than average growth, reflecting the trend decline in this sector over the long-term and the difficulties of diversifying economic activity in a rural context. The most industrial regions — half of which are in Germany and the rest in northern Spain, northern France, central Italy, Austria and central UK — have above average GDP per head and have grown at a rate only marginally below the EU average. Regions with a strong service sector have, on aver age, the highest level of GDP per head and have experienced a rate of growth of around the Union average. This group of regions contains the capital cities of all the Member States, except Lisbon (P), as well as regions concentrated in Belgium, the Netherlands and northern Germany. Economic activity is strongly concentrated in the most urbanised areas of the Community. Regions with more than 500 inhabitants per square kilometre account for only 4% of the land area of the Union but for more than half the population. In 1993, their average GDP per head was 14% above the EU average. This implies that between two- thirds and three-quarters of the EU's total wealth creation occurs in urban areas — although, as described in the next section, inner city areas have some of the most serious social and- economic problems in the Union. The prosperity and growth of many large cities has given rise to a marked feature of development in a number of Member States in thé form of significant differences in economic performance between cer tain regions, often including the capital city, and the rest. This has led to a widening of disparities in income per head, in particular, in Spain, Portugal and Greece in the South and Belgium and Germany (West) in the North (Table 2. 6, Map 2). GDP per head by Member State and regional extremes, 1993 PPS(EUR15=100) Reg. SruxeBes- •Capy Brussels HfdstGew. Ham&urç be de Franca 200 180 160 140 120 100 Lbmbardia Gronfngoi Ahvenanmaa/ Aland Stockholm MecWenburg- Vorpommem Guadeloupe Açores Revo land BuroenJand ^B Itâ-Suoml Merseysldej Calabria 80 hHalnaut 60 40 20 0 B DK D GR E F IRL I L NL A P FIN S UK 200 180 160 140 120 100 80 60 40 20 0 24 Chapter 2 The convergence process and cohesion: recent trends In Spain, which is the fifth largest Member State in terms of population and the second biggest in land area, development has been particularly uneven. Growth has tended to occur most strongly in the industrial areas on the eastern coast as well as in certain central and southern regions. For example, the level of GDP per head in Valencia increased from 70% of the European average in 1983 to 75% in 1993, while in Asturias, it fell from 77% to 75%. Growth in the more favoured regions was especially strong at the end of the 1980s, before faltering in the recession of the 1990s. Development has also been uneven in Portugal, where regions with two thirds of the population (Lisboa and Norte) saw their level of income per head rise by more than 10 percentage points relative to the European average in the 10 years 1983 to 1993, while in the other regions the relative level remained much the same. The most dramatic example of a growing city and a declining hinterland is in Portugal; GDP per head in Lisboa increased from 8 1% of the Union average in 1983 to 96% in 1993, while in neighbouring Alentejo, it fell from 48% to 42%. As a result of the growing prosperity of Lisboa, its GDP per head in 1993 was well Over twice that of the Acores, the poorest region in Portugal (Graph 4). Leaving aside France, where the DOM have a lower income per head than anywhere on the EU mainland and the smaller Member States, where capital cities have relatively high levels of income per head, inter nal disparities are particularly acute in Italy and Germany. In the former, income per head in the North is typically between 120% and 130% of the Union average compared to 60% to 90% in the regions in the South. For much of the 1980s, the disparities tended to widen even further, but then narrowed in the recession of the early 1990s which affected the South to a lesser degree. As a result, over the 10-year period as a whole, the pattern of regional disparities changed by less in Italy than in other Member States. Many of the characteristics of a dual economy are also evident in Germany. The new Lander, however, are different from other parts of the Union, with struc tural problems characteristic of lagging regions in general, but also with problems inherited from the previous era of central planning and environmental neglect: outmoded infrastructure, environmental de gradation and a lack of competitiveness in much of industry. In the year after unification, 1991, GDP per head was around a third of the EU average (but after substantial efforts at national level and with assist ance from the Union, this is estimated to have risen to more than 50% in 1995). Employment and unemployment The Union's unemployment problem is most acute at the regional and local level. The evidence confirms that it is in terms of unemployment that regional dis parities are particularly acute, ans shows little sign of improvement. Comparisons of regions at opposite extremes serve to underline the scale of the disparities (Map 3). Thus, in the 10 worst-affected regions, the average unem ployment rate was 26. 4% in 1995 or nearly seven times the average rate (just under 4%) in the 10 least- affected regions. The 25 worst-affected regions had an unemployment rate averaging 22. 4% in 199&, nearly five times the average (5. 4%) for the 25 least- affected regions (4. 6%). The changes over time in these groups of regions are revealing (Map 4). For both the group of 10 and the group of 25 least-affected regions the average unem ployment rate was virtually the same in the mid-1990s as it had been a decade earlier. But for the group of 10 and the group of 25 worst-affected regions, the picture is quite different. For the former, the average unemployment rate increased significantly over the 10 years, from 19. 4% in 1983 to 26. 4% in 1995, an 5 Disparities in unemployment, 1970-95 % labour force. —•Standard deviation of unemployment ; rat» (by Member State) V © O «M ;:'. : "»',. • <o O» ; O eo • o «» to Cfl O). Oft OV. Ok O) <o o : O) CM ^ 25 Chapter 2 The convergence process and cohesion: recent trends Map 3 Unemployment rates by region, 1995 % * * v, i I «• 26 Chapter 2 The convergence process and cohesion: recent trends Map 4 Change in unemployment by region, 1983-93 • 27 Chapter 2 The convergence process and cohesion: recent trends increase of 7 percentage points. For the latter group, the increase was 5 percentage points. The tendency for disparities in unemployment to widen over time is confirmed by the summary statis tics for all regions (Graph 5). The long-term trend for regional differences to increase, which dates back to the mid-1970s, was interrupted by the economic upturn between 1987 and 1990. The subsequent recession led to unemployment increasing throug hout Europe and was associated with a substantial widening of disparities which continued into 1995. overcrowded and poor housing has become increasingly common throughout Europe. For such small — if popu lous — areas, few comparable statistics are available at the European level to capture the underlying realities, but national sources point to unemployment rates of 30% and more — and occasionally as high as 50% — in some districts: Unemployment in 49 districts with an EU URBAN programme Unempl. (%) -15 15-20 20-25 25-30 30+ No. of cities 5 10 10 9 15 However, the regions worst-affected by unempbyment today are not always the same as 10 years ago. The major change which has occurred is that many old industrial regions of the UK which featured among the 25 worst-af fected regions a decade ago have been replaced by regions in southern Italy. Spanish regions are the constant feature of this group throughout the period. With the enlargements of the first half of the 1990s, a number of regions in eastern Germany and Finland joined the group. A growing phenomenon is that of urban unemployment, which tends to show itself in particular parts of cities rather than across cities as a whole. The co-existence of areas with high added value activities and high-income resi dents alongside areas with low incomes, high unemploy ment, high dependence on welfare benefits and At the broader regional level, there are often significant differences in unemployment rates within Member States (Graph 6). The variatbn in rates in Spain, Italy and Germany is considerable. In 1995, the worst affected region in Spain (Andalucia) had an unemployment rate of close to 35% and the least affected region (Navarra) one of around 15%. In Italy, the difference between the most and the least affected region was some 20 percentage points and in Germany, around 15 percentage points. High average rates of unemployment also exist in some capital cities despite their high income per head, prime examples being Brussels, Berlin and London. In general, as for regional GDP per head, the disparities in unem ployment rates within most Member States have tended to widen over time (Table 2. 7). Unemployment rates by Member State and regional extremes, 1995 % labour force Andalucia Campania Ita-Suomi E 1 5 = 1 0. 7 Oroningan • Wien Utrecht Alentajo Smaland Ahvsnanmaa/ med CWna Aland C a wo Salzburg NL FIN 28 35 30 25 20 15 10 5 0 B e r t a" Bucks. Pwn UK Chapter 2 The convergence process and cohesion: recent trends The pattern of employment growth at the regional level in the EU has also been mixed (Map 5). The regions with the high rate of net job creatbn in the period 1983 to 1993 were located in the Netherlands, Germany, Luxembourg and the UK in the North and in eastern Greece, Spain and northern Portugal in the South. For a large number of regbns — nearly 60 at the NUTS 2 level, or around 30% of the total— there was no change in empbyment or a fall over this period. Among those with the poorest record are many Nordic regions in Finland and Sweden, as well as a diverse group including old industrial regions in the UK (Merseyside, South Yorkshire and West Midlands), France (Lorraine and Nord-Pas de Calais), Spain (Galicia and Asturias) and rural or less developed regions such as Dytiki Ellada (GR), Auvergne, Limousin and Poitou Charentes (FR) and Basilicata (IT). Similarly, the distribution of employment between sectors of activity differs widely across the Union (Maps 6 to 8). Typically, northern regions have the highest concentration of activity in the service sector while Greece and Portugal, and to a lesser extent, Spain and Ireland, lag substantially behind. The ex ception to this pattern is Germany where employment in industry remains particularly high. As expected, there are strong concentrations of ser vice employment in the large urban centres and capi tal cities in all Member States, including Athens and Madrid. At the same time, there are still many regions in the Union where the employment structure remains very traditional, with over a quarter of total employ ment in agriculture in parts of Greece, southern Spain, Portugal and southern Italy. As noted in the previous section, regional depend ence on different sectors has an important bearing on performance. The regions most dependent on the primary sector have unemployment rates well above the EU average which is largely explained by the presence in this group of many Spanish and southern Italian regions. Largely unchanged levels of employment have meant that unemployment rates have also risen over time at a rate significantly above the Union average, as the numbers looking to work have increased. The consolidation of farm holdings in the agricultural sector has continued with the esti mated loss of 800 thousand units, 9% of the total, between 1989/90 and 1993, and it has been esti mated that, in 1993, agriculture provided full-time employment for only a quarter of those working in the sector. Unemployment rates are below the EU average in regions most heavily dependent on. industry and have fallen over time — except in the French and Austrian areas — partly as a result of employment growth above the EU average. The regions most dependent Employment rates and productivity in NUTS 1 regions, 1993 Employment rate as % population 15-64, EUR15 (59 6%) = 100 OP • yv GRf «q DK IL 1 * F» „ FINJRL / % • • •, 180 160 140 120 100 80 60 180 - 160 - 140 120 100 80 60 30 40 50 60 70 <;• 80 90 : 100 110 120 130 140 150 GDP per person employed in PPS, EUR15 (40. 4 th. ECU) = 100 29 Chapter 2 The convergence process and cohesion: recent trends Map 5 Change in employment by region, 1983-93 v\ i 30 Chapter 2 The convercence process and cohesion: recent trends Map 6 Employment in agriculture by region, 1994 o ft Chapter 2 The convergence process and cohesion: recent trends Map 7 Employment in industry by region, 1994 V ' v. I Chapter 2 The convergence process and cohesion: recent trends Map 8 Employment in services by region, 1994 33 Chapter 2 The convergence process and cohesion: recent trends on the service sector have higher unemployment rates on average than the industrial regions but still below the EU average. and employment levels, even where their final GDP per head is similar. The variations are even more marked between regions. The components of geographical disparities An insight into the underlying causes of regional disparities in income per head can be obtained by dividing this into two components: productivity (GDP per person employed) and the number employed in relation to population. GDP per head is the product of these two factors. It is informative to examine the degree to which the income disparities described above are attributable to one or other of these two magnitudes—whether, for example, a Member State or region has high GDP per head because it has a high level of productivity or a high proportion of its population in employment. In order to visualise simultaneously the relative roles of variations in productivity, on the one hand, and employment, on the other, information for each has been set out in a graph (Graph 7). This shows how the different Member States and regions (at NUTS 1 level) compare to the EU average. The results are revealing. They show that Member States have widely different combinations of productivity performance Among the three most prosperous Member States, for example, high income per head in Belgium is attribut able to relatively high productivity, while in Denmark it is due to a high proportion of population in employ ment (a Nordic characteristic in general, although less so today in Finland). In Austria, the third Member State in this group, high income per head results from a more equal contribution from both components. Three of the four large Member States (Germany, France and Italy) are clustered comparatively closely together, while the fourth large country, the UK, has lower productivity and a higher employment level than the rest. These Member States are characterised by wide internal variations, especially Germany and Italy. In these two countries, Italy in particular, regions tend to be at one or other of the extremes, with either a combination of low productivity and low employ ment or high productivity and high employment. This underlines the extent to which these countries exhibit the characteristics of dual economies. The graph also shows a cluster of regions centred in Germany, northern Italy and Austria where relatively high productivity and employment levels are com- 8 GDP per person employed in the Union, 1983 and 1993 100 75 50 25 25 50 75 100 125 150 1993 lndex,EUR15 = 100 ^51 Iso! 175! 100 125 150 34 Chapter 2 The convergence process and cohesion: recent trends bined. This is a practical illustration that high produc tivity — or low labour intensive methods of produc tion — can be combined with high employment. As discussed in Chapter 2, in a dynamic framework it requires a flexible, adaptable and innovative econ omy capable of generating new opportunities to re place those made obsolete for technological or other reasons. average combined with a low level of employment. Greece and Portugal have a productivity level signi ficantly below the average, but in Portugal employ ment is above average. In Spain, the largest of the countries, the internal variations are considerable especially as regards productivity (which is above the EU average in the East and North-east and in the capital, Madrid). The situation in the four cohesion countries is of particular interest. In practice, there are almost as many differences as similarities between them. Ireland and Spain are relatively similar, both having a level of productivity which is now close to the EU 9 Composite index of length of roads and motorways, 1992 Index EUR15* 100 ÉI. • Roads • Motorways 200 150 B DK D F I L NL A FIN S UK GR E IRL P For all of the cohesion countries (and to a lesser extent for Finland) the challenge is generally one of seeking to improve both productivity and the numbers in employment. Not only will this increase income per head but it will also tend to reduce the numbers of unemployed (or will provide employment for discour aged workers who are now economically inactive). The emphasis needs to be different in different Member States and regions within the group. For Ireland and Spain, productivity has already con verged to the EU average (Graph 8 and Map 9), so that the main challenge for the future is the generation of jobs. Both countries are characterised by high unemployment, as noted above, and also have rela tively low rates of female participation in the labour force. For Portugal, where employment is generally high, the challenge is to increase, productivity, and income per head, while avoiding substantial rises in unemployment as the necessary structural changes take place. In Greece as well as some Spanish regions (and others in southern Italy), the challenges are generally more serious, involving progress on both productivity and employment fronts simulta neously. This is an extremely difficult — and long-term 10 Composite index of length of railways, 1992 11 State of the railways, 1992 Index EUR15» 100 • At least double track • Electrified B DK D F GR no electrified fines I L A FIN S UK GR E IRL P 35 Chapter 2 The convergence process and cohesion: recent trends Map 9 Growth in GDP per person employed by region, 1983-93 v\ i i. - r^R Chapter 2 The convergence process and cohesion: recent trends — task, but one of the messages of the preceding analysis is that it is not an impossible one. Underlying the productivity gaps are significant dif ferences between different parts of the Union in the conditions for production. In particular, the economi cally stronger and more prosperous parts of the EU are generally more richly endowed with modern com munication infrastructure, a skilled and qualified labour force and the capacity for advanced research and development. The gaps in infrastructure can be seen in the dif ferences in systems of transport, in road and rail networks. In the South of the Union and Ireland, the provision of motorways — which are particularly important for the transport of both passengers and freight — is 20% or less of the EU average (Graph 9). Railway networks are also less extensive in the South although the disparity is not so great as for roads, but the gap widens once the degree of modernisation is taken into account (Graphs 10 and 11 ). Telecommunication links are a prerequisite for the growth of modern industries and services which need efficient telephone, faxand, increasingly, digital data transmission systems. Telecommunication networks in the Union are developing rapidly, but major variations remain in the level of provision. Typically the poorest parts of the Union score less well with regard to the availability of telephone lines (Graph 12), but as a result of the more recent develop ment of their systems, better in relation to the provision of modern digital networks (Graph 13). It is increasingly recognised that the competitiveness of regions is dependent on the know-how and skills of their people. In modern industrial economies, most employment depends not on low-skill mass produc tion. Rather, employment is increasingly concen trated in smaller enterprises, where the capacity to innovate is often essential and where the need for a trained and adaptable work force is correspondingly greater. Skills are also at a premium in the public and private provision of many business, social and per sonal services which together account for some 64% of total employment in the EU. While progress has been rapid over recent years, more remains to be done to develop the potential of Europe's work force especially — but not exclusively — in the poorer regions. In the latter, the weight of the past is particularly important so that today a large proportion of the adult labour force has not pro ceeded beyond basic schooling, ranging from 45% in Ireland to almost three-quarters of the total in Portugal compared to 36% in the Union as a whole (Graph 14). Virtually all young people in the Union are in school to at least the age of 15 and almost all remain in education to 18 in many Member States (Graph 15). But more needs to be done to improve the higher education and vocational training of these to equip them for an increasingly competitive marketplace. The availability of specialist skills is important for innovation and the development of Research and Technological Development capacities. The propor tion of employment in RTD in the South and in Ireland 12 Number of main telephone lines, 1993 13 Main telephone lines connected to digital exchanges, 1993 Per 100 people 70 6 0h 8 DK D \F U L NL A FIN S UK GR E IRL P EUR15 37 Chapter 2 The convergence process and cohesion: recent trends is generally around a half that in the more prosperous Member States (Graph 16), and the overall invest ment in RTD is correspondingly low — for example! Germany invests 5 times more than Greece in relation to GDP (Graph 17). 2. 2 Social Cohesion Previous sections have been concerned in part with the spatial dimension of labour market prob lems and the implications of regional disparities in unemployment for economic and social cohesion. This section focuses more explicitly on social cohesion through an investigation of trends in two key areas affecting the well-being not just of dif ferent social groups but of European society as a whole: • • the access of individuals to income generating activities. This aspect can be best understood in terms of developments in the labour market, not just of levels of unemployment but also levels of participation and access to job opportunities; the distribution of household incomes net of trans fers after tax, where, in terms of social cohesion, indicators of the incidence of poverty are particu larly relevant. These are matters of concern to all Member States in the Union and to their policies for social integration and solidarity. They represent two defining elements of the European model of society. Given the general difficulty in defining social cohesion, as discussed in chapter 1 above, for operational purposes any nar rowing of differences in individual access to employ ment and a reduction in poverty can be regarded as signifying an improvement in social cohesion. Access to employment opportunities Changing patterns of employment There have been fundamental changes in the global economy over the past two decades which have had far-reaching consequences for the pattern of employ ment in Europe and elsewhere. The most obvious long-term employment developments in Europe are an expansion of employment in services coupled with declining employment in agriculture and manu-, facturing, a growth of part-time jobs filled predomi nantly by women and a shift in the occupational structure of the work force towards those with high educational and technical qualifications and knowl edge-based skills. The expansion of service employment, associated both with increasing demand for services as real incomes rise and the more labour-intensive nature of service activities, is a feature of all advanced econ omies and shows little sign of abating. In 1994, 64% of employment in the Union was in services as against 57% 10 years earlier, while only 3 1% was in industry. 14 Educational attainment of labour force, 15 Participation in education, 16-18 y e ar olds, 25-59 year olds, 1995 1995 % labour fores 100 r B Upper secondary • University and equivalent B DK D F IL S no reliable data; UK 1894 NL A FIN UK GR E IRL P 38 Chapter 2 The convergence process and cohesion: recent trends This, however, still leaves a gap between Europe and the US, where 73% of employment was in services in the same year and where some 22 million additional jobs in this sector were created between 1980 and 1993. This is not so many more than were created in services in the European Union over the same period — around 18 million — but the big difference is that in the US this was coupled with a increase in total employment of 20 million, in Europe of only 5 million. Whereas Europe lost 5 million jobs in agriculture and 8 million in industry, losses in ,the US in these two sectors together totalled only 2 million between them. Differences between Member States in the distribu tion of employment between sectors have narrowed considerably. Over the Union as a whole, there has been a decline in the share of employment in agricul ture, a large decline in the share of industry and a rise in services (see Table 2. 9 in the Annex which shows sectoral shares for the years 1983 and 1993 compar ing the cohesion countries with five other Member States — Belgium, Germany, France, the Netherlands and the UK). In the cohesion countries, there was a dramatic fall in agricultural employment (the decline in share ranging from 6 percentage points in Ireland to 8-9 percentage points in Greece and Spain and to 13 percentage points in Portugal). In effect, the struc ture of employment in the cohesion countries appears to be converging towards that in the more 'mature' economies in the North of the Union in which employ ment in agriculture has declined to very low levels, while dependence on the service sector for jobs has grown considerably. The increase in employment in services in the cohesion countries ranged from 6 to 15 percentage points while in the rest of the Union, it was around 7 percentage points. In effect, in thé former, the average share of service employment is similar to that in the rest of the Union 10 years ago. Large numbers of people remain employed in agri culture in the cohesion countries, and it seems likely that further restructuring will take the form of a direct shift from agriculture to services, missing out the intervening step of a shift to industry first. Many of the additional jobs created in Europe in services were part-time, most of them taken by women. Whereas the number of full-time jobs in the Union declined markedly during the recession years 1990 to 1994, the number of part-time jobs increased by around 3% a year. In the majority of Member States, all or nearly all the extra jobs for women over this period were part-time. By 1995, over 31% of women in employment worked part-time, 67% in the Netherlands, 45% in the UK and 43% in Sweden, a higher proportion than in the US (28%). By contrast, part-time working remains on a relatively small scale in the four Southern European countries, though, apart from in Greece, it is tending to increase signifi cantly. The corollary of the expansion of service employment and part-time working is the significant growth in the importance of women in the labour force. While many of the women joining the labour force went into comparatively low skilled jobs in services, there was also a marked growth in jobs demanding 16 RTD personnel in the Union, 1993 17 Gross expenditure on research and development in the 1990s % labour force %GDP B DK O F L no data; B 1991; FIN. P 1992 I NL A FIN S UK GR E IRL P B DK O F I NL A FIN UK GR E IRL P LSnodata;B1991;P199£DK. OaE. IRLI. NLAFIN1W3:F. UK199<;P1995 39 Chapter 2 The convergence process and cohesion: recent trends Map 10 Change In labour force by region, 1983-93 40 Chapter 2 The convergence process and cohesion: recent trends Map 11 Labour force participation of women by region, 1993 Chapter 2 The convergence process and cohesion: recent trends high skills and high education levels. Between 1983 and 1991, the employment of those classified as technical and professional workers expanded by 2% a year across the Union, twice the rate of growth of total employment, while the number of manual workers declined. The former continued to increase despite the recession in the first half of the 1990s while the number of manual workers fell markedly. Non-manual jobs in services filled largely by women have expanded, while manual jobs largely filled by men in industry and agriculture have contracted. Nevertheless, over the long-term, it is the higher skilled jobs which offer the surest prospect of growth for both men and women. The effects of the changes: participation in the labour force The changes in the global pattern of employment have been a factor in the different experiences of different social groups. One of the most striking changes has been the increase in the number of women working, up by over 6 million over the last 10 years. But this was 1 million less than the increase in the number of women joining the labour force, so that female unemployment has also risen. The increased participation of women in the work force has been a major factor, of more importance than differences in demographic trends, underlying the differential rate of labour force growth across the Union over the past decade or so (Map 10), than in other Member States. For women, participa tion rates are much lower in the South, except in Portugal, and in Ireland, though they have risen mar kedly over the past 10-15 years, converging grad ually towards those in the rest of the Union. This is especially true in Ireland and Spain where participa tion rates of women aged 25 to 54 have increased by over 10 percentage points over the past decade. While this has had the positive result of promoting the greater integration of women into the labour market, it has added to the challenge of reducing unemploy ment especially in these two countries. It is likely, moreover, to continue to add to the challenge in the future since rates of participation of women still tend to be much lower in most of the less prosperous regions of the Union than in other parts (Map 11). There is a general tendency for people to remain longer in the work force in the poorer Member States than in the North resulting in higher employment and participation rates among the over 55s. This is espe cially true for men, although in both North and South rates of participation and employment are falling as a result of earlier retirement, linked to the lack of job opportunities for them combined with the more wide spread availability of pension and disability insurance schemes. In sum, while it is difficult to draw general conclusions on the trends of disparities between social groups on the labour market, one result appears to be that participation and employment patterns in the poorest countries are converging towards those in the more prosperous Member States. There have been other differences, notably among those under 25 and those in their 50s and older. Unemployment The proportion of young people in the labour force and employment has declined over a number of years as more have remained longer in education and initial vocational training. However, in three of the poorer Member States (Spain, Ireland and Greece) the num ber of young people looking for work has not fallen as fast as the fall in employment resulting in an increase in unemployment, among young women more than young men. For the so-called prime-aged population (aged 25- 54), the striking feature is the difference between the sexes. For men, participation rates are similar in the North and the South, though they have declined over time everywhere, though less in Greece and Portugal Different social groups are affected differentially by unemployment. In general its impact is greatest on young people, women and those working in declining sectors and/or in low-skilled jobs and serves to rein force the general disparities between different parts of the Union. The rate of youth unemployment among those under 25, has mirrored the movement in the overall rate, but is around twice as high; averaging some 2 1% over the Union as a whole in mid-1996, giving a total of 5 million young people unemployed. The rate, how ever, has come down slightly faster than the overall rate since the present recovery began. Indeed, the gap between the two has tended to narrow a little over 42 Chapter 2 The convergence process and cohesion: recent trends time, reflecting in part the declining numbers of young people across the Union (the result of falling birth rates), in part, the tendency for a growing proportion to stay longer in education, in part, the range of measures taken in Member States to prevent those leaving school with few or no qualifications moving straight into unemployment. Except in Germany and Austria, high unemployment among the young is universal across the Union, the rate rising to over 40% in Spain, around 35% in Italy and 25% or more in Greece, Belgium and France (though in all three of the latter countries, this partly reflects the very small number of young people in the labour force — only around 35% of the 15 to 24 year olds). The rate of unemployment among women in the Union is also high, averaging some 121/2% in mid-1996 compared with 9 / 2% for men, with the result that despite there being many fewer women than men in the labour force almost as. many of them are unemployed. With the exception of Sweden and the UK, as well as Finland, where the rates are much the same, the rate of unemployment of women is higher than for men throughout the Union, over 60% higher in Spain and Belgium and almost 90% higher in Italy and Greece. Moreover, although unemployment rates for women generally rose less sharply than for men during the recession, partly reflecting the disproportionate presence of women in service sector jobs which were affected much less than jobs in industry, they have also tended to fall less quickly during economic recovery as participation of women in the labour force has continued to increase. In all economies, there are significant movements of people between jobs going on all the time, in part because of a desire for change, in part in response to shifts in the composition of economic activity and in the demand for different skills. Such movements are almost bound to be associated with spells of unemployment for some, though these need not be of long duration. In Europe, however, one ef the most marked features of the labour market is the high and persistent incidence of long-term unemployment, especially in comparison with the US, indicating the structural, and deep-seated, nature of its unemploy ment problem. In 1995, in the Union as a whole almost half (49%) of those unemployed and seeking work had been looking for employment for a year or more (compared with only 12% in the US) and over a quarter for at least two years, only slightly below the proportions 10 years earlier. High long-term unemployment creates prob lems of its own which are particularly intractable. Those affected face social exclusion, a loss of con fidence, a degradation in their skills and increasing difficulty finding a job the longer they are out of work, reinforced by the general reluctance of employers to take on people who have not worked for some time. Member States differ considerably as regards the average duration of unemployment, or more rele vantly the relative numbers of long-term unemployed, which determines the scale of the problem. For example, two countries or regions can have the same level of unemployment but one may have a high inflow combined with a short average duration and the other a low inflow combined with a long average duration and a large number of people who have been unem ployed for a year or more. The former implies lower rates of 'exclusion' and, accordingly, less damaging to social cohesion. Member States differ according to the inflows into un employment — or the chances of someone becoming unemployed — and, most relevantly for social exclu sion, the prevalence of long-term unemployment. Some indication of these differences can be gained from the relationship between the overall rate of unemployment, on the one hand, and the proportion 18 Unemployment rates and long-term unemployment in Member States, 1995 7Q Long-term unemployed as % total • _ • T3 • '• »IR E15 • P «GR • O •. • NU :•. -••• WG «UK • F "FIN 50 V 30 20 • E 70 50 A 30 A 20 5 10 15 Unemployment « l ei (%) 20 25 43 Chapter 2 The convergence process and cohesion: recent trends of the unemployed who have been out of work for a year or more (i. e. who are long-term unemployed), on the other. In 1995, the highest rate of overall unem ployment in the Union was in Spain, at almost 23%. The proportion who were long-term unemployed, at just under 55%, was also above the Union average (of 49%), but less so than in Italy and Ireland, where the overall rate of unemployment was much less, though still above the Union average, but over 60% of the unemployed had been out of work for a year or more (Graph 18). In Belgium, the incidence of long- term unemployment among the unemployed was much the same as in these two countries, but the rate of unemployment was slightly below average. It is in these four countries, therefore, that the problem of social exclusion seems particularly acute. By contrast, in Finland, unemployment was well above the Union average in 1995, but a much lower proportion of these affected were long-term unem ployed (37%). This is partly explained by compara tively recent, and rapid growth in unemployment to present levels. In France, unemployment was also relatively high, but long-term unemployment relatively low. In these countries, therefore, despite relatively high levels of unemployment, social exclusion seems less of a problem. In the other Member States, overall rates of unemploy ment were below average to varying extents. These can be divided into two groups — Luxembourg, Austria, Denmark and Sweden (not shown in the graph because of data comparability problems), where the proportion who were long-term unem ployed was much less than average, and the other five Member States, where it was around the average level (though the number affected was significantly higher in Greece, where the proportion was slightly above average than in the Western part of Germany, where the overall unemployment rate in particular was well below average). The UK, however, is somewhat different from the other four countries in this group, in that not only was the incidence of long-term unem ployment less in 1995, but it also been significantly below the Union average in earlier years (in 1990, only a third of the unemployed had been out of work for a year or more as compared with a Union average of 48%). In general, the relative scale of the long-term un employment problem as between Member States was similar in 1990 before the rise in unemploy ment rates which occurred subsequentlyTsugges- ting that the problem is a deep-seated one as well as being distinct from the problem of unemploy ment as such. There are also differences between social groups. Women seem to be less likely to lose their job than men once in employment, but experience difficul ties in finding a job when unemployed or when trying to return to work after a spell of inactivity to take care of children. Long-term unemployment is, therefore, slightly higher among women than men in most Member States (though not all, Denmark, Ireland, the Netherlands and the UK are signifi cant exceptions). Unemployment among young people is also a prob lem, though the numbers affected has risen by very much less than the rate over recent years because of the increasing numbers staying longer in education and initial vocational training (which has, therefore, reduced the size of the youth labour force). Moreover, the proportion of those under 25 who are long-term unemployed has not tended to rise significantly, though it remains a serious problem in Italy and, to a lesser extent, in Greece, where it takes much longer on average for those looking for their first job to find one. Long-term unemployment is a particularly serious problem for older workers, especially men and women who lose their jobs in industry and find it particularly difficult to find another one. In 1995, 62% of those unemployed aged between 55 and 59 had been out of work for a year or more and two-thirds of these had been out of work for at least two years. Many others, moreover, had with drawn from the labour force completely into enforced early retirement, a large proportion after trying to find another job (in 1995, around a third of men in this age group were no longer in the work force, well below the official age of retirement — 65 — in most countries). In general, the chances of being unemployed are much greater for those with low skills and few qualifi cations. In 1995, the rate of unemployment among those aged 25 to 49 with only basic schooling averaged 13% across the Union compared with 8% for those with additional secondary level qualifica tions and 7% for those with a university degree or equivalent. 44 Chapter 2 The convergence process and cohesion: recent trends The incidence of poverty Earlier sections of this chapter discussed the growth and distribution of basic income from production — GDP — in Member States and regions. It showed that GDP growth in the Community has been achieved largely by raising the output of each worker, rather than by extra employment, although the latter has also increased. This has also been associated with a fall over time in the share of total income (GDP) accruing to labour in the form of wages and salaries (pre-tax) in virtually all Member States, while the share accruing to capital has increased. At a time of acute threat from interna tional competition, these developments underline the contribution that European labour has been making to the restructuring of the economy to meet the chal lenges posed. As also discussed above, there are evident dif ferences in the capacity of Member States to integrate the more disadvantaged members of society fully into the labour market. This affects the incidence of poverty at household level in the EU, which is deter mined in large measure by access to paid employ ment as well as by the scale and prevalence of transfers under systems of social protection. One of the main characteristics of the European model of society is the commitment to combat poverty and to correct large income inequalities through taxes and social transfers. The degree to which society suffers from of poverty is generally assessed in terms of the poverty line, which is a relative rather than an absolute concept, usually defined as the proportion of households with income of 50% or less of the average for the country as a whole. The impact of social transfer payments on the in cidence of poverty is considerable. It is estimated that without such transfers around 40% of all households would find themselves below the poverty line whereas as a result of transfers this is reduced to less than 15%. At the Union level, inequalities between households have tended to be examined by reference to levels of household expenditure, for which some estimates exist for a number years, rather than income, for which no comparable data exist over time. These should show a more equal distribution than income levels to the extent that savings tend to be higher among wealthier households than poorer ones. The data for expenditure, which come from general surveys of household spending, are adjusted for differences in purchasing power and household size and composi tion (a smaller weight is accorded to children, for example, than to adults). A brief overview of the results (see Annex, Table 2. 3) shows that, at the end of the 1980s, the incidence of poverty was generally higher in the South than in the North of the Union. It was particularly high in Portugal, where 27% of all households, fell below the poverty line and to a lesser extent in Italy (22%) and in Greece (20%). At the other extreme, only 5-6% of households in the three BENELUX countries and Denmark had expenditure of less than 50% of the national average. In the remaining countries, the proportion ranged from 11% in Germany to 17% in both Spain and the UK. The data suggest that there was some increase in rates of poverty measured in these terms in most Member States during the 1980s, and it was only in Ireland and Spain and to a lesser extent in Portugal, where the proportion of households below the poverty line declined. These countries had among the highest incidence of poverty at the beginning of the 1980s and it appears that the fruits of subsequent economic growth have been more evenly distributed than pre viously, perhaps reflecting the stage of their econ omic development. More and more up-to-date information, however, is required to determine how far these changes represent long-term trends and to assess the effects on distribution of the economic recession of the 1990s. More recent data on poverty in the 1990s can be obtained from the first results of the new European Community Household Panel (ECHP), which col lected information on household income — rather than expenditure — for 1993. For most countries, the income measure for this year indicates that there was more inequality between households than shown by the expenditure measure for the late 1980s and, therefore, a higher incidence of poverty. Given the different basis of measurement, it is not possible to conclude anything about changes during the 1990s, but the ECHP at a minimum suggests that the problem in some countries remains serious. 45 Chapter 2 The convergence process and cohesion: recent trends 2. 3 Other dimensions of cohesion: quality of life and European citizenship The previous sections presented a traditional analysis of the relative circumstances of Europe's population. The indicators used, relating to income and employ ment, remain the most solidly-based and widely understood which are available. They have provided the basis for decision-makers in undertaking difficult regional and social policy choices at European and national level. At the same time, they are insufficient in themselves to assess the full situation and other aspects need to be taken into account, perhaps especially at Union level. In the EU today there is widespread concern about two further issues which relate directly to the quality of life and cohesiveness. First; there is concern about the consequences of economic growth for the environment, in terms of increased congestion, pollu tion and degradation. This has given rise to a concern with 'inter-generational cohesion' and the need for national and regional development to be sustainable over the longer-term. Secondly, there is concern that European integration should not become a geopoliti cal process remote from the needs of ordinary people, but should be about the quality of European citizenship in all its facets. Sustainability the overall quality of life resulting from economic growth. This would attach particular importance to the generation of local, community-based employment, to the benefits derived from the improvement and protection of the natural environment and to the development of individual and collective responsi bility as the guarantor of sustainable growth. This new model of development addresses cohesion — espe cially social cohesion — issues directly. A basic challenge recognised in the White Paper is to make the economic-ecological relationship a posi tive one. This is particularly important, for regional cohesion where the imperative, as discussed above in detail, is to promote rapid catching-up on the part of low-income regions. In this context, sustainability concerns must not be regarded as something which holds back regional growth where it is needed most, but as a source of new opportunities. There are complex issues at stake in this regard. On the one hand, there is an increasing awareness that the quality of the environment is an important deter minant of a region's attractiveness for new activities and that regions can make best use of their natural assets if their economic policies are geared to sus tainable development. The environmental sector is, therefore, increasingly regarded by enterprises as a business opportunity, and as an asset by regional authorities. Accordingly, sustainable development and the narrowing of regional disparities can be mutually-reinforcing. Sustainable development has been defined as 'develop ment which meets the needs of the present without compromising the ability of future generations to meet their own needs' (World Commission on Environment and Development (1987); 'Our Common Future', OUP). At its heart, sustainable development emphasises the need to move towards patterns of growth which lower the con sumption of non-renewable resources and which are therefore reproducible over time. According to the White Paper, Growth, Competitive ness, Employment, the essential contradiction in the existing economic order is that production is too intensive in natural resources which are scarce, often non-renewable, and uses too little labour which is plentiful. It called for a new framework — which requires nothing short of 'a new model of develop ment" — based on an integrated approach where progress would be measured in terms of changes in On the other hand, environmental policy choices need to have regard to existing regional disparities, which need to be taken into explicit account in order to minimise the risk of a further widening to the detri ment of economic and social cohesion especially in peripheral regions. Subsequent chapters illustrate how the Union has sought to incorporate environmental issues in re gional development programmes — which include investment in clean water supplies, waste manage ment, land reclamation, etc. (see chapter 5)—as well as in transport and policies specifically for the envi ronment (see chapter 4). Citizenship, democracy and solidarity The idea of European citizenship — and the creation of a people's Europe in the broadest sense — has 46 Chapter 2 The convergence process and cohesion: recent trends been implicit in the process of integration since the beginning. The only true foundation for integration in Europe is a sense of common purpose and solidarity on the part of all of its people. Any notion of European cohesion is inevitably intertwined with that of citizen ship, democracy and solidarity. The Union is intended to develop opportunities for people to work together in pursuit of shared objectives. Beyond citizenship which grants free movement of people, political rights and greater democratic participation, the Union promotes equal opportunities for all through the respect of fundamen tal rights. The sense of belonging to the Union and democratic participation are mutually reinforcing. Democratic participation has been enhanced by the institutionalisation of the social dialogue and the dia logue between representatives of civil society. It finds concrete expression in the growth and development of institutions over four decades, most notably via the growing power and influence of directly-elected rep resentatives in the European Parliament and, since 1993, through the involvement of the regional and local representatives in the Committee of the Regions. An enhanced sense of belonging to the Union implies more than bringing decision-making closer to the grassroots. It is interrelated with a reduction in the basic economic and social disparities discussed above. The existence of under-used resources, in disadvantaged regions or among excluded social groups, serves to fragment European society apart from being a waste of economic potential. European citizenship, therefore, places obligations on the Union to work to eliminate major disparities in standards of living between citizens in one part of the Union and those in another, and to promote freedom from poverty and equal access to employment oppor tunities. Again, it is not just the aims which are important to cohesiveness: the way in which they are implemented is perhaps as important because it provides oppor tunities for people to come together. This has been a central component of European policies for solidarity and cohesion (see chapter 5). At one level, it has produced a spirit of cooperation between the Commission and representatives in the institutions, fostering a two-way flow of information and ideas — extending beyond the formal requirements for con sultation contained in Community law — which has contributed to the- conception and formulation of cohesion policies, raising the quality of the interven tions for the benefit of those whose lives are directly affected. At another level, the implementation of EU policies is highly decentralised, devolving responsibility as close to the ground as possible to promote partner ships between Member states and regions, and to encourage cooperation and exchanges of experi ence. Not only is this a vehicle for innovation and best practice, it is also essential for raising awareness of European issues. All of these developments have contributed to the breaking down the barriers of nationality, without compromising the virtues of diversity. In other words, they have helped lead to the formation of a genuine Europe for all. Concluding remarks The analysis of this chapter demonstrates that there has been significant progress in reducing economic and social disparities in some areas and that some of the weakest Member States and regions have embarked on a long-term process of convergence with the rest of the Union. This favourable outcome has persisted through the recession of the early 1990s, although it has been accompanied by a general deterioration in the employment situation throughout the Union. Economic convergence at the Member State level has not always been evenly distributed between regions and social groups. However, in countries in the process of catching-up, these negative side- effects of development are often difficult to avoid due to the different dynamics of certain regions and indus tries. Within some of the most advanced countries in the Union, there is evidence of weakening social cohesion as a result of the effects of unemployment on disadvantaged social groups and an increasing incidence of poverty. On the other hand, rates of employment are higher than a decade ago, though women's participation in the work force has risen significantly. The outlook for the labour market will be affected by demographic trends. One important feature remains the failure of fertility rates in the EU to pick-up, falling to a post-war record low in 1995, of only 1. 43 children per women. This will reduce some of the inflows into Chapter 2 The convergence process and cohesion: recent trends the labour market in the next century, although there can be other offsetting effects on total labour supply. More generally, there are reasons to believe that a process of fundamental economic reform has been put in place in the weakest parts of the Union encour aged, as later chapters of this report will demonstrate, by national and EU policies to develop infrastructure, human capital and productive activity. The prospects for further reducing disparities will depend on this process continuing as well as on other factors such as general economic circumstances. Much also depends on policy developments. Policies geared to macro-economic stability to provide the conditions for growth are important in this context (see next chapter), as are national and Community policies to promote competitiveness and growth and the creation of durable jobs. Finally, past enlargements of the EU have generally had the effect of widening regional disparities. It seems likely that future enlargements will have a similar effect since many candidate countries of Central and Eastern Europe have incomes per head significantly below the current Union average. As the experience of previous enlargements demonstrates, however, the Union has shown itself capable of accommodating such differences and of moving for ward nevertheless. 48 Chapter 3 Member State policies and cohesion: an overview 3. 1 Introduction: weakening internal cohesion •The evidence presented in chapter 1 suggests that, even though a process of convergence between the Member States is apparent, economic and social cohesion within most Member States seems to have experienced a setback during the 1990s in the form of widening disparities in income and unemployment. There are a wide range of Member State policies which have implications for cohesion at national and EU level, particularly: • structural policies aimed at maintaining macro- economic stability; • ^distributive policies aimed at achieving an opti mal allocation of resources in social as well as economic terms and redistributing income between persons and regions to avoid excessive disparities. These aims are not of course mutually-exclusive and it is generally the case that the same expenditure will have a direct or indirect impact on all them at the same time. Each is examined below. 3. 2 Macroeconomic policies The macroeconomic policies of the Member States are important in creating the climate for economic growth. In the four poorest Member States, in particu lar, where the regional under-development problems cover more or less the whole country, national-level macro-economic policies have a key role in ensuring the effectiveness of EU cohesion policies designed to promote higher public and private investment. In view of the inter-dependencies and spill-over effects created by trade and the movement of capital as well as labour, countries have long since ceased to regard their macroeconomic policies as purely internal, and have engaged in coordination. In the European Union, macroeconomic coordination is focused on establishing a stable macroeconomic framework which is a pre-condition for achieving sus tained growth in the medium-term and for participa tion in EMU. Particular attention is devoted to the convergence criteria of price inflation, exchange and interest rates, public deficits and indebtedness which — given the key role of these criteria in macroecon omic stability — even countries with an EMU 'opt-out' aim to fulfil. Stability is of critical importance to the poorest Member States, providing the climate for investment and hence for obtaining the most from European Union cohesion policies. The evidence suggests that three of these countries — Greece, Spain and Portugal — as well as Italy, where a large part of the territory is less developed, need to maintain their efforts towards nominal conver gence although the emphasis may be different in each case. In global terms, significant progress in nominal con vergence has already been achieved, in particular in relation to inflation rates which have converged to levels which are among the lowest of the past 30 years. In Greece, Portugal, Spain and Italy, rates 49 Chapter 3 Member State policies and cohesion: an overview have declined considerably in the last years, but are still high compared to the Union average, especially in Greece (Graph 19). Differences in interest rates are a reflection of a number of factors such as differences in inflation rates, fiscal balances, exchange rate movements, financialt market confidence and the credibility of the policy mix. structure and training while placing additional strain on social expenditures. Partly as a result of the recession, average debt for the Fifteen has been creeping upwards since 1992 from around 60% of GDP to over 70%. High indebtedness remains a particular problem for Belgium, Greece and Italy (Graph 20). The current room for manoeuvre with regard to exchange rate variation is determined, for coun tries participating, by the bands in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). Within the wider bands adopted in August 1993, rates have remained remarkably stable. Although the central rate of the Spanish Peseta had to be devalued four times between September 1992 and March 1995, partly followed by the Portuguese Escudo, pressure on curren cies inside the ERM has not been as severe as on currencies outside the ERM. Excessive budget deficits result in upward pressure on interest rates providing less favourable conditions for investment and growth. In addition, they lead to a build-up of debt over time increasing the burden of interest payments in public expenditure, which reduces the financial resources at the disposal of Member States to carry out even the most productive programmes such as investment in economic infra With the introduction of a single currency, national- level policies will continue to play an important role in regional stabilisation. Adjustment will occur partly through the automatic transfer mechanisms which operate at the inter-personal level within the Member State (especially through social security payments and taxes). From a regional perspective, the situation after joining European EMU will not be so different in economic terms to that of belonging to a national monetary union. Without further political integration, responsibility for these transfer mechanisms is likely to remain with Member States. The present Community Budget is too limited to contribute significantly to macroecon omic stability across the Union as whole, although Union-level policies will help to underpin the position of the weakest regions and Member States. At national level, Member States participating in EMU will have to combine fiscal discipline with the necessary flexibility to be able to cushion, via interre- 19 Inflation in Member States, 1983-93,1994 and 1995-97 20 16 12 Annual % change in consumer price index • 1983-93 • 1994 • 1995-97 (projected) -i 20 16 12 D FIN B F D 1983-93 excludes new Lander NL IRL«iUK. 1:;-:E15! Chapter 3 Member State policies and cohesion: an overview gional and interpersonal transfers, shocks which tem porarily threaten regional and social cohesion. As discussed in the next section, adjustment is also facilitated by improvements in the adaptability of the work force. ^ 3. 3 Structural reforms and expenditure-based policies Alongside policies to promote stability, the Member States for which catching up a major objective also need to ensure that their economies are adaptable to the requirements of faster growth. Impediments to resource mobility in its widest sense reduce their efficiency and their ability to restructure and to exploit new opportunities. The Member States' allocative policies take the form of structural reforms to improve the functioning of the markets and expenditure-based policies to provide incentives to overcome market failures. In the European Union, the Single Market Programme (SMP) has been the motor for structural reforms, sweeping away a wide variety of national measures which served to limit trade and protect inefficient activities. Member States have generally accompa nied this with market reform policies of their own. These appear to have been largely successful in Ireland and Portugal. Both countries have attempted in this context to improve the flexibility of the work force not only through reducing regulation but also by raising skills, in tandem with determined industrial development strategies to provide new opportunities in modern activities and thus to attract FDI in export- oriented sectors. In Portugal this has been accompa nied by deregulatory measures in the financial sectors, in public services, the retail trade and the housing market. Furthermore, administrative price controls were lifted for many industrial products and services. But in the other Member States most con cerned, more remains to be done. In Greece, market reform has gone furthest in regard to the financial sector, bringing the economy intothe wider European monetary environment. But progress remains limited as regards the working of the labour market: wage variations are insufficiently related to productivity performance at sectoral, enterprise or plant level; regulation has limited flexibility by acting as a disincentive to the redeployment of labour. More over, the Greek economy continues to be charac terised by close relationships between the government, the wider public sector, the banks and 20 General government consolidated gross debt in Member States, 1983-93,1994 and 1995-97 % GDP (annual average) 140 r ' E31983-93 • 1994 • 1995-97 (projected) 120 100 80 60 40 20 L. - UK F D FIN D1983-93 excludes new Lander 1 140 M Chapter 3 Member State policies and cohesion: an overview selected large private enterprises. While such arrangements are helpful in the formation of consensus around economic policy goalc, a less desirable rasult is that the economy is less subject to the disciplines of the market. In Spain, while reforms linked to the Single Market Programme have been extensive, there have been only limited changes in two key areas affecting performance: the labour market and the non- traded (largely service) sector. The Spanish authorities themselves identified the problem in the convergence programme of early 1992 and its revision in 1994. A set of measures in the service sector to improve competition and transparency were planned, along with measures to enhance labour mobility through the reform of the education system and to improve housing supply, adminis trative procedures and management of public enterprises. Up to now, however, the assessment on the implementation of these proposals is some what mixed and much depends on the outcome of extensive reforms, mainly enacted in 1994, to ad dress the main labour market rigidities, including working time regulations, occupational and geo graphical immobility, wage setting, recruitment procedures and employment contracts. Signifi cant progress, on the other hand, has been achieved in a number of areas linked to decisions taken at the EU level, including transport services and the financial system. Through their expenditure-based, allocative policies Member States' can influence patterns of production and consumption in order to achieve a more optimal use of resources in social and economic terms. Broadly defined in this way, all spending by the Member States is allocative and mostly concerned with social aspects. Thus services supplied to the community and to households and persons directly (education, health, social security and welfare, housing community and cultural services) account for 50% to 70% of total general government expenditure in the Member States, or between 20% and 30% of national GDP. This social expenditure also plays a significant redistributive role within the Member States, often supporting spending of the lower income groups who contribute less to its financing through proportional or progressive tax systems. They, therefore, contribute significantly to the internal cohesion of Member States, as discussed below. Expenditure on economic services (regional policies, research and development, trade promo tion, employment policies etc), on the other hand, accounts for between 6% and 14% of total govern ment expenditure or 3% to 10% of national GDP. These policies are intended to improve the climate for firms and to affect the way in which the job market functions. Apart from regional policy, which due to its importance will be treated separ ately below, these pciicies have no intended spa tial effects and are operated largely without reference to spatial considerations. Nevertheless, such effects exist and merit careful analysis. The analysis will be limited to R&D and employment policies. While R&D policies vary significantly between Member States, they are generally aimed at national objectives, such as the stimulation of innovation and the improvement of competitive ness. While some of the larger Member States have made efforts to régionalise public R&D spending, it remains the case that though the sums concerned are of a similar order of magni tude to regional incentives, their spatial distribu tions are virtually the opposite. Both overall R&D spending and incentives are highest in relation to GDP in the more properous countries and are concentrated in the richest regions in all countries for which regional data are available. In France, Spain and Italy, public spending is even more unevenly distributed than private spending and is thus often the main engine of disparities. The net result is a reinforcement of existing disparities inside the EU, contributing to a virtuous circle of innovation and competitiveness in the more pros perous regions. This is an issue for European cohe sion which is unlikely to be resolved at the national level, creating the space for more determined inter vention through EU structural and R&D policies, as examined in chapter 4 below. A major aspect of employment policy is that it helps to prevent the exclusion of people from the labour market, thus furthering social cohesion. Since the European Council of Essen in December 1994, EU Member States have been coordinating their employ ment policies within a Community framework, with the aim to achieve a structural reform of the labour market. Efforts have been concentrated in five priority areas: 52 Chapter 3 Member State policies and cohesion: an overview • • • • to improve labour force skill, Member States have strengthened financial as well as fiscal measures to encourage firms to increase their investment in vocational training. Some Member States have also launched extensive reforms of their vocational training systems while others have increased sub stantially the number of training places available. Specific measures have been introduced to im prove training levels for young people, in particu lar, through the apprenticeship system and traineeships which combine work experience and formal training; to promote more employment-intensive growth, some Member States have encouraged the social partners to reach formal agreement on more flex ible and shorter working hours. In other cases, regulatory reforms have been undertaken to facili tate the use of part-time and other flexible types of work. The expansion of services in social, com munity and home-care sectors, fulfilling unmet demand in the personal sector, has been encour aged in some Member States, through various means including regulatory reform, tax incentives and the use of service-vouchers; to reduce labour costs, in cases where they constitute a potential barrier to job creation, espe cially at the lower end of the skill and earnings scale, several Member States have reduced the level of social security contributions on selected groups of workers, the low-paid and those who are disadvantaged in the labour market. In a number of cases, total or partial exemption 'rom contribu tions have been introduced to encourage the hiring of young people or the long-term unem ployed; to achieve a similar objective, of reducing charges or taxes imposed on labour to bring down the cost of employment and thereby stimulate job creation, in a number of Member States, an attempt is being made to shift the burden of tax from labour to other sources by extending the tax base. So-called 'green' taxes (such as the new landfill tax in the UK) have, therefore, been introduced — or are in the process of being introduced — in some coun tries to replace part cf the social contributions levied on employers; • to improve the effectiveness of labour market policy, most Member States are attempting to rebalance expenditure from passive income sup port to active measures aimed at the integration of the unemployed into paid jobs. In some cas"es such efforts have sought to eliminate disincentives by making the eligibility rules for unemployment benefits stricter, in particular in connection with the refusal job offers. In other cases, the range of policy instruments was strengthened and diversi fied, including training programmes, recruitment subsidies, temporary job offers, job-search assist ance and business start-up aids. In some Member States, reforms have been undertaken to improve the efficiency of employment services, through greater de-centralisation, deregulation and a greater focus on the needs of special groups. In all areas referred to above, priority has been given to actions in favour of the re-integration of the most disadvantaged groups, such as young job-seekers and the long-term unemployed, as well as to achiev ing effective equality of opportunity between men and women in working life. Member States' own regional policies Most of the Member States operate their own policies tu assist their less developed regions or to achieve other spatial goals. These policies are conceived and implemented differently in different national contexts. In some countries, it concerns incentives to capital investment in the regions while in others, particularly in France, it is more wide-ranging also including policies of spatial planning involving infrastructure expenditure. The objectives of regional policies are to reduce disparities in economic development by encouraging investment in the poorer areas and to reduce disparities in unemployment, particularly that linked to industrial restructuring, but also underem ployment in backward regions. In some Member States, demoigraphic and geographical issues, in particular peripherality and the associated risk of outward migration also play a prominent role. Finally, urban policy, especially in the UK and France, also addresses problems linked to the decay in the physi cal and sociai environment in inner city areas. As regards regional incentive policies — which are common to all Member States — grant expenditures are typically very low, accounting for between 1 % and 4% of total government expenditure. In Italy, Germany and France, however, grants account for less than 53 40% of total regional aid expenditure, so that total regional incentives are significantly higher in those Member States. Germany and Italy, the large 'dual* economies, also account for most expenditure, around two-thirds of the total between 1989 and 1993 (Graph 21 ), although in Italy it is in sharp decline. Over the same period, the four cohesion countries together accounted for about one-fifth of total expenditure on incentives while together they had almost one-sixth of total population and just over one-tenth of total EU GDP. In these Member States the amounts of regional support are largely determined by the needs gener ated in co-financing the EU's cohesion policies. An intertemporal analysis reveals that Member States are spending less of their budgets on regional investment incentives over time. In a longer term perspective this is particularly true in Denmark, the Netherlands and the UK. Given that grants do not constitute the most important instru ment of support in Germany, Italy and France, which have among the highest absolute amounts of expenditure, and that the intertemporal devel opment of the other support measures is not known, a reduction in grants would not necessary imply that the importance of spatially-oriented pol icy is in overall decline in these countries. National regional incentive policies have played a necessary role in promoting EU-wide cohesion. The lessons learned and experienced gained in regional policy at national level have contributed significantly to the support for policies of solidarity and to the 21 Average annual expenditure on regional assistance in Member States, 1989-93 (ECU mn at 1993 prices) GR Chapter 3 Member State policies and cohesion: an overview quality of actions at EU level. In addition, in so far as they help the most disadvantaged regions, Member States' policies contribute to European convergence and cohesion. But while necessary from the point of view of cohesion at the EU level, national policies are not sufficient. First, since they are faced with generalised problems of lack of competitiveness across much of their terri tory, the intensity of expenditure in the cohesion coun tries — expressed per head of population in the assisted regions — does not always give them a significant advantage compared to many regions in northern Member States. The northern Member States concentrate their resources on a more restricted population in the worst-affected regions, typically between 20% and 40% of their total popula tion, often with some of the highest unemployment rates in the Union and other serious structural prob lems. As a consequence, expenditure per head is higher in the assisted parts of Italy, Germany or Luxembourg than in the cohesion countries (Graph 22). Across the EU as a whole, this has tended to mean that the concentration of resources on the assisted regions with the lowest GDP is not as clear- cut as it might be. In effect, and as discussed below, lack of budgetary capacity has reduced the impact of EU competition policies which permit higher rates of intervention in poorer Member States. As a result, the receipt of regional grants is determined at least as much by the Member States in which the region is located, as by needs. However, with the help of the EU's Structural Funds, the poorer Member States have been increasingly able to offer comparable sup port for regional investment to many northern regions. Secondly, in the absence of a decisive advantage with regard to incentives, the weaker Member States have more difficulty in competing with northern Member States where supplier networks are more developed and, in regard to producer services, often of higher quality. The superiority of business infra structures probably lies behind the research finding that the effectiveness of regional expenditure and the quality of the foreign direct investment (FDI) attracted (in terms of such factors as decision-making autonomy or innovative capacity) are higher the more developed the economy. Countries and regions with a long history of FDI attraction and experienced regional development agencies, such as Scotland and Ireland, succeeded in attracting higher quality investments. 54 Chapter 3 Member State policies and cohesion: an overview Thirdly, the widespread availability of grant support risks generating dead-weight, whereby incoming investors receive grants beyond the level required to make their investment profitable because of grant competition between countries. Finally, given the par ticular problems of urban areas, the degree of suc cess of urban policy seems to be lower than that of regional policy in general. 3. 4 Redistribution The Member States' redistributive policies change the distribution of income between persons through the flows of taxes and benefits. As a result of such policies the distribution of personal disposable income (PDI) can differ significantly from the distribu tion of income before taxes and benefits. The effects of these policies can be seen clearly at the regional level: since tax payments are related proportionately or even progressively to income, while benefits tend to be constant or even decrease with income, they involve involuntary but significant implicit transfers from high-income to low-income regions. As a result, the regional distribution of PDI per head within the Member States tends to be more even than the distribution of GDP per head. For example, Northern Ireland, the poorest region in the UK, has a GDP per head which is 68% of the figure for the South-East, the richest region, but its PDI after transfers is 85%. Similarly in France, Languedoc- Roussillon moves from 55% of the GDP per head of Ile de France to 71% in terms of PDI per head. The redistributive effects at the inter-personal level also result from expenditures on the provision of public goods and services, either free at the point of consumption or at subsidised prices. The inter regional redistribution of such expenditures is not transparent, and cannot be found in published accounts. They have had to be estimated for this Report. This analysis suggests that the regional disparities taking account of the effects of tax and public spending flows through national budgets are between 20% and 40% lower than the disparities in regional GDP per head (Map 12, which shows esti mates of the net amounts transferred in 1993). Member States' budgetary policies therefore make a contribution to cohesion, though primarily at the national level. National policies mostly concern aspects of social cohesion and tend to impact on regional cohesion indirectly. Study results suggest that even though public expenditure accounts for between 40% and 60% of national GDP, the net regional transfers are much smaller, equivalent to 4% of the GDP of donor regions or 8% of recipient regions. To the extent that national redistribution policies bring regional and personal disposable incomes closer to the national average, at the European level they also bring the regional-level disparities closer to the Member State-level disparities. As a result, they have an important role to play in promoting convergence and cohesion between regions at Community level. At the same time, they cannot substitute for EU-level policies. Since they are organised nationally, the transfers are not systematically related to differences in GDP on a European scale. For example, the East Anglia in the UK is of a similar level of prosperity as Bretagne in France and both are just above the EU average. But in terms of transfers their position is quite different. Bretagne receives net transfers equivalent to around 3% of its GDP from the French state, East Anglia transfers the equivalent of 3% of its GDP (again, in net terms) to the British State. The role of Member States' redistributive policies is to redress basic income inequalities and to widen 22 Average annual expenditure per head in assisted areas, 1989-93 ECU per head of «ligfbi* 140 rpopulation (at 1993 prices) i 140 120 -100 r- ••'-: • ;-•••. • -: •. : 4 ioo BOY ' v,mr •:;;-,- • ••. -•>••. A BO OR f M. P Dtq 0(W) I • DK f l ML «K NML 55 Chapter 3 Member State policies and cohesion: an overview Map 12 Net regional transfers in selected Member States, 1993 v\ i Chapter 3 Member State policies and cohesion: an overview opportunity and access to services. They serve an essential purpose in social terms especially in view of the need to combat poverty in the Union, as dis cussed in chapter 2 above. This means that transfers which support consumption predominate over those aimes at expanding investment. This is one of the differences with Community policies which are mostly concerned with the latter. Striking an appropriate balance in public expendi tures between the 'social' and the 'economic' is an ongoing difficulty facing national policy-makers. Thus, for example, the failure over many decades to effect long-term structural change in southern Italy in spite of large-scale transfers — which have neverthe less served to reduce household disposable income disparities — appears to be an example of too much of the former and not enough of the latter. In Italy, a new balance has now been struck, reducing the emphasis on purely income transfers which are difficult to sustain over the longer-term. This has meant, in effect, that policies for the poorer regions of the Mezzogiorno increasingly work to a Community- driven cohesion agenda which stresses structural improvement and competitiveness. As noted above, in the four poorer Member States of the Union, the political priority given to expenditures in support of regional economic competitiveness and develop ment, in the face of competing demands on the national budget, can similarly be traced to the lead given by policies established by the EU. 3. 5 Concluding remarks The preceding analysis provided an overview of some of the policy instruments and political choices deployed at national level in addressing issues of economic and social cohesion. These policies con tribute to reducing income and employment dis parities at national level and, indirectly, at Community level. They are, above all, the Union's primary defence against poverty. The evidence of chapter 2 suggests that, albeit in difficult economic circum stances, these policies have not been able to prevent a widening of regional and social disparities internally within the Member States. This inevitably has negative effects on the quality of life of sections of the population and on national cohesion, as well as on cohesion in the Union as a whole. It carries an additional risk of weakening over all efforts at the European level to promote solidarity to the extent that it contributes to disaffection in dis advantaged regions and among the unemployed and the poor. As indicated in the introduction to this chapter, there have been important constraints on the capacity for independent economic policy action by European governments over the last decade or so. Neverthe less, the preceding observations-provide cause for further common reflections on appropriate policy responses. In particular, they draw attention, firstly, to the role played by fiscal policies over the last decade. One result has been that the financial burden for repaying the public debt has increased on average by 1. 2 percentage points of GDP; in some Member States such as Greece, Finland and Italy the changes have been more dramatic. Under EMU, national budgets will have to be managed in such a way as to underpin the economic stability and maintain low interest rates while retaining sufficient flexibility to help smooth out the cyclical ups and downs in the economy. Budgetary discipline is therefore an essential medium- term objective and several Member States have already announced their intention to keep public finances in balance or even in surplus, partly in preparation for the longer-term effects of supporting an ageing population. Secondly, in relation to their overall budget, Member States typically devote relatively small sums to expen diture on strategic economic services (regional policies, research and development, trade promo tion, etc. ) which address long-term competitiveness problems. The issue of the correct balance between efforts to cure cohesion problems and those which seek to prevent them arising in the first place may merit further reflection in this context. In this regard, the Union has attempted to give a lead by reinforcing the priority within all Member States of efforts to promote investment for growth. For the weaker Member States, however, budgetary con straints inevitably limit their capacity to undertake the necessary rebalancing in favour of strategic expen ditures in the fundamental way required to promote catching up with the rest of the Union. Here, Union intervention can offer financial support for wide- ranging improvements in infrastructures and human capital. Chapter 3 Member State policies and cohesion: an overview 58 Chapter 4 The policies of the European Union Introduction One clear manifestation of the process of European integration is the wide range of areas where the Member States have taken a deliberate decision to pursue com mon policies. In each case there is a specific set of objectives, the origins of which can be traced, at least in a formal sense, to the provisions in the Treaties. These policies include those specifically targeted on improving cohesion, which are the subject of detailed analysis in chapter 5. The other policies — which are examined in this chapter — have other objectives, though in some cases, such as the trans-European network programmes, they include explicit reference to cohesion. But even where cohesion is not explicitly part of the objectives, different regions and social groups tend, nevertheless, to be affected differentially. The concern of the following analysis is not to carry out a critical assessment from a cohesion perspective of policies designed to pursue other objectives. Rather, it is to examine how, and to what extent, they have helped to further cohesion aims and to consider whether, and under what conditions, they could do more to further this end without being diverted away from the pursuit of their primary objectives. This is an important issue in an era of continuous pressure on public budgets, at both national and Community level. In both financial and efficiency terms, it makes sense, to take account, where relevant, of the effect on cohesion when designing policy measures and to take advantage of any opportunity for achieving multiple aims through a given set of actions. The Union policies examined here differ significantly in nature and scope, but can broadly be considered under four heads: agriculture and fisheries; measures to improve competitiveness — the single, or internal, market programme (SMP), research and development, competition policies, industrial and trade policies; network policies and energy; •transport, telecommunications • measures to improve the quality of life — social policy, education and training and environmental protection and improvement. 4. 1 Agriculture and fisheries policies Agriculture In expenditure terms, the most important policy of the EU concerns its interventions in agricultural markets under the Common Agricultural Policy (CAP). The market support or 'Guarantee Section' of the EAGGF (the EU's Agricultural Fund) alone absorbed almost half of the total EU budget in 1994. By ensuring the orderly development of markets, and removing the uncertainty from a sector characterised by long lead times in the production process, the CAP has helped to secure over several decades the sup ply of food for European citizens. It has also sup ported and stabilised incomes in a sector where employment has been under constant threat (see chapter 2) and for whom there are generally few 59 Chapter 4 The policies of the European Union alternatives. The CAP has had a decisive impact on activity in the sector: it has been estimated that half of the value of agricultural production is accounted for by these transfers. The CAP has also been the sectoral policy of the EU involving the largest redistribution of income among European citizens. Financial support under the Union's budget takes the form of a transfer of income from consumers and taxpayers towards agricultural producers. The difference between prices inside the Union and world prices, where these exist and where they can be considered as valid references prices, also gives rise, implicitly, to income transfers. Direct measures to improve the longer-term competitive ness of the agricultural sector are a separate, if related, aspect of the CAP, specifically addressed under another part of the EAGGF budget, the 'Guidance Section', which aims at improving farm structures. This involves only a relatively small propor tion of the EU's agricultural budget (around 8-9%) and its impact is considered later in Chapter 5. The CAP is a policy in a state of evolution, most recently with the 1992 agricultural policy reforms, which in turn has effects on the nature and extent of the implicit transfers. The 1992 reforms addressed the problem of rising surpluses for many agricultural products, by reducing price support and weakening the relationship between payments and output in favour of more direct support for farmers' incomes. As already indicated, in supporting farmers indi rectly through prices which are generally higher than world prices and directly through the pay ment of subsidies, the CAP also involves large implicit transfers between Member States and re gions, economic sectors and social groups. The CAP therefore has'an effect on cohesion. The following analysis considers the first-order effect of these transfers before going on to consider other effects. The mechanism through which such transfers come about is relatively complex: first, taxpayers in one Member State subsidise domes tic as well as other EU producers through direct payments and export refunds. Secondly, con sumers subsidise national producers through pur chases of domestically produced food, but they also subsidise producers in other Member States through intra-EU imports of agricultural products. Income is therefore transferred between Member States according to their differing patterns of pro duction and consumption. The income transfers generated by the market policies of the CAP have been estimated by external experts for the period 1989 to 1994 (the methodologi cal difficulties of doing this are discussed in the annex to this report). The data, therefore, contain information both for the period before and after the 1992 reforms (see Tables 4. 1 and 4. 2). The reforms, however, are not the only factor affecting the pattern of transfers: there are many others which determine the perfor mance of agriculture in any country in any given period and, accordingly, the net gains and losses under the CAP. The pattern of transfers between Member States Transfers under the CAP can be assessed for 1994, the most recent year for which a complete data set is available. This is an interesting year because it is the first complete one under the new CAP regime, though full implementation occurred only in the course of 1995/96. An examination of the overall gains and losses shows the following: • • the net transfers in 1994 were positive for five Member States. Ranked in order of the absolute transfer, the five are GR, E, IRL, F and DK. The explanation for the transfers varies, however, from country to country within this group. Typically, the northern Member States — especially DK and IRL — benefit more from trade transfers because of patterns of specialisation which favour produc tion in the more protected sectors. The southern Member States—GR and E — tend to benefit from direct payments. France also gains substantially through trade — in 1994, it had the largest positive effect from trade with EU partners of any Member State — but it received even more in the form of direct payments. the net transfers were negative for the remaining seven Member States. Of this group, the three large Member States, D, IT and UK, made substantial gross contributions to the EU's agricul tural budget in the same way as FR, but unlike for the latter, the trade effects were negative in each case while direct payments were substantially lower. The BENELUX countries all experienced positive trade effects. Agriculture in Belgium and 60 Chapter 4 The policies of the European Union The development of market policies under the CAP The traditional CAP was based mainly on market price support of farm output. This particular approach to agricultural policy, being directly related to domestic supply, succeeded in generating a rapid increase in agricultural production and self-sufficiency within the EU. In the first years of the CAP, border protection, apart from allowing higher domestic prices and farm incomes, also provided an extra source of financial resources for the EU budget. The costs of the policy were borne almost exclusively by consumers. From the end of the 1960s onwards, expanding domestic supply relative to domestic demand created surpluses of dairy products, me^t and cereals with the result that the EU had to provide incentives to promote exports. In effect, European consumers and taxpayers were faced with a situation of ongoing support for the incomes of farmers through higher agricultural prices than world levels, combined with the increasing costs of surpluses in the form of export subsidies, storage and disposal costs. In view of the changing circumstances, the EC Council of Ministers decided in 1984 to introduce production quotas for dairy farmers to limit the budgetary costs which were particularly high in the dairy sector. By directly restricting supply, the objective of reducing surpluses and associated costs was reached, although this did rather less to change underlying agricultural structures. A further step towards balancing demand and supply was taken a few years later by taking land out of production under the land set-aside scheme. While savings on budget expenditure were achieved the overall efficiency of the agricultural sector was not improved. In view of ongoing pressures, including a preoccupation with the very variable effects of the CAP on different parts of the Union, a major reform was introduced in 1992 which had effects on important product sectors of EU agriculture: cereals, oilseeds and meats. Its main aim was to balance supply and demand by giving a greater role to the market mechanism. The reform also sought to break the link between support to farmers and the quantity of production. Payments to farmers are now based on historical yields. At the same time, compensatory payments remain linked to the area cultivated by each farmer, but they are limited by regional or individual ceilings. Meanwhile, accompa nying measures seek to reduce over-supply and improve the environment by encouraging less intensive farming, the afforestation of agricultural land and early retirement schemes for farmers. Estimates of net transfers under the Common Agricultural Policy The calculation of transfers associated with the CAP was undertaken by external experts. It requires a complex analysis and a number of simplifying assumptions, due to the individual nature of different agricultural markets and the fact that for some products, there is no international reference price. Transfers between Member States Transfers from taxpayers in each country are estimated by assuming that the share of each in the EU agricultural budget equals the sf. are of its contribution to the overall Community Budget. Transfers from consumers are estimated by multiplying the amount of each product available for consumption in each country by the EU 'price support'. 'Total support' is based on OECD data used to calculate PSFs (Producer Subsidy equivalent) and CSEs (Consumer Subsidy Equivalent). Because these data relate to a period before the Uruguay Round Agreement, they may not necessarily reflect the relationship between EU prices and world prices after the agreement. This could mean that the scale of EU price support is over-estimated. Since the OECD does not compute support rates for fruit, vegetables, wine and olive oil, these had to be estimated. Transfers between regions Food consumption per head and average tax rates are assumed to be the same across all regions in each Member State. Both assumptions are likely to mean that the burden on richer regions is under-estimated in relation to that on poorer regions, and more refined assumptions might, therefore, produce a greater cohesion effect. 61 Chapter 4 The policies of the European Union Luxembourg is relatively specialised in more pro tected products, but this was more than offset by the negative effects of transactions with the agri cultural budget. The data suggest that the position has changed over time. For the five Member States for which transfers are currently positive, all have experienced increas ing transfers over the period. For Spain and France, the effect has been to transform their position from one of net loss to one of net gain. For the remaining Member States the position of net loss has been maintained and only in the UK were the net losses substantially reduced, especially in the period after the reform. The position of the four weakest Member States A priori, it could be expected that the cohesion countries would benefit from the CAP if only because they have proportionately more agricul tural producers than the more prosperous and more urbanised northern Member States. In the past, this has been offset by a pattern of support under the CAP which was related to the produc tion of certain livestock products and cereals. These are products of particular importance for climatic and other reasons in northern Member States. The 1992 reforms, took an important step away from this system and the pattern of transfers to which it gave rise appears to have had the expected effect of giving more support to poorer countries with more agricultural producers. In par ticular, it reduced the burden on consumers in poorer Mediterranean countries by reducing the prevailing prices of cereals and of beef/veal for which they are net importers. Countries with higher dependence on agriculture also benefited from moves towards direct payments financed by taxpayers. As a result, and as shown above, three of the poorer Member States — GR, E and IRL — were net benefi ciaries from the CAP in 1994 compared to two, GR and IRL, beforehand. For Greece, the gains come from a combination of high direct payments (mainly to cotton and tobacco producers) and its low con tribution to the budget. It has experienced (smaller) losses from trade because of lower protection rates for its exports (mainly fruits and vegetables) and higher protection for its agricultural imports (mainly livestock products). Ireland has gained because of positive trade transfers (it exports highly protected agricultural products), but also because to its rela tively low contribution to the agricultural budget. Spain benefited from direct payments after the re form, the main factor in turning its position from net contributor to net beneficiary, although it also has important receipts from the effects of trade. One of the four cohesion countries, Portugal, how ever, has remained a net loser under the CAP even after the reform, despite low budgetary contributions. Its high employment in agriculture is offset by very low agricultural productivity, which is combined with a structure of production resulting in a relatively low level of direct payments and a pattern of exports of agricultural products for which the level of price pro tection is also low. Overall, it appears that in managing Europe's agricul tural markets, the CAP has had the effect of creating a system of implicit transfers which has yielded posi tive transfers of income to three of the four poorest Member States. With the reforms of 1992, the cohe sion effect has been reinforced, most notably by transforming the position of Spain to one of net benefi ciary. At the same time, benefits flow to two of the more prosperous Member States, Denmark and France, which have both experienced significant im provements in the period after the introduction of the CAP, while one of the two poorest and most agrarian countries, Portugal, remains a net loser. Indeed, when the transfers are expressed in relation to a standard farm unit ('agricultural work unit' or AWU) the intensity of support is now highest for Denmark, one of the EU's most prosperous Member States. It remains possible, however, that the improvement in terms of cohesion may become greater as the reform policies are consolidated, though this needs to be monitored as further information becomes available. Regional patterns The CAP also has a differential effect on the Union's regions and the areas within these where agriculture is concentrated, though for data rea sons it is not possible to measure the effect on the latter. Examining the position in each Member State individually, it is possible to discern a posi tive effect of policy on the distribution of income between regions (Maps 13 and. 14). Typically, the 62 Chapter 4 The policies of the European Union regions with net benefits are mostly the lower income ones while the higher income regions are generally among the losers. Again, this results from agriculture being proportionally more import ant in the poorer regions, while other economic activities are more concentrated in urbanised areas in the more prosperous regions (indeed, dependency on agriculture tends to be inversely related to levels of income). Moreover, the costs of the CAP price support to consumers in rural and poorer régions tend to be lower than the benefit accruing to farmers producing there. As a result, a flow of income is generated from richer to poorer regions. This positive effect of agricultural price support on regional cohesion within Member States increased in the period after the 1992 reform. In fact, the switch to direct income support financed by the taxpayer seems to have increased the costs borne by the richer urbanised regions. This is considered in more detail below. Regions in the cohesion countries In the four poorest Member States, regions outside the major urban centres generally benefit most from transfers under the CAP. As a result, in Greece, for example, which is a net beneficiary overall, the metropolitan area of Attiki was a net loser in 1994 because of its urban, non-agrarian character. In Portugal, a net contributor overall, two regions were net beneficiaries, Alentejo and Centro, which are also the poorest regions in the country. Moreover, both experienced an increase in net transfers in the post- reform period. In other Member States, there are considerable regional variations in experience. In Italy, some richer northern regions where agriculture is important as well as highly productive — such as in Emilia Romagna and Veneto — benefit in net terms from the price support policy, while poorer and very populated regions in the South such as Campania,^despite having large agricultural sec tors, are large net losers. Poor and less densely populated regions such as Abruzzo and Basilicata receive significant net transfers per head of popu lation. In Germany, the position in the regions of the former GDR differs markedly from that in the rest of the country. Since the former have a low average income per head and a relatively large proportion of employment in agriculture, they have generally gained in net terms and more so since the reform. The vast majority of regions in France, the largest agricultural producer in Europe, already benefited from the price support policies before the reform. However, the high concentration of population, income and consumption in the capital region, Ile de France, has offset some of the gains accruing to the country as a whole. At the same time, net transfers to French regions generally increased after the reform. In the UK, the pattern of net transfers is highly differen tiated. The poorer regions (Northern Ireland and Wales) are net beneficiaries, while the richest and highly urbanised South East region is a net loser. On the other hand, the cereal-producing East Anglia, which is among the richest regions gains, while the less prosperous North England region is a loser. The reform appears to have slightly accentuated these differences. Income transfers between social groups An argument traditionally advanced in favour of the CAP is that it has a positive 'social' effect, in that leads to income being transferred from richer urban resi dents to poorer people living in rural areas. This has, indeed, been largely true in many countries insofar as average farm incomes are lower than average non- farm incomes. The analysis above confirms this at a territorial level, in the sense that the EU agricultural price policy transfers income from richer urban regions to poorer rural ones. This conclusion needs to be seen in the context of the following considerations. When internal prices are markedly higher than world market prices, and if these are valid reference prices, agricultural price support can be regarded as the equivalent of a re gressive tax on consumers since low income house holds spend a higher share of their budget on food. At the same time, if agricultural support is linked to production capacity without any limitation, it transfers income to farmers in proportion to their size, so bene fiting larger agricultural enterprises more than smaller ones. Before the 1992 reform, when agricultural sup port was provided essentially through protected prices, some estimates suggested that 80% of trans fers went to the 20% most profitable farms whose income is often higher than average non-farm in comes, while small farmers benefited less. In its pro- 63 Chapter 4 The policies of the European Union Map 13 Net transfers between regions under the CAP (market policies), 1991 yjlE/\ i 64 Chapter 4 The policies of the European Union Map 14 Net transfers between regions under the CAP (market policies), 1994 x- w f ^ / ' f V ^ ' ,^ I I. • 65 Chapter 4 The policies of the European Union posais for the reform of the Common Agricultural Policy, the Commission had proposed ceilings on direct aids but these were only partially introduced. Since the reform, the gaps have, therefore, persisted, even if they have been reduced. aged and provide little alternative employment. Some 70% of fisherman, and 60% of jobs in the fisheries sector as a whole, are concentrated in Greece, Spain, Portugal and southern Italy which have the lowest levels of average GDP per head in the Union. Longer-run effect on competitiveness The CAP leads to improvements in farm incomes through the 'rational development of agricultural pro duction' or structural adjustment. But the method of support which has been used, income transfers generated through supporting prices, could reduce incentives for change, encouraging labour to remain in agriculture and impeding improvements in effi ciency. By prolonging the involvement of marginal producers in agricultural production, the CAP has a positive influence on employment in a sector which is suffering a long-term decline in areas where there are often few alternative jobs for the workers concerned. On the other hand, in Member States with small sizes of farm, achieving a more competitive structure is a necessary part of the development of agriculture and the economy over the longer-term. Against this background, the effect of the 1992 reform on competitiveness is a mixed one. The market orien tation of prices has favoured efficiency and should, over the longer-term, encourage structural adjust ment towards a smaller number of viable farms capable of guaranteeing a sufficient income to the work force, so reducing dependence on the protec tion traditionally offered by the CAP. Particularly in the poorer regions, existing sizes of farm (often less than 2-3 hectares) are too small either for modern tech niques to be adopted or to provide sufficient income for a farming family. In general, the Commission has indicated that the maintenance of the current situation is not a solution and it is necessary to pursue the approach of the 1992 reforms, introducing improve ments and extending it to other sectors. Fisheries policies The Common Fisheries Policy (CFP), first established in 1970, is centred around four major areas: structural measures/conservation of resources, organisation of markets and international agreements. Most of the re gions that depend heavily on fishing and related activities are coastal and on the geographical periphery of the EU. Many are relatively disadvant Like other economic sectors, the sector suffers from over-capacity of production; at the same time, it is currently over-exploiting a renewable natural resource. Reducing the fishing effort has in the short run a negative impact on the level of employment in the regions concerned; in the medium term, on the other hand, the improvement of the competitiveness of the sector will help to sustain the industry, arrest its decline and maintain jobs in less-favoured regions. Apart from structural policy covered by the FIFG which is analysed in chapter 5, the CFP has a number of potential effects on cohesion: • • • the policy of conserving fish stocks at sustainable levels and, where required, of rebuilding them, also entails protecting the areas and social groups par ticularly dependent on fisheries. Conservation measures have also been accompanied by special provisions to meet the needs of small enterprises and individuals located in dependent areas; the Common Organisation of Markets for fisheries and aquaculture products encourages producers to organise themselves efficiently, so reducing the risk of business failure and contributing to social cohesion. The principle of 'regional coefficients', which makes it possible to maintain lower prices in the less-favoured regions furthest away from the major marketing centres, facilitates their access to markets and so helps reduces regional disparity. through fishing agreements with third countries, fish ermen can continue to operate in traditional remote fishing fields, so helping to maintain employment in the less favoured parts of the Union, in Spain and Portugal, especially, but also in other countries. 4. 2 The single market and competitiveness policies One of the major preoccupations of the Community since its foundation has been the competitiveness of 66 Chapter 4 The policies of the European Union the European economy in the face of intense and growing international competition. A range of policies have been developed at Community level in an effort to raise efficiency and to exploit technology and inno vation more fully. At the same time, a key issue concerns the distributional effects of these and the extent to which they address the particular needs of weaker areas and disadvantaged social groups. The Single market programme One of the most far-reaching factors for change in recent years has been the single market programme (SMP), which comprises the legislative measures im plemented over the period 1988 to 1993, as a follow- up to the Single European Act in 1987. These have been aimed at achieving free mobility of labour, goods, services and capital, through: • the removal of customs formalities, the opening-up of public procurement to competition and the establishment of common technical standards in production, packaging and marketing; • the removal of constraints on capital flows and the establishment of a European labour market. The SMP was part of a larger policy package com prising both the specific measures relating to mobility and accompanying policies for facilitating their implementation, notably with regard to deregulation and the promotion of competition. The SMP has had more general benefits on quality of life, and not just on economic efficiency, by guaran teeing freedom of voting rights, etc although these aspects are not the focus of attention in the present analysis. It is difficult, however, to distinguish the effect of the SMP on cohesion from other developments which took place at the same time, such as the economic upturn in the second half of the 1980s, the entry of Spain and Portugal into the Community and Structural Fund assistance in the poorer regions, especially after 1989. All that it is really possible to conclude is that this combination of events led to a significant boost to growth in three of the four countries. 1993 than it would have been had pre-1987 growth patterns persisted. Detailed analysis suggests that the SMP was one of the factors contributing to this improvement, though the effects seem to have varied considerably between regions. In principle, the direct benefits from the SMP include one-off effects on the level of output, from the opening-up of markets and new opportunities for exporters and investors as well as the spur to efficiency from a more competitive environment, and a longer-term improvement to pro ductive potential from increased investment in plant and machinery and labour force skills. In the case of Ireland, the one-off effects appear to have been positive with higher output in the post-1987 SMP period from an increase in trade, improvements in efficiency and competitiveness in most sectors and greater specialisation in the export of high quality products. Moreover, the SMP has been accompanied by increased investment and improved potential for higher long-term growth, though, of course, this is not to imply that the SMP alone was responsible for this. In Portugal and Spain, the SMP was also associated with even more significant improvements in economic performance, though its effect cannot be isolated from that of accession. The expansion of trade, coupled with increased competitiveness and spe cialisation in both up-market and lower quality pro ducts, has improved economic efficiency, while larger inflows of direct investment, particularly in Portugal, have increased the pace of technological advance. Only in Greece are there few signs of improvement in the post-SMP period. While trade and inward direct investment has increased, overall investment and the skill profile of the labour force, and so underlying growth potential, have not changed much. Indeed, the SMP may have had negative effects on growth and employment. In Southern Italy, both the one-off effects on efficiency and longer-term effects on growth appear to have been mildly positive, but too small to change the pattern of development signifi cantly. Industrial competitiveness policy An examination of trends shows that in the four cohe sion countries taken together, GDP was 9% higher in At the Union level, the aim of industrial competitive ness policy has been to identify specific priorities for strengthening the industrial base which can be 67 Chapter 4 The policies of the European Union pursued through other measures, notably the Union's structural policies. Three of these priorities are worth highlighting in the context of this report. The first is the modernisation of public authorities, where a major programme concerns the Integration of Administrative Data (IDA), which should provide more effective services, easier access to European information, and more effective European administra tion. By improving the diffusion of information to the less developed regions, in particular, it will reduce disparities between 'info-poor' and 'info-rich' areas. The second concerns the promotion of intangible investment in relation to both upstream (marketing, product design, strategic and operational manage ment) and downstream (distribution and sales) stages of production. The effect of this on cohesion is uncertain. There is a risk, in particular, that the growth of intangible investment will reinforce the competitive position of large metropolitan areas since they already have an advantage in the provision of service- s, the supply of highly-qualified executives and the efficiency of communications, such as nodes in major computer, telecommunication, road, rail and air trans port networks. Union-financed initiatives under the Structural Funds have been directed at counteracting this risk by trying to bring about a more even regional distribution of opportunities. The third priority is to increase co-operation between firms. The formation of inter-firm networks could become an increasingly important factor for survival for firms in less-developed parts of the Union. Current initiatives include policies to promote cooperation with Central and Eastern European countries with the aim of constructing an international network of enter prise advisory agencies, such as chambers of com merce, banks and consultancies. At present these networks are used by enterprises in cohesion regions especially which do not have support networks of their own. These are largely SMEs, which are more important in the poorer parts of the Union, rather than large transnational companies. Other initiatives are pursued in the context of SME policy (see below). Competition policy An essential complementary measure to the SMP has been outlaw other forms of restrictive practice which could distort the market. Competition policies attempt to prevent the excessive concentration of market power in the hands of a single or limited number of producers and unjustified State aids which might impede free competition. They are, therefore, aimed at improving efficiency rather than improving geo graphical cohesion. To the extent, however, that mar ket distortions are more widespread in the poorer Member States and regions, then their removal could have an indirect, positive effect on efficiency and growth in these areas. More directly, the allowance given in special cases for subsidies under national systems of regional assistance, as in the previous chapter, are com patible with the SMP so long as they contribute to economic development in the weaker regions and have only a minor effect on competition. In addition, EU competition rules also cover aids for horizontal objectives, such as R&D, environmental protection and the support of SMEs as well as sectoral aid for sectors in crisis, such as steel and shipbuilding. During the period 1990-2, the latest period for which data are available for all Member States, 50% of all aids given by Member States were of a regional kind, some 38% of a horizontal kind and the remaining 12% sectoral. National aid for regional development The Community recognises two types of region that are eligible for regional aid: the least developed areas with an abnormally low standard of living or serious unemployment problems (so-called '92(3)a' regions) and those with other problems (so-called '92(3)c' regions), mostly of industrial decline. The aim has been to target regional aids so as to offset the effects of lack of competitiveness. At the same time, there has been pressure from Member States to widen the coverage of eligible areas in some of the more central parts of the Community (to increase 'Art. 92(3)c' coverage). In practice, this has been largely resisted and during recent revisions of assisted area status, the share of population covered under all types of aid has re mained broadly constant (though there the coverage of least developed regions has increased slightly from 23. 9% to 24. 9% of Community population and that of other regions declined from 23. 6% to 22. 8% — in particular, assisted areas in the western part of Germany were reduced from 24% to 16. 8% of na- 68 Chapter 4 The policies of the European Union tional population and assisted areas in Italy (under '92(3)c') were increased from 5. 6% to 14. 7% of popu lation) The most disadvantaged regions of the Community are most favoured under this policy. While the four cohesion countries have the status of assisted areas either in their entirety (Portugal, Greece and Ireland) or mostly (Spain with 76%), coverage in most other Member States is between 35% and 49% of popula tion, while in those with high levels of income per head and low internal disparities (Denmark, Sweden, the Netherlands), coverage is below 20%. Union policy also differentiates in terms of the scale of aid allowed, which is significantly larger in regions with an abnormally low standard of living or serious unemployment problems than in others assisted. Overall, more than 66% of regional aids from national sources go to areas classified as least developed, which covers the poorest areas of the Community. Nevertheless, the effective scale of aid allowed is often much greater than the assistance actually given by Member States. This is particularly so in Spain and Ireland which, partly because of lack of resources, only grant assistance of 40% of the permitted level, whereas in Belgium and Germany, the figure is around 60-70%. As a result, the intended advantage accruing to the poorest countries is not realised. Recognition of this problem was one of the factors which has led to regional aid ceilings being reduced. In practice, as noted in chapter 3, a large proportion of regional aids are granted in just two Member States, Germany and Italy, mainly because of their large problem areas combined with the fact that they have the resources to spend. The poorer Member States depend to a greater extent on the Structural Funds to fund regional assistance but even including ERDF spending, total aid per head in assisted areas in the cohesion countries is only between 6% and 30% of Italian levels. (The interrelationship between national and Community regional policies is dis cussed in chapter 6 below). Horizontal and sectoral aid aids now account for only 12% of all assistance to manufacturing industry — because of the fall in sub sidies to steel, horizontal aid, for R&D, SMEs, environ mental protection and energy savings, accounts for 38% of the total. These forms of aid, however, particularly for R&D, are likely to have an in-built tendency to favour the richer regions of the Community, where the re search centres of the major companies are con centrated. Studies of the regional distribution of Community R&D aid during the period 1983-90 confirm this. Such support, therefore, tends to run counter to cohesion objectives. Moreover, similar studies on the regional distribution of State aid for R&D in several large Member States indicate that this has also been concentrated in the most pros perous regions. In addition, government-funded R&D has been significantly higher relative to GDP in the richer Member States than in the poorer ones (see chapter 3 above). Research and Technological Development policy Since 1985, four RTD framework programmes have been the vehicle for RTD (research and technological development) measures in the Union (1985-88, 1987-91, 1990-94, 1994-98). It is a policy which involves significant expenditure, though the frame work programmes account for only 4% of total public civilian research effort in the Union. Although their main objective is to increase interna tional competitiveness, the programmes also help develop RTD capacity in the relatively weak parts of the Union and to strengthen their structural develop ment. While high unemployment in Europe and the difficulty of people to find jobs are often blamed on technological progress, innovation and the dissemi nation of know-how are key determinants of economic development. However, the non-introduction of new technologies and the 'freezing' of existing production structures, are not viable options, especially in less developed regions where there is a major need to increase the adaptability of the work force and the pace of technological change in firms. Control of State aid also extends to horizontal and sectoral assistance. Under competition rules, the scale of aid allowed is higher in regions eligible for national assistance. While, as noted above, sectoral Given the importance of developing RTD in less favoured regions, in 1993, the Commission out lined a first approach aimed at increasing the 69 Chapter 4 The policies of the European Union synergy between RTD and cohesion policies (COM(93)203), with the objective of strengthening the RTD capacity of such areas and ensuring a high level of research effort right across Europe. This approach will be developed further in a Commission Communication on cohesion and RTD policy in 1997. The basic principle governing the selection of RTD projects for support is itself a factor for cohesion in guaranteeing participants from the most disad vantaged regions access to international research in a Community-wide scientific and technological area. Regional imbalances in RTD in Europe The search for a better complementarity between the RTD and structural policies confronts two basic facts. On the one hand, there are disparities between re gions in terms of competitiveness, which cohesion policy is aimed at reducing. On the other, there is a need to ensure that regions and local areas have the capacity to take advantage of scientific and techno logical developments necessary for competitiveness, notably through the dissemination of know-how linked to the pursuit of excellence. Within the Union, Germany and France have the highest levels of public expenditure on civilian RDT. Of the 50,311 million ECU spent by Member States in 1993, Germany and France together accounted for 30,234 million ECU, 60% of the total, while Ireland, Portugal and Greece together spent only 672 million ECU between them, under 11/2% of the total, and Spain, 2,049 million ECU, just 4% of the total. The difference in public expenditure on RTD per head of population between Member States is 13 to 1 whereas for GDP per head (in ECU terms), it is only 5 t o i. Moreover, spending is very unequally distributed within countries, so that at the regional level, dif ferences are even wider. Almost half of European research takes place in 12 'islands of innovation', in the so-called 'Archipelago Europe' running from London to Milan (and including in between Amsterdam/Rotterdam, Ile de France, the Ruhr, Frankfurt, Stuttgart, Munich, Lyon/Grenoble and Turin). These islands have dense networks of enter prises and laboratories and interact in the develop ment of new products and processes. This imbalance between regions has tended to be reduced since 1989, partly as a result of Structural 23 Support under RTD Framework Programme, years 1987-90 (ECU mn) 24 Support under RTD Framework Programme, years 1991-94 (ECU mn) Note: The data measure the level of expenditure in EU contracts according to the location of the contractors. They do not, therefore, show one of the main features of RTD programmes which is to bring together, via a single contract with the Commission, partners located in several Member States and regions. They can only be a partial guide to the total benefit which different regions derive from EU RTD programmes, since each partner has access to all the results of the project or projects in which they are involved. Expenditure data are an indicator of interest in different scientific projects. 70 Chapter 4 The policies of the European Union Fund support, 5% of total expenditure under the Funds being devoted to measures linked to RTD. This, however, has not been sufficient to close the gap with central regions in terms of the conditions necessary to benefit from the diffusion of best practice. A positive but limited contribution to cohesion The growth of the cohesion countries has been associated with a significant increase in both public and private expenditure on RTD. Gross domestic spending on R&D in Portugal went up from 0. 4% of GDP in 1985 to 0. 6% in 1992, in Greece, from 0. 3% in 1985 to 0. 6% in 1993, in Ireland, from 0. 8% to 1. 2% between the same years and in Spain from 0. 5% in 1985to0. 9%in1994. Union support has helped disadvantaged regions participate better in framework programme, al though the data confirm the relevance of Archipe lago Europe: almost half of the total amount of contracts under the RTD framework programme goes to nine regions which together account for only 28% of population (Graphs 23-25). The par ticipation of the cohesion countries in successive programmes, however, has gradually risen, even if slowly, and they have increasingly developed links with partners in the North of the Union. In 1995 alone, slightly more than 14,000 separate links were created in the four cohesion countries as a result of framework programmes. Nearly half the partnerships, however, under the second and third framework programmes were with the UK, France and Germany. Complementarity with structural policies should enable the synergy to be improved which is essen tial to raising competitiveness in cohesion coun tries and less developed regions and to allow firms and research centres to participate in, and benefit more from, policies in this area (see Box on the Fifth Framework Programme). A complete evaluation needs to go further and con sider the quality of intervention and its relevance to the industrial needs of weaker regions and not just the financial contributions from Union RTD policy. The Fifth RTD Framework Programme The guidelines proposed by the Commission in its Communication 'Inventing tomorrow* emphasises a number of themes among the six priorities proposed ; which are particularly important for cohesion: • the development of human potential, especially in relation to the training and mobility of re searchers, whose experience under previous programmes Has shown the value of this kind of ,, action for less favoured regions but which re- \ ,1 mains to be, developed; ; v' ;# -;;'"C, • '". ~ ' • a greater'effort to stimulate innovation and the dissemination of results and, in particular, to increase the, participatibn of SMEs, which is necessary condition for the structural develop ment of weaker regions; • the development of the Information Society, which raises,questions about the access of those in weaker regions to advanced services which is as important to them as for those in more developed, centra) regions. 25 Indicators of RTD, 1987-94 ECU 1» r •SpttxSng pm h nd ( M i n k) •Spwxtng par RTD pwrcnrwl (right mfc) 90 i» ;*: 12000 9000 6000 3000 4?' "• à Otrwr 71 Evaluation of the Framework Programmes provides a number of insights into quality aspects of the partici pation of the four cohesion countries: •SW^S^*-, > Arohfcitecp! EUR4 The Innovation Programme Under-the Fourth Framework Programme of Community activities in RTD, a specific programme, the Innovation Programme, has being established to disseminate the results of research activities. It has three interdependent aims: • • • to help create an environment favourable to innovation and the absorption of new techno logies by enterprises (including promoting Inno vation Management Techniques and the European Innovation Monitoring System); to encourage the development of an open area in Europe for the diffusion of new technologies and know-how (including through Technology Transfer Projects and Innovation Relay Centres); to stimulate the supply of appropriate techno logies to this area (including through Technology Validation projects and assistance in patenting and exploiting innovations). The programme covers regional measures on inno vation, such as Regional Innovation Strategies and Technology Transfer Projects. The purpose of all the measures is to help firms in Europe compete more effectively on world markets. As stated in the Green Paper on Innovation, support is best provided at the regional or local level, where, for example, small firms can be encouraged to pool resources and to make the most of their comparative advantage in order to be able to compete with larger firms. The programme aims to cater for the true needs of firms which is essential for strengthening RTD output and making the most of the strong scientific base which exists in Europe, but which in the past has proved less successful than that in other countries in converting new ideas into tangible new products and processes. • participation is proportionately higher for research institutes and/or universities rather than the private sector and industrial parti cipation is largely by SMEs, mainly be cause these countries do not have many large firms; Chapter 4 The policies of the European Union involvement from cohesion countries and regions than others; • the main benefits gained from involvement are the acquisition of scientific knowledge and skills and training in the application of this knowledge. (A majority of the enterprises from these countries identified their main gain as being new products and processes launched within three years); • as with the Framework Programmes generally, the rate of continuation after the end of the contract is relatively high. For example, 18% of Greek participants reported that they had formed permanent links with EU partners and 54% fre quent links. Smaller firms are a more important vehicle for invol vement in EU programmes in the cohesion countries than in other countries, but they seem to have more difficulty in obtaining maximum benefit from the pro grammes, a problem which has been addressed in the third and fourth framework programmes — for example, through measures to stimulate and simplify the participation process (in particular through the CRAFT programme), to assist with the dissemination of results and to help convert them into new products and processes. Detailed investigation shows that the southern coun tries have increased their participation in the frame work programmes over time. They also tend to link up with partners in the North, if sometimes only as sub contractors. In the second and third framework pro grammes, half of the links involving the four cohesion countries were with Germany, France and the UK. It also indicates that the best institutes tend to club together, notably those in Portugal and Greece which have formed close links with their northern equival ents. A major risk of this is that the research agenda loses its relevance to the development needs of the poorer countries. In other words, while the benefits in terms of developing scientific knowledge, skills and managerial capabilities may be real, an over-em phasis on research excellence may tend to exagger ate the divide between academic and applied research, the latter being particularly important in the poorer countries. • certain programmes notably ESPRIT and BRITE- EURAM seem to have attracted higher levels of The framework programmes have attempted to address research issues which are directly relevant to the industrial needs of weaker regions. One Chapter 4 The policies of the European Union example is the textile programme in the BRITE- EURAM Initiative which succeeded, through process automation, to maintain established textile firms in Europe or even to attract back some of the production which had relocated to other parts of the world in search of low wages. This suggests that programmes aimed at diffusing new process technologies, even in traditional, low tech industries, may have consider able pay-off. (The dissemination of RTD results have been reinforced in the fourth framework programme by the provision for 1% of all specific programmes to be dedicated to this purpose, along with the third activity innovation — see Box on the Innovation Programme. ) Finally, reflecting an increasing attempt to create synergy between RTD and cohesion policies, the research staff of a number of institutions newly estab lished with assistance from the Structural Funds are receiving help under the "Training and Mobility of Researchers" scheme in the fourth framework Programme in the form of a supplementary year of grant when they return to their region, and subsidies to equip their laboratories. SME policy EUROPARTENARIAT and INTERPRISE EUROPARTENARIAT and INTERPRISE pro grammes support the organisation of business meetings and events where representatives from SMEs can meet and discuss co-operation prospects with their counterparts from other countries. The former consists of 2 events a year with over 2000 companies at each, while the latter comprises 40-50 events a year attended by an average of 100 companies. Both are relatively concentrated in assisted regions. The organisation of events to fur ther industrial cooperation such as round tables and fairs (IBEX, International Buyers' Exhibition in strategic sectors) is also generally of more benefit to cohesion countries. A further policy area aims at facilitating access to RTD. A pilot action is EUROMANAGEMENT RTD, which funded on a 50% basis 47 consulting organi sations specialising in research, technological de velopment and innovation for SMEs, selecting nearly a thousand SMEs and then implemented strategic planning, analysis of needs, partner search and assistance for designing RTD projects in 1995. Some 26% of SMEs participating came from cohe sion countries. ) SME policy is aimed at improving the business envi ronment, fostering Community information and trans national cooperation between firms and increasing access to R&D and finance. information about such issues as new technologi cal opportunities and potential new suppliers or customers. SMEs are a significant element in the economy, accounting in 1992 for 67% of employment in enter prises in the Union and 65% of turnover and being oarticularly important in distribution (89% of employ ment) and services generally (7772%) and less im portant in industry (where large firms account for 401/2% of employment and 5272% of turnover). Their particular advantage as regards cohesion is that they tend to be more labour and less capital intensive than large firms and so tend to provide more jobs per unit of output, while being well suited to the weaker and peripheral regions where capital shortages are often a problem. Information, inter-firm co-operation and access to RTD and finance are among the most important as pects of Union SME policy. European Information Centres (EICs) disseminate information on markets, customers, the potential for cooperation, sub contracting and so on. They also provide details of policy matters, such as EU funding, public procure ment and environmental regulations. The network comprises 226 centres in EU countries and has links to 25 centres in Norway, Iceland, Central and Eastern European and the Mediterranean countries. There is a strong cohesion orientation with 160 of the centres (71 %) located in areas elegible for Union regional aid. A quarter of the 300,000 enquiries answered each year come from the four cohesion countries. The main problems faced by SMEs are the lack of start-up capital and of suitably skilled workers, especially managers. They can also have difficul ties coping with a complex legal and adminis trative environment and may lack access to To promote transnational and inter-firm cooperation, the Business-partner search networks such as Busi ness Cooperation Network (BC-NET) and the Bureau de Rapprochement des Entreprises (BRE) have been 73 Chapter 4 The policies of the European Union developed. Half the correspondents in BC-NETs and 54% of the correspondents in BRE were from assisted regions (table 4. 7), the most intensive users being, in order, Portugal, Belgium, Italy and Ireland. The final policy area is access to finance and credit. The Seed Capital pilot scheme, for private venture capital investing in new innovative enterprises, sup ported the creation of 23 independent investment funds, which, between 1989 and February 1995, invested 26. 6 million ECU in 228 new innovative en terprises. Among the poorer Member States, how ever, only Spain with three funds is an active participant in the scheme. Ireland has only one and Greece and Portugal none at all. The SME facility introduced by the 1993 Copenhagen European Council for subsidising loans was designed to support employment creation in SMEs. Take-up has been virtually 100% in the most pros perous countries, but only one fifth of the funds earmarked for Greece and Portugal have been used. Take-up has been somewhat higher in Ireland and Spain (around 80%), but this underlines a major prob lem in SME policies, in that they are inherently de mand-driven, so take-up is highest in Member States with the most dynamic firms (and where there is a well developed service sector). These Member States tend to be the richer ones. This implies that, while all SME policies are directed in some degree towards improving cohesion, lack of take-up makes this difficult to achieve, in practice. Greece, in particular, seems to have difficulties in providing active participants for most programmes, while the other three countries have fewer problems. the long run, the increased incomes which an open economy helps to support provides not only a stronger demand for the output of less favoured areas but also greater resources for the funding of regional development. At the same time, the removal of trade barriers requires adjustments to patterns of produc tion which can be unevenly distributed both geo graphically and socially. Nevertheless, given the positive effects of trade liberalisation in the long run, the case for maintaining protection of weak industries, even as a short-run device for promoting regional cohesion, is unconvincing. In general, current tariff (and MFA quota) protection is more important for the low income parts of the Community than others. High tariff industries account for almost half of industrial employment in Portugal and Greece, but their share is less than a quarter in northern countries such as Denmark and Germany. On the other hand, non-tariff measures, such as voluntary export restraints tend to be concentrated more on the products of northern Member States. The Uruguay Round, successfully completed in 1993, resulted in agreements to reduce trade barriers sub stantially, to redraw the internationally-agreed trade rules in areas such as anti-dumping and to extend the scope of world-wide rules and disciplines to new areas notably agriculture, services and intellectual property protection. This is expected to affect pros pects for growth and employment in a number of important respects. The world-wide reduction in tariffs (from an average of 5% to about 3. 5% in indus trial countries) is likely to stimulate trade (through increasing world GDP by an estimated 1-2%), pro viding increased export opportunities for EU pro ducers and thereby adding to output and employment in the Union. Trade policy EU Trade policy has sought to remove external bar riers and promote the orderly growth of trade on a global scale, as the counterpart to the SMP which has removed internal barriers. The result of this two-track approach is that the Union has been able to avoid inward-looking, protectionist tendencies vis-à-vis the outside world, while exercising its responsibilities as the world's largest marketplace for goods and ser vices. There is a wide consensus on the positive effects of liberalisation of world trade on economic growth. In With respect to services, the new multilateral provi sions are expected to provide a more secure environ ment for trade to expand and the basis for further negotiations for liberalisation. Since the more pros perous regions seem likely to benefit most from greater access to world markets (all cohesion coun tries have trade deficits in services), the initial impact may be to widen disparities between rich and poor regions. However, it is also likely to strengthen EU competitiveness with favourable implications for em ployment and social cohesion. The same is true of intellectual property rules and rules on technical bar riers to trade. 74 Chapter 4 The policies of the European Union Nevertheless, despite the long-run potential gains, -the immediate pressures for modernisation and ad justment in patterns of production in the low income regions should not be underestimated. Certain sec tors, such as textiles and clothing, will be more af fected than others, especially in Spain, Greece and Portugal. The impact, however, will be softened in two ways. First, the phasing out of the MFA will take place over ten years with most of the changes concentrated at the end, in 2005, giving time to plan and implement adjustments. Secondly, the products to be liberalised in the first phase concern all Member States in a more or less equal way. In addition, the reduction in aver age tariffs (from 5. 98% to 3. 73% or from 7. 4% to 4. 5% in the case of manufactured products) will be phased in over 5 years and this plus the fact that tariffs are already low in the Union will help to ease the process of adjustment and change. At the same time, the Union lies at the centre of a complex web of regional trade preferences, the most notable recent development in which is the negotia tion of free trade arrangements (Europe Agreements) with the Central and Eastern European countries. Trade with these countries is expanding in both direc tions with positive effects overall. In general, the four cohesion countries are more vulnerable to trade liberalisation because of weak nesses in their exporting and import-competing sec tors. All have trade deficits in services which is one of the sectors expecting to expand. The main exception is Ireland where modernisation over the last decade means that the economy now has a comparative advantage in technology-intensive sectors (and in food processing industries). Ireland should therefore benefit from the growth of export markets in high tech products as well as, with Spain and Portugal, from a possible increase in foreign direct investment, though there is now more competition for investment from, for example, the economies in transition in Central and Eastern Europe. 4. 3 The network policies The network policies of the EU seek to remove the national bias in the provision of key infrastructure and to improve the coherence and efficiency of transport, telecommunications and energy sup ply. They are, therefore, relevant for the competi tiveness of the European economy as a whole. At the same time, these policies haveeffects on the geography of production and hence on cohesion, which has increasingly been incorporated among their objectives. Network policies can be regarded as a means to reduce the transaction costs (transport and telecom munications) involved in the trade of goods or in the movement of factors of production from one place to another. Whether central or peripheral regions will gain more from such cost reductions is open to ques tion. It essentially depends on the extent of the reduc tion which occurs. If these are relatively small, then it will continue to be more economic to concentrate production in central regions of the Union, since the benefits from agglomeration (in terms of economies of scale, being close to suppliers and customers and so) will tend to outweigh the savings in labour costs from lower wages in peripheral areas. If, however, transactions costs are reduced to very low levels, then lower labour costs in peripheral regions will become more important in location decisions causing production to relocate. Over the long-term, therefore, when transactions costs are likely to be more af fected, the peripheral regions could well benefit more than the more central ones. Transport Transport has a potentially critical effect on econ omic and social cohesion. Apart from its role in production and distribution, public passenger transport is very important for low income groups, and for women. The Common Transport Policy especially during the period of the implementation of the single market programme, has been oriented primarily towards liberalisation — crea ting an open and competitive transport market — and increasing integration through the harmonisa tion of fiscal, social and technical conditions. These measures have been supplemented by specific provisions — in accordance with Treaty rules — on public service obligations (PSOs) which address transport needs according to re gional or social factors rather than those of the market. The promotion of public passenger trans port has also become more important. A second element deriving from the Treaty on European Union has provided for the creation of 75 trans-European Transport Networks (TETNs) which explicitly address not only the mismatches and duplication arising from the national bias in infrastructure investment, but also the specific contribution to cohesion (Graph 26 and table 4. 8 show the division of expenditure between trans port modes and between the cohesion countries and the rest of the Union). More recently, the notion of 'sustainable mobility' has become the central goal of transport policy. Meeting the demand for mobility with significantly less resources, reinforcing technical emission standards, addressing the structure of the de mand for mobility by, for example, integrating spa tial planning priorities into transport infrastructure planning and furthering intermodal transport are now issues of considerable influence for EU trans port policy. Regarding liberalisation, the achievement of an integrated European economy requires an open transport market free of entry barriers and dis criminatory practices. Transport charges do not generally account for a significant element of busi ness costs, with the exception of certain limited bulk commodities and services, but reliable and efficient transport systems contribute to the reduc tion of not just the costs but also the perception of distance. This has potentially important effects on competitiveness and on the geography of produc tion. 26 Total expenditure on trans-European Networks by main mode 20000 Chapter 4 The policies of the European Union EU policies, liberalisation and the cohesion countries The cohesion countries are unlikely to be affected to the same degree by policy developments in each of the transport modes. By nature of history and geo graphical peripherality, of most consequence for them are likely to be changes affecting road transport, short-sea shipping and air transport. Road transport is likely to remain the principal mode of transport for goods and services in the cohesion countries (where historically the role of other infra structures has been less pervasive). In regard to passenger transport, while private vehicle ownership is generally lower than in non-cohesion countries, extensive networks of inter-city and rural bus services exist. For freight, road haulage also accounts for a significantly larger share of inland transport in the cohesion countries than it does in the rest of the EU, while much of this transport is own-account. One result is that market-based policies which favour a modal shift away from roads — such as road pricing — need to be examined carefully since they may have an adverse effect on development prospects. Differentiated approaches to allow for different cir cumstances are necessary, which has been the approach adopted in the Commission's Green Paper on fair and efficient pricing in transport. Maritime transport has a potentially central role in the cohesion countries. Unfortunately, these countries are often at a distinct disadvantage in terms of port facilities: lower levels of efficiency (partly due to under-investment) contribute to slower turn-round times for cargoes resulting in relatively high freight charges. The Community's initiative on short sea ship ping may yield positive benefits for the cohesion country ports, especially for the Mediterranean coun tries and Ireland. Given the long distances and geo graphical obstacles for freight transport, the promotion of short sea shipping — and particularly the intended co-ordination of efforts to introduce new technology, skills development, infrastructural sup port and new working practices has the potential to reduce transport costs and times. I Other EUR IEUR4 Efficient, affordable air transport can make a fun damental contribution to opening up opportunities for the most geographically peripheral areas, notably by reducing journey times for business travellers. But one of the potentially more serious implications of ECUmn 20000 30000 TGV Roads Combined 76 Chapter 4 The policies of the European Union liberalisation is the possible abandonment of air routes which are less profitable and which have been maintained by cross subsidies from profitable mar kets. So far, however, this effect has not emerged in practice. At the same time, new competition has inevitably been largely attracted to the busiest routes between the major urban centres, which tend to benefit in turn from the largest reduction in prices. For the cohesion countries this means that the benefits tend to accrue disproportionately to a limited number of urban centres, generally the capital cities. The opening up of new international regional services was one of the earliest steps in the air transport liberalisation process: the 1983 directive permitted the introduction of services between regional airports in different countries (which had some initial suc cess). With the extension of liberalisation to the mar ket as a whole, the concern for internal regional services has become uppermost and provisions allow for the protection of such routes as public service obligations. In some cases the airlines of the cohesion countries have been able to benefit, by exploiting the more open market conditions to combine services. For example, an Irish airline flying Lyon to Dublin can now include Paris in its itinerary and carry French pas sengers flying Lyon to Paris. Taken together, the single aviation market has helped to facilitated the creation of new air links to and from peripheral parts of Europe, and between them, with positive economic effects such as the development of tourism. In addition, Member States have made extensive use of Community public service rules in areas where market forces do not suffice. More than 100 air routes are operated in application of these rules. More generally, geographical location means that a basic need for the cohesion countries is intermo- dal transport. For freight transport this generally implies efficient road/sea or rail/sea connections in which the strength of the system as a whole is equal to that of its weakest link. Intermodal trans port, is a feature which has been generally absent from transport planning at the European level until recently. The importance of intermodal transport for the cohesion countries can be gauged from the priorities identified in the context of the TETNs initiative discussed below. TETNs in the cohesion countries have a modal profile which differs from the rest of the EU, with the bulk of loan finance in the areas of ports, combined transport, and roads but only between 15% and 25% for rail (conven tional and TGV) and air (airports and ATM). Within the total of TETNs grants, cohesion countries ac counted for the bulk of EU funding for roads. Trans-European transport networks and cohesion More generally, the TETNs have the potential to open up European territory, generating new opportunities for the peripheral Member States and regions. An updated assessment examined the effects of the TETNs projects in terms of pas senger transport. The conclusion was that implementation of the existing TENs programme would on average generate a 20% increase in the population accessible in a daily round trip. This average conceals divergence between different types of agglomeration. The biggest gains would be cities located near new projects where hitherto links had been poor (improvements of over 80% are noted here) — in some cases these include cities in cohesion countries. The next most import ant gains are for centrally located medium-sized cities (30-60% increase) followed by large cities in cohesion and other countries alike (between 16-26%). Cities in remote areas and some very large cities which already enjoy good infrastruc ture would show the smallest gains (10% and under). In terms of journey time, the evidence reveals a similar picture: while cohesion countries benefit in absolute terms, they do not gain so much in relative terms. Expected improvements are strongest in the border regions of Scotland and England, Southern Italy and the remote areas with poorer infrastructures in France and Germany. While capital cities in cohesion countries would see their situation improving, their smaller cities would see smaller gains, particularly when com pared against equivalent cities close to the nodes of the TETNs network. One reason is the poor local networks; continuing investment in secondary routes and links between modes is needed in cohesion countries to enable them to connect to the TETNs. A particular challenge for transport policy, in combination with cohesion policies, is to n Chapter 4 The policies of the European Union address this risk, in particular in regard to the provision of secondary connections to the major networks which have not had priority up to the present (see chapter 5). Another more general reason for the smaller benefits accruing to cohesion countries and regions is, however, inherent in their geography. Their peripherally in geographical terms means that they do not have the benefits of the centre which typically has easier access to all parts of the network. The periphery tends to have access to the centra but generally poorer connections to other peripheral places. At the same time, to skew networks in favour of lagging areas could reduce overall efficiency and growth, at least in the short- term before the improvements in the productive potential of the peripheral economies take effect. Indeed, this conflict between short and long-term objectives poses an acute dilemma for policy makers who have to decide the relative weights to be attached to the two. Because transport provision in the cohesion coun tries tends to be less profitable in the short-term in purely financial terms than in the more pros perous central parts of the Union, the importance of adequate PSO provisions is, therefore, gener ally greater. Indeed, PSOs are essential in order to help reconcile the highly desirable, but often long-term, effects of liberalisation and competition with the inevitably uncertain, and, therefore, risky, nature of investment in transport. Cohesion- oriented policies — which have a long-term time- horizon — demand continuity and the existence of regular services over an extended period of time which is not always guaranteed in low volume, highly seasonal markets. Public provision in the poorer, less developed regions can, therefore, help balance the desirable effects of liberalisation on efficiency with the need for adequate services to be provided to all areas at an affordable price. Telecommunications The Union's policy on telecommunications entails establishing conditions and timetables for opening up markets as well as defining a harmonised framework for the provision of universal services and data pro tection. The aim is to improve the quality of service and choice by exposing operators to market forces and to ensure the interconnection and inter operability of existing networks as well a minimum level of service in every part of the Community. This raises key issues for cohesion countries, in particular, about how they can share fully in the benefits from liberalisation, how best regulations can counter the potentially adverse effects of liberalisation and how the information society can develop unimpeded. Liberalisation The strategy of gradual liberalisation dates back to the Telecoms Green Paper of 1987. Equipment mar kets were liberalised from 1988 on, value added services in 1990 and data communications in 1993. Other aspects, such as digital mobile communica tions — the GSM system — have developed on a competitive basis, assisted in some Member States by the application of the Treaty's competition rules. Full liberalisation of all telecommunication services and infrastructure will occur in 1998, with possible periods of transition of up to 5 years to allow Greece, Ireland, Portugal and Spain to carry out the necessary structural adjustment, particularly on tariffs. At the time of writing, with the 1998 deadline less than 18 months away, only Greece has requested to delay full liberalisation until 2003 and the other countries intend to open their national markets by 1999-2000. The full effects of liberalisation are unlikely to be felt until well into the next decade, though a few quanti tative indications of the possible effects on the cohe sion countries can be gained from experience in countries where liberalisation has already occurred or from ex-ante studies carried out in those where it is planned. Experience elsewhere, however, will not necessarily be repeated in the cohesion countries where circumstances are different. Effective and affordable telecommunications are important for increasing competitiveness and growth, as well as improving the quality of life of Europe's citizens. These are the principal objectives of the gradual liberalisation of markets for telecommunica tions and networks in the Community. There are reasons for optimism that in the long- term the opening of the telecommunications mar ket and the harmonisation measures will be beneficial for the less densely populated, periph eral regions, though there might be adverse ef fects in the short-term. 78 Chapter 4 The policies of the European Union The principal risks are that new investment will be concentrated in areas of relatively high demand and low cost and whether changes in tariff structures — in particular, the rebalancing of prices to reflect the cost of providing service — will delay the development of new services in certain regions in the cohesion coun tries. In practice, much depends on the nature and extent of tariff rebalancing that occurs and, more especially, on the development of offsetting arrangements to overcome the impact of price increases for particular groups of users as part of Universal Service Obliga tions (USOs), which seek to maintain essential ser vices for regional development even if they are uneconomic. The elimination of cross-subsidisation will have three main effects: to increase access charges relative to the total charge, to reduce the price of long-distance calls and of international calls both inside and outside the Union, as well as the cost of leased lines, which are the basis of business networks throughout the Union. The effects of a relative increase in access charges is likely to be unevenly distributed between social groups and regions. In the UK, for example, British Telecom is allowed to levy an additional connection charge for very remote cus tomers where substantial extra costs are involved (over 100 hours of labour). Secondly, advances in transmission and switching technologies have already dramatically reduced the effect of distance on the cost of calls and the move to 3. more cost-based tariff structure should further reduce this. The effect on regional disparities is, however, unclear, since lower costs will benefit both central and peripheral regions. However, it is likely that there will be a relative gain to the latter, since, although data on call patterns are not available, it might be expected that a higher proportion of calls made in a remote area will be long distance than in, for example, a large city (if only because in remote areas the number of subscribers within the local call area will be much smaller) The effects on social cohesion, as opposed to regional disparities, of a reduction in long-distance call charges are ambiguous. While people with high incomes who make more calls are likely to benefit most, it is also the case that long-distance and inter national services will become more of a realistic option for lower income groups, deterred at present by high tariffs. The third main aspect of tariff rebalancing concerns services between Member States. Mark-ups on these are particularly high and anomalous, and calls within countries generally cost far less than international calls of comparable distance. Moreover, a call from one Member State to another can still be double the cost of an identical call in the opposite direction. While globally, tariff restructuring will lead to lower prices, it will not necessarily narrow regional dis parities, primarily because of increased access charges. The scale of the effect will depend on the extent of existing cross-subsidisation which varies from country to country. To moderate the effect, there is a need for an active approach by national regula tory authorities which have an obligation to guarantee the affordability of a universal service within the Community, together with an assessment of any ad ditional action that needs to be taken. Universal service obligations Telecommunications policy includes not only the liberalisation of the sector but also the enforcement of universal service obligations (USOs). The responsi bility for establishing mechanisms for these lies pri marily with national governments and regulatory authorities. (The Commission in a Communication on Universal Service of March 1996, recognised that although the process of rebalancing 'remains a fun damental element of the preparation for a fully liberalised envorinment', attemps are being made to alleviate its worst effects by proposals for ensuring that services remain affordable by incorporating price caps and special targeted tariff schemes in USOs. ) A key issue is whether or not to maintain a single uniform national tariff for the basic service. In most Member States, a single tariff is likely to be retained in the immediate future, though this does not mean that it will remain in the longer-term. While there is a consensus in the run-up to 1998 on the present scope of the universal service obligation (specifically, a voice service at an affordable price to any user via a line which supports the use of data communications (modem and fax) and the provision of pay phones, directory and operator services, free 79 access to an emergency number, touch-tone dialling, itemised billing and the possibility of blocking calls to particular numbers), the major issue in the future will concern cohesion. In the absence of requirements to provide universal geographical coverage at an affor dable price, the regional pattern of development of new services and infrastructure is likely to be uneven. Even under a public monopoly, new services tend to be introduced initially in areas where demand is high and cost is low. There is a balance in this regard to be struck between the pursuit of cohesion objectives, on the one hand, and the free-play of market forces, and the greater efficiency and faster innovation which it is likely to bring, on the other. (The Commission's Communication on universal service recognised that universal service is a dynamic and evolving concept and should 'combine a market-based analysis of the demand for and widespread avai lability of a particular service and a political assessment of its social and economic desirabili ty'). In order for policy-makers to make best use of any funding mechanism for universal service (including from the Structural Funds), it is essen tial that they make informed choices on the scope of this and on possible future developments, such as providing broader access to the Information Society to, for example, schools, hospitals and l i b r a r i e s. the Commission will begin regular monitoring of the scope, quality and affordability of universal ser vice in the Community from the end of 1997. ) these c h o i c e s, (To assist 27 Average annual spending on telecom services per head, 1992 EUR12-100 Chapter 4 The policies of the European Union Liberalisation in the cohesion countries Telecommunications are least developed in the four cohesion countries. As noted above, after liberalisa tion, operators may be even less inclined than before to invest in areas where spending on services is relatively low (Graph 27), cost of investment is high, in part because of low population density, and the returns are smaller than elsewhere low. Delaying liberalisation in countries with less developed net works may make sense if the purpose is to allow them to catch up. Moreover, in countries with relatively low use of telephone services, usage-based charges and special tariff schemes may be a sensible strategy for rapid development of the network (subsidising access where comparatively few people are con nected to the network is likely to be more efficient than in countries where most are). Whereas most other Member States are in the final stages of development of their telecommunication services and USOs are primarily for social reasons, in the cohesion countries, where the system, and a mass market, is still developing, USOs serve an important economic function and low charges can help stimulate network expansion. By the same token, however, the cost of USOs seems to be significantly higher in these countries than in the rest of the Union. According to one study, while for most Member States, USO costs in 1992 ranged from 0. 5% to 3% of turnover, for Spain the figure was 5%, for Portugal, over 7% and for Greece over 15% (by Analysys in 1994, though the figures should be regarded as indicative only and could be subject to a wide margin of error, since they depend very much on the particular assumptions and methodology used which are often not revealed). As well as USOs, accompanying measures may be required to help accelerate the development of the networks in the cohesion countries, possibly using resources from the Structural Funds, and avoid signi ficantly adverse effects from liberalisation (as acknowledged in the Commission's 1995 Green Paper on infrastructure). Trans-European networks, information society and cohesion B DK D F GR E IRL I L NL P UK The development of telecommunications on a Community-wide scale is a potentially important force Chapter 4 The policies of the European Union for European growth and closer integration, espe cially given the dramatic increase in the possibilities for the electronic transfer of information. The present focus of policy is on the convergence of technology to create a 'common information area' in: Europe through the trans-European networks telecommuni cations action (TEN-Telecoms). This action, unlike those for energy and transport, relates to advanced applications and services of public interest rather than to infrastructure, including a network of city information highways, a tele-medicine application, a distance education and training scheme, access to cultural heritage, generic services, teleworking and electronic commerce for SMEs. The basic bottleneck addressed by TEN-Telecoo- ms is not so much 'missing links' in the network, but the lack of availability of applications and services matching the needs of business and people. In this regard, uncertainty about commer cial viability, because of the innovative nature of the application or service' in question or the diffi culty of organisation, can deter private initiative. Union interventions are directed at reducing un certainty and the financial risk involved and to en courage services of public interest to be launched on a trans-European basis under public-private partnership. Development of TEN-Telecoms is de mand-driven, projects being specified through open calls for proposals, on the basis of a given set of criteria which include strengthening social and-econpmic cohesion. In summary, there is some risk that without inter vention in certain areas, the modernisation of the Public Switched Telephone Network (PSTN) and the development of broadband networks in par ticular, will not occur at the desired rate and that, as a result, the system will be incapable of carrying important services such as the Internet to certain regions. Since many services are revenue- generating, loans and/or private capital can be expected to fund some of the new developments. Given the sums involved, however, there is a role for intervention under the Structural Funds to fund at least part of the costs (see chapters 5 and 6). Energy Energy is a key element in regional development. The sector is important in its own right, value- added amounting to just under 5%'of Community GDP and accounting for around 2% of employ ment and significantly more in energy producing regions. The poorer Member States are particularly vulner able to energy developments, since because, they import more and employ more in their dis tribution networks, they have a greater potential effect on costs. Much of energy policy is the responsibility of Member States. As with the other network policies discussed above, the main initiative at Union level which has implications for cohesion is liberalisation, identified in the 1995 White Paper in terms of the need to complete the internal energy market. The White Paper also proposed measures to guarantee security of supply and protect the environment. Liberalisation Liberalisation is likely to lead to a range of efficiency improvements because of increased competition and the better use of infrastructure which it will encourage. According to a recent study for the Commission, annual cost reductions are likely in electricity alone of between 4-6 billion by 2000 and 10-12 billion ECU by 2010 and in energy supply overall of 6-8 billion ECU by 2000 and 14-19 billion ECU by 2010, figures equivalent to 0. 15-0. 5% of GDP. Since the cohesion countries have relatively little indigenous energy pro duction and so fewer constraints in using the lowest 28 Funding for TENs energy projects ECUmn 5,000 BOftar sources •SF*O»>M: ;. •EiB+EiF-. 'i^;:; 4. 000 3,000 2. 000 1,000 5. 000 4,000 3. 000 2. 000 81 cost source, it is arguable that they will benefit most from these reductions. However, experience in the UK, where the market was liberalised first, suggests that though large savings are possible, these may take some time to be passed on to users. As UK experience also underlines, existing pricing structures generally entail substantial cross subsidis ation, a fixed price being charged per unit of con sumption, despite unit cost being higher for small consumers and in rural areas. In the absence of the intervention of public authorities or a regulatory body, a system based more on the actual costs of supply is likely to lead to higher relative charges in both cases. However, in the UK, electricity prices for small and rural consumers have also fallen in real terms after liberalisation. On the other hand, some estimates of the effects of full liberalisation of the British gas market indicate that the smallest consumers (generally the poor and elderly) could experience relative price increases of 80% if full-cost pricing were introduced, though this might not mean prices rising in absolute terms if energy prices overall were reduced substan tially as a result of increased competition. In some parts of the UK, the market for gas has been opened for captive sectors (SMEs and households). This experence will be monitored closely elsewhere in the Union. Community financial involvement in energy outside the structural policies tends to be limited; neverthe less, it attempts in general to take cohesion objectives into account. Thus, more than half of trans-European energy network funding for feasibility studies has gone to cohesion countries, while they accounted for a significant share of EIB loans (Graph 28 and Table 4. 12). Under the network policy and the regional energy planning initiative, peripheral regions are likely to gain from increased choice and security of supply. Energy/environmental programmes such as ALTENER (for the development of renewable sources of energy) and SAVE (for promoting the rational use of energy) have also in some degree incorporated cohesion objectives in their wider aims. Programmes such as THERMIE which help to promote energy diversification, also benefit the regions of the cohe sion countries with their high dependence on oil. Chapter 4 The policies of the European Union this trend. For example, a coal-fired power station employs 1000-2000 people while an equivalent gas-fired power station employs 3 0 0 - 6 0 0. Changes in subsidy and preferential purchasing arrangements in Member States may, therefore, lead to significant rationalisation in the mining industry and to substantial job losses in regions where coal production is important. 4. 4 Quality of life policies Although many of the policies which have been reviewed so far address social considerations they generally do so through a primary preoccu pation with economic, or more specifically effi ciency, matters. But Union policies also take into account human and social aspects reflecting a broader concept of quality of life including the important issue of the sustainability of the Com munity's economic development in terms of envi ronmental protection and resource use. Social policy Social policies directly address, by their nature, the issue of integration and cohesion. They play therefore an important role in promoting European cohesion, between social groups and/or regions. They cover three broad types of activity. First, there are significant interactions between the Single Market (and more broadly, European econ omic integration) and social policy. Indeed, it has generally been recognised that social policy, and systems of social protection in particular, has to be developed in parallel with a Single Market, in order to support competition and the efficient operation of market forces and to ensure that the necessary—and continuous — restructuring of economic activity and employment can take place without it generating unacceptable social problems. Indeed, closer econ omic integration in Europe is unlikely to be possible without adequate social provisions. The long-term trend in the industry, as elsewhere in he economy, is towards increased capital intensity and a smaller work force, particularly in solid fuels. Liberalisation is likely to accelerate Right from the beginning, initiatives in the social field have played an accompanying role in the completion of the Single Market. By guaranteeing a number of specific rights to the individual — mainly workers during the first phase — protecting them and forbid- 82 Chapter 4 The policies of the European Union during the first phase — protecting them and forbid ding competition between firms on certain grounds, the initiatives have offered new opportunities for certain groups in the labour market while discoura ging activities which adversely affect workers, so contributing to social cohesion. These initiatives were aimed, in the first instance, at bringing about free movement of workers (implying the abolition of dis crimination based on nationality, the safeguarding of social security provisions for migrant workers and the mutual recognition in different countries of qualifica tions and professional diplomas), equal treatment of men and women (including equal pay for equal work) and acceptable levels of health and safety at work. With regard to the latter, measures taken at Euro pean level have enabled less advanced countries to make substantial progress in adopting mini mum standards in a short space of time. In addi tion, the provision of Community-wide information on employment opportunities and labour market conditions (through the EURES system) has made it easier for workers to move between countries. At the same time, ever closer economic integra tion has led to the need for further action at Euro pean level, in the form, for example, of introducing information and consultation procedures in trans national firms. Secondly, social policies are not limited to legislative provisions. They also can take the form of incentive measures, encouraging cooperation between the groups involved to tackle common problems on a transnational basis, improve common knowledge, develop exchanges of information and good practice and promote innovation. Many action programmes have been implemented in areas such as education and training, equal opportunities for men and women, poverty and the fight against exclusion, health policy and rights for the disabled. In these areas, the Community has acted as a catalyst for policy change and an instrument for cohesion at the European level. The role of the Community in promoting such initia tives and establishing standards should be further developed in the future. Thirdly, European social policy is also more gener ally about the promotion of fundamental social rights and the development of a European social model based on a common set of values. A signi ficant step in this direction was taken by the adop tion in 1989 of the Community Charter on the Fundamental Social Rights of Workers (though one Member State has not endorsed it). In addi tion, dialogue between the social partners has also developed at European level over the past decade — the importance of this been enshrined in the Maastricht Social Protocol —• and a directive on European Works Councils was adopted in 1994 to promote this in transnational firms. European social policy is increasingly centred on jobs and under the European employment strategy (described above) a framework has been established for trying to ensure that all relevant policies — macroeconomic as well as structural — contribute and reinforce each other in the fight against unem ployment. A monitoring procedure has also been set up to review the effectiveness of different policy measures and approaches. The three goals are the integration of young people into working life, the prevention of long-term unemployment and increased equality of opportunity for men and women in the world of work. By tackling these problems, the strategy is intended to improve the efficiency of European labour markets. The strengthening of employment and social policies at European level in the future will help to reinforce their impact on cohesion as well as the credibility of the Union, which very much depends on achieving acceptable levels of employment and opportunity for all European citizens — a 'Europe for all'. At the same time, social policy needs also to be regarded as a productive factor, with the potential for increasing competitiveness and growth through providing es sential support for those at risk from restructuring and economic change as well as contributing to labour market flexibility. This means defining a new balance where economic and social policy are mutually rein forcing, where the pursuit of social cohesion strengthens rather than weakens economic perfor mance and where social rights, which are closely related to basic civil and political rights, are assured as an essential component of EU citizenship. Environment The environmental policies of the EU reflect a concern with a basic component of the quality of life for European citizens. Today, the aims of these policies are increasingly set in terms of sustainable develop ment (see chapter 2). 83 Chapter 4 The policies of the European Union EU environmental policies have traditionally been implemented by legislative measures, but there is also a number of other types of instrument such as international agreements to which the Community is a party, informational measures, voluntary agree ments as well as direct support for projects via the LIFE programme. • • • the quality of the environment prior to implemen tation of the legislation in question; the availability of infrastructure for the manage ment of water resources, waste management, etc; the relative importance of economic activities affected by environmental legislation. EU environmental policies have generated a sub stantial body (amounting to over 200 items) of legislation. This has mostly been in the form of directives, defining minimum environmental quality standards, emission standards, or specifi cations for products traded within the European single market. Naturally the legislation has a com pliance cost, although this can be offset by the benefits of environmental protection. The balance between benefits and costs is not necessarily uniform across the Community in terms of both their extent and their timing. Thus the effect on Member States and regions depends upon the extent to which the legislation is suited to their requirements, and on the magnitude of compliance costs in their particular circumstances. Environment policy and the cohesion countries The impact of environmental rules on the least developed parts of the EU depends on three respects: 29 Expenditure on environmental protection, 1992 %GDP As regards environmental quality, the cohesion coun tries are distinguished from the rest of the Union in terms of geography and resource endowment as well as their economic development. Along with certain other peripheral areas in the North of the EU, regions in the cohesion countries have an exceptional coastal endowment. In Ireland, there still exist semi-wild land scapes and undisturbed ecosystems, while in Spain, Portugal and Greece, there are an unusually large number of indigenous species. This does not mean that they have no problems: Spain, for example, suffers from a high degree of soil degradation and erosion and in Ireland the eutrophication of surface waters is an increasing problem. Problems of water supply and waste disposal are also becoming increasingly serious. At the same time, pollution in the cohesion countries is less in relation to both population and GDP than in the richer EU Member States. Their starting position is, therefore, generally more favourable in terms of environmental quality than in most other parts of the Union. Efforts to promote faster growth and conver gence of productive capacity and real income levels, however, create inevitable risks for the environment. Although a high quality environment can be a factor for growth in sectors such as tourism, some food processing and high-tech industries, where mobile labour is attracted by the quality of life, growth in GDP is likely to be associated with increased problems of pollution and environmental degradation unless de liberate measures are taken to prevent this. Research studies (by, for example, ERECO in 1993) show that expenditure on environmental protection, including on infrastructure, is lower in almost all the cohesion countries than anywhere else in the Union, both in absolute terms and relative to GDP (Graph 29 and table 4. 13). Only in Spain is spending close to the EU average. The cohesion countries have substantial requirements for investment in waste water treatment facilities (broad estimates are shown in Table ). Con structing and upgrading of these is, in many cases, 84 Chapter 4 The policies of the European Union necessary for compliance with Union environmental regulations, such as those for urban waste water (Directive 91/271). The cohesion countries also lag behind in the development of waste recovery facilities and have a long way to go before complying with the rules recently introduced for packaging and packa ging waste. The key issue concerns the effect of EU environmen tal policies on growth, competitiveness and employ ment in the cohesion countries. To assess this is by no means straightforward. Though growth tends to be accompanied by increased demand for energy and natural resources and higher levels of emissions and industrial waste from increased production and greater use of transport, there is no inevitability about this. More efficient and less polluting methods of production can be introduced to save on energy as well as safeguard the environment. Moreover, as real income increase, people tend to attach more importance to cleaner water, better air quality, a more attractive environment and so on. To translate this preference into reality and to ensure that cleaner and more energy-efficient techniques are adopted in the production pro cess, however, requires deliberate policy action in the form of controls, fiscal incentives (taxes on polluting activities, for example) and public expenditure. It cannot be pretended that this is costless, that the necessary change in production methods and the shift of resources into more environmentally-friendly activities can be achieved instantaneously without adverse effects, even if temporary, on employment and growth potential. In the longer-term, however, such changes are essential if the development of the European economies, including that of the cohe sion countries, is to be sustainable. In the longer- run, moreover, these changes are likely to enhance growth potential and job creation rather than damage them. According to a 1994 study, if all the environmental policy measures now under consideration in the Union — such as a carbon/enegy tax and legislation to raise fuel quality standards and lower vehicle and other emissions, measures to increase the use of renewable energy, directives on nitrates, water and sewage — were to be implemented, there would be significant environmental gains. Any possible adverse effect on GDP, moreover, could be avoided by a suitably-designed, combined package of fiscal measures and charges, aimed at imposing the social costs of pollution and environmental damage on those responsible for these, together with changes in producer and consumer behaviour as a conse quence of the changes in the structure of prices and better information. Indeed, if all the changes required actually occurred, both GDP and employment could be increased over the long-term. The effect on individual Member States depends on their prevailing structure of economic activity and their competitiveness in producing the goods and services which stand to benefit from the measures taken. In the case of the cohesion countries — such as Spain, which is the only one explicitly covered in the study — a slight decrease in GDP could result because of their dependence on agriculture and road transport, both of which would experience a steep increase in costs, the growing importance of their manufacture of cars (Spain, in particular) and their relative unimportance as producers of monitoring and emission-control equipment and of 'green products' generally. Moreover, because they tend to lag behind in terms of meeting environmental standards in cer tain areas — especially waste disposal and water supply, as noted above — some compliance cost may be expected. On the other hand, these adverse effects on GDP could be offset by the energy savings induced by higher taxes. The extent of environmental degradation in the cohe sion countries tends for the most part to be less than elsewhere in the Union, which not only means that the costs of clean-up are lower but it could also further increase their attractiveness as a business location as more weight is attached to the quality of the envi ronment in locational decisions. Although the results of the study are based on purely hypothetical scenarios, it does illustrate the particular problems facing cohesion countries in trying to pur sue a development strategy aimed at raising GDP and productive potential towards the level in other parts of the Union without unduly damaging the envi ronment. These problems need to be taken into explicit account both in the design of the Union's environmental policies, which need to allow for the uneven impact of measures in different regions as well as the different starting-point, and in the design of cohesion policies, which can help the poorer Member States and regions meet the cost of environ- 85 Chapter 4 The policies of the European Union mental protection — even if this may only be short- term — and ensure that their development path is a sustainable one. from one country to another. Cross-fertilisation schemes under ERASMUS also favour cohesion countries, but the overall scale in budgetary terms is very small. Education and vocational training Community action programmes in education and training were set up to bring improvements through innovative and transnational actions. They are aimed at supporting the successful completion of the single market (free movement of people) and raising com petitiveness as well as enhancing opportunities and the quality of life of individuals. They therefore have direct implications for (mostly social) cohesion. The main Community funding for education and training comes from the Structural Funds (discussed in Chap ter 5). Other programmes in this area are compara tively modest in scope, amounting to around 72% of the Union budget. Leverage is important for maximum success, and the programmes are intended to act as catalysts for innovation on a European scale through exchange of information and experience between Member States. There are many programmes — ERASMUS and LINGUA in the field of education, PETRA, FORCE, EUROTECNET and COMETT in vocational training. They cover areas such as cooperation between universities and industry, expert and student ex change; training for young people, women and other disadvantaged groups in the labour market, and foreign language tuition. Two of the largest pro grammes — PETRA and ERASMUS — can serve as examples. PETRA was targeted on young people, providing support for training and work experience in other Member States, developing network of trainers and supporting the exchange of good practice. ERASMUS aimed at promoting cooperation between universities, the interchange of students and teachers and the mutual recognition of degrees. The main direct effect of the programmes was in terms of exchange (the indirect promotion of cooperation and development through effects concerned transnational research and pilot pro jects). PETRA is small relative to the target popu lation, 37,000 young people participating in the exchange scheme between 1992 and 1994), with a bias towards cohesion countries (23% coming from these). Evaluation suggests that the pro gramme had a significant effect on participants in terms of language learning, broadening of hori zons, self-confidence and ability to adapt to differ ent circumstances — all of which are important assets in the labour market. ERASMUS is much in relation to the target population, larger 106,000 students in the academic year 1994/95 participating in the scheme, or 1% of those in higher education (implying that 3-4% of the target population are likely to participate at some point in their university careers, 10% being the long- term target). Students from cohesion countries are over-represented, accounting for 22% of partici pants. As with PETRA, surveys of student indicate that they tend to gain considerably from the experience. For the universities, the range of benefits include raised teaching standards through the pooling of expertise and experience, improved teaching of foreign lan guages, more effective dissemination of information, improved academic recognition and better internal administration procedures. New or intensified colla boration in the field of research has also been-shown to result from academic contacts established. 4. 5 Concluding remarks Of the training institutions participating in partner ships under PETRA, about 30% came from cohe sion countries, nearly double their share of Union population. Moreover, the benefit to cohesion countries is greater than this proportion suggests, since training systems there tend to be the least developed. On the other hand, most of the training material produced so far has not transferred well The above analysis suggests that, where Union policies have a significant expenditure dimension —the CAP and RTD—at least some if not the majority of cohesion countries have been among the major beneficiaries. Other policies which create a frame work for change — perhaps most notably with regard to competitiveness and liberalisation of telecommuni cations or transport — will not necessarily have an 86 Chapter 4 The policies of the European Union even-distribution of the benefits, both geographically and socially. In general, such policies seem not to be to the absolute disadvantage of less favoured regions or social groups, but they tend to benefit them less relatively io central regions or more favoured groups. In these circumstances, a primary obligation is to ensure that efforts are made to maximise the cohesion effects of these policies in the context of the pursuit of their other objectives. Possible avenues to be in vestigated in this regard are discussed in the conclu sions to this report. But it has to be clearly acknowledged that it is neither possible nor desirable for other policies to pursue cohesion objectives where this involves considerable efficiency losses to the Union as a whole. In these circumstances, national and Union structural policies perform an essential role of creating the conditions for regions and social groups to share the benefits of a more efficient and productive European economy. 87 Chapter 4 The policies of the European Union 88 Chapter 5 Community structural policies and cohesion: a shared responsibility 5. 1 Introduction The role of the Europe Union in promoting econ omic and social cohesion is reflected in two major Treaty changes over the past decade: the Single European Act (1987) and the Treaty on European Union (1993). The chapter on economic and social cohesion in the SEA provided the Treaty basis for the fundamental reform of the Structural Funds in 1988. The TEU (Article B) went a step further, the strengthening of economic and social cohesion becoming one of the three priorities of the Union alongside its economic objectives of the Single Market and EMU. The TEU also created the Cohesion Fund for less prosperous Member States, and amended the European Social Fund to accommodate new forms of intervention (see Objective 4 below). The purpose of this chapter is to review the results of EU structural, or cohesion, policies which have been in operation — in their current form — for. some seven years since 1989. The review is divided into three sections. Section 5. 2 describes the nature and purpose of structural policies for cohesion. Section 5. 3 assesses the results indi cating the extent to which the policies have yielded significant benefits in terms of generating economic activity and employment for Europe's more disadvantaged regions and social groups. Section 5. 4 examines the delivery system developed by the EU. 5. 2 The nature and purpose of community assistance Community interventions in support of cohesion have taken on a significant financial dimension over the past decade. Together, the four Structural Funds and the Cohesion Fund account for around one-third of the budget for Community policies (Table 5. 1) and amount to nearly 0. 5% of the annual Union GDP (Table 5. 2a-5. 2b). The implementation of Community cohesion policies is supported by six major financial instru ments. The Cohesion Fund and the loans of the European Investment Bank are based on a pro ject-financing approach and governed by their own specific rules, while the four Structural Funds operate within a single, Community-wide frame work according to common principles: concentra tion, programming, partnership and additionality — see section 5. 4 below. The Structural Funds The evolution of European Union cohesion policies has led to the creation of four Structural Funds: the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Guidance Section of the agricultural fund, EAGGF, and the Financial I n s t r u m e n t ' f or Fisheries Guidance (FIFG). 89 Chapter 5 Community structural policies and cohesion: a shared responsibility The ERDF established in 1975, is aimed at streng thening economic potential in the assisted regions, supporting structural adjustment and helping to pro mote growth and lasting employment. To attain these objectives, it supports productive investment, infra structure projects and actions for developing the indigenous economic potential of regions through co-financing operational programmes, assistance to large projects, global grants, technical assistance and preparatory studies. It also encourages trans- border cooperation and exchanges of experience between the Member States. The resources of the ERDF amount to 80. 5 billion ECU in the current programming period, 1994-99, as against 35. 4 billion ECU in the period 1989-93. This represents 45% of total Community structural inter ventions in the two periods (if the Cohesion Fund is excluded from the total, the ERDF is 48% of the four Structural Funds). Spain (24. 1% of ERDF resources), Italy (15. 2%), Greece (12. 4%), Germany (12. 2%) and Portugal (12. 4%) are currently the largest benefi ciaries, as they were also — with the exception of Germany — in the 1989-93 period. The European Social Fund (ESF) was established by the Treaty of Rome. Since the 1988 reform, it has had the objective of combating long-term unemployment and improving the employability of young people and, since 1993, of promoting adaptation to industrial change. It contributes to the financing of vocational training and employment support measures and to improvements in education systems. It aims to inte grate those excluded from the labour market, promot ing the principle of equal opportunities and the fight against social exclusion. It also finances accompa nying measures such as development of certification systems, training of trainers and public officials, tech nical assistance and innovative actions. The ESF accounts for 30% of Community interventions in the current period, as against 31 % in the first. Spain (20%) and Germany (15. 9%) are the largest beneficiaries. The Guidance section of the European Agricultural Guidance and Guarantee Fund was established in 1962 in the context of the Common Agricultural Policy (CAP). It is intended to promote structural adjustment in agriculture, which has been increasingly under taken in the context of the overall reform the CAP, through measures to modernise production and de velop rural areas. The Fund accounts for 23. 7 billion ECU, or 15. 4% of Community Funds, in the current period as opposed to about 12 billion ECU between 1989 and 1993 (17. 6% of Community funds). The Financial Instrument for Fisheries Guidance (FIFG), a specific fund established in 1994 to replace a number of separate financial instruments operating since 1976, was granted 2. 9 billion ECU (1. 9% of total Community funding). Spain, Italy, France and Portugal are the principal beneficiaries, sharing 69% of the available funds. Acting together, the Structural Funds are today focused on: 30 Geographical coverage of Structural Funds by Objective, 1989-93 and 1994-99 „ % population • 1989-93 • 1994-99 50 30 Object 1 Object 2 Object 5b Objecte Total 90 four regional Objectives which absorb 85% of the funding (Table 5. 3a-5. 3b): Objective 1 — for the development and structural adjustment of regions where development is lagg ing behind, including rural areas. This constitutes the major priority of Community structural policies. About 26. 6% of the Community population live today in regions covered by this Objective and they account for more than two-thirds of the funding (Graph 28). Objective 2 — for thé conversion of areas affected by the decline of traditional industries. This is the second regional policy priority. 11% of the total financial means are reserved for this Objective which covers about 16. 4% of the Community population. Chapter 5 Community structural policies and cohesion: a shared responsibility Objective 5b — for the development and structural adjustment of rural areas. 5% of total funding is earmarked for this Objective which covers 8. 8% of Community population. Objective 6 — for the problems of very sparsely populated areas. This covers 0. 4% of the Community population and 0. 5% of the total finan cial resources. • three Community-wide Objectives which absorb 15% of total financial resources: Objective 3 — facilitates the integration of young people and the long term unemployed into the labour market, while reducing the effects of social exclusion. 9. 4% of total resources are devoted to this Objective. Young people unemployed and the long-term unemployed represent, respec tively, 1. 3% and 2. 4% of the total Community population. Objective 4 — is an anticipatory or preventive measure to assist the adaptation of workers to industrial change. 1. 6% of total resources are earmarked for this Objective. Objective 5a — helps to promote the adjustment of the agricultural and fisheries sectors. 4. 4% of total resources are devoted to this Objective, out side the Objective 1 areas, with 3. 8% for the larger agricultural sector and 0. 6% for the fisheries sec tor. The numbers employed in the primary sector in the EU is currently over 8 million or 2% of the total Community population. In addition, 9% of the Structural Funds are reserved for Community Initiatives. These are decided by the Commission in partnership with the Member States and follow a thematic approach to add emphasis or explore innovative possibilities. The main themes applying to the current set of Initiatives are: • experimental policies for the environment (ENVIREG) and to tackle the crises in parts of major urban areas (URBAN); • reinforcement of national policies on specific issues: adaptation to the anticipated effects of industrial change (ADAPT), the acceleration of adjustment in areas dependent on activities undergoing restructur ing: steel, shipbuilding, coal mining, textiles and defence (respectively, RESIDER, RENAVAL, RECHAR, RETEX, KONVER)anô a strengthening of efforts to improve the ability of specific groups to participate to the full in the labour market (EMPLOY MENT, NOW, HORIZON); • finally, in 1995, the Union also agreed a Special Support Programme to assist the process of peace and reconciliation in Northern Ireland. Finally, some 1 % of the total finance for the Structural Funds is reserved for technical assistance and inno vative measures. A large part of expenditure on the latter is decided by the Commission on thé basis of calls for tender requesting proposals for projects under pre-defined themes. Currently these concern internal and external interregional cooperation, urban policy, spatial planning, technological developments (including information society) and endogenous development (including culture). The Cohesion Fund The Cohesion Fund was established in the Maastricht Treaty and came into operation only in 1993. The purpose of the Cohesion Fund is to help the less prosperous Member States — as opposed to regions — prepare for EMU, and the budgetary disciplines which that implies, while maintaining efforts to pro mote catching up. The Fund can thus be seen as a form of compensation for the weakest Member States for taking on substantial spending commitments while seeking to control their budget deficits. • • trans-border and interregional co-operation (INTERREG, REGEN); the promotion of innovative capacity and help for the development of small and medium-sized enterprises (STRIDE, TELEMATIQUE, PRISMA, SME), as well as for local development in rural areas (Leader) and areas dependent on fishing (PESCA); Four Member States benefit from the Cohesion Fund at present: Greece, Spain, Ireland and Portugal. It has been allocated 14. 5 billion ECU for the period 1994- 99, resources which come on top of the allocations under the Structural Funds. The Fund finances trans port infrastructure projects which contribute to the development of trans-European networks and envi ronment projects which meet the objectives of the Community's environmental policies. 91 unap:er 5 Community structural policies and cohesion: a shared responsibility The European Investment Bank Fields of intervention The European Investment Bank contributes to regional development, with more than two-thirds of its lending activity — about 44 billion ECU from 1991 to 1995 — devoted to eligible areas (Table 5. 4). More than half of the Bank's loans have gone to Objective 1 regions, while in recent years, the EIB has stepped up its lending activity in Objective 2 and 5b areas, which now account for 43% of its financing for regional development. Mcst of the financial resources have been allocated to infrastructure projects, many of which help to complete European transport and energy networks or protect and improve the environment. The scale of intervention One comparison for the appreciation of the scale of assistance under EU cohesion policies is that of the Marshall Plan, the archetypal structural aid pro gramme for the reconstruction of post-war Europe, which was equivalent to 1% of US GDP and con tributed on average about 2% of the European annual GDP over the period 1948-51. The Community's effort is some 0. 5% per year but it is a longer-term commit ment which will have amounted cumulatively to 6. 5% of Community GDP over the decade 1989-99, compared to 4% of GDP committed by the US be- • twsen 1948 and 1951. Three broad fields of intervention are covered by policies under the Structural Funds and Cohesion Fund (Tables 5. 6 to 5. 8 and Graphs 29 to 31): infra structure, human resources and productive invest ment. For Objective 1 areas, the priority in political and financial terms, there is a fairly even balance between these three priorities, although amounts devoted to infrastructure under the Structural Funds have been falling over time in favour of investment in physical and human capital directly linked to compe titiveness and production. In the old industrial regions or agricultural regions situated in mature economies, infrastructure is typically more developed requiring less financial support at the EU level. Current expen diture in the Objective 1 areas is split as follows: • Infrastructure: 30% of the Structural Funds are spent on this. Investment is eligible in transport, telecommunications and energy networks as well as in water supply and environmental protection. Since it is intended to reduce infrastructure gaps, expenditure is heaviest in the four poorest Member States. Basic communications investment is a priority to improve accessibility while other invest ment encourages energy diversification. A new role has been to support the achievement of trans- European networks. Important trans-European 31 Distribution of Structural Funds by broad category of expenditure in BProducHve environment Objective 1 regions, 1989-93 and 1994-99 100 r B Human resources Infrastructure n 100 M 80 60 40 20 D GR E F IRL « P UK EUR C4 B O GR E F IRL I NL A P UK EUR CA 1989-93 1994-99 92 Chapter 5 Community structural policies and cohesion: a shared responsibility transport networks are located in the poorest countries of the Union. The resources of the Cohesion Fund are used exclusively for invest ments in major infrastructure projects in transport and the environment. promotion of research and technological develop ment, the development of new activities including services such as tourism, the reclamation of dere lict industrial sites, the improvement of agricultural and fisheries structures and local initiatives. Human resources: 30% of the Structural Funds are devoted to strengthening education and training systems and supporting labour market policies'. The main measures eligible include support for mainstream education and R&D, vocational training, equal opportunities, employment and self-employment and measures aimed at the inte gration of those most excluded from the labour market. As indicated in the introduction, the addi tion of new forms of intervention regarding the prevention of unemployment and adaptation to industrial change have widened the scope of human resource policy. Productive environment: with 40% of the Structural Funds this is now the dominant intervention area in the Objective 1 regions. It is largely concerned with building a dynamic business environment through support for national investment aid schemes for industry, with particular emphasis on building an internationally-competitive small and medium-sized enterprise sector. In addition, many other ancillary activities are eligible, notably the 5. 3. A decade of achievement The task of evaluation In this section, the results of the interventions under EU cohesion "policies are reviewed. These include a broad range of concrete improvements to the situation of the Union's more marginalised regions and localities and social groups, which have opened doors to new opportunities on a wider European scale. In addition, other outcomes arising from cohe sion policies are discussed, especially the role they have played as a force for change and innovation, for the empowerment of the grassroots and in making a contribution to the wider process of European integra tion. The results are most readily set out in summary form by attaching numbers, or quantifying, the extent of the 32 Distribution of Stuctural Funds by broad category of expenditure in Objective 2 regions, 1989-93 and 1994-96 • Productive environment B Human resources • Physical regeneration & environment 100 B DK D E F IL NL UK EUR B DK D E F I L NL A FIN S UK EUR 1989-93 1994-96 100 80 60 40 20 93 Chapter 5 Community structural policies and cohesion: a shared responsibility changes which have occurred. A considerable effort has been made to describe and analyse the results in this way, but as past experience in Member States has demonstrated, quantifying the impact of policies is complicated. First, the evaluation methodology itself is subject to ongoing development and, at present, different experts adopt different approaches. Secondly, the impact of EU policies is difficult to distinguish from the effects of other factors such as Member States' econ omic policies or the business cycle (indeed, in some cases the impact of cohesion policies seems to have been to mitigate some of the effects of recession). Thirdly, even if the regulations stipulate that Community assistance should be additional to national efforts, this is hard to verify and levels of investment which would have been undertaken in the absence of the Structural Funds cannot be known. Fourthly, some of the results are based on estimates from the Member States (e. g. the number of jobs created or maintained) and these are. often not ' directly comparable or easy to verify. European solidarity and cohesion. A concern with quantified results can only ever be part of. the ana lysis; qualitative elements need to be given due con sideration. As far as the quantification of results is concerned, an attempt has been made to evaluate the impact of structural policies in the 15 Member States and their eligible regions for this report, involving detailed macro- and micro-economic assessments by the Commission assisted by outside experts. Two types of macro-economic assessment have been under taken (see below): First, the redistributive effects of EU finance have been assessed, in terms of the extent to which they have been successfully targeted on the weaker parts of the Community. While this does not indicate the degree of efficiency in the use of the resources, it provides essential information on the way resources have been deployed to help the weaker parts of the Union. In any case, the temptation to consider only those benefits which can be quantified should be resisted, because to do so would be to ignore the full depth and breadth of the effects of EU cohesion policies and, in particular, how they have contributed to Secondly, at the most aggregate level, macro- economic models have been used to quantify the effects of structural intervention. Here the focus is on the four largest recipient countries where the scale of transfers is large enough to have a discernible impact at the macro-economic level. 33 Distribution of Structural Funds by broad category of expenditure in Objective 5b regions, 1989-93 and 1994-99 • Infrastructure • Environment H Human resources E Productive environment DK D E F 1989-93 FIN UK EUR 94 Chapter 5 Community structural policies and cohesion: a shared responsibility The micro-economic assessments (see below) consider the extent to which the goals defined under the different Objectives of the Structural Funds have been attained is examined. Since EU policies are largely directed at improving efficiency — 'the supply-side' — it is important to examine the effect of intervention on factors such as infrastructure or human resource endow ment in the recipient countries or regions. Finally, the unique features of the EU delivery system for cohesion policies are underlined, given their particular contribution to European integra tion (section 5. 4). Global results Trend analysis Analysis of the trends in the regions eligible for the three regional Objectives of the first programming period reveal some encouraging performances (see Table 5. 6a). Objective 1 regions as group experienced con vergence in terms of GDP per head, closing the gap with the rest of the EU by nearly 3% points over the 5-year period 1989-93. On the other hand, their unemployment rate deterior in six of the ated markedly affecting one work force in 1993 compared to one in seven in 1989. High unemployment is the major defining charac teristic of Objective 2 regions. Whilë'unemployment rose on average in these regions between 1989 and 1993, reflecting the recession of the early 1990s, the rate of increase was slower than for the Union as a whole. Average income per head in these regions appears to have fallen relative to the rest of the Union over this period. Objective 5b regions also also converged on the rest of the Union during the period 1989-93, notably with regard to unemployment, but also in relation to levels of GDP per head. Redistributive effects Community structural policies have the effect of trans ferring resources from the richer Member States to the poorer ones. The level of aid to the cohesion coun tries, in both the previous and present programming periods, has been many times larger than expendi ture in the rest of the Union (Graphs 32 and 33). The concentration of expenditure in these countries can be illustrated by means of Lorenz curves which show the distribution of EU transfers in relation to the levels of income or GDP in Member States or regions (More specifically, the percentage of transfer going to coun tries or regions which account for a given percentage of Union GDP). Redistribution from rich to poor is indicated by a concave curve. The more concave the curve, the greater this redistributive effect. A convex curve, on the other hand, would suggest that resources are transferred from poor to rich. 34 Structural aid and GDP in Member States, 35 Structural aid and GDP in Member States, 1989-93 Aid per head par yaar (ECU) • IRL •P •QH 300 200 150 100 r- 1994-99 Aid per hMd p«r year (ECU) • 350 r • P • GR 350 300 A 200 200 • E 150 100 150 > 100 • E E12 • •I ^ • k0 • E12 «I • UK. ' • F 5K. ;•' 9 GDP oar head 1986 fPPS 000) ' 13 11 15 :12':-jA>:-v". ;'. 20 GPP par head 1091 (PPS 000) 16. ". •/'•" ;. 250 95 Chapter 5 Community structural policies and cohesion: a shared responsibility A number of curves have been constructed in order to illustrate the redistributive effects of the Structural Funds: that resources were concentrated on the econ omies with the lowest levels of GDP per head. • • • • for structural transfers to Member States (Structu ral and Cohesion Funds); for structural transfers plus EIB loans to Member States; for structural transfers to Objective 1 regions (NUTS II); for structural transfers to Objective 2 regions (NUTS III). Redistribution between Member States The distribution of all structural transfers (Structu ral Funds and, from 1993, the Cohesion Fund) is set out in relation to GDP per head in Member States for the three periods 1986-1988 (before the reform), 1989-1993 and 1994-1999 (Graph 34). A comparison of the three curves shows that the 1988 reform of the Structural Funds significantly increased the redistribution of transfers to the less prosperous Member States, which was achieved through the creation of Objective 1 which ensured Transfers in the period 1994-99 seems to be less concentrated despite the. creation of the Cohesion Fund for the least prosperous Member States. This is essentially explained by the wider coverage of eligible areas in the more prosperous Member States, notably under Objective 1 (adding the new German Lander and other regions in the North of the Union) and by the fact that the curve for the period 1994- 1999 includes the three new Member States. For the period 1989-93, it is also, possible to compare the redistributive effects of Structural and Cohesion Funds, on the one hand, and EIB loans, on the other (Graph 35). The effect of EIB actions is less than that of the Structural and Cohesion Funds. This is partly explained by the working of the market for capital and its response to the budgetary constraints in poorer countries. The ability of the least prosperous Member States to borrow despite the advantageous terms of EIB loans tends to be more limited. Objective 1 regions For the group of Objective 1 regions, the Lorenz curve confirms the progressive incidence of the 36 Concentration of Community structural assistance by Member State, 1986-88,1989-93 and 1994-99 Vo cumulative expenditure (ECU) 100 -•—1989-93 - • - 1 9 9 4 - 99 F -#-1986-88 90 80 70 60 50 40 30 20 10 96 10 70 ^ 00 ÏÏ % cumulative GDP (PPS) ';'• •;: 80 90 Chapter 5 Community structural policies and cohesion: a shared responsibility distribution of the Funds, which is more marked in the present period than in the period 1989-1993 (Graph 36). For the previous programming period, there was a particular absence of a progressive response to different levels of prosperity among the weakest regions (those with the lowest GDP on the left side of the graph). This is explained in part by the fact that the new German Lander had not been fully incorporated into Objective 1 at this time but received interim assistance, under a special programme, at lower rates than main stream Objective 1 regions. Objective 2 regions For these regions, the Lorenz curve has been con structed on the basis of cumulative distribution of the three basic criteria for eligibility for Objective 2 assist ance (unemployment rate, share of industrial employ ment in the total and the loss of jobs in industry). To do this, the three criteria have been assembled into a synthetic index constructed as follows for each region: SI = (Ind - Ch + Un)/3 37 Concentration of Community structural assistance and EIB lending, 1989-93 60 80 100 % cumulative GDP by region (PPS) where SI = synthetic index for the region; Ind = the share of employment in industry in the region; Un = the harmonised rate of unemployment in the region; Ch = the change in employment in industry in the region. Each variable has been adjusted to give them equal weight in the construction of the index. The indicators included in the index are those which were calculated for the programming period 1994-99. The two curves (Graph 37) indicate that, though a redistribution effect is apparent for the first period, it is almost completely absent for the second period. This implies that for this second period the gravity of the problems, as measured by the three Community criteria, were taken into account to only a limited 38 Concentration of Community structural assistance in Objective 1 regions, 1989-93 39 Concentration of Community structural assistance in Objective 2 regions, 1989-93 % cumulative experxiture (ECU) % cumulative expenditure (ECU) 40 60 100 X cumulative GDP by region (PPS) ' 80 O 100 % cumulattve tyrthetlc Index (ot unemployment and kidurtrtal employment) 60 80 40 20 97 Chapter 5 Community structural policies and cohesion: a shared responsibility extent in the allocation of regional assistance and/or in the selection of regions. This reflects adjustments to the method of to determining eligibility contained in the revised regulations of 1993 where less weight was given to the three basic criteria in the choice of areas eligible for Objective 2 and more to the priorities of Member States. In effect, with 0. 3% of EU GDP for 1989-93, an income equalisation (in terms of GDP per head) of 3% was achieved. For 1994-99, 0. 45% of EU GDP results in an equalisation of 5%. This equalisation effect of about 10 times the original volume of public finance is of the same order of magnitude as estimates for explicit redistributive mechanisms between Lander in Germany in 1990 and between the different territories of Canada and Australia (see European Commission (1993): Stable money, sound finances). It is also considerably higher than the effects achieved in federations such as the US which make of extensive use of grants (to states) for pre-determined purposes (eg education) where the equalisation effect is 1 to 5 times the financing volume (though, because of the much larger volume of resources transferred, the equalisation effect is much larger in these countries). The results of the macro-economic models In analysing the effect of policy, it is important to draw a distinction between the four poorest Member States, wholly (Greece, Ireland, Portugal) or largely (Spain) Objective 1 areas, and Objective 1 regions in more developed and prosperous Member States. Effects in the latter are more difficult to quantify both because they are on a smaller scale and because they tend to receive large amounts of aid from na tional, regional and other redistributive policies. In theory, the investment carried out under EU cohesion policies has two main effects: • • it adds to total demand, so stimulating output and employment, through Keynesian-type mech anisms; it improves so-called supply-side efficiency, strengthening production structures and competi tiveness. The scale of these can only be satisfactorily assessed by using an economic model. But it should be empha sised that there is no definitive, universally accepted model available for this purpose, given the diversity of expert opinion about how precisely economies work. A key controversy concerns the extent to which public interventions genuinely add to economic activity, rather than displacing, at least partly, private activity. There is, accordingly, a range of models to choose from, each incorporating slightly different mechanisms and behavioural assumptions and focusing on different aspects of economies. The results obtained from these models will inevitably differ. Nevertheless, important insights can be gained into the effects of policies through the use of models. In particular, the processes through which policies affect output, real income and employment can be clarified and some quantitative impression can be obtained of the response of these to the measures taken. Two different model-types are presented here. The first is a so-called input-output model (the Beutel model) which attempts to capture the technical relation ships between sectors of production, as well as the processes through which changes in demand affect supply, and to trace the repercussions of changes affecting one sector on others parts of the economy. The second model-type examines demand and output in a less disaggregated way and focuses on global patterns of consumption and investment behaviour and the way in which they respond and adjust after policy interventions. Results from two different versions of the second type have been used in the present analysis (the 'Quest' and 'Hermin' models). Both types of model illustrate the way in which Community structural policies have affected output and employment in the countries to which assistance has been predominantly directed and give an indica tion of the scale of these effects. According to the input-output model, in the absence of Structural and Cohesion Funds support, GDP growth in the four cohesion countries would have been, on average, almost 1/2% a year lower during the 1989-93 programming period than it actually was (1. 7% as against the 2. 2% growth achieved). The beneficial effect varies between the countries princi pally according to the scale of transfers relative to GDP, which was larger in Portugal, Greece and Ire land than in Spain. Whereas GDP growth in the latter is estimated to have been boosted by almost 1/2% a year, in Portugal and Greece, it was rarsed by almost 1% a year and in Ireland by only slightly less. Given 98 Chapter 5 Community structural policies and cohesion: a shared responsibility the increase in the scale of assistance in the present period, 1994-99, the increase to GDP growth is likely to be somewhat greater (just over 1/2% a year on average). Much of the significance of structural assistance for growth comes from the fact that this tends to be concentrated on investment, in human as well as physical capital. Between 1989 and 1993, fixed investment associated with Structural and Cohesion Funds expenditure in the four cohesion countries amounted to more than 8% of the total capital forma tion in these countries. Though the proportion was only around 5% in Spain, it is estimated to have been as high as 31A>% in Portugal, 6% in Greece and 171/2% in Ireland. In the present programming period, aver age support for investment could reach 14% of the total in the four countries. The boost to growth from Community-supported investment also contributed to create and safeguard jobs. According to the model estimates, the number of jobs dependent on the structural assistance over the previous programming period was an average of 272% of the total labour force in the four countries or by over 600,000. In Spain, as would be expected given the proportionately smaller scale of support, the figure was lower at just under 172%, but in Portugal, the boost to jobs is estimated at just under 472% (3. 3% in Ireland and 3% in Greece). Higher growth also means higher imports from other Community countries and increased trade. Overall it is estimated that more than a quarter of the amount transferred to the four countries through structural assistance returned to the other Member States con cerned in the form of imports and that by 1999, this figure could rise to almost 35%. A key feature of the Quest macro-economic model is that it incorporates explicit assumptions about how companies and individuals react both to present pol icy as well as their expectations about future policy. In the model, the positive effects stemming from increased structural interventions can temporarily wear off in the medium term as private investors anticipate upward pressure on real interest and exchange rates as a result of increased demand and thus reduce their own investment. Meanwhile, since the improvements in the supply-side of the economy, from investment in infrastructure, productive capacity and labour force skills, tend to take a number of years to materialise, they bring long-term gains to the poten tial for growth. The estimates from the model suggest that the benefi cial effects on output and employment over the pre vious programming period are lower than from the previous model because of the above features. The boost to GDP growth in the Cohesion countries is, therefore, estimated to havo been about a third lower in each case than suggested by the first model. As the longer-term effects from investment materialise, however, GDP is estimated to be increased by just over 1% in Spain and 2-3% in the other three coun tries by the end of the decade over and above what it otherwise would have been. More importantly, the rate of growth which all of the countries can sustain over the long-term is higher and, in consequence, unemployment lower as a result of Community sup port. The Hermin model similarly stresses the long-term impetus to growth which result from supply-side improvements, notably through investments in edu cation and training systems while it is more sanguine about the demand effects. Thus, by the end of the decade, the combined contribution of demand and supply-side effects is expected to lead to levels of GDP which are 9% higher than they would otherwise have been in Ireland and Portugal and nearly 4% higher in Spain. Overall, the estimates produced by the models are varied but positive on the role of structural assistance as a significant factor underlying the convergence of the cohesion economies towards output and real income levels in the rest of the Community with the expectation that this process is likely to continue in the future. The results illustrate, moreover, how cohe sion policies, by raising investment and economic capacity in the weakest regions, contribute to raising the economic potential of the Union as a whole. Results by Objective The global effects discussed in the previous section are reflected in a vast range of projects on the ground which have changed — sometimes fundamentally — lives and opportunities in the regions which they have touched. Perhaps most important of all, the projects themselves were generally selected by people on the ground; this involvement and empowerment of local 99 Chapter 5 Community structural policies and cohesion: a shared responsibility actors is one of the most important achievements of EU structural policies since 1989, as discussed below. The most visible impact of CSFs is on basic infrastruc ture, where there has been notable progress in reduc ing the disparities with the rest of the Union: It is not possible to describe in detail what has been achieved in every region and locality. The following attempts to summarise some of the more important specific effects on the regions receiving assistance, differentiating by Objective. It draws mainly on the evaluations carried out by the Commission since 1989. Objective 1 : modernising the regional economy In view oi the volume of resources targeted on the priority Objective 1 regions (currently some 70% of the total), these are the obvious starting point. Community strategies in these regions were designed to tackle basic structural problems rather than to redistribute income, and hence to accelerate growth and create durable jobs. For purposes of analysis, three groups of regions can be identified: the four cohesion countries discussed in the previous section, the two large Objective 1 regions in other countries (Southern Italy, Eastern Germany) and the small Objective 1 regions in the UK, France, Belgium and the Netherlands. The Cohesion countries The four cohesion countries are the least developed in the Union and include, especially in Spain and Ireland, areas with some of the highest levels of unemployment. Community aid has con tributed to strategic solutions to the problems, supporting investment for growth and competi tiveness. • a major effort was made in the period 1989-93 to improve port and airport facilities in order to reduce barriers to trade within the Single Market, although some key projects, such as Spata airport in Greece, have only just begun. In Spain the development of Andalucia and the Canary Islands, in particular, has benefited from such investment; • substantial effort is continuing to assist the devel opment of the strategic road networks in the Cohesion countries — for example, through the improvement of the four key road corridors in Ireland and the completion of the Corinth—Tripoli — Kalamata motorway in Greece. The length of major roads scheduled to be constructed or improved under the two CSF periods together amounts to 900 km in Greece, 400 km in Ireland, 1,960 km in Portugal and 14,000 km in Spain. • an index measuring motorway provision for the four countries rose from 43. 3% of the EU average in 1988 to 53. 1 % in 1991, whilst that for other roads rose from 69. 6% to 72. 8%. This, however, under states the strategic significance of the projects under way. In Greece 60% of the major TENs related projects are scheduled to be completed by 1999. In Portugal, interregional journey times have already been reduced by around 30%, whilst in Spain a standardised index of accident victims was halved between 1988 and 1994. But in some cases, realising the wider development benefits of the investment will depend in part on an upgrading of the secondary road network which often remains poor; The Community Support Frameworks (CSFs) in these countries have mostly operated in the framework of national policies where priorities were defined in terms of sectoral considerations, as for the CSFs in Ireland and Portugal, by regional and spatial planning considerations, as in Spain, or a mixture of both as in Greece. Hence in Ireland and Portugal, the CSFs were aimed at supporting the economic base while in Spain, thsy were directed more broadly at spatial restructuring through major infrastructure investment. In Greece, policy tended to encompass both of these aims. • major investment is going into upgrading the quality of heavy rail systems, particularly installing double track lines, electrification and other measures to improve operating speeds. However, the priority being given to rail investment in most Northern Member States means that no improve ment in disparities is evident: the increase in double track lines in the four cohesion countries between 1988 and 1990 of 4. 2% compares with an average increase of 16% in the other Union countries; similarly there is an increase of 2% in the networks electrified over the same period in 100 Chapter 5 Community structural policies and cohesion: a shared responsibility the Cohesion countries as against 4% elsewhere. Nevertheless, investment is tending to increase the use of the system, reversing a pattern of long- term decline. Between 1988 and 1991, rail pas senger kilometres in the four Cohesion countries increased by over 10%. In Athens and Dublin, moreover, investment is now going into metro/light rail systems to reduce problems of urban conges tion; • in all regions, major investment has gone into telecommunication systems, installing digital exchanges and fibre optic links and this is reduc ing disparities in provision significantly. By 1999, the number of lines per 100 inhabitants is expected to rise to 56 in Greece (from 33 in 1987), 38 in Spain (25) and 47 in Portugal (16). The proportion of main lines connected to digital exchanges is being increased and it is projected that by 1999, rates of digitalisation will have reached 80% in Greece, 100% in Ireland, 65% in Spain and 75% in Portugal. Substantial reductions in call failure rates, repair times and waiting lists are occurring as a result. In Greece, waiting times for new connections have been reduced from 700 days in 1988 to 330 days in 1993 and in Portugal from 330 to 120 days. By 1999, they should fall to only 7 and 30 days, respectively. By 1999, a substantial proportion of the regions in these countries will have efficient systems, although organisational improvements may be needed to ensure that the benefits of the invest ment feed through into more competitive call charges; GDP in recent years (from 165. 4, 103. 8 and 126. 9% of the Union average respectively in 1988 to 158. 3,87. 5 and 120. 8% of the average in 1991); • as regards the environment, key support has been provided in improving systems of water supply, and in increasing the capacity of waste water treatment facilities. In Greece, the number of towns with waste water treatment systems will more than double between 1993 and 1999, by which time 71% of the population will be covered; in Ireland the proportion of urban waste water treated in accordance with EU standards will rise from 20% in 1993 to 80% in 1999. In Portugal, the proportion of the population connected to a potable water supply system will rise from 61% in 1989 to 95% in 1999 and the population con nected to the sewerage network will rise from 55% in 1990 to 90% in 1999. Human resource constraints represent a major obstacle to convergence in the four cohesion coun tries. As indicated in Chapter 1, the Portuguese labour force is characterised by low productivity and low educational attainment levels. There are similar problems of low productivity in Greece, while in Ireland and Spain, labour markets are characterised by high unemployment. These problems were actively addressed in the CSFs where great importance was attached to improve ments in human capital and better labour utilisation. The effects of policy carried out jointly with Member States are evident in: progress in energy diversification, notably by reducing oil dependence, has been made, but more needs to be done in this area. Deliveries from the new natural gas distribution system should begin in Greece in 1997 and by 1999 12% of electricity might be generated from this source. In Portugal 600 kilometres of gas pipeline will have been laid by 1999 and gas account for 7. 5% of total energy consumption. Investment has also gone into modest development of renewables and in Ireland, the current CSF may help to finance a new peat-fired power station. Electricity gener ation capacity in these countries has fluctuated around 80% of the Union average over the period since 1988, showing no clear trend. Greece, Spain and Ireland have all seen both absolute and relative reductions in their energy use relative to • the significant increase in the rate of participation in education among the young in the period 1989- 92. By 1999, it is estimated that, with the exception of Portugal, the rate of participation of 15 to 24 year olds will approach the EU average. Significant progress was already made in Portugal, where participation increased by 41% in post-compul sory secondary education and by 34% in third level education during the previous programming period; • particular emphasis has been placed on the strengthening of education and training systems, which has reduced disparities in access, particu larly in Portugal (where capacity has increased by around 20% and 40% of schools have been mod ernised) and Greece (where around 22000 new 101 Chapter 5 Community structural policies and cohesion: a shared responsibility training places were established, a large propor tion in the peripheral areas). The Structural Funds have also supported the development of improved links between school and work. In particular, there has been an improvement of the apprenticeship system in Portugal and Ireland (the number of people receiving Community assistance amount ing respectively to 12% and 50% of the total num ber of students in post-compulsory secondary education), of workshop-schools in Spain and the establishment of a network of Institutes for techni cal and professional education in Greece; • the Structural Funds have also supported adult training and other active labour market measures in order to help the workforce adapt to the specific skill requirements of the various sectors under going change, workers threatened with unemploy ment being the main beneficiaries in Greece and Portugal. In addition, they have been concerned with improving qualifications and helping the unemployed and the most vulnerable groups in the labour market into work, particularly in Ireland and Spain where a large proportion of the unem ployed have benefited from measures alternating period of training with period of employment. The increase in active labour market measures in the four cohesion countries will enable a sizeable proportion of the work forceworkforce to benefit from training and subsidies (between 4 and 7% in the period 1989-99); • Community policy has in addition led to a rise in the share of R&D in GDP, from an estimated 0. 7% in 1969 to 1. 2% in Spain, from 0. 4% to 0. 7% in Greece and from 0. 5% to 0. 8% in Portugal. The number of people employed in research and tech nical professions is increasing correspondingly. So far as the productive sector is concerned, structu ral assistance has been directed at improving the conditions for existing firms and encouraging new enterprises, especially SMEs. Strategies to attract foreign investment have also been important, notably in Ireland, partly as a means of encouraging techno logical transfer, but also in Spain and Greece, where existing aid schemes have been supported. In Portugal, where manufacturing has been historically highly deoendent on traditional sectors, while a great deal of employment is still in agriculture, promoting industrial restructuring has been a priority under a co-ordinated programme (PEDIP). This funded more than 7000 industrial projects, involving investment of 3. 8 billion ECU. Firms assisted under this programme achieved productivity increases of around 5% a year and employment growth of 272%. Progress in eliminating disparities in productivity and in adapting their industrial structures towards higher added value activities has been achieved and further improvement can be expected in the future. Changes in GDP per head in these countries are linked to their different rates of productivity growth. This was par ticularly high in Ireland in the large foreign-owned sector, which generates over half of the manufactur ing value-added. In Spain, some regions experi enced productivity growth while in regions where employment in services grew more rapidly, average productivity actually declined. In Greece, macro- economic problems — high inflation and a large public sector deficit — seem to have unfavourably affected investment. For rural development including agriculture, the thrust of related measures was the same in all four countries, aimed at redirecting production towards products in demand, improving product quality, increasing farm productivity, modernising agricultural structures and improving the conditions for processing and market ing of agricultural products. The proportion of the work force in agriculture in rural part of the Cohesion countries is still twice as large as the Community average (four times in Greece). In Greece, the CSF was aimed at encouraging more young people to enter farming. In Ireland, the CSF encouraged diversification into alternative crops, land use and forestry. Rural development pro grammes complemented the specifically agricultural measures. The CSF in Ireland enabled peat produc tion to be developed, improving the domestic energy balance as well as increasing job creation. In Portugal, the CSF supported the establishment of Development Centres in rural areas, while in Spain measures were directed against rural-urban drift by encouraging the development of viable economic activities in rural areas. In the period 1989-93, substantial progress was also made in all four countries in modernising basic infrastruc ture in rural areas, notably sewerage and water supply. In the fisheries sector, significant reductions in fleet capacity in the cohesion countries, and Spain in 102 Chapter 5 Community structural policies and cohesion: a shared responsibility particular, have been accompanied by measures targeted at improving fish processing and marketing activities (notably Spain, Portugal and Ireland), fishing port facilities (particularly Portugal) and aqua- culture investment (notably Greece and Ireland). Objective 1 regions in Italy and Germany Both Italy and Germany have traditionally had an active regional policy, which in the former has always been directed towards the South — the Mezzogiorno — while in the latter, since 1990, the focus has been on the new Lander. Economic conditions in the Mezzogiorno bear a closer resemblance to the four cohesion countries than to the rest of Italy. The area faces severe barriers to business development from socio-cultural factors and has a particularly weak manufacturing sector which has depended on direct transfers from the North. Here, the emphasis in Community policies has been on infrastructure investment, in particular the devel opment of a natural gas distribution network and the upgrading of telecommunications which have directly improved the quality of life of the population as well as improving conditions for business. Aid to industry under CSF programmes accounted for more than 20% of total expenditure and provided assistance to about 2,200 SMEs, generating around 10,000 new jobs. A notable example is the special aid scheme for young entrepreneurs (known as Legge 44/86) which has supported the creation of more than 400 SMEs and which is aimed at helping to establish a more entrepreneurial culture in the Mezzogiorno. Community aid has also been used to help young people and the long-term unemployed obtain qualifi cations in agriculture, crafts, tourism and services and for training initiatives and to promote the devel opment of rural communities in the worst affected regions such as Calabria and Basilicata. Programmes, however, have been subject to considerable delay in implementation, partly because of administrative inefficiency and institu tional constraints. In the new Lander, the main aim of CSF assistance has been to improve the basic conditions for self- sustaining growth and to help rebuild the economy taking account of the need for environmental im provement. Community measures have emphasised job creation, partly offsetting the negative consequences of the restructuring process (which led to the loss of some 372 million jobs between 1990 and 1995). Between 1991 and 1993, 224 thousands jobs are estimated to have been created or maintained. Within the human resources programme, measures have mainly been directed at the problem of female unemployment which amounted to 86% of total unem ployment at the end of 1995. Women represented 77% of Objective 1 beneficiaries, young women being particularly targeted, alongside older men. Though this age structure should have facilitated the integration of women, measures have been relatively more effective in improving the situation of men in the labour market. In fact, for male beneficiaries, partici pation provided for greater access not only to jobs in general, but also to durable employment with higher qualification. In both Italy and Germany, an enormous adjustment effort has been required in the less developed regions. For Italy, in particular, this demands more efficient management of the finance received from the Structural Funds, a faster rate of absorption and more transparency to demonstrate that the principle of additionality is respected in practice. Smaller Objective 1 regions Objective 1 regions in the rest of the Union differ in terms of economic structure and the problems they face: extreme peripherality in the case of the French DOM (and underdevelopment), peripherality and, occasionally, difficulties in regard to accessibility in the case of Corsica (F), Burgenland (A) and the Highlands and Islands and Northern Ireland (UK), advanced industrial decline in Hainaut (B), Nord (F) and Merseyside (UK) and an absence of local econ omic opportunities in Flevoland (NL). The diversity of these regions needs emphasising. Some clearly are not underdeveloped regions in the classical sense, or similar in this regard to other Objective 1 areas. Hainaut (B), Nord-Pas de Calais (F), Northern Ireland and Merseyside (UK) are mature regions in an economic sense which have experi enced acute decline in an industrial base typically 103 Chapter 5 Community structural policies and cohesion: a shared responsibility established in the last century. Unemployment rates are well above the EU average in all these cases. On the other hand, infrastructure endowments in these regions are not a constraint on economic develop ment. Corsica (F), Burgenland (A) and Highlands and Islands (UK) are smaller, less densely populated regions with a high dependence on agriculture and a small, undynamic manufacturing sector. Only in the DOM is the pattern of economic activity more typical of less developed regions. These areas suffer multiple handicaps: dependence on traditional agriculture, a limited manufacturing base, high unem ployment, and, perhaps above all, extreme remote ness from the markets of the rest of the EU. Community programmes are adapted to circum stances but are focused mostly on generating alter native opportunities in the local economy (rural tourism, for example, has been a major area of economic diversification and job creation in Corsica). As a consequence of high unemployment in many of these areas, or the absence of qualified labour, a significant effort has been directed at combating social exclusion and marginalisation of young people and the long-term unemployed. In view of the satisfactory level of endowments in infrastructure general there are fewer strategic projects. Because they are different from the others, the DOM are an exception in this respect and the construction of ports and airports has been necessary to improve accessibility. These have helped alleviate some of the distance costs suffered by local manufacturing enterprises and primary producers. Objective 2: promoting the business culture Given their dependence on old, declining industries such as textiles and clothing, or coal-mining and steel production, the Objective 2 regions face particular difficulties in meeting the challenges of international competition and in sharing in the Union's general prosperity including the opportunities created by the single market. While unemployment, and hence labour availability is generally substantially above the EU average, skills are often mismatched with the demands of the modern economy. Meanwhile, dependence in a previous era on a few, major em ployers has limited the development of an active entrepreneurial culture based on small business. The immediate priority for Community assistance has been to help to put economic development policy more firmly on the political agenda in these areas. In view of the need to reduce dependence on outmoded activities, the emphasis has been on restructuring and diversification. The means have stressed the need for self-help by underpinning the conditions for the development of an indigenous business culture. ' This has been tackled on a number of fronts. First, Community-funded aid schemes for business have enabled the number of firms benefiting to be increased significantly and rates of assistance to be optimised. In the UK, some 300,000 SMEs will have received assistance by the end of 1996, of which more than half were supported over the period 1989- 93. This had a considerable impact on employment and 240,000 net jobs are estimated to have been created or preserved between 1989 and 1993 as a result of Objective 2 intervention. Secondly, firms have been helped to increase pro ductive efficiency and encouraged to develop new markets, both essential for long-term survival. For example, an assessment of aid schemes in Haute Normandie (F), in 1993 found that Community assistance considerably increased available funding for developments in research and advanced technology and helped diversification into up-market products less subject to the vagaries of price compe tition. More generally, aid programmes have led to an emphasis on technology transfer and innovation, especially in traditional sectors, which was rarely the case before. Thirdly, support for business has been accompanied by training schemes in order to tackle the shortage and the rapid obsolescence of skills. The upgrading of the skills of both the employed and unemployed as part of the process of adaptation to structural change has been a priority, including the acquisition of new business skills as part of the change from economies dominated by large firms to ones where SMEs play a strategic role. Beyond industrial restructuring, the economic and urban environment has shown visible signs of improvement. In many areas, derelict industrial sites have been transformed into more attractive locations 104 Chapter 5 Community structural policies and cohesion: a shared responsibility for new businesses with the help of Community pro grammes. Moreover, there is evidence of increased conversion for leisure use (in the broadest sense). The degradation of sites from industrial decline still continues. There remain large abandoned sites, par ticularly in steel areas, and much reconversion remains to be done in the current period. Physical regeneration of industrial sites is also linked to policy measures on urban renewal. A number of programmes have also focused on the problem of water for communities in mining areas and have helped provide more efficient systems of supply. These measures improve the living conditions of the population. They also help to raise general awareness of the problems by involving local people through partnerships, which in turn contributes to an inclusive approach to development and to restoring self- confidence (see section 5. 4 below). The quantification of the previously described ef fects is at an early stage. Systematic statistical data are being compiled for the evaluation of past programmes (1989-93), and will be published. Early results suggest that the policies have had some highly favourable effects on the regions con cerned although the availability and quality of data vary. In some Objective 2 regions where relatively sophisticated management systems had been developed, very detailed information on outputs across a broad range of CSF priorities could be obtained. According to the evaluations, there were some 900 thousand beneficiaries of ESF-supported training programmes between 1989 and 1993 in Objective 2 programmes. ERDF and ESF have contributed to- creating or safeguarding about 850 thousand jobs over the period 1989-93. After making adjustments for dead-weightdeadweight and displacement ef fects, it is estimated that a total of 530 thousand net additional jobs can be attributed to the Objective 2 programmes. 1993 represents up to 1% of the jobs in the non- industrial sectors. Objective 3: improving labour market access Objective 3 is aimed at complementing and reinforcing national expenditure on human resource development at a time of rising unemployment and job insecurity. The sums involved are substantial: in non-Objective 1 countries they finance between 3% and 15% of Member States' labour market pro grammes while in Objective 1 countries the figure rises to 50-60%. Achievements under Objective 3 can be best measured, by 'coverage rates' (number of benefi ciaries as proportion of the potential target group). For the previous programming period, coverage rates varied from 21 % in Spain to 60% in Belgium for young people and from 9% in Denmark to, 32% in Portugal for the long-term unemployed. These rates confirm that the main Objective 3 target groups have been reached and that young people were more exten sively covered by Objective 3 interventions relative to long-term unemployed. Although employment is not an explicit aim of Objec tive 3, an impact indicator commonly used is place ment rates. At Community level, an average of 50% of mainstream target were placed, although net effects (i. e. allowing for the fact that some would have found a job anyway) amounted only to 10%. These results are in line with those of active labour market policies in general. Moreover, available data in terms of net impact indicate that displacement and dead- weightdeadweight effects are much lower for those groups which are more excluded (unqualified young people, very long term unemployed, migrant workers and so on). The fact that estimates of Objective 3 net placement rates were not significantly higher than national averages is suggests that the policy was not successful in reaching the most vulnerable groups during the previous programming period. In addition, these programmes slowed down the pace of decline in industrial employment in the assisted regions by helping to maintain jobs at a level that was between 1. 6% and 2. 6% higher than it would have been in the absence of interventions. At the same time, the Structural Funds also made a significant contribution to diversification in the Objective 2 regions, since the new employment generated by This issue has been addressed in the framework of the 1993 reform of the Structural Funds. Objective 3 guidelines were adjusted to include: the diversifica tion of the type of actions to be co-financed (greater stress on mediation and job counselling measures as well as on different types of employment aid); a wide ning of target groups, with the purpose of reaching the most seriously excluded; and the development of 105 Chapter 5 Community structural policies and cohesion: a shared responsibility the "pathway to integration" approach which combines different types of measure tailored to each individual. These changes had an impact on national policies, focusing renewed attention on those most disadvan taged in countries where traditionally they were not a priority, such as the southern Member States. Community intervention has been decisive in shaping policy choices and it has been a source of innovation and experimentation in labour market and social inclusion policies. The institutional framework of Community interven tions has also had its effects on organisation and administrative practices in Member States. For example, the implementation of the partnership prin ciple has not only increased coordination between national and Community level but also internally, both horizontally (with the social partners for example) and vertically (between different levels of administration). Spain is a clear example, territorial organisation to the creation of coordination giving rise mechanisms for dialogue with the Community. Even in countries where such mechanisms already existed (such as Denmark) a strengthening and extension of partnership was evident during the previous pro gramming period. The Structural Funds have also led to the improve ment of training and employment services, in terms of general administrative organisation, training of trainers and other staff and the devel opment of systems of certification at national and C o m m u n i ty level. Other change's c o n c e rn improvements in the structures of administration for d e s i g n i n g, m o n i t o r i ng and evaluating measures for improving the skills of the work force, especially in countries where no such bodies existed before. Objective 4: preparation for economic change Objective 4 is relatively new — having been intro duced after the policy review of 1993 — and in most countries was only implemented in late 1995. Its impact should be assessed mainly in terms of its innovatory nature. It aims principally at improving the management of human resources with regard to industrial change, in particular by concentrating on workers threatened by unem ployment in SMEs. Given the innovatory nature of measures under this Objective, implementation has not always been straightforward and has varied significantly between Member States. In some, it has some times been difficult to establish needs and to tailor Objective 4 aid to the existing labour market situation and/or policies. It has also proved diffi cult to concentrate assistance on small and medium sized enterprises rather than large enter prises and to target it on those most at risk of unemployment within these. In addition, the requirements for co-financing have sometimes been an important constraint on the participation of both private and the public sectors. Despite these caveats, positive consequences can already be detected in three areas: • a redirection of policy towards a more preventive approach'to unemployment. In many Member States, forecasting models are being developed, employ ment observatories by industrial sector are being set up or extended (eg, in Greece, Belgium, the Netherlands and Austria, where this is occurring at a regional level, with tripartite discussions of economic and labour-market issues). New initiatives are also being undertaken at the company level. In Denmark, for example, labour market monitoring has been developed coupled with efforts to promote the use of the data by companies and with help to firms to apply the results of forecasts to their human resource policy. In Ireland, companies obtaining support under the Objective 4 are required to devise a business devel opment and training plan; v • • the acceptance by workers of the need to adapt to industrial change. From the experience in some Member States (Denmark and Austria), greater needs than expected have emerged ior general or generic skills and less for vocational or technical training, while It also seems to be important for training to lead to formal qualifications (eg as recommended by an evaluation study in Ireland); improving training systems. Measures range from the development of courses and types of training methods which can be used to establish training structures at company level. Particular attention has been paid to the training problems faced by SMEs. For example, in Germany there are plans to establish cooperation structures between SMEs for training. 106 Chapter 5 Community structural policies and cohesion: a shared responsibility Objective 5a: improving structures in traditional sectors Agriculture techniques, The agricultural sector has been subject to substan tial changes in recent years, including the develop increased ment of production productivity and competition, and changes in the pattern of demand. These have led to a significant reduction in the number of agricultural holdings — from 8. 6 million in 1989 to 7. 8 million in 1993. The reduction was particularly large in Portugal (18%) as well as in Luxembourg, France, Spain and Belgium (over 10%). At the same time, the average size of holdings increased although, in the Union as a whole, small holdings of between 1 and 5 hectares still account for 60% of the total. The rationalisation required in the future needs to be accompanied by a reduction in the average age of workers in the sector, since in 1993 over a half of farmers were above 55. Objective 5a is aimed at bringing about a restructur ing of agriculture across the Union, continuing the measures co-financed by the Community budget over a number of years to maintain agricultural activity in rural areas. It is specifically directed at preserving viable farming incomes by creating new opportunities on or close to the farm. The measures include both direct transfers to farmers in the most disadvantaged areas and transfers designed to restructure and develop the sector. Direct compensation to farmers is focused on those in mountainous or other naturally disadvantaged areas, where the decline of agriculture threatens serious depopulation and 'desertification' and where agricultural income is less than half that elsewhere. The system of support enable farmers in these areas to maintain a reasonable level of income. The areas concerned cover 56% of usable agricultural land in the Union. In the 15 counties of the Union around 172 million farmers are in receipt of this compensation representing a quarter of the holdings located in these areas. Numerous measures to restructure and develop the sector have been funded by the Community. These focus, first of all, on the planned improvement of farms themselves. Subsidies are granted to increase the competitiveness of agricultural holdings by adapting structures of production to the needs of the market and to promote product quality. They also encourage the diversification of activities which could generate additional income (such as rural tourism, the sale of farm products and the use of wooded areas), as well as the improvement of working conditions, hygiene and animal welfare and the natural environment. In the last few years, an average of 40,000 improvement plans a year have been approved, half in Objective 1 regions. In 1993, 60% of these were directed at supporting investment in holdings located in disad vantaged areas. The Community also offers support for young farmers to set up in business not only to provide a job for them but also to reduce the average age of the agricultural work forceworkforce, younger farmers being more receptive to modern farming techniques and better able to adapt to changes in production and the need to diversify activities. In the last few years, help has been given to 23,000 young farmers a year, some 1. 8% of the total in the Union. At the same time, the early retirement of farmers of 55 and more has been encouraged. For the period 1993-97, more than 210,000 farmers and agricultural workers will be assisted in this way. Finally, the Community funds investment in the down stream processing and marketing of agricultural produce with the aim of improving product quality and enabling producers of primary products to benefit more from the added value from processing. Rationalisation and mod ernisation are essential; in 1990, over 90% of the 253,000 firms in the agro-food sector had less than 20 employees and 6% between 20 and 39. In deciding the assistance to be given, account is taken of market developments and the projects for assistance selected accordingly. In general, priority has been given to invest ment involving technical innovation, enabling costs to be reduced, labels of origin to be produced and biological products to be encouraged. These measures account for most of the ressources deployed under Objective 5a actions in terms of resources deployed. The other measures include support for producer cooperatives, for service centres providing mutual aid, management and accounting advice and for vocational training. Fisheries Structural intervention in the fisheries sector is intended to facilitate adjustment. Measures include 107 Chapter 5 Community structural policies and cohesion: a shared responsibility payments for the permanent reduction of the fishing fleet, assistance for its modernisation, for aquaculture investments, and aid for downstream activities such as processing. Structural measures for fisheries have been in place since 1970 but they have only been brought together in the form of the Financial Instrument for Fisheries Guidance (FIFG) since 1994. The largest benefi ciaries have been the fishing communities in Spain and, to a lesser extent, those in Italy, Portugal and Greece. Objective 5b: restoring the rural economy The continuous decline of employment in agricul ture and of the share of agriculture production in GDP create real problems for the mainten ance of jobs and population in many of the Union's rural areas, where prosperity and the environ ment are threatened. Safeguarding rural areas is essential to the balanced development of the Union as a whole and calls for the creation of new economic activities or the expansion of existing ones. The integration of fisheries into the Structural Funds in 1994 was intended to reinforce the efforts to improve conditions in an industry undergoing extensive restructuring. Before the FIFG was established, measures suffered from a lack of strategic focus and planning, with aid being insuf ficiently concentrated. Nevertheless a number of achievements are evident: • significant reductions in the over-capacity of the fishing fleet have been achieved. Over the period 1991-94 the tonnage and capacity of the Community fleet were reduced by around 10. 5% and 7. 4%, respectively, mostly in Spain, Portugal, Denmark and Germany. Although these reductions were within the global objec tives set out in the Multiannual Guidance Pro grammes (MAGPs), the overall situation, however, conceals wide variations between Member States; • health and safety conditions on-board ships and in processing plants have been improved; • the development of fish farming has been encour aged, with notable success in Greece, Italy, Ireland and the UK (Scotland), and has con tributed to local economic development. In the current period, there is a continuing focus on reducing fleet capacity in accordance with the targets set out in the MAGPs and on the coordination of measures for fishing communities most affected by reductions. 108 Objective 5b is aimed at promoting rural develop ment by assisting structural adjustment in areas which are particularly vulnerable. It includes areas outside those covered by Objectives 1 and 6 with low incomes or other handicaps, such as a loca tion on the periphery or in remote islands or moun tainous areas, an uncompetitive structure of agricultural holdings, the ageing of the work force, or the pressures on the rural environment. The assisted areas are sparsely Dopulated and the challenges of providing access to services are accordingly especially difficult. the i n t e g r a t ed programmes, Through the Community has helped to restore the economic potential of rural areas and their capacity to pro vide viable jobs. Around 70% of the EU's funding is currently directed at the development of the economic base of rural areas. There are three main priorities: firstly, support for the development and diversification of agriculture and forestry — including the promotion of quality products and the restructuring of production away from the use of exhaustible resources; secondly, the develop ment of new SMEs, where the Union has sup ported the establishment of industrial sites and the creation of services for assisting businesses; thirdly, the development of rural tourism which can be a source of additional income for farmers and their families. These measures are complemented by others to improve labour force skills or protect the natural environment. Measures also contribute to improv ing the built environment through the regeneration of villages. This represents a potential opportunity for job creation while protecting the local heritage and improving quality of life. Chapter 5 Community structural policies and cohesion: a shared responsibility Global estimates suggest that over the period 1989- 99 as a whole, more than 500JOOÔ jobs will be created or preserved in Objective 5b areas as a result of Community programmes. Of 20 Objective 5b regions examined in more detail, the data suggest that popu lation has stabilised in around half of them and in creased in six. GDP declined in only two of the regions and increased or remained the same in the rest. Objective 6: innovation and accessibility The new Objective 6 created on the accession in 1995 of Finland and Sweden addresses problems of ex treme peripherality, climate and low population den sity. These regions typically benefit from relatively well-developed, national infrastructures, especially in regard to transport, energy, and modern telecom munications. However, unemployment is high and the regions are highly dependent on public sector em ployment. t Objective 6 programmes have been used as the opportunity to address these deficiencies. Innovation has been at the heart of the strategies adopted for the period 1994-99, and expenditure on research and technological development and the new information and communication technologies has been a top priority. In Finland, this accounts for over a third of Community assistance. It is, of course, too early to assess the results of these programmes. The indications so far stress the benefi cial effects of both the measures themselves and the programming process, which has encouraged crea tivity through the decentralisation of management to the regions. Community Initiatives Through Community Initiatives, the Union has been able to focus attention on particular European prob lems and opportunities in the field of regional and social development emphasising actions to promote the development of networks and co-operation in regions across national frontiers. They have some times been among the most valuable and innovative actions under the Structural Funds, helping to set a new policy agenda for mainstream programmes and a particular appeal to citizens and local actors on the ground. They have also been very popular which has produced its own set of problems in relation to the volume of themes requested for new Initiatives. Given the limited resources available in the face of the variety of issues which have been addressed, lever age has been the guiding principle in the use of Community finance. Accordingly, Community Initia tives focus much less on major 'hardware' invest ments themselves but have sought to create the conditions for national public and private investment in the priority expenditure areas. Detailed evaluations for most Community Initiatives for the first programm ing period, 1989-93, are now under way, while a number of new Initiatives were introduced only re cently. Community Initiatives have had a particular role in emphasising the trans-border, trans-national and inter-regional dimension. There can be few more im portant priorities in the process of European integra tion than the removal of the traditional barriers between Member States which have distorted econ omic structures and reduced opportunities, espe cially for border communities. With regard to cross-border co-operation, INTER- REG / (1989-93) achieved considerable success measured in terms of interest aroused with some 31 programmes funded. Their unique contribution has been to promote the development of coherent regional strategies across national frontiers. In this way they have attempted to overcome national barriers to economic and spatial development which have traditionally reduced opportunities for border communities or led to a wasteful duplica tion of effort. Over half, 56%, of the resources funded projects directed at publicising cross-bor der opportunities, underlining the extensive benefits of a Europe without borders. Initiatives for cross-border mobility were less in evidence, but 11 % of the projects were aimed at developing new practices in economic cooperation based on the transfer of information and know-how; 8% were concerned to improve the management of natural resources and therefore, the attractiveness and quality of life offered by border areas; 6% were aimed at developing university and research centre networks and promoting cross-border tour ism. Most of these projects contributed to job creation directly, partly through the development of SMEs. INTERREG II will carry this forward and seek to pro mote programmes which are genuinely cross-border in content. It has considerably increased resources, Chapter 5 Community structural policies and cohesion: a shared responsibility in particular for actions in Objective 1 regions, and it will also help fund the completion of energy networks to provide connections with wider European networks funded under the REGEN initiative. V During the first programming period, REGEN ex posed the limits of a uniquely national approach to planning. It led to a strengthening of collaboration (for example, between Greece and Italy, and between Spain and Portugal), encouraging the diversification of energy sources and services (creation of gas dis tribution systems), promoting the establishment of networks. In order to introduce cooperation between EU regions and regions in Central and Eastern Europe adjacent to the Union, the implementation of projects financed under the external aid programme PHARE has been linked to INTERREG. More recently, an innovation has been to introduce a spatial planning dimension in Community Initiatives for the first time (INTERREG lie) which will open up possibilities for developing trans national cooperation (around the Baltic Sea, the Alps, the Mediterranean and the Atlantic). The REGIS initia tive aims at improving integration of the remote re gions of the Union by strengthening their economic base and consolidating links with the rest of the Union, Community Initiatives have also given impetus to innovation, the transfer of know-how and the inte gration of R&D in regional policies in the less developed areas. Under STRIDE, 68 new research centres were created and over 100 others were re-equipped or upgraded. Almost 300 new pro ducts and processes and 46 patents were gener ated through research activities and 4,400 jobs are estimated to have been directly or indirectly created. Under TELEMATIQUE, 17,000 SMEs in a wide range of industries developed advanced ser vices: databases for open use; support for dis tance working to 32,000 new users. PRISMA has contributed to the creation of single market by enhancing standardisation and quality control procedures. It has financed some 300 projects for certification and quality services which have pro duced systems used by 4,500 organisations for checking materials and products to ensure that they conform with EU standards. These three in itiatives are reflected in the SME Initiative for the second programming period (1994-99) aimed at assisting SMEs, especially in Objective 1 regions, to adapt to the Single Market and international competition. Rural development projects designed and managed locally in rural areas were supported under LEADER, which is aimed at disseminating good practice through innovative measures, exchange of experi ence and transnational cooperation. Through a 'bot tom up' integrated approach to rural development, it has helped to set up 217 Local Action Groups in the first phase, while for the period 1994-99 the number of Groups may increase to some 700. The design and implementation of transnational projects has been promoted using the European rural development net work, which offers a permanent facility for the ex change of experience and know-how. In 1994, the Commission launched the URBAN Initia tive, aimed at social and economic regeneration and at improving the environment. URBAN has sought to maximise the involvement of the grassroots, em powering local communities and encouraging local people to determine priorities and to take responsi bility for their own areas. It has generated consider able interest, receiving some 133 applications for funding. Other Community Initiatives (RESIDER, RENAVAL, RECHAR, RETEXand KONVER) are narrowly focused on areas with particular sectoral problems and aim to help local economies dependent on such sectors diversify. Given their small budget in relation to the size of the problem, their main contribution has been to secure private investment in areas which have suffered from progressive disinvestment and which were seen as unattractive. Evaluations suggest that Community funding was essential to released re sources for virtually all of the RECHAR projects under taken, and for 95% of RESIDER and RENAVAL projects. In financial terms, they have had a high leverage effect, inducing public and private funding of over 272 times the amount provided by the Com munity and helped support about 5,000 projects in the areas concerned. Given their success, some of the Community Initiatives (RECHAR, RESIDER, RETEX and KONVER) were renewed in the second programming periods with certain adjustments, such as an extension of their geographical scope or the addition of new measures. The two major Community Initiatives for the develop ment of human resources — EMPLOYMENT and 110 Chapter 5 Community structural policies and cohesion: a shared responsibility ADAPT— aim to focus attention throughout the Union on a skilled work force as a key element in the strategy in the Commission's 1993 White Paper. led to healthy competition between local and regional authorities. The EMPLOYMENT nitiative consists of three inter-re lated programmes: • NOW, which promotes equal opportunities for women in the labour market; • HORIZON, which addresses labour market oppor tunities for the disadvantaged and the disabled; • YOUTHSTART, which promotes the labour market integration of young people under 20, especially those without basic qualifications or training. From 1997, a fourth programme, INTEGRA will be added, concentrating specifically on social exclu sion; after its introduction, HORIZON'will focus exclu sively on helping the disabled. The ADAPT initiative is aimed, in conjunction with Objective 4, at helping the work force adjust to structural change, and with effect from 1997 will be reinforced by a special priority measure con cerned with the social aspects of the Information Society (ADAPT-bis). (The Commission and the Member States agreed at the outset a specific transnational framework and timetable for imple menting the two initiatives in two phases, 1995-97 and 1997-99. ) The response at the local level to the Initiatives has been substantial. In the first phase, 2,400 projects were launched under EMPLOYMENT (770 under NOW, 1,100 under HORIZON, and 500 under YOUTHSTART), while 1,350 projects were accepted under the first ADAPT Call for Proposals. A further 5,000 projects are expected under the second Call for Proposals to be launched in January 1997. It is estimated that, under EMPLOYMENT'and ADAPT, over 1. 1 million people will directly receive training or other forms of support to improve their job prospects in an increasingly competitive European labour mar ket. ENVIREG, aimed at environmental protection, which has funded about 800 projects across Europe, has given an impetus to the integration of the environmen tal dimension into the existing programmes and has In 1994, the Commission launched the PESCA Initia tive, aimed at helping fishing communities cope with the economic and social consequences of decline by contributing to the diversification of activity and the creation of new jobs. Finally, the European Union established a Special Support Programme in 1995 to help underpin the peace process in Northern Ireland, through a variety of measures to promote opportunities for reconcilia tion between the communities both in the province and in the six border counties in Ireland. This initiative has been an opportunity to make a major break through in terms of rising the involvement of local and community groups. Although Community Initiatives reflect considerable diversity, so far experience so far suggests that their strengths have been to foster cooperation and the formation of new partnerships, generate a spirit of experimentation and innovation and encourage the involvement of the grassroots (bottom-up approach) and the wider dissemination of best practices. They have been an important force for European integra tion. The experience acquired during the first programm ing period as well as the first results of the present period suggest that three of them in particular — INTERREG, LEADER and URBAN — have suc ceeded in translating the intentions of their authors into effective action. These initiatives and the partner ships which they have been responsible for estab lishing have strengthened the integrated nature of local development policies and have had a marked effect on the ground, mobilising those concerned into action. In the future, they are expected to lead to an exchange of experience and know-how in respect of projects which can be implemented generally in dif ferent parts of the Union. INTERREG in particular represents an unpre cedented example of regional cooperation under the Structural Funds, which will be developed further in the present programming period, while the 'bottom- up' approach of LEADER has made it possible to mobilise people in local areas and attract private capital which has had significant multiplier effects. In addition, the URBAN Initiative has encouraged a •Mr Chapter 5 Community structural policies and cohesion: a shared responsibility number of Member States to implement a multi-sec toral approach to urban problems and will help prob lem areas to be integrated into the overall process of economic development in Member States. As a result, these Initiatives have succeeded in their aim of adding value to Community cohesion policies as whole, maintaining an identity which is distinct, without becoming submerged within the mainstream programmes. Pilot projects Pilot projects initiated under the Structural Funds promote a concerted approach to innovation, ex perimentation and diffusion of know-how across re gions in Europe. They have demonstrated the scope for mobilising individuals and organisations at local level in both the public and private sectors with limited resources as well as the potential for development and employment creation of partnerships. Since 1984, the Commission has co-financed the creation of European Centres of Bussiness and Ino- vation (EC BIC) in assisted areas of the Union and the formation into a network within the European Bussi ness Network (EBN). These centres, which are the product of local partnership, provide to innovative SMEs in the areas in question a wide range of essen tial services, from the identification of potential new ideas to their concrete development. Since 1996, the TACIS programme provides the possibility for cross-border cooperation including a linking with the INTERREG programme, with a budget of ECU 30 million. 5. 4 The delivery system: a force for change An important part of the gains from cohesion policies stems from the delivery system developed for the implementation of structural intervention. The system has its origins in the 1980s, notably, in the integrated Mediterranean Programmes in France, Italy and Greece and in a small number of integrated regional policy programmes in the UK and the Netherlands. Lessons learned from these innovative programmes formed the nucleus of the reform of the structural policies in 1988 and have been further built on since then. The delivery system has a number of key elements: • • • • it is targeted on particular types of activity, particu lar localities or social groups; it is based on medium-term programmes, respon sive to, often locally-defined, needs; it is supported by systems of financial manage ment and control and encourages the develop ment of an evaluation culture; it is driven by subsidiarity by involving those who benefit from the programme, for whom this repre sents the most concrete expression of the Euro pean Union in practice; • it has a leverage effect through attracting addi tional resources from the public and private sec tors. Targeting By targeting resources and attention on particular types of investment and particular areas and social groups, the delivery system increases the effective ness of European structural policies. Experience since 1989 has shown the virtues of focusing on an objective measure of need and confirmed the import ance of comparability across the Union and of adopt ing a common set of criteria for determining the allocation of finance. This has important side-effects. It ensures that policies are genuinely European in scope and that the amount of European aid is determined in the same way whether policies are being applied in Bilbao, Birmingham or Berlin. It also helps minimise the infla tionary effect of expenditure since the increase in demand induced is matched by an increase in invest ment and hence productive potential. This will be especially important in the context of a single cur rency. Medium term strategic programmes The strategic, or 'programming', approach adopted under EU structural policies has itself been an innovation for many Member States since its introduc- Chapter 5 Community structural policies and cohesion: a shared responsibility tion in 1989. It is an approach with three distinct phases: the diagnosis of problems, the formulation of a strategy and the definition of concrete objectives to be achieved. As such, it has been recognised as an effective tool for the management of public funds. and, in some cases, it has been adopted by Member States for implementing their own policies. It has also led to some administrative reorganisation in some Member States (a more regionalised approach im plemented in the UK and Portugal and a more effi ciency-oriented approach in Greece, for example). The programming approach has enabled medium-term, or 'multi-annual', development planning to be im plemented and has encouraged the poorer Member States, in particular, to consider not just present policy pressures but to plan for the future in a longer-term perspective with guaranteed finance from the Union. Above all, perhaps, it has helped encourage a spirit of innovation and experimentation in policy. Experi ence has shown that the task of designing and imple menting such strategies often motivates those involved and releases local potential, stimulating the development of policy measures tailored to local cir cumstances. The innovative nature of the measures implemented can present a considerable manage ment challenge to the Commission and the national and regional administrative authorities concerned. This diversity in the measures undertaken is one of the reasons for the number of programmes to tend to increase, which itself poses additional management problems; it remains an ongoing challenge for the Commission and Member States to strike the correGt balance between the imperatives of effective man agement and innovation. Programmes are the means through which different European, national and regional structural measures are integrated and there has been marked progress in this area since 1989 with almost all European regional policy programmes furthering Community policies for industry, training, transport, environmen tal improvement, research and development, small businesses and tourism. attached top priority to ensuring that appropriate systems are in place in Member States for financial management and control. If they are not, the targeting of EU resources is undermined and public con fidence in the programmes is eroded. This is particu larly important since cohesion policies account for a third of the Community Budget. Arrangements for financial management and evaluation emphasise the shared nature of re sponsibility for policies and for the efficient use of resources. The Commission has overall responsi bility for implementing the Community budget, but reflecting the decentralised nature of the delivery system, Member States have the main regulatory responsibility for ensuring effective financial man agement and control. The prior need in this regard is to have an unam biguous understanding of the respective responsi bilities of the Commission and the Member States. This is currently underway through the signing of protocols dividing tasks and coordinating auditing schedules and methodology. A role for the Commission is to ensure that appropri ate systems are in place for effective financial control. The Commission makes on-the-spot checks and sys tem audits to ensure the efficient use of EU resources. Other improvements will be developed in the context of the wider exercise inside the Commission (known as Sound and Efficient Management 2000, or SEM 2000) to improve the management of resources. The existing spot checks and systems audits will be backed up by an improved follow-up of the findings. The exploitation of the opportunities offered by new information technology will help in this regard, as well as in increasing transparency. The cohesion policies introduced after 1988 also included provision for evaluation of measures, both ex-ante and ex-post. For many Member States, the systematic assessment of results was not a standard part of the policy-making process. The Commission has therefore been a force for the diffusion of an evaluation culture, drawing on best practice in the Union. Financial management, control and evaluation The effectiveness of EU cohesion policies requires that they be used for the purposes for which they were intended. To help achieve this, the Commission has Evaluation has improved over time. In the first gener ation of programmes introduced in 1989. ex-ante evaluation and the quantification of the results expected were inadequate. This was a serious 113 Chapter 5 Community structural policies and cohesion: a shared responsibility weakness with knock-on effects on ex-post evalu ation, which is normally based on thus. Leverage Programmes financed from the Structural Funds are supplemented by additional resources from public and, increasingly, private sources in Member States. Indeed, there is a formal requirement that Community structural aid should not substitute for national expen diture. Such leverage effects are often the direct result of the devolution of policy implementation and of the mobilisation of support from widely drawn groups of the population as described above. This mobilisation is itself often reflected in greater con tributions of matching finance coming from public and private sectors with a corresponding improve ment in the result of programmes. For the current generation of programmes, much effort has been made to address this weakness. Particular emphasis has been given to identifying quantified indicators to establish a base-line against which the effect of measures can be assessed, as well as creating networks of expert support, regular publications on best practice and case studies. Subsidiarity and partnership The notion of subsidiarity in public policy reflects a recognition of the virtues of decentralisation, involving the relevant authorities at all levels in the pursuit of agreed objectives, and the sharing of responsibilities for decision-making between central and lower tiers of government, closer to the grassroots. This is im portant, since it means the involvement of those near est to the problems for which solutions are being sought. The notion of shared responsibility and partnership extends to the social partners, the precise arrange ments for their involvement together with the different levels of government varying between countries. Partnerships formed with the Commission have played a fundamental role in EU cohesion policies. By acting as a mechanism for dialogue they have helped ensure that political priorities determined at European level are transmitted all the way down to the local level. Although the form of partnership differs between pro grammes and Member States, it has proved a robust and adaptable means of implementation, at national level (in the case of Ireland, for example, under Ob jective 1 policies) and at local level (many pro grammes under the URBAN Initiative being operated by local partnerships). It is also adaptable to all types of programme (the INTERREG Initiative even requires cross-border partnership) and to different national circumstances. The development of a vigorous partnership that is genuinely accountable helps ensure that pro grammes are adapted to the needs of benefi ciaries, that there is support for policies among the people and that a wide range of measures are co-financed. 114 Chapter 6 Ways forward 6. 1 The ongoing need for European Union cohesion policies Policies to promote solidarity exist in all Member States of the Union. There are two major reasons why this should be so. First, there is a need to compensate for major inequalities in the capacity of regions to generate income and in the ability of different social groups to compete effectively in the labour market. These inequalities tend to diminish only slowly over time. Economists have identified many reasons for this, in particular, differences in factor endowments (in the skills of the labour force or the provision of infrastructure), the rate of technical progress, or the rate of diffusion of new products and pro cesses, the effects of economies of scale and so-called externalities (which arise from the con centration of activities in a particular place), trans in the competitive port costs, imperfections process and unequal access to technical know- how. All of these, especially in combination, are capable of preventing a balanced distribution of the gains from trade and economic integration. As the evidence of Chapter 2 confirms, distance from the centre of economic gravity appears to be one of the more convincing explanations of disparities in regional income in Europe, but not of unemploy ment. Secondly, the idea of a 'people's Europe' guarantees certain rights to individuals with corresponding obli gations on the state. Neither regional location nor social position are permitted to circumscribe life- chances. The solidarity policies of the Member States reflect a political desire to maintain the European model of society which, as discussed in chapter 1, is based on the social market economy. With closer economic integration, the European Union shares responsibility for the maintenance of this model of society, which calls for active cohesion policies at European level. EU cohesion policies contribute to the maintenance of the European model of society at a number of levels. At the economic level, they contribute to a reduction in disparities between regions and social groups, allowing more of the population to contribute to econ omic growth. Even though European integration is a historical process without precedent, generating sub stantial overall economic gains, there is the risk that the competitive forces unleashed by the introduction of the Single Market could overwhelm the weaker parts of the Union and the weaker social groups unless they adjust in order to be able to take advant age of the new opportunities. Unassisted, such ad justments can take an unacceptably long time to be accomplished, since the starting point is the often severely disadvantaged position of the weakest Member States and regions in terms of infrastructure, productive potential, the capacity for innovation and the skills of the labour force (chapter 2). The alterna tive to assistance is large-scale migration of labour, which is not only socially undesirable but tends to reinforce regional disparities since the most skilled and able are likely to be best equipped to find a job elsewhere. The disparities at European level are much wider than those which exist in any Member State. Moreover, it is in the poorer Member States that budgetary 115 Chapter 6 Ways forward resources to remedy structural problems and reduce disparities tend to be the most scarce. At the social level, cohesion policies help to improve access to employment, both in general and for the most disadvantaged groups. More than anything else, the existence of high levels of unemployment and the growing incidence of poverty act to under mine the European model of society. Increasing em ployment has become a top priority in the Union. Cohesion policies make a direct contribution to this by promoting restructuring and development and creating durable jobs. In addition, cohesion policies explicitly address the equally important issue of who takes up those jobs, by attempting to equip young people, women and those who have been out of a work for long spells to compete more effectively for employment. At the political level, cohesion policies are an ex pression of mutual support between Member States. They underpin the notion of European solidarity, cre ating a new framework of opportunity which is both additional and complementary to the national one. This is not simply a matter of resource transfer, but a Community approach, or method, which seeks to make the fullest use of the potential of the Union economy as a whole by implementing best-practice techniques and taking decisions as close to the grassroots as possible. By involving a wide range of people and organisations at regional and local level, Community cohesion policies give the most concrete expression to the principle of subsidiarity. Against this background, the Commission remains determined to maintain, and where possible strengthen, the Union's structural policies for promot ing the overall harmonious development of the Com munity. The following analysis addresses, first, ways of in creasing the effectiveness of EU cohesion policies and, secondly, and without prejudging the content of future policy some of the policy challenges for the future. 6. 2 Raising effectiveness Targeting the problems: the concentration of resources An appropriate starting point for the analysis is the targeting, or concentration, of resources on the most serious problems. Through concentrating resources, the Union has been able to mobilise financial re sources to have a significant impact on the worst- affected areas and social groups. More generally, concentration of support on physical and human capital has ensured that, in all Member States, each ECU from the Community is specifically targeted on investment for the future. Concentration is, therefore, the key principle under lying the effectiveness of cohesion policies. Enough geographical and financial concentration? The effectiveness of cohesion policies depends in large measure on targeting resources on the most serious problems and problem areas. Excessive dis persal generally limits the effectiveness of what is spent, although there is an inevitable temptation to spread resources thinly among both regions and social groups. At the same time, cohesion policies must be open to critical and continuous appraisal to ensure that they are as effective as possible. This chapter addresses policy weaknesses and identifies areas for possible improvement in the future. Such improvements could in some degree already be introduced during the current programming period, but it is equally import ant to begin a reflection on areas for more fundamen tal change which can be addressed in the context of future developments linked to preparations for the new programming period scheduled to begin after 1999. So far as Objective 1 is concerned, the rule requiring unanimity among Member States for the adoption of the list of eligible areas makes the rigorous enforce ment of economic criteria more difficult at the margin (The Commission proposed majority voting as the general rule in its submission to the Inter-Governmen tal Conference "Reinforcing political union and pre paring for enlargement"). Political compromise in 1993 led to the inclusion under Objective 1 of 7. 4 mil lion people, 8% of the total eligible population, living in regions with GDP per head more than 75% of the Union average (ie above the threshold for eligibility 116 Chapter 6 Ways forward established in the relevant regulation). The regions in question, however, had GDP. per head well below the average and some were suffering a trend decline in economic performance as confirmed by subsequent data (see chapter 2). Some regions have been suc cessful in catching up, moving from below to above the 75% threshold over recent years. The system has largely succeeded in achieving the concentration of resources on the most serious problem areas in two programming periods. So that this remains the case, it may have to be re-examined in the future. As regards financial allocations under Objective 1, some of the variation in aid intensity (Union funding per head) between Member States reflects the appli cation of objective criteria. Some, however, reflect the 'weight of the past'. In other words, it has proved difficult to remove inertia entirely from the system in order to adjust allocations to objective needs, although in conditions where the sums involved are large it is also desirable to avoid abrupt changes. Overall, the EU funding per head in Objective 1 areas has increased by around one-third in real terms between programming periods. Under Objective 2, 16. 4% of the Union's population lives in currently eligible areas, only slightly above the 15% established as a guideline in the pre-amble to the Regulation (Table 5. 11a). This is marginally below the coverage in the previous period (16. 8%). The additional resources made available to Objective 2 for the 1994-99 period have been used to raise the amount of aid per head. Here, the distribution of finance between Member States reflects objective criteria and the Member States have carried through a similar methodology to the regional level. Just under one-fifth of the population covered by Objective 2 is not, however, eligible for assistance under national schemes of regional aid. Under Objective 5b, 8. 1 % of the population is curren tly in eligible areas, up from 5% in the previous period. The extra resources made available for the second programming period have been absorbed by the increase in coverage so that aid per head has re mained virtually unchanged (Table 5. 11a). Even so, choices made in one or two Member States meant that some of the more populous medium-sized urban centres were not included, even though they could have provided a natural location for the promotion of new activities (and SMEs), including producer services, in the development programmes. The ex tended geographical coverage under this Objective in the current period is a reflection, in particular, of the change in the selection method for the period 1994- 99, and only half of the regions eligible under Objec tive 5b are eligible under national schemes of regional aid. Objective 6, created on the accession of Nordic Mem ber States in 1995, has an extensive geographical coverage but, because it assists areas of very low population density, only comparatively few people live in eligible areas — 0. 4% of the EU total — while aid per head of population is" below that in Objec tive 1. Over 99% of these are covered under national regional policies. The present situation is one where just over half (50. 6%) of the total population is eligible for the four regional Objectives of the Structural Funds, while 47% is covered by regional aid schemes. In view of the need for resources to be of a certain amount in order to be effective, the preceding analysis suggests that there may be a case for a more determined application of the principle of concentration. It is essential that under all the regional Objectives, the most serious problems and disadvantaged regions are identified and targeted. First, as discussed in chapters 3 and 4, improved coordination between the determination of eligibility under the regionalised Objectives of the Structural Funds and the decisions on eligibility for assistance under Member State regional policy (ie derogations for regional aid under competition policy rules) may be necessary. The fact that a region is eligible for assistance under the Structural Funds should be one of the criteria for eligibility for national assistance. At present, 7. 1% of the population lives in regions which are covered by EU regional Objectives but not by national regional policy, while 3. 2% lives in regions eligible for the latter but not the former. More coordi nation would enable Member States and the Com mission to address these inconsistencies. Secondly, the intensity of EU aid, in terms of expen diture per head, may have to be more finely tuned to the position in eligible regions to ensure that the resources made available reflect objective needs. This, however, needs to be balanced against the need to avoid abrupt changes in the level of financial aid to Member States and regions. This also would imply that when lists of assisted regions are reviewed, 117 Chapter 6 Ways forward there should be a phasing out of assistance (rather than it being brought to a sudden halt). Concentration is equally an issue for the non- regional Objectives. For Objective 3, the difficulty has been to establish a real policy dialogue to help focus the efforts at the Union level on the most vulnerable groups in the labour market so as to increase the effectiveness of assistance and raise its visibility. In the case of the recently introduced Objective 4,"the d e s i r ed concentration of assistance on SMEs and the involvement of other social and business partners have been difficult to achieve in practice. More performance orientation? In addition to greater concentration, a more focused application of the Structural Funds results might also increase their effectiveness. This was an issue taken up by experts in the Commission report Stable Money — Sound Finance which suggested a number of possible modifications to the operation of the Struc tural Funds, including avoiding fixed a priori alloca tions to Member States with more incentives for the achievement of verifiable targets. Targets suggested concerned project realisation, the overall improve ment made in structural adjustment and the achieve ment of macro-economic policy aims. But performance orientation in these terms has its limits. The allocation of resources must focus on those most in need, whether regions or social groups. As shown in chapters 2 and 3, social and economic disparities remain substantial, even if there has been significant progress in narrowing them in some cases, and their reduction must be the over-riding aim. A fundamental requirement is that any performance criteria should only be related to the achievement of cohesion objectives and not to other ends. The essential precondition for increased perfor mance orientation is the existence of clearly defined cohesion objectives, which today may need to take employment developments into account. Other requirements include more efficient financial control, a rer. ewed drive against fraud and irregularities and further improvements in monitoring and evaluation. The Commission has already made 'sound and effi cient management' one of its major political priorities during the present period and, for the Structural Funds in particular, progress has already been achieved. Nevertheless, the impending review of structural policies for the period after 1999 is an appropriate occasion to consolidate and deepen the progress already made. Any move away from fixed a priori allocations to Member State would have to be treated with caution. On the one hand, it is probably true that the quality of programmes could be improved by more competition for scarce public resources. On the other hand, as discussed in the previous chapter, medium-term pro grammes can only be developed against a back ground of predictability and stability and those involved in the planning process must have a clear idea of the amount of Community financial assistance they can expect. The option of allocating resources to Member States only after they have submitted their plans seems unrealistic for largely practical reasons. Nevertheless, while the point is a sensitive one, the advantages and disadvantages of some additional degree of flexibility in the allocation of resources to take account inter alia of changing circumstances, would seem to merit further consideration. The absorption issue Successful concentration of financial support de pends on Member States being able to take up the funds. There is little point in making the resources available if for one reason or another Member States are unable to make use of them. Absorption con straints in countries and regions arise for three main reasons: • physical absorption problems arise where the re ceiving authorities do not have the administrative capacity to absorb the funds on offer, to identify suitable programmes and projects and to manage their implementation; • budgetary absorption problems arise where, under matching funds arrangements, Member States are unable to raise the counterpart finance because of budgetary constraints; • macroeconomic absorption difficulties potentially take various, but generally less tangible, forms, such as inflation, the crowding out of private in vestment by EU-funded public expenditure, an unduly large growth in imports and the leakage of transfers from investment into consumption. Chapter 6 Ways forward These are far from being theoretical constraints. The implementation of cohesion policies has sometimes encountered significant absorption problems (see European Commission (1996): Seventh Annual Report on the Structural Funds, pp 202-206). Some easing of these might be achieved by more flexible financial procedures. The absorption problem, how ever, needs to be considered with the issue of addi tionality, taking into account the general context of a more restrictive budgetary policy environment within which structural policy has to operate. leverage exists in relation to Union financing and less concerned as to the source of finance within the Member States, possibly taking into account private sources. This should not pre-empt a reflection on other possible ways of increasing Member State invol vement and their responsibilities for ensuring a successful outcome from the implementation of structural policies. Additionality Better financial engineering In the existing system, the principle of addition ality is one of the important means for achieving better performance. It is intended to ensure that Community support for economic development does not replace national government efforts. On the other hand, additionality has not been made a compulsory element of the Cohesion Fund as one of its prime purposes is to help the Member States concerned meet budgetary targets for satisfying the conditions for monetary union. While there have been improvements in the cur rent programming period on the verification of additionality (a clearer and more practical defini tion was included in the revised regulations), it has been a complicated methodological task. It'might be argued in the extreme that the. principle of additionality in view of the is o u t d a t ed overriding concern today for budget discipline. But experience has shown that the means chosen for reducing budget deficits is often determined by political expediency, resulting in cuts in public investment rather than in current expenditure, with detrimental effects on growth, running counter to the essential aim of Union support. The principle of additionality protects against the substitution of Union aid for national spending. In the light of experience gained in the current pro gramming period, the methodology could be adapted taking account, for example, of demands by some Member States that verification should be related to the relative scale of Union assistance in the programmes under consideration. Another possibility could be that the Commission would be concerned to ensure that appropriate With tight constraints on public finance, a combi nation of increased use of loans and greater pri vate sector participation could provide additional resources for cohesion policies. In financing development programmes, the bal ance between grant aid and other sources of fund ing remains an important issue. A greater recourse to loans would contribute to introduc ing market discipline and stimulating more effi ciency while lowering some of the costs of failure involved in financing projects largely or exclu sively through grants. Where projects are revenue generating, it seems appropriate to increase the scale of loan finance. Where revenue returns are very long-term, which is perhaps more likely to be the case in the poorer countries, the scope for loan finance (and private capital) may be more limited. The experience of the European Investment Bank (EIB) suggests that a new balance needs to be struck between grants and loans, since, in particu lar cases, EIB activities seem to have been limited by the (too) ready availability of EU grants. Future improvements should seek to raise the level of involvement of EIB and other loans as well as the guarantees and equity participation of the European Investment Fund, and to deepen private sector involvement through public-private part nerships. The latter implies a more systematic use of the seed-capital and development-capital funds available in the regions, some of which have been created or supported by the Structural Funds themselves, while not precluding the on going search for other innovative approaches to financing programmes. 119 Chapter 6 Ways forward For large projects on the other hand, such as major infrastructure investment, separate identification in the programming process and individual appraisal might be called for (including consideration of the appropriate balance between grant and loan finance). Secondly, in the mainstream case where programm ing remains appropriate, transparency and adminis trative effectiveness could be enhanced by addressing the various aspects of the problem in a more coherent manner. At present, within an individ ual regional authority area, or group of areas, it is possible that different parts may be eligible for Objectives 2 and 5b, while assistance under Objec tives 3, 4 and 5a might also be given, implying a considerable administrative overhead in terms of co ordination between the five different Funds and other sources of finance. Community Initiatives might also add further layers of administrative complication. It therefore seems necessary to examine existing systems to ensure that there is an efficient balance between quality and simplicity. The programmes are also the instance where possi bilities for synergies between cohesion and other policies of the Union are reflected. Improved coordi nation at this stage is important to identify oppor tunities for the other policies to contribute to cohesion — including the transfer of best practices — and to establish the necessary steps to be taken via the programmes to put them into practice. Finally, the success of the SPD method depends on the way that is implemented in practice. A smoother decision process, avoiding undue delays in the com mitment of Community resources, requires Member States to undertake sufficiently detailed work in each of the preparatory phases of the programming pro cess referred to in chapter 5 above, while the Com mission must also avoid unjustified delays in its approval procedures. Community Initiatives Actions under Community Initiatives are aimed at pursuing common aims, encouraging experimenta tion and innovation in areas which otherwise tend to be insufficiently emphasised in the programmes. They include Initiatives to promote cross-border, transnational and inter-regional cooperation as well as those which address European problems such as Overly complex programming procedures? As discussed above, the strategic, or programming, approach adopted under EU structural policies has been a key aspect of the delivery system. Since the first programmes were introduced in 1989, the diffi culties encountered do not concern the principle itself, but there have been some teething problems in practice, while the process remains overly complex in certain respects. When the first programmes were adopted, the exer cise was affected by shortages of time, which meant that in some cases the Community Support Frame works were composed of a series of loosely con nected proposals for discrete action. Steps were taken in the second programming period which began in 1994 to improve the preparatory phase, notably through a more systematic identification of regional strengths and weaknesses, a more careful reflection on the strategic priorities to tackle problems and on their coherence and a fuller quantification of the objectives to be achieved. In responding to the procedural problems, the so-called Single Programming Document (SPD) was introduced for the current period. Outside the main Objective 1 areas, this gave Member States the option of dispensing with the procedure for committing resources which formerly required two decisions on the part of the Commission — the first to approve the Community Support Framework, the second to approve the individual programmes within it — in favour of a single decision based on a SPD setting out the strategy and the. operational means of achieving it. Further streamlining Possibilities for simplifying programming procedures need to be examined for further streamlining and simplifying. First, there is the question of the appro priateness of the programming approach in all cases. For certain kinds of intervention, such as those involv ing small amounts of money or which depend on a significant input from the grassroots, it may be better to use a global grant procedure appointing a qualified intermediary to handle implementation and to reduce the involvement of the Commission in day-to-day management. 120 Chapter 6 Ways forward the crisis affecting urban districts or the restructuring of the European defence industry. At the same time, there remains a perception that the effort has been dispersed across an excessively large number of Initiatives, often in response to specific demands from the Member States, implying a need to define more restrictively the fields of intervention of the Initiatives. In addi tion, experience and best practices developed through the Initiatives need to be transferred more systematically and effectively than at present into mainstream policies and programmes. Finally, procedures require simplification and the Initia tives need to be made more amenable to transna tional cooperation between countries, regions and local areas. Subsidiarity and partnership In the implementation of EU structural policies, the major expression of the principle of subsidiarity is the operation of partnerships in the Monitoring Com mittees. However, these have only just begun to con tribute creatively to problem analysis and to the assimilation and local implementation of new Community guidelines and priorities (in areas such as employment, the environment and equal oppor tunities). The situation is improving rapidly in certain Member States where Monitoring Committees have seized the initiative, organising separate but com plementary initiatives of their own, improving the dis semination of information, undertaking rigorous problem analysis and so on. A basic need is one of information on the functioning of partnerships in practice and, by analysing this, it should be possible to identify best practices and their transferability. In some cases, where partnerships are less de veloped, it would be helpful to the operation of the Monitoring Committees to make a distinction be tween decision-making and consultative partners, the former consisting of the authorities respon sible for co-financing, the latter being mainly the social partners and representatives of interest groups. This might allow the political authorities responsible to take a more objective and con structive view of the latter and embrace their invol vement more whole-heartedly. Finally, there might be other ways of increasing the commitment of the partners to the overall aims of EU cohesion policies, in particular, by greater efforts to explain the Union's priorities, more informal oppor tunities for dialogue (on the lines of the informal work ing group set up by the social partners in 1995) and pilot actions in conjunction with certain national and/or regional authorities (eg territorial employ ment pacts). 6. 3 Policy Challenges Priority concerns for current Structural Funds programmes In their effort to reduce regional disparities and to promote economic and social cohesion, Community structural policies seek to address the political priorities of the European Union and the main preoc cupations of its citizens. The actions under these policies are therefore selective rather than 'catch-all' — and a complement to Member States' own actions. The policies have proven to be flexible and adaptable in. response to changing circumstances and it is recognised that there can be no single remedy for all structural problems and all circumstances. Mobilising the required effort on the part of the Mem ber States on the main priorities is an additional issue. In procedural terms, one way of ensuring that agreed EU priorities are better understood is through the issuing of guidelines in advance of the preparation of the plans. This has been a feature of the preparation for Objective 2 for the period 1997-99, and experi ence suggests that its generalisation to other Objec tives may be worthwhile. During the current programming period, four priority areas have emerged which EU cohesion policies have specifically sought to address: employment cre ation, competitiveness, environmental protection and equality of opportunity between the sexes. Employment The fight against unemployment and the creation of new jobs to provide work for over 18 million unem ployed is an overriding priority for the European Union and the Member States. The 1993 White Paper 121 stressed an approach which combined an emphasis on developing the competitiveness of the European economy with a renewed search'for employment opportunities in growth sectors including those in non-traded activities at the local level in the cultural, social and environmental fields. The Essen European Council in 1994 took up these ideas and identified five main priority areas for short to medium-term action to increase employment through co-ordinated multi-annual programmes. Of these, four — promotion of investment in vocational training, increasing the employment intensity of growth, improving the effectiveness of labour market policy and strengthening measures to help those particularly affected by unemployment — fall within the scope of the Structural Funds. The Madrid meet ing of the European Council underlined 'the mutually beneficial effects of greater coordination of the Union's economic and structural policies'. EU cohesion policies have helped to focus more attention on employment and Member States have increased the importance attached to job creation. The Structural Funds play an important role in promot ing employment; not only do they boost demand for good and services in recipient regions in the short- term but, by raising economic potential and improv ing the skill level of the work force, they provide support for the creation of durable jobs over the long-term. It is within such a time-frame that the major part of the contribution of the Funds to employment growth must be expected. This applies to Objective 1 regions, where policies address the persistence of major gaps in basic infrastructure endowments. These contribute to short-term job creation during the construction phase while the fact that the individual projects are generally part of a coherent development strategy geared to competitiveness and growth which is sustainable and, ultimately, self-sustaining, helps to ensure that they contribute to longer-term, durable, jobs. As discussed above, the results of macro- economic model simulations for Objective 1 regions and the global estimates for Objectives 2 and 5b suggest that the effects on employment are substan tial. Chapter 6 Ways forward of spending power and the creation of local jobs. Supporting the adaptation of workers. to industrial change helps to develop a preventive rather than a purely reactive approach to saving jobs. Training the unemployed not only gives them a better chance of a job but helps to create a pool of skilled labour and expands the human resource potential of the EU as a whole by integrating those who were previously ex cluded. In addition, by promoting indigeneous devel opment, EU policies have helped to create self-sustaining local economies, including those in rural areas, providing employment in social, cultural, commerce and craft activities which are not affected by global competition. The effects of recession, and economic changes more generally, mean that reinforcing the job creation aspect of EU structural policies must remain a priority. To this end, the Commission has proposed (Com munication 'Community Structural Assistance and Employment') to use available margins of flexibility within the programmes for the period up to 1999 to increase the rate of job creation of expenditures, by offering support to the main sources of employment — the SMEs — and promoting new sources of job opportunities. Meanwhile, the Heads of State meeting at the European Council in Florence in June 1996 invited Member States, on a Commission proposal, to imple ment co-ordinated actions at the local level specifi cally focused on new employment (Employment Pacts}. A number of areas or cities which could par ticipate in pilot projects in 1997 were agreed. Competitiveness One of the main contributions of structural policies is in raising the competitiveness of structures of produc tion. As explained in Chapter 1, improving competi tiveness is not a euphemism for uncertainty and job insecurity. On the contrary, increasing productivity and competitiveness is part of the process by which economies generate increasing wealth over time to raise living standards and the quality of life. Compe titiveness, is not therefore an end in itself but a means of consolidating the European model of society. The Structural Funds promote job creation in a num ber of other ways. Aid to small and medium enter prises is an important aim in many programmes, and these are the major source of employment in the EU. Promotion of tourist-related projects leads to an inflow Structural policies contribute to raising the productiv ity of both labour and capital by increasing efficiency and reducing costs. Investment in upgrading infra structure, including investment forming part of trans- 122 Chapter 6 Ways forward European networks, improves accessibility and re duces distance costs for business. Assistance to the private sector is designed to stimulate innovation and support investment in new capital equipment. EU policies attach priority to efforts to support RTD, es pecially to encourage product and process innova tion in SMEs where the finance required is more limited. Combined with efforts to improve the skills of individual workers through training, this raises the productive potential. This is supported by modern thinking in regional economics which stresses the role of these 'endogenous factors' emphasising the need for the transfer of knowledge and know-how to weaker regions and the promotion of innovation. As a result, the links between competitiveness, growth and employment creation are being made more explicit. Regions which succeed in raising their productivity and increasing their cost advantage will be more competitive by definition, which is a pre condition for further growth and employment creation. Competitiveness is not only a matter of costs but involves other dimensions. In particular, the develop ment of a solid SME base — a priority under EU structural policies — appears to be central to long- term competitiveness, although there are many exter nal economic factors as well as social and institutional ones which affect their performance. Environmental protection The impact of the Structural Funds on the environment and their coherence with the Union environmental policy, is one of the most closely monitored aspects of their activity. As the Commission has emphasised (COM (95) 509), development has both positive and negative effects on the environment, but the environ ment itself is a major factor for regional development. There are many cases, notably in the cohesion coun tries and in Eastern Germany, where considerable resources have been targeted on improving the envi ronment, on the grounds that this is a prerequisite for sustainable growth. Moreover, as noted above, many Objective 2 programmes include measures to im prove urban areas blighted by the dereliction left by former industrial activities. The challenge for structural policies is to ensure that economic development is reproducible because it does not exhaust non-renewable resources. All major project proposals are now required to include an assessment of costs and benefits including those relating to the environment. While specific effects can be measured by changes in indicators such as water quality, air purity, disposal of waste and so on, it is much more difficult to balance, for example, a possible increase in water pollution resulting from a particular investment project against a reduction in traffic emissions. Nevertheless, the Commission is committed to developing indicators and environmen tal assessment techniques to enable better prediction and monitoring of environmental effects of structural policy measures. Since the Communication on Cohesion Policy and the Environment (1995), progress has been achieved in the implementation of measures aimed at increasing the environmental dimension of Structural and Cohesion Funds measures. Half of Cohesion Fund expenditure will be devoted to environmental projects and in its guidelines on the new Objective 2 programmes (1997-99), the Commission has stressed the environment as a main priority. Current studies to identify preventive measures and best practice in Objective 2 areas will be used for later programme negotiations. As part of the drive to make sustainability a primary objective of the regional development strategies, and raise the environmental quality of programmes and projects, the Commission has also intensified its ef forts to encourage Member States and regions through the Monitoring Committees to adopt better environmental appraisal, including holding environ mental training seminars. Equality between men and women Cohesion policies are also aimed at reducing inequal ities between men and women, an objective which has been reinforced following the policy review of 1993 which explicitly established the promotion of equal opportunities as one of the priorities of the Funds, to be taken into account at every stage of the process. Here cohesion policies appear to be working with the grain of labour market trends, since employment for women, unlike that for men, increased over the period 1989-94 while activity rates rose by even more, again in contrast to that of men. The increase in both was especially marked in the Cohesion countries. Con cerns remain, however, about the quality of some of the jobs which have been taken up by women. 123 Under the Social Fund, particular attention has been paid to equality of opportunity since 1989, as well as to the issue of job quality. This includes actions under the Community NOW Initiative (New Opportunities for Women) which was launched in 1991 providing man agement training and supporting local networks of small firms. These measures, however, with limited funding, remain essentially experimental in nature. The next step must be to build on the lessons learned and to integrate similar types of project into the main stream programmes of the Structural Funds. A renewed impetus for using more fully the talents of women in traditional male areas has resulted from the accession of Finland and Sweden to the EU. Nearly all of the measures in the various Swedish pro grammes pay particular attention to the principle of equal opportunities and the participation of women in the activities being promoted. These programmes contain many examples of highly innovative projects helping to realise the potential of women as entrepre neurs, which could be taken up as best practice in other regional development programmes. The Struc tural Funds play an important role in supporting measures aimed at providing a full package of ser vices such as information, financial assistance, train ing and on-going consultancy. Local or regional business service centres for women entrepreneurs could make available a whole range of shared services at a lower cost and, at the same time, serve as a forum for encouraging commercial part nership. Progress has also been made in other areas, such as through the URBAN Community Initiative, which explicitly includes measures for increasing equal opportunities. Maintaining relevance It is important to ensure that the priorities identified remain relevant to the circumstances existing at the time. It is inevitable that the current priorities will be added to or, in some cases, replaced by others, at some time in the future, including the ongoing exam ination of the relevance of the Objectives of the Struc tural Funds themselves. " Chapter 6 Ways forward fisheries and a refocusing of labour market policies towards retraining workers in sectors-undergoing technological change. With the accession of the Nordic countries in 1995, a new Objective 6 to cover sparsely populated regions was created. The general approach has been successful on the whole and recognition of its virtues has helped shape the re gional policies operated in certain countries. New challenges continue to emerge. Sectoral change driven by new technology has quickened. The glo balisation of economic activity and financial services only serves to accelerate the rate at which the changes occur. It has given rise to new problems, and new opportunities. In Europe, industrial restructuring has taken its course and employment in many regions is now significantly less dependent on traditional industries, such as steel, coal and shipbuilding, than 20 years ago. More recently, new problems of restructuring have arisen, for example, developments affecting the defence in dustry. Economic activity depends to a greater extent than before on intangible investment in highly-skilled acti vities, such as research and information technology. Economies with a highly-trained labour force and good communication infrastructure stand to gain from these developments. This has major geographical and social implications. Many of the new activities have requirements which could favour the large metropolitan areas and/or the most highly qualified workers. They, therefore, pose a new set of challenges for the future to the Union's efforts to promote a more even distribution of oppor tunities between regions and to ensure that all social groups have access to these. Structural policies will have to respond through ap propriate investment in infrastructure and in human resources to strengthen education and training, facili tate adjustment to the demands of new work organi sation, and to promote regional and local initiatives and more effective labour market policies. The Objectives have already been subject to adjust ment at the time of the review in 1993. Then, the major innovations were two-fold: a recognition of the par ticular difficulties facing communities dependent on The development, and the widening application, of information and communication technology (ICT), is also a factor. Again there are geographical and social implications. The speed of introduction of ICT varies between countries, regions, sectors, industries and 124 Chapter 6 Ways forward enterprises. The benefits, in the form of increased prosperity, and the costs, in the form of burden of change, are unevenly distributed between different \ parts of the Union and between social groups. spatial level which have yet to be fully and systemati cally addressed. Accordingly, there is a case for more resolute action in territorial planning. This is very much the purpose of the actions proposed under the new INTERREG He Community Initiative. ICT is also an opportunity to create an inclusive society. It requires an approach which recognises that the information society should be about people and it should be used as a tool to unlock the power of information, not to create inequalities between the 'info rich' and the 'info poor'. Structural policies and policies to develop the information society need to be more closely integrated and to promote involvement at local level; territorial employment pacts could be an important vehicle to exploit the opportunities. Many of the problems of adjusting to change appear to have fallen on some of the Union's major urban areas. There is a very real danger of a further frag mentation within European cities, rising unemploy ment and social exclusion being accompanied by a deepening of social divide between haves and have- nots. In some Member States, the urban problem is already regarded as the major challenge to national cohesion and they have designed and implemented new integrated urban policies. A more focused approach may also be necessary at Union level. Meanwhile, the rural areas of the Union continue to face the many handicaps described in chapter 5. Seizing new opportunities will depend on an inte grated, comprehensive rural development policy. A starting point is to recognise the diversity of rural situations, and of the need for sustainability, develo ping policy responses which seek to balance economic, social and environmental concerns. It requires a partnership between sectors and the invol vement of local actors in order to exploit the particular economic potential of individual areas, including their natural and cultural potential. The urban and rural problems are also part of a broader question of persisting imbalances in the use of European territory as a whole. This is reflected in severely congested urban centres, the absence of genuinely trans-European communications and energy networks, the unsustainable use of resources and depopulation in rural areas. This results in part from the problems generated by the historical legacy of separate development — and development plan ning — within the confines of 15 nation states which has led to inconsistencies and imbalances at the In this context, there is also a need to pursue more concretely the priorities which have been developed in past discussions between the Commission and the Member States in the context of the work on Europe 2000. These have been elaborated in the 'European Spatial Development Perspective' (ESDP) which represents a shared vision of the problems and opportunities, though in accordance with the prin ciple of subsidiarity its policy guidelines are purely indicative. Further discussions on the ESDP are planned for 1997. All of these developments suggest that it will be necessary to review carefully the priority Objectives of the Structural Funds before the next programming period beginning in 2000 to make sure they are adapted and relevant to the problems facing Europe's citizens. One of the conclusions which emerges is that rapid change has become endemic. Consequently, there seems to be an unavoidable need to adopt more flexible approaches in the process by which priorities for structural policies are defined and implemented. The existing system permits only occasional and limited review while programming priorities, once es tablished, are relatively rigid. In the current programming period which ends in 1999, the Commission will make the fullest use of the margin of flexibility which exists, while fully respecting commitments agreed by the European Council meet ing in Edinburgh in 1992. The mid-term review in 1997 and the financial leeway. created by the process of adjusting planned resources for inflation, provide some room for manoeuvre and opportunities to change priorities. The Commission has encouraged the Member States to exploit the possibilities in favour of the top priority — the fight against unemployment. 125 Chapter 6 Ways forward 126 Chapter 7 Conclusions The contours of the global economic landscape have changed radically over the past two decades. Glo balisation of production and financial markets and rapid technological progress have led to far-reaching changes in national and regional economies, in pat terns of employment and in the organisation of work. These have had positive effects, although unemploy ment and greater social exclusion have become structural problems of the Union economy over recent years. The Union, meanwhile, is entering a critical period in the history of its integration process, with monetary union, enlargement and future financing high on the agenda. In the face of the challenges, the Member States and the Union need to work in partnership to help the adjustment to new circumstances and to seize new opportunities for the benefit of all its regions and people. The primary responsibility for improving economic and social cohesion falls on the Member States. Ef forts to maintain fiscal discipline and to combat the recent rise in public debt need to be continued. This should be done in a way which guarantees the main tenance of structural programmes which invest in the future while ensuring that incentive systems, fiscal or otherwise, favour job creation. At the same time, and as recognised by the Member States themselves when they signed the Maastricht Treaty, the harmonious development of the Union as a whole cannot be achieved through national policies alone. The Union's structural policies address cohe sion directly while its other, non-structural, policies can also make an important contribution. The most far-reaching of the non-structural policies has been the Single Market Programme which has swept away many of the obstacles to trade and cre ated an integrated European economy. Fears that this would overwhelm the poorer Member States have not been borne out in practice. Many of the Union's non-structural policies have the potential to make a greater contribution to cohesion. For the market policies of the Common Agricultural Policy, the Commission confirms its intention to con tinue resolutely the approach begun with the 1992 reforms in such a way as to develop further the environmental and social aspects in the context of a more integrated rural development policy, thus con tributing even more effectively to cohesion. For EU competition policies: • the Commission has reacted positively to the need for more flexibility in the granting of state aids by revising the de minimis rules and by creating a framework which addresses specific urban prob lems. It is the intention of the Commission to pur sue its efforts to increase efficiency and transparency in the management of state aids; • permitted aid ceilings for investment in the poorest regions of the Union tend to exceed levels affor dable from national budgets, while lower aid ceil ings are exploited more fully in richer Member States. The question arises as to whether a con certed effort should now be made to achieve a general reduction in expenditure on state aids; • within the context of the concentration of re sources on the most disadvantaged regions, the 127 Chapter 7 Conclusions Member States and the Commission need to ad dress, in partnership, inconsistencies between the regions which are supported under national re gional policies and those which are supported under Union regional policies. Eligibility for Union regional aid should in the future become one of the criteria for allowing assistance under Member States' own regional policies. For the Union's RTD policy, which aims at promoting European competitiveness through scientific excel lence, efforts to develop research activities and ca pabilities in the weaker parts of the Union must be continued. Innovation, mobility of researchers as well as increasing linkages and networks between RTD facilities in the Member States are particularly valu able to structural development. Efforts to ensure the widest diffusion of results and the pursuit of research attuned to the strengths of the weakest regions are also important. It is essential that the scientific and technological base of the less advanced regions be further strengthened as a major factor in helping to close the development gap with the richer regions. For Union network policies in transport, telecommuni cations and energy supply, the basic need is to ensure that the whole Community shares in the benefits from innovation and liberalisation: • public service contracts and/or universal service obligations must be maintained and current tar gets achieved to ensure that regional and social needs are met in conditions where the market alone would not otherwise meet these needs; • • • in transport, Union actions for intermodal networks must continue to promote sustainable mobility and ensure good linkages with local networks to maxi mise cohesion benefits. The advantages of pub lic/collective transport for cohesion should be fully recognised; in telecommunications, steps may be required to promote access on favourable terms to new ser vices in schools, hospitals, libraries, etc. Such measures should include adequate training and provision of the necessary equipment; in energy supply, greater effort is required to in crease access to different energy sources in view of the greater dependence on oil in the poorest Member States. For social policy, further efforts need to be pursued; the reduction of unemployment and the promotion of fundamental rights, and, in particular, equal oppor tunities, will remain high on the Union's agenda. For Union environment policies, the challenge for the cohesion countries is to strike a balance between the push for economic growth and the need to protect the environment in order to ensure sustainable development. This challenge can be met by accompanying environ mental measures in the form of an appropriate package of fiscal incentives, charges and public expenditure. Finally, in addition to improvements in the policies themselves, opportunities for synergy with the Union's cohesion policies need to be more systemati cally identified and addressed in order to make a more effective contribution to reducing economic and social disparities, while respecting the primary objec tives of these policies. The starting point for the Union's structural policies must be to guarantee long-term support for the poorest re gions, in view of the profound disparities which persist between the lagging regions (Objective 1) and the rest. Solidarity with these regions is an important basis for progress not just for social reasons, but in order to increase the economic potential of the Union as a whole. Catching-up tends to be a slow process, necessitating a long-term commitment. The problems affecting other parts of the Union must also be recognised: rapid economic and structural change including changes affecting rural areas, urban deprivation, social exclusion, congestion and other territorial imbalances and the unsustainable use of scarce resources. The Union must be ready to support the process of adjustment affecting different regions, local communities and social groups, to ac celerate their adaptation to new circumstances and to promote employment. The Union's response to these problems is a strategic one which seeks to promote, in partnership with the Member States, investment in new areas of growth and sustainable development, improving physical and human capital to raise competitiveness while helping SMEs to exploit their full potential for job creation and develop their innovative capacity. Effectiveness must be ensured through the quality of strategic responses and by the streamlining of the 128 Chapter 7 Conclusions delivery system. There are a number of key areas for reflection: • scarce resources must be better targeted on the most serious problems and problem areas while addressing priority concerns which are relevant to the prevailing economic circumstances; • a greater degree of performance orientation could be introduced into cohesion policies by directly linking performance criteria to the attainment of cohesion objectives. The Commission and the national authorities must cooperate further to im prove programming and to increase the trans parency of policies and to ensure that effective monitoring, control and evaluation systems are in place; • more effort should be made to increase the use of loans and private sources of finance; • opportunities must be more exhaustively explored for networking across regions and across borders to attain common goals and to exchange experi ence and best practice; • in view of the complexity of present procedures, all avenues for the simplification of the financing and implementation of the measures must be ex plored; • strengthened subsidiarity should go hand-in-hand. with widely drawn partnerships, which should play an active role in the programmes. With regard to the content of the Structural Fund programmes themselves, four priority concerns have emerged which Union cohesion policies have speci fically sought to address: employment creation, which is the overriding priority for the Union and the Member States, competitiveness, environmental pro tection, and equality of opportunity between the sexes. Finally, structural policies as whole must become more flexible than at present in order to adapt to changing circumstances and, in particular, to be able to respond to new challenges and opportunities as they arise. In seeking to prepare the way forward, it is important to begin dialogue now. This Report is intended to lend structure to this dialogue. It will be used to launch a debate involving the other institutions and bodies of the Union which are preparing their own position papers on the future. It will be complemented by further initiatives. The first is the organisation of a major conference — a Cohe sion Forum — in Spring 1997 which will provide a platform for a debate on structural policies with rep resentatives of all interested parties. Secondly, during 1997, the Commission will complete the mid-term review of progress under the different Objectives since 1994. This will provide an oppor tunity to adapt the programmes to new priorities for the remainder of the period, as well as serving as an experimental basis for actions to be taken after 1999. Meanwhile, new strategies recently negotiated for Objective 2 (only) for the period 1997-99 will be in place which will give the Commission the opportunity to see how far they reflect a more focused approach to the major priorities which have been agreed be tween the Member States and the Commission. The Report should therefore be seen as a further contribution to the process of improving the effective ness of Union action to promote economic and social cohesion. 129 Chapter 7 Conclusions 130 Tables Table 2. 1 Regional disparities in income, productivity and unemployment in the Union, 1983 and 1993 GDP per head GDP per person employed (PPS, EUR15=100) (EUR15=100) Unemployment (% labour force) 1983 )993 1983 1993 1983 1993 Between Member States Best-off Worst-off Best-off/Worst-off(a) Standard Deviation (Gini coefficient) Between Regions Best-off Worst-off Best-off/Worst-off(a) 10 Best-off 10 Worst-off 10 Best-off/Worst-off(a) 25 Best-off 25 Worst-off 25 Best-off/Worst-off(a) Standard Deviation (Gini coefficient) 134. 8 55. 1 2. 4 17. 2 (0. 089) 184. 0 39. 0 5. 0 154. 0 44. 0 3. 2 140. 0 53. 0 2. 5 26. 8 (0. 149) 160. 1 63. 2 2. 5 12. 8 (0. 059) 189. 0 37. 0 4. 5 158. 0 48. 0 3. 1 142. 0 55. 0 2. 5 27. 2 (0. 153) 124. 2 51. 3 2. 4 13. 5 398. 0 32. 1 12. 4 146. 0 49. 4 3. 0 131. 3 63. 3 2. 1 18. 0 124. 3 58. 6 2. 1 14. 4 420. 4 36. 6 11. 5 156. 0 48. 6 3. 2 130. 7 63. 1 2. 1 17. 6 3. 3 17. 4 5. 3 3. 1. 1. 7 22. 5 13. 2 3. 8 19. 4 5. 1 4. 8 17. 2 3. 6 4. 2 2. 3 22. 3 9. 7 4. 6 3. 2 33. 3 9. 0 3. 9 26. 4 6. 8 4. 6 22. 4 4. 9 6. 0 (a) For unemployment, highest unemployment rate/lowest unemployment rate Table 2. 2 Regional disparities in income and unemployment by Member State, 1983 and 1993 GDP per head Unemployment Employment PPS (EUR15 = 100) Regional disparity (standard deviation) % labour force Regional disparity (standard deviation) Annual % change B DK D(W) GR E F IRL I L NL A P FIN S UK 1983 105. 4 108. 6 116. 5 61. 9 70. 5 113. 4 63. 6 101. 6 131. 9 102. 7 107. 6 55. 1 100. 7 1123 93 7 1993 113. 6 112. 0 107. 9 64. 5 77. 8 109. 1 80. 2 103. 5 162. 2 103. 6 112. 0 68. 2 91. 4 98 2 989 1983 14. 5 20. 7 6. 6 12. 7 27. 0 23. 4 27. 7 1993 17. 1 24. 5 7. 6 15. 3 27. 9 24. 6 11. 8 15. 0 20. 2 1983 11. 1 8. 9 6. 9 7. 1 17. 5 8. 1 14. 0 7. 7 3. 5 9. 7 4. 1 7. 8 6. 3 3. 9 18. 4 19. 0 11. 1 1993 8. 9 10. 1 5. 9 8. 6 22. 8 11. 7 15. 6 10. 3 2. 7 6. 6 4. 1 5. 7 17. 5 95 105 1983 0. 5 1993 1. 4 1. 7 0. 7 3. 9 1. 6 2. 8 1. 4 36 1. 9 2. 4 5. 5 2. 0 5. 9 0. 7 0. 9 1. 9 2. 2 1. 1 24 1983-93 0. 4 0. 2 1. 0 0. 8 0. 8 0. 1 0. 2 0. 1 2. 5 1. 9 0. 6 0. 3 -1. 8 -0. 4 06 131 Tables B DK D GR E F IRL I L NL A P FIN S UK Table 2. 3 Income distribution and poverty by Member State Adjusted wage share ^ (%GDP) Personal income distribution (Gini coeff. ){b) % population living below poverty line(b) 1983 1993 early 80s* late 80s' Reference years early 80s' late 80s' 0. 228 Ô. 235 1978(79)-87(88) 76. 5 75. 2 72. 3 74. 7 75. 5 76. 0 80. 8 74. 2 73. 4 69. 3 72. 4 73. 7 72. 2 73. 9 71. 8 73. 1 69. 5 68. 7 64. 5 67. 9 68. 0 71. 9 71. 4 73. 5 67. 1 69. 5 64. 8 69. 6 72. 5 73. 8 1981-87 1983-88 1982-88 1980-90 0. 296 1984(85)-89 1980-87 1985-88 1988 1980-88 1980-89 0. 26& 0. 215 0. 220 0. 304 0. 297 0. 330 0. 310 0. 238 0. 247 0. 207 0. 199 0. 270 5. 5 4. 2 10. 9 18. 5 18. 7 13. 2 18. 4 19. 6 5. 0 27. 3 6. 6 4. 9 11. 2 19. 9 17. 3 14. 9 15. 8 22. 0 9. 2 6. 2 26. 5 1985-88 14. 3 17. 2 (a) Compensation of employees as a % of GDP at factor cost, adjusted for self-employment (b) See box for data definitions Table 2. 4 Growth of GDP per head in the cohesion countries, 1983-95 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1983-1993 1983-1995 1983-1993 1983-1995 1983 1988 1993 1995 GR 0. 4 2. 8 3. 1 1. 6 -0. 5 4. 5 3. 8 0. 0 3. 1 0. 4 -1. 0 1. 5 2. 0 1. 8 1. 8 0. 5 0. 5 61. 9 59. 6 64. 5 64. 3 E 2. 2 1. 5 2. 6 3. 2 5. 6 5. 2 4. 7 3. 7 2. 3 0. 7 -1. 2 2. 1 3. 0 3. 0 3. 0 0. 2 0. 2 70. 5 72. 4 77. 8 76. 2 IRL -0. 2 4. 3 3. 1 0. 3 4. 7 4. 3 6. 1 7. 8 2. 2 3. 9 3. 1 6. 7 8. 6 3. 9 4. 5 0. 2 0. 2 63. 6 65. 0 80. 2 89. 9 P -0. 2 -1. 9 2. 8 4. 1 5. 9 5. 5 5. 3 4. 6 2. 3 1. 1 -1. 2 0. 8 2. 5 2. 8 2. 6 0. 0 0. 0 55. 1 56. 5 68. 2 68. 4 EUR4 EUR11 E U R 15 1. 5 1. 4 2. 7 2. 9 4. 7 5. 1 4. 7 3. 6 2. 4 0. 9 -0. 9 2. 1 3. 2 2. 9 2. 8 0. 2 0. 2 66. 2 67. 4 74. 2 73. 8 1. 7 2. 5 2. 5 2. 9 2. 7 4. 1 3. 3 2. 9 1. 4 0. 9 -0. 7 2. 8 2. 3 2. 4 2. 4 0. 4 0. 8 1. 7 2. 3 2. 5 2. 9 2. 9 4. 2 3. 5 2. 9 1. 5 0. 9 -0. 7 2. 7 2. 4 2. 5 2. 5 0. 4 0. 7 107. 4 107. 2 1053 105. 4 100. 0 100. 0 1000 1000 Annual growth rate in GDP (%) Annual population growth (%) GDP per head (PPS) EUR15=100 132 Table 2. 5 GDP per head in richest and poorest regions in the Union, 1983 and 1993 Tables 1983 Regions EUR15=100 1993 Regions (GDP per head In PPS) Hamburg (D) Ile de France (F) Rg. Bruxelles-Cap. /BrusselsHfdst. Gew. (B) Wien (A) Bremen (D) Darmstadt (D) Greater London (GB) Oberbayern (D) Stuttgart (D) Luxembourg (L) Highest 10 Ahvenanmaa/land (SF) Stockholm (S) Uusimaa (SF) Lombardia(l) Grampian (GB) Berlin (D) Valled'Aosta(l) Emilia-Romagna (I) Antwerpen (B) Dûsseldorf (D) Karlsruhe (D) Mittelfranken (D) Trentino-Alto Adige (I) Salzburg (A) Noord-Holland (NL) Highest 25 Açores (P) Guadeloupe (F) Extremadura (E) Madeira (P) Voreio Aigaio (GR) Centro (P) Guyane (F) Alentejo (P) Runion (F) Norte (P) Lowest 10 Ceuta y Melilla (E) Ipeiros (GR) Algarve (P) Martinique (F) Andalucia (E) Ionia Nisia (GR) Dytiki Ellada (GR) Dytiki Makedonia (GR) Castilla-la Mancha (E) Thessalia (GR) Kriti (GR) Kentriki Makedonia (GR) Anatoliki Makedonia, Thraki (GR) Galicia (E) Calabria (I) Lowest 25 German new Lander: no data for 1983 "1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 184 168 165 151 149 149 144 140 138 135 154 133 132 131 131 130 130 128 128 126 125 124 124 119 118 118 140 39 40 43 43 43 43 " 44 45 45 46 44 48 50 50 54 55 56 56 57 57 57 58 58 59 61 63 53 Hamburg (D) Rg. Bruxelles-Cap. /BrusselsHfdst. Gew. (B) Iles de France Darmstadt (D) Luxembourg (L) Wien (A) Oberbayern (D) Bremen (D) Greater London (GB) Stuttgart (D) Highest 10 Antwerpen (B) Grampian (GB) Lombardia(l) Valle d'Aosta (I) Karlsruhe (D) Mittelfranken (D) Emilia-Romagna (I) Ahvenanmaa/land (SF) Salzburg (A) Trentino-Alto Adige (I) Dsseldorf(D) Liguria(l) Lazio(l) Friuli-Venezia Giulia (I) Stockholm (S) Highest 25 Guadeloupe (F) Açores (P) Alentejo (P) Madeira (P) Runion (F) Ipeiros (GR) Centro (P) Voreio Aigaio (GR) Mecklenburg-Vorpommern (D) Martinique (F) Lowest 10 Thùringen(D) Sachsen(D) Sachsen-Anhalt (D) Dytiki Ellada (GR) Extremadura (E) Ionia Nisia (GR) Guyane (F) Brandenburg (D) Kriti (GR) Andalucia (E) Algarve (P) Thessalia (GR) Galicia (E) Anatoliki Makedonia, Thraki (GR) Calabria (I) Lowest 25 EUR15=100 189 1 183 2 163 3 164 4 162 5 161 6 158 7 154 8 144 9 141 10 158 137 134 132 131 127 127 127 127 125 '125 123 122 121 119 119 142 11 12 14 15 16 17 18 19 20 21 22 23 24 25 26 37 42 42 44 47 47 49 50 52 52 48 52 53 54 55 55 56 57 57 58 58 59 59 60 60 61 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 133 Tables Table 2. 5a Indicators for agricultural, industrial and service regions Employment Population GDP Unemployment million hab/km2 PPS per Annual % %199S Regions most dependent on{ a ): % total employment 1993 Annual % change 1983-93 Agriculture Industry Services EUR 15 27. 4 43. 9 68. 8 0. 3 0. 9 0. 7 0. 5 43. 4 86. 7 88. 5 369. 0 91 327 786 116 head 1993 change 1983-93 66 109 116 100 2. 2 2. 3 2. 4 2. 5 17. 1 8. 3 10. 1 10. 7 % point change 1983-93 4. 3 -1. 0 1. 6 0. 9 (a> Defined as the 20% of regions with the highest share of employment in the relevant sector in 1983 Table 2. 6 Disparities in GDP per head in PPS by region within Member States, 1983-1993 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 (EUR15 = 100, standard deviation) B D (excl new Lander) D (incl new Lander) GR E F I NL (incl Groningen) NL (excl Groningen) P UK A FIN S 14. 5 16. 2 16. 3 14. 9 15. 0 15. 2 15. 2 15. 4 15. 9 16. 3 20. 9 21. 5 21. 7 22. 4 22. 2 21. 6 21. 7 22. 9 24. 5 25. 0 39. 3 36. 8 6. 6 6. 9 6. 5 6. 6 6. 9 6. 9 6. 3 6. 2 7. 0 7. 3 12. 7 12. 5 13. 0 13. 8 14. 0 14. 0 15. 0 15. 0 16. 0 16. 0 26. 7 25. 6 26. 7 23. 4 23-. 5 24. 7 27. 4 29. 6 32. 3 12. 4 13. 7 18. 7 12. 5 12. 9 18. 7 12. 3 12. 9 18. 8 24. 2 24. 0 25. 2 17. 5 17. 5 17. 7 26. 1 25. 3 19. 4 11. 9 14. 9 20. 4 25. 1 17. 6 28. 4 25. 2 12. 8 10. 8 17. 2 21. 2 25. 9 18. 6 9. 3 9. 5 9. 5 9. 5 9. 5 28. 8 25. 9 11. 6 11. 0 15. 3 21. 5 25. 0 18. 8 12. 0 28. 9 26. 1 10. 8 10. 3 15. 7 21. 1 24. 9 18. 3 11. 8 29. 2 30. 2 28. 2 26. 0 25. 0 25. 4 10. 7 12. 0 11. 7 9. 9 16. 9 20. 6 25. 2 18. 4 11. 6 10. 1 18. 5 19. 1 10. 1 19. 1 18. 8 18. 2 15. 7 11. 3 10. 8 26. 1 26. 2 27. 1 16. 8 23. 4 32. 7 7. 7 15. 3 27. 7 24. 8 11. 8 10. 6 19. 9 19. 0 17. 1 10. 5 27. 2 12. 8 EUR 15 (by region) 26. 8 27. 1 27. 5 27. 2 27. 0 26. 9 26. 7 26. 9 29. 7 28. 8 EUR15 (by Member State) 17. 2 17. 6 17. 5 17. 3 16. 6 16. 2 15. 7 15. 7 13. 5 13. 5 134 Table 2. 7 Unemployment rate in worst and least affected regions in the Union, 1983 and 1993 Tables' 1983 Regions. Andalucia (E) Cataluna(E) PaisVasco(E) Canarias(E) Merseyside (UK) Extremadura (E) West Midlands (County) (UK) Region de Murcia (E) Comunidad Valenciana (E) Northern Ireland (UK) Highest 10 Cleveland. Durham (UK) Comunidad de Madrid (E) Limburg(B) Sardegna(l) Dumfries & Galloway, Strathclyde (UK) Comunidad forai de Navarra (E) Northumberland, Tyne and Wear (UK) Castilla-la Mancha (E) Ireland (IRL) South Yorkshire (UK) Gwent, Mid-South-West Glamorgan (UK) Liège (B) Principado de Asturias (E) Hainaut (B) Castilla y Leôn (E) Highest 25 Rate 22. 5 21. 3 20. 4 19. 2 18. 4 17. 3 17. 3 17. 0 - 16. 8 16. 8 19. 4 16. 7 16. 5 16. 0 15. 9 15. 8 15. 7 15. 3 15. 2 14. 8 14. 4 14. 3 13. 7 13. 7 13. 6 13. 6 17. 2 1 2 3 ' 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1995 Regions Andalucia (E) Ceuta y Melilla (E) Extremadura (E) Campania (I) Calabria (I) Canarias (E) Sicilia(l) Pais Vasco (E) Region de Murcia (E) Comunidad Valenciana (E) Highest 10 Sardegna(l) Itâ-Suomi (FIN) Cantabria(E) Pohjois-Suomi (FIN) Principado de Asturias (E) Comunidad de Madrid (E) Castilla-la Mancha (E) Castilla y Le6n(E) Cataluna(E) Molise(l) Etelâ-Suomi (FIN) Vâli-Suomi (FIN) Basilicata (I) Galicia (E) Sachsen-Anhalt (D) Highest 25 Uusimaa(FIN) Stockholm (S) Luxembourg (L) Smâland med Oarna (S) Stuttgart (D) Vastsverige (S) Ostra Mellansverige (S) Tubingen (D) Oberbayern (D) Freiburg. (D) Lowest 10 Kriti (GR) Trentino-Alto Adige (I) Darmstadt (D) Sydsverige (S) Karlsruhe (D) Schwaben(D) Mellersta Norrland (S) Surrey, East-West Sussex (UK) Etela-Suomi (FIN) Vali-Suomi (FIN) Ile de France (F) Alsace (F) Niederbayern (D) Unterfranken (D) Liguria (I) Lowest 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1. 7 1. 9 3. 3 3. 8 4. 0 4. 0 4. 2 4. 3 4. 4 4. 6 3. 8 4. 6 4. 7 4. 9 4. 9 5. 0 5. 0 5. 0 5. 6 5. 6 5. 6 5. 7 5. 7 5. 8 5. 8 5. 8 4. 8 Salzburg (A) Ionia Nisia (GR) Tirol (A) Notio Aigaio (GR) Niederôsterreich (A) Luxembourg (L) Kriti (GR) Kârnten(A) Oberbayern (D) Vorarlberg (A) Lowest 10 Trentino-Alto Adige (I) Schwaben(D) Niederbayern (D) Centro (P) Burgenland (A) Madeira (P) Steiermark (A) Tubingen (D) Berkshire, Buckinghamshire, Oxfordshire (UK) Oberôsterreich (A) Koblenz (D) Trier (D) Unterfranken (D) Oberpfalz(D) West-Vlaanderen (B) Lowest 25 Rate 33. 3 33. 0 30. 5 24. 7 23. 7 23. 7 23. 5 23. 0 22. 2 22. 2 26. 4 21. 7 21. 7 21. 4 21. 1 20. 9 20. 7 20. 4 20. 3 19. 9 18. 7 18. 3 18. 1 17. 6 17. 2 16. 7 22. 4 3. 2 3. 4 3. 4 3. 5 3. 6 3. 8 3. 8 4. 1 4. 1 4. 3 3. 9 4. 5 4. 5 4. 6 4. 7 4. 7 4. 9 4. 9 4. 9 5. 2 5. 2 5. 4 5. 4 5. 5 5. 5 5. 5 4. 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 ' 24 25 135 Tables B D<"> GR E F I NL P UK A( b) FIN<b> s( b) EUR12 Table 2. 8 Disparities in unemployment rates by region within Member States, 1983-95 (standard deviation) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 0. 5 1. 7 0. 7 3. 9 1. 6 2. 8 3. 5 1. 4 4. 2 4. 2 3. 1 1. 0 2. 0 0. 9 5. 4 1. 9 3. 0 3. 3 1. 0 1. 2 4. 8 5. 0 3. 8 1. 4 2. 2 1. 8 5. 1 2. 0 3. 3 3. 3 1. 1 2. 6 1. 1 5. 3 5. 4 4. 3 1. 3 2. 2 2. 6 5. 0 1. 8 4. 0 2. 9 3. 3 0. 8 2. 6 1. 1 5. 3 5. 4 4. 2 1. 3 2. 2 •1. 9 5. 7 1. 8 5. 2 2. 6 3. 5 1. 0 2. 5 1. 0 5. 5 5. 6 4. 1 1. 6 2. 2 2. 1 5. 0 1. 9 6. 4 1. 1 3. 1 3. 3 1. 2 2. 3 0. 7 5. 4 5. 5 3. 9 1. 4 2. 0 1. 9 5. 4 1. 8 7. 1 1. 0 2. 4 3. 3 1. 2 1. 9 0. 6 5. 2 5. 3 3. 5 1. 3 1. 8 1. 9 5. 4 1. 7 6. 4 1. 2 2. 0 3. 2 1. 1 2. 0 0. 5 4. 9 4. 9 3. 6 1. 0 1. 6 2. 1 5. 3 1. 8 6. 7 0. 8 1. 5 2. 6 1. 1 2. 2 0. 7 5. 0 5. 0 3. 7 0. 9 1. 9 2. 1 5. 4 2. 0 4. 3 0. 7 1. 2 2. 3 1. 0 2. 1 0. 9 4. 9 4. 8 3. 4 1. 0 1. 8 2. 4 5. 6 1. 9 5. 4 0. 7 1. 3 2. 3 0. 8 2. 5. 1. 1 5. 7 5. 6 4. 4 1. 4 1. 8 2. 4 5. 4 2. 1 6. 4 0. 8 1. 8 2. 4 0. 9 2. 4 1. 1 6. 1 6. 0 5. 0 1. 4 1. 9 2,4 5. 5 2. 0 5. 9 0. 7 1. 9 2. 4 0. 9 2. 2 1. 1 6. 0 6. 0 4. 6 EUR15 (by region) EUR15 (by Member State) (a) West Germany only (b) National data for the years 1983-91 Table 2. 9 Civilian employment by sector, 1983 and 1993 agriculture (%) industry (%) services (%) Ireland 1983 1993 Spain{ a) 1983 1993 Portugal( a) 1983 1993 Greece 1983 1993 EUR 5 benchmark(b) 1983 1993 17. 5 13. 1 16. 2 10. 2 21. 5 11. 6 30. 0 21. 3 5. 4 3. 6 30. 6 27. 1 31. 8 30. 8 33. 9 32. 9 27. 1 24. 2 36. 3 31. 8 51. 9 59. 7 51. 9 59. 0 44. 4 55. 6 42. 9 54. 5 58. 0 64. 3 total ('000s) 1118 1155 10834 11868 4225 4464 3509 3715 78945 93881 <a) 1986 and 1993 (b) EUR 5 benchmark is a weighted average of Belgium, Germany, France, the Netherlands and the UK. Germany includes the new Lander in 1993 but not in 1983. 136 Tables. Table 2. 10 Participation and employment rates by age and sex in the Cohesion Four, 1983 and 1993 Men Women Participation Employment Participation Employment (% population in each age group) (% population in each age group) 1983 1993 1983 1993 1983 1993 1983 1993 Ireland 15-24 25-54 55-64 Spain w 15-24 25-54 55-64 Portugal *a) 15-24 25-54 55-64 65. 4 95. 0 76. 4 54. 5 94. 4 66. 1 69. 7 93. 5 64. 7 50. 4 Greece 15-24 25-54 55-64 70. 8 EUR 4 benchmark(b) 95. 1 15-24 25-54 55-64 54. 0 95. 3 55. 8 49. 5 91. 1 65. 2 47. 5 93. 0 59. 2 51. 9 94. 0 62. 8 43. 1 94. 3 58. 6 49. 5 93. 6 48. 8 50. 2 82. 7 70. 3 30. 4 80. 6 57. 5 58. 3 89. 0 63. 1 41. 8 90. 5 68. 8 46. 4 90. 3 52. 9 36. 2 78. 2 60. 1 28. 9 78. 8 52. 1 46. 9 90. 7 60. 1 34. 5 89. 9 56. 9 42. 9 87. 9 45. 1 55. 2 36. 8 20. 2 38. 8 36. 0 19. 2 53. 0 61. 5 29. 2 36. 2 43. 8 25. 7 47. 5 58. 8 25. 6 44. 0 51. 4 20. 1 38. 0 51. 9 20. 4 43. 0 72. 2 34. 0 34. 6 53. 1 22. 3 45. 5 70. 1 26. 5 44. 8 31. 2 18. 6 19. 5 30. 0 18. 0 39. 5 56. 2 28. 6 25. 3 40. 1 25. 2 39. 2 54. 1 24. 2 34. 1 43. 9 18. 0 20. 3 38. 5 18. 7 36. 6 68. 4 33. 4 21. 1 47. 0 21. 9 39. 0 64. 1 24. 3 (a) 1986 and 1993 (b) EUR 4 benchmark is a weighted average of Belgium, Germany France and the Netherlands Table 3. 1 Population coverage of national assisted areas, 1996 (%) Overall coverage Least developed regions Other problem regions GR IRL P E I. L F FIN UK D A B DK S NL 100. 0 100. 0 100. 0 75. 9 48. 9 42. 7 42. 4 41. 6 38. 1 37. 6 35. 2 35. 0 19. 9 18. 5 17. 3 100. 0 100. 0 100. 0 59. 6 34. 2 0. 0 2. 5 0. 0 2. 9 20. 8 3. 5 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 0. 0 16. 3 14. 7 42. 7 39. 9 41. 6 35. 2 16. 8 31. 7 35. 0 19. 9 18. 5 17. 3 137 Tables Table 3. 2 The impact of government expenditure and taxes on regional disparities in GDP per head in selected Member States, 1993 (Gini coefficients of the distribution of GDP between regions before and after transfers) Before transfers After transfers Equalisation effect (%) F D I P E S UK Average reduction in inequality(a) 11] 0. 12 0. 15 0. 13 0. 15 0. 11 0. 05 0. 07 Reduction in inequality in 7 countries as a whole: in GDP (ECU) in GDP (PPS) 0. 19 0. 14 [2] 0. 11 0. 12 0. 10 0. 13 0. 07 0. 04 0. 04 0. 17 0. 12 [2]/[1] -8 -16 -28 -11 -38 -14 -33 -23 -10 -15 See Sources for an explanation of the Gini coefficient and the method used to derive the estimates of the effect of budget transfers. Budget transfers are government expenditure, including social protection benefits and allov/ances (except in France and Germany), less taxes. (a) vseighted by population Table 3. 3 The effect of budget transfers on selected regions with similar GDP per head, 1993 Transfers GDP Net GDP % regional GDP ECU per head ECU per head ECU per head * Lisbon & VT (P) Brandenburg (D) Wales (UK) Aragon (E) North (UK) North-West (UK) West Midlands (UK) East Anglia (UK) Languedoc-Roussillon (F) Toscana (I) Bretagne (F) Midi-Pyrénées (F) See the notes to table 3. 2 'GDP plus net transfers (Column 2) -2 17 8 -3 9 4* 1 -3 9 -7 3 5 -187 1807 932 -379 1176 552 75 -358 1272 -1025 395 869 10207 10637 11734 11776 12433 12507 12722 14140 14500 15450 15621 15842 10020 12444 12666 11397 13609 13059 12797 13782 15772 14425 16016 16711 138 Tables 4„1 Flows generated by t he CAP ( m a r k et 4 >% Flows generated, by the CAP ( m a r k et • Direct payment • Net trade transfer 200 150 policies), 1994 ECU per head • Direct payment • Net trade transfer policies), 1991 ECU per head 200 r 50 V I O B/L DK IRL BO. DK GR IRL I NL -100 The calculation of tra of simplifying assume no international re fen Transfers arise betw-: States — 'a net trade producers are estimé support'. OECD data. relate to a period ben Direct payments are comparisons involvin transitional arrangerr, -sfers associated with the CAP was undertaken by external experts (College of Europe). It involves a number •:ions, due to the individual nature of different agricultural markets and the fact that for some products, there is •r,ce price. See Sources and Methods below. •r=n consumers and producers as a result of EU price support. This gives rise to transfers between Member yansfer' — which depends on national patterns of consumption and production. Transfers from consumers to •. :ed by multiplying the amount of each product available for consumption in each country by the EU 'price s used to calculate PSEs (Producer Subsidy equivalent) and CSEs (Consumer Subsidy Equivalent). These data ye the Uruguay Round Agreement. Support rates for fruit, vegetables, wine and olive oil, had to be estimated, unrelated to production and affect sectors such as cotton and tobacco. In the case of Portugal and Spain, g data for the period before 1993 are of limited relevance because their agricultural sectors were subject to nts, negociated on accession in 1986, during that period. Trans-European Transport Networks - expenditure by main mode Table 4. 8 Total spending EIB loans Structural Funds TENs of which: EUR 4 (ECU mn) 24489 26473 3751 5968 8577 1272 76617 ( % )• 11 67 9 61 15 68 35 of which: of which: of which: (ECU mn) 3574 6551 38 1041 1284 234 13485 EUR 4 (%) 22 63 86 24 14 58 40 (ECU mn) 11 3309 23 1608 303 104 5373 EUR 4 (%) 100 96 100 100 100 100 98 (ECU mn) 164 78 102 51 0 3 445 EUR 4 (%) 4 87 27 31 0 3 27 TGV Roads Combined transport Rail Air Ports TOTAL (a) (3) Includes spending on other modes Table 4. 9 Improvements in market access due to TENs (increase in % population reachable within a 6 hour round trip) Major Cities - Core Major Cities - Periphery Medium Cities - Core Medium Cities - Periphery Paris Frankfurt Brussels Amsterdam 5% 11 % 26% 19% Madrid Barcelona Lisbon Athens 20% 20% 16% 26% Liege Utrecht Lille Odense 61% 35% 29% 61% Cuenca Umea Alexancrcpoulous Mede 10% 11% 11% 5% 139 4. 2. EAGGF Guarantee and Guidance expenditure, by Member States EAGGF Guarantee expenditure (1) 1990 2 1991 3 1992 4 1993 5 1994 6 1 I 1468. 5 1220. 3 5234. 5 2211. 2 3314. 3 6394. 4 1731,1 5353. 4 2. 8 2679. 3 315,6 1378,2 1166. 8 4830. 5 2231. 4 3578. 1 6916. 5 1452,8 5141. 5 1,1 2389. 8 423,8 1298,7 1334. 7 4976. 2 2715. 0 4175. 7 8184,8 1649,9 4765,4 7,3 2328,1. 1170,4 1278,4 5179,9 2718,9 4408,3 8001,2 1480,0 3460,6 12,1 1916,0, 478J 708. 4 2391,3 69. 2 32385,9 2451,1 145,9 32107,5 2737,9 96,4 34748,2 2939,0 139. 0 33412,2 873. 7 1113. 7 4355. 2 1949. 7 2120. 8 5142. 2 1668. 4 4150,3 5,2 2868. 7 214,2 1975. 9 15,5 26453. 5 L_ 1 EUR 15 Belgique/België Danmark BR Deutschland Ellâda Espana France Ireland Italia Luxembourg Nederiand Osterreich Portugal Suomi/Finland Sverige United Kingdom Community (3) EUR 12 Source : European Commission, Directorate-General for Agriculture. (1) Adjusted for expenditure against carryovers and the financial consequences of clearance of accounts decisions (ECU -377,9 million in 1990, ECU -437. 8 million in 1991, ECU +78,9 million in 1992. ECU -384. 8 million in 1993 and ECU -612 million in 1994). (2) Expenditure from appropriations for commitment. (3) Payments direct to recipients made by the Commission for the EAGGF Guarantee Section and "multi-State" expenditure for the EAGGF'Guidance Section. (4) Financing under Art. 8 for 25 beneficiaries across the Member States. 139a Table 4. 11 Output and employment in the energy sector, 1985 and 1992 1985 % total GDP 1992 % total employment 1985 1992 4. 9 2. 4 4. 9 4. 4 5. 6 5. 0 5. 1 4. 7 2. 1 11. 8 3. 7 10. 7 6. 2 5. 3 6. 4 4,4 2. 6 3. 7 4. 0 6. 2 5. 1 3. 1 5. 5 1. 4 6. 4 3. 0 5. 3 4. 7 5. 3 4. 6 1. 8 0. 8 2. 1 2. 4 1. 9 1. 5 2. 0 1. 3 0. 9 1. 6 1. 4 2. 6 1. 9 1. 9 1. 9 1. 1 0. 8 1. 7 2. 2 1. 3 1. 2 1. 7 1. 2 0. 5 1. 3 1. 2 1. 7 1. 4 1. 4 1. 4 Table 4. 12 Funding for TEN energy projects (ECU mn) Cost 294. 9 1538. 0 1727. 7 601. 0 2791. 7 913. 5 4193. 6 1947. 0 145. 4 14447. 7 6253. 2 EIB 88. 5 280. 4 563. 8 70. 7 1126. 4 370. 9 1312. 0 598. 8 91. 8 4591. 8 2166. 8 EIF SF Other EU 178. 5 160. 2 116. 0 86. 8 222. 0 763. 5 676. 8 83. 0 102. 0 185. 0 107. 2 107. 2 107. 2 Tables B DK D GR E F IRL I L NL P UK EUR 12 EUR 4 EUR 8 B DK D GR E IRL I P UK TOTAL EUR 4 140 Tables Table 4. 13 Expenditure on environmental protection in the Community, 1992 ^ Total Division per medium (%) Environmental expenditure Environmental Investment^ ECUbn Waste Air W a t e rw Noise(c) • Nature protection % GNP ECU per head % total investment B/L DK D F I NL UK GR E IRL P 1. 2 1. 2 20. 5 12. 9 6. 8 3. 5 12. 4 0. 3 3. 9 0. 3 0. 3 Total 63. 3 40 33 24 34 47 33 35 22 35 52 30 33 17 10 23 8 4 13 12 2 2 11 4 13 30 53 50 54 47 43 46 72 46 33 52 49 5 1 2 2 1 4 3 1 1 3 1 2 8 3 1 2 1 7 4 3 16 1 13 3 0. 7 1. 1 1. 5 1. 3 0. 7 1. 4 1. 5 0. 5 0. 8 0. 7 0. 5 1. 2 120 225 255 226 119 232 214 29 100 73 34 183 1. 1 3. 0 3. 0 1. 6 0. 8 1. 6 4. 9 1. 0 1. 4 2. 0 1. 0 2. 2 {a) Expenditures on environmental protection, excluding R&D, nuclear power and water resource management (dams, drinking water), improvement of living conditions (urban spaces, pedestrian zones), development of renewable energy sources and better energy use, expenditure by private households ("ecoproducts"). On the other hand, expenditure on street cleaning and additional cost of clean technologies are included (b) Waste water treatment, excluding protection of ground water and water abstraction (though in some countries the latter is partly included) (c) Tns definition and the accounting of expenditure on this vary widely from one country to another; the estimates must therefore be interpreted with caution (d* Figures vary substantially from year to year due to cyclical fluctuations in total investment, the timing of which itself differs between courrjies. Table 4. 14 Estimated environmental investment requirements in the cohesion countries up to 2005 (ECU mn) Urban waste water Industrial waste water Urban solid waste Industrial solid waste ^ Other (maintenance, training, ballaswater and education) Total GR 1000 200 100 10 100 1410 IRL 600 (a) 200 1 100 901 P 1300 2000 100' 200 200 3800 E 7700 2400 400 110 310 EUR 4 10600 4600 800 311 700 10900 17011 (a) included in urban water (b) For Spain includes only Objective 1 regions 141 Tables Table 4. 15 The Spanish economy in 2010: alternative environmental policy scenarios PIP, INT and INT+relative to base projection (unless otherwise stated) GDP Investment Employment Unemployment rate ^ (Difference from base projection) Public deficit (% GDP) PIP 0. 02 1. 4 0. 1 12. 7 -0. 1 -2. 9 INT -0. 1 2. 6 0. 7 12. 4 -0. 4 -2. 5 INT+ 0. 6 3. 0 2. 2 12. 2 -0. 6 -2. 7 Base projection, policy enacted up to 1992 PIP (policy in the pipeline), projection incorporating the 5th Environmental Programme INT (integration of environmental objectives into economic policy), projection with revenue from environmental taxes spent on tne environment and returned to consumers in lower other taxes INT+ (integration of environmental objectives into economic policy plus 'double dividen '), projection v/ith revenue from environmental taxes used to reduce taxes on employment (social charges) (a) Levels in each scenario Table 5. 1 Community resources, 1988-99 1988 ECUbn (1988 prices) 1993 ECUbn (1992 prices) Agriculture Structural action of which: Cohesion Fund Structural Funds Internal policies External action Other Total commitments 27. 5 8. 9 8. 9 2. 2 6. 7 45. 3 60. 7 19. 6 19. 6 4. 8 14. 8 100 35. 2 21. 3 1. 5 19. 8 3. 9 4. 0 4. 8 69. 2 % 50. 9 30. 8 2. 2 28. 6 5. 6 5. 8 6. 9 100 1999 ECUbn (1992 prices) 38. 4 30. 0 2. 6 27. 4 5. 1 5. 6 5. 0 84. 1 45. 7 35. 7 3. 1 32. 6 6. 1 6. 7 5. 9 100 142 Table 5. 2a - 5. 2b Scale of structural intervention (including Cohesion Fund and Community Initiatives), 1989-93 and 1994-99 Tables Total 357 157 6151 3091 6201 3408 2212 5232 25 419 3789 2469 33511 1989-1993 (annual average) Total EU intervention ECU mn EU intervention % GDP (a) 173 86 1680 1834 3017 1387 980 2374 15 163 1892 1066 14666 0. 22 0. 15 0. 48 4. 47 1. 54 0. 35 5. 99 0. 60 0. 28 0. 18 6. 15 0. 31 0. 63 0. 11 0. 08 0. 13 2. 65 0. 75 0. 14 2. 66 0. 27 0. 17 0. 07 3. 07 0. 13 0. 29 1994-1999 (annual average) Total EU intervention Total EU intervention ECUmn % GDP( b) 1050 426 13852 5793 13703 6940 2180 9581 56 1256 5300 ' 4781 64916 1438 1077 848 68279 349 140 3622 2956 7066 2491 1234 3608 17 436 2940 2164 27024 316 331 261 27932 0. 55 0. 34 0. 80 7. 20 3. 37 0. 62 4. 98 1. 12 0. 48 0. 52 7. 17 0. 56 1. 10 0. 86 1. 31 0. 16 1. 10 0. 18 0. 11 0. 21 3. 67 1. 74 0. 22 2. 82 0. 42 0. 15 0. 15 3. 98 0. 25 0. 45 0. 19 0. 40 0. 37 0. 51 B DK D GR E F IRL I L NL P UK EUR12 B DK D GR E F IRL I L NL P UK EUR12 O SF S EUR15 (a) verageGDP, 1989-93 GDP in 1994 143 Tables B DK D GR E F IRL I L NL P UK EUR 12 % B DK D GR E F IRL I L NL P UK A SF S EUR 15 % Table 5. 3a - 5. 3b Breakdown of Structural Funds by objective, 1989-93 and 1994-99 Obj. 1 Obj. 2 Ob]. 5a agric. 1989-93 (ECU mn) Ob). 5b Ob]. 5a fish. Total C I/ Obj. 3 &4 344 171 1054 214 25 581 134 91 878 1506 1225 837 1442 229 1274 387 12 165 903 11 405 493 29 79 2015 6130 9. 7 1502 6669 10. 6 316 3523 5. 6 2955 7528 10171 957. 4460 8504 8450 793 43818 69. 6 Ob]. 1 Ob]. 2 Obj. 3 Ob]. 4 15 94 36 92 135 106 43 58 579 0. 9 33 21 511 265 874 360 3 33 132 2232 3. 5 740 402 6015 7528 13100 5907 4460 10753 55 725 8450 4816 62951 100 124 28 416 712 1129 566 295 667 22 89 724 513 5285 730 13640 13980 26300 2190 5620 14860 150 13980 2360 162 93972 68. 0 341 119 1566 2415 3769 1462 15 650 4580 99 179 157 15352 11. 1 396 263 1681 1474 2562 1316 21 923 3377 329 254 342 12938 9. 4 1994-99 (ECU mn at 1994 prices) Ob]. 5a agric. 170 127 Ob]. 5a fish. 25 140 69 38 260 1070 75 369 641 399 1 156 60 83 170 2246 1. 6 326 1746 680 39 118 186 377 324 88 5251 3. 8 120 190 134 1 47 89 2 23 39 885 0. 6 Ob]. 5b Ob]. 6 Total C. I. * 77 54 1227 664 2236 901 6 150 817 403 190 135 6860 5. 0 1808 741 19519 13980 31668 13334 5620 19752 83 2194 13980 11409 1432 1503 1178 138201 100 288 102 2211 1154 2781 1605 484 1897 19 422 1061 1573 144 151 126 14018 450 247 697 0. 5 ' Community Initiatives, including 200 mn. ECU (at 1995 prices) resulting from a revision to the financial forecasts decided by the Council in order to fund the PEACE Initiative, but excluding around 64 mn. ECU for networks. -\AA Tables Table 5. 4 EIB financing and of regional development EIB financing. Individual loans and credits extended on global current loans Total EIB activity in Member States Regional development Objective 1 regions Objectives 2,5b and 6 regions Other regions in receipt of Community assistance Other regions in receipt of national aid Projects covering several regions Regions eligible under Structural Funds - of which: individual loans in receipt of Community subvention Amount (ECU mn) 70,008 47,128 25,046 16,916 1,5000 1,306 2,360 41,962 10,669 1989-99 % total activity 100 67 36 24 2 2 3 1994 1995 % regional development Amount (ECU mn) Amount (ECU mn) 100 53 36 3 3 5 10 25 16,605 12,035 5,748 4,875 60 1,352 10,623 3,246 17. 782 12,143 5,881 5,449 813 11,330 4,434 EIB financing (individual loans and credits on global loans) in areas eligible for Structural Fund aid Division by Objective and sector Transport Telecom Water/ Energy Other Environment Total infrastruct. Agriculture, industry, Total services of which: credits on global loans Objective 1 ECUmn % Objectives 2+5b ECUmn % 5598 5176 1498 22 21 6 5016 1423. 30 8 2411 14 3909 9 Total Obj. 1+2+5b 10614 6599 % total Objectives Total regional development % total reg. devel. Obj. 1+2+5b, % regional development 25 16 12677 7466 4473 27 84 16 88 9 87 1989-93 1169 18300 5 73 542 3 1712 4 1816 4 94 10669 63 28969 69 32771 70 4859 19 1276 8 6135 15 6339 13 97 6745 27 6246 37 25045 100 16916 100 12991 41960 31 100 14359 47130 30 90 100 89 3757 15 4171 25 7928 19 9320 20 85 Total activity 17809. 8935 7830 12018 2123 48715 21293 70008 14490 1994 and 1995 Objective 1 ECUmn % Objectives 2+5b+6 ECUmn % Total Obj. 1+2+5b+6 % total Objectives Total regional development % total reg. devel. Obj. 1+2+5b,% regional development Total activity 4307 1901 37 9 900 8 2320 20 3949 38 8256 38 297 1040 1614 3 1388 6 10 1940 9 16 3935 18 8595 2810 1995 4113 36 96 12 49 8 97 17 96 549 5 240 2 789 4 789 3 100 9167 79 7140 69 16307 74 18302 76 89 2461 21 3184 31 5645 26 5877 24 96 11269 1044 100 9 10324 100 21953 100 2061 20 3104 14 24178 4645 100 91 19 67 12079 3040 3668 6467 941 26195 8192 34387 7098 145 Tables Spain Portugal Greece Ireland Total(a) Spain Portugal Greece Ireland Total(8) Table 5. 5 Breakdown of Cohesion Fund, 1993 and 1994-99 Actual commitments for 1993 (ECU mn at current prices) Transport Environment ECUmn 606 161 105 86 958 3983 1380 1235 665 7262 % 71. 0 57. 0 38. 0 61. 0 61. 0 • ECUmn 252 123 175 56 606 Estimates for 1994-99 as in CSF (ECU mn at 1994 prices) 50. 1 53. 0 47. 5 51. 1 50. 2 3967 1221 1367 636 7192 % 29. 0 43. 0 62. 0 39. 0 39. 0 49. 9 47 0 52. 5 48. 9 49. 8 Total 859 284 280 142 1565 7950 2601 2602 1301 14454 <a) Including technical assistance and studies Expenditure on transport and environment for 1994-99 is estimated on the basis of actual commitments in 1994 and 1995. Table 5. 6 Distribution of Structural Funds by broad target area in Objective 1 regions, 1989-93 and 1994-99 (%) Infrastructure 1989-1993 Human resources Productive environment Infrastructure 1994-1999 Human resources Productive environment B D GR E F IRL I NL P UK O Average EUR 4 average 22. 5 40. 9 54. 0 39. 4 27. 7 38. 7 29. 2 29. 5 35. 2 38. 0 26. 5 25. 6 24. 2 28. 7 38. 0 21. 6 26. 1 46. 0 29. 6 28. 5 48. 5 34. 7 21. 5 31. 1 33. 4 39. 3 37. 7 22. 5 33. 6 31. 8 18. 9 40. 5 45. 9 40. 4 27. 9 19. 7 29. 8 24. 0 29. 7 28. 4 19. 8 29. 5 33. 9 34. 7 28. 0 24. 6 28. 4 27. 2 43. 9 21. 4 26. 7 29. 4 37. 9 25. 9 29. 8 31. 6 45. 8 30. 5 27. 8 30. 5 34. 2 36. 2 48. 2 37. 3 35. 7 30. 2 51. 9 37. 1 32. 6 146 Table 5. 6a Income and unemployment trends in assisted regions, 1983-93 Regional data by Objective GDP per head (PPS, EUR12 = 100) Unemployment rate (% labour force) 1983 1989 1993 1983 1989 1993 1 64l6 65. 4 67. 2 12. 4 14. 5 16. 2 2 98. 0 96. 3 92. 1 12. 5 11. 0 12. 2 5b 86. 0 84. 4 85. 3 7. 7 6. 5 6. 9 Tables EUR12 Average 100 100 100 9. 6 8. 8 10. 3 Note: the figures for Objective 2 and 5b are estimates, since the geographical coverage does not correspond precisely with any regional classification for which comparable data exist. M Objective 1 excludes new Lander. Table 5. 7 Distribution of Structural Funds by broad target area in Objective 2 regions, 1989-93 and 1994-99 (%) Physical regeneration & environment 1989-1993 Human resources Productive environment (•) Physical regeneration and environment 1994-1999 Human resources Productive environment(a) B DK D E F I L NL UK O SF 23. 9 37. 8 67. 7 37. 0 42. 4 85. 2 16. 9 13. 4 19. 1 60. 0 5. 8 2. 6 19. 3 17. 9 4. 3 43. 6 19. 0 56. 2 34. 5 54. 5 29. 4 43. 1 38. 3 7. 8 37. 1 67. 5 S Average *b' 36. 0 21. 3 40. 9 16. 9 25. 1 18. 9 23. 5 19. 6 57. 2 15. 4 15. 8 10. 3 15. 8 18. 2 33. 1 57. 0 40. 0 28. 0 34. 8 29. 8 28. 6 37. 8 34. 2 27. 9 31. 7 34. 2 34. 8 47. 5 41. 0 33. 4 52. 4 40. 2 49. 0 14. 3 43. 8 49. 0 60. 3 65. 1 49. 0 45. 4 (a) Includes expenditure on economic infrastructure (b) Technical assistance, representing an average of 1. 3% of total funding, not included 147 Tables Table 5. 8 Distribution of Structural Funds by broad target area in Objective 5b regions, 1989-93 and 1994-99 (%) 1989-1993 1994-1999 Infra structure Environment Human resources Productive environment Infra structure Environment Human resources Productive environment B DK D E F I L NL UK O SF S Average *a) 9. 1 28. 2 9. 0 39. 6 17. 0 18. 9 17. 9 6. 7 33. 9 11. 9 27. 9 16. 9 13. 3 9. 3 19. 8 9. 8 24. 0 30. 0 17. 4 14. 8 20. 3 14. 2 10. 7 26. 8 21. 3 54. 9 41. 8 44. 5 28. 7 47. 6 55. 9 71. 4 45. 4 35. 0 3. 8 8. 3 11. 9 10. 3 9. 2 0. 8 34. 4 0. 7 8. 4 4. 0 7. 1 16. 9 10. 2 10. 9 10. 5 8. 2 23. 8 7. 8 7. 8 8. 1 20. 0 12. 1 20. 0 47. 2 8. 4 • 10. 3 (a) Technical assistance, representing an average of 1. 5% of total funding, not included 16. 6 19. 6 17. 9 13. 4 12. 8 13. 4 12. 8 11. 4 16. 1 16. 9 16. 6 15. 3 69. 9 78. 3 51. 5 66. 1 65. 1 74. 0 41. 0 62. 8 66. 5 69. 9 66. 6 64. 7 Table 5. 9 Distribution of Structural Funds by broad target area in Objective 6 regions, 1995-99 Finland Sweden Total (ECU mn 1994) Total (%) Infrastructure % 6. 0 4. 0 36. 7 5. 3 Human resources % Productive environment % 25. 4 27. 6 182. 2 26. 1 66. 7 63. 5 456. 9 65. 6 Other Total % 1. 9 4. 9 21. 1 3. 0 ECU mn 1994 450. 0 246. 8 696. 8 148 Tables Table 5. 10 Breakdown of expenditure on human resources (ECU mn) under Objectives 3 and 4 1989-93 Obj. 3 & 4 % % total 1994-96/99 Ob]. 3 of which (% expenditure in Member States): E. O. LTU Y. P. E. P. B DK D E F I L NL UK 0 SF s Tota! (%) Total (ECU mn) 5. 2 2. 6 15. 8 12. 5 21. 6 13. 5 0. 2 6. 1 22. 5 100. 0 6670 3. 6 2. 4 15. 2 13. 3 23. 2 11. 9 0. 2 8. 3 13. 6 3. 0 2. 3 3. 1 100. 0 11065 33. 6 54. 8 56. 6 33. 8 27. 5 32. 1 28. 6 52. 0 37. 4 34. 0 42. 4 27. 9 38. 1 4220 21. 5 20. 9 26. 3 49. 2 38. 5 43. 0 14. 3 13. 0 31. 6 7. 0 31. 8 50. 0 33. 7 3733 31. 3 22. 1 4. 6 12. 7 27. 9 10. 0 47. 6 30. 0 23. 9 32. 6 23. 9 18. 2 19. 7 2182 LTU: Long-term unemployed Y. P. : Youth unemployed E. P. : People excluded from the labour market (unemployed and inactive) E. O. : Equal opportunies A. VJ. : Adaptation of workers to industrial change 6. 8 0. 0 9. 5 4. 2 0. 7 8. 0 4. 8 0. 0 6. 0 18. 2 0. 0 0. 0 4. 7 523 Ob. 4 % total of which: A. W. 1. 5 0. 8 6. 2 21. 9 17. 8 23. 7 0. 1 9. 3 0. 0 3. 6 4. 9 10. 1 100. 0 1682 92. 3 92. 3 100. 0 100. 0 100. 0 80. 5 100. 0 100. 0 0. 0 96. 7 95. 2 91. 2 93. 9 1580 149 Tables Table 5. 11a-5. 11b Population assisted and allocation per head by Objective, 1989-93 and 1994-99 Objective 1 Objective 2 Objective 5b. % national allocation population (ECU/head) % national population allocation (ECU/head) % national population allocation (ECU/head) 1989-93 100. 0 57. 7 2. 7 100. 0 36. 4 100. 0 2. 8 21. 7 62. 0 150. 0 91. 0 120. 0 253. 0 82. 0 171. 0 87. 0 123. 3 22. 1 4. 9 12. 4 22. 2 18. 3 6. 6 38. 0 9-9 35. 5 16. 8 19. 0 20. 0 16. 0 35. 0 25. 0 21. 0 16. 0 22. 0 20. 0 20. 6 2. 7 2. 1 7. 4 2. 5 9. 7 5. 0 0. 8 3. 0 2. 6 5. 0 26. 0 39. 0 23. 0 53. 0 34. 0 25. 0 187. 0 15. 0 16. 0 29. 6 Objective 1 Objective 2 Objective 5b Objective 6 % national population allocation (ECU/head) % national population allocation (ECU/head) % national population allocation (ECU/head) % national population allocation (ECU/head) 1994-99 12. 8 95. 0 20. 6 100. 0 59. 7 4. 4 100. 0 36. 7. 1. 5 100. 0 5. 9 3. 7 145. 0 225. 0 188. 0 143. 0 262. 0 117. 0 115. 0 235. 0 115. 2 120. 0 14. 2 8. 5 8. 8 20. 4 25. 1 11. 0 34. 6 17. 4 30. 9 7. 5 15. 7 11. 5 16. 4 40. 0 45. 0 37. 0 51. 0 43. 0 39. 0 19. 0 42. 0 43. 0 31. 0 45. 0 32. 3 41. 9 4. 5 6. 8 9. 7 4. 4 16. 7 8. 3 7. 9 5. 4 4. 9 28. 7 21. 6 9. 2 8. 8 29. 0 25. 0 26. 0 64. 0 38. 0 31. 0 33. 0 31. 0 48. 0 35. 0 35. 0 33. 8 35. 0 16. 7 5. 3 0. 4 107. 0 110. 0 108. 5 B DK D GR E F IRL I L NL P UK EUR 12 B DK D GR E F IRL I L NL P UK O SF S EUR 15 26. 6 169. 5 150 Table 5. 12 Allocations on Community Initiatives, 1989-93 ENVIREG PRISMA INTERREG REGEN RECHAR RESIDER RENAVAL REGIS STRIDE Tables B DK D GR E F» IRL I L NL P UK Total 84. 0 139. 2 32. 5 30. 4 171. 2 101. 8 17. 7 576. 8 17. 7 32. 2 0. 2 9. 4 22. 6 17. 5 5. 7 105. 3 41. 6 2. 4 59. 2 252. 5 265. 3 95. 8 42. 2 42. 6 9,1 30. 3 179. 8 54. 3 1075. 0 27. 6 18. 6 87. 6 93. 2 89. 9 118. 4 2. 0 82. 2 292. 5 25. 3 52. 4 3. 4 184. 2 380. 4 52. 4 58. 8 23. 0 8. 7 5. 0 4. 7 6. 5 12. 4 37. 3 18. 2 65. 3 20. 5 27. 6 24. 0 87. 3 4. 5 2. 2 4. 3 59. 3 155. 9 16. 4 13. 1 94. 9 2. 1 4. 6 54. 1 30. 2 78. 4 49. 6 53. 4 264. 4 299. 1 181. 4 441. 5 (a)Includes 14. 7 million ECU for Envireg/Stride and 5. 1 million ECU for PRISMA/TELEMATIQUE Table 5. 12a Allocations on Community Initiatives, 1994-99 (ECU mn) LEADER REGIS EMPLOI ADAPT RECHAR RESIDER INTERREG & REGEN Floods and drought non Obj. 1/6 Obj. 1 non Obj. 1/6 Obj. 1 non Obj. 1/6 Obj. 1 46 22 159 36 211 93 4 185 52 51 287 620 643 53 162 287 348 69 6 10 113 71 219 121 1 9 52 12 4 91 161 326 6 82 201 3 128 25 22 214 262 124 808 2520 613 1048 600 37 18 31 86 12 30 15 57 895 2577 24 16 12 52 665 3 12 4 18 1066 600 B DK D GR E F IRL I L ' NL P UK Network EUR 12 O SF S EUR 3 EUR 15 14 121 108 181 116 60 164 794 26 26 22 74 868 non Obj. 1/6 non Obj. 1/6 Obj. 1 29 16 non Obj. 1 Obj. 1/6 non Obj. 1 Obj. 1/6 16 1 17 11 Obj. 1 30 31 178 106 266 124 68 303 76 69 333 7 87 277 45 25 55 6 35 3 31 73 33 181 7 27 91 1 21 7 83 6 27 96 3 28 8 2 1 178 150 38 63 60 13 23 49 934 1107 449 311 140 414 149 12 19 12 43 1 4 1 6 2 2 6 2 8 5 5 942 1150 455 313 140 419 149 Part of the commitments on Community Initiatives allocated at 1995 prices have been converted into 1994 prices for comparison 151 Tables B DK D GR E F <" IRL I L • NL P UK Total Table 5. 12 Allocations on Community Initiatives, 1989-93 TELEMATIQUE LEADER EUROFORM NOW HORIZON RETEX KONVER TOTAL 6. 9 2. 2 23. 8 59. 1 120. 0 65. 0 27. 2 80. 9 0. 8 1. 4 52. 0 15. 4 454. 6 7. 5 3. 0 21. 5 24. 1 65. 7 41. 0 14. 3 55. 2 9. 3 33. 1 39. 3 313. 8 4. 8 1. 5 11,0 13. 8 34. 4 19. 0 7. 1 31. 4 0. 2 4. 6 16. 9 10. 3 154. 8 5. 3 3. 6 38. 8 54. 0 41. 4 32. 0 19. 5 28. 3 1. 3 7. 5 33. 9 30. 2 295. 5 1. 9 10. 8 17. 4 4. 0 2. 0 12. 1 30. 0 8. 2 86. 4 0. 9 0. 8 37. 5 5. 0 7. 6 32. 4 0. 2 17. 9 3. 6 1-8 20. 1 124. 0 28. 0 415. 9 711. 5 1128. 9 566. 0 294. 7 667. 4 22. 1 88. 9 724. 4 512. 8 127. 8 5284. 7 41. 3 75. 5 1. 7 11. 0 64. 7 35. 6 5. 4 235. 2 (a)Includes 14. 7 million ECU for Envireg/Stride and 5. 1 million ECU for PRISMA/TELEMATIQUE Table 5. 12b Allocations on Community Initiatives, 1994-99 (ECU mn) RETEX KONVER PME URBAN PESCA PEACE TOTAL TOTAL non Obj. 1/6 non Obj. 1/6 non Obj. 1/6 non Obj. 1/6 non Obj. 1/6 Obj. 1 Obj. 1 Obj. 1 Obj. 1 Obj. 1 Obj. 1 B DK D GR E F IRL I L NL P UK Network EUR 12 O SF S 2 15 42 37 39 1 202 22 12 13 2 130 11 85 3 3 34 25 49 51 12 30 59 77 62 9 35 27 172 29 11 125 14 14 428 445 276 165 3 152 82 223 9 28 158 2 122 14 20 819 1 5 4 9 829 53 5 209 8 6 13 27 236 6 2 31 51 71 28 1 22 84 13 82 50 186 8 20 105 49 38 2 19 10 12 33 18 11 36 3 295 552 144 13 5 18 3 4 7 4 13 30 33 8 19 2 29 7 3 143 1 EUR 3 EUR 15 3 168 428 3 3 • 449 276 313 556 151 143 295 non Obj. 1/6 Obj. 1 172 102 1026 506 1242 116 1186 1154 2275 363 484 681 1217 59 19 414 236 1126 20 295 5306 129 88 102 319 5625 6 1061 447 45 8355 17 62 25 103 8459 288 102 2211 1154 2781 1605 484 1897 19 422 1061 1573 64 13661 146 149 127 423 14084 Pari of the commitments on Community Initiatives allocated at 1995 prices have been converted into 1994 prices for comparison 152 Sources and methods Most of the data analysed in this Report have pre pared within the Commission. The main exceptions are the estimates of net budgetary transfers within Member States in Chapter 3 which are the results of a special study of selected countries and the esti mates of net transfers under the CAP in Chapter 4. ment are estimated from the comparable series on the basis of registration figures at labour offices. The specific source for each of the graphs, maps and tables is listed below. The analysis of disparities in Chapter 2 is based on national and regional accounts data and on series for employment and unemployment, compiled by the Statis tical Office of the European Commission (Eurostat). GDP (Gross domestic product) is a measure of the total output of resident producers, it corresponds to the production of goods and services in the economy, excluding consumption of intermediate goods and services, but (when measured at market prices rather than factor cost) including value-added tax on pro ducts and net taxes on imports. It is also an indicator of the income generated from such production. For comparisons between Member States, the figures for GDP are expressed in terms of PPS, or purchasing power standards, which aiiow not onty for exchange rate dif ferences but also for differences in the overall price level in one country relative to that in others (ie even after conversion of GDP figures into ECU, comparisons are still affected by differences in the level of prices which the PPS adjustment is aimed at correcting). The figures for employment for Member States are from the national accounts and are averages for the year; for regions, the figures are based on the annual Community Labour Force Survey (LFS), which is also the source of the sectoral data. For unemployment, the data for Member States are from the Eurostat comparable unemployment series (which are based on the LFS). The data on regional unemploy- NUTS classification of regions The NUTS (Nomenclature of territorial unit for statis tics) classification represents a standard framework for analysing economic and social developments in the Union's regions, which is largely based on institu tional spatial divisions. The analysis in Chapter 2 is mainly carried out at the NUTS 2 level, which distin guishes 206 regions across the Union as a whole. This is the level at which eligibility for aid from the Structu ral Funds for Objective 1 and Objective 6 purposes is determined (for other regional Objectives, the level is NUTS 3). Though most of the regions are broadly comparable in size and population, there are a num ber which differ markedly (Ile de France and Lombar- dia, for example, have 9-10 million inhabitants, while 16 regions have less than 300 thousand, including Corse, Burgenland and Highlands and Islands). For more details, see Eurostat, Regions, nomenclature for territorial unit for statistics, NUTS, March 1995. Studies Apart from various studies cited in the text, the preparation of the Report was assisted by outside experts as follows: Chapter 3: EPRC, UK and OEIL, FR Chapter 4: College of Europe, Bruges, B Chapter 5: ECOTEC, UK 153 Sources and methods Estimates of budgetary net transfers between regions The estimates of inter-regional transfers reported in Chapter 3 are based on a study commissioned specially for this Report carried out by the EPRC, University of Strathclyde in conjunction with L'OEIL in France. This covered 7 Member States (the four largest countries plus Spain, Portugal and Sweden) and was based on a unified approach, breaking down national budgets (excluding social insurance funds as far as possible) for 1993 into separate revenue and expenditure items which were then allocated between regions using a number of different indicators and various assumptions about the regional incidence of different taxes. Estimates of expenditure assigned to each region and of the tax revenue originating from each were then aggregated to give the net amount of transfer (the difference between the amount received and the amount contributed to the budget). Two approaches to the allocation of expenditure between regions were adopted in the study. The one most relevant for this report, and referred to here, is the 'flow' method which attempts to measure where expenditure is incurred or where transfers go. The expenditure on a particular government function on this method is allocated to the region (or regions) where the ministry or department and the various agencies attached to it are located. (The other method is the 'benefit' approach under which spending is allocated to where the beneficiaries of the service in question are located. ) Expenditure, however, excludes spending on social protection in France and Germany on both approaches and the estimates for these two countries may, therefore, significantly understate net transfers. Since the transfers estimated do not conform to national accounting conventions, they are not directly comparable with GDP and, accordingly, are indicative only of the relative scale of budgetary flows between regions. number of simplifying assumptions, due to the indi vidual nature of different agricultural markets and the fact that for some products, there is no international reference price. Transfers between Member States Transfers from taxpayers in each country are esti mated by assuming that the share of each in the EU agricultural budget equals the share of its contribu tion to the overall Community Budget. Transfers also arise between consumers and producers as a result of price support. This gives rise to transfers between Member States — 'the net trade transfer' — which depends on national patterns of consumption and production. Transfers from consumers are estimated by multiplying the amount of each product available for consumption in each country by the EU 'price support'. Total support' is based on OECD data used to calculate PSEs (Producer Subsidy equivalent) and CSEs (Consumer Subsidy Equivalent). Because these data relate to a period before the Uruguay Round Agreement, they may not necessarily reflect the relationship between EU prices and world prices after the agreement. This could mean that the scale of EU price support is over-estimated. Since the OECD does not compute support rates for fruit, ve getables, wine and olive oil, these had to be esti mated. Transfers between regions Food consumption per head and average tax rates are assumed to be the same across all regions in each Member State. Both assumptions are likely to mean that the burden on richer regions is under-esti mated in relation to that on poorer regions, and more refined assumptions might, therefore, produce a greater cohesion effect. In the case of Portugal and Spain, comparisons involving data for the period be fore 1993 are of limited relevance because their agri cultural sectors were subject to transitional arrangements, nogatiated on accession in 1986, dur ing that period. Estimates of net transfers under the Common Agricultural Policy Measures of disparity The calculation of transfers associated with the CAP was undertaken by external experts. It involves a Two statistical measures of the degree of disparity between regions or individuals are used in the report, the standard deviation and the Gini coefficient. 154 Sources and methods Standard deviation 18 Eurostat, Community Labour Force Survey The standard deviation measures the dispersion of data (such as for unemployment rates) around the mean. In formal terms, it is the square root of the variance which is defined as L((xrXmn)2)/n, where * is the ith observation and x™ is the mean of the obser vations (ie in the case of regional unemployment rates, it is essentially a measure of the average dif ference of the rate in each region from the average rate). To allow for variations in the size of the regions analysed, regions are weighted in each case by the most relevant variable (ie population in the case of income per head and the labour force in the case of unemployment). 19-20 Commission services 21-22 EPRC 23-25 DG XII, College of Europe 26 Commission services 27 IDATE, College of Europe 28 Commission services 29 ERECO 30-35 Commission services 36-39 ULB Gini coefficient The Gini coefficient measures the degree of inequality in the distribution of a particular set of data (such as income). More formally, it is a measure of the degree of curvature of the Lorenz curve, which itself indicates the relationship between the cumulative percentage of individuals, groups or regions and the cumulative percentage of the total of a particular variable, such as income, which they account for, ordered by size (ie it shows the percentage of total income in a given country going to a given percentage of the popula tion). If there were a perfectly equal distribution of a given variable, the line describing the relationship would be straight and 45 degrees to each of the axes. The Gini coefficient is defined as the area between the Lorenz curve and the 45 degree line as a ratio of the area above the 45 degree line. The value of the coefficient, therefore, varies between 0 (when the Lorenz curve follows the 45 degree line) and 1 (where it follows the axis and there is perfect inequality), and the higher the value, the more unequal the distribu tion. Maps 1-12 Eurostat, National Institutes of Statistics for three new Member States; calculations by DG XVI 13-14 College of Europe Tables 2. 1 - 2. 2 Eurostat and DG XVI 2. 3 Eurostat, DGs II, V and XVI 2. 4 DG II and calculations by DG XVI 2. 5 Eurostat and DG II, calculations by DG XVI 2. 5a - 2. 8 Eurostat, calculations by DG XVI 2. 9 - 2. 10 Eurostat, Labour Force Survey Graphs 1 Commission services 2 Eurostat, calculations DGXVI 3 Eurostat 4-13 Eurostat, calculations DGXVI 3. 1 DG IV 3. 2 EPRC, OEIL 3. 3 EPRC, OEIL 4. 1/4. 2 College of Europe 4. 8 College of Europe 14-15 Eurostat, Community Labour Force Survey 16-17 OECD 4. 9 Commission Services, UTS Study and College of Europe 155" Sources and methods 4. 11 Eurostat, National Accounts ESA and College of Europe 4. 12 Commission Services and College of Europe 4. 13 ERECO 4. 14 ERL 4. 15 DRI 5. 1 - 5. 3 Commission Services 5. 4 European Investment Bank 5. 5-5. 12 Commission Services 156 Sources and methods 157 ISSN 0254-1475 COM(96) 542 final DOCUMENTS EN 01 05 10 13 Catalogue number : CB-CO-96-566-EN-C ISBN 92-78-11391-3 Office for Official Publications of the European Communities L-2985 Luxembourg