Opinion of the Economic and Social Committee on ' The future of cohesion and the long-term implications for the Structural Funds'
Date: 1996-02-28
Institutions: European Economic and Social Committee
Subjects: Cohesion Fund, Structural Funds, economic and social cohesion, regional integration













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51996IE0246

Opinion of the Economic and Social Committee on ' The future of cohesion and the long-term implications for the Structural Funds'  


Official Journal C 153 , 28/05/1996 P. 0005 





Opinion of the Economic and  Social Committee on 'The future of cohesion and the long-term implications for the Structural  Funds'(96/C 153/03)On 30  March 1995, the Economic and Social Committee, acting under the  third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on 'The future  of cohesion and the long-term implications for the Structural Funds'. 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 20  February 1996. The  Rapporteur was Mr van Dijk. At its 333rd Plenary Session (meeting of 28  February 1996), the Economic and Social Committee  adopted by a majority vote with 7 abstentions the following Opinion. 1. Introduction1.1. This Opinion will consider the future of (economic and social)  cohesion and the long-term implications for the Structural Funds. In a number of its previous  Opinions (), the ESC has repeatedly stressed the importance of both the principle of cohesion as a  statement of political solidarity between the regions of the EU, and the operation of the  Structural Funds as a key common policy in effecting a reduction in the degree of economic  disparity within the EU. It reasserts both positions on this occasion. In so doing, the Economic and Social Committee endorses the principle contained in Article  2 of  the founding Treaty of Rome which called upon the European Community to:  '... promote throughout the Community a harmonious development of economic activities, a  continuous and balanced expansion, an increase in stability, an accelerated raising of the standard  of living and closer relations between the States belonging to it.'It is within the context of  this guiding principle that the current discussion on cohesion must be continued. 1.2. During a period when the process of a further deepening and widening of the EU is being  contemplated, the ESC considers it relevant to review the implications for cohesion, and for the  main policy instruments promoting cohesion. This is because, since the reforms of 1988 the EU  structural policies have evolved into an effective vehicle for promoting economic and social  cohesion across the EU. In the absence of the role played by the Structural Funds, economic growth  in the Union's economically weakest regions would have been significantly lower than that recorded  since the mid-1980s. Although more difficult to quantify, informed opinion also suggests that the  economic prospects in the Objective 2 and 5b regions have been considerably enhanced by the  operation of the Structural Funds. 1.2.1. The principle of strengthening the degree of economic and social cohesion between the  regions of the European Union (EU) was given its clearest, and most forceful, expression in Single  European Act (SEA). According to Article  130a of the TEU (Treaty on European Union), economic and  social cohesion would be strengthened by:  '... reducing disparities between the levels of development of the various regions and the  backwardness of the least-favoured regions, including rural areas.'Moreover, Article  130b of the  TEU called upon Member States to:  '... conduct their economic policies, and coordinate them, in such a way as ... to attain the  objectives set out in Article  130a', and stipulated that,  'the implementation of common policies and of the internal market shall take into account the  objectives set out in Article  130a ...'. It is important to stress, therefore, that the TEU requires that the impact upon economic and  social cohesion is taken into consideration in the design and implementation both of common (EU),  and national, economic policies. 1.2.2. The Committee considers that it is desirable to re-state the provisions of Article  130b  during the period running-up to the 1996 Inter-Governmental Conference (IGC), and in the light of  the implications for national economic policies in some Member States contingent upon the  convergence requirements for European monetary union (EMU) being achieved. It is essential that  national and EU policies do not jeopardize the considerable achievements that have been made since  1988 in strengthening economic and social cohesion in order to further competing objectives. 1.2.3. Securing progress towards greater economic and social cohesion within the Union remains a  key challenge for EU policymakers. A recent European Parliament research report () defined cohesion  as a situation in which (economic and social) differences between regions and groups in the  Community are politically and economically acceptable. It is worth stressing that a Union in which  wide divergences in economic and social well-being persist is, therefore, unlikely to be a  politically stable Union. There is an ever-present risk as further steps are made to achieve an  economic and monetary union that the industrially dynamic regions of the EU will benefit more than  will the disadvantaged regions. This risk, which is one from which all EU Member States ultimately  would suffer, can be neutralized only with the continued development of appropriate common cohesion  measures. 1.2.4. The Structural Funds and Cohesion Fund are the mechanisms instrument through which the EU  seeks to advance the objective of economic and social cohesion. In 1988, and as required by the  SEA, the Structural Funds were reformed with a view to improving their effectiveness in promoting  cohesion. It is worth recalling that a central reason underlying this reform to strengthen the EU  cohesion measures was a concern that the completion of the Single European Market (SEM), whilst  benefitting the industrially dynamic areas, could exacerbate the economic difficulties confronting  the Union's economically weaker regions. As the process of economic integration deepens, this  concern remains and must be responded to. 1.2.5. The reformed package of cohesion measures introduced in 1988 was based upon four principles  - concentration of resources on the regions in greatest need; partnership in the design and  implementation of regional policy; programming of Structural Fund assistance; and additionality in  the provision of matching domestic financial support from beneficiary Member States. The 1988  reforms saw a doubling, in real terms, of the financial resources assigned to the Structural Funds  up to 1993. 1.2.6. It is difficult to predict the conditions that will prevail after the IGC in 1996 and the  approach to cohesion that will be favoured by the Member States. However, the Committee considers  it essential that any revision of structural policy should not weaken the four principles approved  in 1988 and ratified at the Lisbon and Edinburgh European Councils. These four principles of  concentration, partnership, programming and additionality lie at the heart of the Structural Funds  and determine, in large measure, the success of the programmes financed by them. These principles  have been commented upon in several previous Opinions of the Committee (). The ESC considers that  they must be maintained and their implementation in Member States improved. 1.2.7. The following particular observations can be made: (i) with respect to programming, the ESC considers that greater flexibility in allocating funds  will be necessary in the future as the pace of change intensifies; (ii) concentration of resources remains vital and must be continued if the Structural Funds are to  contribute fully to narrowing regional inequalities; (iii) additionality must continue to be observed on the part of Member States if the Funds are to  have their fullest impact. However, there is a risk that the effectiveness of the Structural Funds  will be reduced if an individual Member State is required to reduce domestic public expenditure in  order to fulfil the Maastricht convergence criteria. It is important that the objective of economic  and social cohesion is not compromised by the need to conform to the Maastricht convergence  criteria; (iv) this Committee has, over the years and in several recent Opinions (), drawn attention to the  constructive role played by the economic and social partners in all aspects of Structural Fund  operations. Consequently, the ESC particularly welcomed Article  4 of the new framework regulation  which makes mandatory the involvement of the economic and social partners in developing and  implementing regional economic plans. Unfortunately, this requirement is not always fully respected  in all Member States. The ESC takes this opportunity of restating the importance it attaches to the  principle of partnership, and would call for a greater degree of transparency in procedures as a  means of ensuring that partnership is observed in practice. The ESC calls upon the Commission to  produce a detailed report on the implementation of partnership in Member States reviewing the  extent to which the requirements under Article  4 are being met; (v) the Structural Funds have a central role in promoting employment in the EU, and employment  creation must remain a central measure of the success of actions taken within their ambit.  Consequently, actions that improve the opportunity for self-sustained economic growth and  employment creation in the disadvantaged regions should be prioritised by Member States. This may  necessitate some Member States reappraising the allocation of Structural Fund support between  infrastructural investments and those impacting more directly upon employment; (vi) the principle of economic and social cohesion is central to the institutional unity and  political solidarity of the European Union. Consequently, it is likely that any weakening in the  resolve to promote cohesion on the part of the richer Member States would possibly have a  counterpart in growing political hostility towards the Union within the weaker Member States. In  the context of an enlarged European Union, and with partial movement towards monetary union  expected by the end of the decade, there is a risk that the institutional cohesion of the EU will  be fragmented: that is, the emergence of a 'variable geometry' Union. The defining feature of  variable geometry is that individual Member States are able to participate in certain, though not  all, of the functions of that Union. The 'opt-out' clauses that exempt the UK from the Social  Protocol and both the UK and Denmark from monetary union are examples of variable geometry  integration. The risk with an EU of variable geometry is that membership of respective elements of  the Union could become permanent. At the very least the pressure on the stronger Member States to  assist the weaker countries 'catch-up', pressure that would be (and is) present in the case of  'multi-speed' integration, would be considerably less. 1.2.8. The structural programmes were again reviewed in 1993, as provided for in the regulation and  in the context of the need to negotiate a new budgetary framework for the EU - negotiations which  led to the Delors II package being agreed at the Edinburgh summit. In that review, the central  principles of the structural programmes were reasserted and the eligibility criteria left  unaltered. Consequently per capita GDP remains the principal indicator of regional economic  development with regions recording per capita GDP of 75 % or below the EU average being eligible  for assistance under Objective 1. Countries recording an average per capita GNP of 90 % EU average  or below are also eligible for assistance from the Cohesion Fund. Objective 2 of the Structural  Funds is aimed at assisting regions suffering industrial decline. Eligibility under this objective  has principally been determined by reference to the recorded rate of unemployment. 1.2.9. Finally, assistance under Objective 5b of the Structural Funds continues to be targeted at  rural areas outside Objective 1 areas where there was a high share of agricultural in total  employment and where per capita GDP was low. Objective 5b assistance is also available on the basis  of geographical peripherality. It should be noted that Objective 6 support was set up for the new Member States, Finland and  Sweden. How this works in practice is not yet clearly defined as the programmes are only now  beginning. The 1993 review was conducted after agreement had been reached on the Delors II budget package  which provided a financial envelope for the Structural Funds up to 1999. By that time, the  Structural Funds will account for 35 % of total EU budgetary expenditure, and will represent only  some 0,45 % of total EU GNP. 1.2.10. Prior to 1999, the EU Member States will have considered the future of the Union's cohesion  policies. Their deliberations on this will take place against a background that is likely to differ  in key respects from that which prevailed at the end of the 1980s. First, a monetary union between  those Member States eligible for membership of the single currency area will be imminent. The  economic situation in the remaining Member States will have a crucial bearing on the cohesion  negotiations. Second, the question of the EU's enlargement to include the Central and East European  Countries (CEEC) will have become clearer and, possibly, a timetable agreed upon. The financial  implications of extending the cohesion funds to these countries are acknowledged to be  considerable. Third, the Commission will have available the results of almost a decade of operation  of the Structural Funds which will, undoubtedly, influence the future shape of the cohesion  policies. 2. Cohesion - the broader issue2.1. The concept of economic and social cohesion is not  explicitly defined in the Treaty. In general terms economic cohesion is taken to refer to a  narrowing in regional economic disparities within the EU. The variables most commonly used for  measuring regional economic disparities are (a) Gross Domestic Product (GDP) per capita and (b) the  rate of unemployment. The impact of the Structural Funds is assessed primarily by reference to the  extent to which there has been regional convergence in these economic indicators. 2.1.1. However, cohesion can - and arguably should - be given a wider definition, one that involves  a greater emphasis being placed on regional divergence in social indicators of well-being such as  health, environmental quality, scholastic achievement, educational opportunities, rates of crime,  migration, etc. Undoubtedly these social aspects are related to the economic development process,  although in neither a direct nor simple manner. Nonetheless, these social indicators do enter the  economic development equation: regions with relatively high social standards and high amenity are  likely to be more attractive locations for investors, particularly those engaged in high-technology  related activities. 2.1.2. Because of the inter-relationship between economic and social indicators of well-being, it  is frequently the case that the highest incidence of social deprivation is to be found in those  regions suffering from economic decline or economic backwardness. Social problems need not only be associated with a low level of economic activity. To the extent  that an economic development policy aims at attracting investment by lowering the costs that  employers incur with respect to the general conditions of employment for employees, 'social  dumping' too can lead to a widening of the cohesion gap. Consequently, EU Social Policy acquires a  pivotal role in shaping the prospects for cohesion over the longer term. 2.1.3. A closely related issue in the Cohesion debate is the strategy adopted by the European Union  in face of the presently high level of unemployment in all Member States. The average rate of  unemployment in the EU is 11,1 %, significantly higher than rates in the EU's main competitor  countries. This average masks considerable differences between Member States. Arguably the most  worrying aspect is that long term unemployment (i.e. unemployment for longer than 12 months)  accounts for over 45 % of EU unemployment. Analysis has demonstrated that the probability of  gaining employment falls the longer the duration of the unemployment period. Skills become outdated  and individuals find it increasingly difficult to re-enter the effective labour market. It is also  worth stressing that unemployment is a particularly acute problem for young people and for women. 2.1.4. The average unemployment rate in the EU is 11,1 % (1994) but important differences between  Member States can be observed. For example, in Spain youth unemployment rate is 45 % and women  unemployment rate is 31,4 %, whereas in Luxembourg youth unemployment accounts only for 6,5 % and  women unemployment for 4 % (). 2.1.5. It is vital that economic and social cohesion is not ignored in present discussion on  policies aimed at tackling the problem of unemployment, and policies should not be introduced that,  on balance, widen rather than narrow the cohesion gap. On the surface, the question seems to be one  involving a conflict between economic efficiency and social justice. However, it is important to  appreciate that no country in the EU will ever be able to compete in global markets on the basis of  low-cost labour. There will always be countries which can deliver a more poorly paid work force.  Consequently, the conflict between efficiency and equity may well be more apparent than real. 2.1.6. Considered in this broader sense, which incorporates social as well as economic indicators  of well-being, cohesion acquires an important political dimension within the developing structure  of the European Union. Indeed, the drive to secure greater economic and social cohesion may well be  a central element in the process of achieving 'an ever closer Union'. Popular support for  furthering economic and political integration in the EU is, as has been seen in the past, closely  linked to the material well-being of EU citizens. Any tendency to lessen the commitment to cohesion  could, therefore, result in a weakening of popular support for European integration, particularly  in the poorer countries. 3. Results to date3.1. The Structural Funds are the main common instrument aimed at further  cohesion within the EU. During the period since the 1988 reforms, and as demonstrated by recent  Commission reports, the Structural Funds have made an important contribution to reducing the level  of economic disparity between the poorest and richest regions within the EU. 3.2. Progress towards greater cohesion has been most marked in those regions eligible for  assistance under Objective 1 of the Structural Funds (especially Ireland, Spain and Portugal: the  Structural Funds have been less successful in Greece). Not only are these the most disadvantaged  regions within the EU, therefore those where the greatest progress is to be expected, but the  principle of concentration means that these regions also attract the greatest share (approximately  60-70 %) of the available resources . This represents a significant injection of funds in relation  to the size of the economies concerned. 3.3. The Commission's Fifth Periodic Report () recorded that the annual economic growth rate in  Ireland, Spain and Portugal averaged ¾ % to 1¾ % above the EU growth rate from the mid-1980s, and  that this was partly the result of Structural Fund assistance. Despite this, however, 1993 per  capita GDP at purchasing power parity was some 22-24 % below the EU average in Spain and Ireland  and 40 % below in Portugal. Consequently, the results to date have been modest. There are three principal reasons why the  structural programmes may not have contributed as much to cohesion as some expected: (1) There is no provision for the Structural Funds to respond in any meaningful way to unexpected  economic disturbances that adversely affect particular regions, or sectors or to a general fall in  the level of economic activity during a recession. In face of a sectoral shock which significantly  lowers the regional level of economic activity and employment, there is no provision in EU policy  for compensatory financial flows to be made that otherwise could stabilize the level of demand and  protect employment. Experience has shown that regions once 'hit' in such a way find it increasingly  difficult to restore their previous level of economic activity. The impact of such shocks is likely  to overwhelm any long-term support being given through EU structural programmes. (2) EU structural policies must operate in the context of national economic policies, and economic  policies being conducted in other Member States. Change in national economic policies or spending  programmes is likely to outweigh the impact of structural policy. Consequently, the impact of the  structural measures on cohesion has to be viewed in the context of the development of economic  policy more generally. Although Article  130b calls for national and EU policies to be assessed in  the light of their impact on cohesion, it remains to be seen who can question, and in what  circumstances, the validity of a policy for not contributing to cohesion. (3) The impact of the structural policies will operate, and is likely only to be detectable over  the longer term. The explicit aim of the policy is to improve the economic opportunities facing the  less favoured regions of the EU by enhancing economic infrastructure, human resources and  investment opportunities. Whilst the level of unemployment is used as an indicator to decide  regions eligible for Structural Fund support, it is unrealistic to use changes in the level of  unemployment in the short run as a measure of the success of structural actions. If a shift towards  targeting unemployment is desired, then almost certainly this would require a reconfiguration of  the application of the Structural Funds. 3.4. The Fifth Periodic Report both reviews the recent experience of the Structural Funds and  considers the elements for developing a coherent regional development strategy in the future.  Emphasis is given, correctly in the Opinion of the ESC (), to infrastructure and the development of  human resources, inward investment, and the role of research and technological development.  Together these indeed do constitute a recipe for the successful development of regional economies  and, consequently, for narrowing the cohesion gap. 3.5. Further work on the anticipated effects of the Structural Funds with regard to Objective 1  regions has recently been submitted to the Commission. A Report presented to DG XVI () by Professor  J.  Beutel examines the probable impact of the Structural Funds on Objective 1 regions over the  period to 1999. 3.5.1. The Beutel study provides reasonable estimates of the probable impact of the current round  of structural actions in the Objective 1 regions. It employs an input-output methodology to  generate these estimates, and couches the results in terms of the regional employment and income  effects. The methodology used enables the impact of Structural Fund actions on the regional  economies to be isolated from other influences on regional income and employment. The global  estimates regarding the impact on cohesion are favourable. The combination of a doubling, in real  terms, of the resources available to Objective 1 along with a concentration of activity on a  comparatively small number of regions, is expected to contribute significantly to enhancing  economic prospects in the Objective 1 regions. 3.5.2. Beutel properly distinguishes between the 'demand' and 'supply' effects associated with  structural actions. The demand effect relates to the immediate economic consequences that follow  the injection of Structural Fund, and related, support to the region. As these funds are spent,  employment will be generated in those sectors benefiting from direct expenditure under the  structural programme - e.g. the construction and services sectors. However, the most important  effect will be over the longer term on the supply-side of the regional economy. This will evolve as  the structural programmes are completed and the competitiveness of the region increases as a  consequence. These supply effects are related to the improved infrastructure, a better qualified  labour force, and the development of new productive capacity. It is on these longer term effects  that the future prosperity of the regional economy will depend, and which will provide the  opportunity for closing the cohesion gap. 3.5.3. The Beutel study clearly demonstrates the significant part that the Structural Funds will  play in enabling the Objective 1 regions to close the cohesion gap. In the absence of support,  these regions will not be able to generate a rate of economic growth higher than the Community  average for the period 1994-1999, as has to happen if they are to continue the process of  catching-up with the more prosperous regions. This provides a useful illustration of the crucial  role played by the Structural Funds in securing a greater measure of cohesion. 3.6. In addition, the Cohesion Fund was established to facilitate convergence . However, the recent  entry into force of this instrument means that no final determination of its economic and social  impact can be made at this time (). 3.7. The Structural Funds have come under some criticism recently from the Court of Auditors ().  However, the main thrust of this criticism was levelled at procedures and unfulfilled commitments  that are, in the management of the Structural Funds, properly the responsibility of the individual  Member States and not the Commission itself. The calls made by the Court of Auditors for greater  efforts to be devoted to the monitoring and evaluation of measures, along with its insistence that  the 'fundamental principles' of the funds are observed (concentration, partnership, programming,  evaluation and additionality), are fully accepted by the Commission. Indeed, many of the complaints  that the Commission has, over time, levelled against Member States in the operation of the  Structural Funds have been precisely in those aspects. The ESC is concerned that the agreements taking the Structural Funds through to 1999 (in the case  of Objective  1) and 1996 (Objective 2) further erode the Commission's capacity to intervene  discreetly to ensure that the management of the Structural Funds is proceeding as required by the  Regulation. This is mainly because the Commission is not authorized to interfere in the spending of  Member States' money, if this is not in conformity with the provisions of the Regulation. 4. Prospects for the next review4.1. As already noted, the context within which the next review  of the operation of the Structural Funds will take place will differ in crucial respects from that  prevailing at the time of the last review. However, it is important to recognise that despite the  differences in context prevailing at that time, those regions within the EU presently in need of  support under the Structural Funds may well remain in need of support if further progress towards  achieving economic and social cohesion is to be made. Indeed, considerable care must be taken to  ensure that any policy change does not reverse the gains made in those areas thus far. 4.2. There are four elements likely to influence the next review: the prospective enlargement to  include the Central and East European countries; economic and monetary union; the view adopted in  individual Member States regarding the benefits of the structural operations; and the commitment to  institutional and political unity within the EU. 4.2.1. Enlargement4.2.1.1. If, as widely expected, the EU will have entered into negotiations with  a number of the countries of East and Central Europe by 1997/1998, this undoubtedly will play an  important part in shaping the debate concerning the future of the structural operations. Even if we  assume that the economies of the CEEC continue to develop at the present pace, it is expected that  per capita incomes in those countries by the end of the decade will remain substantially below the  EU average. Accession to the EU will therefore carry with it consequences for the Structural Funds.  There are two issues. 4.2.1.2. First, as membership widens to include poorer countries, the EU average level of income is  bound to fall simply as a matter of arithmetic. Consequently, some regions that presently qualify  for Objective 1 support will find themselves ineligible and will be 'graduated-out' of Objective 1  status. This could well undermine progress towards greater cohesion already made in those regions,  particularly for those who remain close to the 75 % eligibility threshold. At the same time, some  countries, presently recipients of cohesion support from the EU budget, may find themselves  becoming net contributors to that budget thus adding a further problem to an already difficult  fiscal situation. Increasing the burden of fiscal policy in this manner could further worsen the  prospects for closing the cohesion gap. 4.2.1.3. Second, the demands on the Structural Funds will increase significantly as EU membership  extends to include the CEEC. By all statistical indicators, a large number of regions in those  economies can be expected under the present criteria to be eligible to claim structural assistance.  For such claims to be met will require either an increase in the resources available to the  structural operations, or a reduction in the rate of support. 4.2.1.4. Alternately, enlargement might require a greater differentiation in the eligibility  criteria for Structural Fund assistance. On the one hand, this approach would provide an  opportunity to devise programmes of assistance specifically oriented towards the extraordinary  needs of the CEECs during a transition phase leading up to and extending beyond formal EU  membership. Consequently, enlargement need not draw excessively on the resources presently directed  at achieving cohesion within the EU of fifteen Member States. On the other hand, devising specific  instruments for the transition economies would ensure that the principle of concentration in the  application of current structural policy instruments would not be weakened. 4.2.1.5. Consequently, in the face of a further EU enlargement, in all likelihood Member States  should need to increase the financial commitment they are prepared to make to the structural  operations if the current rate of progress towards cohesion is to be maintained. Otherwise, the  cohesion gap can be expected to widen and this is likely to weaken the political solidarity of the  EU with all that this entails for the future of integration. 4.2.1.6. This conclusion can be modified to the extent that alternative and more efficient  mechanisms are developed for delivering assistance under the Structural Funds; measures that speed  up the cohesion process. Moreover, if reforms in other policy areas - such as labour markets -  effect a change in the conditions in the less favoured regions then there may be some room to  reallocate existing resources without widening the cohesion gap as it presently stands. 4.2.2. Economic and monetary union4.2.2.1. By the end of the decade the European Union will have  secured progress to full economic and monetary union. Presently, the debate is dominated by  consideration relating to monetary union. 4.2.2.2. It is probable that the continued development of the economic union following the  completion of the single European market in  December, 1992, will impact upon economic and social  cohesion within the EU. In part we anticipate economic union promoting cohesion. To the extent that  the economic growth rate for the EU as a whole is higher than otherwise would have occurred, we can  expect all regions to experience some gains in absolute terms. 4.2.2.3. At the same time, however, there are reasons for being circumspect regarding the longer  term consequences of economic union. In particular, there is some degree of concern that the  economy of the EU will develop dualistic, or 'core-periphery', tendencies associated with some  Member State economies at the present time. This tendency towards multi-polar development, with  some regions enjoying a disproportionate share of the gains from integration and others a  disproportionate loss, was highlighted in a recent Opinion of the Economic and Social Committee on  Spatial Planning and Inter-Regional Cooperation in the Mediterranean Area (). The completion of the  internal market programme along with an increasing globalization of production, is expected to  result in the rationalisation of production, with industrial activity being concentrated in fewer,  although larger, operations. This may have an adverse effect upon the less advantaged regions,  especially those which are also peripheral geographically to the centres of EU population. 4.2.2.4. To the extent that this tendency does occur, the goal of securing economic and social  cohesion will become ever more difficult and the demands on the Structural Funds will become even  greater. Consequently, issues relating to spatial planning should be addressed at the outset rather  than allowed to create additional problems for the weaker regions. In part this points again to the  importance of monitoring closely the degree of convergence in real economic variables between  different EU regions and Member States over time. Particular attention should, of course, focus on  employment and output. 4.2.2.5. The prospective move to monetary union raises a number of important considerations  relating to economic and social cohesion. At the present time it is expected that only a minority  of EU Member States will be both eligible and willing to progress to stage 3 of monetary union.  Those unable to do so will be given a derogation from membership of the single currency until such  time as they satisfy the Maastricht convergence criteria. 4.2.2.6. Monetary union raises a number of general problems for weaker countries and which will  impact upon the cohesion issues: (i) fiscal convergence: to become eligible for membership of the single currency area a country must observe two  convergence criteria related to fiscal policy, although some discretion is given in deciding upon  these - an annual budget deficit no higher than 3 % of GDP, and a ratio of outstanding public debt  to GDP of no higher than 60 % (). In many of the weaker Member States current ratios are much  higher than this and it will require a combination of high rates of economic growth and substantial  fiscal prudence if the convergence criteria are to be met over the medium term. Achieving the  Maastricht convergence criteria will not be a painless exercise and can be expected to lead to  relatively unpopular economic policies being implemented in the relevant Member States. At the same  time, to the extent that public expenditure is reduced in those countries, there might well be an  adverse impact upon national support for regional economic development policies. Unless EU funds  are available to substitute for national programmes (i.e. the rate of support from the structural  operations is raised) it is difficult to see how a widening in the cohesion gap can be avoided; (ii) asymmetric growth: if the gains to monetary union are as significant as some analysts forecast, this will be manifest  in a higher rate of economic growth for participants in the single currency area relative to those  outside. In turn, this will make it ever more difficult for non-members to meet the convergence  criteria, particularly those expressed in relation to the performance of the best-practice  economies. Given that most cohesion countries are not expected to be among the first members of the  monetary union, any differential in the rate of economic growth attributable to participation in  the single currency will lead to widening in the cohesion gap, albeit that economic growth may be  continuing in the weaker regions; (iii) exchange rate changes: countries that are not eligible for membership of the single currency area in the first phase will  be in a position to use the levers of domestic monetary policy (including the exchange rate) to  achieve national economic objectives. However, the extent to which this is possible in practice may  be somewhat limited. In practical terms, the failure of a country to meet the convergence criteria  could be taken as a signal on the part of the international capital markets that lending to that  country carries with it an additional risk. Consequently a premium on interest earned may be  demanded and the countries concerned find that the monetary union of which they are not a part has  imposed upon them a higher structure of nominal interest rates. Moreover, although the exchange  rate remains as an instrument to boost domestic economic activity, at least in the short term, in  practice other EU Member States may find this unacceptable as it alters their relative competitive  position; (iv) external economic shocks: whether within or outside a monetary union, all countries face the prospect of either a sectoral or  general economic disturbance of an external origin - e.g. a fall in demand for exports due to a  recession in a foreign market. Membership of, or a commitment to, a monetary union will narrow the  range of responses that a country can take. Clearly, the exchange rate could no longer be used if a  country had joined the monetary union. However, even a commitment to future membership of the  monetary union may persuade a country not to adjust its exchange rate, given that exchange rate  stability is a criterion determining eligibility of the monetary union. Consequently, a country  affected by such a shock may find unemployment increasing and income falling, and the cohesion gap  widening, as a result. The extent to which national fiscal policy could be used to lessen the  adverse impact of the external shock will depend upon the prevailing fiscal situation relative to  the stipulated convergence criteria. There is, therefore, a risk that membership of, or a  commitment to, a monetary union will exacerbate the effects of an external economic shock. 4.2.2.7. There are three mechanisms which would, in theory, reduce the likelihood that monetary  union, and efforts to meet the eligibility criteria, might be responsible for widening the cohesion  gap. 4.2.2.8. The first is the development of an enhanced and more flexible fiscal policy capacity at  the level of the EU itself: that is, a move towards European fiscal union to match European  monetary union. Were this to happen, then economic assistance would flow to disadvantaged regions  in response to external disturbances, or to regions not benefitting from a higher level of  prosperity. Indeed, it is almost always the case in the industrialized world that a monetary union  exists alongside a fiscal union that expressly provides for such re-distributive financial flows. 4.2.2.9. Secondly, conceptually some of the problems raised here might be resolved if the EU were  to demonstrate a greater degree of regional wage flexibility. However, this is unlikely to occur.  Instead, experience tends to show money wages converging rather than diverging in monetary unions.  In any event, increasing the degree of income disparity within the EU runs expressly counter to the  declared objectives of economic and social cohesion. 4.2.2.10. Finally, a greater degree of labour mobility could induce the unemployed in one region to  move to regions where the potential for employment is greater. Once again, this is unlikely to  offer a practical solution to the problem. It is likely that any significant movement of labour of  this type would introduce a new set of problems of congestion and social difficulties within the  regions attracting the migrant labour. 4.2.2.11. Consequently, the Economic and Social Committee is concerned that under certain  conditions the movement to monetary union under the present institutional and policy provisions  could result in a widening of the cohesion gap. 4.2.2.12. In the absence of one of these three developments, there is a real risk that monetary  union could lead to a widening of the cohesion gap. 4.2.3. Member State views4.2.3.1. The further development of the structural programmes will depend  partly on the extent of political support for these programmes in individual Member States. In  accordance with the principle of partnership, the design and the implementation of the structural  operations requires the involvement of public and private sector economic agents at both local and  national level, including the economic and social partners, working in conjunction with the  Commission. In general the structural programmes are welcomed by local economic actors, and support  from this quarter will be crucial in the negotiations surrounding their future. 4.2.3.2. Beyond encouraging general support for the cohesion policies, local economic agents are  well placed to comment upon the further development of these policies. In particular, local  knowledge concerning the available capital, research and technological development capacity,  infrastructural deficiencies, educational requirements, the nature of environmental problems and  their resolution, all will help ensure that cohesion policies are designed in a manner that best  suits local requirements. 4.2.3.3. It is, of course, not possible to predict the position that individual Member States will  adopt at the time of the next review of the Structural Funds. Certainly the period between the  negotiation of the first Delors package in 1988 and the second Delors package in 1992 witnessed a  shift in some Member States' views on the issue, with more opposing a significant increase in  financial commitments to the structural operations than had been the case in 1988. In part, this  change in attitude can be explained by the deterioration in the general economic climate that was  beginning to appear by late 1992. In part too, however, it may reflect a hardening in the attitude  towards support for cohesion policies by those Member States which are net contributors to the EU  budget. 5. Recommendations5.1. As we have discussed in this Opinion, the EU objective of attaining a  greater measure of economic and social cohesion between the regions of the Union is likely to face  considerable challenges in the future. However, these challenges should not be viewed as  insurmountable obstacles to cohesion, although they may require a greater effort to be made on the  part of Union policies if the cohesion gap is to be closed. 5.2. The arguments supporting the further development of EU cohesion measures remain valid: - a failure to close the cohesion gap might well result in a significant movement of labour in  search of better living standards in the more prosperous parts of the EU, leading to severe  economic and social problems in those areas. Cohesion measures thus promotes the integration of the  EU; - financial transfers which support cohesion can lead to greater economic efficiency as they can  eliminate, or correct, market failures such as information deficiencies and local labour shortages  in specific skills; - cohesion measures can promote economic and social stability by lessening the impact that external  shocks will have on local income and employment; - cohesion measures will help consolidate the single market by ensuring that those who gain least  from its completion are compensated by those who gain most. In the absence of such compensation the  weaker regions might come to question the economic and social benefits from integration. 5.3. In the light of these considerations, the Economic and Social Committee would offer a number  of recommendations for the future development of the cohesion measures: (i) there should be no diminution in the commitment of the Member States to the objective of  attaining a greater measure of economic and social cohesion between the regions and the citizens of  the EU; (ii)the principle of a continuous and balanced expansion of activity was established by the Treaty  of Rome and the principle of cohesion entrenched by the SEA. These principles should be restated in  the context of the forthcoming inter-governmental conference, as should the obligations upon both  the Union and the individual Member States in the design of economic policy measures which are  stipulated in Articles 130 (a) and (b); (iii)the four principles of concentration, partnership, programming and additionality must  continue to be observed in the design and implementation of EU structural policies. The ESC echoes  the concern expressed by the Court of Auditors to the effect that specific Member States are  failing to conform to the Regulations governing the implementation of the Structural Funds,  particularly with respect to partnership and additionality. The Economic and Social Committee joins  with the Court of Auditors in calling upon both the Commission and the Member States to enforce  rigorously the regulations governing the implementation of the Structural Funds; (iv)of these four principles, and in the light of ever more demands being made upon cohesion  support, greater efforts may be required in the future to concentrate Structural Funds on or within  those regions in greatest need. Greater concentration with respect to all the objectives is  required, including those actions directed at spatial planning. The evidence available from the  application of assistance since 1988 demonstrates quite clearly that Structural Fund assistance did  lead to a significant improvement in the economic performance of most recipients of Objective 1  assistance. This establishes the gains that are likely to accrue from concentrating assistance; (v) the ESC would call for a greater degree of coordination between national and EU policies that  impact upon cohesion. This coordination is particularly important in policies which influence the  economic growth potential of regions, e.g. training and education programmes, research and  development support, environmental action programmes, infrastructural developments, inward  investment support measures, rural development programmes; (vi)the development of non-traditional economic activities promoting local economic development is  an essential avenue for economic development in the least prosperous areas within the EU, be these  Objective 1, Objective 2 or Objective 5b regions. By devising support measures that assist regional  economic diversification, public policy can raise the maximum growth potential in the economically  weakest regions. In other words, a region which continues to be dominated by the agricultural  sector has an inherently lower economic growth potential than one characterized by high technology  industry. EU assistance should lay greater emphasis upon the development of non-traditional  activities, and assisting the inputs required for these activities to prosper - including  assistance to small and medium-sized enterprises; (vii)the ESC would request that the Commission produces a detailed appraisal of the effects of  assistance under the new Objective 4 of the Structural Funds as soon as practicable. This policy  instrument has the potential to smooth the transition of industry by helping adapt the workforce to  new technologies and working practices. It is important to assess how that programme is operating  in order to determine whether or not greater efforts in such initiatives should be made; (viii)it is important to note that regional economic inequalities can increase also in response to  policies introduced in the more prosperous regions of the EU. The ESC reminds the Commission that  EU competition policy prohibits Member States from unfairly assisting domestic industries through  State aids and similar measures that distort competition. All such policies should be closely  monitored to ensure that they are not distorting the economic prospects of enterprises and regions  in other Member States; (ix)there is some evidence that the effectiveness of EU structural measures increased following  the reforms of 1988. A key feature of these reforms was that they enhanced the role played by the  Commission in assisting the development of regional economic development support. The ESC considers  that the Commission continues to have a pivotal role to play in this respect as only the Commission  is in a position to consider the consequences of policy actions on cohesion across the EU.  Moreover, the Commission is best placed to assess those policies and actions that are making the  greatest contribution to cohesion. The ESC considers it essential that the Commission continue to  operate as coordinator and, where appropriate, as a policy initiator, in this policy area; (x) in developing further the instruments for cohesion, there is a case for targeting some part of  Structural Fund assistance on large conurbations within the objectives 1 and 2 regions. To some  extent, greater prosperity in these regional centres will promote an increased level of activity  throughout the region as a whole as the economic dynamic in the centre spreads out to the immediate  locality. At the same time, however, care must be taken to ensure that such support does not create  a new type of economic and social problem with potentially unemployed labour being attracted to  conurbations thereby introducing new problems associated with overcrowding and social deprivation; (xi)under the prevailing regulations, the Central and Eastern European Countries will, upon  membership of the Union, be eligible to receive assistance from the structural funds. Unless there  is a significant increase in the resources available to the EU budget, these additional claims can  only be met by switching funds away from regions currently in receipt of structural fund support,  despite the fact that many of these regions are likely to remain disadvantaged for the foreseeable  future. Moreover, it is questionable whether or not the structural funds are, as they stand, the  appropriate instrument of assistance to meet the particular needs of the CEECs upon accession.  Consequently, the ESC suggests that the Commission, in conjunction with Member States, examine the  possibility of devising temporary (and degressive) transition instruments aimed specifically at  promoting the economic and social development of the CEECs as they approach membership and beyond.  Otherwise there is a risk both that economic and social cohesion between the present EU Member  States will widen as the territorial focus of the structural funds shifts, and that real progress  towards cohesion between the four probable new Member States and the current EU Member States is  frustrated; (xii)given the concern that the procedures to achieve convergence could lead to a widening of the  cohesion gap, the Economic and Social Committee supports the proposition 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 convergence criteria; (xiii)countries in which support from the Cohesion Fund has been crucial in enabling them to  fulfil the convergence criteria may continue to require financial support following the beginning  of the third phase of EMU. This will require either an amendment to the existing regulation of the  Cohesion Fund to facilitate their continued eligibility, or the introduction of an additional  financial instrument targeted at their specific problems; (xiv)the Economic and Social Committee is concerned that the effectiveness of the Structural Funds  can be impaired in some cases by virtue of the emphasis in national regional activity on  infrastructural investment. As the ultimate objective of the funds is to help generate economic and  social cohesion leading to lasting employment, the Economic and Social Committee stresses the  importance of productive investment and of the training and education of the labour force as key  priorities for expenditure under the Structural Funds; (xv)the purpose of this Opinion is to pinpoint the challenges facing the European Union's  Structural Funds. One conclusion of the analysis is that greater use is going to be made of  European regional policy instruments in a context of an enlarged Union and one in which Economic  and Monetary Union has been achieved. In the light of the challenges this will create to cohesion  within the EU, there is a strong case for increasing the financial resources available to the  Structural Funds. Presently the Structural Funds account for less than one-half of one percent of  EU Gross Domestic Product. This is a comparatively small amount in the context of these challenges  and consequently can play only a limited role in promoting economic and social cohesion. External  economic shocks that impact adversely on a particular region can jeopardize its economic  development for many years. Under current arrangements the Structural Funds cannot assist such  regions, other than through the very constrained resources available under Community Initiative  programmes. Given the dynamic nature of the determinant of economic and social cohesion, the ESC  considers that there are powerful arguments supporting an enhanced financial capacity for the  Structural Funds and for greater flexibility and response in the configuration of Structural Fund  assistance. Done at Brussels, 28 February 1996. The Presidentof the Economic and Social CommitteeCarlos FERRER() OJ No C  304, 10. 11. 1993; OJ No C 236, 11. 9. 1995.  () 'A new strategy for social and economic cohesion' - European Parliament, Ian Begg and David   Mayes (1991).  () OJ No C 201, 26. 7. 1993; OJ No C 195, 18. 7. 1994; OJ No C 236, 11. 9. 1995.  () OJ No C 127, 7. 5. 1994; OJ No C 393, 31. 12 . 1994.  () Employment in Europe 1995, Commission (COM(95) 381 final).  () COM(94) 322 final.  () OJ No C 236, 11. 9. 1995.  () The Economic Impact of Community Support Frameworks for Objective 1 Regions, 1994-1999.  () See doc. CES 1449/95.  () OJ No C 303, 14. 11. 1995.  () Spatial planning and inter-regional cooperation in the Mediterranean area, Rapporteur Mr Cal (OJ  No C 133, 31. 5. 1995).  () Article  104 Point 2 provides limited scope for a limited degree of flexibility around these  reference values.