Opinion of the Economic and Social Committee on the "Sixth Periodic Report on the Social and Economic Situation and Development of the Regions of the European Union"

(1999/C 329/08)

On 1 September 1999 the Commission decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the Communication from the Commission on the Sixth Periodic Report.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 1 September 1999. The rapporteur was Mr Christie.

At its 366th plenary session (meeting of 22 September 1999), the Economic and Social Committee adopted the following opinion by 108 votes to one with 1 abstention.

During the preparation of the opinion, the study group which was responsible for preparing the Committee's work visited the Highlands and Islands Region of Scotland.

1. Introduction

1.1. The Sixth Periodic Report is presented at a time when the European Union has been undertaking a major review of the Structural Funds Operations and is about to adopt new Regulations that will govern these operations over the period 2000-2006. Its publication therefore offers the Economic and Social Committee an opportunity to comment on the achievements of the Union's structural interventions with respect to socio-economic developments in the regions of the EU as these have evolved over the period since 1988, when the Funds were reformed.

1.2. The Sixth Periodic Report is the last in a series of three-yearly reports on the social and economic situation and development in the regions of the European Union dating from 1981. In future, and in accordance with Article 130B of the Treaty, the principal source of such information will be the three-yearly European Union wide Cohesion Reports, the first of which was published in 1996. The Economic and Social Committee takes this opportunity to emphasise the important role that the Periodic Reports have played in informing the debate over the orientation and scope of Structural Fund activities. It is essential that the Cohesion Reports continue to provide focused and reliable reviews of the economic and social situation in all the disadvantaged areas of the European Union in order to ensure that the subsequent development of the Funds continues to be guided by the underlying principles of solidarity and transparency.

1.3. It is now ten years since the Structural Funds were comprehensively reformed. It is widely agreed that the results accruing from measures of regional economic support appear only gradually. However, it is clear from the Sixth Periodic Report that progress has been achieved in narrowing regional economic disparities between the regions of the European Union and that this is, to a significant extent, attributable to the impact of the Structural Funds.

1.4. This periodic Report is being considered at the same time as (i) the Commission and the Member States are preparing the allocation of the Structural Funds for the years 2000-2006 and (ii) the Commission is negotiating with several States their accession to the Union. A significant value of the Report is the analysis and identification of those factors which make an effective contribution to economic and social development (or the absence of which could inhibit such development). The Economic and Social Committee would emphasise the importance of ensuring that these lessons are applied region by region across the enlarged Union, and are reflected in Structural Funds implementing documents and in arrangements negotiated with new Member States.

1.5. Beyond this, the Sixth Periodic Report appears at a particularly important moment in the overall development of the European Union. The transition to monetary union, with all that this implies for monetary policy management within the euro-area, together with the impending eastern enlargement of the EU will herald a crucial phase in the history of the Union and inevitably will present a series of unprecedented economic and institutional challenges. In this context, the principles of "cohesion" and "solidarity" which lie at the core of the Structural Funds interventions will be severely tested. This Opinion offers the Economic and Social Committee an important opportunity to draw conclusions from the outcomes of the structural actions over the past decade and, crucially, to offer recommendations to the Institutions of the European Union in the context of the challenges now confronting it.

2. General Comments

2.1. The Economic and Social Committee notes that one of the main conclusions of the Sixth Periodic Report is that regional disparities in per capita income across the EU have narrowed over the period since 1988. Moreover, despite less success being demonstrated in terms of the level of unemployment, which remains unacceptably high across the EU and markedly so in the disadvantaged regions, Table 28 does show that positive employment growth in the Union's assisted regions has occurred over the duration of Structural Funds interventions, particularly in the period 1993-1997. Although many factors have contributed to this success, including the establishment of the Single European Market and inwards investments, it is the case that the Structural Funds have been a key element in this. The Economic and Social Committee takes this opportunity of applauding the significant success of the Structural Funds over the period since 1988, and attaches the utmost importance to the continued evolution of the Funds as required in accordance with attaining the Treaty commitment to the principle of economic and social cohesion.

2.1.1. Despite the overall success in employment growth in the disadvantaged regions in recent years, it is clear from Table 31 that there are differences between Member States in this. For example, in both Ireland and the UK the data shows an extremely strong positive rate of employment growth in the Objective 1 regions over the period 1988-1997. In other Member States the rate of growth of employment in the Objective 1 regions has been lower, although generally it has exceeded the average rate of growth of employment for that Member State. At the other extreme, the data shows that Italy has experienced negative rate of employment growth in Objective 1 regions over the period under review - indeed, employment growth has been worse in the regions assisted by the Structural Funds then was the case for the Italian economy as a whole. The Economic and Social Committee urges that the causes of such varying employment creation experiences by Member States are reviewed, and that appropriate lessons are drawn. In particular, it may be important to examine the role of national economic policies in this regard.

2.2. The analysis contained in the Sixth Periodic Report is based on economic statistics which describe, in various ways, the evolution of regional economies over the period since 1986. Undoubtedly the quality of the statistical information contained in the Report is of a high order, and it enables us to gauge the comparative economic conditions in the regions of the EU. In places, the Commission makes use of graphics to present information rather than detailed statistical tables. The use of graphs, at the exclusion of statistical tables, reduces the usefulness of the Report as a research tool, and the Economic and Social Committee would urge the Commission and EUROSTAT to make available, in subsequent Reports, the detailed statistics on which graphs are based.

2.2.1. A major limitation of the Report is the failure of the Commission to embed the analysis of the economic and social situation in the Regions within the framework of the public policies (particularly fiscal flows) of the Member States themselves. It is not at all clear why the Commission devotes many pages of the Report to assessing the regional economic impact of private sector financial flows of various types (e.g. foreign direct investment, research and development expenditures, etc.), but does not comment upon the regional economic effects of public financial flows, such as government expenditure through orthodox fiscal policy channels. It is highly likely that the economic effects of changes in the magnitudes of these variables will significantly effect the economic development prospects of the regions of the EU. This issue is particularly relevant in the context of European Economic and Monetary Union (EMU). The regional impact of these policies should be assessed along with the impact of private financial flows.

2.2.1.1. The importance of assessing the regional consequences of Member States' domestic public policies becomes all the more crucial in the light of the fact that some regions will no longer be eligible for Structural Funds support from 2000, other than through transition assistance. In many cases it has been the combined effect of Structural Funds support and matching national assistance (the context of partnership) which has enabled disadvantaged regions to secure significant gains in income and employment. Should national regional development support automatically cease once those regions are no longer eligible for Structural Funds support then there is a risk that these important economic and social gains will be lost. It is crucial that Member States assume responsibility for building on the success of the structural interventions and prevent any reversal of the economic prospects of these regions.

2.2.1.2. The importance of national regional economic policies within the existing Member States will also increase in the context of enlargement in so far as the future distribution of Structural Funds activities tends to move in favour of the applicant countries from Central and Eastern Europe. The Economic and Social Committee recommends that Member States and the Commission address the implications of enlargement with respect to current recipients of Structural Funds support in future Cohesion Reports.

2.3. The primary indicator used to assess the economic performance of regions is per capita gross domestic product (GDP)(1). The data shows that, over the period 1986-1996, there has been a definite convergence in regional per capita GDP. In the poorest 10 regions over the period 1986 to 1996, per capita GDP increased from 41 % to 50 % of the EU average. In the poorest 25 regions, per capita GDP rose from 52 % to 59 % of the EU average. In the four cohesion countries, GDP per head increased from 65 % to 76,5 % of the EU average over the same period.

2.3.1. The Committee notes the significant degree of convergence in per capita GDP between the poorest regions of the EU and the EU average that has been achieved over the period since 1988. The data presented in Table 29 demonstrates that, at the level of the Member States, the average of per capita GDP in the Objective 1 regions in all cases except Italy has risen steadily with respect to the EU average over the period 1988-1996. Although it is clear that the rate of progress has differed between Member States, and between individual Objective 1 regions within Member States, nonetheless, there are only six Objective 1 regions that have failed to record an increase in per capita GDP with respect to the EU average over the period 1988-1996. Although this number increases (to 16) for the period 1993-1996, it is important to note that this was a period during which the EU suffered a significant economic recession when disparities in regional economic performance typically tend to increase. It is noteworthy, therefore, that the majority of Objective 1 regions continued to achieve a degree of convergence during this period despite the onset of recession.

2.3.2. Notwithstanding the general narrowing in regional disparities in per capita income that has occurred over the period of the reformed Funds, the Economic and Social Committee would urge the Commission, in future Cohesion Reports, to provide detailed commentary on those regions which - despite best efforts - are failing to record a relative improvement in per capita income levels. And if it is the case that the decline in relative income levels in those regions would have been greater in the absence of interventions from the Structural Funds (i.e. the Funds are achieving convergence in those regions), then this should be clearly stated.

2.3.2.1. It may well be the case that performance differences are the result of differences in the economic structure of the regions concerned (i.e. the division of activity between agriculture, manufacturing and services, or the process of economic restructuring) or that these reflect certain geographical handicaps or the relative peripherality or rurality of the region. Both of these aspects will influence significantly the scope that exists for gains in productivity. However, with the ever greater emphasis properly being given to accountability in public spending, it is essential that the results of the Structural Funds are openly and objectively assessed, particularly in those instances where they appear not to be achieving their aims.

2.4. As the Sixth Periodic Report shows, considerably less success has been recorded in terms of reducing the level of unemployment in the disadvantaged regions. In the 10 worst affected regions, average unemployment in 1997 was 28,1 % compared to 3,6 % in the 10 least affected regions. Indeed, the divergence between the 25 best and worst performing regions of the EU in terms of unemployment widened over the period 1986-1996. The level of unemployment in the 25 best performing EU regions has remained steady at 4 % but has risen from 20 % to 24 % on average in the 25 most affected regions. Table 30, which provides detailed unemployment figures for the Objective 1 regions, shows that - with a few exceptions - the trend in unemployment within the EU's least favoured regions has been upwards over the whole of the period 1988-1997, particularly so during the latter period 1993-1997.

2.4.1. The trend in unemployment within the disadvantaged regions is particularly worrying because of the high element of long term and youth unemployment in the total unemployment. This accounts for 60 % of the total unemployment in the 25 worst affected regions, and is associated with the deep-seated adverse social consequences which arise as a consequence of long term exclusion from the workforce. Such exclusion is especially prevalent among women and young persons. It is evidently the case that this element in total unemployment does not respond significantly to changes in the EU-wide rate of economic growth. Whilst recognising that some part in the prevention of long term unemployment may involve reforms of labour market practices within individual Member States (possibly in conjunction with other supply-side measures), the Structural Funds will remain a central mechanism - directly and indirectly - in boosting employment opportunities both in the lagging regions and in the declining industrial regions.

2.5. The record of regional economic performance presented in the Report demonstrates that convergence in regional per capita income tends to occur most forcefully during periods in which the EU-wide rate economic growth is above average (as during 1986-1991) and tends to be reversed during recessions when average growth rates decline (as during 1991-1994). It is certainly the case that this is also true at the level of the Member States. The clear message from the data is that the macro-economic performance of the European Union as a whole, as well as of individual Member States, is one of the key determinants of the pace of convergence of regional per capita income in all of the disadvantaged regions. Consequently, macro-economic policies across the EU (fiscal and monetary policy) should be directed towards achieving uninterrupted economic growth at both the national and the EU level to the extent that this is consistent with the need to ensure price stability.

2.6. Whilst acknowledging the extremely thorough review and analysis of the economic developments within regions contained in the Sixth Periodic Report, the Economic and Social Committee regrets that the Commission has failed throughout to identify the specific and general lessons that may be learned with regard to "best practice" regional economic development policies being undertaken by particular Member States or regional authorities. It is essential that assisted regions are able to learn lessons from each other with respect to the design and the implementation of effective regional economic development programmes. Regional development practices differ substantially across the EU, and the Committee would urge the Commission to identify those elements which seem to distinguish successful economic development programmes from less successful ones. Future Cohesion Reports would be the appropriate place to present the findings from such research.

2.7. Lastly, the Committee would like to encourage the Commission to increase its efforts in creating awareness of the extent of the European Union contribution to the development of disadvantaged and lagging regions. The recent low turnout in the European Parliamentary Elections shows that European citizens generally still do not relate the activities of the European Union with the economic well-being of their communities. There is a positive message to sell and the Commission should consider if more action is necessary to communicate this message.

3. The Situation in the Regions

3.1. The Economic and Social Committee notes that, although the annual average rate of economic growth recorded by the four Cohesion countries as a whole exceeded the average for the EU as a whole over the period 1986-1996 (2,9 % compared to 2,1 %), this obscures the fact that Greece and, though to a lesser degree, Spain recorded average annual rates of economic growth significantly below the rates of growth achieved in Ireland and Portugal. Consequently, the success of the cohesion effort in two of the four countries must not lead us to conclude that this effort has been uniformly successful across the four as a whole. In the context of future Cohesion Reports, the Committee would welcome comments from the Commission that account for differences in performance between the Cohesion countries, particularly the respective contributions to regional economic growth made by the Structural Funds and the Cohesion Fund.

3.2. Although the success of the Structural Funds in reducing regional disparities in per capita GDP across the EU as a whole between 1986-1996 is shown in Graph 1, the information contained in Table 3 of the Statistical Appendix to the 6th Periodic Report shows that, at the same time, disparities in per capita GDP between regions in the same country increased over that period in all Member States except Portugal and the UK. The implication of this is that whilst the actions of the Structural Funds demonstrably are contributing to greater cohesion at the level of the European Union, domestic economic policies are failing to prevent a widening of the cohesion gap between the regions within individual Member States. Whilst this may be a consequence of the intensification of dualistic economic tendencies within individual Member States (e.g. faster growth in centres rather than peripheries; industrial restructuring; labour immobility, etc.), it is clear from evidence of regional growth rates of GDP (Map 2) that there is greater divergence in regional economic performance within member states currently than between Member States.

3.2.1. In this regard, the Economic and Social Committee repeats a comment made in its Opinion on the Fifth Periodic Report(2), namely that the Commission should include in its next Cohesion Report a general commentary concerning the impact of national economic policies on cohesion within Member States.

3.3. The Committee welcomes the Commission's analysis which classifies EU regions according to the characteristics which determine relative regional economic prosperity, in particular urban-rural positioning and the sectoral composition of economic activity of the region as between agriculture, manufacturing and services. Both of these variables influence the level of labour productivity (value added per employee) which is the key element in determining the rate of economic growth in the regional economy.

3.3.1. It is clear from the data presented that - with some exceptions - a core-periphery pattern of economic development typifies the evolution of the EU economy. There are many reasons why this is the case including the advantages of concentration, the direct relationship between economic prosperity and the growth of a high value added services sector (including education and research and development activities), and the lack of labour mobility across the European Union which tends to exacerbate the difficulties of regional economic development.

3.3.2. This analysis points to the importance of domestic public policy measures, as well as measures from the Structural Funds, which target explicitly these difficulties. Although the Structural Funds have made a critical contribution to the regional economic development, many of the problems afflicting the disadvantaged regions can only be properly addressed through the introduction of appropriate national public measures. Indeed, important as they are, interventions under the Structural Funds only play a small part in the overall package of policy actions (both micro-economic and macro-economic) necessary to achieve sustainable growth in the disadvantaged regions. This is both inevitable and desirable given that different Member States have different institutional and policy traditions in the area of regional economic development. Nonetheless, and respecting fully the principle of subsidiarity, it may be appropriate for the Commission - within the context of future Cohesion Reports - to provide general advice and information to Member States concerning those national policy measures which appear to be achieving greatest success in regional economic development and that are, consequently, consistent with securing progress to economic and social cohesion.

3.4. It is evident from the Report that the statistical definition of the regions of the EU (i.e. the NUTS classification) may result in some disadvantaged regions not qualifying for support. This is particularly true where the underlying economic position of otherwise severely disadvantaged regions (by reference to per capita GDP) is obscured by virtue of the exceptional prosperity of one or two core cities within that region. This is the situation in parts of Portugal, Spain and Ireland, although it is evident in other parts of the EU as well (e.g. Highlands of Scotland and Northern Ireland). It is important therefore that the Structural Funds operations are able to provide support to regions in need even where these regions contain principal centres which are enjoying significant economic growth, as is demonstrated by the analysis contained in the Report.

3.4.1. The Committee proposes that the Commission and Eurostat jointly investigate the need for refining the NUTS classification to ensure that economic development support for disadvantaged regions is not compromised by this kind of distortion. Otherwise, there is a risk that economic "dualism" will become a feature of economic development in disadvantaged regions.

3.4.2. The distortions that can arise from the prevailing classification of disadvantaged regions was demonstrated to the Study Group during its visit to the Highlands and Islands of Scotland. This region is geographically extensive and is characterised principally by an extremely fragile economy based on a very low population density. However, the region has a relatively strong economic centre based around the town of Inverness and the income generated around that centre has pulled up the average per capita income for the region as a whole to be very slightly above the 75 % Objective 1 threshold. There is a real risk that the economic development support that continues to be essential to secure sustainable economic development for the region as a whole is being undermined by virtue of the economic strength of the main urban area within that region. And although there are some beneficial economic effects that flow from the dominant centre to the rural hinterland, these are both extremely weak and unreliable with the attendant risk that a new form of economic dualism is appearing.

3.5. Developing further the facilities for education and training remain crucial to enhancing the prospects for sustainable economic development within the Objective 1 regions. As was clearly demonstrated in the Highlands and Islands of Scotland, the advent of new technologies along with the adoption of community approaches to long-life learning offer exciting and important new opportunities for improving the knowledge base in these disadvantaged regions. Not only do these measures serve to enhance skills and raise productivity in the regions, they contribute to maintaining local populations and attracting new people into the remoter regions thereby making a significant contribution to achieving sustainable economic development.

3.6. The Economic and Social Committee stresses that the development of economic infrastructure, broadly defined, continues to be a major requirement in developing the economies of the disadvantaged regions. Although a large part of structural interventions have already been targeted on infrastructure, it is clear that poor infrastructure continues to act as a barrier to sustainable economic development in many of the disadvantaged regions. Consequently, efforts to improve economic infrastructure should remain a priority for the Structural Funds.

3.7. The Report records the slow (though positive) rate of employment growth achieved in the Union's Objective 2 regions - amounting to just 0,1 % per year between 1989 and 1997. This is disappointing, although the Committee does note that the rate of unemployment in these regions as a whole actually fell between 1993 and 1997 whereas the average for the EU as a whole remained constant.

3.7.1. Notwithstanding this positive development, the Committee notes that in three Member States (Germany, France and Italy) the rate of unemployment in the Objective 2 regions increased significantly over the period 1989-1997. Whilst commenting generally on these statistics, the Commission offers no specific reasons for the apparent under-performance of Objective 2 support in those countries. The Committee recommends that future Cohesion Reports incorporate specific commentary on the performance of assistance in Objective 2 regions within particular Member States. Such qualitative assessment is particularly important in the context of Objective 2 assistance as quantitative studies generally are unfeasible in these cases.

3.8. The Report indicates that employment creation in Objective 5b regions has been significantly above that for the EU as a whole, and that much of this can be attributed to SME activity. The Committee considers it to be essential that the effort made in supporting the development of the rural and peripheral parts of the EU (including the upland areas) continues, and that assisting the SME sector should remain a priority within this approach. It is imperative that the new Structural Funds Regulations do not result in any diminution of such efforts.

3.9. In reviewing the evidence on regional economic development presented in the Sixth Periodic Report, the Committee is struck by the sometimes wide differences that exist between the relative economic performance of the regions receiving assistance from the Funds - whether this be under Objectives 1, 2 or 5b. It considers essential that, in subsequent Cohesion Reports, the Commission attempts to account for such differences in performance. Only then can "best practice" arrangements be identified which may then be applied in those regions which are not performing as strongly. Such practices may be identified and apply at any stage between the formulation of specific regional plans through to the particular mechanisms and arrangements of implementation and appraisal used at the level of the region.

3.9.1. To the extent that "best practice" arrangements can be identified, it may subsequently be appropriate to amend the Structural Funds Regulations - within the context of subsidiarity - as necessary to ensure that the Funds make the maximum contribution possible to regional economic development.

3.10. The Committee once again stresses the importance of the Community Initiatives in assisting the disadvantaged regions. Evidence that was presented to the Committee in the course of the preparation of this Opinion clearly indicated that it was in the context of Community Initiatives that the principles of partnership and a "bottom-up" approach to regional economic development were most evident. These Initiatives offer the possibility of local communities actively engaging the issues arising from various aspects of economic disadvantage and providing solutions which reflect the real situation in the regions themselves.

4. Competitiveness

4.1. The Economic and Social Committee welcomes the Commission efforts to present a detailed examination of the determinants of "competitiveness". Despite this, however, the Report fails to clearly identify a precise measure or index of competitiveness, preferring instead to define this in a purely qualitative manner. This severely constrains the usefulness of the concept and leaves it open to misinterpretation. The limitations of the analysis become very clear when the Report presents a number of scenarios for eliminating differences in regional "competitiveness", scenarios which tend to confuse the causes of strong regional economic growth and the consequences of such growth. Further efforts in clarifying this concept are required, and the Committee would ask the Commission - possibly in collaboration with Eurostat - to develop a robust statistical framework capable of measuring competitiveness, or using indices to illustrate changes in competitiveness.

4.1.1. While the Committee would welcome further efforts on the part of the Commission in clarifying further the notion of "competitiveness", it would also endorse an approach that focused more precisely on a study of factor (labour and capital) productivity, and reasons that explain different regional rates of growth of both labour and capital productivity. As the Report acknowledges, it is productivity which largely determines regional rates of economic growth and contributes to competitiveness.

4.1.2. Nonetheless, there is little controversial about the proposition that regional economic success arises in regions which have an above average incidence of market services and/or manufacturing; demonstrate a high extent of innovative activity; command an efficient and effective infrastructure; and have a skilled workforce. The requirement is for the Commission and the Member States together to develop public policies which will influence the geographic distribution of these four elements which together are associated with successful regional economies, and which are informed by prevailing "best practice" advice.

4.2. Notwithstanding certain weaknesses in application of the term "competitiveness" in the context of promoting regional economic development, the Report does elaborate a number of key themes which deserve further study with a view to designing policies capable of assisting regional economic development in the weaker regions. The extent to which employment in research and technological development activities is concentrated within the stronger (core) regions of the EU is very striking. This establishes the important role that Structural Funds actions designed to foster RTD in the weaker regions have to play in the overall cohesion effort. The Committee notes that Community Initiatives have played a key role in this respect and have provided RTD support - especially for SMEs - within the weaker regions of the EU.

4.3. The Sixth Periodic Report rightly focuses on the importance of the SME sector in employment creation and technological innovation across the EU. The Committee stresses the important role that SMEs play in the rapid movement towards an information society. Quite clearly the volume of support currently given to this sector must be maintained - or possibly increased - in the light of the contribution to economic development made by SMEs.

4.3.1. However, it is recognised that the quality of the analysis with respect to the contribution of SMEs is limited by the different role that SMEs play by sector and between individual Member States. This is particularly the case with respect to the actual distribution of successful SME activity between the manufacturing and services sector where, as Table 17 demonstrates, the employment contribution made by these firms varies between sectors. The Committee stresses that maximum efforts should be directed towards supporting those SMEs which contribute most to employment creation.

4.3.1.1. The Economic and Social Committee considers that further research into the precise role that SMEs play in regional economic development should be undertaken, and that summaries of the results be published in subsequent Cohesion Reports. Priority in this research should be given to explaining (a) the survival rate of SMEs and reasons for regional variations in the "mortality rate" of such enterprises, (b) the contribution that SMEs can make to research, development and innovation and reasons for regional variation in this, (c) the regional variation in market share as between SMEs engaged in similar activities, and (d) the content to which SMEs are able to access Structural Funds support, particularly to develop their own potential for research, development and innovation. Similar research may also be undertaken on the role of Business Networks.

4.4. The Commission's findings with respect to the role of infrastructure and human capital are as expected. These are key elements in enhancing the economic prospects and performance of the weaker regions. Equally, however, it is also clear that despite the significant share of all Structural Funds support directed to these objectives, provision of infrastructure and social capital in the Cohesion countries remains below - often significantly below - the EU average. In particular, the Committee notes that these gaps are considerable in certain environmental elements (such as renewable fresh water reserves and waste water treatment) and educational provision. This suggests that greater effort both in terms of common EU action and national measures are required in these areas.

4.5. An important conclusion reached in the Report concerns the beneficial consequences of the mechanisms that have been used to 'deliver' the Structural Funds. The gains that accrue from "partnership" in the design of structural action plans, and in the implementation and assessment of these actions, are demonstrated quite clearly. The Committee has been a persistent supporter of the Commission in its various attempts to strengthen the operation of partnership, and the Report clearly vindicates this stance. It once again states its commitment to the principle of partnership, which is to be considered a "best practice" arrangement, and calls for Member States to observe and strengthen, where necessary, this principle in all aspects pertaining to the design and implementation of the Structural Funds.

4.5.1. In the preparation of this Opinion, evidence presented to the Study Group while visiting the Highlands of Scotland demonstrated very well the contribution to sustainable economic development that arises from partnership. Involving local economic and social partners ensures that many groups in the local region effectively become "stakeholders" in the economic development efforts. Not only does this enhance the quality of the programmes themselves, it creates a determination and capacity on the part of individuals and groups in the disadvantaged areas to work together to achieve economic and social progress. It is essential that resources are available to local partners to allow "capacity-building" in this regard; that is, to provide them with the relevant knowledge and understanding of the issues surrounding local economic development programmes to ensure that they are able to play an active role in the design and implementation of public policies. Such participation through partnership is a key element in the success of these economic development efforts, though one that may be underestimated.

5. Enlargement

5.1. The Committee welcomes the Commission's comments on the economic and social conditions in regions of the applicant countries from Central and Eastern Europe, and Cyprus, which represents a useful contribution to the debate. These comments set in context the large scale of the economic transition that has been undertaken in those countries, and the initially negative impact that transition measures had on GDP for the countries concerned. The Commission's analysis is particularly useful in the light of widespread concerns that have been raised throughout the EU concerning the likely budgetary costs of enlargement in the context of additional cohesion expenditure which is expected to be required.

5.2. Overall the Commission's analysis is slightly less pessimistic than some commentaries with respect to the situation in the regions of the applicant countries. What is striking is the extent to which regional development in those countries also conforms to the core-periphery pattern evident within the EU. It is therefore important that efforts are made in good time for the Commission to be in a position to advise authorities in the applicant countries of the lessons that may be drawn from the period of operation of the Structural Funds to ensure that "best practice" techniques are applied in those countries.

5.3. As expected, the data within the Report reveals that although GDP levels in all of the applicant countries remains substantially below the EU average, and certainly within a range rendering most regions within these economies eligible for Objective 1 support under current Regulations. Nonetheless, the Committee does note that since 1993 there has been strong economic growth in some of the principal zones within these countries. Indeed, the Commission notes that it is likely that, in some instances, specific regions around the main centres of economic activity in the applicant countries will achieve per capita GDP levels above 75 % of the EU average by the time of enlargement. This is encouraging, although it remains the case that this catching-up process has been patchy and in some countries has not occurred at all.

5.3.1. Nevertheless, when calculated at current exchange rates, the average CEEC per capita GDP stands at approximately 13 % of the EU average. This provides some indication of the scale of Community support which is needed to improve their social and economic situation and to prepare them for accession.

5.4. The extent of regional disparities within the applicant countries is very large. This is to be expected. In the immediate transition phase two forces are likely to contribute to highly uneven economic development. First, the parlous state of public finances in the transition economies means that little local capital is available to assist regions of these economies that are "lagging" the transition process. Second, the inflow of foreign direct investment that occurred after the economic reform process begun has been hugely localised in a handful of preferred regions, typically around capital cities. Consequently, in all of the applicant countries the unevenness of the transition process, and the economic adjustments following in the wake of that process, have exacerbated considerably the internal regional divide.

5.5. It is clear that enlargement will pose a major challenge to the cohesion efforts of the EU. This cannot be denied, nor the implications for the EU budget understated. However, it is also evident from the Commission analysis that enlargement itself is bound to assist the economic development of the applicant countries themselves. The Committee would stress that there are real economic benefits on offer from enlargement, both to the applicant countries and to the EU. These benefits must be identified to ensure that the added cohesion costs are viewed in the appropriate light, and that these costs are not seen as a dead-weight loss to the EU. There are real economic gains that will arise from enlargement that will offset partially the additional cohesion costs that are bound to arise.

Brussels, 22 September 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

(1) Throughout this opinion GDP figures are, as prepared by Eurostat, using Purchasing Power Standard (PPS).

(2) OJ C 236, 11.9.1995, p. 24.