Opinion of the Economic and Social Committee on the 'First cohesion report` (97/C 206/16)

On 23 April 1997 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the 'First cohesion report`.

The Section for Regional Development and Town and Country Planning, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 11 April 1997. The rapporteur was Mr Cal.

At its 345th plenary session (meeting of 23 April 1997), the Economic and Social Committee adopted the following opinion by 117 votes, with 4 dissenting votes and 8 abstentions.

1. Preliminary comments

1.1. The Commission submitted its First Cohesion Report at the beginning of November 1996. Under the terms of Treaty Article 130b, the report is to analyse 'the progress made towards achieving economic and social cohesion and ... the manner in which the various means provided for in this Article have contributed to it`. According to the article, such means include not only the Structural Funds, the European Investment Bank and the other existing financial instruments, but also the coordination of Member States' economic policies, the formulation and implementation of the Community's policies and actions and the implementation of the internal market. The preceding article of the Treaty defines the strengthening of economic and social cohesion as 'reducing disparities between the levels of development of the various regions and the backwardness of the least-favoured regions, including rural areas`. Articles 2 and 3 of the Treaty include economic and social cohesion among the objectives and activities of the Community.

1.2. This is the first time that the contributions of EU and national policies to economic and social cohesion have been examined jointly, and that the impact of non-structural policies (designed for other objectives) on regions and social groups has been assessed. The Committee is pleased that the Commission has now fulfilled this obligation. In its February 1992 own-initiative opinion on economic and social cohesion (CES 226/92, rapporteur: Mr Masucci), the Committee called for the type of approach now taken in the Commission report.

1.3. Economic and social cohesion is an important concept. It provides a basis for defining the priority regions for EU structural policies, and offers a yardstick for assessing the progress made.

1.4. The EU regional support mechanisms that have been developed since their inception in 1975 are based upon two principles. The first is that the process of European economic integration typically is characterized by uneven spatial development. The second is that achieving a greater measure of economic and social cohesion across the EU is a key element in forging an 'ever closer Union among the peoples of Europe`.

1.5. The process of economic integration continues to transform the economy of the European Union. The completion of the internal market as a consequence of the 1992 project, along with successive enlargements to the Union, have created new opportunities for producers to exploit the dynamic benefits that have long been recognized as accompanying international economic integration. Equally, however, it is also recognized that these opportunities are unlikely to be evenly distributed. There are many possible explanations for this, such as proximity to market centre, availability of services, productivity of the labour force and incidence of RTD.

1.6. Integration may benefit one region more than another, giving rise to the phenomenon of uneven economic development whereby the initial 'winners` continue to enjoy the greatest benefits from integration, with the 'losers` progressively falling further behind. The outcome is that regional economic disparities across the area as a whole may become more pronounced.

1.7. At the same time, of course, there are countervailing pressures. We do see significant economic success - poles of economic growth - in specific locations in otherwise disadvantaged regions. Investment often does flow from 'core` to 'periphery` creating important economic opportunities in the periphery. However, once again it seems to be the case that the investment that does occur outside of core regions tends to be highly concentrated in specific locations and not evenly spread throughout the region as a whole.

1.8. It is this connection between the opportunities that arise from economic integration on the one hand, and the unevenness in the distribution of the benefits on the other hand, that provides a central rationale for the operation of the Structural Funds. In short, these funds represent a facility for ensuring that those who gain most from integration are able to assist the economic development of countries and regions that gain least, but which nonetheless have contributed to the overall gains from integration. Viewed in this way one should regard the Structural Funds as a justifiable mechanism for promoting the balanced and efficient economic development of the area as a whole.

Policies to secure greater cohesion are a shared responsibility of the European Union, Member State governments, regional and provincial authorities. Within the European Union there is a compelling need to ensure that policies developed in different settings, within the discretion reflected in the framework of devolved decision making and the application of the principles of subsidiarity, are coordinated and consistent one with another.

1.9. The Structural Funds represent a mechanism for giving expression to the solidarity between the citizens of the Union. Community intervention has a purpose if it serves to complement national and/or interregional solidarity in cases where such solidarity is not enough to overcome problems. The principle of 'economic and social cohesion` that was set out in the single European act constitutes a clear objective with regard to the long term political aspirations of the European Union. It is difficult to conceive of a successful Union in which excessively wide differences prevail in standards of living and employment opportunities. The Structural Funds are designed to help to improve opportunities in regions that suffer economic disadvantage. By so doing they play a crucial part in maintaining the momentum for closer integration across the European Union.

1.10. The Funds are only as effective as the policies which they support. The critical value of the First Cohesion Report is that it places the Funds in the context of a wider range of EU policies.

Consequently, in the forthcoming debate about the future shape of the Structural Funds, proper regard must be given to the purpose that the Funds are intended to serve as well as to means whereby their effectiveness can be enhanced.

1.11. Resources to support cohesion policies must be directed in ways which facilitate the self-sustaining generation of more employment and higher incomes in the less prosperous regions. Transfers, whether from the Union or within Member States, do not equate to permanent subsidies. The objective is, whether by improved productivity, adoption of innovations, enhanced labour skills, or infrastructural improvements, to support viable enterprises which generate higher value added. Any lesser objective would be an unacceptable constraint.

2. Comments on the chapters of the report

2.1. The overall results achieved

2.1.1. The report concludes that cohesion has improved over the reference period (1983-1993), as the per capita GDP in purchasing power standards (PPS) of the four countries eligible for the cohesion fund has drawn nearer to the Community average.

However, when measured for the regions of the Union, the disparities have remained largely unchanged.

2.1.2. GDP per head is the most commonly used indicator for measuring cohesion and is the principal criterion for defining lagging regions (regions in which this indicator is less than 75 % of the Community average).

2.1.3. However, the overall results now presented must be viewed with some caution, as various factors have altered the pattern during the reference period. Firstly, German unification immediately brought down the Community average and pushed up the figures for the cohesion countries by between one and two percentage points from 1991 (and also those of other regions); the average was also altered by the accession of three new Member States in 1995. Also, since 1990, Eurostat's use of PPS estimates has meant that the indices reflect not only per capita production growth but also variations in the terms of trade and, to a lesser degree, in exchange rates.

2.1.4. The upshot is that the official indices for Portugal, Ireland and Greece have risen in the 1990s by more than the differences in real per capita economic growth between these countries and the Community average. These indices are extremely important, both for determining regions' eligibility and the distribution of Community funds, and for the overall presentation of the results of cohesion policy. The Commission should therefore improve its methodology with a view to examining the future Objective I regions, so as to take account of the various components that explain the variation in per capita GDP-PPS indices (real production trends, price trends, in part influenced by monetary fluctuations and distortions introduced by the formulae used for calculation and 'regionalization` of economic activities - for example, attributing oil or gas production to regions, or attributing the whole of a company's activity to the place where its head office is located).

2.1.5. Progress towards the EU average in the countries eligible for the cohesion fund is influenced by the progress made in these countries' capital-city regions. This trend is more encouraging than the progress made in narrowing the gap between the most and least developed regions of the EU. The report confirms that disparities between the latter did not diminish: although the 25 poorest regions progressed from 53 to 55 % of the EU average, the 25 richest regions rose from 140 to 142 %.

2.1.6. Hence it cannot be argued that, because the disparities in income between Member States, and particularly in the countries eligible for the Cohesion Fund, have narrowed during periods of stronger economic growth, there has been significant progress towards greater cohesion. The figures used underwent major methodological changes, the comparative base was altered, and the conceptual framework is unsatisfactory if treated simplistically.

2.1.7. The Committee, in addition to its concerns about the methods of assessment used and the impact of capital-city regions, also takes particular note of the explanation of the components of geographical disparities which has been outlined by the Commission. The differences in economic activity rates for the adult population and the differences in GDP per person employed also contain policy implications for the future of the cohesion objectives at Community and national level.

2.2. Member State policies

2.2.1. In considering the impact of national macroeconomic policies, the report focuses on the consequences of satisfying the nominal convergence criteria, which seek to establish stability and a climate that is conducive to investment as the key to future economic growth and employment. There is no mention of the impact which EMU and restrictive budgetary policies might have on cohesion, or the impact of relations between the countries that are 'in` and those that are 'pre-in`. Some time ago, the European Parliament with the support of the ESC called for a study of the impact of EMU on cohesion, but the Commission has not yet produced one. Nor has any study been made of how the cohesion countries might be affected by Treaty enshrinement of the idea of 'strengthened cooperation`; it is not even clear in which areas such cooperation will occur. At all events this should not affect areas coming under the first pillar, such as the single market or economic and social cohesion policy.

2.2.2. Turning to the impact of Member States' public spending, the report notes that public expenditure accounts for a significant proportion (between 40 % and 60 %) of national GDP, and that the current Community budget (equal to 1,2 % of GDP, with 0,45 % of this estimated as going to structural policies) is too small to make a significant contribution to redressing the imbalances.

2.2.3. Public services (which represent between 20 and 30 % of Member States' GDP) have major redistributive effects as they support consumption by the lowest income groups who contribute the least to their funding, as a result of progressive or proportional taxation. Thanks to social transfers - which are a key feature of the European social model - the number of households living below the poverty line has fallen from 40 to 15 % of all households.

2.2.4. Spending on economic services (accounting for between 6 and 14 % of Member States' GDP) is designed to improve businesses' operating conditions by assisting them at regional level, with R& D and through employment and vocational training policy. The differing financial capacities of the Member States mean that national aid for regional development is higher (equal to 4 % of the GDP of donor regions and 8 % of that of recipient regions) in the more developed countries which have marked 'dualism` in their economies.

2.2.5. As a result of the redistribution operated by national budgets, the report notes that regional disparities in average personal incomes are 20-40 % lower than the disparities in regional per capita GDP. This is important for appreciating the difference between disposable incomes after transfers and the product per person in employment, which shows the true scale of regional development disparities.

2.2.6. In addition to the influence of national macro-economic policies on cohesion through the impact of the convergence criteria, some of the critical elements in re-enforcing cohesion lie within the domestic actions of Member States and the regional or provincial authorities. These actions, whether related to State aids, fiscal concessions, education and training, R& TD, environmental policies, social policies or infrastructural investment are relevant to an overall policy for improving cohesion.

2.3. The policies of the European Union

2.3.1. As the introduction to this chapter of the report notes, the common policies each have a specific set of objectives. They were not designed to achieve other objectives; however, when examining their results, we can and should see under what conditions they can further economic and social cohesion within the constraints of their own objectives.

2.3.2. Of the EU's sectoral policies, the CAP has involved the largest redistribution of income among European citizens. It is true that the farm prices policy (which accounts for around 50 % of the Community budget, or some 0,6 % of EU-15 GDP) transfers incomes from richer urban areas to rural areas. However, the support for high farm prices which characterized the former CAP acted as a regressive tax on consumers, as the lowest-income households spend a higher proportion of their income on food, and transfers to farmers tended to favour the larger farms. By linking aid to acreage instead of production, the 1992 reform appears to have alleviated this situation, under which an estimated 80 % of transfers had been going to 20 % of farms, namely the larger and generally more profitable ones. However, statistics are not yet available to confirm this.

2.3.3. As regards transfers between regions and/or Member States, the main recipients of EAGGF Guarantee payments in 1995 were France (almost 25 % of the total), Germany (16 %), Spain (13 %), Italy (10 %), the UK (9 %) and Greece (7 %).

2.3.4. The report devotes only a few paragraphs to fisheries policy. The impact of this policy on cohesion appears mixed: the report recognizes that most of the Community's fishermen are concentrated in Spain, Greece, Portugal and Southern Italy, but also states that excess capacity in the sector makes it necessary to reduce fishing effort, which will have an adverse impact on employment.

2.3.5. The single market programme and policies to promote competitiveness, such as the measures for guaranteeing free movement of capital, goods, services and persons, have been the subject of a number of studies leading to a specific Commission communication which is currently being scrutinized by the ESC's single market observatory. The report does not seem to take account of this work.

2.3.6. EU competition policy, as enshrined in the Treaty, recognizes two types of region that are eligible for regional aid from the Member States: the least developed areas or those facing serious unemployment problems [Article 92(3)(a)] and those with other problems (principally industrial decline) [Article 92(3)(c)]. Competition policy has not sought to strengthen geographical cohesion but rather to prevent or eliminate market distortions, the aim being to increase efficiency.

2.3.7. Virtually all Objective 1 regions are eligible under (a). However, in the case of Objective 2, 5b and 6 regions, the regions covered by the abovementioned articles of the Treaty do not fully correspond with those covered by the Structural Fund objectives.

2.3.8. Authorized levels of state aid to encourage investment vary according to the type of region. In practice, however, budgetary problems prevent the less developed regions from reaching the maximum authorized levels, while other countries are able to grant higher levels of regional aid, as noted in 2.3.6 above.

2.3.9. It is important that the criteria which determine eligibility for regional aid under the Structural Funds are consistent with national criteria and the present situation needs to be remedied. Firstly, the criteria used to demarcate regions and areas for regional policy purposes should be laid down at EU level. Secondly, those regions deemed to be eligible for Structural Fund assistance should be included in and made compatible with those proposed by the respective Member States for their own state regional aid. Thirdly, the areas assisted solely by the Member States should complement/extend the regions eligible for the Structural Funds: the Commission must strengthen its monitoring role in this field.

2.3.10. The Community's research and development (R& D) policy accounts for around 4 % of total public civilian R& D effort in the Member States (and around 0,05 % of Community GDP). The limitations of this policy are thus clear. The report confirms that more than half of Community R& D is conducted in 10 or so 'islands of innovation` - the 'Archipelago Europe` running from London to Milan - which also receive the lion's share of Community financing. The less developed regions lack the necessary infrastructure, laboratory equipment, and qualified engineers and scientists to attract high added-value, high-tech activities or to participate in innovation systems. When selecting R& D programmes, account should be taken of the research specializations of these regions, so as to make it easier for them to participate. More attention should also be paid to the interaction between Structural Funds and the Community R& D framework Programme and to the dissemination of results, with a view to strengthening the business fabric of the less developed regions.

2.3.11. SME policy must tackle the main obstacles to the development of small firms, such as lack of seed capital and skilled managers. Access to R& D and information systems is vital for small firms in the new economic context marked by market globalization and the generalized introduction of new technologies. The role of SME support organizations and the strengthening of horizontal and vertical cooperation between SMEs are extremely important for the application of SME support policy - a policy which the ESC has always backed.

2.3.12. As regards trade policy, the report acknowledges that customs protection is higher for products which come mainly from the lower income regions, and that the industries still subject to the highest level of customs protection account for around half of industrial employment in Portugal and Greece but less than a quarter in such countries as Denmark and Germany. In general, the countries eligible for the Cohesion Fund (with the possible exception of Ireland) and some other peripheral regions are more vulnerable to trade liberalization.

2.3.13. Trans-European networks (TENs) are designed to improve the coherence and efficiency of transport, telecommunications and energy supply, and thus help to make the EU economy as a whole more competitive. The present network liberalization and investment tend to benefit the central, more developed regions of the Community and, unless appropriate measures are taken, the regions with the largest markets will benefit disproportionately more than the least advantaged or most outlying regions. The development of local networks that link up with trans-European networks is in the Community's interest as the TENs could help to boost cohesion if they give priority to opening up outlying regions.

2.3.14. Under the heading of quality of life policies, the report considers social policy, environment policy, and education and vocational training.

2.3.14.1. The section on social policy is extremely short and confused, mixing the measures taken with the intentions announced. In social policy, which by definition seeks to promote cohesion, legislation has sought to guarantee free movement of workers (although in practice, it is acknowledged that labour mobility between Member States remains very low), equal treatment for men and women and adequate health and safety standards in the workplace (which has helped cohesion to the extent that the countries in which workers were least protected have improved their levels of protection).

2.3.14.2. The social protection provisions of the social action programme have been implemented on the basis of minimum levels which, almost always, have constituted the 'lowest common denominator` of existing national provisions, so their impact on cohesion has not been very great. The delays in approval of the rules on crossborder subcontracting have not helped to strengthen cohesion. The role of the social partners has been enhanced in the last few years, and is enshrined in the protocol appended to the Treaty; this could also have an impact at national level. The directive on worker information and consultation in multinationals has also helped social cohesion at EU level by improving access for workers in the most outlying regions. Yet the cohesion report overlooks these aspects.

2.3.14.3. It is too early to assess the results of the priority being accorded at EU level to employment, which has led to the Commission's proposal for an employment pact and, more recently, to the proposals to draw up territorial employment pacts. The European Social Fund can help to tackle the structural problems caused by the mismatch between workers' skills and those needed in the labour market. Whilst improving the skills of available workers does not, in itself, create more jobs, the prospect is that the availability of skilled workers will attract investment and hence increase employment. The European Social Fund cannot, however, carry more than a small proportion of the funding needs of an adequate training and education programme which focuses on the needs of particular regions. The allocations from the Social Fund are an opportunity for the Community to show support for the needs of particular areas and also provide the opportunity for the Commission to improve the cohesion with which funds from within Member States and from the Community are used.

2.3.14.4. Article 130r of the Treaty stipulates that environment policy must take account of cohesion. The report states that the underlying situation in the cohesion countries is generally more favourable because pollution is lower, in relation to both GDP and population, than in the more developed countries, but that efforts to promote faster economic growth and a convergence of productive capacity and income levels 'create inevitable risks for the environment`. However, the report also recognizes that it is difficult to assess the measures already taken, and that approval of the set of measures in preparation (energy/carbon tax, reduction of vehicle emissions, greater use of renewable energy sources, directives on nitrates, water and sewage) could lead to a drop in GDP and sharply increase agriculture and road transport costs. This was the argument used to justify the setting-up of the Cohesion Fund, and the reason why a major portion of its resources is used to prepare the cohesion countries for the challenges posed by environment policy, which are set to increase.

2.3.14.5. EU education and vocational training programmes are limited in scale (around 0,5 % of the Community budget) and their innovative nature makes them more accessible to young people in the most developed regions. Despite this, students from the cohesion countries are well represented.

2.3.14.6. Contrary to the conclusions of this chapter, the analyses do not confirm that the cohesion countries are the main beneficiaries of the CAP and R& D policy.

2.4. Community structural policies

2.4.1. The report begins by noting that the four Structural Funds and the Cohesion Fund account for around a third of the Community budget and nearly 0,5 % of Community GDP. These figures have been arrived at by using the projections made on the basis of the Edinburgh agreement which approved the Delors II package. However, the actual figures for 1995 show that structural expenditure represents 0,38 % of Community GDP. The sums scheduled for payments in the 1996 and 1997 budgets confirm that total structural expenditure for these two years stands at 0,38 % and 0,37 % of Community GDP respectively. Under the Financial Perspective approved in Edinburgh, commitment appropriations are to reach 0,46 % of Community GDP, so no substantial macro-economic effects can be expected for the EU economy as a whole. The impact on the cohesion countries is different because the sums transferred are significant in relation to the respective GDP and investment. This has increased the cohesion countries' economic growth by around 0,5 percentage points. Moreover, the Funds have boosted economic momentum and in some cases have triggered a significant increase in foreign direct investment in the cohesion countries, thus helping them to modernize.

2.4.2. The chief priority of the Community structural policies (Objective 1) is the development and structural adjustment of regions where development is lagging behind, including rural areas. About 26 % of the EU population lives in these regions. For the 1994-1999 programming period, the breakdown between the three main areas of Structural Fund assistance - infrastructure, human resources and productive investment - is expected to remain broadly even. The part allocated to infrastructure has fallen in recent years, while spending on the productive environment has risen.

2.4.3. Some 16 % of the EU population live in Objective 2 regions (regions facing industrial decline). Around 11 % of Structural Fund spending goes to Objective 2; of this, 45 % goes on the productive environment, 35 % on human resources, and the rest on the regeneration of businesses and industrial sites. The lower percentage of infrastructure expenditure is explained by the fact that these regions are generally better equipped than Objective 1 regions.

2.4.4. The Committee welcomed the introduction of Objective 4. It is important that Objective 4 measures continue to endeavour to anticipate the effects of economic change, strengthening a strategy to prevent unemployment and helping to improve vocational training systems. In its opinion on the future of cohesion and the long-term implications for the Structural Funds (adopted in February 1996, rapporteur: Mr van Dijk, point 5.3 vii), the Committee asked the Commission to produce 'a detailed appraisal of the effects of assistance under the new Objective 4`.

2.4.5. Objective 5b measures seek to help the regions facing particularly serious agricultural problems. The integrated rural development programmes under this objective should be considerably reinforced so as to accentuate the effects which the CAP reform was designed to achieve.

2.4.6. The Cohesion Fund came into operation only in 1993. It assists the four least developed Member States whose per capita GDP in purchasing power standards (PPS) is below 90 % of the Community average, and which have submitted a convergence programme. The Fund provides funding for transport infrastructure and environment projects. The project-based approach facilitates coordination with the EIB.

2.4.7. In its opinion on the future of cohesion, the Committee took the view that 'cohesion Member States ineligible to move to stage 3 of monetary union by 1 January 1999 ought to continue to receive assistance from a possibly adapted Cohesion Fund in order to help them fulfil the Maastricht criteria`. It also noted that countries which fulfilled the convergence criteria might continue to require financial support, and that this problem had to be solved too (see point 5.3, xii and xiii of the opinion).

2.4.8. The European Investment Bank has provided significant support for projects in eligible regions, focusing on loans for transport and telecommunications projects (42 % of the total), energy projects (15 %), and environment projects (13 %). The cohesion countries have made relatively little use of the EIB, which raises the question of the lack of coordination between Structural Fund and EIB support.

2.4.9. There are a number of reasons why it is not easy to assess the results of structural aid in the various eligible regions: the lack of basic data (e.g. macroeconomic data for regions outside the cohesion countries); the various possible assessment methods (input-output models and aggregate demand models); the difficulty of separating the effects of the structural policies from those of economic policies in general (as the report acknowledges when it states that the structural policies have helped to alleviate the impact of the recession); and the impossibility of judging what the situation would have been if the additional investment had not been made. All these factors should lead the Commission to be very cautious when presenting results.

2.4.10. The concentration of structural spending in regions with lower GDP or income levels has had a positive redistributive effect in terms of cohesion, as can be seen from the Lorenz curves, which are more marked in Objective 1 than in Objective 2 regions and more marked for the 1989-1993 period than for the 1994-1999 forecast.

2.4.11. Economic growth in the four countries eligible for the Cohesion Fund has also been positively influenced by Community transfers. The Commission's estimates suggest that GDP grew by an additional 0,5 percentage points per year during the period 1989-1993. This means that without Community transfers from the Structural Funds and the Cohesion Fund, these countries would have had an average growth rate of 1,7 % per year, instead of the 2,2 % which they actually had; in other words, their growth rate would have been below the EU average. For the period 1994-1999, it has been estimated that their growth rate could be 3,2 % instead of 2,6 %. Unfortunately, the Commission has not provided comparable estimates for the regions eligible only for the Structural Funds but not the Cohesion Fund.

2.4.12. Overall, the report also confirms that around a quarter of the sums transferred to the four cohesion countries returns to the other, more developed Member States in the form of supplies of equipment and 'know-how`. It is estimated that this percentage could rise to 35 % in 1999. The considerable improvement in living standards and consumption patterns in the cohesion countries has also boosted intra-EU trade, thereby increasing economic activity in the countries which are net contributors. The report does not consider that the net transfers received by the cohesion countries have increased less, or even fallen, because of the higher payments which these countries are making to the EU budget thanks to the improvement in their incomes and VAT payments.

2.4.13. With reference to the delivery system used for structural assistance, the report rightly mentions the administrative reorganization introduced by some Member States, and the spread of the programming approach and of ex-ante and ex-post evaluation which formerly was not standard administrative practice. In practice, however, the Commission is still reliant on the Member States for these evaluations, and the results now presented are based on ex-ante evaluations. It would be helpful if the Commission could adopt more effective evaluation methods and prepare the evaluation of the present programming period more satisfactorily. The Commission could use the methodology developed for the Cohesion report as a basis for the evaluation which it will make prior to the next programming period.

2.4.14. More generally, the report fails to address the criticism made by beneficiaries concerning the increase in red tape and the constant delays caused by the programming process and by the methods for deciding eligibility, as well as the responsibility of different funds for different forms of expenditure. Payments too are constantly delayed, partly because the project-approach has been replaced by the programme-approach. In this interim review of cohesion policies, the Commission should have taken the opportunity to propose ways of simplifying procedures and speeding up the decision process.

3. Outlook and conclusions

3.1. Neither in 1988 nor in 1993 did the reorganization of the number of the Structural Funds occur, even though this had been made necessary by the radical changes in the approach, principles, priorities and guidelines of structural policies. The retention of the three Structural Funds and the creation of the Financial Instrument for Fisheries Guidance and the Cohesion Fund, taken together with the amendments made to the regulations, complicated rather than simplified the process, and diluted responsibility for implementation. Despite efforts to make relations between the Member States and the Commission clearer and more transparent, there are still many grey areas and areas of potential conflict, for instance when determining the eligibility of expenditure on projects that have already been approved or when checking additionality or actual expenditure. The final beneficiaries are in an even worse position, as they find it difficult to find their way round the multitude of interposed or overlapping programmes without effective coordination at regional level. The case of Ireland, where the socio-economic partners and local authorities participate fully on the monitoring committees, shows that more effective implementation of the Structural Funds is possible. The Committee would also draw attention to the Swedish model for Objectives 3 and 4. Objective 3 projects must be approved both by the Objective 3 regional committee, on which the social partners and other economic interests are represented, and by the regional authority responsible for the employment market. A similar system applies for Objective 4. This 'double veto` model has proved able to provide soundly grounded decisions and has created conditions conducive to effective projects. In this connection the Committee would stress its view that vertical and horizontal partnership can be deepened further and made more effective through the greater involvement of local levels and the economic and social partners. It provides an essential link between Community structural assistance and the readiness of citizens to accept and make targeted use of this aid for concrete development work in the Community's regions. Technical assistance should be used more than in the past to support partnership and extend the expertise of the parties involved. The Committee reaffirms the Commission's view that the further development of partnership is of far-reaching important for the development of Union citizenship and of democracy and solidarity.

3.2. Matching the objectives, resources, activities and procedures of the structural policies and Structural Funds should be a central concern for the next programming period. EU regional policy is not merely a matter of redistributing income, and should not be decided by centralized planning that is remote from local and regional circumstances. Greater autonomy in the implementation of measures, inter alia with the participation of the socio-economic partners, should be conditional on the efficacy of the measures concerned, with the optimum use of Community resources being rewarded. The degree of financial decentralization of this policy is important. However, if the present procedures - which the Commission itself admits are 'overly complex` - are retained, efforts to decentralize will be doomed to failure. Current procedures need to be radically altered. The next reform of the Structural Funds should take a more radical approach than in the past. This is the only way to create the right framework conditions for simplifying procedures effectively and making the actions financed by the funds more transparent. There is very little scope for simplifying procedures if the present framework, with its large number of funds and programmes, is retained. Here structural objectives and funds must be rationalized and limited in line with the need to ensure that the priority assigned from the very start to the less-favoured regions, where there is a massive concentration of unemployment, remains politically high profile. Resources must be targeted to optimize the impact in terms of development and employment by localizing aid as much as possible, and administrative procedures for access to Structural Fund aid must be simplified.

3.3. If the present legislative framework is retained, a redefinition of the objectives in order to concentrate Community support could significantly alter the eligible regions and run the risk that proposals would be geared solely to budgetary austerity criteria. Some less developed regions - for instance, the capital-city regions of Objective 1 countries - already exceed the specified thresholds. An interim solution must be found for such regions, if the results already achieved are not to be jeopardized. If the eligibility thresholds remain the same, the population covered by Objective 1 might be greatly reduced; with the same per capita support this implies a wider dispersion of financial assistance, and would have an impact on defining the other objectives and on setting Structural Fund assistance for the next programming period. The opportunity should be taken to reconsider the number of Funds and adjust them to structural policy objectives and priorities. Article 130d of the Treaty already provides for the possibility of 'grouping` the Funds.

3.4. As a first approach for purposes of discussion, the Committee proposes that the objectives be reduced to two broad objectives. Broad objective A would be aimed at strengthening economic cohesion and 'reducing the disparities between the levels of development of the various regions and the backwardness of the less-favoured regions, including rural areas` in line with the strategic objectives stated in art. 130A of the Treaty. It would be geographically based, and would incorporate the specific economic aims of the current Objectives 1, 2, 5b and 6 for the areas which meet the appropriate criteria and would also embrace spatial planning, urban problems and interregional cooperation. Broad objective B (social cohesion) would not be geographically based and would cover the current Objectives 3 and 4, and various Community initiatives and programmes, such as those aimed at equal opportunities making it possible, in particular, to improve the position of women in the labour market, and the fight against social exclusion.

3.5. The existing funds could be replaced by two, one for each of the above broad objectives. This would solve the procedural and administrative problems caused by the simultaneous application of several objectives and funds in the same geographical area. The first fund would operate only in Objective A regions, even in the case of schemes to promote social cohesion and solidarity. The dissemination of good practice should be improved so that the beneficiaries of social cohesion measures could draw on the most successful schemes supported by the other fund. Steps would have to be taken within the Commission to ensure that existing knowledge and experience regarding both the social/training objectives and integrated rural development are also applied to the first broad objective. Similarly, the number of Community initiatives should be reduced, with the successful measures being incorporated in the regular activity of the Fund; there should be greater regional concentration of the Fund support and more differentiation between regions in the measures applied; and subsidiarity should be enhanced particularly by forging closer cooperation between local authorities and the economic and social partners.

3.6. The aim must be to make Community support more consistent and to improve coordination between Commission departments. This in turn would improve coordination in the field. Within each broad objective, the rates of Community support should be graduated so as to cater for the special circumstances and degree of underdevelopment of each region, and the relative prosperity of the respective Member State. The less developed Member States which are less able to support adequate economic and social cohesion programmes should gain extra resources through transfers as part of the overall Community budgetary processes to enable them to determine their priorities within the agreed Community cohesion policies. These graduated rates would also ensure that the regions with the characteristics of Objectives 1, 2, 5b and 6 would continue to qualify for Community support for their economic difficulties, and that the less developed regions (Objective 1) would still receive the lion's share of this support.

3.7. In its opinion on the future of cohesion and the long-term implications for the Structural Funds (CES 246/96 of 28 February 1996, rapporteur: Mr van Dijk), the Committee analysed the impact of enlargement, EMU and the position of the Member States. The Committee argued that Structural Fund resources should be increased and made more efficient, and called for the establishment of instruments, based on a radical reformulation of the Phare programme, 'aimed specifically at promoting the economic and social development of the CEEC as they approach membership and beyond. Otherwise there is a risk that economic and social cohesion between the present Member States will widen` (point 5.3, xi of the opinion).

3.8. The challenges facing Community policy require a political will to create and/or reformulate instruments and adjust resources to the scale of the problems to be tackled. Economic cohesion, social cohesion and enlargement are challenges facing the EU. The instruments for tackling each of these challenges, and the corresponding budgetary appropriations, must be commensurate with the nature of the measures to be carried out and with Community principles. ESC opinions have argued that aid to boost cohesion within the EU must continue, and that the poorer Member States do not have the means to help their poorer regions and should therefore benefit from Community support as a matter of priority. Hence priority for the less developed regions must be reaffirmed. The Committee will draw up a separate opinion on the practical proposals for the reform of the Structural Funds which the Commission is to issue after the end of the Intergovernmental Conference.

3.9. More generally, practical experience in the field - which is not fully reflected in statistics - suggests that the Structural Funds are not equipped for the radical changes facing the business world and society as a result of the advent of the information society and the learning society, economic and financial globalization, and the rapid development of new technologies. The new economic environment calls for speedy decisions, but the present procedures and decision-making and payment timeframes are not conducive to this.

3.10. The Committee welcomes the significant advances made in the analysis and policy debate on cohesion policies made in the First Report on Economic and Social Cohesion. Whilst much progress has been made, the report confirms the benefits to be obtained by stronger and better coordinated policies in the Community alongside the evolving policies within the remit of the Member States. Although much of the past debate has been about the role and functioning of the Structural Funds and the Cohesion Fund and there are strong arguments to sharpen the design and functioning of these Funds, perhaps the most important feature of this report is the explicit integration of a range of Community policies into the debate about the drive to ensure stronger cohesion. The Committee will take every opportunity to contribute to this debate and to commend measures to make better cohesion a realizable goal.

Brussels, 23 April 1997.

The President of the Economic and Social Committee

Tom JENKINS