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 Income and employment 
2.2 Social Cohesion 
2.3 Other dimensions of cohesion: 
quality of life and European citizenship 
Chapter 3 Member State policies and cohesion: an overview 
3.1 Introduction: weakening internal cohesion 
3.2 Macroeconomic policies 
3.3 Structural reforms and expenditure-based policies 
3.4 Redistribution 
3.5 Concluding remarks 
Chapter 4 The policies of the European Union 
4.1 Agriculture and fisheries policies 
4.2 The Single Market and competitiveness policies 
4.3 The network policies 
4.4 Quality of life policies 
4.5 Concluding remarks 
Chapter 5 Community structural policies and cohesion: 
a shared responsibility 
5.1 Introduction 
5.2 The nature and purpose of community assistance 
5.3 A decade of achievement 
5.4 The delivery system: a force for change 
Chapter 6 Ways forward 
6.1 The ongoing need for European Union cohesion policies 
6.2 Raising effectiveness 
6.3 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: 
• 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 
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 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. 
The experience across the Union with regard ^em­
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. 
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 tele­communications 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 
* particular,'for small and medium-sized enterprises. ? v'v^Vr.y;: .; - ^,' :-P\ " ; / t * :-\ - -
Executive Summary 
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. 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 
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 
• more generally, how to seize the opportunities for 
synergy between policies, including structural 
policies. 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. 
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. 
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 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. 
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 
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. 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. 
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. 
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 the Union average to below in the space of a few 
years. 
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 
180 
160 
140 
120 
100 
80 
60 
40 
20 
0 PPS (EUR15=100) 
• 1983 
• 1988 
• 1993 1 180 
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. 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. 
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. 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) 
Disparity In GDP per head (by Member State) 
Disparity In GDP per person employed (by Member Stale) 30 
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. 
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 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 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 
% labour force 25 r 
20 
15 
10 111983 11988 •1993;: 
Excluding new Lander -#25;: 
20 
15 
10 
B DK D GR ' E F ^IRL#H ÏT L ' * NLlïi'A" 'P^FIN> "S'>. UK* !E15 
20 
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). 
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 
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 Austria with a second cluster in the Benelux countries 
and northern Germany. 
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. 
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 aver­age, 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). 
200 
180 
160 
140 
120 
100 
80 
60 
40 
20 
0 GDP per head by Member State and regional extremes, 1993 
PPS(EUR15=100) 
Reg.SruxeBes-
•Capy Brussels Ham&urç 
HfdstGew. 
be de Franca 
hHalnaut Lbmbardia Gronfngoi 
Calabria 
MecWenburg-
Vorpommem Ahvenanmaa/ 
Aland 
Stockholm 
Revo land 
Guadeloupe BuroenJand ^B Itâ-Suoml Merseysldej 
Açores 200 
180 
160 
140 
120 
100 
80 
60 
40 
20 
0 
B DK D GR E F IRL I L NL A P FIN S UK 
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. 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. 
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 81% 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 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 
V ; rat» (by Member State) 
© «M ;:'.: "»',.• <o eo • o «» to <o o CM ^ 
O O» ; O Cfl O) . Oft OV. Ok O) : O) 
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. 
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 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. (%) 
No. of cities -15 
5 15-20 
10 20-25 
10 25-30 
9 30+ 
15 
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 
E15=10.7 
Oroningan • Wien Alentajo 
Utrecht 
Salzburg Smaland 
Ahvsnanmaa/ med 
Cawo Aland CWna Berta" 
Bucks. 
Pwn 35 
30 
25 
20 
15 
10 
5 
0 
NL FIN UK 
28 
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 
180 
160 
140 
120 
100 
80 
60 Employment rates and productivity in NUTS 1 regions, 1993 
Employment rate as % population 15-64, EUR15 (59 6%) = 100 
OP 
•yv «q DK IL 
1 *F» „ 
GRf 
%•••, FINJRL / 180 
- 160 
- 140 
120 
100 
80 
60 
30 40 50 60 70 <;• 80 90 : 100 110 120 130 140 
GDP per person employed in PPS, EUR15 (40.4 th. ECU) = 100 150 
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 
ft o 
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. 
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 and employment levels, even where their final GDP 
per head is similar. The variations are even more 
marked between regions. 
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. 
200 • Roads 
• Motorways 
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 
Index EUR15» 100 11 State of the railways, 1992 
• At least double track 
• Electrified 
B DK D F I L 
GR no electrified fines 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 
70 Per 100 people 
60h 
8 DK D\F U L NL A FIN S UK GR E IRL P 13 Main telephone lines connected to digital 
exchanges, 1993 
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; 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 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 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 31% was in industry. 
14 Educational attainment of labour force, 
25-59 year olds, 1995 
% labour fores 
100 r B Upper secondary 
• University and equivalent 15 Participation in education, 16-18 year olds, 
1995 
B DK D FIL NL A FIN UK S no reliable data; UK 1894 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 
% labour force 
B DK O F I NL A FIN S UK 
L no data; B 1991; FIN. P 1992 GR E IRL P 17 Gross expenditure on research and 
development in the 1990s 
%GDP 
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. 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. 
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), 
There have been other differences, notably among 
those under 25 and those in their 50s and older. 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. 
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 21% 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 
50 V 
30 
20 • P «GR 
• O • 
.•NU :•.-••• 
WG «UK •_••'• 
T3 »IR 
E15 • E 
• F 
"FIN 70 
50 
A 30 
A 20 
5 10 15 
Unemployment «lei (%) 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 unemploy­ment 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 
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 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. 
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. 
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 infra­structure 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). 
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 
20 
16 
12 Inflation in Member States, 1983-93,1994 and 1995-97 
Annual % change in consumer price index 
• 1983-93 
• 1994 
• 1995-97 (projected) -i 20 
16 
12 
FIN D F NL B 
D 1983-93 excludes new Lander 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 ' 
120 
100 
80 
60 
40 
20 E31983-93 
• 1994 
• 1995-97 (projected) 1 140 
L . - UK F D FIN 
D1983-93 excludes new Lander 
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 
Chapter 3 Member State policies and cohesion: an overview 
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 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 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. 
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 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- wf^/'fV^',^ 
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. 
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 disadvant­aged 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. 
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. 
An examination of trends shows that in the four cohe­
sion countries taken together, GDP was 9% higher in 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 
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 
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 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. 
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 
toi. 
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. 
Evaluation of the Framework Programmes provides a 
number of insights into quality aspects of the partici­
pation of the four cohesion countries: 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 
1» r 
90 
i» ;*: ECU 
•SpttxSng pm hnd (Mink) 
•Spwxtng par RTD pwrcnrwl (right mfc) 
•SW^S^*-, > 
4?' "• à 12000 
9000 
6000 
3000 
Arohfcitecp! EUR4 Otrwr 
71 
Chapter 4 The policies of the European Union 
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; 
• certain programmes notably ESPRIT and BRITE-
EURAM seem to have attracted higher levels of 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. 
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. 
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. 
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 information about such issues as new technologi­
cal opportunities and potential new suppliers or 
customers. 
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. 
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. 
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 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. 
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 competi­tiveness 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 
Chapter 4 The policies of the European Union 
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 
TGV 
Roads 
Combined 
I Other EUR 
IEUR4 
ECUmn 
20000 30000 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. 
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 
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. 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. 
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 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 
Chapter 4 The policies of the European Union 
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 
libraries. (To assist these choices, the 
Commission will begin regular monitoring of the 
scope, quality and affordability of universal ser­
vice in the Community from the end of 1997.) 
27 Average annual spending on telecom 
services per head, 1992 
EUR12-100 
B DK D F GR E IRL I L NL P UK 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 
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 
5,000 
4.000 
3,000 
2.000 
1,000 ECUmn 
BOftar sources 
•SF*O»>M: ; 
.•EiB+EiF-.'i^;:; 5.000 
4,000 
3.000 
2.000 
81 
Chapter 4 The policies of the European Union 
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. 
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 this trend. For example, a coal-fired power station 
employs 1000-2000 people while an equivalent 
gas-fired power station employs 300-600. 
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. 
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. 
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 • 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. 
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. 
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. 
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 from one country to another. Cross-fertilisation 
schemes under ERASMUS also favour cohesion 
countries, but the overall scale in budgetary terms 
is very small. 
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 
larger in relation to the target population, 
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 
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 Instrument'for 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 inte­grate 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 
50 
30 • 1989-93 
• 1994-99 
Object 1 Object 2 Object 5b Objecte Total 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. 
90 
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: 
• 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); • 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. 
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 
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. Fields of intervention 
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 
100 r Distribution of Structural Funds by broad category of expenditure in 
Objective 1 regions, 1989-93 and 1994-99 BProducHve environment 
B Human resources 
Infrastructure 
n 100 
M 80 
60 
40 
20 
D GR E F IRL « P UK EUR C4 
1989-93 B O GR E F IRL I NL A P UK EUR CA 
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 
100 Objective 2 regions, 1989-93 and 1994-96 • Productive environment 
B Human resources 
• Physical regeneration & environment 
100 
80 
60 
40 
20 
B DK D E F IL NL UK EUR 
1989-93 B DK D E F I L NL A FIN S UK EUR 
1994-96 
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. 
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 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. 
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). 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 
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
ated markedly affecting one in six of the 
work force in 1993 compared to one in seven in 
1989. 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, 
1989-93 
Aid per head par yaar (ECU) 
300 
200 
150 
100 r-• IRL 
•P •QH 
• E 
E12 
••I 
^•k0 
9 11 13 15 
GDP oar head 1986 fPPS 000) ' 350 
300 
A 200 
150 
100 35 Structural aid and GDP in Member States, 
1994-99 
Aid per hMd p«r year (ECU) 
350 r • 
• P 
• GR 
200 
150 > 
100 • E 
• E12 
«I 
• UK .' • F 
5K .;•' 250 
:12':-jA>:-v".;' 16." .•/'•" ;. .20 
GPP par head 1091 (PPS 000) 
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: 
• 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 that resources were concentrated on the econ­
omies with the lowest levels of GDP per head. 
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 
100 
90 
80 
70 
60 
50 
40 
30 
20 
10 Concentration of Community structural assistance by Member State, 
1986-88,1989-93 and 1994-99 
Vo cumulative expenditure (ECU) 
-•—1989-93 
-•-1994-99 
F -#-1986-88 
10 70 80 90 ^00 
ÏÏ % cumulative GDP (PPS) ';'• •;: 
96 
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 
% cumulative experxiture (ECU) 
40 60 '80 100 
X cumulative GDP by region (PPS) 39 Concentration of Community structural 
assistance in Objective 2 regions, 1989-93 
% cumulative expenditure (ECU) 
O 20 40 60 80 100 
% cumulattve tyrthetlc Index (ot unemployment and kidurtrtal employment) 
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. 
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. 
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. 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: 
• 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; 
• 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 
general there are fewer strategic infrastructure 
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 em­ployers 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. 
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 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. 
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 
giving rise to the creation of coordination 
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 
Community level. Other change's concern 
improvements in the structures of administration 
for designing, monitoring 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. 
v In Ireland, companies obtaining support under the 
Objective 4 are required to devise a business devel­
opment and training plan; 
• 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 
The agricultural sector has been subject to substan­
tial changes in recent years, including the develop­
ment of production techniques, increased 
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. 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. 
Through the integrated programmes, 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. 
108 
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. 
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 led to healthy competition between local and regional 
authorities. 
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. 
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 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. 
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. 
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. 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. 
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
port costs, imperfections in the competitive 
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. 
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. 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. 
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 ex­tended 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 desired 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. 
Additionality 
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 is outdated in view of the 
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 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. 
Better financial engineering 
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 
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. 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 
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 
Chapter 6 Ways forward 
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. 
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 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. 
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 
Chapter 6 Ways forward 
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. " 
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 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 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. 
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 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. 
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; 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. 
• 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 
129 
Chapter 7 Conclusions 
130 
Tables 
Table 2.1 
Regional disparities in income, productivity and unemployment in the Union, 
1983 and 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) GDP per head 
(PPS, EUR15=100) 
1983 )993 
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) GDP per person employed 
(EUR15=100) 
1983 1993 
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 Unemployment 
(% labour force) 
1983 1993 
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 
PPS (EUR15 = 100) Regional disparity 
(standard deviation) Unemployment 
% labour force Regional disparity 
(standard deviation) Employment 
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 
15.0 
18.4 1993 
17.1 
24.5 
7.6 
15.3 
27.9 
24.6 
11.8 
20.2 
19.0 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 
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 
1.7 
0.7 
3.9 
1.6 
2.8 
1.4 
36 1993 
1.4 
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 
Table 2.3 
Income distribution and poverty by Member State 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
A 
P 
FIN 
S 
UK Adjusted wage share ^ 
(%GDP) 
1983 
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 1993 
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 Personal income 
distribution (Gini coeff.){b) 
early 80s* late 80s' 
0.228 Ô.235 
0.297 
0.330 
0.310 
0.238 
0.247 
0.207 
0.199 
0.270 0.296 
0.26& 
0.215 
0.220 
0.304 % population living below poverty line(b) 
Reference years 
1978(79)-87(88) 
1981-87 
1983-88 
1982-88 
1980-90 
1984(85)-89 
1980-87 
1985-88 
1988 
1980-88 
1980-89 
1985-88 early 80s' 
5.5 
4.2 
10.9 
18.5 
18.7 
13.2 
18.4 
19.6 
5.0 
27.3 
14.3 late 80s' 
6.6 
4.9 
11.2 
19.9 
17.3 
14.9 
15.8 
22.0 
9.2 
6.2 
26.5 
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 
Annual growth rate 
in GDP (%) 1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 
1994 
1995 
1983-1993 
1983-1995 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 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 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 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 EUR4 
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 EUR11 
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 EUR15 
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 
Annual population 
growth (%) 1983-1993 
1983-1995 0.5 
0.5 0.2 
0.2 0.2 
0.2 0.0 
0.0 0.2 
0.2 0.4 
0.8 0.4 
0.7 
GDP per head (PPS) 
EUR15=100 1983 
1988 
1993 
1995 61.9 
59.6 
64.5 
64.3 70.5 
72.4 
77.8 
76.2 63.6 
65.0 
80.2 
89.9 55.1 
56.5 
68.2 
68.4 66.2 
67.4 
74.2 
73.8 107.4 
107.2 
1053 
105.4 100.0 
100.0 
1000 
1000 
132 
Tables 
Table 2.5 
GDP per head in richest and poorest regions in the Union, 1983 and 1993 
(GDP per head In PPS) 
1983 
Regions 
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 1993 
EUR15=100 Regions 
184 "1 Hamburg (D) 
168 2 Rg.Bruxelles-Cap./BrusselsHfdst.Gew.(B) 
165 3 Iles de France 
151 4 Darmstadt (D) 
149 5 Luxembourg (L) 
149 6 Wien (A) 
144 7 Oberbayern (D) 
140 8 Bremen (D) 
138 9 Greater London (GB) 
135 10 Stuttgart (D) 
154 Highest 10 
133 11 Antwerpen (B) 
132 12 Grampian (GB) 
131 13 Lombardia(l) 
131 14 Valle d'Aosta (I) 
130 15 Karlsruhe (D) 
130 16 Mittelfranken (D) 
128 17 Emilia-Romagna (I) 
128 18 Ahvenanmaa/land (SF) 
126 19 Salzburg (A) 
125 20 Trentino-Alto Adige (I) 
124 21 Dsseldorf(D) 
124 22 Liguria(l) 
119 23 Lazio(l) 
118 24 Friuli-Venezia Giulia (I) 
118 25 Stockholm (S) 
140 Highest 25 
39 1 Guadeloupe (F) 
40 2 Açores (P) 
43 3 Alentejo (P) 
43 4 Madeira (P) 
43 5 Runion (F) 
43 6 Ipeiros (GR) 
" 44 7 Centro (P) 
45 8 Voreio Aigaio (GR) 
45 9 Mecklenburg-Vorpommern (D) 
46 10 Martinique (F) 
44 Lowest 10 
48 11 Thùringen(D) 
50 12 Sachsen(D) 
50 13 Sachsen-Anhalt (D) 
54 14 Dytiki Ellada (GR) 
55 15 Extremadura (E) 
56 16 Ionia Nisia (GR) 
56 17 Guyane (F) 
57 18 Brandenburg (D) 
57 19 Kriti (GR) 
57 20 Andalucia (E) 
58 21 Algarve (P) 
58 22 Thessalia (GR) 
59 23 Galicia (E) 
61 24 Anatoliki Makedonia, Thraki (GR) 
63 25 Calabria (I) 
53 Lowest 25 EUR15=100 
189 
183 
163 
164 
162 
161 
158 
154 
144 
141 
158 
137 
134 
132 
131 
127 
127 
127 
127 
125 
'125 
123 
122 
121 
119 
119 
142 
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 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
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 
German new Lander: no data for 1983 
133 
Tables 
Table 2.5a 
Indicators for agricultural, industrial and service regions 
Regions most 
dependent on{a): 
Agriculture 
Industry 
Services 
EUR 15 Employment 
% total 
employment 
1993 
27.4 
43.9 
68.8 Annual % 
change 
1983-93 
0.3 
0.9 
0.7 
0.5 Population 
million hab/km2 
43.4 
86.7 
88.5 
369.0 91 
327 
786 
116 GDP 
PPS per Annual % 
head 
1993 
66 
109 
116 
100 change 
1983-93 
2.2 
2.3 
2.4 
2.5 Unemployment 
%199S % point 
change 
1983-93 
17.1 
8.3 
10.1 
10.7 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 
B 
D (excl new Lander) 
D (incl new Lander) 
GR 
E 
F 
I 
NL (incl Groningen) 
NL (excl Groningen) 
P 
UK 
A 
FIN 
S 
EUR 15 (by region) 
EUR15 (by Member State) 1983 1984 
14.5 16.2 
20.9 21.5 
6.6 
12.7 
26.7 
23.4 
27.4 
12.4 
13.7 
18.7 
24.2 
17.5 
9.3 
26.8 
17.2 6.9 
12.5 
25.6 
23-.5 
29.6 
12.5 
12.9 
18.7 
24.0 
17.5 
9.5 
27.1 
17.6 (EUR15 = 100, standard deviation) 
1985 1986 1987 1988 1989 1990 
16.3 14.9 15.0 15.2 15.2 15.4 
21.7 22.4 22.2 21.6 21.7 22.9 
6.5 
13.0 
26.7 
24.7 
32.3 
12.3 
12.9 
18.8 
25.2 
17.7 
9.5 
27.5 
17.5 6.6 
13.8 
26.1 
25.3 
19.4 
11.9 
14.9 
20.4 
25.1 
17.6 
9.5 
27.2 
17.3 6.9 
14.0 
28.4 
25.2 
12.8 
10.8 
17.2 
21.2 
25.9 
18.6 
9.5 
27.0 
16.6 6.9 
14.0 
28.8 
25.9 
11.6 
11.0 
15.3 
21.5 
25.0 
18.8 
12.0 
26.9 
16.2 6.3 
15.0 
28.9 
26.1 
10.8 
10.3 
15.7 
21.1 
24.9 
18.3 
11.8 
26.7 
15.7 6.2 
15.0 
29.2 
26.0 
10.7 
9.9 
16.9 
20.6 
25.2 
18.4 
11.6 
26.9 
15.7 1991 
15.9 
24.5 
39.3 
7.0 
16.0 
30.2 
25.0 
12.0 
10.1 
18.5 
19.1 
26.1 
18.2 
11.3 
29.7 
13.5 1992 
16.3 
25.0 
36.8 
7.3 
16.0 
28.2 
25.4 
11.7 
10.1 
19.1 
18.8 
26.2 
15.7 
10.8 
28.8 
13.5 1993 
16.8 
23.4 
32.7 
7.7 
15.3 
27.7 
24.8 
11.8 
10.6 
19.9 
19.0 
27.1 
17.1 
10.5 
27.2 
12.8 
134 
Tables' 
Table 2.7 
Unemployment rate in worst and least affected regions in the Union, 1983 and 1993 
1983 
Regions . Rate 
Andalucia (E) 22.5 1 
Cataluna(E) 21.3 2 
PaisVasco(E) 20.4 3 
Canarias(E) 19.2 ' 4 
Merseyside (UK) 18.4 5 
Extremadura (E) 17.3 6 
West Midlands (County) (UK) 17.3 7 
Region de Murcia (E) 17.0 8 
Comunidad Valenciana (E) - 16.8 9 
Northern Ireland (UK) 16.8 10 
Highest 10 19.4 
Cleveland. Durham (UK) 16.7 11 
Comunidad de Madrid (E) 16.5 12 
Limburg(B) 16.0 13 
Sardegna(l) 15.9 14 
Dumfries & Galloway, Strathclyde (UK) 15.8 15 
Comunidad forai de Navarra (E) 15.7 16 
Northumberland, Tyne and Wear (UK) 15.3 17 
Castilla-la Mancha (E) 15.2 18 
Ireland (IRL) 14.8 19 
South Yorkshire (UK) 14.4 20 
Gwent, Mid-South-West Glamorgan (UK) 14.3 21 
Liège (B) 13.7 22 
Principado de Asturias (E) 13.7 23 
Hainaut (B) 13.6 24 
Castilla y Leôn (E) 13.6 25 
Highest 25 17.2 
Uusimaa(FIN) 1.7 1 
Stockholm (S) 1.9 2 
Luxembourg (L) 3.3 3 
Smâland med Oarna (S) 3.8 4 
Stuttgart (D) 4.0 5 
Vastsverige (S) 4.0 6 
Ostra Mellansverige (S) 4.2 7 
Tubingen (D) 4.3 8 
Oberbayern (D) 4.4 9 
Freiburg .(D) 4.6 10 
Lowest 10 3.8 
Kriti (GR) 4.6 11 
Trentino-Alto Adige (I) 4.7 12 
Darmstadt (D) 4.9 13 
Sydsverige (S) 4.9 14 
Karlsruhe (D) 5.0 15 
Schwaben(D) 5.0 16 
Mellersta Norrland (S) 5.0 17 
Surrey, East-West Sussex (UK) 5.6 18 
Etela-Suomi (FIN) 5.6 19 
Vali-Suomi (FIN) 5.6 20 
Ile de France (F) 5.7 21 
Alsace (F) 5.7 22 
Niederbayern (D) 5.8 23 
Unterfranken (D) 5.8 24 
Liguria (I) 5.8 25 
Lowest 25 4.8 1995 
Regions Rate 
Andalucia (E) 33.3 1 
Ceuta y Melilla (E) 33.0 2 
Extremadura (E) 30.5 3 
Campania (I) 24.7 4 
Calabria (I) 23.7 5 
Canarias (E) 23.7 6 
Sicilia(l) 23.5 7 
Pais Vasco (E) 23.0 8 
Region de Murcia (E) 22.2 9 
Comunidad Valenciana (E) 22.2 10 
Highest 10 26.4 
Sardegna(l) 21.7 11 
Itâ-Suomi (FIN) 21.7 12 
Cantabria(E) 21.4 13 
Pohjois-Suomi (FIN) 21.1 14 
Principado de Asturias (E) 20.9 15 
Comunidad de Madrid (E) 20.7 16 
Castilla-la Mancha (E) 20.4 17 
Castilla y Le6n(E) 20.3 18 
Cataluna(E) 19.9 19 
Molise(l) 18.7 20 
Etelâ-Suomi (FIN) 18.3 21 
Vâli-Suomi (FIN) 18.1 22 
Basilicata (I) 17.6 23 
Galicia (E) 17.2 24 
Sachsen-Anhalt (D) 16.7 25 
Highest 25 22.4 
Salzburg (A) 3.2 1 
Ionia Nisia (GR) 3.4 2 
Tirol (A) 3.4 3 
Notio Aigaio (GR) 3.5 4 
Niederôsterreich (A) 3.6 5 
Luxembourg (L) 3.8 6 
Kriti (GR) 3.8 7 
Kârnten(A) 4.1 8 
Oberbayern (D) 4.1 9 
Vorarlberg (A) 4.3 10 
Lowest 10 3.9 
Trentino-Alto Adige (I) 4.5 11 
Schwaben(D) 4.5 12 
Niederbayern (D) 4.6 13 
Centro (P) 4.7 14 
Burgenland (A) 4.7 15 
Madeira (P) 4.9 16 
Steiermark (A) 4.9 17 
Tubingen (D) 4.9 18 
Berkshire, Buckinghamshire, Oxfordshire (UK) 5.2 19 
Oberôsterreich (A) 5.2 20 
Koblenz (D) 5.4 21 
Trier (D) 5.4 22 
Unterfranken (D) 5.5 23 
Oberpfalz(D) 5.5 ' 24 
West-Vlaanderen (B) 5.5 25 
Lowest 25 4.6 
135 
Tables 
Table 2.8 
Disparities in unemployment rates by region within Member States, 1983-95 
(standard deviation) 
1985 1986 1987 1988 
B 
D<"> 
GR 
E 
F 
I 
NL 
P 
UK 
A(b) 
FIN<b> 
s(b) 
EUR12 
EUR15 (by region) 
EUR15 (by Member State) 1983 
0.5 
1.7 
0.7 
3.9 
1.6 
2.8 
3.5 
1.4 
4.2 
4.2 
3.1 1984 
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 1989 
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 1990 
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 1991 
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 1992 
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 1993 
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 1994 
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 1995 
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 
(a) West Germany only 
(b) National data for the years 1983-91 
Table 2.9 
Civilian employment by sector, 1983 and 1993 
Ireland 
1983 
1993 
Spain{a) 
1983 
1993 
Portugal(a) 
1983 
1993 
Greece 
1983 
1993 
EUR 5 benchmark(b) 
1983 
1993 agriculture (%) 
17.5 
13.1 
16.2 
10.2 
21.5 
11.6 
30.0 
21.3 
5.4 
3.6 industry (%) 
30.6 
27.1 
31.8 
30.8 
33.9 
32.9 
27.1 
24.2 
36.3 
31.8 services (%) 
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 
1983 
65.4 
95.0 
76.4 
54.5 
94.4 
66.1 
69.7 
93.5 
64.7 
50.4 
95.1 
70.8 
EUR 4 benchmark(b) 
15-24 54.0 
25-54 95.3 
55-64 55.8 Ireland 
15-24 
25-54 
55-64 
Spain w 
15-24 
25-54 
55-64 
Portugal *a) 
15-24 
25-54 
55-64 
Greece 
15-24 
25-54 
55-64 Participation 
(% population 
1993 Men 
Employment 
in each age group) 
1983 1993 
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 Women 
Participation Employment 
(% population in each age group) 
1983 1993 1983 1993 
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 (%) 
GR 
IRL 
P 
E 
I . 
L 
F 
FIN 
UK 
D 
A 
B 
DK 
S 
NL Overall coverage 
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 Least developed regions 
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 Other problem regions 
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) 
F 
D 
I 
P 
E 
S 
UK Before transfers 
11] 
0.12 
0.15 
0.13 
0.15 
0.11 
0.05 
0.07 
Average reduction in inequality(a) 
Reduction in inequality in 7 countries as a whole: 
in GDP (ECU) 0.19 
in GDP (PPS) 0.14 After transfers 
[2] 
0.11 
0.12 
0.10 
0.13 
0.07 
0.04 
0.04 
0.17 
0.12 Equalisation effect (%) 
[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 
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) Transfers 
% regional GDP ECU per head 
-2 
17 
8 
-3 
9 
4* 
1 
-3 
9 
-7 
3 
5 -187 
1807 
932 
-379 
1176 
552 
75 
-358 
1272 
-1025 
395 
869 GDP 
ECU per head 
10207 
10637 
11734 
11776 
12433 
12507 
12722 
14140 
14500 
15450 
15621 
15842 Net GDP 
ECU per head * 
10020 
12444 
12666 
11397 
13609 
13059 
12797 
13782 
15772 
14425 
16016 
16711 
See the notes to table 3.2 
'GDP plus net transfers (Column 2) 
138 
Tables 
4„1 Flows generated by the CAP (market 
policies), 1991 
ECU per head 
200 r 
50 V • Direct payment 
• Net trade transfer 
I O 200 
150 
B/L DK IRL 4 >% Flows generated, by the CAP (market 
policies), 1994 
ECU per head 
-100 • Direct payment 
• Net trade transfer 
BO. DK GR IRL I NL 
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. 
Table 4.8 
Trans-European Transport Networks - expenditure by main mode 
TGV 
Roads 
Combined transport 
Rail 
Air 
Ports 
TOTAL (a) Total spending 
of which: 
EUR 4 
(%)• 
11 
67 
9 
61 
15 
68 
35 (ECU mn) 
24489 
26473 
3751 
5968 
8577 
1272 
76617 EIB loans 
of which: 
EUR 4 
(ECU mn) 
3574 
6551 
38 
1041 
1284 
234 
13485 (%) 
22 
63 
86 
24 
14 
58 
40 Structural Funds 
of which: 
EUR 4 
(%) 
100 
96 
100 
100 
100 
100 
98 (ECU mn) 
11 
3309 
23 
1608 
303 
104 
5373 (ECU mn) 
164 
78 
102 
51 
0 
3 
445 TENs 
of which: 
EUR 4 
(%) 
4 
87 
27 
31 
0 
3 
27 
(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 
Paris 5% 
Frankfurt 11 % 
Brussels 26% 
Amsterdam 19% Major Cities - Periphery 
Madrid 20% 
Barcelona 20% 
Lisbon 16% 
Athens 26% Medium Cities - Core 
Liege 61% 
Utrecht 
Lille 
Odense 35% 
29% 
61% Medium Cities - Periphery 
Cuenca 10% 
Umea 11% 
Alexancrcpoulous 11% 
Mede 5% 
139 
4.2. EAGGF Guarantee and Guidance expenditure, by Member States 
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 1 
EAGGF Guarantee expenditure (1) 
1990 
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_ 1991 
3 
1468.5 
1220.3 
5234.5 
2211.2 
3314.3 
6394.4 
1731,1 
5353.4 
2.8 
2679.3 
315,6 
2391,3 
69.2 
32385,9 1992 
4 
1378,2 
1166.8 
4830.5 
2231.4 
3578.1 
6916.5 
1452,8 
5141.5 
1,1 
2389.8 
423,8 
2451,1 
145,9 
32107,5 1993 
5 
1298,7 
1334.7 
4976.2 
2715.0 
4175.7 
8184,8 
1649,9 
4765,4 
7,3 
2328,1 
478J 
2737,9 
96,4 
34748,2 1994 
I 
6 
. 
1170,4 
1278,4 
5179,9 
2718,9 
4408,3 
8001,2 
1480,0 
3460,6 
12,1 
1916,0, 
708.4 
2939,0 
139.0 
33412,2 
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 
Tables 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EUR 12 
EUR 4 
EUR 8 1985 Table 4.11 
Output and employment 
in the energy sector, 1985 and 1992 
% total GDP 
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 1985 
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 % total employment 
1992 
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) 
B 
DK 
D 
GR 
E 
IRL 
I 
P 
UK 
TOTAL 
EUR 4 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 
107.2 
107.2 
107.2 SF 
178.5 
160.2 
116.0 
86.8 
222.0 
763.5 
676.8 Other EU 
83.0 
102.0 
185.0 
140 
Tables 
Table 4.13 
Expenditure on environmental protection in the Community, 1992 ^ 
B/L 
DK 
D 
F 
I 
NL 
UK 
GR 
E 
IRL 
P 
Total Total 
ECUbn 
1.2 
1.2 
20.5 
12.9 
6.8 
3.5 
12.4 
0.3 
3.9 
0.3 
0.3 
63.3 Division per medium (%) 
Waste Air Waterw Noise(c) Nature 
• protection 
40 17 30 5 8 
33 10 53 1 3 
24 23 50 2 1 
34 8 54 2 2 
47 4 47 1 1 
33 13 43 4 7 
35 12 46 3 4 
22 2 72 1 3 
35 2 46 1 16 
52 11 33 3 1 
30 4 52 1 13 
33 13 49 2 3 Environmental expenditure 
% GNP 
0.7 
1.1 
1.5 
1.3 
0.7 
1.4 
1.5 
0.5 
0.8 
0.7 
0.5 
1.2 ECU 
per head 
120 
225 
255 
226 
119 
232 
214 
29 
100 
73 
34 
183 Environmental 
Investment^ 
% total 
investment 
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 
10900 EUR 4 
10600 
4600 
800 
311 
700 
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) 
INT 
-0.1 
2.6 
0.7 
12.4 
-0.4 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 -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 
Agriculture 
Structural action of which: 
Cohesion Fund 
Structural Funds 
Internal policies 
External action 
Other 
Total commitments 1988 
ECUbn 
(1988 prices) 
27.5 
8.9 
8.9 
2.2 
6.7 
45.3 60.7 
19.6 
19.6 
4.8 
14.8 
100 1993 
ECUbn 
(1992 prices) 
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 
Tables 
Table 5.2a - 5.2b 
Scale of structural intervention (including Cohesion Fund and Community Initiatives), 
1989-93 and 1994-99 
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 1989-1993 (annual average) 
Total 
357 
157 
6151 
3091 
6201 
3408 
2212 
5232 
25 
419 
3789 
2469 
33511 
Total 
1050 
426 
13852 
5793 
13703 
6940 
2180 
9581 
56 
1256 
5300 
' 4781 
64916 
1438 
1077 
848 
68279 ECU mn EU intervention 
173 
86 
1680 
1834 
3017 
1387 
980 
2374 
15 
163 
1892 
1066 
14666 Total 
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 
1994-1999 (annual average) 
ECUmn EU intervention 
349 
140 
3622 
2956 
7066 
2491 
1234 
3608 
17 
436 
2940 
2164 
27024 
316 
331 
261 
27932 Total 
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 % GDP (a) EU intervention 
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 
% GDP(b) EU intervention 
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 
(a) verageGDP, 1989-93 
GDP in 1994 
143 
Tables 
Table 5.3a - 5.3b 
Breakdown of Structural Funds by objective, 1989-93 and 1994-99 
1989-93 (ECU mn) 
Obj.1 Obj.2 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EUR 12 
% 2955 
7528 
10171 
957 
.4460 
8504 
8450 
793 
43818 
69.6 214 
25 
581 
1506 
1225 
387 
12 
165 
2015 
6130 
9.7 Obj.3 
&4 
344 
171 
1054 
837 
1442 
903 
11 
405 
1502 
6669 
10.6 Ob]. 5a 
agric. 
134 
91 
878 
229 
1274 
493 
29 
79 
316 
3523 
5.6 Ob]. 5a 
fish. 
15 
94 
36 
92 
135 
106 
43 
58 
579 
0.9 Ob). 5b Total 
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 CI/ 
124 
28 
416 
712 
1129 
566 
295 
667 
22 
89 
724 
513 
5285 
1994-99 (ECU mn at 1994 prices) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
A 
SF 
S 
EUR 15 
% Ob]. 1 
730 
13640 
13980 
26300 
2190 
5620 
14860 
150 
13980 
2360 
162 
93972 
68.0 Ob]. 2 Obj.3 Ob].4 Ob].5a Ob].5a 
agric. fish. 
341 396 69 170 25 
119 263 38 127 140 
1566 1681 260 1070 75 Ob]. 5b Ob]. 6 Total 
2415 
3769 
1462 
15 
650 
4580 
99 
179 
157 
15352 
11.1 1474 
2562 
1316 
21 
923 
3377 
329 
254 
342 
12938 
9.4 369 
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 77 
54 
1227 
664 
2236 
901 
6 
150 
817 
403 
190 
135 
6860 
5.0 450 
247 
697 
0.5 1808 
741 
19519 
13980 
31668 
13334 
5620 
19752 
83 
2194 
13980 
11409 
1432 
1503 
1178 
138201 
100 C.I.* 
288 
102 
2211 
1154 
2781 
1605 
484 
1897 
19 
422 
1061 
1573 
144 
151 
126 
14018 
' 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 . 1989-99 
Individual loans and credits extended on Amount % total % regional 
global current loans (ECU mn) activity development 
Total EIB activity in Member States 70,008 100 
Regional development 47,128 67 100 
Objective 1 regions 25,046 36 53 
Objectives 2,5b and 6 regions 16,916 24 36 
Other regions in receipt of Community 1,5000 2 3 
assistance 
Other regions in receipt of national aid 1,306 2 3 
Projects covering several regions 2,360 3 5 
Regions eligible under Structural Funds 41,962 10 
- of which: individual loans in receipt of 10,669 25 
Community subvention 1994 
Amount 
(ECU mn) 
16,605 
12,035 
5,748 
4,875 
60 
1,352 
10,623 
3,246 1995 
Amount 
(ECU mn) 
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 Total Agriculture, Total 
Environment infrastruct. industry, 
Objective 1 
ECUmn 5598 5176 1498 4859 
% 22 21 6 19 
Objectives 2+5b 
ECUmn 5016 1423 2411 1276 
% .30 8 14 8 
Total Obj. 1+2+5b 10614 6599 3909 6135 
% total Objectives 25 16 9 15 
Total regional 12677 7466 4473 6339 
development 
% total reg. devel. 27 16 9 13 
Obj. 1+2+5b, % 84 88 87 97 
regional development 
Total activity 17809 .8935 7830 12018 
Objective 1 
ECUmn 4307 1901 900 2320 
% 37 9 8 20 
Objectives 2+5b+6 
ECUmn 3949 297 1040 1614 
% 38 3 10 16 
Total Obj. 1+2+5b+6 8256 1388 1940 3935 
% total Objectives 38 6 9 18 
Total regional 8595 2810 1995 4113 
development 
% total reg. devel. 36 12 8 17 
Obj. 1+2+5b,% 96 49 97 96 
regional development 
Total activity 12079 3040 3668 6467 1989-93 
1169 18300 
5 73 
542 
3 
1712 
4 
1816 
4 
94 
2123 10669 
63 
28969 
69 
32771 
70 
48715 
1994 and 1995 
549 
5 
240 
2 
789 
4 
789 
3 
100 
941 9167 
79 
7140 
69 
16307 
74 
18302 
76 
89 
26195 services 
6745 
27 
6246 
37 
12991 
31 
14359 
30 
90 
21293 
2461 
21 
3184 
31 
5645 
26 
5877 
24 
96 
8192 25045 
100 
16916 
100 
41960 
100 
47130 
100 
89 
70008 
11269 
100 
10324 
100 
21953 
100 
24178 
100 
91 
34387 of which: 
credits on 
global 
loans 
3757 
15 
4171 
25 
7928 
19 
9320 
20 
85 
14490 
1044 
9 
2061 
20 
3104 
14 
4645 
19 
67 
7098 
145 
Tables 
Table 5.5 
Breakdown of Cohesion Fund, 1993 and 1994-99 
Spain 
Portugal 
Greece 
Ireland 
Total(a) 
Spain 
Portugal 
Greece 
Ireland 
Total(8) Actual commitments for 1993 (ECU mn at current prices) 
Transport Environment 
ECUmn % ECUmn % 
606 71.0 • 252 29.0 
161 57.0 123 43.0 
105 38.0 175 62.0 
86 61.0 56 39.0 
958 61.0 606 39.0 
Estimates for 1994-99 as in CSF (ECU mn at 1994 prices) 
3983 50.1 3967 49.9 
1380 53.0 1221 47 0 
1235 47.5 1367 52.5 
665 51.1 636 48.9 
7262 50.2 7192 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 (%) 
B 
D 
GR 
E 
F 
IRL 
I 
NL 
P 
UK 
O 
Average 
EUR 4 average Infrastructure 
22.5 
40.9 
54.0 
39.4 
27.7 
38.7 
29.2 
29.5 
35.2 
38.0 1989-1993 
Human 
resources 
26.5 
25.6 
24.2 
28.7 
38.0 
21.6 
26.1 
46.0 
29.6 
28.5 Productive 
environment 
48.5 
34.7 
21.5 
31.1 
33.4 
39.3 
37.7 
22.5 
33.6 
31.8 Infrastructure 
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 1994-1999 
Human 
resources 
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 Productive 
environment 
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 
Tables 
Table 5.6a 
Income and unemployment trends in assisted regions, 1983-93 
GDP per head 
(PPS, EUR12 = 100) 
Unemployment rate 
(% labour force) 1983 
1989 
1993 
1983 
1989 
1993 Regional data by Objective 
1 2 5b 
64l6 98.0 86.0 
65.4 96.3 84.4 
67.2 92.1 85.3 
12.4 12.5 7.7 
14.5 11.0 6.5 
16.2 12.2 6.9 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 (%) 
B 
DK 
D 
E 
F 
I 
L 
NL 
UK 
O 
SF 
S 
Average *b' Physical 
regeneration & 
environment 
23.9 
37.8 
67.7 
37.0 
42.4 
85.2 
16.9 
13.4 
36.0 1989-1993 
Human 
resources 
19.1 
60.0 
5.8 
2.6 
19.3 
17.9 
4.3 
43.6 
19.0 
21.3 Productive 
environment 
56.2 
34.5 
54.5 
29.4 
43.1 
38.3 
7.8 
37.1 
67.5 
40.9 (•) Physical 
regeneration and 
environment 
16.9 
25.1 
18.9 
23.5 
19.6 
57.2 
15.4 
15.8 
10.3 
15.8 
18.2 1994-1999 
Human 
resources 
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 Productive 
environment(a) 
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 (%) 
B 
DK 
D 
E 
F 
I 
L 
NL 
UK 
O 
SF 
S 
Average *a) Infra­
structure 
9.1 
28.2 
9.0 
39.6 
17.0 
18.9 
17.9 
6.7 
33.9 
20.0 1989-1993 
Environment Human 
11.9 
27.9 
16.9 
13.3 
9.3 
19.8 
9.8 
12.1 resources 
24.0 
30.0 
17.4 
14.8 
20.3 
14.2 
10.7 
26.8 
21.3 
20.0 Productive 
environment 
54.9 
41.8 
44.5 
28.7 
47.6 
55.9 
71.4 
45.4 
35.0 
47.2 Infra­
structure 
3.8 
11.9 
10.3 
9.2 
0.8 
34.4 
0.7 
8.4 
4.0 
7.1 
8.4 • 1994-1999 
Environment Human 
8.3 
16.9 
10.2 
10.9 
10.5 
8.2 
23.8 
7.8 
7.8 
8.1 
10.3 resources 
16.6 
19.6 
17.9 
13.4 
12.8 
13.4 
12.8 
11.4 
16.1 
16.9 
16.6 
15.3 Productive 
environment 
69.9 
78.3 
51.5 
66.1 
65.1 
74.0 
41.0 
62.8 
66.5 
69.9 
66.6 
64.7 
(a) Technical assistance, representing an average of 1.5% of total funding, not included 
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 
% 
25.4 
27.6 
182.2 
26.1 Productive 
environment 
% 
66.7 
63.5 
456.9 
65.6 Other 
% 
1.9 
4.9 
21.1 
3.0 Total 
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 
B 
DK 
D 
E 
F 
I 
L 
NL 
UK 
0 
SF 
s 
Tota! (%) 
Total (ECU mn) 1989-93 
Obj. 3 & 4 
% 
5.2 
2.6 
15.8 
12.5 
21.6 
13.5 
0.2 
6.1 
22.5 
100.0 
6670 1994-96/99 
Ob]. 3 
% total 
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 of which (% expenditure in Member States): 
LTU Y.P. E.P. E.O. 
33.6 21.5 31.3 6.8 
54.8 20.9 22.1 0.0 
56.6 26.3 4.6 9.5 
33.8 49.2 12.7 4.2 
27.5 38.5 27.9 0.7 
32.1 43.0 10.0 8.0 
28.6 14.3 47.6 4.8 
52.0 13.0 30.0 0.0 
37.4 31.6 23.9 6.0 
34.0 7.0 32.6 18.2 
42.4 31.8 23.9 0.0 
27.9 50.0 18.2 0.0 
38.1 33.7 19.7 4.7 
4220 3733 2182 523 Ob 
% total 
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 .4 
of which: 
A.W. 
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 
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 
149 
Tables 
Table 5.11a-5.11b 
Population assisted and allocation per head by Objective, 1989-93 and 1994-99 
1989-93 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EUR 12 Objective 1 
% national allocation 
population (ECU/head) 
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 Objective 2 
% national allocation 
population 
22.1 
4.9 
12.4 
22.2 
18.3 
6.6 
38.0 
9-9 
35.5 
16.8 (ECU/head) 
19.0 
20.0 
16.0 
35.0 
25.0 
21.0 
16.0 
22.0 
20.0 
20.6 Objective 5b . 
% national allocation 
population 
2.7 
2.1 
7.4 
2.5 
9.7 
5.0 
0.8 
3.0 
2.6 
5.0 (ECU/head) 
26.0 
39.0 
23.0 
53.0 
34.0 
25.0 
187.0 
15.0 
16.0 
29.6 
1994-99 
Objective 1 Objective 2 Objective 5b Objective 6 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
O 
SF 
S 
EUR 15 % national 
population 
12.8 
20.6 
100.0 
59.7 
4.4 
100.0 
36.7 
. 1.5 
100.0 
5.9 
3.7 
26.6 allocation 
(ECU/head) 
95.0 
145.0 
225.0 
188.0 
143.0 
262.0 
117.0 
115.0 
235.0 
115.2 
120.0 
169.5 % national 
population 
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 allocation 
(ECU/head) 
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 % national 
population 
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 allocation 
(ECU/head) 
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 % national 
population allocation 
(ECU/head) 
16.7 
5.3 
0.4 107.0 
110.0 
108.5 
150 
Tables 
Table 5.12 
Allocations on Community Initiatives, 1989-93 
ENVIREG PRISMA 
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 INTERREG 
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 REGEN 
89.9 
118.4 
2.0 
82.2 
292.5 RECHAR 
27.6 
87.6 
25.3 
52.4 
3.4 
184.2 
380.4 RESIDER 
18.6 
93.2 
52.4 
58.8 
23.0 
8.7 
5.0 
4.7 
264.4 RENAVAL 
6.5 
12.4 
37.3 
18.2 
65.3 
20.5 
27.6 
24.0 
87.3 
299.1 REGIS 
78.4 
49.6 
53.4 
181.4 STRIDE 
4.5 
2.2 
4.3 
59.3 
155.9 
16.4 
13.1 
94.9 
2.1 
4.6 
54.1 
30.2 
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) 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L ' 
NL 
P 
UK 
Network 
EUR 12 
O 
SF 
S 
EUR 3 
EUR 15 INTERREG & 
REGEN 
Floods and 
drought 
non Obj. 1/6 
Obj. 1 
46 
22 
159 
36 
211 
93 
4 
185 51 
287 
620 
643 
53 
162 
287 LEADER 
non Obj. 1/6 
Obj. 1 
6 4 
10 
113 REGIS 
non Obj. 1/6 
Obj. 1 EMPLOI ADAPT RECHAR RESIDER 
non Obj. 1/6 non Obj. 1/6 
52 
808 
37 
18 
31 
86 
895 348 
69 
2520 
12 
30 
15 
57 
2577 71 
219 
121 
1 
9 
52 
12 
613 
24 
16 
12 
52 
665 91 
161 
326 
6 
82 
201 
3 
128 
25 
22 
1048 
3 
12 
4 
18 
1066 214 
262 
124 
600 
600 Obj. 1 
29 
14 
121 
108 
181 
116 
60 
164 
794 
26 
26 
22 
74 
868 16 
76 
69 
333 
7 
87 
277 
45 
25 
934 
6 
2 
8 
942 Obj. 1 
30 
31 
178 
106 
266 
124 
68 
303 
1107 
12 
19 
12 
43 
1150 73 
33 
181 
7 
27 
91 
1 
21 
7 
449 
1 
4 
1 
6 
455 non 
Obj. 1 
16 
83 
6 
27 Obj. 1/6 non 
Obj.1 
1 
96 
3 
28 
8 
178 
311 
2 
2 
313 2 
1 
140 
140 17 
150 
38 
63 
60 
13 
23 
49 
414 
5 
5 
419 Obj. 1/6 
11 
55 
6 
35 
3 
31 
149 
149 
Part of the commitments on Community Initiatives allocated at 1995 prices have been converted into 1994 prices for comparison 
151 
Tables 
Table 5.12 
Allocations on Community Initiatives, 1989-93 
B 
DK 
D 
GR 
E 
F<" 
IRL 
I 
L • 
NL 
P 
UK 
Total TELEMATIQUE 
41.3 
75.5 
1.7 
11.0 
64.7 
35.6 
5.4 
235.2 LEADER 
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 EUROFORM 
7.5 
3.0 
21.5 
24.1 
65.7 
41.0 
14.3 
55.2 
9.3 
33.1 
39.3 
313.8 NOW 
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 HORIZON 
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 RETEX 
1.9 
10.8 
17.4 
4.0 
2.0 
12.1 
30.0 
8.2 
86.4 KONVER 
0.9 
0.8 
37.5 
5.0 
7.6 
32.4 
0.2 
17.9 
3.6 
1-8 
20.1 
127.8 TOTAL 
124.0 
28.0 
415.9 
711.5 
1128.9 
566.0 
294.7 
667.4 
22.1 
88.9 
724.4 
512.8 
5284.7 
(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 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
Network 
EUR 12 
O 
SF 
S 
EUR 3 
EUR 15 Obj. 1 
2 
15 
42 
37 
39 
29 
165 
3 
3 
168 59 
77 
62 
9 
35 
172 
11 Obj. 1 
13 
2 
130 
11 
85 
51 
27 
125 1 
202 
22 
12 
12 
14 
14 
428 445 276 
3 
3 • 
428 449 276 Obj. 1 
3 
3 
34 
25 
49 
30 
53 
5 
209 
8 
6 
13 
27 
236 152 
82 
223 
9 
28 
158 
2 
122 
14 
20 
819 
1 
5 
4 
9 
829 Obj. 1 
6 
2 
31 
51 
71 
28 
1 
22 
84 
295 
13 
5 
18 
313 13 
82 
50 
186 
8 
20 
105 
49 
38 
552 
4 
556 Obj. 1 
2 
19 
10 
12 
33 
18 
11 
36 
3 
144 
3 
4 
7 
151 non Obj. 1/6 
Obj. 1 
13 
30 
33 
8 
19 
2 
29 
7 
3 
143 
1 
143 59 
236 
295 
295 172 
102 
1026 
506 
1242 
681 
19 
414 
1126 
20 
5306 
129 
88 
102 
319 
5625 116 
1186 
1154 
2275 
363 
484 
1217 
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). 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. 
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-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 
The calculation of transfers associated with the CAP 
was undertaken by external experts. It involves a Measures of disparity 
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 
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). 
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. 
Graphs 
1 Commission services 
2 Eurostat, calculations DGXVI 
3 Eurostat 
4-13 Eurostat, calculations DGXVI 
14-15 Eurostat, Community Labour Force Survey 
16-17 OECD 18 Eurostat, Community Labour Force Survey 
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 
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 
3.1 DG IV 
3.2 EPRC, OEIL 
3.3 EPRC, OEIL 
4.1/4.2 College of Europe 
4.8 College of Europe 
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 

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COM(96) 542 final 
DOCUMENTS 
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ISBN 92-78-11391-3 
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