FIRST REPORT FROM THE COMMISSION on economic and social cohesion
Date: 1997-04-08
Institutions: European Commission
Subjects: Cohesion Fund, activity report, economic and social cohesion, economic policy, regional disparity

ni'vl['torn>iit*f,*% 

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels,  06.11.1996 
COM(96)  542  final 

First Cohesion  Report 

(presented  by  the  Commission) 

Table of Contents 

Executive summary 

Chapter 1 

What do we mean by cohesion? 

Chapter 2 

The convergence process and cohesion: recent trends 

2.1 

2.2 

2.3 

Income and employment 

Social Cohesion 

Other dimensions of cohesion: 
quality of life and European citizenship 

Chapter 3 

Member State policies and cohesion: an overview 

3.1 

3.2 

3.3 

3.4 

3.5 

Introduction: weakening internal cohesion 

Macroeconomic policies 

Structural reforms and expenditure-based  policies 

Redistribution 

Concluding remarks 

Chapter 4 

The policies of the European Union 

4.1 

4.2 

4.3 

4.4 

4.5 

Agriculture and fisheries policies 

The Single Market and competitiveness policies 

The network policies 

Quality of life policies 

Concluding remarks 

Chapter 5 

Community structural policies and cohesion: 
a shared responsibility 

5.1 

5.2 

5.3 

5.4 

Introduction 

The nature and purpose of community assistance 

A decade of achievement 

The delivery system: a force for change 

Chapter 6 

Ways forward 

6.1 

6.2 

6.3 

The ongoing need for European Union cohesion policies 

Raising effectiveness 

Policy Challenges 

l~  3  -

Table of Contents 

Chapter 7 

Conclusions 

Statistical annex 

Sources and methods 

Executive Summary 

As provided for under Article 130B of the Treaty, the 
Commission presents its first cohesion report 'on the 
progress made towards achieving economic and so 
cial cohesion and on the manner in which the various 
means provided for in this article have contributed to 
it'. The report aims to answer four major questions: 

and Ireland — with income per head increasing from 
66% to 74% of the Community average. Ireland has 
had the most remarkable performance with an aver 
age growth rate of 4.5% a year between  1983 and 
1995, followed by Spain with 3% and Portugal with 
2.6%. On the other hand, Sweden and Finland lost 
ground compared to the rest. 

•  have  economic  and  social  disparities  between 
Member  States, regions  and  social  groups nar 
rowed over time, leading to an improvement in 'the 
overall harmonious development' of the Union? 

•  what has been the role and the achievements of 

Member States' policies in this respect? 

•  how have the Union's non-structural  policies re 
sponded to the Treaty obligation to take account 
of cohesion objectives? 

•  what has been the effect of the Union's structural 

policies? 

In  so  doing, the  Report  attempts  to  draw  out  the 
implications for policy at both the Member State and 
Union levels. 

Social and economic fortunes 

The experience across the Union with regard  ^ e m 
ployment  was  more mixed. In the  country  with the 
highest economic growth, Ireland, employment grew 
by a mere 0.2% over the period  1983-93, although 
growth has accelerated more recently. Similar growth 
rates were recorded  in many other  Member  States 
while the deep recession in Finland and Sweden led 
to an absolute decline in employment. Countries such 
as  the  Netherlands,  Germany,  Greece  and Spain, 
succeeded in creating jobs at a higher rate than the 
average. 

In Portugal, Belgium, West Germany, the Netherlands 
and the UK employment creation, while variable, has 
nevertheless been sufficient to reduce the unemploy 
ment.  In  most  other  countries  there  have  been 
increases  in  unemployment  rates. These  are  most 
dramatic in Finland and Sweden as well as in two of 
the cohesion countries, Spain and Greece. In Spain, 
more than one in five of the work force is now unem 
ployed. 

Over the past decade, economic growth in the Union 
has averaged just over 2% a year, while employment 
has grown at 0.5% a year. Some 7 million jobs have 
been created in net terms since 1983. 

Disparities  in  income  per  head  between  Member 
States  have  narrowed  significantly  over  the  same 
period. This is largely due to a catching up on the part 
of the cohesion countries — Spain, Portugal, Greece 

Income  disparities  between  the  regions  of  the 
Union  have  remained  largely  unchanged  over 
time:  in the 25 best-off  regions  income  per  head 
rose marginally  from  140% of the Union  average 
to 142% while there it increased in the 25 poorest 
regions from 53 to 55%. Nevertheless, the poorest 
—  'Objective  1' — regions  as a group  improved 
their average level of income per head by 2/2  per 
centage points from 64.6% to 67.2%. 

Executive Summary 

Over  the  past  decade,  regional  income  disparities 
widened  in  all  Member  States,  in  which  they  are 
measured,  with  the  exception  of  the  Netherlands. 
Similarly, regional differences in unemployment rates 
also increased  within many Member  States, with the 
UK  as  a  notable  exception.  In  France,  Germany 
(West)  and  other  countries  this  has  gone  hand-in-
hand  with  a  more  unequal  distribution  of  personal 
income and a fall in the share of wages in total income. 

Across the Union as a whole, the incidence of unem 
ployment has become much more uneven. While over 
the ten years,  1983 to  1993, the  25 regions with the 
lowest  rates  of  unemployment  were  able  to  reduce 
their  average  rate  even  further  from  4.8%  to  4.6%, 
there  has  been  a  dramatic  increase  from  17.2% to 
22.4% in the 25 regions with the highest rates. 

Moreover, unemployment tends to have the most serious 
effects on weaker social groups. Some 5 million young 
people, or 21 % of the total, are without a job. The propor 
tion of women in paid employment has increased largely 
due to the expansion of service employment and  part-
time working. On the other hand, the rate of unemploy 
ment of women remains, at 121/2%. considerably higher 
than that for men at 9%1/2-

People  without  qualifications  are  particularly  vulner 
able to long-term unemployment. Nearly half (49%) of 
the  unemployed  have  been  without  a  job  for  more 
than a year. In view of this, it is unsurprising that many 
people live below the poverty line. In several Member 
States their number has been rising, especially in the 
UK, Italy and France. 

Socio-economic trends are clearly not the only deter 
minants of the quality of life of the Union's people. The 
preservation  of  peace  and  respect  for  fundamental 
rights  are  real  even  if  they  are  generally  taken  for 
granted. Nevertheless, they are an essential basis for 
the  success  of  efforts  aimed  at  the  promotion  of 
harmonious  development. 

Years of work on indicators to measure quality of  life 
in the broader sense, and the more recent  reflections 
in the  Union  on the  'greening'  of  national  accounts, 
have identified the limitations of conventional  income 
measures  such  as  GDP,  even  if  as  yet  there  is  no 
operationally  viable  alternative.  Overcoming  these 
limitations  would  allow  due  account  to  be  taken  of 
environmental  effects,  and  more  broadly  of  the sus-
tainability of economic  development. 

Role and achievements 

of Member States' policies 

Member  States'  policies  are  the  Union's  primary 
instruments  for  achieving  cohesion.  In  that  sense, 
'solidarity  in the  Union  begins  at  home'.  Moreover, 
Member  States  have  the  means  at  their  disposal. 
Public spending accounts for between 40% and 60% 
of national GDP compared to the Community Budget 
of about  1.2% of Union GDP. 

The  measures  undertaken  by  the  Member  States 
to strengthen cohesion have generally  gone in the 
right  direction.  Macro-economic  policies  have 
brought about significant progress in nominal con 
vergence. Inflation rates have decreased to levels 
which  are  among the  lowest  in 30 years.  In Portu 
gal,  Spain,  Italy  and  Greece,  inflation  has  come 
down  but  remains above the Community  average. 
Interest  rates  have  also  declined  and  the  dif 
ferences  between Member  States have narrowed, 
thus  improving  the general climate  for  investment 
and  growth.  Public  deficits  and  debt,  however, 
remain  a  major  causer  for  concern. Over  the  last 
decade  the  financial  burden  of  debt  repayment 
has  increased  on  average  by  1.2  percentage 
points  of  GDP,  and  in  Greece,  Finland  and  Italy 
the  rises  has been even  more  dramatic. 

Through  Member  States'  public  expenditure  and 
taxation,  interregional  transfers  of  resources  take 
place.  According  to  a  specially  commissioned 
study  of  seven  countries  (containing  over  80% of 
the  Union  population)  net transfers  amount  to 4% 
of  the  GDP  of  donor  regions  and  8%  of  that  of 
recipient  regions.  These  transfers  have  a  signifi 
cant cohesion effect within Member States, reduc 
ing  regional  income  disparities  by  20-40%.  A 
major  explanation  for  this  redistributive  effect  is 
the fact  that  Member  States spend  about  50-70% 
of  total  public  expenditure  on  education,  health, 
social  security  and  welfare,  housing  and  cultural 
activities. 

Expenditure  on  employment  policies,  regional 
policies, and  RTD accounts  for  between 6 and  14% 
of the total. RTD spending is highest in relation to GDP 
in the more prosperous countries and is concentrated 
in the richest regions in all countries for which regional 
data exist. 

Executive Summary 

So  far  as  employment  policies  are  concerned, 
Member  States  have made a concerted  effort  to 
bring  about improvements, concentrating  on the 
five  priority areas agreed at the Essen Summit in 
1994: improving labour skills, promoting more em 
ployment  intensive  growth,  reducing  non-wage 
labour  costs,  improving  the  effectiveness  of 
labour market policies and assisting those hardest 
hit by unemployment. 

The regional policies operated by Member States 
themselves cover some 46.7% of the Union's total 
population. Around half cover the least developed 
regions (in the sense of Art. 92.3.a of the Treaty). 
For these, the maximum aid levels vary  between 
30% and 75% of eligible investment expenditure. 
For  national  regional  aids  authorised  under 
Art.  92.3.c  of  the Treaty  the  maximum  aid  limits 
vary  between  10-30%, only Finland and Sweden 
being  permitted to go up to 35% for  a small  per 
centage of their population. 

These  results  in  terms  of  population  coverage 
and  aid  intensity  are  the  outcome  of  actions  by 
the  Commission  under  competition  rules  to  con 
trol  population  coverage  and  aid  intensities  ap 
plying  to  national  aid  schemes  for  regional 
purposes. 

The variation of aid intensities has helped the least 
favoured regions to compete for new investment, 
although, richer  Member  States can afford to use 
more  public  money  to  support  new  investment 
than  poorer  ones. Consequently,  between  1989-
93,  national  regional  state  aid  per  capita was on 
average much higher in Eastern Germany and the 
Mezzogiorno  in  Italy  than  in the  cohesion  coun 
tries,  with  the  result  that  two  thirds  of  the  total 
amount of regional national state aid in the Union 
is spent in Germany and Italy. 

The contribution of 

Community policies 

Due to their  specific  nature and objectives  there 
are  wide  differences  in  the  contribution  which 
Community  policies  make  to  the  attainment  of 
cohesion objectives. Important examples are con 
sidered below. 

Social policies, education 
and vocational training 

Social policies favour by their  nature the process 
of  integration  and  cohesion.  Their  impact  has 
been  particularly  important  in  labour  law,  health 
and security at work, free movement of people and 
equal opportunities  for men and women. Beyond 
this and through, for example, the social dialogue, 
the Union has acted as a catalyst for the promotion 
of basic social rights and values. Support for edu 
cation and vocational training  plays, with modest 
but well targeted spending, a similar role as cata 
lyst for  stimulating  the free  movement  of  people, 
for raising competitiveness and for enhancing the 
opportunities of individuals. 

Environmental policies 

By promoting the notion of sustainable development, 
environmental policy is also directly relevant for cohe 
sion. The starting position of the cohesion countries 
is a favourable one and pollution is less in relation to 
both population and GDP than in the richer Member 
States. On the other  hand, expenditure  on environ 
mental protection is lower than anywhere else in the 
Union. The  cohesion  countries  are  faced  with the 
huge task of implementing many environmental pol 
icy  measures,  covering  for  example,  fuel  quality 
standards,  lower  vehicle  emissions,  nitrates  and 
water quality. Investment needs up to the year 2005 
have been estimated to amount to 17 billion ECU for 
the four countries together.  Expert studies  come to 
the conclusion that environmental objectives can be 
met, with possible gains in GDP and employment, by 
introducing  an  appropriate  package  of  fiscal 
measures, charges and public expenditure. 

RTD 

The  RTD  policy  of  the  EU  is  aimed  at  promoting 
European competitiveness  through scientific excel 
lence. RTD programmes have sought to exploit Euro 
pean potential in technology and innovation. This has 
meant a greater concentration of research activities 
in the major specialist centres most of which are in the 
North where a limited number of RTD-islands stand 
out. To counteract  this, efforts  have  been  made to 
integrate  less-developed  and  more  peripheral  re 
gions.  Research  programmes  have  developed  re 
search capabilities in weaker Member States and as 
a consequence, their  institutes  are  becoming more 

Executive Summary 

involved, strengthening the scientific and technologi 
cal base of these countries and accelerating innova 
tion and economic development in the regions over 
the longer term. 

Internal Market and trade policy 

The  most  far-reaching  of  the  Union's  framework 
policies to raise competitiveness has been the Single 
Market  Programme  (SMP)  which  has  swept  away 
many of  the obstacles  to trade  and created  a ge 
nuinely integrated European economy. Fears that this 
would overwhelm the poorer countries have not been 
borne out in practice. Spain and Portugal appear to 
have been the- most successful in taking advantage 
of increases opportunities for exporting to their part 
ners. Ireland also appears to have benefited but the 
impact has been marginal for Greece and Southern 
Italy. 

There is a wide consensus on the positive effects of 
trade on growth and also, therefore, on employment. 
But the reduction of external protection needs to be 
accompanied by internal economic adjustment. High 
tariff  industries  account  for  almost  half of  industrial 
employment  in  Portugal  and  Greece, and the four 
cohesion countries are generally more vulnerable to 
trade liberalisation. All have trade deficits in services 
which is one of the sectors expected to benefit from 
the recent Uruguay Round liberalisation. 

Competition policy 

In applying rules on state aids for regional purposes, 
the Commission's objectives have been two-fold: en 
suring that aid is concentrated on the most disadvant 
aged  regions  and  maintaining  a  differential  in  aid 
intensity between regions, to enable the poorest ones 
to compensate for their structural weaknesses. 

Network policies 

The net cohesion effect of EU transport, telecommuni 
cation and energy policy is difficult to assess. In all 
three areas, liberalisation  is likely to reduce overall 
costs,  leading  to  greater  competitiveness  and  in 
creased growth and employment. The effects on the 
periphery depend largely on the extent of the reduc 
tion in transport or transmission costs brought about. 
In transport policy, cohesion countries stand to gain 
in absolute terms from trans-European networks but 
not necessarily in relative terms. With regard to tele 

communications policy, advanced services essential 
to the Information Society are not common in poorer 
regions because of their inferior infrastructure. There 
is, therefore, a risk of creating an Info-rich/lnfo-poor 
divide — with negative effects on the innovative ca 
pacity  of  the  whole  economy.  Since  the  cohesion 
countries have relatively little domestic energysupply, 
however, they stand to benefit from energy liberalisa 
tion and better access to energy sources. 

The CAP and fisheries policy 

The Common Agricultural Policy (CAP)accountsfor 
about 50% of the Community budget and involves a 
significant redistribution of income between both re 
gions  and  individuals  as  a  result  of  supporting 
farmers indirectly through market prices and directly 
through subsidies. According to estimates, the 1992 
reform  had  a  positive  cohesion  effect,  with  more 
cohesion countries receiving net transfers after than 
before. A detailed description of the situation and of 
possible explanations are provided in the report. 

Within many Member States, it is possible to discern 
a positive effect of the CAP on regional income dis 
tribution and this has increased after the 1992 reform; 
nevertheless,  the  pattern  of  net  transfers  is  highly 
differentiated. Before the reform, some estimates in 
dicated that 80% of transfers went to the 20% most 
profitable  farms; after  the  reform, gaps  have been 
reduced, but not by as much as if the Commission's 
proposal to put ceilings on direct aids had been fully 
accepted. 

Although fishing is a relatively small sector of activity 
and employs comparatively few people, it can be very 
important  in  some  of  the  less  developed  regions 
where alternative job opportunities are scarce. Fish 
eries  policy,  by  supporting  the  restructuring  of the 
industry in the face of limited fish stocks, will help to 
increase  competitiveness  and  maintain jobs  in the 
regions concerned over the medium-term. 

Effects of EU structural policies 

The main features of  present EU structural  policies 
are summarised in the Box. The  1988 reform of the 
Structural Funds has significantly increased their re-
distributive  effect  in favour  of  the  less  prosperous 
Member States and regions. The main reason for this 

Executive Summary 

EU structural policies: main features 

~ 

The Union has six major financial instruments with which to implement its structural policies: 
>  the Regional Development Fund, the Social Fund, the EAGGF-Guidance, the financial,: 
' instrument for  fisheries  guidance, the  Cohesion, Fund and  Joans fronrf the. European ., 
Investment Bank (EIB). the Cohesion Fund and the EIB are based on a project financing 
. approach and are governed by their own specific rules. The Structural Funds operate within 
\  à common framework  based on the basic  principles  of  concentration, programming, 
partnership and add'itionàlity., - -  ^1 ? ^^  ?>> • — 41 ;:^ *.  *;fjru  "^  ?  " l^x  J 

The resources for EÙ structural policies have Increased substantially from 3.7 billion ECU 
;  in 1985 to 18.3 billidn ECU in 1992 and to 33 billion ECUin 1999. For the period of 1994-99, 

around ,170 billion ECU is available from the Community's Budget for structural policies. 
This represents about a third of total Osmmunity spending and 0.45% of Community GDP. 
= Over the decade 1989-99, spending amounts cumulatively to 6.5% of annual Community 
GDP. A comparison makes its importance clear: MarshalfaJd to post-war Europe was 
equivalent to 1% of US GDP per year and amounted cumulatively (1948-51) to 4% of US 

The interventions of the Structural Funds are concentrated on four regional policy Objec 
tives which account for 85% of the funding: 

. /  *X 

»,  v 

• '  Objective 1, for regions where development is lagging behind (about 70%); 

•  Objective 2, for the adjustment of regions worst affected by industrial decline (11 %); 

•  Objective 5b, for structural adjustment in rural areas (4%);  -

•  Objective 6, for adjustment of sparsely populated areas (0.5%). 

" 

Three objectives apply Community-wide, having no geographical limitations. They receive 
15% of the funding: 

^ '. 

S 

^ 

•  , Objective 3 focuses on long-term and youth unemployment; 

•  Objective 4 assists the adaptation of workers to industrial change; 

• -  Objective 5a promotes adjustment in the agricultural and fisheries sectors. 

90% of the total volume of financé is decided upon at the initiative of Member States. For 
the period of 1994-99 more than 300 programmes were Égreed in partnership between 
the Member States and the Commission, about half of them for Objective  1. Some 9% of 
the finance is reserved for Community Initiatives. Under 13 different themes, there exist 
about 400 Community  Initiative programmes. Some  1% of  the finance is reserved for 
'  technical assistance and innovative measures. Most of this is decided by the Commission 

after calls for tender, 

'  - 

. ». *:  ; / ; , . :*  • 

.Three broad areas of intervention are covered by the Union's structural policies; infrastruc 
ture, human resources and productive investment. Some 30% of the Structural Funds is 
spend on infrastructure investment in, for example, transport, telecommunications, energy, 
water supply and environmental protection. A further 30% is devoted to strengthening 
education and training systems and supporting labour market policies. The remaining 40% 
of total funding goes mainly on productive investment is much of it aimed at building a 
dynamic business environment and supporting investment aid schemes for industry, in 
t * :-\ - -
* particular,'for small and medium-sized enterprises. ?  v'v^Vr.y;:  .; - ^,' :-P\ " ; / 

Executive Summary 

But it is not only the poorest  Member  States which 
have benefited. Estimates show that around 30-40% 
of  all  funding  that  flows  into  the  poorest  Member 
States returns to the richer ones in the form of pur 
chase of know-how or capital equipment. 

Moreover, encouraging results have also been recorded 
for  other  Objectives.  The  poorer  regions  and  social 
groups in many of the richer Member States have, with 
the help of the Union's structural policies, been encour 
aged to exploit economic opportunities. In Objective 2 
regbns, for example, estimates suggest that the pro 
grammes created or maintained 530,000 jobs in netterms 
in the period 1989-93. For Objective 5b, the figure is an 
estimated 500,000 jobs for the period 1989-99. Objective 
3 has financed between 2% and 15% of Member States' 
active labour market policies with a specific  focus on 
reducing exclusion. 

In addition, through  specific  Community  Initiatives, 
although with varying degrees of success, the Union 
has helped to target European problems, to identify 
new opportunities  and to improve  interregional and 
cross-border  relations  in  order  to  tackle  common 
problems. 

Part of the added value of EU policies relates to the 
emphasis on innovation linked to the specific qualities 
of the delivery  system itself.  It has helped Member 
States to target resources on the worst-affected areas 
and  problems. Solutions  are organised  to  regional 
and  social  problems  through  medium-term  pro 
grammes which are focused on investment and inno 
vation..The  specific  features  of  Community 
interventions  have  in some cases  enhanced  policy 
changes and the development of new structures. An 
example  of  this  is  Objective  4's  preventative  ap 
proach  to  unemployment  resulting  from  industrial 
change. The devolution of responsibilities is encour 
aged, in particular through partnerships formed with 
those who benefit most from the programmes. Addi 
tional financial resources are levered from public and 
private sources. A Europe-wide framework of oppor 
tunity has been created through co-operation across 
borders. 

Outlook 

The Union faces major challenges including globali 
sation,  rapid  technological  change,  EMU  and 

was the creation of Objective 1  which was effectively 
designed to ensure that resources are concentrated 
on the regions with the lowest GDP per head. Under 
Objective 2, there is almost no equalisation effect for 
the  period  1994-99  towards  the  regions  worst  af 
fected  by  industrial  decline.  In the revisions  to the 
regulations in 1993, less weight was attached to these 
criteria compared to the previous period. 

In the first programming period, 1989-1993, an over 
all income equalisation (in terms of GDP per head) of 
3% was achieved with transfers of 0.3% of EU GDP. 
For the current programming period, funding equival 
ent of 0.45% of EU GDP is estimated to result in an 
equalisation effect of 5%. The equalisation effect is, 
therefore, about 10 times the original amount of public. 
finance. This  is similar  to the  income  redistribution 
effect achieved by the "Finanzausgleich" in Germany 
in  1990  or,  alternatively,  twice  as  high  as  that  for 
specific purpose grants in the USA. 

The primary purpose of Community transfers is not to 
redistribute money. Instead they are intended, through 
investment, to strengthen the economic base in recipient 
regions, including human capital formation. Union struc 
tural policies have contributed to a significant narrowing 
of the gaps between poorer and richer Member States. 
Structural Funds assistance in the 1989-93 programming 
period, are estimated to have increased growth by 0.5% 
a year in the four cohesion countries, from 1.7% to 2.2%. 
Given  the  increase  in assistance  in the  present pro 
gramming period (1994-99), the increase in growth may 
be even greater on average than 0.5% per year. The 
number  of jobs created or maintained during the first 
programming  period  is estimated  at over  500,000; ie 
2.5% of the total. 

In  Objective  1  regions,  structural  policies  have 
brought about a general improvement in basic infra 
structure  and  helped  to  modernise  their  economic 
base. Concrete examples are numerous: in Greece, 
the  number  of  towns with  a waste water  treatment 
system will more than double  by 1999, thus serving 
71% of the population. In Portugal, firms assisted by 
the  Union  have  achieved  productivity  increases of 
around 5% per year and employment growth of 2.5% 
per year. In total, more than 7,000 industrial projects 
have been undertaken with Union aid. In Ireland 50% 
of the students in post-compulsory secondary voca 
tional  education  have  received  Community  assist 
ance. Some 14,000 km of major roads will have been 
built or upgraded in Spain by 1999. 

10 

Executive Summary 

enlargement. The European model of society remains 
the most appropriate framework for confronting them. 
Market  forces  and  entrepreneurial  initiative  are 
necessary  for  seizing  new opportunities.  Solidarity 
and mutual support are an equally important basis for 
progress,  not  only  for  social  reasons  but  also for 
optimising overall economic  benefits  since there is 
ample  evidence  of  the  detrimental  effects  of  in 
equality on growth. 

Cohesion  must  therefore  be  further  strengthened. 
Nevertheless, the report at this stage avoids making 
concrete proposals for change. Rather, a number of 
themes are identified as a basis for further discussion 
and common reflection. Their proper treatment,  re 
specting fully of the principle of subsidiarity, should 
lead to better policy-making for enhanced cohesion 
in the future. 

For  many Member  States, the  emergence  of greater 
internal regional and social disparities will be a matter of 
concern. While the need for sound public  finances is 
indisputable, major questions for policy-making arise: 

•  how to secure sufficient  investment,  including in 

human resource development; 

•  how to favour job creation; 

•  how to make  national  structural  and  social pro 
grammes more effective in coping with widening 
disparities. 

For EU non-structural policies several themes need to 
be addressed, including: 

• 

• 

• 

for the CAP, how to put into practice the intention to 
continue reform in such a way that environmental and 
social benefits are further developed in the context of 
a more integrated rural development policy; 

for state aid policy, how to combine administrative 
simplification with stricter control on state aid ex 
penditure; 

for network policies, how to develop public service 
contracts/universal service obligations in parallel 
with progress on liberalisation of markets, and 

For EU structural policies, it is recognised that there 
is  scope  for  improvements  in  effectiveness,  for 
greater  performance  orientation  and for enhancing 
their policy relevance. The main question to be ad 
dressed to  make  structural  policies  more  effective 
are: 

•  how to target scarce resources better on the most 

serious problems; 

•  how to optimise the use of grants and loans and 

public and private funding; 

•  how to simplify procedures;  " 

•  how to  strengthen  subsidiarity  by  clarifying  the 
respective roles of Member States and the Union, 
to broaden participation at regional and local level 
and to involve with the social partners; 

•  how to maintain sufficient flexibility to respond to 

new opportunities and challenges. 

Orientating  structural, policies  towards  increasing 
performance depends on effective  monitoring, con 
trol and evaluation. It requires further examination of 
the  additionality  of  EU transfers,  absorptive  capa 
cities  of  the  Member  States,  built-in  incentives  to 
promote  quality  and  competition  for  scarce  re 
sources. 

Enhancing  policy  relevance  is an ongoing  process 
which has already begun with the preparation of new 
Objective 2 Programmes for  1997-99 and which will 
be followed by the mid-term review, in particular for 
Objective  1. This will provide the basis for strategic 
thinking on future priorities. 

Finally, the general climate of financial rigour in Mem 
ber States has implications for the Union's policies. A 
major theme will be how to combine, in a balanced 
way,  fiscal  discipline  with  solidarity  both  with  the 
poorest Member States and regions and with the most 
disadvantaged regions and people in the more pros 
perous Member States. 

•  more generally, how to seize the opportunities for 
synergy  between  policies,  including  structural 
policies. 

11 

Executive Summary 

12 

Chapter 1 
What do we mean by cohesion? 

The first Cohesion Report is presented in accordance 
with Article 130b  of the Treaty on European  Union. 
The Treaty calls on the Commission to 'submit a report 
to the European Parliament,  the Council,  the  Econ 
omic and Social Committee and the Committee of the 
Regions  every three  years on the progress  made 
towards achieving economic and  social  cohesion 
and on the manner in which the various means pro 
vided for in this Article [130b] have contributed to it'. 

The  organisation  of  society  in  European  countries 
reflects the values of the social market economy. This 
seeks to combine a system of economic organisation 
based on market forces, freedom of opportunity and 
enterprise with a commitment to the values of internal 
solidarity  and  mutual  support  which  ensures  open 
access  of  all  members  of  society  to  services  of 
general  benefit  and  protection.  With  growing 
European integration, it is  inevitable that the Union 
should  increasingly  share  responsibility  with  the 
Member States for the maintenance of this European 
model of society. The Union, no less than the Member 
States,  must  also  have  the  means  at  its  disposal 
— the cohesion policies — to do so. 

Union's cohesion objective. General aims such as 
solidarity and mutual support must be distilled into 
substantive,  and  measurable,  economic  and 
social targets. 

In  its  methodological  approach  to  economic  and 
social cohesion the present Report takes as its inspir 
ation Article  130a of the Treaty on European Union 
where it is set in terms of 'harmonious development' 
with  a specific  geographical  dimension:  'reducing 
disparities between the levels of development of the 
various regions and the backwardness  of the least 
favoured regions, including rural areas'. This reflects 
an explicit recognition that wide disparities are intoler 
able in a community, if the term has any meaning at 
all. 

Imbalances do not just imply a poorer quality of life 
for the most disadvantaged regions and the lack of 
life-chances  open to their  citizens,  but  indicate an 
under-utilisation of human potential and a failure to 
take  advantage  of  economic  opportunities  which 
could benefit the Union as a whole. 

Until now, the national and Community level policies 
to  promote  cohesion  have  not  been  subject  to  a 
single,  comprehensive  examination,  although  the 
Commission has reported from various perspectives: 
on  the  situation  in  the  regions,  employment  and 
macroeconomic  developments.  The  first  Cohesion 
Report represents an opportunity to consider syste 
matically how policies at these different  levels have 
contributed  to  European  cohesion  and  to  examine 
their interaction. 

A fundamental  prerequisite  for  this  analysis — if 
only  for  operational  purposes  —  is  to  clarify  the 

So far as the geographical dimension is concerned, 
the reduction of disparities between Member States 
and regions is held, following the Commission's 1993 
White Paper on these themes, to mean convergence 
of  basic  incomes  through  higher  GDP  growth, of 
competitiveness and of employment.  Improving the 
competitiveness of the weaker regions is particularly 
important  in  the  context  of  the  European  Single 
Market. By permitting the free  movement of  goods 
and services, labour and capital, the Single Market 
has removed obstacles to trade creating conditions 
for faster  growth in the Union as a whole  and new 
opportunities for increased prosperity in its Member 
States. 

13 

Chapter 1  What do we mean by cohesion? 

So far as social cohesion is concerned, this  is more 
difficult to define in operational terms. A starting point 
would  be to  link social cohesion with the  objectives 
of  the  European  model of  society  which  is  founded 
on  the  notion  of  the  social  market  economy  as  de 
scribed  above.  The  solidarity  dimension  is  given 
practical  effect  through  universal  systems  of  social 
protection,  regulation  to  correct  market  failure  and 
systems of social dialogue. In addition, policies which 
promote  solidarity  and  mutual  support  are  them 
selves  a  factor  in  strengthening  the  productivity  of 
European society and contributing  to economic  and 
social well-being. 

The promotion of social cohesion requires the reduc 
tion  of  the  disparities  which  arise  from  unequal 
access  to  employment  opportunities  and  to  the  re 
wards in the form of income. Such inequality tends to 
have serious social consequences  through the  mar 
ginalisation  of  sections  of  society  such  as  the  long-
term  unemployed,  the  young  unemployed  and  the 
poor. The incidence of poverty is also a result of policy 
choices  affecting  inter-personal  income  transfers. 
These are all measurable aspects of social  cohesion 
which are considered in the analysis of this  report. 

More  generally,  it  is  important  to  underline  that 
increasing  cohesion  in the  Union  is  about  change. 
Improvements  in living  standards  and the  reduction 
in  economic  and  social  disparities  depend,  to  an 
important  extent, on  increases  in productivity.  How 
ever,  increasing  competitiveness  almost  inevitably 
implies change; the acceptance of new technologies, 
new ways of working, the need to learn new skills. This 
can  give  rise  to  adjustment  problems  in  the  labour 
market  if  economic  growth  is  slow  and  job  creation 
is  insufficient  to  compensate  for  the  productivity 
growth  which  derives  from  increased  competitive 
ness.  However,  experience  shows  that  'freezing' 
existing  economic  structures to  protect jobs  is not a 
viable,  lasting, solution. Delaying the  introduction of 
change  can make it a more difficult  and  painful  pro 
cess later on. 

More than ever, national and regional economic  perfor 
mance depends on flexibility in an ever more competitive, 
global marketplace. The evidence shows that countries 
and  regions  can combine  improved  productivity  (high 
output  per  worker)  and  high  levels  of  employment 
(the  percentage  of the working-age  population  in em 
ployment).  Thé  two  are  reconciled  over  time  by  the 
re-employment of workers in new activities. Innovation is 

at the heart of this process. Technological and organisa 
tional change and new demands generated both by this 
and by rising real income levels are factors which create 
new  opportunities to  replace  the  old. Changes  in  the 
composition of employment are part of the process t>y 
which successful countries grow and develop economi 
cally. 

This suggests that the aim must be to accelerate the 
rate  at  which  new  opportunities  are  created  while 
attempting  to  ensure  that  labour  force  skills  match 
requirements.  Where  the  scale  of  redeployment  is 
substantial or where workers have difficulty in finding 
new employment opportunities and the adjustment to 
change  is  slow,  there  may  be  a  role  for  cohesion 
policies in attempting to reduce the rate at which jobs 
are lost in declining sectors. But the preceding ana 
lysis suggests that such an approach ought not to be 
generalised  and  ought  not  to  be  pursued  for  very 
long. 

While  the  report  places  much  emphasis  on  quanti 
fying trends and policy impacts, it is important to  be 
aware of the  limits and  risks of  measurement  in this 
context.  First,  it  is  necessary  to  avoid  the  wider 
political  aims  of  the  European  Union  for  its  citizens 
becoming reduced to a debate on the relative merits 
of different macro- and micro-economic  policies. The 
Union's  political  goals  of  solidarity,  mutual  support 
and cohesion may be pursued through largely econ 
omic  means, but, as underlined  above, these goals, 
nevertheless, remain the irreducible ambitions which 
structure European society and help to determine  its 
sense of  identity. 

Secondly,  although  considerable  strides  have  been 
made in the development of techniques of evaluation, 
economic policies inhabit a complex world where it is 
not  always  possible  to  quantify  outcomes  precisely 
or, indeed, to assign effects to particular  causes. 

Thirdly, the outcomes tend to emerge over the longer 
term,  perhaps  especially  in  the  EU  context  where 
cohesion policies address the often extremely disad 
vantaged position of the weakest Member States and 
regions with the aim of of  improving the  supply-side 
conditions for ecqnomic activity to develop. 

While the preceding  represents the essentials of the 
operational approach to cohesion, four further  points 
should be made. First, it is important to underline that 
cohesion  is  concerned  with  increasing  economic 

14 

ined, from those which have a major budgetary signi 
ficance at the Community level — notably agriculture 
and research and development—to those which are 
largely concerned with establishing a common Com 
munity framework for the development of the sector 
— such as the policies to establish the Single market 
or  to  reinforce  the  European  dimension  in  sectors 
such as transport, telecommunications  and energy. 
The policies examined in this part do not have cohe 
sion as their primary objective but because they are 
concerned  either  directly  or  indirectly  with  issues 
such as competitiveness or quality of life they gener 
ally have cohesion effects. 

Chapter 5 of the Report examines the contribution of 
the  Community's  cohesion  policies  themselves. 
These have existed in their modern form since 1989, 
and the report presents the first extensive opportunity 
to evaluate their  contribution —  not only their  direct 
impact on economic  and social disparities, but also 
their wider contribution to improving the quality of life 
and giving substance to the idea of European citizen 
ship. 

Chapter  6"contains the Commission's  reflections on 
the lessons learned from experience in the operation 
of  cohesion  policies,  on  the  problems  which  have 
emerged and on the appropriate response to these. 

Finally, Chapter  7 summarises the main conclusions 
of the report. 

Chapter 1  What do we mean by cohesion? 

growth and new opportunities  in the  poorer  regions 
and  for disadvantaged  social groups and  does not 
imply a reduction in either growth or jobs for others 
('negative convergence'). Secondly, improving econ 
omic  circumstances  is  not  an end  in  itself,  but the 
means to an end. The creation of wealth should widen 
opportunity and raise living standards and the quality 
of life generally. In the European context, it should not 
only  be  a  consequence  of  closer  integeration  but 
should also contribute to increasing the exchange of 
ideas across national borders and appreciation of the 
benefits  of  solidarity.  Thirdly,  it  should  heighten 
awareness of the need for development to be sustain 
able and for a long-term view to be taken of the use 
of natural resources. 

Fourthly, cohesion is not to be confused with harmoni 
sation or uniformity. Its sole aim is to achieve greater 
equality  in  economic  and  social  opportunities. 
Cohesion and diversity are not conflicting objectives, 
but can be mutually reinforcing. 

Outline of report 

Chapter  2  quantifies  the  extent  of  the  cohesion 
challenge: the nature  and  scale  of  economic  and 
social  disparities  between  Member  States,  re 
gions and social groups. It focuses on the gaps in 
income per head, competitiveness and unemploy 
ment between different  parts of the Union, as well 
as the situation of disadvantaged social groups in 
relation  to  their  access  to  employment  and  the 
related  incidence of poverty. 

The  remaining  chapters  of  the  Report  consider  the 
contribution  of  national  and  Community  policies to 
reducing  the  gaps  and  hence  to  the  promotion of 
convergence and cohesion. 

Chapter 3 contains observations on the contribution 
to cohesion of policies which are the responsibility of 
the Member States. Macro-economic policies to pro 
mote stability are examined in this context, as well as 
national policies designed  to redistribute  income at 
the  interpersonal  level  or  promote  national  and re 
gional competitiveness. 

Chapter  4 considers how the various policies of the 
Union in different sectors contribute  to the achieve 
ment of cohesion. A wide range of policies is exam-

15 

Chapter 1  What do we mean by cohesion? 

16 

Chapter 2 
The convergence process and cohesion: recent trends 

The  purpose of this chapter  is to examine the extent 
of  geographical  and  social  disparities  in  the 
European  Union with  particular  reference  to  income 
per head and employment. 

A  key  question  is  whether  gaps  between  Member 
States,  regions  and  social  groups  have  tended  to 
widen or narrow over time. According to a number of 
studies, convergence is a slow process and regional 
differences tend to be reduced by not more than 2% 
a year over the long-term. 

For  convergence  to occur,  it is not enough  for  the 
situation  in  the  weaker  parts  of  the  Union  or  the 
position  of  disadvantaged  social  groups  to 
improve  in  absolute  terms.  Both  must  improve  in 
relative  terms,  relative  to  other  regions  and  more 
privileged  groups. 

This  chapter  seeks,  in the  first  instance, to  quantify 
prevailing disparities. As outlined in Chapter  1, how 
ever, cohesion is also about more qualitative aspects 
—  the  sustainability  of  economic  growth  and  the 
quality of European citizenship. These are discussed 
in the final section of the chapter. 

2.1 Income and employment 

The enlargement  of the Community  from six coun 
tries  and  a  population  of  175  million  to  15  coun 
tries  and  a  population  of  370  million  has  been 
accompanied  by  an  increase  in  its  diversity,  not 
least  in  socio-economic  terms.  Major  differences 
exist  between  the  Member  States  and  regions  in 
terms  of  incomes  per  head  and  their  capacity  to 
generate  jobs. 

Cohesion between Member States 

Income  per  head 

At the Member  State level, income  per  head today 
(as  measured  by  per  capita  GDP  in  1995)  is  sig 
nificantly  —  10%  or  more  —  above  the  Union 
average  in  Belgium,  Denmark,  Luxembourg  and 
Austria.  It  is  also  above  average  in  Germany, 
France,  Italy  and  the  Netherlands,  around  the 
average  in  the  UK  and  slightly  below  in  Sweden 
and  Finland.  The  remaining  four  Member  States 
have  income  per  head  between  64% of the  Union 
average  (Greece)  and  90% (Ireland).  The  'cohe 
sion  gap'  is  most  clearly  seen  in  the  fact  that 
average  income  per  head  in  the  two  poorest 
Member  States,  Greece  and  Portugal,  is  some 
40%  below  that  in  the  four  most  prosperous 
Member  States  listed above. The gap  is  consider 
ably  wider  now  than  immediately  before  the  first 
enlargement  of the Community  in  1973 when GDP 
per head in Germany at one extreme was only 25% 
above that  in  Italy at the  other. 

But while the entry of Ireland in 1973, Greece in 1981 
and  Spain  and  Portugal  in  1986  resulted  on  each 
occasion  in the  gap  widening, the  key  issue  is how 
these  countries  have  fared  compared  to  the  other 
Member States over time. 

Taken  as  a  whole,  the  economies  of  the  Fifteen 
have  grown  at  an  average  rate  of  just  over  2%  a 
year over the past two decades, though there have 
been  considerable  cyclical  variations.  This  is 
slightly  less  than  in the  US over  the  same  period 
but  markedly  slower  than  in Japan  (though  Japan 
has  undergone  prolonged  recession  over  the 

17 

Chapter 2 The convergence process and cohesion: recent trends 

1990s). It is, nevertheless equivalent to GDP dou 
bling every 30 years or so. 

the Union average to below in the space of a few 
years. 

One of the most striking features of economic devel 
opments over this period has been the closer integra 
tion of Member States as witnessed by the growth in 
trade  between  them,  especially  during  the  1980s 
when for every country imports from other parts of the 
Community grew much faster than those from the rest 
of the world. For all Member States, trade with the 
rest of the Community now accounts for well over half 
of the total and for all apart from Germany, the UK, 
Ireland and Finland, for over 60%. 

There  have  been  some  differences,  however,  in 
the growth of individual Member States and — as 
discussed  in the  next  section — regions  (Graph 
1 ). Since the beginning of the 1980s, four Member 
States, Spain, Ireland, Luxembourg and Portugal, 
have  grown  on  average  appreciably  faster  than 
the  rest.  For  Spain  and  Portugal,  growth  accel 
erated in the period after their accession in 1986. 
For  the  rest,  apart  from  Greece,  Finland  and 
Sweden, growth has been close to the average. In 
the  case of  Finland and Sweden, there  has  been 
a reversal of economic fortunes without precedent 
in  the  Union  in the  post-war  years.  Both  experi 
enced a sharp fall in GDP in the early 1990s which 
led to their income per head declining from above 

This  is  particularly  striking  in the  case of Sweden. 
Over  the  10 years  1983 to  1993, GDP  per  head, 
measured in terms of  purchasing  power  standards 
(PPS), declined from 12% above the Union average 
to 2% below. In Finland, GDP per head measured in 
the same terms was the same as the Union average 
in 1983 and 9% below in 1993. In both cases, the fall 
occurred largely after 1990 when output fell markedly. 
Both economies have experienced faster growth than 
the Union average since 1993, but they have some 
way to go to recover their former position among the 
wealthier European economies. The signs are espe 
cially positive for Finland where both investment and 
GDP have picked up strongly after several years of 
decline (though, asnoed below, this recovery is con 
centrated in certain regions). 

The Cohesion Four 

The  relative  growth  of  the  four  poorest  Member 
States,  Greece,  Spain,  Ireland  and  Portugal,  is of 
particular  relevance for cohesion. In 1983, the four 
had an average income per head of 66% of the Union 
average, and it remained at this level until after 1986 
(the year of accession of Spain and Portugal). Since 
then, annual growth in the four has averaged just over 

GDP per head in Member States, 1983,1988 and  1993 

1 180 

PPS (EUR15=100) 

• 1983 
• 1988 
• 1993 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

Chapter 2 The convergence process and cohesion: recent trends 

one percentage point above average, giving rise to a 
slow but steady process of convergence with the rest 
of  the  Union.  By  1993,  GDP  per  head  in  the  four 
reached 74% of the EU average, an increase over 10 
years of 8 percentage points). 

In general, strong  growth of the European  economy 
has tended to favour convergence. This was the case 
in  the  second-half  of  the  1980s  (Graph  2).  On  the 
other  hand, the  recession of the early  1990s greatly 
affected some of the weaker countries and disparities 
widened  again. Since  1994, growth  has resumed  in 
the Union and in these countries. 

Growth  of  the  Union  economy  as  a  whole  means 
that the weakest  Member  States have, in effect, to 
hit  a  moving  target  to  achieve  convergence. 
Though  they  have  tended  to  grow  at  an  above 
average rate, convergence  has been slow and the 
gap  in income  per head  between them and the EU 
average  diminished  by  only  around  a  quarter  in 
the  10 years  1983 to  1993. 

There  have  been  marked  differences  in  develop 
ments  between the four.  Ireland  has  recorded  the 
fastest  growth  of  any  Member  State  in  recent 
years,  maintaining  a  high  rate  even  during  the 
recession in the early  1990s. GDP per head, which 
stood  at  64%  of  the  European  average  in  1983, 
increased to 80% by  1993, rising further  to 90% in 
1995 and at the  present  rate will overtake  Finland 
in  1996/97. 

Relatively  high  rates  of  economic  growth  were  also 
achieved in Spain and Portugal, where GDP per head 
increased  by  7  and  13  percentage  points,  respec 
tively,  relative  to  the  Union  average  between  1983 
and 1993. Both countries were particularly hard-hit by 
the  recession,  however,  and  their  GDP  per  head 
remained  largely  unchanged  relative to the  average 
between  1993 and 1995. 

In  Greece,  GDP  per  head  increased  slightly 
relative to the rest of the Union  between  1983 and 
1993,  from  62%  of  the  average  to  65%,  though 
growth  has  tended  to  vary  widely  from  year  to 
year.  Whereas  in  1985,  1989  and  1991,  it  ex 
ceeded  the Union average, at 3 to  4%, GDP fell  in 
1987 and  1993  and  stagnated  in  1990. The  weak 
performances  in  1987  and  1990  are  particularly 
striking,  since they were  against  a background  of 
strong  growth  in the  rest  of  Europe. 

Employment  and  unemployment 

The major economic challenge facing the Union is the 
persistence of  high rates of  unemployment.  It is this 
feature above all which marks it apart from other major 
economies,  specifically  Japan  and  the  US.  It  is  a 
feature  which  dates  back  20  years.  From  1973  to 
1985,  unemployment  in  the  Fifteen  increased  each 
year from an average of only 2% to 10%. Although the 
economic  recovery  in the  second  half  of  the  1980s 
brought unemployment  down, it still left the rate only 
just  below  8%  in  1990 when  the  upturn  came to  an 
end. Unemployment peaked at over  11% in 1994 and 
in 1995, it was only slightly below this level, with over 
18 million  people  unemployed. By contrast, the  rate 
was under 6% in the US and 3% in Japan. 

Unemployment rates in Member States in 1995 varied 
considerably, from less than 5% in Luxembourg  and 
Austria  to  15%  or  more  in  Spain  and  Finland 
(Graph 3). They were also above average, at close to 
12%, in France and Italy. 

While the present rate of unemployment  in the Union 
is slightly above the level a decade ago, the number 
in employment  is,  nevertheless,  higher.  Despite  the 
image  to  the  contrary,  net  job  creation  has  been 
higher over the past  10 years than in the previous 10 
and the number  employed  in the Fifteen went  up  by 
almost 7 million over this period (although the employ 
ment rate — the proportion of the working age popu 
lation in jobs  has remained  unchanged). The rate of 
net job creation, however, has varied from year to year 

2  Disparities in GDP per head and 

productivity,  1983-93 

PPS (EUR15-100), standard deviation 

35 

20 

10 

Disparity In GDP per head (by region) 

30 

Disparity In GDP per head (by Member State) 

Disparity In GDP per person employed (by Member Stale) 

1883 1984 19851988 1987 1988 1989 1990 1991  1992 1993 

19 

Chapter 2 The convergence process and cohesion: recent trends 

reflecting the effects of the cycle. Growth in jobs was 
particularly  pronounced  in  the-second  half  of  the 
1980s when  a total of  10 million  net  new jobs  were 
created, a growth of  1 V2%  per year. 

not  much above the frictional  levels associated  with 
workers changing jobs. This remains broadly true for 
Austria, but in the fall in GDP in Finland and Sweden 
in the early  1990s was accompanied  by  large-scale 
job losses and dramatic rises in unemployment. 

In the period  1991 to  1994, however, the Fifteen lost 
an  estimated  4  million  jobs  although  employment 
started to grow again in 1995. However, at the same 
time, growth in employment  has been  accompanied 
by,  and  was  a  contributory  factor  in,  the  relatively 
rapid  expansion  of  the  labour  force,  predominantly 
among  women.  In  the  1980s,  labour  force  growth 
averaged nearly  1% a year, adding to the difficulty of 
reducing  unemployment rates. 

In general, economic  growth  has tended  to  be  less 
employment-intensive  in the EU than in the US which 
has experienced job growth of  11/2%  a year over the 
last decade or so, while in Japan the figure was just 
over  1% a year. In the Union, economic  growth over 
the  long-term,  averaging  just  over  2%  a  year,  has 
been  associated  with  productivity  growth  of  just 
under  2% a year and so has generated  an  increase 
in employment of around 72% a year. 

The 1995 enlargement of the EU added three Member 
States, where, throughout the  1970s and  1980s, un 
employment  was  much  lower  than  elsewhere  and 
two, Austria and Sweden, where unemployment was 

In Finland, the number  employed fell  by over 20% 
between  1990  and  1994,  largely  due  to  the  fact 
that trade with the former  Soviet  Union  collapsed, 
and  unemployment  soared  from  3%  to  18%, 
although  as  noted  above, the  economy  has  been 
recovering  since and unemployment  has fallen. In 
Sweden,  there  were  similar  difficulties,  some  of 
the  problems  being  associated  with  delays  in 
adjusting  macroeconomic  imbalances  and  with 
problems of international competitiveness  in some 
industrial  sectors.  Employment  fell  by  13% 
between  1990 and  1994 while unemployment  rose 
from  under  2% to  10%. 

The  Cohesion  Four 

Unemployment  in  Spain  —  the  highest  in  the 
Community—has tended to affect between one-sixth 
and onè-fifth of the labour  force since the  beginning 
of the  1980s, the proportion rising to almost a quarter 
in 1994. These fluctuations mirror the pattern of econ 
omic growth, unemployment declining significantly in 
the second half of the 1980s (when employment grew 

Unemployment  rates in Member States, 1983,1988 and  1993 

111983  11988 

•1993;: 

-#25;: 

20 

15 

10 

% labour force 

25  r 

20 

15 

Excluding new Lander 

10 

20 

B 

DK  D  GR 

'  E 

F  ^ I R L #H  ÏT 

L  ' *  N L l ï i ' A" 

' P ^ F I N>  "S'>.  UK*  !E15 

Chapter 2 The convergence process and cohesion: recent trends 

by 31/2% a year) and significant increases in the 1990s 
(when employment fell by almost 2% a year). 

Austria with a second cluster in the Benelux countries 
and northern Germany. 

In the case of Ireland, where unemployment has also 
been traditionally  high, the  strong  economic  perfor 
mance over the past 10 years or so appears at last to 
be reducing the rate. Economic growth of nearly 5% 
a year  in the period  1983 to 1993 was  accompanied 
by  growth  in  employment  only  slightly  above  the 
Union  average.  Unemployment  remained  around 
15% of the labour force, though recently the numbers 
employed  have  risen  markedly  and  unemployment 
fell  to  below  121A>%  in  1995.  Ireland  is  the  only 
Member  State where migration has been on a signifi 
cant scale over the past 15 years, net outward migra 
tion helping to keep down unemployment in the 1980s 
—  facilitated  by  the  existence  of  large  Irish  com 
munities  in the  UK,  the  US and,  increasingly,  other 
Member States of the Union — and net inward migra 
tion  increasing  the  work  force  in  the  1990s  as  the 
demand for labour  has risen. 

Portuguese  experience  has  been  similar  to  that  of 
Ireland  insofar  as  rapid  economic  growth  has  not 
been  matched  by  higher  than average job  creation. 
On the other hand, labour force growth in Portugal is 
much  slower,  partly  because  participation  among 
women  was  already  higher  at  the  beginning  of  the 
1980s  and  has  increased  by  much  less  than  in 
Ireland, and the rate of unemployment has remained 
below  the  EU  average.  The  unemployment  rate  in 
Greece  has  also  consistently  been  below  average, 
though,  in  the  1990s,  it  has  been  2-3  percentage 
points  higher than in Portugal. 

Cohesion between Regions 

Income  per  head 

Disparities can be demonstrated in a number of ways. 
For example, a simple comparison  between  regions 
with the highest and lowest levels of income per head 
(again  measured  by  per  capita  GDP  in  purchasing 
power  standards)  reveals that, in  1993, the  average 
level in Hamburg (D), the most prosperous  region in 
the Union, was 4 times that in Acores or Alentejo (P) 
and in Guadeloupe (F). 

Taking more representative groups, a comparison of 
the  10 richest  and  the  10 poorest  regions  indicates 
that, in  1993, in the  former,  average  GDP  per  head 
was  some  3.3  times  higher  than  that  of  the  latter, 
though  this  was  slightly  less  than  a  decade  earlier 
when the figure was 3.5 (Table 2.5). 

Over the  10 years  1983 to  1993, growth in GDP has 
varied  markedly  between  regions  (Map  2). The  dif 
ference  in  GDP  per  head  between  the  10  richest 
regions  and the  EU average  has widened  while  the 
gap  between  the  10  poorest  and  the  average  has 
narrowed at a slightly  faster  rate. Excluding  the  new 
German  Lander,  the  regions  making  up  the  two 
groups remained remarkably similar over the  10-year 
period. The top  10 regions  were exactly the same  in 
1993 as in 1983, though rankings changed within this 
group. Half of these are (West) German regions while 
the  rest  are  made  up  of  five  northern  capital  city 
regions: Bruxelles, lie de France, Wien, Luxembourg 
and  Greater  London. The  bottom  group  was  domi 
nated  by the  same  group  of  Greek  and  Portuguese 
regions in 1993 as in 1983 together with the Départe 
ments  d'Outre  Mer  (F).  With  German  unification, 
however,  one  of  the  new  Lander,  Mecklenburg-
Vorpommern, was included in this group in 1993, with 
three others being only just outside. 

Despite  these  considerable  differences  between 
Member States, economic disparities in the Union are 
most  evident  at the regional  level and, in  particular, 
between  the  centre  and  the  periphery.  Income 
per  head  is  below  or  well  below  average  in  all  the 
southern peripheral Mediterranean regions, including 
southern Italy, as well as in those on the eastern and 
northern  periphery  —  in  eastern  Germany  and 
northern  and  eastern  Finland  —  and  on  the  north 
western  periphery,  in  Ireland  and  parts  of  the  UK 
(Map  1). They are well above average  in a cluster of 
regions  in  northern  Italy,  southern  Germany  and 

Enlarging  the  scope  of  the  analysis  to  compare, 
for  example,  the  top  25  and  bottom  25  regions 
reveals  a  picture  of  relatively  unchanging  dis 
parities  over  the  10  year  period,  but  with  more 
changes  in the  regions  making  up  the  groups. 

The  unchanging  nature  of  regional  disparities  is 
confirmed  by  more  formal  statistical  measures. 
For  example,  the  average  dispersion  around  the 
average, which  provides  summary  information  on 
differences  between  all  regions  and  not  just  be 
tween the  extremes,  also  shows  little  net  change 

21 

Chapter 2 The convergence process and cohesion: recent trends 

Map 1 
GDP per head by region (PPS), 1993 

22 

Chapter 2 The convergence process and cohesion: recent trends 

Map 2 
Growth of GDP by region, 1983-93 

23 

Chapter  2 The convergence  process and cohesion: recent trends 

over the  10 years to 1993 (Graph 2). Though there 
was  a  slight  widening  of  disparities  during  the 
relatively  unfavourable  economic  climate  of  the 
early  1980s,  this  was  gradually  reversed  during 
the  period  of  recovery  between  1985  and  1989. 
Disparities  then  widened  again  with  the  entry  of 
the  new  German  Lander  into  the  Union  before 
narrowing  again  to  reach  virtually  the  same  level 
as  in  1983. The average  disparity  in incomes  per 
head  in  the  EU is twice  that  comparable  regions 
in the US. 

Growth of  income  per  head  has tended  to  vary  be 
tween regions according to their degree of depend 
ence  on  different  sectors  (Table  2.5a). The  regions 
most  dependent  on  primary  sector  employment 
(mostly  agriculture)  —  located  in the  four  cohesion 
countries  (Greece, Spain, Ireland and Portugal)  and 
Finland — have GDP per head substantially below the 
level  in the  rest of the Union and  have  experienced 
slower  than  average  growth,  reflecting  the  trend 
decline  in  this  sector  over  the  long-term  and  the 
difficulties of diversifying  economic  activity in a rural 
context. The most industrial  regions —  half  of  which 
are  in  Germany  and  the  rest  in  northern  Spain, 
northern France, central Italy, Austria and central UK 
—  have  above  average  GDP  per  head  and  have 
grown at a rate only marginally below the  EU average. 
Regions with  a strong service  sector  have, on  aver 

age,  the  highest  level  of  GDP  per  head  and  have 
experienced  a  rate  of  growth  of  around  the  Union 
average. This group  of  regions  contains  the  capital 
cities  of  all  the  Member  States,  except  Lisbon  (P), 
as  well  as  regions  concentrated  in  Belgium,  the 
Netherlands and northern Germany. 

Economic  activity  is  strongly  concentrated  in  the 
most  urbanised  areas  of the Community.  Regions 
with  more  than  500  inhabitants  per  square 
kilometre  account  for  only  4% of  the  land  area  of 
the Union but for more than half the population.  In 
1993, their average GDP per head was  14% above 
the  EU  average.  This  implies  that  between  two-
thirds  and  three-quarters  of  the  EU's  total  wealth 
creation  occurs  in  urban  areas  —  although,  as 
described  in  the  next  section,  inner  city  areas 
have  some  of  the  most  serious  social  and-
economic  problems  in the  Union. 

The  prosperity  and  growth  of  many  large  cities  has 
given  rise  to  a  marked  feature  of  development  in  a 
number  of  Member  States  in thé  form  of  significant 
differences  in  economic  performance  between  cer 
tain regions, often including the capital city, and the 
rest.  This  has  led  to  a  widening  of  disparities  in 
income per head, in particular, in Spain, Portugal and 
Greece  in  the  South  and  Belgium  and  Germany 
(West) in the North (Table 2.6, Map 2). 

GDP per head by Member State and regional  extremes,  1993 

PPS(EUR15=100) 
Reg.SruxeBes-

•Capy Brussels 
HfdstGew. 

Ham&urç 

be de Franca 

200 

180 

160 

140 

120 

100 

Lbmbardia 

Gronfngoi 

Ahvenanmaa/ 
Aland 

Stockholm 

MecWenburg-
Vorpommem 

Guadeloupe 

Açores 

Revo land 

BuroenJand ^B 

Itâ-Suoml 

Merseysldej 

Calabria 

80 

hHalnaut 

60 

40 

20 

0 

B 

DK 

D 

GR 

E 

F 

IRL 

I 

L 

NL 

A 

P 

FIN 

S 

UK 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

24 

Chapter 2 The convergence  process and cohesion: recent trends 

In  Spain, which  is  the  fifth  largest  Member  State  in 
terms  of  population and the  second  biggest  in land 
area,  development  has  been  particularly  uneven. 
Growth  has  tended  to  occur  most  strongly  in  the 
industrial  areas  on  the  eastern  coast  as  well  as  in 
certain  central  and  southern  regions.  For  example, 
the level of GDP per head in Valencia increased from 
70% of the European average in 1983 to 75% in 1993, 
while  in Asturias,  it fell  from 77% to  75%. Growth in 
the  more  favoured  regions  was  especially  strong  at 
the end of the 1980s, before faltering in the recession 
of the 1990s. 

Development  has  also  been  uneven  in  Portugal, 
where  regions  with  two  thirds  of  the  population 
(Lisboa and Norte) saw their level of income per head 
rise by more than 10 percentage points relative to the 
European average in the 10 years 1983 to 1993, while 
in the other regions the relative level remained much 
the  same. The  most dramatic  example  of  a growing 
city and a declining hinterland is in Portugal; GDP per 
head  in  Lisboa  increased  from  8 1% of  the  Union 
average in 1983 to 96% in 1993, while in neighbouring 
Alentejo,  it  fell  from  48%  to  42%. As  a  result  of  the 
growing  prosperity  of  Lisboa,  its  GDP  per  head  in 
1993  was  well  Over  twice  that  of  the  Acores,  the 
poorest region in Portugal (Graph 4). 

Leaving  aside  France, where the DOM have a lower 
income per head than anywhere on the EU mainland 
and the  smaller  Member  States, where  capital  cities 
have relatively  high levels of  income  per  head, inter 
nal  disparities  are  particularly  acute  in  Italy  and 
Germany. In the former, income per head in the North 
is  typically  between  120%  and  130%  of  the  Union 
average  compared  to  60% to  90% in the  regions  in 
the  South.  For  much  of  the  1980s,  the  disparities 
tended  to widen  even  further,  but  then  narrowed  in 
the  recession  of  the  early  1990s which  affected  the 
South to a lesser degree. As a result, over the 10-year 
period as a whole, the pattern of regional  disparities 
changed by less in Italy than in other Member States. 

Many  of  the  characteristics  of  a  dual  economy  are 
also evident  in Germany. The new Lander, however, 
are different from other parts of the Union, with struc 
tural  problems  characteristic  of  lagging  regions  in 
general,  but  also  with  problems  inherited  from  the 
previous  era  of  central  planning  and  environmental 
neglect: outmoded  infrastructure, environmental de 
gradation  and  a lack  of  competitiveness  in much of 
industry.  In the year  after  unification,  1991, GDP per 

head was around a third of the EU average (but after 
substantial  efforts  at  national  level  and  with  assist 
ance from the Union, this is estimated to have risen to 
more than 50% in 1995). 

Employment  and  unemployment 

The Union's unemployment problem is most acute at 
the  regional  and  local  level. The  evidence  confirms 
that  it is in terms of unemployment  that regional dis 
parities are particularly acute, ans shows little sign of 
improvement. 

Comparisons  of  regions at opposite  extremes  serve 
to underline the scale of the disparities (Map 3). Thus, 
in the  10 worst-affected  regions, the average unem 
ployment  rate  was  26.4%  in  1995  or  nearly  seven 
times the average rate (just under 4%) in the 10 least-
affected  regions. The 25 worst-affected  regions  had 
an  unemployment  rate  averaging  22.4%  in  199&, 
nearly five times the average (5.4%) for the 25 least-
affected regions (4.6%). 

The changes over time in these groups of regions are 
revealing  (Map 4). For  both the group  of  10 and the 
group of 25 least-affected regions the average unem 
ployment rate was virtually the same in the mid-1990s 
as it had been a decade  earlier. But for the group of 
10 and  the  group  of  25  worst-affected  regions,  the 
picture  is quite different.  For the former, the  average 
unemployment  rate  increased  significantly  over  the 
10 years,  from  19.4%  in  1983 to  26.4%  in  1995, an 

5  Disparities in unemployment,  1970-95 

% labour force 

. —•Standard deviation of unemployment 
;  rat» (by Member State) 

V 

© 
O 

«M ;:'.: "»',.•  <o 
O»  ;  O 

eo  •  o 

«» 

to 

Cfl  O) 

.  Oft  OV.  Ok  O) 

<o  o 
:  O) 

CM 

^ 

25 

Chapter 2 The convergence  process and cohesion: recent trends 

Map 3 
Unemployment rates by region, 1995 

% 

* 

* 

v, 

i 

I  «• 

26 

Chapter  2 The convergence  process and cohesion: recent trends 

Map 4 
Change in unemployment by region, 1983-93 

• 

27 

Chapter  2 The convergence  process and cohesion: recent trends 

increase of 7 percentage points. For the latter group, 
the increase was 5 percentage  points. 

The  tendency  for  disparities  in  unemployment  to 
widen over time is confirmed  by the summary statis 
tics for all regions (Graph 5). The long-term trend for 
regional differences to increase, which dates back to 
the  mid-1970s,  was  interrupted  by  the  economic 
upturn  between  1987  and  1990.  The  subsequent 
recession  led  to  unemployment  increasing  throug 
hout  Europe  and was  associated  with  a  substantial 
widening of disparities which continued into  1995. 

overcrowded and poor housing has become increasingly 
common throughout Europe. For such small — if popu 
lous — areas, few comparable statistics are available at 
the European level to capture the underlying realities, but 
national sources point to unemployment rates of 30% and 
more —  and occasionally  as high as 50% —  in some 
districts: 

Unemployment in 49 districts 
with an EU URBAN programme 

Unempl. (%) 

-15 

15-20 

20-25 

25-30 

30+ 

No. of cities 

5 

10 

10 

9 

15 

However, the regions worst-affected  by unempbyment 
today are not always the same as 10 years ago. The major 
change which has occurred  is that  many old  industrial 
regions of the UK which featured among the 25 worst-af 
fected  regions  a decade  ago  have  been  replaced  by 
regions in southern Italy. Spanish regions are the constant 
feature  of  this  group  throughout  the  period.  With  the 
enlargements of the first half of the  1990s, a number of 
regions in eastern Germany and Finland joined the group. 

A growing phenomenon is that of urban unemployment, 
which tends to show itself in particular parts of cities rather 
than across cities as a whole. The co-existence of areas 
with high added value activities  and  high-income  resi 
dents alongside areas with low incomes, high unemploy 
ment,  high  dependence  on  welfare  benefits  and 

At the broader regional level, there are often significant 
differences in unemployment rates within Member States 
(Graph  6).  The  variatbn  in  rates  in  Spain,  Italy  and 
Germany  is  considerable.  In  1995, the  worst  affected 
region in Spain (Andalucia) had an unemployment rate of 
close to 35% and the least affected region (Navarra) one 
of around 15%. In Italy, the difference between the most 
and the least affected region was some 20 percentage 
points  and in Germany, around  15 percentage  points. 
High average rates of unemployment also exist in some 
capital cities despite their high income per head, prime 
examples being Brussels, Berlin and London. In general, 
as for regional GDP per head, the disparities  in unem 
ployment rates within most Member States have tended 
to widen over time (Table 2.7). 

Unemployment  rates by Member State and regional  extremes,  1995 

% labour force 

Andalucia 

Campania 

Ita-Suomi 

E 1 5 = 1 0 .7 

Oroningan • Wien 

Utrecht 

Alentajo 

Smaland 

Ahvsnanmaa/  med 
CWna 

Aland 

C a wo 

Salzburg 

NL 

FIN 

28 

35 

30 

25 

20 

15 

10 

5 

0 

B e r t a" 
Bucks. 
Pwn 
UK 

Chapter 2 The convergence process and cohesion: recent trends 

The pattern of employment growth at the regional level in 
the EU has also been mixed (Map 5). The regions with 
the high rate of net job creatbn in the period 1983 to 1993 
were located in the Netherlands, Germany, Luxembourg 
and the UK in the North and in eastern Greece, Spain and 
northern Portugal  in the  South. For a  large  number of 
regbns — nearly 60 at the NUTS 2 level, or around 30% 
of the total— there was no change in empbyment or a 
fall over this period. Among those with the poorest record 
are many Nordic regions in Finland and Sweden, as well 
as a diverse group including old industrial regions in the 
UK (Merseyside, South Yorkshire and West Midlands), 
France (Lorraine and Nord-Pas de Calais), Spain (Galicia 
and Asturias) and rural or less developed regions such 
as  Dytiki  Ellada  (GR), Auvergne,  Limousin  and  Poitou 
Charentes (FR) and Basilicata (IT). 

Similarly,  the  distribution  of  employment  between 
sectors  of  activity  differs  widely  across  the  Union 
(Maps  6 to  8). Typically,  northern  regions  have  the 
highest concentration of activity in the service sector 
while  Greece  and  Portugal,  and  to  a  lesser  extent, 
Spain and  Ireland, lag  substantially  behind. The ex 
ception to this pattern is Germany where employment 
in industry remains particularly  high. 

As expected, there are strong concentrations of ser 
vice employment in the large urban centres and capi 
tal cities  in all Member  States, including  Athens and 

Madrid. At the same time, there are still many regions 
in the Union where the employment structure remains 
very traditional, with over  a quarter  of  total  employ 
ment in agriculture in parts of Greece, southern Spain, 
Portugal and southern Italy. 

As  noted  in the  previous  section, regional  depend 
ence on different sectors has an important bearing on 
performance.  The  regions  most  dependent  on  the 
primary sector  have unemployment  rates well above 
the  EU  average  which  is  largely  explained  by  the 
presence in this group of many Spanish and southern 
Italian  regions.  Largely  unchanged  levels  of 
employment  have  meant  that  unemployment  rates 
have also risen over time at a rate significantly above 
the  Union average,  as the  numbers  looking  to  work 
have increased. The consolidation of farm holdings in 
the  agricultural  sector  has  continued  with  the  esti 
mated  loss  of  800  thousand  units,  9%  of  the  total, 
between  1989/90  and  1993,  and  it  has  been  esti 
mated  that,  in  1993,  agriculture  provided  full-time 
employment for only a quarter of those working in the 
sector. 

Unemployment  rates  are  below  the  EU  average  in 
regions most heavily dependent on.industry and have 
fallen over time — except  in the French and Austrian 
areas  —  partly  as  a  result  of  employment  growth 
above the EU average. The regions most  dependent 

Employment  rates and productivity in NUTS 1 regions,  1993 

Employment rate as % population 15-64, EUR15 (59 6%) = 100 

OP 

• yv 

GRf 

«q  DK 

IL 

1 

* F» 

„ 

FINJRL 

/ 

% • • •, 

180 

160 

140 

120 

100 

80 

60 

180 

-  160 

-  140 

120 

100 

80 

60 

30 

40 

50 

60 

70 <;•  80 

90 : 

100 

110 

120 

130 

140 

150 

GDP per person employed in PPS, EUR15 (40.4 th. ECU) = 100 

29 

Chapter  2 The convergence  process and cohesion: recent trends 

Map 5 
Change in employment by region, 1983-93 

v\ 

i 

30 

Chapter 2 The convercence process and cohesion: recent trends 

Map 6 
Employment in agriculture by region, 1994 

o 

ft 

Chapter  2 The convergence  process and cohesion: recent trends 

Map 7 
Employment in industry by region, 1994 

V 

'  v. 

I 

Chapter  2 The convergence  process and cohesion: recent trends 

Map 8 
Employment in services by region, 1994 

33 

Chapter 2 The convergence process and cohesion: recent trends 

on  the  service  sector  have  higher  unemployment 
rates on average than the industrial regions but still 
below the EU average. 

and employment  levels, even where their  final GDP 
per  head  is  similar.  The  variations  are  even  more 
marked between regions. 

The components of 

geographical disparities 

An  insight  into  the  underlying  causes  of  regional 
disparities  in income  per  head  can  be obtained  by 
dividing this into two components: productivity (GDP 
per person employed) and the number employed in 
relation to population. GDP per head is the product of 
these  two  factors.  It  is  informative  to  examine  the 
degree  to  which  the  income  disparities  described 
above  are  attributable  to one  or other  of these two 
magnitudes—whether, for example, a Member State 
or  region has high GDP  per  head  because  it has a 
high level of  productivity  or  a  high  proportion of its 
population in employment. 

In order to visualise simultaneously the relative roles 
of  variations  in  productivity,  on  the  one  hand,  and 
employment,  on the other,  information for  each has 
been set out in a graph (Graph 7). This shows how 
the different  Member  States and regions (at NUTS 1 
level)  compare  to  the  EU  average.  The  results  are 
revealing. They show that Member States have widely 
different  combinations  of  productivity  performance 

Among the three most prosperous Member States, for 
example, high income per head in Belgium is attribut 
able to relatively high productivity, while in Denmark 
it is due to a high proportion of population in employ 
ment  (a  Nordic  characteristic  in  general,  although 
less so today in Finland). In Austria, the third Member 
State in this group, high income per head results from 
a more equal contribution from both components. 

Three  of  the  four  large  Member  States  (Germany, 
France and Italy) are clustered comparatively closely 
together, while the fourth large country, the UK, has 
lower  productivity  and  a  higher  employment  level 
than the rest. These Member States are characterised 
by wide  internal variations, especially Germany and 
Italy. In these two countries, Italy in particular, regions 
tend to be at one or other of the extremes, with either 
a  combination  of  low  productivity  and  low employ 
ment or high productivity and high employment. This 
underlines the extent to which these countries exhibit 
the characteristics of dual economies. 

The graph also shows a cluster of regions centred in 
Germany, northern Italy and Austria where relatively 
high  productivity  and  employment  levels  are  com-

8 

GDP per person employed in  the Union, 1983 and 1993 

100 

75 

50 

25 

25 

50 

75 

100 

125 

150 

1993 

lndex,EUR15 = 100 

^51 

Iso! 

175! 

100 

125 

150 

34 

Chapter 2 The convergence process and cohesion: recent trends 

bined. This is a practical illustration that high produc 
tivity —  or  low  labour  intensive  methods  of  produc 
tion —  can  be combined with high employment.  As 
discussed  in Chapter  2,  in  a dynamic  framework  it 
requires  a  flexible,  adaptable  and  innovative  econ 
omy  capable  of  generating  new opportunities  to re 
place those made obsolete for technological or other 
reasons. 

average  combined  with  a  low  level of  employment. 
Greece and  Portugal have a productivity  level signi 
ficantly  below  the  average,  but  in Portugal  employ 
ment  is above  average.  In Spain, the  largest  of  the 
countries,  the  internal  variations  are  considerable 
especially as regards productivity (which is above the 
EU  average  in  the  East  and  North-east  and  in  the 
capital, Madrid). 

The  situation  in  the  four  cohesion  countries  is  of 
particular  interest.  In  practice,  there  are  almost  as 
many  differences  as  similarities  between  them. 
Ireland and Spain are relatively similar, both having a 
level  of  productivity  which  is  now  close  to  the  EU 

9  Composite  index  of  length  of roads  and 

motorways,  1992 

Index EUR15* 100 

ÉI. 

•  Roads 
•  Motorways 

200 

150 

B  DK  D  F 

I 

L  NL  A  FIN  S  UK 

GR  E  IRL  P 

For all of the cohesion countries (and to a lesser extent 
for Finland) the challenge is generally one of seeking 
to  improve  both  productivity  and  the  numbers  in 
employment.  Not  only  will  this  increase  income  per 
head  but  it  will  also  tend  to  reduce  the  numbers  of 
unemployed (or will provide employment for discour 
aged  workers  who  are  now  economically  inactive). 
The  emphasis  needs  to  be  different  in  different 
Member  States  and  regions  within  the  group.  For 
Ireland  and  Spain,  productivity  has  already  con 
verged  to the  EU average  (Graph  8 and  Map  9), so 
that the main challenge for the future is the generation 
of  jobs.  Both  countries  are  characterised  by  high 
unemployment,  as noted above, and also have rela 
tively  low  rates  of  female  participation  in the  labour 
force.  For  Portugal,  where  employment  is  generally 
high,  the  challenge  is  to  increase, productivity,  and 
income  per  head, while  avoiding  substantial  rises  in 
unemployment  as the  necessary  structural  changes 
take  place.  In  Greece  as  well  as  some  Spanish 
regions (and others in southern Italy), the challenges 
are  generally  more  serious,  involving  progress  on 
both  productivity  and  employment  fronts  simulta 
neously. This is an extremely difficult — and long-term 

10  Composite  index  of length  of  railways,  1992 

11  State  of  the  railways,  1992 

Index EUR15» 100 

•  At least double track 
•  Electrified 

B  DK  D  F 
GR no electrified  fines 

I  L 

A  FIN  S  UK 

GR  E 

IRL  P 

35 

Chapter 2 The convergence process and cohesion: recent trends 

Map 9 
Growth in GDP per person employed by region, 1983-93 

v\ 

i  i  .-

r^R 

Chapter 2 The convergence process and cohesion: recent trends 

—  task,  but  one  of  the  messages  of  the  preceding 
analysis is that it is not an impossible one. 

Underlying  the  productivity  gaps  are  significant  dif 
ferences  between different  parts of the  Union  in the 
conditions for production. In particular, the economi 
cally  stronger  and  more  prosperous  parts of the EU 
are generally more richly endowed with modern com 
munication  infrastructure,  a  skilled  and  qualified 
labour force and the capacity for advanced research 
and  development. 

The  gaps  in  infrastructure  can  be  seen  in  the  dif 
ferences  in  systems  of  transport,  in  road  and  rail 
networks.  In the South of  the Union and  Ireland, the 
provision  of  motorways  —  which  are  particularly 
important  for  the  transport  of  both  passengers  and 
freight — is 20% or less of the EU average (Graph 9). 
Railway networks are also less extensive in the South 
although the disparity is not so great as for roads, but 
the gap widens once the degree of modernisation is 
taken into account (Graphs  10 and  11 ). 

Telecommunication links are a prerequisite for the growth 
of modern industries and services which need efficient 
telephone, faxand, increasingly, digital data transmission 
systems. Telecommunication networks in the Union are 
developing rapidly, but major variations remain in the level 
of provision. Typically the poorest parts of the Union score 
less well with regard to the availability of telephone lines 
(Graph  12), but as a result of the more recent develop 
ment of their systems, better in relation to the provision of 
modern digital networks (Graph 13). 

It is increasingly recognised that the competitiveness 
of  regions  is dependent  on the know-how  and skills 
of their people. In modern industrial economies, most 
employment  depends  not on low-skill mass  produc 
tion.  Rather,  employment  is  increasingly  concen 
trated  in smaller  enterprises,  where  the  capacity  to 
innovate  is often essential and where the need for a 
trained and adaptable work force is correspondingly 
greater. Skills are also at a premium in the public and 
private  provision of  many  business, social  and  per 
sonal services which together account for some 64% 
of total employment  in the EU. 

While  progress  has  been  rapid  over  recent  years, 
more remains to be done to develop the potential of 
Europe's work force especially — but not exclusively 
— in the poorer regions. In the latter, the weight of the 
past  is  particularly  important  so  that  today  a  large 
proportion  of  the  adult  labour  force  has  not  pro 
ceeded  beyond  basic  schooling,  ranging  from 45% 
in  Ireland  to  almost  three-quarters  of  the  total  in 
Portugal  compared  to 36% in the  Union  as a whole 
(Graph 14). Virtually all young people in the Union are 
in school to at least the age of 15 and almost all remain 
in education to 18 in many Member States (Graph 15). 
But  more  needs  to  be  done  to  improve  the  higher 
education  and  vocational  training  of  these  to  equip 
them for an increasingly  competitive  marketplace. 

The  availability  of  specialist  skills  is  important  for 
innovation  and  the  development  of  Research  and 
Technological  Development  capacities. The  propor 
tion of employment in RTD in the South and in Ireland 

12  Number of main  telephone  lines, 1993 

13  Main telephone lines connected  to  digital 

exchanges, 1993 

Per 100 people 

70 

6 0h 

8  DK  D \F  U 

L  NL  A  FIN  S  UK 

GR  E  IRL  P 

EUR15 

37 

Chapter 2 The convergence  process and cohesion: recent trends 

is generally around a half that in the more prosperous 
Member  States  (Graph  16),  and  the  overall  invest 
ment  in RTD is correspondingly  low — for  example! 
Germany invests 5 times more than Greece in relation 
to GDP (Graph 17). 

2.2 Social Cohesion 

Previous  sections  have  been  concerned  in  part 
with  the  spatial  dimension  of  labour  market  prob 
lems and the implications of regional disparities  in 
unemployment  for  economic  and social cohesion. 
This  section  focuses  more  explicitly  on  social 
cohesion through an investigation of trends  in two 
key  areas  affecting  the  well-being  not  just  of  dif 
ferent  social  groups  but  of  European  society  as a 
whole: 

• 

• 

the  access  of  individuals  to  income  generating 
activities. This aspect  can  be best understood  in 
terms  of  developments  in the  labour  market,  not 
just  of  levels  of  unemployment  but  also  levels of 
participation and access to job opportunities; 

the distribution of household incomes net of trans 
fers  after  tax, where, in terms of social cohesion, 
indicators of the incidence of poverty are particu 
larly relevant. 

These are matters of concern to all Member  States in 
the  Union  and  to their  policies  for  social  integration 

and solidarity. They represent two defining  elements 
of the European model of society. Given the general 
difficulty in defining social cohesion, as discussed in 
chapter  1 above, for  operational  purposes  any  nar 
rowing of differences  in individual access to employ 
ment and a reduction in poverty can be regarded as 
signifying an improvement in social cohesion. 

Access to employment opportunities 

Changing patterns  of  employment 

There have been fundamental changes  in the  global 
economy over the past two decades which have had 
far-reaching consequences for the pattern of employ 
ment  in  Europe  and  elsewhere.  The  most  obvious 
long-term  employment  developments  in  Europe  are 
an  expansion  of  employment  in  services  coupled 
with declining  employment  in agriculture  and  manu-, 
facturing,  a growth  of  part-time  jobs  filled  predomi 
nantly  by  women  and  a  shift  in  the  occupational 
structure  of  the  work  force  towards  those  with  high 
educational  and  technical  qualifications  and  knowl 
edge-based skills. 

The  expansion  of  service  employment,  associated 
both  with  increasing  demand  for  services  as  real 
incomes rise and the more labour-intensive  nature of 
service  activities,  is a feature  of  all advanced  econ 
omies and shows little sign of abating. In 1994, 64% 
of employment in the Union was in services as against 
57%  10 years earlier, while only 3 1% was in industry. 

14  Educational  attainment  of labour  force, 

15  Participation  in  education,  16-18 y e ar  olds, 

25-59 year  olds,  1995 

1995 

%  labour  fores 

100  r 

B Upper  secondary 

•  University and  equivalent 

B  DK  D  F IL 
S no reliable data; UK 1894 

NL  A  FIN  UK 

GR  E 

IRL  P 

38 

Chapter 2 The convergence process and cohesion: recent trends 

This, however, still leaves a gap between Europe and 
the US, where 73% of employment was in services in 
the same year and where some 22 million additional 
jobs in this sector were created between  1980 and 
1993. This is not so many more than were created in 
services in the European Union over the same period 
— around 18 million — but the big difference is that 
in the US this was coupled with a increase in total 
employment of 20 million, in Europe of only 5 million. 
Whereas Europe lost 5 million jobs in agriculture and 
8  million  in industry, losses  in ,the US in these two 
sectors together totalled only 2 million between them. 

Differences  between Member States in the distribu 
tion of employment between sectors have narrowed 
considerably. Over the Union as a whole, there has 
been a decline in the share of employment in agricul 
ture, a large decline in the share of industry and a rise 
in services (see Table 2.9 in the Annex which shows 
sectoral shares for the years 1983 and 1993 compar 
ing  the  cohesion  countries  with five  other  Member 
States — Belgium, Germany, France, the Netherlands 
and the UK). In the cohesion countries, there was a 
dramatic fall in agricultural employment (the decline 
in share ranging from 6 percentage points in Ireland 
to 8-9 percentage points in Greece and Spain and to 
13 percentage points in Portugal). In effect, the struc 
ture of employment in the cohesion countries appears 
to  be converging towards that in the more 'mature' 
economies in the North of the Union in which employ 
ment  in agriculture  has declined to very low levels, 
while dependence on the service sector for jobs has 
grown considerably. The increase in employment in 

services in the cohesion countries ranged from 6 to 
15 percentage points while in the rest of the Union, it 
was  around  7  percentage  points.  In effect,  in thé 
former, the average share of service employment is 
similar to that in the rest of the Union 10 years ago. 
Large numbers of people remain employed in agri 
culture in the cohesion countries, and it seems likely 
that further restructuring will take the form of a direct 
shift  from  agriculture  to  services,  missing  out  the 
intervening step of a shift to industry first. 

Many  of  the  additional  jobs  created  in  Europe  in 
services  were  part-time,  most  of  them  taken  by 
women. Whereas the number of full-time jobs in the 
Union declined markedly during the recession years 
1990 to 1994, the number of part-time jobs increased 
by  around  3%  a year.  In  the  majority  of  Member 
States, all or nearly all the extra jobs for women over 
this  period  were  part-time.  By  1995, over  31%  of 
women in employment worked part-time, 67% in the 
Netherlands, 45% in the UK and 43% in Sweden, a 
higher proportion than in the US (28%). By contrast, 
part-time working remains on a relatively small scale 
in  the  four  Southern  European  countries,  though, 
apart from in Greece, it is tending to increase signifi 
cantly.  The  corollary  of  the  expansion  of  service 
employment and part-time working is the significant 
growth  in  the  importance  of  women  in  the  labour 
force. 

While many of  the women joining  the  labour  force 
went into comparatively low skilled jobs in services, 
there was also a marked growth in jobs demanding 

16  RTD personnel  in the Union, 1993 

17  Gross expenditure  on research  and 

development in the  1990s 

% labour force 

%GDP 

B  DK  O  F 
L no data; B 1991; FIN. P 1992 

I  NL  A  FIN  S  UK 

GR  E 

IRL  P 

B  DK  O  F 

I  NL  A  FIN  UK 

GR  E 

IRL  P 

LSnodata;B1991;P199£DK.OaE.IRLI.NLAFIN1W3:F.UK199<;P1995 

39 

Chapter 2 The convergence  process and cohesion: recent trends 

Map 10 
Change In labour force by region, 1983-93 

40 

Chapter 2 The convergence  process and cohesion: recent trends 

Map 11 
Labour force participation of women by region, 1993 

Chapter 2 The convergence process and cohesion: recent trends 

high skills and high education  levels. Between  1983 
and  1991, the  employment  of  those  classified  as 
technical and professional workers expanded by 2% 
a year  across the Union, twice  the rate of  growth of 
total  employment,  while  the  number  of  manual 
workers declined. The former  continued to  increase 
despite the recession in the first half of the 1990s while 
the number of manual workers fell markedly. 

Non-manual jobs in services filled largely by women 
have  expanded, while  manual  jobs  largely  filled  by 
men  in  industry  and  agriculture  have  contracted. 
Nevertheless,  over  the  long-term,  it  is  the  higher 
skilled jobs which offer the surest prospect of growth 
for both men and women. 

The  effects  of the  changes: 
participation  in the  labour  force 

The  changes  in  the  global  pattern  of  employment 
have  been  a  factor  in  the  different  experiences  of 
different  social  groups.  One  of  the  most  striking 
changes  has  been  the  increase  in  the  number  of 
women  working,  up  by  over  6  million  over  the  last 
10 years. But this was 1  million less than the increase 
in the number  of women joining the  labour  force, so 
that female unemployment  has also risen. 

The  increased  participation  of  women  in  the  work 
force  has  been  a major  factor,  of  more  importance 
than  differences  in demographic  trends,  underlying 
the differential  rate of labour  force growth across the 
Union over the past decade or so (Map 10), 

than in other  Member  States. For women, participa 
tion  rates  are  much  lower  in  the  South,  except  in 
Portugal, and in Ireland, though they have risen mar 
kedly  over  the  past  10-15  years, converging  grad 
ually  towards  those  in the  rest  of  the  Union. This  is 
especially true in Ireland and Spain where participa 
tion rates of women aged 25 to 54 have increased by 
over  10  percentage  points  over  the  past  decade. 
While this has had the positive result of promoting the 
greater  integration of women into the labour  market, 
it has added to the challenge of reducing  unemploy 
ment  especially  in  these  two  countries.  It  is  likely, 
moreover, to continue to add to the challenge  in the 
future since rates of participation of women still tend 
to  be  much  lower  in  most  of  the  less  prosperous 
regions of the Union than in other  parts (Map  11). 

There  is  a  general  tendency  for  people  to  remain 
longer  in the work force in the poorer Member  States 
than in the North resulting in higher employment  and 
participation rates among the over 55s. This is espe 
cially true for men, although in both North and South 
rates of participation and employment are falling as a 
result  of  earlier  retirement,  linked  to  the  lack  of  job 
opportunities for them combined with the more wide 
spread availability of pension and disability insurance 
schemes. 

In sum, while it is difficult to draw general conclusions 
on the trends of disparities between social groups on 
the  labour  market,  one  result  appears  to  be  that 
participation and employment patterns in the poorest 
countries  are converging  towards those  in the  more 
prosperous Member States. 

There  have  been  other  differences,  notably  among 
those under  25 and those in their 50s and older. 

Unemployment 

The  proportion  of  young  people  in the  labour  force 
and employment has declined over a number of years 
as more have remained longer in education and initial 
vocational  training.  However,  in three  of  the  poorer 
Member States (Spain, Ireland and Greece) the num 
ber of young people looking for work has not fallen as 
fast as the fall in employment resulting in an increase 
in  unemployment,  among  young  women  more  than 
young men. 

For  the  so-called  prime-aged  population  (aged  25-
54), the striking feature is the difference between the 
sexes. For men, participation  rates are similar  in the 
North and the South, though they have declined over 
time everywhere, though less in Greece and Portugal 

Different  social  groups  are  affected  differentially  by 
unemployment.  In general  its  impact  is  greatest  on 
young people, women and those working in declining 
sectors and/or  in low-skilled jobs  and serves to rein 
force the general disparities  between different  parts 
of the Union. 

The rate of youth unemployment among those under 
25, has mirrored the movement in the overall rate, but 
is around  twice  as  high;  averaging  some  2 1%  over 
the  Union  as  a whole  in  mid-1996,  giving  a total  of 
5  million young  people  unemployed. The  rate, how 
ever,  has come  down slightly  faster  than the  overall 
rate  since  the  present  recovery  began.  Indeed, the 
gap between the two has tended to narrow a little over 

42 

Chapter 2 The convergence process and cohesion: recent trends 

time, reflecting in part the declining numbers of young 
people  across  the  Union  (the  result  of  falling  birth 
rates), in part, the tendency for a growing  proportion 
to  stay  longer  in  education,  in  part,  the  range  of 
measures  taken  in Member  States  to  prevent  those 
leaving  school  with  few or  no  qualifications  moving 
straight into unemployment. 

Except in Germany and Austria, high  unemployment 
among  the young  is universal  across  the  Union, the 
rate rising to over 40% in Spain, around 35% in Italy 
and  25%  or  more  in  Greece,  Belgium  and  France 
(though  in all three of the  latter  countries, this  partly 
reflects the very small number of young people in the 
labour  force — only around 35% of the  15 to 24 year 
olds). 

The  rate  of  unemployment  among  women  in  the 
Union  is  also  high,  averaging  some  121/2%  in 
mid-1996  compared  with  9 / 2%  for  men, with  the 
result that despite there  being many fewer  women 
than  men  in  the  labour  force  almost  as .many  of 
them  are  unemployed. 

With the exception of  Sweden and the  UK, as well 
as  Finland,  where  the  rates  are  much  the  same, 
the  rate of unemployment  of women  is higher  than 
for  men throughout  the  Union, over  60%  higher  in 
Spain and Belgium and almost  90% higher  in  Italy 
and  Greece.  Moreover,  although  unemployment 
rates  for  women  generally  rose  less  sharply  than 
for  men during  the  recession,  partly  reflecting  the 
disproportionate  presence  of  women  in  service 
sector  jobs  which  were  affected  much  less  than 
jobs  in industry, they  have  also tended  to fall  less 
quickly during economic  recovery as  participation 
of  women  in  the  labour  force  has  continued  to 
increase. 

In all economies, there are significant  movements of 
people  between  jobs  going  on  all  the  time,  in  part 
because  of  a desire  for  change,  in  part  in  response 
to shifts  in the composition of  economic  activity  and 
in  the  demand  for  different  skills.  Such  movements 
are  almost  bound  to  be  associated  with  spells  of 
unemployment for some, though these need not be of 
long  duration.  In Europe,  however,  one  ef  the  most 
marked features of the labour  market  is the high and 
persistent  incidence  of  long-term  unemployment, 
especially  in comparison with the  US, indicating  the 
structural, and deep-seated, nature of  its  unemploy 
ment problem. 

In  1995, in the  Union  as  a whole  almost  half  (49%) 
of  those  unemployed  and  seeking  work  had  been 
looking for employment for a year or more (compared 
with only 12% in the US) and over a quarter for at least 
two years, only slightly below the proportions 10 years 
earlier. High long-term unemployment  creates  prob 
lems  of  its  own  which  are  particularly  intractable. 
Those  affected  face social  exclusion, a loss of  con 
fidence,  a degradation  in their  skills  and  increasing 
difficulty finding a job the longer they are out of work, 
reinforced by the general reluctance of employers to 
take on people who have not worked for some time. 

Member  States  differ  considerably  as  regards  the 
average  duration  of  unemployment,  or  more  rele 
vantly the relative numbers of long-term unemployed, 
which  determines  the  scale  of  the  problem.  For 
example, two countries or regions can have the same 
level of unemployment but one may have a high inflow 
combined with a short average duration and the other 
a  low  inflow combined  with a long  average  duration 
and a large number of people who have been unem 
ployed  for  a year  or  more. The former  implies  lower 
rates of 'exclusion' and, accordingly,  less  damaging 
to social cohesion. 

Member States differ according to the inflows into un 
employment — or the chances of someone becoming 
unemployed — and, most relevantly for social exclu 
sion,  the  prevalence  of  long-term  unemployment. 
Some indication of these differences  can  be  gained 
from  the  relationship  between  the  overall  rate  of 
unemployment, on the one hand, and the  proportion 

18  Unemployment  rates and long-term 

unemployment in Member States, 1995 

7Q  Long-term unemployed as %  total 

• _ •
T3 

•

'• 
»IR 

E15 

•  P  «GR 
•  O 
• 
. • NU  :•.-••• 
WG  «UK 

•  F 

"FIN 

50  V 

30 

20 

•  E 

70 

50 

A  30 

A 20 

5 

10 

15 

Unemployment « l ei (%) 

20 

25 

43 

Chapter 2 The convergence process and cohesion: recent trends 

of the unemployed who have been out of work for a 
year or more (i.e. who are long-term unemployed), on 
the other.  In  1995, the highest  rate of overall unem 
ployment  in the Union was in Spain, at almost 23%. 
The  proportion  who were  long-term  unemployed,  at 
just  under  55%, was also above  the Union  average 
(of 49%), but less so than in Italy and Ireland, where 
the  overall  rate  of  unemployment  was  much  less, 
though  still above the Union average, but over 60% 
of the unemployed had been out of work for a year or 
more (Graph  18). In Belgium, the incidence of  long-
term  unemployment  among  the  unemployed  was 
much the same as in these two countries, but the rate 
of unemployment was slightly below average. It is in 
these  four  countries,  therefore,  that  the  problem  of 
social exclusion seems particularly acute. 

By  contrast,  in  Finland,  unemployment  was  well 
above the Union average in  1995, but a much  lower 
proportion  of  these  affected  were  long-term  unem 
ployed  (37%). This  is  partly  explained  by  compara 
tively  recent,  and  rapid  growth  in unemployment  to 
present  levels.  In  France,  unemployment  was  also 
relatively high, but long-term unemployment relatively 
low.  In these  countries,  therefore,  despite  relatively 
high levels of unemployment, social exclusion seems 
less of a problem. 

In the other Member States, overall rates of unemploy 
ment  were  below average to varying  extents. These 
can  be  divided  into  two  groups  —  Luxembourg, 
Austria,  Denmark  and  Sweden  (not  shown  in  the 
graph  because  of  data  comparability  problems), 
where  the  proportion  who  were  long-term  unem 
ployed  was  much  less than  average,  and  the  other 
five Member States, where it was around the average 
level  (though  the  number  affected  was  significantly 
higher  in Greece, where  the  proportion  was  slightly 
above average than in the Western part of Germany, 
where the overall unemployment rate in particular was 
well below  average). The UK, however,  is somewhat 
different from the other four countries in this group, in 
that  not only  was  the  incidence  of  long-term  unem 
ployment  less  in  1995, but  it  also  been  significantly 
below the Union average in earlier years (in 1990, only 
a third of the unemployed had been out of work for a 
year  or  more  as compared  with  a Union average of 
48%). 

In  general, the  relative  scale  of  the  long-term  un 
employment  problem  as  between  Member  States 
was  similar  in  1990  before  the  rise  in  unemploy 

ment rates which occurred subsequentlyTsugges-
ting that the problem is a deep-seated one as well 
as  being  distinct  from  the  problem  of  unemploy 
ment  as such. 

There are also differences  between social groups. 
Women seem to be less likely to lose their job than 
men once  in employment,  but experience  difficul 
ties  in  finding  a  job  when  unemployed  or  when 
trying  to return to work after  a spell of  inactivity  to 
take care of children. Long-term unemployment is, 
therefore, slightly  higher  among women than  men 
in  most  Member  States  (though  not  all,  Denmark, 
Ireland,  the  Netherlands  and  the  UK  are  signifi 
cant  exceptions). 

Unemployment among young people is also a prob 
lem, though the numbers affected has risen by very 
much less than the rate over recent years because of 
the  increasing  numbers  staying  longer  in  education 
and  initial vocational  training  (which  has, therefore, 
reduced the size of the youth labour force). Moreover, 
the  proportion  of those  under  25 who  are  long-term 
unemployed  has  not  tended  to  rise  significantly, 
though it remains a serious problem in Italy and, to a 
lesser  extent, in Greece, where it takes much  longer 
on average  for those  looking for their first job to find 
one. 

Long-term  unemployment  is a particularly  serious 
problem  for  older  workers,  especially  men  and 
women  who  lose  their  jobs  in  industry  and  find  it 
particularly  difficult  to  find  another  one.  In  1995, 
62%  of  those  unemployed  aged  between  55  and 
59  had  been  out  of  work  for  a  year  or  more  and 
two-thirds  of  these  had  been  out  of  work  for  at 
least two years. Many others, moreover,  had  with 
drawn  from  the  labour  force  completely  into 
enforced  early retirement,  a large  proportion  after 
trying  to  find  another  job  (in  1995,  around  a  third 
of men in this age group were no longer in the work 
force,  well  below  the  official  age  of  retirement  — 
65 —  in most  countries). 

In  general,  the  chances  of  being  unemployed  are 
much greater for those with low skills and few qualifi 
cations.  In  1995, the  rate  of  unemployment  among 
those  aged  25  to  49  with  only  basic  schooling 
averaged  13% across the Union compared with 8% 
for  those  with  additional  secondary  level  qualifica 
tions  and  7%  for  those  with  a  university  degree  or 
equivalent. 

44 

Chapter 2 The convergence process and cohesion: recent trends 

The incidence of poverty 

Earlier sections of this chapter discussed the growth 
and  distribution  of  basic  income  from  production 
—  GDP — in Member  States and regions. It showed 
that  GDP  growth  in  the  Community  has  been 
achieved largely by raising the output of each worker, 
rather  than by extra employment,  although the  latter 
has also increased. 

This has also been associated with a fall over time in 
the share of total income (GDP) accruing to labour in 
the form of wages and salaries (pre-tax) in virtually all 
Member  States, while  the  share  accruing  to  capital 
has  increased. At a time of acute threat from interna 
tional competition, these developments underline the 
contribution  that  European  labour  has  been  making 
to the restructuring of the economy to meet the chal 
lenges  posed. 

As  also  discussed  above,  there  are  evident  dif 
ferences in the capacity of Member States to integrate 
the more disadvantaged members of society fully into 
the  labour  market.  This  affects  the  incidence  of 
poverty  at household  level in the EU, which  is deter 
mined  in  large  measure  by access  to  paid  employ 
ment  as  well  as  by  the  scale  and  prevalence  of 
transfers  under  systems  of  social  protection.  One 
of the main characteristics  of the European model of 
society  is the commitment  to combat  poverty  and to 
correct  large  income  inequalities  through  taxes  and 
social transfers. 

The degree to which society suffers from of poverty is 
generally assessed in terms of the poverty  line, which 
is a relative rather than an absolute concept,  usually 
defined as the proportion of households with income 
of  50%  or  less  of  the  average  for  the  country  as  a 
whole. 

The  impact  of  social  transfer  payments  on  the  in 
cidence of poverty is considerable. It is estimated that 
without such transfers around 40% of all households 
would find themselves below the poverty line whereas 
as  a  result  of  transfers  this  is  reduced  to  less 
than  15%. 

At  the  Union  level, inequalities  between  households 
have tended to be examined by reference to levels of 
household  expenditure,  for  which  some  estimates 
exist for a number years, rather than income, for which 

no  comparable  data  exist  over  time. These  should 
show a more equal distribution than income levels to 
the  extent  that  savings  tend  to  be  higher  among 
wealthier  households than poorer ones. The data for 
expenditure,  which  come  from  general  surveys  of 
household  spending, are adjusted for  differences  in 
purchasing power and household size and composi 
tion  (a  smaller  weight  is  accorded  to  children,  for 
example, than to adults). 

A brief overview of the results (see Annex, Table 2.3) 
shows that, at the end of the  1980s, the incidence of 
poverty was generally higher  in the South than in the 
North of the Union. It was particularly high in Portugal, 
where  27% of  all  households, fell  below  the  poverty 
line and to a lesser extent in Italy (22%) and in Greece 
(20%). At the other extreme, only 5-6% of households 
in the  three  BENELUX  countries  and  Denmark  had 
expenditure of less than 50% of the national average. 
In  the  remaining  countries,  the  proportion  ranged 
from  11%  in Germany to  17% in both Spain and the 
UK. 

The  data  suggest  that  there  was  some  increase  in 
rates  of  poverty  measured  in  these  terms  in  most 
Member  States during  the  1980s, and  it was only  in 
Ireland and Spain and to a lesser  extent in Portugal, 
where the proportion of households below the poverty 
line declined. These countries had among the highest 
incidence  of  poverty  at  the  beginning  of  the  1980s 
and it appears that the fruits of subsequent  economic 
growth have  been more evenly distributed than pre 
viously,  perhaps  reflecting  the  stage  of  their  econ 
omic  development.  More  and  more  up-to-date 
information, however, is required to determine how far 
these  changes  represent  long-term  trends  and  to 
assess  the  effects  on  distribution  of  the  economic 
recession of the  1990s. 

More  recent  data  on  poverty  in  the  1990s  can  be 
obtained  from  the  first  results  of  the  new  European 
Community  Household  Panel  (ECHP),  which  col 
lected  information  on  household  income  —  rather 
than expenditure — for  1993. For most countries, the 
income measure for this year indicates that there was 
more  inequality  between  households than shown by 
the  expenditure  measure  for  the  late  1980s  and, 
therefore,  a  higher  incidence  of  poverty.  Given  the 
different  basis  of  measurement,  it  is  not  possible  to 
conclude anything about changes during the  1990s, 
but the ECHP at a minimum suggests that the problem 
in some countries  remains serious. 

45 

Chapter 2 The convergence  process and cohesion: recent trends 

2.3 Other dimensions 
of cohesion: quality of life 
and European citizenship 

The previous sections presented a traditional analysis 
of the relative circumstances of Europe's population. 
The indicators  used, relating to income and employ 
ment,  remain  the  most  solidly-based  and  widely 
understood which are available. They have provided 
the basis for decision-makers  in undertaking  difficult 
regional  and  social  policy  choices  at European  and 
national level. 

At the same time, they are insufficient  in themselves 
to assess the full situation and other aspects need to 
be taken  into  account,  perhaps  especially  at  Union 
level.  In the  EU today  there  is widespread  concern 
about  two  further  issues  which  relate  directly  to  the 
quality of life and cohesiveness. First; there is concern 
about the consequences of economic  growth for the 
environment, in terms of increased congestion, pollu 
tion and degradation. This has given rise to a concern 
with  'inter-generational  cohesion'  and  the  need  for 
national and regional development to be  sustainable 
over the longer-term. Secondly, there is concern that 
European integration should not become a geopoliti 
cal  process  remote  from  the  needs  of  ordinary 
people, but should  be about the quality of  European 
citizenship  in all its facets. 

Sustainability 

the  overall  quality  of  life  resulting  from  economic 
growth. This would attach particular importance to the 
generation  of  local, community-based  employment, 
to  the  benefits  derived  from  the  improvement  and 
protection  of  the  natural  environment  and  to  the 
development  of  individual  and  collective  responsi 
bility as the guarantor of sustainable growth. This new 
model of development addresses cohesion — espe 
cially social cohesion — issues directly. 

A  basic  challenge  recognised  in the White  Paper  is 
to make the economic-ecological relationship a posi 
tive  one.  This  is  particularly  important, for  regional 
cohesion where the imperative, as discussed  above 
in detail, is to promote rapid catching-up on the  part 
of  low-income  regions.  In this  context,  sustainability 
concerns  must not be regarded as something  which 
holds back regional growth where  it is needed most, 
but as a source of new opportunities. 

There are complex  issues at stake in this regard. On 
the one hand, there  is an increasing  awareness  that 
the quality of the environment  is an important  deter 
minant of  a region's  attractiveness  for  new  activities 
and that  regions  can  make  best  use of  their  natural 
assets  if their  economic  policies  are geared  to sus 
tainable  development.  The  environmental  sector  is, 
therefore, increasingly  regarded  by enterprises  as a 
business  opportunity,  and  as  an  asset  by  regional 
authorities.  Accordingly,  sustainable  development 
and  the  narrowing  of  regional  disparities  can  be 
mutually-reinforcing. 

Sustainable development has been defined as 'develop 
ment  which  meets  the  needs  of  the  present  without 
compromising  the ability of future  generations  to  meet 
their own needs' (World Commission on Environment and 
Development (1987); 'Our Common Future', OUP). At its 
heart, sustainable development emphasises the need to 
move towards  patterns of growth which lower the con 
sumption  of  non-renewable  resources  and  which  are 
therefore reproducible over time. 

According  to the White Paper,  Growth, Competitive 
ness, Employment, the essential contradiction  in the 
existing  economic  order  is  that  production  is  too 
intensive in natural resources which are scarce, often 
non-renewable,  and  uses  too  little  labour  which  is 
plentiful.  It  called  for  a  new  framework  —  which 
requires  nothing  short  of  'a  new  model  of  develop 
ment"  —  based  on  an  integrated  approach  where 
progress would be measured in terms of changes  in 

On  the  other  hand,  environmental  policy  choices 
need to have regard to existing  regional  disparities, 
which need to be taken into explicit account  in order 
to minimise the risk of a further widening to the detri 
ment of  economic  and social cohesion especially  in 
peripheral regions. 

Subsequent  chapters  illustrate  how  the  Union  has 
sought  to  incorporate  environmental  issues  in  re 
gional  development  programmes  —  which  include 
investment  in clean  water  supplies, waste  manage 
ment, land reclamation, etc. (see chapter 5)—as well 
as in transport  and  policies  specifically  for the  envi 
ronment (see chapter 4). 

Citizenship, democracy  and  solidarity 

The idea of European citizenship — and the creation 
of  a people's  Europe  in the  broadest  sense  —  has 

46 

Chapter 2 The convergence process and cohesion: recent trends 

been  implicit  in the  process  of  integration  since the 
beginning. The only true foundation for integration in 
Europe is a sense of common purpose and solidarity 
on the part of all of its people. Any notion of European 
cohesion is inevitably intertwined with that of citizen 
ship, democracy and solidarity. 

The  Union  is  intended  to  develop  opportunities  for 
people  to  work  together  in  pursuit  of  shared 
objectives.  Beyond  citizenship  which  grants  free 
movement  of  people,  political  rights  and  greater 
democratic  participation, the  Union  promotes  equal 
opportunities for all through the respect of fundamen 
tal  rights. The  sense  of  belonging  to  the  Union  and 
democratic  participation  are  mutually  reinforcing. 
Democratic  participation has been enhanced  by the 
institutionalisation of the social dialogue and the dia 
logue between representatives of civil society. It finds 
concrete  expression in the growth and  development 
of institutions over four decades, most notably via the 
growing  power and influence of directly-elected rep 
resentatives  in the  European  Parliament  and,  since 
1993,  through  the  involvement  of  the  regional  and 
local representatives in the Committee of the Regions. 

An enhanced sense of belonging to the Union implies 
more  than  bringing  decision-making  closer  to  the 
grassroots.  It  is  interrelated  with  a  reduction  in  the 
basic  economic  and  social  disparities  discussed 
above.  The  existence  of  under-used  resources,  in 
disadvantaged  regions  or  among  excluded  social 
groups,  serves  to  fragment  European  society  apart 
from being a waste of economic  potential. European 
citizenship, therefore, places obligations on the Union 
to work to eliminate  major  disparities  in standards of 
living  between  citizens  in one  part  of the  Union and 
those  in  another,  and  to  promote  freedom  from 
poverty  and  equal  access  to  employment  oppor 
tunities. 

Again,  it  is  not just  the  aims  which  are  important  to 
cohesiveness: the way in which they are implemented 
is  perhaps  as  important  because  it  provides  oppor 
tunities for people to come together. This has been a 
central component of European policies for solidarity 
and  cohesion  (see  chapter  5).  At  one  level,  it  has 
produced  a  spirit  of  cooperation  between  the 
Commission  and  representatives  in  the  institutions, 
fostering  a  two-way  flow  of  information  and  ideas 
— extending beyond the formal requirements for con 
sultation  contained  in Community  law —  which  has 
contributed  to  the-  conception  and  formulation  of 

cohesion policies, raising the quality of the interven 
tions for the benefit of those whose lives are directly 
affected. 

At another  level, the implementation of EU policies is 
highly  decentralised,  devolving  responsibility  as 
close to the ground as possible to promote  partner 
ships  between  Member  states  and  regions,  and 
to encourage cooperation and exchanges of experi 
ence. Not only is this a vehicle for innovation and best 
practice, it is also essential for  raising  awareness of 
European issues. 

All  of  these  developments  have  contributed  to  the 
breaking  down  the  barriers  of  nationality,  without 
compromising the virtues of diversity. In other words, 
they  have helped  lead to the formation of a genuine 
Europe for all. 

Concluding  remarks 

The analysis of this chapter  demonstrates  that there 
has been significant  progress  in reducing  economic 
and social disparities in some areas and that some of 
the  weakest  Member  States  and  regions  have 
embarked  on  a  long-term  process  of  convergence 
with  the  rest of  the  Union. This  favourable  outcome 
has  persisted  through  the  recession  of  the  early 
1990s,  although  it  has  been  accompanied  by  a 
general  deterioration  in  the  employment  situation 
throughout the Union. 

Economic  convergence  at  the  Member  State  level 
has  not  always  been  evenly  distributed  between 
regions  and  social  groups.  However,  in countries  in 
the  process  of  catching-up,  these  negative  side-
effects of development are often difficult to avoid due 
to the different dynamics of certain regions and indus 
tries. Within some of the most advanced countries in 
the  Union,  there  is  evidence  of  weakening  social 
cohesion  as a result of the effects  of  unemployment 
on  disadvantaged  social  groups  and  an  increasing 
incidence  of  poverty.  On  the  other  hand,  rates  of 
employment  are  higher  than  a  decade  ago,  though 
women's  participation  in  the  work  force  has  risen 
significantly. 

The outlook for the labour  market will be affected  by 
demographic  trends. One important feature  remains 
the failure of fertility rates in the EU to pick-up, falling 
to a post-war record low in 1995, of only 1.43 children 
per women. This will reduce  some of the inflows into 

Chapter 2 The convergence process and cohesion: recent trends 

the labour market in the next century, although there 
can be other offsetting effects on total labour supply. 

More  generally,  there  are  reasons  to  believe  that  a 
process  of  fundamental  economic  reform  has  been 
put in place in the weakest parts of the Union encour 
aged, as later chapters of this report will demonstrate, 
by national and EU policies to develop infrastructure, 
human capital and productive  activity. 

The  prospects  for  further  reducing  disparities  will 
depend on this process continuing as well as on other 
factors  such  as  general  economic  circumstances. 
Much also depends on policy developments. Policies 
geared  to  macro-economic  stability  to  provide  the 
conditions  for  growth  are  important  in  this  context 
(see  next  chapter),  as  are  national  and  Community 
policies to promote competitiveness and growth and 
the creation of durable jobs. 

Finally,  past  enlargements  of the  EU have  generally 
had  the  effect  of  widening  regional  disparities.  It 
seems  likely  that  future  enlargements  will  have  a 
similar  effect  since  many  candidate  countries  of 
Central and  Eastern Europe have incomes  per head 
significantly  below the current Union average. As the 
experience of  previous  enlargements  demonstrates, 
however,  the  Union  has  shown  itself  capable  of 
accommodating  such differences  and of moving for 
ward nevertheless. 

48 

Chapter 3 
Member State policies and cohesion: an overview 

3.1 Introduction: 

weakening internal cohesion 

•The evidence presented in chapter  1  suggests that, 
even though a process of convergence between the 
Member  States  is  apparent,  economic  and  social 
cohesion within most Member States seems to have 
experienced a setback during the 1990s in the form 
of widening disparities in income and unemployment. 

There  are  a wide  range  of  Member  State  policies 
which have implications for cohesion at national and 
EU level, particularly: 

•  structural  policies  aimed  at  maintaining  macro-

economic stability; 

•  ^distributive policies aimed at achieving an opti 

mal  allocation  of  resources  in social  as well as 
economic  terms  and  redistributing  income 
between persons and regions to avoid excessive 
disparities. 

These aims are not of course mutually-exclusive and 
it is generally the case that the same expenditure will 
have  a direct  or  indirect  impact on all them at the 
same time. Each is examined below. 

3.2 Macroeconomic policies 

The macroeconomic  policies of the Member States 
are  important  in creating  the  climate  for  economic 
growth. In the four poorest Member States, in particu 
lar, where the regional under-development problems 

cover more or less the whole country, national-level 
macro-economic policies have a key role in ensuring 
the effectiveness of EU cohesion policies designed to 
promote higher public and private investment. 

In  view  of  the  inter-dependencies  and  spill-over 
effects created by trade and the movement of capital 
as well as labour, countries have long since ceased 
to  regard  their  macroeconomic  policies  as  purely 
internal, and  have engaged  in coordination.  In the 
European  Union,  macroeconomic  coordination  is 
focused  on  establishing  a  stable  macroeconomic 
framework which is a pre-condition for achieving sus 
tained growth in the medium-term and for participa 
tion  in  EMU. Particular  attention  is  devoted  to the 
convergence criteria of price inflation, exchange and 
interest rates, public deficits and indebtedness which 
— given the key role of these criteria in macroecon 
omic stability — even countries with an EMU 'opt-out' 
aim to fulfil. 

Stability  is  of  critical  importance  to  the  poorest 
Member States, providing the climate for investment 
and  hence  for  obtaining  the  most  from  European 
Union cohesion policies. 

The evidence suggests that three of these countries 
— Greece, Spain and  Portugal —  as well  as Italy, 
where a large part of the territory is less developed, 
need to maintain their efforts towards nominal conver 
gence  although  the  emphasis  may  be  different  in 
each case. 

In global terms, significant progress in nominal con 
vergence has already been achieved, in particular in 
relation to  inflation  rates  which  have  converged to 
levels  which  are  among  the  lowest  of  the  past 
30 years. In Greece, Portugal, Spain and Italy, rates 

49 

Chapter 3 Member State policies and cohesion: an overview 

have declined considerably in the last years, but are 
still high compared to the Union average, especially 
in Greece (Graph 19). Differences in interest rates are 
a reflection of a number of factors such as differences 
in  inflation  rates,  fiscal  balances,  exchange  rate 
movements,  financialt  market  confidence  and  the 
credibility of the policy mix. 

structure and training while placing  additional  strain 
on  social  expenditures.  Partly  as  a  result  of  the 
recession,  average  debt  for  the  Fifteen  has  been 
creeping  upwards  since  1992 from  around  60% of 
GDP  to  over  70%.  High  indebtedness  remains  a 
particular  problem  for  Belgium,  Greece  and  Italy 
(Graph 20). 

The  current  room  for  manoeuvre  with  regard  to 
exchange  rate  variation  is  determined,  for  coun 
tries  participating,  by  the  bands  in the  Exchange 
Rate Mechanism (ERM) of the European Monetary 
System (EMS). Within the wider  bands adopted  in 
August  1993,  rates  have  remained  remarkably 
stable.  Although  the  central  rate  of  the  Spanish 
Peseta  had  to  be  devalued  four  times  between 
September  1992 and March  1995, partly  followed 
by  the  Portuguese  Escudo,  pressure  on  curren 
cies  inside the ERM has not been as severe as on 
currencies  outside the ERM. 

Excessive  budget deficits  result in upward  pressure 
on interest rates providing less favourable conditions 
for investment and growth. In addition, they lead to a 
build-up  of  debt  over  time  increasing  the  burden of 
interest  payments  in  public  expenditure,  which 
reduces  the  financial  resources  at  the  disposal  of 
Member States to carry out even the most productive 
programmes  such  as  investment  in economic  infra 

With the  introduction  of  a single  currency,  national-
level policies will continue to play an important role in 
regional  stabilisation.  Adjustment  will  occur  partly 
through  the  automatic  transfer  mechanisms  which 
operate at the inter-personal level within the Member 
State  (especially  through  social  security  payments 
and taxes). From a regional perspective, the situation 
after joining European EMU will not be so different  in 
economic  terms  to  that  of  belonging  to  a  national 
monetary union. 

Without further  political  integration, responsibility  for 
these  transfer  mechanisms  is  likely  to  remain  with 
Member  States. The  present  Community  Budget  is 
too  limited to  contribute  significantly  to  macroecon 
omic  stability  across  the  Union  as  whole,  although 
Union-level policies will help to underpin the position 
of  the  weakest  regions  and  Member  States.  At 
national  level,  Member  States  participating  in  EMU 
will  have  to  combine  fiscal  discipline  with  the 
necessary flexibility to be able to cushion, via interre-

19 

Inflation  in Member States, 1983-93,1994 and  1995-97 

20 

16 

12 

Annual % change in consumer price index 

•  1983-93 

•  1994 

•  1995-97 (projected) 

-i  20 

16 

12 

D 

FIN 
B 
F 
D 1983-93 excludes new Lander 

NL 

IRL«iUK.1:;-:E15! 

Chapter 3 Member State policies and cohesion: an overview 

gional and interpersonal transfers, shocks which tem 
porarily  threaten  regional  and  social  cohesion.  As 
discussed  in  the  next  section,  adjustment  is  also 
facilitated by improvements in the adaptability of the 
work force.  ^ 

3.3 Structural reforms and 

expenditure-based policies 

Alongside  policies  to  promote  stability, the  Member 
States  for which  catching  up  a major  objective  also 
need to ensure that their economies are adaptable to 
the  requirements  of  faster  growth.  Impediments  to 
resource  mobility  in  its  widest  sense  reduce  their 
efficiency and their ability to restructure and to exploit 
new opportunities. 

The Member  States' allocative  policies take the form 
of structural reforms to improve the functioning of the 
markets  and  expenditure-based  policies  to  provide 
incentives to overcome  market failures. 

In the European Union, the Single Market Programme 
(SMP)  has  been  the  motor  for  structural  reforms, 
sweeping  away a wide  variety of  national  measures 
which  served  to  limit  trade  and  protect  inefficient 

activities.  Member  States  have  generally  accompa 
nied this with market reform policies of their own. 

These  appear  to  have  been  largely  successful  in 
Ireland and Portugal. Both countries have attempted 
in  this  context  to  improve  the  flexibility  of  the  work 
force not only through reducing regulation but also by 
raising  skills,  in  tandem  with  determined  industrial 
development strategies to provide new opportunities 
in modern activities and thus to attract FDI in export-
oriented sectors. In Portugal this has been accompa 
nied  by  deregulatory  measures  in  the  financial 
sectors,  in  public  services,  the  retail  trade  and  the 
housing  market.  Furthermore,  administrative  price 
controls were lifted for many industrial  products  and 
services. But  in the other  Member  States  most  con 
cerned, more remains to be done. 

In Greece, market reform has gone furthest in regard 
to the financial sector, bringing the economy  intothe 
wider European monetary environment. But progress 
remains  limited as regards the working of the labour 
market:  wage  variations  are  insufficiently  related  to 
productivity  performance  at  sectoral,  enterprise  or 
plant  level; regulation has limited flexibility  by acting 
as a disincentive to the redeployment of labour. More 
over,  the  Greek  economy  continues  to  be  charac 
terised  by  close  relationships  between  the 
government, the wider  public  sector, the  banks  and 

20 

General  government  consolidated  gross debt in Member  States, 
1983-93,1994 and  1995-97 

% GDP (annual average) 

140  r 

' 

E31983-93 
•  1994 

•  1995-97 (projected) 

120 

100 

80 

60 

40 

20 

L  .  - UK 

F 

D 

FIN 

D1983-93 excludes new Lander 

1  140 

M 

Chapter 3 Member State policies and cohesion: an overview 

selected  large  private  enterprises.  While  such 
arrangements  are  helpful  in  the  formation  of 
consensus  around  economic  policy  goalc,  a  less 
desirable rasult is that the economy is less subject to 
the disciplines of the market. 

In Spain, while reforms linked to the Single  Market 
Programme have been extensive, there have  been 
only  limited  changes  in  two  key  areas  affecting 
performance:  the  labour  market  and  the  non-
traded  (largely  service)  sector.  The  Spanish 
authorities  themselves  identified  the  problem  in 
the convergence  programme  of early  1992 and its 
revision  in  1994. A set  of  measures  in the  service 
sector  to  improve  competition  and  transparency 
were  planned,  along  with  measures  to  enhance 
labour  mobility through the reform of the education 
system  and  to  improve  housing  supply,  adminis 
trative  procedures  and  management  of  public 
enterprises.  Up to now,  however, the  assessment 
on the implementation of these proposals  is some 
what  mixed and much depends on the outcome of 
extensive  reforms,  mainly  enacted  in  1994, to ad 
dress  the  main  labour  market  rigidities,  including 
working  time  regulations,  occupational  and  geo 
graphical  immobility,  wage  setting,  recruitment 
procedures  and  employment  contracts.  Signifi 
cant  progress,  on  the  other  hand,  has  been 
achieved  in a number  of areas  linked to  decisions 
taken  at the  EU level, including  transport  services 
and  the  financial  system. 

Through their  expenditure-based, allocative  policies 
Member  States' can influence patterns of  production 
and consumption  in order to achieve a more optimal 
use  of  resources  in  social  and  economic  terms. 
Broadly  defined  in  this  way,  all  spending  by  the 
Member  States  is  allocative  and  mostly  concerned 
with  social  aspects.  Thus  services  supplied  to  the 
community  and to  households  and  persons  directly 
(education,  health,  social  security  and  welfare, 
housing community and cultural services) account for 
50% to 70% of total general government  expenditure 
in the  Member  States, or  between  20% and 30% of 
national  GDP. This  social  expenditure  also  plays  a 
significant  redistributive  role  within  the  Member 
States,  often  supporting  spending  of  the  lower 
income  groups  who  contribute  less  to  its  financing 
through  proportional  or  progressive  tax  systems. 
They,  therefore,  contribute  significantly  to  the 
internal  cohesion  of  Member  States,  as  discussed 
below. 

Expenditure  on  economic  services  (regional 
policies, research and development, trade promo 
tion, employment  policies  etc), on the other  hand, 
accounts for between 6% and  14% of total govern 
ment  expenditure  or  3% to  10% of  national  GDP. 
These policies are intended to improve the climate 
for  firms  and  to  affect  the  way  in  which  the  job 
market  functions.  Apart  from  regional  policy, 
which due to its importance will  be treated  separ 
ately  below, these  pciicies  have  no intended  spa 
tial  effects  and  are  operated  largely  without 
reference to spatial considerations.  Nevertheless, 
such  effects  exist  and merit  careful  analysis. The 
analysis  will  be  limited  to  R&D  and  employment 
policies. 

While  R&D  policies  vary  significantly  between 
Member  States,  they  are  generally  aimed  at 
national  objectives,  such  as  the  stimulation  of 
innovation  and  the  improvement  of  competitive 
ness.  While  some  of  the  larger  Member  States 
have  made  efforts  to  régionalise  public  R&D 
spending,  it  remains  the  case  that  though  the 
sums  concerned  are  of  a  similar  order  of  magni 
tude  to  regional  incentives,  their  spatial  distribu 
tions  are  virtually  the  opposite.  Both  overall  R&D 
spending  and  incentives  are  highest  in relation  to 
GDP  in  the  more  properous  countries  and  are 
concentrated  in the richest regions  in all  countries 
for  which  regional  data  are  available.  In  France, 
Spain  and  Italy,  public  spending  is  even  more 
unevenly distributed than private  spending  and  is 
thus  often the  main engine  of  disparities. 

The net result is a reinforcement of existing disparities 
inside  the  EU,  contributing  to  a  virtuous  circle  of 
innovation  and  competitiveness  in  the  more  pros 
perous  regions. This is an issue for  European cohe 
sion  which  is  unlikely to  be  resolved  at  the  national 
level, creating  the space  for  more determined  inter 
vention  through  EU structural  and  R&D  policies,  as 
examined in chapter  4 below. 

A major  aspect of employment  policy  is that  it  helps 
to  prevent  the  exclusion  of  people  from  the  labour 
market,  thus  furthering  social  cohesion.  Since  the 
European  Council  of  Essen  in  December  1994,  EU 
Member States have been coordinating their employ 
ment policies within a Community framework, with the 
aim  to  achieve  a  structural  reform  of  the  labour 
market. Efforts have been concentrated in five priority 
areas: 

52 

Chapter 3 Member State policies and cohesion: an overview 

• 

• 

• 

• 

to improve labour force skill, Member States have 
strengthened financial as well as fiscal  measures 
to encourage firms to increase their  investment in 
vocational  training.  Some  Member  States  have 
also launched extensive reforms of their vocational 
training systems while others have increased sub 
stantially the number  of training  places  available. 
Specific  measures  have  been  introduced  to  im 
prove training levels for young people, in particu 
lar,  through  the  apprenticeship  system  and 
traineeships which combine work experience and 
formal training; 

to  promote  more  employment-intensive  growth, 
some Member States have encouraged the social 
partners to reach formal agreement on more flex 
ible  and  shorter  working  hours.  In  other  cases, 
regulatory reforms have been undertaken to facili 
tate the use of part-time and other flexible types of 
work.  The  expansion  of  services  in  social, com 
munity  and  home-care  sectors,  fulfilling  unmet 
demand in the personal sector, has been encour 
aged  in  some  Member  States,  through  various 
means including regulatory reform, tax  incentives 
and the use of service-vouchers; 

to  reduce  labour  costs,  in  cases  where  they 
constitute a potential barrier to job creation, espe 
cially  at  the  lower  end  of  the  skill  and  earnings 
scale,  several  Member  States  have  reduced  the 
level of  social  security  contributions  on  selected 
groups of workers, the low-paid and those who are 
disadvantaged  in the labour  market.  In a number 
of cases, total or  partial exemption 'rom contribu 
tions  have  been  introduced  to  encourage  the 
hiring  of  young  people  or  the  long-term  unem 
ployed; 

to achieve a similar objective, of reducing charges 
or taxes imposed on labour to bring down the cost 
of employment and thereby stimulate job creation, 
in a number of Member States, an attempt is being 
made to shift the burden of tax from labour to other 
sources  by  extending  the  tax  base.  So-called 
'green'  taxes  (such  as the  new  landfill  tax  in the 
UK) have, therefore, been introduced — or are in 
the process of being introduced — in some coun 
tries  to  replace  part  cf  the  social  contributions 
levied on employers; 

• 

to  improve  the  effectiveness  of  labour  market 
policy,  most  Member  States  are  attempting  to 

rebalance expenditure from passive income sup 
port to active measures aimed at the integration of 
the  unemployed  into  paid  jobs.  In  some  cas"es 
such efforts have sought to eliminate disincentives 
by  making  the  eligibility  rules  for  unemployment 
benefits stricter, in particular in connection with the 
refusal  job  offers.  In  other  cases,  the  range  of 
policy instruments was strengthened  and diversi 
fied,  including  training  programmes,  recruitment 
subsidies, temporary job offers, job-search assist 
ance and business start-up aids. In some Member 
States, reforms have been undertaken to improve 
the  efficiency  of  employment  services,  through 
greater  de-centralisation,  deregulation  and  a 
greater  focus on the needs of special groups. 

In all areas referred to above, priority has been given 
to  actions  in favour  of the  re-integration  of  the  most 
disadvantaged  groups,  such  as  young  job-seekers 
and the long-term unemployed, as well as to achiev 
ing effective equality of opportunity between men and 
women in working life. 

Member States' own regional policies 

Most of the Member States operate their own policies 
tu  assist  their  less  developed  regions  or  to  achieve 
other spatial goals. These policies are conceived and 
implemented differently in different national contexts. 
In  some  countries,  it  concerns  incentives  to  capital 
investment  in the regions while in others,  particularly 
in  France,  it  is  more  wide-ranging  also  including 
policies  of  spatial  planning  involving  infrastructure 
expenditure. The objectives of regional policies are to 
reduce  disparities  in  economic  development  by 
encouraging  investment  in the  poorer  areas  and  to 
reduce disparities in unemployment,  particularly that 
linked  to  industrial  restructuring,  but  also  underem 
ployment  in  backward  regions.  In  some  Member 
States,  demoigraphic  and  geographical  issues,  in 
particular  peripherality  and  the  associated  risk  of 
outward migration also play a prominent role. Finally, 
urban  policy,  especially  in the  UK  and  France, also 
addresses problems linked to the decay in the physi 
cal and sociai environment in inner city areas. 

As  regards  regional  incentive  policies  —  which  are 
common to all Member States — grant  expenditures 
are typically very low, accounting for between 1 % and 
4% of total government expenditure. In Italy, Germany 
and  France,  however,  grants  account  for  less  than 

53 

40%  of  total  regional  aid  expenditure,  so  that  total 
regional  incentives  are  significantly  higher  in  those 
Member  States. Germany  and  Italy, the  large  'dual* 
economies,  also  account  for  most  expenditure, 
around two-thirds of the total between 1989 and 1993 
(Graph 21 ), although in Italy it is in sharp decline. Over 
the same period, the four cohesion countries together 
accounted for about one-fifth of total expenditure  on 
incentives while together they had almost one-sixth of 
total  population  and just  over  one-tenth  of  total  EU 
GDP. In these Member States the amounts of regional 
support  are largely determined  by the needs  gener 
ated in co-financing the EU's cohesion policies. 

An  intertemporal  analysis  reveals  that  Member 
States  are  spending  less  of  their  budgets  on 
regional  investment  incentives  over  time.  In  a 
longer  term  perspective  this  is  particularly  true  in 
Denmark,  the Netherlands  and the  UK. Given  that 
grants  do not constitute the most  important  instru 
ment  of  support  in  Germany,  Italy  and  France, 
which  have  among  the  highest  absolute  amounts 
of  expenditure,  and  that  the  intertemporal  devel 
opment  of  the  other  support  measures  is  not 
known, a reduction  in grants would  not  necessary 
imply that the importance of spatially-oriented  pol 
icy  is  in overall  decline  in these  countries. 

National  regional  incentive  policies  have  played  a 
necessary  role  in promoting  EU-wide  cohesion. The 
lessons  learned and experienced gained  in regional 
policy at national level have contributed  significantly 
to  the  support  for  policies  of  solidarity  and  to  the 

21  Average annual  expenditure  on  regional 
assistance in Member States, 1989-93 
(ECU mn at  1993 prices) 

GR 

Chapter 3 Member State policies and cohesion: an overview 

quality of actions at EU level. In addition, in so far as 
they help the most disadvantaged  regions, Member 
States' policies contribute to European convergence 
and cohesion. But while necessary from the point of 
view of cohesion at the EU level, national policies are 
not sufficient. 

First, since they are faced with generalised  problems 
of lack of competitiveness  across much of their terri 
tory, the intensity of expenditure in the cohesion coun 
tries  —  expressed  per  head  of  population  in  the 
assisted  regions  —  does  not  always  give  them  a 
significant  advantage  compared to many  regions  in 
northern  Member  States.  The  northern  Member 
States  concentrate  their  resources  on  a  more 
restricted  population  in  the  worst-affected  regions, 
typically between 20% and 40% of their total popula 
tion,  often  with  some  of  the  highest  unemployment 
rates  in the Union and other serious  structural  prob 
lems.  As  a  consequence,  expenditure  per  head  is 
higher  in  the  assisted  parts  of  Italy,  Germany  or 
Luxembourg  than  in  the  cohesion  countries 
(Graph 22). Across the EU as a whole, this has tended 
to  mean  that  the concentration  of  resources  on  the 
assisted regions with the lowest GDP is not as clear-
cut as it might be. In effect, and as discussed  below, 
lack  of  budgetary  capacity  has  reduced  the  impact 
of EU competition  policies which permit higher  rates 
of  intervention in poorer  Member  States. As a result, 
the  receipt  of  regional  grants  is  determined  at  least 
as much by the Member States in which the region is 
located,  as by needs. However, with the help of  the 
EU's  Structural  Funds,  the  poorer  Member  States 
have been increasingly able to offer comparable sup 
port for regional investment to many northern regions. 

Secondly,  in  the  absence  of  a  decisive  advantage 
with regard to incentives, the weaker  Member  States 
have  more  difficulty  in  competing  with  northern 
Member  States  where  supplier  networks  are  more 
developed and, in regard to producer services, often 
of  higher  quality.  The  superiority  of  business  infra 
structures  probably  lies behind the research  finding 
that the effectiveness of regional expenditure and the 
quality of the foreign direct investment (FDI) attracted 
(in  terms  of  such  factors  as  decision-making 
autonomy or innovative capacity) are higher the more 
developed the economy. Countries and regions with 
a  long  history  of  FDI  attraction  and  experienced 
regional  development  agencies,  such  as  Scotland 
and  Ireland,  succeeded  in  attracting  higher  quality 
investments. 

54 

Chapter 3 Member State policies and cohesion: an overview 

Thirdly, the widespread availability of grant support 
risks  generating  dead-weight,  whereby  incoming 
investors receive grants beyond the level required to 
make  their  investment  profitable  because  of  grant 
competition between countries. Finally, given the par 
ticular  problems of urban areas, the degree of suc 
cess of urban policy seems to be lower than that of 
regional policy in general. 

3.4  Redistribution 

The  Member  States'  redistributive  policies  change 
the distribution of income between persons through 
the flows of taxes and benefits. As a result of such 
policies  the  distribution  of  personal  disposable 
income (PDI) can differ significantly from the distribu 
tion of income before taxes and benefits. 

The effects of these policies can be seen clearly at 
the  regional  level: since  tax  payments  are  related 
proportionately  or  even  progressively  to  income, 
while benefits tend to be constant or even decrease 
with income, they involve involuntary  but significant 
implicit  transfers  from  high-income  to  low-income 
regions. As a result, the regional distribution of PDI 
per head within the Member States tends to be more 
even  than  the  distribution  of  GDP  per  head. For 
example, Northern Ireland, the poorest region in the 
UK, has a GDP per head which is 68% of the figure 
for the South-East, the richest region, but its PDI after 
transfers  is  85%.  Similarly  in  France,  Languedoc-
Roussillon moves from 55% of the GDP per head of 
Ile de France to 71% in terms of PDI per head. 

The  redistributive  effects  at the  inter-personal  level 
also  result  from  expenditures  on  the  provision  of 
public goods and services, either free at the point of 
consumption  or  at  subsidised  prices.  The  inter 
regional  redistribution  of  such  expenditures  is  not 
transparent,  and  cannot  be  found  in  published 
accounts. They  have  had  to  be  estimated  for this 
Report. 

This analysis  suggests  that the regional  disparities 
taking  account  of  the  effects  of  tax  and  public 
spending  flows  through  national  budgets  are 
between 20% and 40% lower than the disparities in 
regional GDP per head (Map 12, which shows esti 
mates  of  the  net  amounts  transferred  in  1993). 
Member States' budgetary policies therefore make a 

contribution  to  cohesion,  though  primarily  at  the 
national level. 

National  policies  mostly  concern  aspects  of  social 
cohesion and tend to  impact on regional cohesion 
indirectly.  Study  results  suggest  that  even  though 
public  expenditure  accounts  for  between 40% and 
60% of national GDP, the net regional transfers are 
much smaller, equivalent to 4% of the GDP of donor 
regions or 8% of recipient regions. 

To the extent that national redistribution policies bring 
regional and personal disposable incomes closer to 
the national average, at the European level they also 
bring  the  regional-level  disparities  closer  to  the 
Member State-level disparities. As a result, they have 
an important role to play in promoting convergence 
and cohesion between regions at Community level. 

At the same time, they cannot substitute for EU-level 
policies.  Since  they  are  organised  nationally,  the 
transfers are not systematically related to differences 
in GDP on a European scale. For example, the East 
Anglia in the UK is of a similar level of prosperity as 
Bretagne in France and both are just above the EU 
average. But in terms of transfers their position is quite 
different. Bretagne receives net transfers equivalent 
to around 3% of its GDP from the French state, East 
Anglia  transfers  the  equivalent  of  3%  of  its  GDP 
(again, in net terms) to the British State. 

The role of Member States' redistributive policies is to 
redress  basic  income  inequalities  and  to  widen 

22  Average annual expenditure per head in 

assisted areas, 1989-93 

ECU per head of «ligfbi* 

140  rpopulation (at 1993 prices) 

i  140 

120 

-100  r-  ••'-: 

• 

;-••• 

. 

• 

-:  •... 

:  4  ioo 

BOY  '  v,mr 

•:;;-,- 

• 

••.-•>••.  A BO 

OR 

f  M.  P 

Dtq 0(W) 

I 

•  DK 

f 

l  ML  «K  NML 

55 

Chapter  3 Member State policies and cohesion: an overview 

Map 12 
Net regional transfers in selected Member States, 1993 

v\ 

i 

Chapter 3 Member State policies and cohesion: an overview 

opportunity  and  access  to  services.  They  serve  an 
essential purpose in social terms especially in view of 
the  need  to  combat  poverty  in  the  Union,  as  dis 
cussed in chapter 2 above. This means that transfers 
which  support consumption  predominate over  those 
aimes  at  expanding  investment.  This  is  one  of  the 
differences with Community policies which are mostly 
concerned with the latter. 

Striking  an  appropriate  balance  in  public  expendi 
tures  between  the  'social'  and  the  'economic'  is  an 
ongoing  difficulty  facing  national  policy-makers. 
Thus, for example, the failure over  many decades to 
effect  long-term structural change in southern Italy in 
spite of large-scale transfers — which have neverthe 
less served to reduce household disposable  income 
disparities — appears to be an example of too much 
of the former and not enough of the  latter. 

In Italy, a new balance has now been struck, reducing 
the  emphasis  on  purely  income  transfers  which  are 
difficult  to  sustain  over  the  longer-term.  This  has 
meant, in effect, that policies for the poorer regions of 
the  Mezzogiorno  increasingly work to a Community-
driven  cohesion  agenda  which  stresses  structural 
improvement  and competitiveness. As noted above, 
in  the  four  poorer  Member  States  of  the  Union, the 
political  priority  given  to  expenditures  in  support  of 
regional  economic  competitiveness  and  develop 
ment,  in  the  face  of  competing  demands  on  the 
national  budget,  can  similarly  be traced  to the  lead 
given by policies established  by the EU. 

3.5 Concluding remarks 

The  preceding  analysis  provided  an  overview  of 
some  of the  policy  instruments  and  political  choices 
deployed  at  national  level  in  addressing  issues  of 
economic  and  social  cohesion. These  policies  con 
tribute  to  reducing  income  and  employment  dis 
parities at national level and, indirectly, at Community 
level.  They  are,  above  all,  the  Union's  primary 
defence  against  poverty. The evidence of  chapter  2 
suggests  that,  albeit  in  difficult  economic  circum 
stances, these policies have not been able to prevent 
a widening of regional and social disparities internally 
within the Member States. 

This  inevitably  has negative  effects on the quality of 
life  of  sections  of  the  population  and  on  national 

cohesion,  as well  as on cohesion  in the  Union  as a 
whole. It carries an additional risk of weakening over 
all efforts at the European  level to promote  solidarity 
to the extent that it contributes to disaffection  in dis 
advantaged regions and among the unemployed and 
the  poor. 

As indicated in the introduction to this chapter, there 
have  been  important  constraints  on the capacity  for 
independent  economic  policy  action  by  European 
governments  over  the  last  decade  or  so. Neverthe 
less,  the  preceding  observations-provide  cause  for 
further  common  reflections  on  appropriate  policy 
responses. 

In particular, they draw attention, firstly, to the role played 
by fiscal  policies over the last decade. One result has 
been that the financial burden for repaying the public debt 
has increased on average by 1.2 percentage  points of 
GDP; in some Member States such as Greece, Finland 
and Italy the changes have been more dramatic. Under 
EMU, national budgets will have to be managed in such 
a way as to underpin the economic stability and maintain 
low interest rates while retaining sufficient flexibility to help 
smooth out the cyclical ups and downs in the economy. 
Budgetary  discipline  is therefore an essential medium-
term objective and several Member States have already 
announced  their  intention  to  keep  public  finances  in 
balance or even in surplus, partly in preparation for the 
longer-term effects of supporting an ageing population. 

Secondly, in relation to their overall budget,  Member 
States typically devote relatively small sums to expen 
diture  on  strategic  economic  services  (regional 
policies,  research  and  development,  trade  promo 
tion, etc.) which  address  long-term  competitiveness 
problems. The issue of the correct  balance  between 
efforts  to  cure  cohesion  problems  and  those  which 
seek  to  prevent  them  arising  in  the  first  place  may 
merit further  reflection in this context. 

In this regard, the Union has attempted to give a lead 
by reinforcing the priority within all Member States of 
efforts  to  promote  investment  for  growth.  For  the 
weaker  Member  States,  however,  budgetary  con 
straints inevitably limit their capacity to undertake the 
necessary  rebalancing  in favour  of  strategic  expen 
ditures  in the  fundamental  way  required  to  promote 
catching  up with the  rest  of the  Union. Here,  Union 
intervention  can  offer  financial  support  for  wide-
ranging  improvements  in infrastructures  and  human 
capital. 

Chapter 3 Member State policies and cohesion: an overview 

58 

Chapter 4 
The policies of the European Union 

Introduction 

One  clear  manifestation  of  the  process  of  European 
integration is the wide range of areas where the Member 
States have taken a deliberate decision to pursue com 
mon  policies.  In  each  case  there  is  a  specific  set of 
objectives, the origins of which can be traced, at least in 
a formal sense, to the provisions  in the Treaties. These 
policies include those specifically targeted on improving 
cohesion, which are the subject  of detailed  analysis in 
chapter  5. The other  policies — which are examined in 
this  chapter  —  have other  objectives, though  in some 
cases, such as the trans-European network programmes, 
they  include  explicit  reference  to  cohesion.  But  even 
where  cohesion  is  not  explicitly  part of  the objectives, 
different regions and social groups tend, nevertheless, to 
be affected differentially. 

The  concern of the following  analysis  is not to  carry 
out a critical assessment from a cohesion perspective 
of  policies  designed  to  pursue  other  objectives. 
Rather, it is to examine how, and to what extent, they 
have helped to further cohesion aims and to consider 
whether,  and  under  what  conditions,  they  could  do 
more to further this end without  being  diverted away 
from the pursuit of their  primary objectives. This is an 
important  issue  in an era of  continuous  pressure  on 
public  budgets,  at  both  national  and  Community 
level. In both financial and efficiency terms, it makes 
sense, to take account, where  relevant, of the  effect 
on cohesion when designing policy measures and to 
take  advantage  of  any  opportunity  for  achieving 
multiple  aims through a given set of actions. 

The Union policies examined here differ  significantly 
in nature and scope, but can broadly be  considered 
under  four heads: 

agriculture and fisheries; 

measures  to  improve  competitiveness  —  the 
single,  or  internal,  market  programme  (SMP), 
research and development,  competition  policies, 
industrial and trade policies; 

network policies 
and energy; 

•transport, telecommunications 

•  measures  to  improve  the  quality  of  life  —  social 
policy, education and training  and  environmental 
protection and  improvement. 

4.1 Agriculture 

and fisheries policies 

Agriculture 

In expenditure terms, the most important policy of the 
EU concerns  its interventions  in agricultural  markets 
under  the  Common  Agricultural  Policy  (CAP).  The 
market support or 'Guarantee Section' of the EAGGF 
(the  EU's Agricultural  Fund)  alone  absorbed  almost 
half of the total EU budget  in 1994. 

By ensuring the orderly development of markets, and 
removing the uncertainty from a sector  characterised 
by long lead times in the production process, the CAP 
has helped to secure over several decades the sup 
ply  of  food  for  European  citizens.  It  has  also  sup 
ported  and  stabilised  incomes  in  a  sector  where 
employment  has  been  under  constant  threat  (see 
chapter  2)  and  for  whom  there  are  generally  few 

59 

Chapter 4 The policies of the European  Union 

alternatives. The CAP has had a decisive  impact on 
activity  in the  sector:  it has been estimated  that  half 
of  the  value  of  agricultural  production  is  accounted 
for  by these transfers. 

The CAP has also been the sectoral policy of the EU 
involving  the largest  redistribution of income  among 
European  citizens.  Financial  support  under  the 
Union's budget takes the form of a transfer of income 
from consumers  and taxpayers  towards  agricultural 
producers. The difference  between prices inside the 
Union and world prices, where these exist and where 
they  can  be  considered  as valid  references  prices, 
also gives  rise, implicitly, to income transfers. Direct 
measures  to  improve  the  longer-term  competitive 
ness  of  the  agricultural  sector  are  a  separate,  if 
related,  aspect  of  the  CAP,  specifically  addressed 
under  another  part  of  the  EAGGF  budget,  the 
'Guidance  Section',  which  aims  at  improving  farm 
structures. This involves only a relatively small propor 
tion  of  the  EU's  agricultural  budget  (around  8-9%) 
and its impact  is considered  later  in Chapter 5. 

The  CAP  is  a  policy  in  a  state  of  evolution,  most 
recently  with the  1992 agricultural  policy  reforms, 
which  in turn  has  effects  on the  nature  and  extent 
of  the  implicit  transfers.  The  1992  reforms 
addressed  the  problem  of  rising  surpluses  for 
many  agricultural  products,  by  reducing  price 
support  and  weakening  the  relationship  between 
payments  and  output  in  favour  of  more  direct 
support  for  farmers'  incomes. 

As  already  indicated,  in  supporting  farmers  indi 
rectly  through  prices  which  are  generally  higher 
than  world  prices  and  directly  through  the  pay 
ment  of  subsidies,  the  CAP  also  involves  large 
implicit  transfers  between  Member  States  and  re 
gions,  economic  sectors  and  social  groups.  The 
CAP  therefore  has'an  effect  on  cohesion.  The 
following  analysis  considers  the  first-order  effect 
of  these  transfers  before  going  on  to  consider 
other  effects. The mechanism through which  such 
transfers  come  about  is  relatively  complex:  first, 
taxpayers  in one Member  State subsidise  domes 
tic  as  well  as  other  EU  producers  through  direct 
payments  and  export  refunds.  Secondly,  con 
sumers  subsidise  national producers through  pur 
chases  of  domestically  produced  food,  but  they 
also  subsidise  producers  in other  Member  States 
through  intra-EU  imports  of  agricultural  products. 
Income  is therefore  transferred  between  Member 

States  according  to their  differing  patterns  of  pro 
duction  and  consumption. 

The  income  transfers  generated  by  the  market 
policies of the CAP have been estimated by external 
experts for the period 1989 to 1994 (the methodologi 
cal difficulties of doing this are discussed in the annex 
to this report). The data, therefore, contain information 
both for the period before and after the 1992 reforms 
(see Tables 4.1 and 4.2). The reforms, however,  are 
not the only  factor  affecting  the  pattern of  transfers: 
there  are  many  others  which  determine  the  perfor 
mance  of  agriculture  in  any  country  in  any  given 
period  and,  accordingly,  the  net  gains  and  losses 
under the CAP. 

The pattern of transfers 
between  Member  States 

Transfers  under the CAP can be assessed for  1994, 
the most recent year for which a complete data set is 
available. This is an interesting year  because it is the 
first complete one under the new CAP regime, though 
full  implementation  occurred  only  in  the  course  of 
1995/96.  An  examination  of  the  overall  gains  and 
losses shows the following: 

• 

• 

the  net  transfers  in  1994  were  positive  for  five 
Member  States. Ranked  in order  of  the  absolute 
transfer,  the  five  are  GR,  E,  IRL,  F and  DK. The 
explanation for the transfers varies, however, from 
country to country within this group. Typically, the 
northern  Member  States  —  especially  DK  and 
IRL — benefit  more from trade transfers  because 
of patterns of specialisation which favour  produc 
tion  in the  more  protected  sectors. The  southern 
Member States—GR and E — tend to benefit from 
direct  payments.  France  also  gains  substantially 
through trade — in 1994, it had the largest positive 
effect from trade with EU partners of any Member 
State —  but  it received  even more  in the  form of 
direct payments. 

the net transfers were negative  for the  remaining 
seven  Member  States.  Of  this  group,  the  three 
large  Member  States,  D,  IT  and  UK,  made 
substantial gross contributions to the EU's agricul 
tural budget in the same way as FR, but unlike for 
the latter, the trade effects were negative in each 
case  while  direct  payments  were  substantially 
lower.  The  BENELUX  countries  all  experienced 
positive trade effects. Agriculture  in Belgium  and 

60 

Chapter 4 The policies of the European Union 

The development of market policies under the CAP 

The traditional CAP was based mainly on market price support of farm output. This particular approach to agricultural 
policy, being directly related to domestic supply, succeeded in generating a rapid increase in agricultural production 
and self-sufficiency within the EU. 
In the first years of the CAP, border protection, apart from allowing higher domestic prices and farm incomes, also 
provided an extra source of financial  resources for the EU budget. The costs of the policy were borne almost 
exclusively by consumers. From the end of the 1960s onwards, expanding domestic supply relative to domestic 
demand created surpluses of dairy products, me^t and cereals with the result that the EU had to provide incentives 
to promote exports. In effect, European consumers and taxpayers were faced with a situation of ongoing support 
for the incomes of farmers through higher agricultural prices than world levels, combined with the increasing costs 
of surpluses in the form of export subsidies, storage and disposal costs. 
In view of the changing circumstances, the EC Council of Ministers decided in 1984 to introduce production quotas 
for dairy farmers to limit the budgetary costs which were particularly high in the dairy sector. By directly restricting 
supply, the objective of reducing surpluses and associated costs was reached, although this did rather less to 
change underlying agricultural structures. A further step towards balancing demand and supply was taken a few 
years later by taking land out of production under the land set-aside scheme. 
While  savings  on  budget  expenditure  were  achieved  the  overall  efficiency  of  the  agricultural  sector  was not 
improved. 
In view of ongoing pressures, including a preoccupation with the very variable effects of the CAP on different parts 
of the Union, a major reform was introduced in 1992 which had effects on important product sectors of EU agriculture: 
cereals, oilseeds and meats. Its main aim was to balance supply and demand by giving a greater role to the market 
mechanism. The reform also sought to break the link between support to farmers and the quantity of production. 
Payments to farmers are now based on historical yields. At the same time, compensatory payments remain linked 
to the area cultivated by each farmer, but they are limited by regional or individual ceilings. Meanwhile, accompa 
nying measures seek to reduce over-supply and improve the environment by encouraging less intensive farming, 
the afforestation of agricultural land and early retirement schemes for farmers. 

Estimates of net transfers under the Common Agricultural  Policy 

The calculation of transfers associated with the CAP was undertaken by external experts. It requires a complex 
analysis and a number of simplifying assumptions, due to the individual nature of different agricultural markets and 
the fact that for some products, there is no international reference price. 

Transfers between Member States 

Transfers from taxpayers in each country are estimated by assuming that the share of each in the EU agricultural 
budget equals the sf .are of its contribution to the overall Community Budget. Transfers from consumers are estimated 
by multiplying the amount of each product available for consumption in each country by the EU 'price support'. 
'Total support' is based on OECD data used to calculate PSFs (Producer Subsidy equivalent) and CSEs (Consumer 
Subsidy Equivalent). Because these data relate to a period before the Uruguay Round Agreement, they may not 
necessarily reflect the relationship between EU prices and world prices after the agreement. This could mean that 
the scale of EU price support is over-estimated. Since the OECD does not compute support rates for fruit, vegetables, 
wine and olive oil, these had to be estimated. 

Transfers between regions 

Food consumption per head and average tax rates are assumed to be the same across all regions in each Member 
State. Both assumptions are likely to mean that the burden on richer regions is under-estimated in relation to that 
on poorer regions, and more refined assumptions might, therefore, produce a greater cohesion effect. 

61 

Chapter 4 The policies of the European  Union 

Luxembourg is relatively specialised in more pro 
tected products, but this was more than offset  by 
the negative effects of transactions  with the  agri 
cultural budget. 

The data suggest that the position has changed over 
time. For the five Member  States for which  transfers 
are currently  positive, all have experienced  increas 
ing transfers over the period. For  Spain and France, 
the  effect  has  been  to transform  their  position  from 
one of net loss to one of net gain. For the  remaining 
Member  States  the  position  of  net  loss  has  been 
maintained  and  only  in the  UK  were  the  net  losses 
substantially  reduced, especially  in the  period  after 
the reform. 

The  position of the four  weakest 
Member  States 

A  priori,  it  could  be  expected  that  the  cohesion 
countries  would  benefit  from  the  CAP  if  only 
because  they  have  proportionately  more  agricul 
tural  producers  than  the  more  prosperous  and 
more  urbanised  northern  Member  States.  In  the 
past, this  has  been offset  by  a  pattern  of  support 
under  the  CAP  which  was  related  to  the  produc 
tion  of  certain  livestock  products  and  cereals. 
These  are  products  of  particular  importance  for 
climatic  and  other  reasons  in  northern  Member 
States. The  1992 reforms,  took  an  important  step 
away from this system and the  pattern of  transfers 
to  which  it  gave  rise  appears  to  have  had  the 
expected  effect  of  giving  more  support  to  poorer 
countries with more agricultural producers.  In par 
ticular,  it  reduced  the  burden  on  consumers  in 
poorer  Mediterranean  countries  by  reducing  the 
prevailing  prices  of  cereals  and  of  beef/veal  for 
which  they  are  net  importers.  Countries  with 
higher  dependence  on agriculture  also  benefited 
from moves towards  direct  payments  financed  by 
taxpayers. 

As a result, and as shown above, three of the  poorer 
Member  States — GR, E and IRL — were net benefi 
ciaries  from the  CAP in  1994 compared  to  two, GR 
and  IRL,  beforehand.  For  Greece,  the  gains  come 
from a combination of  high direct  payments  (mainly 
to  cotton  and  tobacco  producers)  and  its  low  con 
tribution to the  budget.  It has  experienced  (smaller) 
losses  from trade  because  of  lower  protection  rates 
for  its  exports  (mainly  fruits  and  vegetables)  and 
higher  protection  for  its agricultural  imports  (mainly 

livestock  products).  Ireland  has  gained  because  of 
positive  trade  transfers  (it  exports  highly  protected 
agricultural  products),  but  also  because  to  its  rela 
tively  low  contribution  to  the  agricultural  budget. 
Spain  benefited  from  direct  payments  after  the  re 
form, the  main factor  in turning  its  position  from  net 
contributor  to  net  beneficiary,  although  it  also  has 
important receipts from the effects of trade. 

One  of  the  four  cohesion  countries,  Portugal,  how 
ever, has remained a net  loser  under  the CAP  even 
after the reform, despite low budgetary contributions. 
Its high employment in agriculture is offset by very low 
agricultural  productivity,  which  is  combined  with  a 
structure  of  production  resulting  in  a  relatively  low 
level of direct  payments  and  a pattern of  exports  of 
agricultural products for which the level of price pro 
tection is also low. 

Overall, it appears that in managing Europe's agricul 
tural markets, the CAP has had the effect of  creating 
a system of implicit transfers which has yielded  posi 
tive  transfers  of  income  to three  of  the  four  poorest 
Member  States. With the reforms of  1992, the cohe 
sion  effect  has  been  reinforced,  most  notably  by 
transforming the position of Spain to one of net benefi 
ciary.  At  the  same  time,  benefits  flow  to  two  of  the 
more  prosperous  Member  States,  Denmark  and 
France, which have both experienced significant im 
provements in the period after the introduction of the 
CAP, while one of the two poorest and most agrarian 
countries, Portugal, remains a net loser. Indeed, when 
the transfers are expressed  in relation to a standard 
farm unit ('agricultural work unit' or AWU) the intensity 
of support is now highest for Denmark, one of the EU's 
most prosperous Member  States. 

It remains possible, however, that the improvement in 
terms of cohesion may become greater as the reform 
policies  are  consolidated,  though  this  needs  to  be 
monitored as further  information becomes available. 

Regional  patterns 

The  CAP  also  has  a  differential  effect  on  the 
Union's  regions  and the  areas  within these  where 
agriculture  is  concentrated,  though  for  data  rea 
sons it is not possible to measure the effect on the 
latter.  Examining  the  position  in  each  Member 
State  individually,  it  is  possible  to  discern  a  posi 
tive  effect  of  policy  on  the  distribution  of  income 
between  regions (Maps  13 and. 14). Typically,  the 

62 

Chapter 4 The policies of the European Union 

regions  with  net  benefits  are  mostly  the  lower 
income  ones while the  higher  income  regions  are 
generally  among  the  losers.  Again,  this  results 
from agriculture being proportionally  more import 
ant  in  the  poorer  regions,  while  other  economic 
activities  are  more  concentrated  in  urbanised 
areas  in  the  more  prosperous  regions  (indeed, 
dependency  on  agriculture  tends  to  be  inversely 
related  to  levels  of  income).  Moreover,  the  costs 
of the CAP price support to consumers  in rural and 
poorer  régions  tend  to  be  lower  than  the  benefit 
accruing  to  farmers  producing  there.  As  a  result, 
a flow of income is generated from richer to poorer 
regions. 

This  positive  effect  of  agricultural  price  support  on 
regional cohesion within Member States increased in 
the period after the  1992 reform. In fact, the switch to 
direct  income  support  financed  by  the  taxpayer 
seems to have increased the costs borne by the richer 
urbanised  regions. This is considered  in more detail 
below. 

Regions  in the  cohesion  countries 

In the  four  poorest  Member  States,  regions  outside 
the major  urban centres  generally  benefit  most from 
transfers  under  the  CAP. As  a result,  in Greece, for 
example,  which  is  a  net  beneficiary  overall,  the 
metropolitan  area  of  Attiki  was  a  net  loser  in  1994 
because  of  its  urban,  non-agrarian  character.  In 
Portugal, a net contributor  overall, two  regions  were 
net beneficiaries, Alentejo and Centro, which are also 
the  poorest  regions  in  the  country.  Moreover,  both 
experienced an increase in net transfers  in the post-
reform period. 

In  other  Member  States,  there  are  considerable 
regional  variations  in  experience.  In  Italy,  some 
richer  northern  regions  where  agriculture  is 
important  as well  as  highly  productive  —  such as 
in  Emilia  Romagna  and  Veneto  —  benefit  in  net 
terms  from the  price  support  policy,  while  poorer 
and  very  populated  regions  in the  South  such  as 
Campania,^despite  having  large  agricultural  sec 
tors,  are  large  net  losers.  Poor  and  less  densely 
populated regions such as Abruzzo and Basilicata 
receive significant  net transfers  per head of popu 
lation.  In  Germany,  the  position  in the  regions  of 
the  former  GDR  differs  markedly  from  that  in  the 
rest  of  the  country.  Since  the  former  have  a  low 
average  income  per  head  and  a  relatively  large 

proportion of employment  in agriculture, they have 
generally  gained  in  net  terms  and  more  so  since 
the reform. 

The  vast  majority  of  regions  in  France,  the  largest 
agricultural  producer  in  Europe,  already  benefited 
from  the  price  support  policies  before  the  reform. 
However,  the  high  concentration  of  population, 
income and consumption in the capital region, Ile de 
France, has offset  some of the gains accruing to the 
country as a whole. At the same time, net transfers to 
French regions generally  increased after  the reform. 
In the UK, the pattern of net transfers is highly differen 
tiated.  The  poorer  regions  (Northern  Ireland  and 
Wales)  are  net  beneficiaries,  while  the  richest  and 
highly urbanised South East region is a net loser. On 
the  other  hand,  the  cereal-producing  East  Anglia, 
which  is among  the richest  regions  gains, while the 
less prosperous North England region is a loser. The 
reform  appears  to  have  slightly  accentuated  these 
differences. 

Income transfers  between  social  groups 

An argument  traditionally  advanced  in  favour  of the 
CAP is that it has a positive 'social' effect, in that leads 
to  income  being  transferred  from  richer  urban  resi 
dents to poorer people living in rural areas. This has, 
indeed, been largely true in many countries insofar as 
average  farm  incomes  are  lower  than  average non-
farm incomes. The analysis above  confirms this at a 
territorial  level, in the  sense  that  the  EU  agricultural 
price  policy  transfers  income  from  richer  urban 
regions to poorer rural ones. 

This conclusion needs to be seen in the context of the 
following  considerations.  When  internal  prices  are 
markedly  higher  than  world  market  prices,  and  if 
these  are  valid  reference  prices,  agricultural  price 
support  can  be  regarded  as the  equivalent  of  a re 
gressive tax on consumers since low income house 
holds spend a higher  share of their  budget  on food. 
At the  same time,  if agricultural  support  is  linked to 
production capacity without any limitation, it transfers 
income to farmers in proportion to their size, so bene 
fiting larger agricultural enterprises more than smaller 
ones. Before the 1992 reform, when agricultural sup 
port  was  provided  essentially  through  protected 
prices, some estimates suggested that 80% of trans 
fers  went  to  the  20%  most  profitable  farms  whose 
income  is  often  higher  than  average  non-farm  in 
comes, while small farmers benefited  less. In its pro-

63 

Chapter 4 The policies of the European Union 

Map 13 
Net transfers between regions under the CAP (market policies), 1991 

yjlE/\ 

i 

64 

Chapter 4 The policies of the European Union 

Map 14 
Net transfers between regions under the CAP (market policies), 1994 

x-  w f ^ / ' f V ^ ' ,^ 

I  I  .• 

65 

Chapter 4 The policies of the European Union 

posais  for  the  reform  of  the  Common  Agricultural 
Policy,  the  Commission  had  proposed  ceilings  on 
direct aids but these were only partially introduced. 
Since the reform, the gaps have, therefore, persisted, 
even if they have been reduced. 

aged and provide little alternative employment. Some 
70% of  fisherman, and 60% of jobs  in the fisheries 
sector as a whole, are concentrated in Greece, Spain, 
Portugal  and southern  Italy which have the  lowest 
levels of average GDP per head in the Union. 

Longer-run effect on competitiveness 

The  CAP  leads  to  improvements  in  farm  incomes 
through the 'rational development of agricultural pro 
duction' or structural adjustment. But the method of 
support  which  has  been  used,  income  transfers 
generated through supporting prices, could reduce 
incentives for change, encouraging labour to remain 
in  agriculture  and  impeding  improvements  in  effi 
ciency.  By  prolonging  the  involvement  of  marginal 
producers in agricultural production, the CAP has a 
positive influence on employment in a sector which is 
suffering a long-term decline in areas where there are 
often few alternative jobs for the workers concerned. 
On the other hand, in Member States with small sizes 
of farm, achieving a more competitive structure is a 
necessary part of the development of agriculture and 
the economy over the longer-term. 

Against this background, the effect of the 1992 reform 
on competitiveness is a mixed one. The market orien 
tation of prices has favoured efficiency  and should, 
over  the  longer-term,  encourage  structural  adjust 
ment  towards  a  smaller  number  of  viable  farms 
capable of  guaranteeing  a sufficient  income  to the 
work force, so reducing dependence on the protec 
tion traditionally offered by the CAP. Particularly in the 
poorer regions, existing sizes of farm (often less than 
2-3  hectares) are too small either for  modern tech 
niques to be adopted or to provide sufficient income 
for a farming family. In general, the Commission has 
indicated that the maintenance of the current situation 
is not a solution and it  is  necessary  to  pursue the 
approach of the 1992 reforms, introducing improve 
ments and extending it to other sectors. 

Fisheries policies 

The Common Fisheries Policy (CFP), first established 
in 1970, is centred around four major areas: structural 
measures/conservation of resources, organisation of 
markets and international agreements. Most of the re 
gions  that  depend  heavily  on  fishing  and  related 
activities  are  coastal  and  on  the  geographical 
periphery of the EU. Many are relatively disadvant 

Like other economic sectors, the sector suffers from 
over-capacity  of  production; at the same time, it is 
currently  over-exploiting  a  renewable  natural 
resource. Reducing the fishing effort has in the short 
run a negative impact on the level of employment in 
the regions concerned; in the medium term, on the 
other hand, the improvement of the competitiveness 
of the sector will help to sustain the industry, arrest its 
decline and maintain jobs in less-favoured regions. 

Apart  from  structural  policy  covered  by  the  FIFG 
which is analysed in chapter 5, the CFP has a number 
of potential effects on cohesion: 

• 

• 

• 

the policy of conserving fish stocks at sustainable 
levels and, where required, of rebuilding them, also 
entails protecting the areas and social groups par 
ticularly  dependent  on  fisheries.  Conservation 
measures have also been accompanied by special 
provisions to meet the needs of small enterprises and 
individuals located in dependent areas; 

the Common Organisation of Markets for fisheries 
and aquaculture products encourages producers 
to organise themselves efficiently, so reducing the 
risk of business failure and contributing to social 
cohesion. The principle of 'regional coefficients', 
which makes it possible to maintain lower prices 
in the less-favoured regions furthest away from the 
major marketing centres, facilitates their access to 
markets and so helps reduces regional disparity. 

through fishing agreements with third countries, fish 
ermen can continue to operate in traditional remote 
fishing fields, so helping to maintain employment in 
the less favoured parts of the Union, in Spain and 
Portugal, especially, but also in other countries. 

4.2 The single market and 

competitiveness policies 

One of the major  preoccupations of the Community 
since its foundation has been the competitiveness of 

66 

Chapter 4 The policies of the European Union 

the  European  economy  in  the  face  of  intense  and 
growing international competition. A range of policies 
have been developed at Community level in an effort 
to raise efficiency and to exploit technology and inno 
vation  more  fully.  At  the  same  time,  a  key  issue 
concerns  the  distributional  effects  of  these  and  the 
extent to which they address the particular  needs of 
weaker areas and disadvantaged social groups. 

The Single market programme 

One  of  the  most  far-reaching  factors  for  change  in 
recent years has been the single market  programme 
(SMP), which comprises the legislative measures im 
plemented over the period 1988 to 1993, as a follow-
up to the  Single  European Act  in  1987. These  have 
been  aimed  at  achieving  free  mobility  of  labour, 
goods, services and capital, through: 

• 

the removal of customs formalities, the opening-up 
of  public  procurement  to  competition  and  the 
establishment  of  common technical  standards  in 
production, packaging and marketing; 

• 

the removal of constraints on capital flows and the 
establishment of a European labour  market. 

The  SMP was  part  of  a  larger  policy  package  com 
prising both the specific measures relating to mobility 
and  accompanying  policies  for  facilitating  their 
implementation, notably  with  regard to  deregulation 
and the promotion of competition. 

The SMP has had more general benefits on quality of 
life, and not just on economic  efficiency,  by guaran 
teeing  freedom  of  voting  rights,  etc  although  these 
aspects  are not the focus of  attention  in the  present 
analysis. 

It is difficult, however, to distinguish the effect of the 
SMP  on  cohesion  from  other  developments  which 
took  place  at the  same time, such as the  economic 
upturn  in the  second  half  of  the  1980s, the  entry of 
Spain and Portugal into the Community and Structural 
Fund  assistance  in  the  poorer  regions,  especially 
after  1989. All that it is really possible to conclude  is 
that  this  combination  of  events  led  to  a  significant 
boost to growth in three of the four countries. 

1993 than  it would  have  been had  pre-1987  growth 
patterns  persisted.  Detailed  analysis  suggests  that 
the  SMP was  one  of  the  factors  contributing  to  this 
improvement, though the effects seem to have varied 
considerably between regions. In principle, the direct 
benefits from the SMP include one-off  effects  on the 
level of  output, from the opening-up  of markets  and 
new opportunities for exporters and investors as well 
as  the  spur  to  efficiency  from  a  more  competitive 
environment, and a longer-term improvement to pro 
ductive  potential  from increased  investment  in  plant 
and machinery and labour  force skills. 

In the  case of  Ireland, the one-off  effects  appear  to 
have been positive with higher output in the post-1987 
SMP period from an increase in trade, improvements 
in efficiency and competitiveness in most sectors and 
greater  specialisation  in  the  export  of  high  quality 
products. Moreover, the SMP has been accompanied 
by  increased  investment  and  improved  potential  for 
higher long-term growth, though, of course, this is not 
to imply that the SMP alone was responsible for this. 

In Portugal and Spain, the SMP was also  associated 
with even more significant improvements in economic 
performance,  though  its  effect  cannot  be  isolated 
from  that  of  accession.  The  expansion  of  trade, 
coupled  with  increased  competitiveness  and  spe 
cialisation  in  both  up-market  and  lower  quality  pro 
ducts,  has  improved  economic  efficiency,  while 
larger  inflows  of  direct  investment,  particularly  in 
Portugal,  have  increased  the  pace  of  technological 
advance. 

Only in Greece are there few signs of improvement in 
the  post-SMP  period. While trade  and  inward  direct 
investment has increased, overall investment and the 
skill  profile  of  the  labour  force,  and  so  underlying 
growth  potential,  have  not  changed  much.  Indeed, 
the  SMP  may  have  had  negative  effects  on  growth 
and  employment.  In Southern  Italy,  both  the  one-off 
effects  on  efficiency  and  longer-term  effects  on 
growth appear  to have  been mildly  positive,  but  too 
small to  change  the  pattern of  development  signifi 
cantly. 

Industrial competitiveness policy 

An examination of trends shows that in the four cohe 
sion countries taken together, GDP was 9% higher in 

At the Union  level, the aim of  industrial  competitive 
ness  policy  has  been  to  identify  specific  priorities 
for  strengthening  the  industrial  base  which  can  be 

67 

Chapter 4 The policies of the European Union 

pursued through other measures, notably the Union's 
structural policies. Three of these priorities are worth 
highlighting  in the context of this report. 

The  first  is  the  modernisation  of  public  authorities, 
where  a major  programme concerns  the  Integration 
of  Administrative  Data  (IDA),  which  should  provide 
more  effective  services,  easier  access  to  European 
information, and more effective European administra 
tion.  By  improving  the diffusion  of  information to the 
less  developed  regions,  in  particular,  it  will  reduce 
disparities between 'info-poor' and 'info-rich' areas. 

The  second  concerns  the  promotion  of  intangible 
investment in  relation  to  both  upstream  (marketing, 
product  design, strategic  and  operational  manage 
ment)  and  downstream  (distribution  and  sales) 
stages of production. The effect of this on cohesion is 
uncertain. There is a risk, in particular, that the growth 
of intangible investment will reinforce the competitive 
position  of  large  metropolitan  areas  since  they 
already have an advantage in the provision of service-
s, the  supply  of  highly-qualified  executives  and  the 
efficiency of communications, such as nodes in major 
computer, telecommunication, road, rail and air trans 
port  networks.  Union-financed  initiatives  under  the 
Structural Funds have been directed at counteracting 
this risk by trying to bring about a more even regional 
distribution of opportunities. 

The third priority is to increase co-operation between 
firms.  The  formation  of  inter-firm  networks  could 
become  an increasingly  important  factor  for  survival 
for firms in less-developed parts of the Union. Current 
initiatives  include  policies  to  promote  cooperation 
with Central and Eastern European countries with the 
aim of constructing an international network of enter 
prise advisory  agencies, such as chambers of com 
merce,  banks  and  consultancies.  At  present  these 
networks are used by enterprises in cohesion regions 
especially  which  do  not  have  support  networks  of 
their  own. These  are  largely  SMEs, which  are  more 
important in the poorer parts of the Union, rather than 
large  transnational  companies.  Other  initiatives  are 
pursued in the context of SME policy (see below). 

Competition policy 

An essential complementary measure to the SMP has 
been outlaw other forms of restrictive  practice which 
could distort the market. Competition policies attempt 

to  prevent  the  excessive  concentration  of  market 
power  in the  hands of  a single or  limited number  of 
producers  and  unjustified  State  aids  which  might 
impede free competition. They are, therefore, aimed 
at  improving  efficiency  rather  than  improving  geo 
graphical cohesion. To the extent, however, that mar 
ket  distortions  are  more  widespread  in  the  poorer 
Member States and regions, then their removal could 
have  an  indirect,  positive  effect  on  efficiency  and 
growth in these areas. 

More  directly,  the  allowance  given  in special  cases 
for  subsidies  under  national  systems  of  regional 
assistance,  as  in  the  previous  chapter,  are  com 
patible  with  the  SMP  so  long  as  they  contribute  to 
economic  development  in  the  weaker  regions  and 
have only a minor  effect on competition. In addition, 
EU  competition  rules  also  cover  aids  for  horizontal 
objectives,  such  as  R&D,  environmental  protection 
and the  support  of  SMEs as well  as sectoral  aid for 
sectors in crisis, such as steel and shipbuilding. 

During the period  1990-2, the latest period for which 
data  are  available  for  all Member  States, 50% of  all 
aids given by Member States were of a regional kind, 
some 38% of a horizontal kind and the remaining 12% 
sectoral. 

National  aid for  regional  development 

The Community  recognises  two types of  region that 
are eligible for regional aid: the least developed areas 
with an abnormally  low standard  of  living or  serious 
unemployment  problems (so-called '92(3)a' regions) 
and  those  with  other  problems  (so-called  '92(3)c' 
regions),  mostly  of  industrial  decline.  The  aim  has 
been to target regional aids so as to offset the effects 
of lack of competitiveness. 

At  the  same  time,  there  has  been  pressure  from 
Member  States  to  widen  the  coverage  of  eligible 
areas  in  some  of  the  more  central  parts  of  the 
Community  (to  increase  'Art.  92(3)c'  coverage).  In 
practice,  this  has  been  largely  resisted  and  during 
recent  revisions of assisted area status, the share of 
population  covered  under  all  types  of  aid  has  re 
mained broadly constant (though there the coverage 
of  least  developed  regions  has  increased  slightly 
from  23.9% to 24.9% of  Community  population  and 
that  of  other  regions  declined  from  23.6% to 22.8% 
—  in particular, assisted areas in the western part of 
Germany  were  reduced  from  24% to  16.8%  of  na-

68 

Chapter 4 The policies of the European Union 

tional  population  and  assisted  areas  in  Italy  (under 
'92(3)c') were increased from 5.6% to 14.7% of popu 
lation) 

The  most  disadvantaged  regions  of  the  Community 
are  most  favoured  under  this  policy.  While  the  four 
cohesion countries have the status of assisted areas 
either  in their entirety (Portugal, Greece and  Ireland) 
or  mostly  (Spain with  76%), coverage  in most  other 
Member  States is between 35% and 49% of popula 
tion, while in those with high levels of income per head 
and  low  internal  disparities  (Denmark,  Sweden, the 
Netherlands), coverage  is below 20%. 

Union policy also differentiates  in terms of the  scale 
of aid allowed, which is significantly larger in regions 
with an abnormally  low  standard  of  living  or  serious 
unemployment  problems  than  in  others  assisted. 
Overall, more than 66% of regional aids from national 
sources  go  to  areas  classified  as  least  developed, 
which covers the poorest areas of the Community. 

Nevertheless,  the  effective  scale  of  aid  allowed  is 
often much greater than the assistance actually given 
by Member States. This is particularly so in Spain and 
Ireland  which,  partly  because  of  lack  of  resources, 
only grant  assistance  of  40% of the  permitted  level, 
whereas  in  Belgium  and  Germany,  the  figure  is 
around 60-70%. As a result, the intended advantage 
accruing  to  the  poorest  countries  is  not  realised. 
Recognition  of  this  problem  was  one  of  the  factors 
which has led to regional aid ceilings being reduced. 

In practice, as noted in chapter  3, a large  proportion 
of  regional  aids  are  granted  in  just  two  Member 
States,  Germany  and  Italy,  mainly  because  of  their 
large problem areas combined with the fact that they 
have  the  resources  to  spend.  The  poorer  Member 
States  depend  to  a  greater  extent  on the  Structural 
Funds to fund regional assistance but even including 
ERDF spending, total aid  per  head in assisted areas 
in  the  cohesion  countries  is  only  between  6%  and 
30%  of  Italian  levels. (The  interrelationship  between 
national  and  Community  regional  policies  is  dis 
cussed in chapter 6 below). 

Horizontal  and sectoral  aid 

aids  now  account  for  only  12% of  all  assistance  to 
manufacturing  industry — because of the fall in sub 
sidies to steel, horizontal aid, for R&D, SMEs, environ 
mental  protection  and  energy  savings,  accounts  for 
38% of the total. 

These forms of aid, however,  particularly  for  R&D, 
are likely to have an in-built tendency to favour the 
richer  regions  of  the  Community,  where  the  re 
search  centres  of  the  major  companies  are  con 
centrated.  Studies  of  the  regional  distribution  of 
Community  R&D  aid  during  the  period  1983-90 
confirm this. Such support, therefore, tends to  run 
counter  to  cohesion  objectives.  Moreover,  similar 
studies  on the regional distribution of State aid for 
R&D  in several  large  Member  States  indicate  that 
this  has also  been  concentrated  in the  most  pros 
perous  regions.  In  addition,  government-funded 
R&D has  been significantly  higher  relative to GDP 
in  the  richer  Member  States  than  in  the  poorer 
ones  (see  chapter  3  above). 

Research and Technological 

Development policy 

Since  1985, four  RTD framework  programmes  have 
been the vehicle for RTD (research and technological 
development)  measures  in  the  Union  (1985-88, 
1987-91,  1990-94,  1994-98).  It  is  a  policy  which 
involves  significant  expenditure,  though  the  frame 
work programmes account for only 4% of total public 
civilian research effort  in the Union. 

Although their  main objective  is to  increase  interna 
tional  competitiveness,  the  programmes  also  help 
develop RTD capacity  in the relatively weak  parts of 
the Union and to strengthen their  structural develop 
ment.  While  high  unemployment  in  Europe  and  the 
difficulty  of  people  to find jobs  are often  blamed  on 
technological  progress,  innovation  and the dissemi 
nation of know-how are key determinants of economic 
development.  However,  the  non-introduction  of  new 
technologies and the 'freezing' of existing  production 
structures,  are  not viable  options,  especially  in  less 
developed  regions  where  there  is  a  major  need  to 
increase  the  adaptability  of  the  work  force  and  the 
pace of technological change  in firms. 

Control  of  State  aid  also  extends  to  horizontal  and 
sectoral  assistance.  Under  competition  rules,  the 
scale  of  aid  allowed  is  higher  in  regions  eligible for 
national assistance. While, as noted above, sectoral 

Given  the  importance  of  developing  RTD  in  less 
favoured  regions,  in  1993,  the  Commission  out 
lined  a  first  approach  aimed  at  increasing  the 

69 

Chapter 4 The policies of the European Union 

synergy  between  RTD  and  cohesion  policies 
(COM(93)203), with the objective of  strengthening 
the  RTD  capacity  of  such  areas  and  ensuring  a 
high  level  of  research  effort  right  across  Europe. 
This  approach  will  be  developed  further  in  a 
Commission  Communication  on  cohesion  and 
RTD policy  in  1997. 

The basic principle governing the selection of RTD 
projects  for  support  is  itself  a  factor  for  cohesion 
in guaranteeing  participants  from the most disad 
vantaged regions access to international  research 
in  a Community-wide  scientific  and  technological 
area. 

Regional  imbalances  in RTD  in  Europe 

The search for a better complementarity between the 
RTD and structural policies confronts two basic facts. 
On  the  one  hand, there  are  disparities  between re 
gions  in  terms  of  competitiveness,  which  cohesion 
policy  is aimed  at reducing. On the other, there  is a 
need to ensure that regions and local areas have the 
capacity to take advantage of  scientific  and techno 
logical developments necessary for competitiveness, 
notably through the dissemination of know-how linked 
to the pursuit  of excellence. 

Within  the  Union,  Germany  and  France  have  the 
highest  levels of  public  expenditure on civilian RDT. 
Of the 50,311 million ECU spent by Member States in 
1993,  Germany  and  France together  accounted  for 
30,234  million  ECU, 60% of  the  total,  while  Ireland, 
Portugal and Greece together spent only 672 million 
ECU  between  them,  under  11/2% of  the  total,  and 
Spain,  2,049  million  ECU, just  4% of  the  total.  The 
difference in public expenditure on RTD per head of 
population  between  Member  States  is  13  to  1 
whereas for GDP per head (in ECU terms), it is only 5 
t o i. 

Moreover,  spending  is  very  unequally  distributed 
within  countries,  so  that  at  the  regional  level,  dif 
ferences  are  even  wider.  Almost  half  of  European 
research takes  place  in  12 'islands of  innovation', in 
the  so-called  'Archipelago  Europe'  running  from 
London  to  Milan  (and  including  in  between 
Amsterdam/Rotterdam,  Ile  de  France,  the  Ruhr, 
Frankfurt,  Stuttgart,  Munich,  Lyon/Grenoble  and 
Turin). These  islands have dense  networks of  enter 
prises  and  laboratories  and  interact  in the  develop 
ment of new products and processes. 

This imbalance  between regions  has tended to  be 
reduced since  1989, partly as a result of Structural 

23  Support under RTD Framework 

Programme, years 1987-90 (ECU mn) 

24  Support under RTD Framework 

Programme, years 1991-94 (ECU mn) 

Note: The data measure the level of expenditure in EU contracts according to the location of the contractors.  They 
do not, therefore, show one of the main features of RTD programmes which is to bring together, via a single contract 
with the Commission, partners located in several Member States and regions.  They can only be a partial guide to 
the total benefit which different regions derive from EU RTD programmes, since each partner has access to all the 
results of the project or projects in which they are involved. Expenditure data are an indicator of interest in different 
scientific projects. 

70 

Chapter 4 The  policies of the  European Union 

Fund support,  5% of total  expenditure  under  the 
Funds being devoted to measures linked to RTD. 
This, however, has not been sufficient to close the 
gap with central regions in terms of the conditions 
necessary  to  benefit  from  the  diffusion  of  best 
practice. 

A positive but limited contribution to cohesion 

The  growth  of  the  cohesion  countries  has  been 
associated with a significant increase in both public 
and  private  expenditure  on  RTD. Gross  domestic 
spending on R&D in Portugal went up from 0.4% of 
GDP in 1985 to 0.6% in 1992, in Greece, from 0.3% 
in 1985 to 0.6%  in 1993, in Ireland, from 0.8%  to 1.2% 
between the same years and in Spain from 0.5% in 
1985to0.9%in1994. 

Union support has helped disadvantaged regions 
participate  better  in  framework  programme,  al 
though the data confirm the relevance of Archipe 
lago  Europe:  almost  half  of  the  total  amount  of 
contracts  under  the  RTD framework  programme 
goes to  nine  regions  which together  account  for 
only 28% of  population (Graphs 23-25). The par 
ticipation of the cohesion countries in successive 
programmes, however, has gradually  risen, even 
if  slowly,  and  they  have  increasingly  developed 
links  with  partners  in  the  North  of  the  Union.  In 
1995  alone,  slightly  more  than  14,000  separate 
links were created  in the four  cohesion countries 
as a result of framework  programmes. Nearly half 
the partnerships, however, under the second and 
third  framework  programmes  were  with  the  UK, 
France and Germany. 

Complementarity  with  structural  policies  should 
enable the synergy to  be improved which is essen 
tial to raising  competitiveness  in cohesion coun 
tries and less developed regions and to allow firms 
and research centres to participate in, and benefit 
more from, policies  in this  area (see  Box  on the 
Fifth Framework Programme). 

A complete evaluation needs to go further and con 
sider the quality of intervention and its relevance to 
the  industrial needs of weaker regions and  not just the 
financial contributions from Union RTD policy. 

The Fifth RTD  Framework Programme 

The guidelines proposed by the Commission in its 
Communication 'Inventing tomorrow* emphasises a 
number of themes among the six priorities proposed 
; which are particularly important for cohesion: 

• 

the development of human potential, especially 
in  relation to the training and mobility  of re 
searchers, whose experience  under previous 
programmes Has shown the value of this kind of 

,, action for less favoured regions but which re-
\ ,1 mains to be, developed; ; v' ;# -;;'"C, • '".  ~  ' 

•  a greater'effort to stimulate innovation and the 
dissemination of  results and, in particular, to 
increase the, participatibn of SMEs, which is 
necessary condition for the structural develop 
ment of weaker regions; 

• 

the  development of  the  Information Society, 
which raises,questions about the  access of 
those in weaker regions to advanced services 
which is as important to them as for those in more 
developed, centra) regions. 

25  Indicators of RTD,  1987-94 

ECU 

1»  r 

•SpttxSng pm h nd  ( M i n k) 
•Spwxtng par RTD pwrcnrwl (right mfc) 

90 

i» ;*: 

12000 

9000 

6000 

3000 

4?'  "•  à 

Otrwr 

71 

Evaluation of the  Framework Programmes provides a 
number of insights into quality aspects of the partici 
pation of the  four cohesion countries: 

•SW^S^*-,  > 

Arohfcitecp! 

EUR4 

The Innovation  Programme 

Under-the  Fourth  Framework  Programme  of 
Community activities in RTD, a specific programme, 
the Innovation Programme, has being established to 
disseminate the results of research activities. It has 
three interdependent aims: 

• 

• 

• 

to  help  create  an  environment  favourable  to 
innovation and the  absorption  of  new techno 
logies by enterprises (including promoting Inno 
vation  Management  Techniques  and  the 
European Innovation Monitoring System); 

to encourage the development of an open area 
in Europe for the diffusion of new technologies 
and  know-how (including  through Technology 
Transfer Projects and Innovation Relay Centres); 

to stimulate the supply  of appropriate techno 
logies to this area (including through Technology 
Validation projects and assistance in patenting 
and exploiting innovations). 

The programme covers regional measures on inno 
vation, such as Regional Innovation Strategies and 
Technology Transfer Projects. The purpose of all the 
measures is to help firms in Europe compete more 
effectively on world markets. As stated in the Green 
Paper on Innovation, support is best provided at the 
regional  or  local level, where, for  example, small 
firms can be encouraged to pool resources and to 
make the most of their comparative advantage in 
order to be able to compete with larger firms. 

The programme aims to cater for the true needs of 
firms which is essential for strengthening RTD output 
and making the most of the strong scientific base 
which exists in Europe, but which in the past has 
proved less successful than that in other countries 
in converting new ideas into tangible new products 
and processes. 

•  participation  is  proportionately  higher  for 
research  institutes  and/or  universities  rather 
than  the  private  sector  and  industrial  parti 
cipation 
is  largely  by  SMEs,  mainly  be 
cause these  countries  do  not  have  many  large 
firms; 

Chapter 4 The policies of the European Union 

involvement from cohesion countries and regions 
than others; 

• 

the main benefits gained from involvement are the 
acquisition of scientific  knowledge  and skills  and 
training  in  the  application  of  this  knowledge. 
(A majority of the enterprises from these countries 
identified their  main gain as  being  new  products 
and processes  launched within three years); 

•  as  with  the  Framework  Programmes  generally, 
the  rate  of  continuation  after  the  end  of  the 
contract  is  relatively  high.  For  example,  18% of 
Greek participants reported that they had formed 
permanent  links  with  EU  partners  and  54%  fre 
quent links. 

Smaller  firms are a more  important vehicle  for invol 
vement in EU programmes  in the cohesion countries 
than in other  countries,  but they seem to  have  more 
difficulty  in obtaining  maximum benefit from the pro 
grammes,  a problem which  has  been  addressed  in 
the  third  and  fourth  framework  programmes  —  for 
example, through measures to stimulate and simplify 
the  participation  process  (in  particular  through  the 
CRAFT programme), to assist with the dissemination 
of results and to help convert them into new products 
and processes. 

Detailed investigation shows that the southern coun 
tries  have increased their  participation  in the frame 
work programmes over time. They also tend to link up 
with partners  in the North, if sometimes only as sub 
contractors.  In the second  and third framework  pro 
grammes, half of the links involving the four cohesion 
countries were with Germany, France and the UK. It 
also  indicates  that  the  best  institutes  tend  to  club 
together, notably those in Portugal and Greece which 
have  formed  close  links  with their  northern  equival 
ents. A major  risk of this is that the research  agenda 
loses  its relevance  to the development  needs of  the 
poorer countries. In other words, while the benefits in 
terms of  developing  scientific  knowledge,  skills  and 
managerial  capabilities  may  be  real,  an  over-em 
phasis on research excellence may tend to exagger 
ate  the  divide  between  academic  and  applied 
research, the latter being particularly important in the 
poorer countries. 

•  certain  programmes  notably  ESPRIT and BRITE-
EURAM  seem to  have  attracted  higher  levels  of 

The  framework  programmes  have  attempted  to 
address  research  issues which  are directly  relevant 
to  the  industrial  needs  of  weaker  regions.  One 

Chapter 4 The policies of the European Union 

example  is  the  textile  programme  in  the  BRITE-
EURAM Initiative which succeeded, through process 
automation,  to  maintain  established  textile  firms  in 
Europe or even to attract back some of the production 
which  had  relocated  to  other  parts  of  the  world  in 
search of low wages. This suggests that programmes 
aimed at diffusing new process technologies, even in 
traditional,  low  tech  industries,  may  have  consider 
able pay-off. (The dissemination of RTD results have 
been reinforced  in the fourth framework  programme 
by the provision for  1% of all specific  programmes to 
be  dedicated  to  this  purpose,  along  with  the  third 
activity  innovation  —  see  Box  on  the  Innovation 
Programme.) 

Finally,  reflecting  an  increasing  attempt  to  create 
synergy  between  RTD  and  cohesion  policies,  the 
research staff of a number of institutions newly estab 
lished with assistance  from the Structural  Funds are 
receiving  help  under  the  "Training  and  Mobility  of 
Researchers"  scheme  in  the  fourth  framework 
Programme  in the  form  of  a  supplementary  year  of 
grant when they return to their  region, and subsidies 
to equip their  laboratories. 

SME policy 

EUROPARTENARIAT and  INTERPRISE 

EUROPARTENARIAT  and  INTERPRISE  pro 
grammes  support  the  organisation  of  business 
meetings  and events where  representatives  from 
SMEs can meet and discuss co-operation prospects 
with  their  counterparts  from  other  countries. The 
former  consists  of  2  events  a  year  with  over 
2000 companies at each, while the latter comprises 
40-50  events  a year  attended  by  an  average of 
100 companies. Both are relatively concentrated in 
assisted regions. The organisation of events to fur 
ther industrial cooperation such as round tables and 
fairs  (IBEX,  International  Buyers'  Exhibition  in 
strategic sectors) is also generally of more benefit to 
cohesion countries. 

A further  policy area aims at facilitating access to 
RTD. A pilot action  is EUROMANAGEMENT RTD, 
which funded on a 50% basis 47 consulting organi 
sations specialising in research, technological de 
velopment and innovation for SMEs, selecting nearly 
a thousand SMEs and then implemented strategic 
planning,  analysis  of  needs,  partner  search  and 
assistance  for  designing  RTD  projects  in  1995. 
Some 26% of SMEs participating came from cohe 
sion countries.) 

SME policy  is aimed at improving the business envi 
ronment, fostering Community information and trans 
national  cooperation  between  firms  and  increasing 
access to R&D and finance. 

information  about  such  issues  as new technologi 
cal  opportunities  and  potential  new  suppliers  or 
customers. 

SMEs  are  a  significant  element  in  the  economy, 
accounting  in 1992 for  67% of employment  in enter 
prises  in the  Union  and  65% of  turnover  and  being 
oarticularly  important  in distribution (89% of  employ 
ment)  and  services  generally  (7772%)  and  less  im 
portant  in  industry  (where  large  firms  account  for 
401/2% of employment  and 5272% of turnover). Their 
particular advantage as regards cohesion is that they 
tend to be more labour and less capital intensive than 
large firms and so tend to provide more jobs per unit 
of  output, while  being well suited to the weaker  and 
peripheral regions where capital shortages are often 
a problem. 

Information,  inter-firm  co-operation  and  access  to 
RTD and finance  are  among  the most  important as 
pects  of  Union  SME  policy.  European  Information 
Centres  (EICs) disseminate  information on  markets, 
customers,  the  potential  for  cooperation,  sub 
contracting  and  so on. They  also  provide  details of 
policy  matters, such as EU funding, public  procure 
ment  and  environmental  regulations.  The  network 
comprises 226 centres in EU countries and has links 
to 25 centres in Norway, Iceland, Central and Eastern 
European and the Mediterranean countries. There is 
a strong cohesion orientation with  160 of the centres 
(71 %) located in areas elegible for Union regional aid. 
A  quarter  of  the  300,000  enquiries  answered  each 
year come from the four cohesion countries. 

The  main problems faced  by SMEs are the  lack of 
start-up  capital  and  of  suitably  skilled  workers, 
especially  managers. They can also  have  difficul 
ties  coping  with  a  complex  legal  and  adminis 
trative  environment  and  may  lack  access  to 

To promote transnational and  inter-firm cooperation, 
the Business-partner  search networks  such as Busi 
ness Cooperation Network (BC-NET) and the Bureau 
de Rapprochement des Entreprises (BRE) have been 

73 

Chapter 4 The policies of the European Union 

developed. Half the correspondents in BC-NETs and 
54% of the correspondents in BRE were from assisted 
regions (table 4.7), the most intensive users being, in 
order, Portugal, Belgium, Italy and Ireland. 

The final policy area is access to finance and credit. 
The Seed Capital  pilot  scheme, for  private venture 
capital investing in new innovative enterprises, sup 
ported  the  creation  of  23  independent  investment 
funds,  which,  between  1989  and  February  1995, 
invested 26.6 million ECU in 228 new innovative en 
terprises. Among the  poorer  Member  States, how 
ever,  only  Spain  with  three  funds  is  an  active 
participant in the scheme. Ireland has only one and 
Greece and Portugal none at all. 

The SME facility introduced by the 1993 Copenhagen 
European  Council  for  subsidising  loans  was 
designed to support employment  creation in SMEs. 
Take-up has  been virtually  100% in the most pros 
perous  countries,  but  only  one  fifth  of  the  funds 
earmarked for Greece and Portugal have been used. 
Take-up  has  been somewhat  higher  in Ireland and 
Spain (around 80%), but this underlines a major prob 
lem in SME policies,  in that they  are inherently de 
mand-driven, so take-up is highest in Member States 
with the most dynamic firms (and where there is a well 
developed  service  sector).  These  Member  States 
tend to be the richer ones. 

This implies that, while all SME policies are directed 
in some degree towards improving cohesion, lack of 
take-up  makes  this  difficult  to  achieve, in practice. 
Greece,  in  particular,  seems  to  have  difficulties  in 
providing active participants  for  most programmes, 
while the other three countries have fewer problems. 

the long run, the increased incomes which an open 
economy  helps  to  support  provides  not  only  a 
stronger demand for the output of less favoured areas 
but also greater resources for the funding of regional 
development. At the same time, the removal of trade 
barriers requires adjustments to patterns of produc 
tion  which  can  be  unevenly  distributed  both geo 
graphically  and  socially.  Nevertheless,  given  the 
positive effects of trade liberalisation in the long run, 
the case for maintaining protection of weak industries, 
even as  a short-run  device  for  promoting  regional 
cohesion, is unconvincing. 

In general, current tariff (and MFA quota) protection 
is  more  important  for  the  low  income  parts  of  the 
Community than others. High tariff industries account 
for almost half of industrial employment  in Portugal 
and Greece, but their share is less than a quarter in 
northern countries such as Denmark and Germany. 
On  the  other  hand,  non-tariff  measures,  such  as 
voluntary export  restraints tend to  be concentrated 
more on the products of northern Member States. 

The Uruguay Round, successfully completed in 1993, 
resulted in agreements to reduce trade barriers sub 
stantially, to redraw the internationally-agreed trade 
rules in areas such as anti-dumping and to extend the 
scope  of  world-wide  rules  and  disciplines  to  new 
areas  notably  agriculture,  services  and  intellectual 
property protection. This is expected to affect pros 
pects  for  growth  and  employment  in  a  number  of 
important  respects.  The  world-wide  reduction  in 
tariffs (from an average of 5% to about 3.5% in indus 
trial  countries)  is  likely  to  stimulate  trade  (through 
increasing world GDP by an estimated  1-2%), pro 
viding  increased  export  opportunities  for  EU  pro 
ducers  and  thereby  adding  to  output  and 
employment in the Union. 

Trade policy 

EU Trade policy has sought to remove external bar 
riers and promote the orderly  growth of trade on a 
global scale, as the counterpart to the SMP which has 
removed internal barriers. The result of this two-track 
approach  is that the Union has been able to avoid 
inward-looking, protectionist tendencies vis-à-vis the 
outside world, while exercising its responsibilities as 
the world's  largest  marketplace for  goods  and ser 
vices. 

There is a wide consensus on the positive effects of 
liberalisation of world trade on economic  growth. In 

With respect to services, the new multilateral provi 
sions are expected to provide a more secure environ 
ment  for  trade to  expand  and the  basis  for  further 
negotiations  for  liberalisation. Since the more pros 
perous  regions  seem  likely  to  benefit  most  from 
greater access to world markets (all cohesion coun 
tries have trade deficits in services), the initial impact 
may be to widen disparities  between rich and poor 
regions. However,  it  is also  likely to strengthen EU 
competitiveness with favourable implications for em 
ployment and social cohesion. The same is true of 
intellectual property rules and rules on technical bar 
riers to trade. 

74 

Chapter 4 The policies of the European Union 

Nevertheless,  despite  the  long-run  potential gains, 
-the immediate pressures for modernisation and ad 
justment in patterns of production in the low income 
regions should not be underestimated. Certain sec 
tors, such as textiles  and clothing, will be more af 
fected than others, especially in Spain, Greece and 
Portugal. The impact, however, will be softened in two 
ways. First, the phasing out of the MFA will take place 
over ten years with most of the changes concentrated 
at the end, in 2005, giving time to plan and implement 
adjustments. Secondly, the products to be liberalised 
in the first phase concern all Member States in a more 
or less equal way. In addition, the reduction in aver 
age tariffs (from 5.98% to 3.73% or from 7.4% to 4.5% 
in the case of manufactured products) will be phased 
in over 5 years and this plus the fact that tariffs are 
already low in the Union will help to ease the process 
of adjustment and change. 

At the same time, the  Union  lies at the centre of a 
complex web of regional trade preferences, the most 
notable recent development in which is the negotia 
tion of free trade arrangements (Europe Agreements) 
with  the  Central  and  Eastern  European  countries. 
Trade with these countries is expanding in both direc 
tions with positive effects overall. 

In  general,  the  four  cohesion  countries  are  more 
vulnerable  to trade  liberalisation  because  of weak 
nesses in their exporting and import-competing sec 
tors. All have trade deficits in services which is one of 
the sectors expecting to expand. The main exception 
is Ireland where modernisation over the last decade 
means  that  the  economy  now  has  a  comparative 
advantage  in  technology-intensive  sectors  (and  in 
food processing industries). Ireland should therefore 
benefit from the growth of export markets in high tech 
products as well as, with Spain and Portugal, from a 
possible increase in foreign direct investment, though 
there is now more competition for investment from, for 
example, the economies in transition in Central and 
Eastern Europe. 

4.3 The network policies 

The network policies of the EU seek to remove the 
national bias in the provision of key infrastructure 
and  to  improve  the  coherence  and  efficiency  of 
transport,  telecommunications  and  energy  sup 
ply. They are, therefore, relevant  for the competi 

tiveness of the European economy as a whole. At 
the same time, these policies  haveeffects  on the 
geography of production and hence on cohesion, 
which has increasingly been incorporated among 
their objectives. 

Network  policies  can  be  regarded  as  a  means to 
reduce the transaction costs (transport and telecom 
munications) involved in the trade of goods or in the 
movement of factors of production from one place to 
another.  Whether  central  or  peripheral  regions  will 
gain more from such cost reductions is open to ques 
tion. It essentially depends on the extent of the reduc 
tion which occurs. If these are relatively small, then it 
will  continue  to  be  more  economic  to  concentrate 
production in central regions of the Union, since the 
benefits from agglomeration (in terms of economies 
of scale, being close to suppliers and customers and 
so) will tend to outweigh the savings in labour costs 
from  lower  wages  in peripheral  areas.  If,  however, 
transactions  costs  are  reduced  to  very  low  levels, 
then  lower  labour  costs  in  peripheral  regions  will 
become more important in location decisions causing 
production to relocate. Over the long-term, therefore, 
when  transactions  costs  are  likely  to  be  more  af 
fected, the peripheral regions could well benefit more 
than the more central ones. 

Transport 

Transport has a potentially critical effect on econ 
omic  and  social  cohesion. Apart  from  its  role  in 
production  and  distribution,  public  passenger 
transport is very important for low income groups, 
and  for  women.  The  Common  Transport  Policy 
especially during the period of the implementation 
of  the  single  market  programme,  has  been 
oriented  primarily  towards  liberalisation  — crea 
ting an open and competitive transport  market — 
and increasing integration through the harmonisa 
tion  of  fiscal,  social  and  technical  conditions. 
These  measures  have  been  supplemented  by 
specific  provisions  —  in accordance  with Treaty 
rules  —  on  public  service  obligations  (PSOs) 
which  address  transport  needs  according  to re 
gional  or  social  factors  rather  than  those  of  the 
market. The promotion of public  passenger trans 
port has also become more important. 

A  second  element  deriving  from  the  Treaty  on 
European Union has  provided  for  the  creation of 

75 

trans-European  Transport  Networks  (TETNs) 
which  explicitly  address  not  only the  mismatches 
and  duplication  arising  from  the  national  bias  in 
infrastructure  investment,  but  also  the  specific 
contribution  to  cohesion  (Graph  26  and  table  4.8 
show  the  division  of  expenditure  between  trans 
port  modes  and  between  the  cohesion  countries 
and  the  rest of the  Union). 

More  recently,  the  notion of  'sustainable  mobility' 
has  become  the  central  goal  of  transport  policy. 
Meeting  the demand for  mobility with  significantly 
less  resources,  reinforcing  technical  emission 
standards,  addressing  the  structure  of  the  de 
mand for mobility by, for example, integrating spa 
tial  planning  priorities  into transport  infrastructure 
planning  and  furthering  intermodal  transport  are 
now issues of considerable  influence for EU trans 
port  policy. 

Regarding  liberalisation,  the  achievement  of  an 
integrated  European  economy  requires  an  open 
transport  market  free  of  entry  barriers  and  dis 
criminatory  practices.  Transport  charges  do  not 
generally account for a significant element of  busi 
ness  costs,  with  the  exception  of  certain  limited 
bulk  commodities  and  services,  but  reliable  and 
efficient transport systems contribute to the reduc 
tion of not just the costs  but also the  perception of 
distance. This has potentially  important  effects  on 
competitiveness and on the geography  of  produc 
tion. 

26  Total expenditure on trans-European 

Networks by main mode 

20000 

Chapter 4 The policies of the European Union 

EU policies,  liberalisation 
and the  cohesion  countries 

The cohesion countries are unlikely to be affected  to 
the same degree by policy developments  in each of 
the transport  modes.  By  nature  of  history  and  geo 
graphical  peripherality,  of  most  consequence  for 
them are likely to be changes affecting road transport, 
short-sea shipping and air transport. 

Road transport  is likely to remain the principal  mode 
of transport  for  goods  and  services  in the  cohesion 
countries  (where  historically  the  role  of other  infra 
structures  has  been  less  pervasive).  In  regard  to 
passenger transport, while private vehicle ownership 
is  generally  lower  than  in  non-cohesion  countries, 
extensive networks of inter-city and rural bus services 
exist.  For  freight,  road  haulage  also  accounts  for  a 
significantly  larger  share  of  inland  transport  in  the 
cohesion countries than it does in the rest of the EU, 
while  much  of  this  transport  is  own-account.  One 
result  is  that  market-based  policies  which  favour  a 
modal shift away from roads — such as road  pricing 
— need to be examined carefully since they may have 
an  adverse  effect  on  development  prospects. 
Differentiated  approaches  to  allow  for  different  cir 
cumstances  are  necessary,  which  has  been  the 
approach adopted in the Commission's Green Paper 
on fair and efficient  pricing  in transport. 

Maritime transport has a potentially central role in the 
cohesion  countries.  Unfortunately,  these  countries 
are often at a distinct  disadvantage  in terms of  port 
facilities:  lower  levels  of  efficiency  (partly  due  to 
under-investment)  contribute  to  slower  turn-round 
times  for  cargoes  resulting  in  relatively  high  freight 
charges. The Community's initiative on short sea ship 
ping  may  yield  positive  benefits  for  the  cohesion 
country ports, especially for the Mediterranean coun 
tries and  Ireland. Given the long distances  and geo 
graphical  obstacles  for  freight  transport,  the 
promotion  of  short  sea shipping  —  and  particularly 
the intended co-ordination of efforts to introduce new 
technology,  skills  development,  infrastructural  sup 
port and  new working  practices  has the  potential  to 
reduce transport costs and times. 

I Other EUR 
IEUR4 

Efficient,  affordable  air  transport  can  make  a  fun 
damental contribution to opening up opportunities for 
the most geographically peripheral areas, notably  by 
reducing  journey  times  for  business  travellers.  But 
one  of  the  potentially  more  serious  implications  of 

ECUmn 

20000 

30000 

TGV 

Roads 

Combined 

76 

Chapter 4 The policies of the European Union 

liberalisation  is  the  possible  abandonment  of  air 
routes which are less profitable and which have been 
maintained  by  cross  subsidies  from  profitable  mar 
kets. So far, however, this effect  has not emerged in 
practice.  At  the  same  time,  new  competition  has 
inevitably been largely attracted to the busiest routes 
between  the  major  urban  centres,  which  tend  to 
benefit in turn from the largest reduction in prices. For 
the  cohesion  countries  this  means  that  the  benefits 
tend to accrue disproportionately to a limited number 
of urban centres, generally the capital cities. 

The opening up of new international regional services 
was  one  of  the  earliest  steps  in  the  air  transport 
liberalisation  process:  the  1983  directive  permitted 
the introduction of services between regional airports 
in  different  countries  (which  had  some  initial  suc 
cess). With the extension of liberalisation to the mar 
ket  as  a  whole,  the  concern  for  internal  regional 
services  has  become  uppermost  and  provisions 
allow  for  the  protection  of  such  routes  as  public 
service obligations. 

In some cases the airlines of the cohesion  countries 
have  been  able  to  benefit,  by  exploiting  the  more 
open  market  conditions  to  combine  services.  For 
example, an Irish airline flying Lyon to Dublin can now 
include  Paris  in  its  itinerary  and  carry  French  pas 
sengers flying Lyon to Paris. 

Taken together, the single aviation market has helped 
to facilitated the creation of new air  links to and from 
peripheral  parts of  Europe, and  between them, with 
positive  economic  effects  such  as the  development 
of  tourism.  In  addition,  Member  States  have  made 
extensive  use of  Community  public  service  rules  in 
areas where market forces do not suffice. More than 
100  air  routes  are  operated  in  application  of  these 
rules. 

More generally, geographical  location  means that 
a basic need for the cohesion countries  is intermo-
dal  transport.  For  freight  transport  this  generally 
implies  efficient  road/sea  or  rail/sea  connections 
in which  the  strength  of  the  system  as  a whole  is 
equal  to that of  its weakest  link.  Intermodal  trans 
port, is a feature which has been generally  absent 
from transport  planning  at the European  level  until 
recently.  The  importance  of  intermodal  transport 
for the cohesion countries can be gauged from the 
priorities  identified  in  the  context  of  the  TETNs 
initiative  discussed  below. TETNs  in the  cohesion 

countries  have  a modal  profile  which  differs  from 
the  rest of the  EU, with the  bulk  of  loan  finance  in 
the areas of ports, combined transport,  and  roads 
but  only  between  15%  and  25%  for  rail  (conven 
tional and TGV) and air (airports and ATM). Within 
the  total  of TETNs  grants,  cohesion  countries  ac 
counted for the  bulk of  EU funding  for  roads. 

Trans-European  transport  networks 
and  cohesion 

More  generally,  the  TETNs  have  the  potential  to 
open  up  European  territory,  generating  new 
opportunities  for  the  peripheral  Member  States 
and  regions.  An  updated  assessment  examined 
the  effects  of  the TETNs  projects  in terms  of  pas 
senger  transport.  The  conclusion  was  that 
implementation  of  the  existing  TENs  programme 
would on average generate  a 20% increase  in the 
population  accessible  in  a  daily  round  trip.  This 
average  conceals  divergence  between  different 
types  of  agglomeration. The  biggest  gains  would 
be cities  located  near  new projects where  hitherto 
links  had  been  poor  (improvements  of  over  80% 
are  noted  here)  —  in  some  cases  these  include 
cities in cohesion countries. The next most  import 
ant  gains  are  for  centrally  located  medium-sized 
cities  (30-60%  increase)  followed  by  large  cities 
in  cohesion  and  other  countries  alike  (between 
16-26%).  Cities  in  remote  areas  and  some  very 
large  cities  which  already  enjoy  good  infrastruc 
ture  would  show  the  smallest  gains  (10%  and 
under). 

In terms of journey time, the evidence reveals a similar 
picture: while cohesion countries  benefit  in absolute 
terms,  they  do  not  gain  so  much  in  relative  terms. 
Expected  improvements  are strongest  in the  border 
regions of Scotland and England, Southern  Italy and 
the remote areas with poorer infrastructures in France 
and Germany. 

While  capital  cities  in  cohesion  countries  would 
see  their  situation  improving,  their  smaller  cities 
would  see  smaller  gains,  particularly  when  com 
pared  against  equivalent  cities close to the  nodes 
of the TETNs network. One reason is the poor  local 
networks;  continuing  investment  in  secondary 
routes  and  links  between  modes  is  needed  in 
cohesion  countries  to  enable  them  to  connect  to 
the  TETNs.  A  particular  challenge  for  transport 
policy,  in combination with cohesion policies,  is to 

n 

Chapter 4 The policies of the European Union 

address  this  risk,  in  particular  in  regard  to  the 
provision  of  secondary  connections  to the major 
networks  which  have  not  had  priority  up  to  the 
present (see chapter 5). 

Another  more  general  reason  for  the  smaller 
benefits  accruing  to  cohesion  countries  and 
regions  is, however,  inherent  in their  geography. 
Their  peripherally  in geographical  terms  means 
that  they  do  not  have  the  benefits  of  the  centre 
which typically has easier access to all parts of the 
network.  The  periphery  tends  to  have  access  to 
the  centra  but  generally  poorer  connections  to 
other peripheral places. At the same time, to skew 
networks in favour of lagging areas could  reduce 
overall efficiency and growth, at least in the short-
term  before  the  improvements  in the  productive 
potential of the peripheral economies take effect. 
Indeed, this conflict between short and long-term 
objectives  poses  an  acute  dilemma  for  policy 
makers who have to decide the relative weights to 
be attached to the two. 

Because transport provision in the cohesion coun 
tries  tends to  be less  profitable  in the  short-term 
in  purely  financial  terms  than  in  the  more  pros 
perous central parts of the Union, the importance 
of  adequate  PSO provisions  is, therefore,  gener 
ally  greater.  Indeed, PSOs are essential  in order 
to  help  reconcile  the  highly  desirable,  but  often 
long-term, effects of liberalisation and competition 
with the inevitably uncertain, and, therefore, risky, 
nature  of  investment  in  transport.  Cohesion-
oriented  policies — which have a long-term time-
horizon — demand continuity and the existence of 
regular  services over an extended  period of time 
which  is  not  always  guaranteed  in  low  volume, 
highly  seasonal  markets.  Public  provision  in the 
poorer,  less  developed  regions  can,  therefore, 
help balance the desirable effects of liberalisation 
on efficiency with the need for adequate services 
to be provided to all areas at an affordable  price. 

Telecommunications 

The  Union's  policy  on  telecommunications  entails 
establishing conditions and timetables for opening up 
markets as well as defining a harmonised framework 
for the provision of universal services and data pro 
tection. The aim is to improve the quality of service 
and choice by exposing operators to market forces 
and  to  ensure  the  interconnection  and  inter 
operability  of  existing  networks as well a minimum 
level of service in every part of the Community. This 
raises key issues for cohesion countries, in particular, 
about how they can share fully in the benefits from 
liberalisation, how best regulations can counter the 
potentially adverse effects of liberalisation and how 
the information society can develop unimpeded. 

Liberalisation 

The strategy of gradual  liberalisation dates back to 
the Telecoms Green Paper of 1987. Equipment mar 
kets  were  liberalised  from  1988  on,  value  added 
services in 1990 and data communications in 1993. 
Other  aspects, such as digital  mobile communica 
tions — the  GSM system — have developed on a 
competitive basis, assisted in some Member States 
by the application of the Treaty's competition rules. 

Full liberalisation  of  all telecommunication  services 
and infrastructure  will occur  in  1998, with  possible 
periods of transition of up to 5 years to allow Greece, 
Ireland, Portugal and Spain to carry out the necessary 
structural  adjustment,  particularly  on tariffs.  At the 
time  of  writing,  with  the  1998  deadline  less  than 
18 months away, only Greece has requested to delay 
full  liberalisation  until 2003 and the other  countries 
intend to open their national markets by 1999-2000. 

The full effects of liberalisation are unlikely to be felt 
until well into the next decade, though a few quanti 
tative indications of the possible effects on the cohe 
sion  countries  can  be  gained  from  experience  in 
countries where  liberalisation has already occurred 
or from ex-ante studies carried out in those where it 
is planned. Experience elsewhere, however, will not 
necessarily  be  repeated  in the cohesion  countries 
where circumstances are different. 

Effective  and  affordable  telecommunications  are 
important for increasing competitiveness and growth, 
as well as  improving  the quality  of  life of  Europe's 
citizens.  These  are  the  principal  objectives  of  the 
gradual liberalisation of markets for telecommunica 
tions and networks in the Community. 

There  are  reasons  for  optimism  that  in the  long-
term the opening of the telecommunications  mar 
ket  and  the  harmonisation  measures  will  be 
beneficial for the less densely populated, periph 
eral  regions, though  there  might  be  adverse  ef 
fects in the short-term. 

78 

Chapter 4 The policies of the European Union 

The  principal  risks  are  that  new  investment  will  be 
concentrated in areas of relatively high demand  and 
low cost and whether changes in tariff structures — in 
particular, the rebalancing of prices to reflect the cost 
of providing service — will delay the development of 
new services in certain regions in the cohesion coun 
tries. 

In practice, much depends on the nature and extent 
of tariff rebalancing that occurs and, more especially, 
on  the  development  of  offsetting  arrangements  to 
overcome the impact of price increases for particular 
groups of users as part of Universal Service Obliga 
tions  (USOs), which  seek  to  maintain  essential  ser 
vices  for  regional  development  even  if  they  are 
uneconomic. 

The elimination of cross-subsidisation will have three 
main effects: to increase access  charges  relative to 
the total charge, to reduce the price of  long-distance 
calls and of international calls both inside and outside 
the Union, as well as the cost of  leased  lines, which 
are  the  basis  of  business  networks  throughout  the 
Union. 

The  effects  of  a  relative  increase  in  access 
charges  is  likely  to  be  unevenly  distributed 
between social groups  and regions.  In the  UK, for 
example,  British  Telecom  is  allowed  to  levy  an 
additional connection charge for very  remote cus 
tomers  where substantial  extra  costs  are  involved 
(over  100 hours of  labour). 

Secondly,  advances  in  transmission  and  switching 
technologies  have already  dramatically  reduced the 
effect of distance on the cost of calls and the move to 
3. more  cost-based  tariff  structure  should  further 
reduce  this.  The  effect  on  regional  disparities  is, 
however, unclear, since  lower costs will  benefit  both 
central  and  peripheral  regions.  However,  it  is  likely 
that  there will  be  a relative  gain  to  the  latter,  since, 
although  data  on  call  patterns  are  not  available,  it 
might  be  expected  that  a  higher  proportion  of  calls 
made in a remote area will  be long distance than in, 
for  example, a large  city  (if  only  because  in  remote 
areas the number of subscribers within the  local call 
area will be much smaller) 

The  effects  on  social  cohesion,  as  opposed  to 
regional  disparities,  of  a  reduction  in  long-distance 
call charges are ambiguous. While people  with high 
incomes  who  make  more  calls  are  likely  to  benefit 

most, it is also the case that long-distance and  inter 
national  services  will  become  more  of  a  realistic 
option for  lower  income groups, deterred  at  present 
by high tariffs. 

The third main aspect of tariff  rebalancing  concerns 
services between Member States. Mark-ups on these 
are particularly high and anomalous, and calls within 
countries  generally  cost  far  less  than  international 
calls of  comparable  distance.  Moreover,  a call  from 
one Member  State to another  can still be double the 
cost of an identical call in the opposite direction. 

While  globally,  tariff  restructuring  will  lead  to  lower 
prices,  it  will  not  necessarily  narrow  regional  dis 
parities,  primarily  because  of  increased  access 
charges. The  scale of  the  effect  will depend  on the 
extent  of  existing  cross-subsidisation  which  varies 
from country to country. To moderate the effect, there 
is a need for an active approach  by national regula 
tory authorities which have an obligation to guarantee 
the  affordability  of  a  universal  service  within  the 
Community, together  with an assessment of any ad 
ditional action that needs to be taken. 

Universal service  obligations 

Telecommunications  policy  includes  not  only  the 
liberalisation of the sector but also the enforcement of 
universal  service  obligations  (USOs). The  responsi 
bility  for  establishing  mechanisms  for these  lies  pri 
marily  with  national  governments  and  regulatory 
authorities. (The Commission in a Communication on 
Universal  Service  of  March  1996,  recognised  that 
although the  process of  rebalancing  'remains a fun 
damental  element  of  the  preparation  for  a  fully 
liberalised envorinment', attemps are being made to 
alleviate  its worst  effects  by  proposals  for  ensuring 
that services remain affordable by incorporating price 
caps and special targeted tariff schemes in USOs.) A 
key issue is whether or not to maintain a single uniform 
national tariff  for the  basic  service.  In most  Member 
States,  a  single  tariff  is  likely  to  be  retained  in  the 
immediate  future, though  this  does  not  mean that  it 
will remain in the longer-term. 

While there  is a consensus  in the  run-up to  1998 on 
the present scope of the universal service obligation 
(specifically, a voice service at an affordable  price to 
any  user  via  a  line  which  supports  the  use  of  data 
communications  (modem and fax) and the  provision 
of  pay phones, directory and operator  services, free 

79 

access to an emergency number, touch-tone dialling, 
itemised billing and the possibility of blocking calls to 
particular  numbers), the major  issue in the future will 
concern cohesion. In the absence of requirements to 
provide universal geographical coverage at an affor 
dable  price, the  regional  pattern  of  development  of 
new services and infrastructure is likely to be uneven. 
Even under  a public monopoly, new services tend to 
be introduced initially in areas where demand is high 
and cost  is low. 

There  is  a  balance  in  this  regard  to  be  struck 
between the pursuit of cohesion objectives, on the 
one  hand, and the free-play  of market forces,  and 
the  greater  efficiency  and  faster  innovation  which 
it is likely to bring, on the other. (The  Commission's 
Communication  on  universal  service  recognised 
that  universal  service  is  a  dynamic  and  evolving 
concept  and  should  'combine  a  market-based 
analysis  of  the  demand  for  and  widespread  avai 
lability  of  a  particular  service  and  a  political 
assessment  of  its social  and  economic  desirabili 
ty').  In  order  for  policy-makers  to  make  best  use 
of  any  funding  mechanism  for  universal  service 
(including  from the  Structural  Funds),  it  is essen 
tial that  they make  informed choices on the  scope 
of this  and on possible  future developments,  such 
as  providing  broader  access  to  the  Information 
Society  to,  for  example,  schools,  hospitals  and 
l i b r a r i e s. 
the 
Commission  will  begin  regular  monitoring  of  the 
scope,  quality  and  affordability  of  universal  ser 
vice  in the  Community  from the end of  1997.) 

these  c h o i c e s, 

(To  assist 

27  Average  annual  spending on  telecom 

services per head, 1992 

EUR12-100 

Chapter 4 The policies of the European Union 

Liberalisation  in the  cohesion  countries 

Telecommunications  are least developed  in the four 
cohesion countries. As noted above, after  liberalisa 
tion, operators may be even less inclined than before 
to  invest  in  areas  where  spending  on  services  is 
relatively  low (Graph 27), cost of  investment  is high, 
in  part  because  of  low  population  density,  and  the 
returns  are  smaller  than  elsewhere  low.  Delaying 
liberalisation  in  countries  with  less  developed  net 
works may make sense if the purpose is to allow them 
to catch up. Moreover, in countries with relatively low 
use of telephone services, usage-based charges and 
special tariff schemes may be a sensible strategy for 
rapid  development  of  the  network  (subsidising 
access  where  comparatively  few  people  are  con 
nected to the network is likely to be more efficient than 
in countries where most are). 

Whereas  most  other  Member  States  are  in the  final 
stages  of  development  of  their  telecommunication 
services  and USOs are  primarily  for  social  reasons, 
in the  cohesion  countries, where  the  system, and  a 
mass  market,  is  still  developing,  USOs  serve  an 
important  economic  function  and  low  charges  can 
help stimulate network expansion. 

By the same token, however, the cost of USOs seems 
to be significantly higher in these countries than in the 
rest of  the  Union. According  to one  study, while  for 
most Member States, USO costs in 1992 ranged from 
0.5% to 3% of turnover, for Spain the figure was 5%, 
for  Portugal, over  7% and  for  Greece  over  15% (by 
Analysys  in  1994,  though  the  figures  should  be 
regarded  as indicative  only and could  be subject to 
a wide margin of error, since they depend very much 
on the particular assumptions and methodology used 
which are often not revealed). 

As well  as USOs, accompanying  measures  may  be 
required  to  help  accelerate  the  development  of  the 
networks  in  the  cohesion  countries,  possibly  using 
resources from the Structural Funds, and avoid signi 
ficantly  adverse  effects  from  liberalisation  (as 
acknowledged  in  the  Commission's  1995  Green 
Paper on infrastructure). 

Trans-European  networks, 
information  society and  cohesion 

B  DK  D  F  GR  E 

IRL 

I 

L  NL  P  UK 

The  development  of  telecommunications  on  a 
Community-wide scale is a potentially important force 

Chapter 4 The policies of the European Union 

for  European  growth  and  closer  integration, espe 
cially given the dramatic increase in the possibilities 
for the electronic transfer of information. The present 
focus of policy is on the convergence of technology 
to  create  a  'common  information  area'  in: Europe 
through the trans-European networks telecommuni 
cations  action  (TEN-Telecoms). This  action, unlike 
those for energy and transport, relates to advanced 
applications  and  services  of  public  interest  rather 
than  to  infrastructure,  including  a  network  of  city 
information highways, a tele-medicine application, a 
distance education and training scheme, access to 
cultural heritage, generic  services, teleworking and 
electronic commerce for SMEs. 

The basic bottleneck addressed by TEN-Telecoo-
ms is not so much 'missing links' in the network, 
but  the  lack  of  availability  of  applications  and 
services  matching  the  needs  of  business  and 
people. In this regard, uncertainty about commer 
cial viability,  because of the  innovative  nature of 
the  application or service' in question or the  diffi 
culty  of organisation, can deter  private  initiative. 
Union  interventions  are  directed  at  reducing un 
certainty and the financial risk involved and to en 
courage services of public interest to be launched 
on  a trans-European  basis  under  public-private 
partnership. Development of TEN-Telecoms is de 
mand-driven,  projects  being  specified  through 
open calls for  proposals, on the basis of a given 
set of criteria which include  strengthening  social 
and-econpmic cohesion. 

In summary, there  is some risk that without  inter 
vention in certain areas, the modernisation of the 
Public  Switched Telephone  Network  (PSTN) and 
the  development  of  broadband  networks  in  par 
ticular, will not occur  at the desired rate and that, 
as  a  result,  the  system  will  be  incapable  of 
carrying important services such as the Internet to 
certain regions. Since many services are revenue-
generating,  loans  and/or  private  capital  can  be 
expected to fund some of the new developments. 
Given the sums involved, however, there is a role 
for intervention under the Structural Funds to fund 
at least part of the costs (see chapters 5 and 6). 

Energy 

Energy is a key element in regional development. 
The  sector  is  important  in  its  own  right,  value-

added amounting to just under 5%'of Community 
GDP  and  accounting  for  around  2% of  employ 
ment and significantly  more in energy  producing 
regions. 

The poorer Member States are particularly vulner 
able  to  energy  developments,  since  because, 
they  import  more  and  employ  more  in  their  dis 
tribution  networks, they  have  a greater  potential 
effect on costs. 

Much of energy policy is the responsibility of Member 
States. As with the other network policies discussed 
above, the main initiative  at Union level which has 
implications for cohesion is liberalisation, identified in 
the 1995 White Paper in terms of the need to complete 
the  internal  energy  market.  The  White  Paper  also 
proposed measures to guarantee security of supply 
and protect the environment. 

Liberalisation 

Liberalisation is likely to lead to a range of efficiency 
improvements because of increased competition and 
the better use of infrastructure which it will encourage. 
According  to  a  recent  study  for  the  Commission, 
annual cost reductions are likely in electricity alone of 
between 4-6  billion by 2000 and 10-12 billion ECU 
by 2010 and in energy supply overall of 6-8  billion 
ECU by 2000 and 14-19 billion ECU by 2010, figures 
equivalent to 0.15-0.5% of GDP. Since the cohesion 
countries have relatively little indigenous energy pro 
duction and so fewer constraints in using the lowest 

28  Funding for TENs energy  projects 

ECUmn 

5,000 

BOftar sources 

•SF*O»>M:  ; 
.•EiB+EiF-.'i^;:; 

4.000 

3,000 

2.000 

1,000 

5.000 

4,000 

3.000 

2.000 

81 

cost source, it is arguable that they will benefit most 
from these  reductions.  However,  experience  in the 
UK, where the market was liberalised first, suggests 
that  though  large  savings  are  possible,  these  may 
take some time to be passed on to users. 

As  UK  experience  also  underlines,  existing  pricing 
structures generally entail substantial cross subsidis 
ation,  a  fixed  price  being  charged  per  unit of  con 
sumption,  despite  unit  cost  being  higher  for  small 
consumers and in rural areas. In the absence of the 
intervention of public authorities or a regulatory body, 
a system based more on the actual costs of supply is 
likely to lead to higher relative charges in both cases. 
However,  in the  UK,  electricity  prices for small and 
rural consumers  have  also fallen  in real terms after 
liberalisation. On the other  hand, some estimates of 
the effects of full liberalisation of the British gas market 
indicate  that the  smallest  consumers  (generally the 
poor  and  elderly)  could  experience  relative  price 
increases of 80% if full-cost pricing were introduced, 
though this might not mean prices rising in absolute 
terms if energy prices overall were reduced substan 
tially  as a  result of  increased  competition.  In some 
parts of the UK, the market for gas has been opened 
for  captive  sectors  (SMEs  and  households).  This 
experence will be monitored closely elsewhere in the 
Union. 

Community  financial  involvement  in energy  outside 
the  structural  policies tends to be  limited; neverthe 
less, it attempts in general to take cohesion objectives 
into account. Thus, more than half of trans-European 
energy  network  funding  for  feasibility  studies  has 
gone to cohesion countries, while they accounted for 
a significant share of EIB loans (Graph 28 and Table 
4.12).  Under  the  network  policy  and  the  regional 
energy  planning  initiative,  peripheral  regions  are 
likely to gain from increased  choice  and security of 
supply.  Energy/environmental  programmes  such as 
ALTENER (for the development of renewable sources 
of energy) and SAVE (for promoting the rational use 
of  energy)  have  also  in some  degree  incorporated 
cohesion objectives in their wider aims. Programmes 
such  as  THERMIE  which  help  to  promote  energy 
diversification, also  benefit the  regions of the cohe 
sion countries with their high dependence on oil. 

Chapter 4 The policies of the European Union 

this trend. For example, a coal-fired  power station 
employs  1000-2000  people  while  an  equivalent 
gas-fired  power  station  employs  3 0 0 - 6 0 0. 
Changes  in subsidy  and  preferential  purchasing 
arrangements  in  Member  States  may,  therefore, 
lead  to  significant  rationalisation  in  the  mining 
industry  and  to  substantial  job  losses  in  regions 
where coal  production is important. 

4.4 Quality of life policies 

Although  many  of  the  policies  which  have  been 
reviewed  so  far  address  social  considerations 
they  generally  do  so through  a  primary  preoccu 
pation  with  economic,  or  more  specifically  effi 
ciency,  matters. But Union  policies  also take  into 
account  human  and  social  aspects  reflecting  a 
broader  concept  of  quality  of  life  including  the 
important  issue  of  the  sustainability  of  the  Com 
munity's economic  development  in terms  of envi 
ronmental  protection and  resource  use. 

Social policy 

Social policies directly  address, by their  nature, the 
issue of integration and cohesion. They play therefore 
an  important  role  in promoting  European cohesion, 
between  social  groups  and/or  regions.  They  cover 
three broad types of activity. 

First, there  are  significant  interactions  between  the 
Single  Market  (and  more  broadly,  European  econ 
omic  integration)  and  social  policy.  Indeed,  it  has 
generally  been  recognised  that  social  policy,  and 
systems of social protection in particular,  has to be 
developed in parallel with a Single Market, in order to 
support  competition  and  the  efficient  operation  of 
market forces and to ensure that the necessary—and 
continuous — restructuring of economic activity and 
employment  can  take  place  without  it  generating 
unacceptable social problems. Indeed, closer econ 
omic  integration in Europe is unlikely to be  possible 
without adequate social provisions. 

The  long-term trend  in the  industry,  as  elsewhere 
in  he  economy,  is  towards  increased  capital 
intensity  and  a  smaller  work  force,  particularly  in 
solid  fuels.  Liberalisation  is  likely  to  accelerate 

Right from the beginning, initiatives in the social field 
have played an accompanying role in the completion 
of the  Single  Market.  By guaranteeing  a  number of 
specific  rights  to  the  individual  —  mainly  workers 
during the first phase — protecting them and forbid-

82 

Chapter 4 The policies of the European Union 

during the first phase —  protecting them and forbid 
ding competition  between  firms on certain grounds, 
the  initiatives  have  offered  new  opportunities  for 
certain  groups  in the  labour  market  while  discoura 
ging  activities  which  adversely  affect  workers,  so 
contributing to social cohesion. These initiatives were 
aimed,  in  the  first  instance,  at  bringing  about  free 
movement  of  workers  (implying  the  abolition  of  dis 
crimination based on nationality, the safeguarding of 
social security provisions for migrant workers and the 
mutual recognition  in different  countries of qualifica 
tions and professional  diplomas), equal treatment of 
men and women (including equal pay for equal work) 
and acceptable  levels of health and safety at work. 

With regard to the  latter,  measures  taken  at Euro 
pean level have enabled  less advanced  countries 
to  make  substantial  progress  in  adopting  mini 
mum  standards  in  a  short  space  of  time.  In  addi 
tion, the provision of Community-wide  information 
on  employment  opportunities  and  labour  market 
conditions (through the  EURES system) has  made 
it  easier  for  workers  to  move  between  countries. 
At  the  same  time,  ever  closer  economic  integra 
tion has  led to the  need  for  further  action  at Euro 
pean level, in the form, for example, of  introducing 
information  and  consultation  procedures  in trans 
national  firms. 

Secondly, social policies are not limited to legislative 
provisions. They  also can  take the form of  incentive 
measures,  encouraging  cooperation  between  the 
groups  involved  to  tackle  common  problems  on  a 
transnational  basis,  improve  common  knowledge, 
develop exchanges of information and good practice 
and  promote  innovation.  Many  action  programmes 
have been implemented  in areas such as  education 
and training, equal opportunities for men and women, 
poverty and the fight against exclusion, health policy 
and  rights  for  the  disabled.  In  these  areas,  the 
Community has acted as a catalyst for policy change 
and an instrument for cohesion at the European level. 
The  role of the  Community  in  promoting  such  initia 
tives  and  establishing  standards  should  be  further 
developed in the future. 

Thirdly, European social  policy is also more gener 
ally  about  the  promotion  of  fundamental  social 
rights  and the  development  of  a  European  social 
model  based on a common  set of values. A signi 
ficant step in this direction was taken by the adop 
tion  in  1989  of  the  Community  Charter  on  the 

Fundamental  Social  Rights  of  Workers  (though 
one  Member  State  has  not  endorsed  it).  In  addi 
tion,  dialogue  between  the  social  partners  has 
also  developed  at  European  level  over  the  past 
decade  — the  importance  of  this  been  enshrined 
in the Maastricht Social Protocol —• and a directive 
on European Works Councils was adopted in 1994 
to  promote this  in transnational  firms. 

European social policy is increasingly centred on jobs 
and  under  the  European  employment  strategy 
(described above) a framework has been established 
for  trying  to  ensure  that  all  relevant  policies 
— macroeconomic as well as structural — contribute 
and  reinforce  each  other  in the  fight  against  unem 
ployment. A monitoring  procedure has also been set 
up  to  review  the  effectiveness  of  different  policy 
measures  and approaches.  The three  goals  are the 
integration  of  young  people  into  working  life,  the 
prevention  of  long-term  unemployment  and 
increased equality of opportunity for men and women 
in the world of work. By tackling these  problems, the 
strategy  is  intended  to  improve  the  efficiency  of 
European labour markets. 

The strengthening of employment and social policies 
at  European  level  in the  future  will  help  to  reinforce 
their  impact on cohesion as well  as the credibility of 
the  Union, which very  much  depends  on  achieving 
acceptable levels of employment and opportunity for 
all European citizens — a 'Europe for all'. At the same 
time,  social  policy  needs  also  to  be  regarded  as  a 
productive  factor,  with  the  potential  for  increasing 
competitiveness  and  growth  through  providing  es 
sential support for those at risk from restructuring and 
economic  change  as  well  as  contributing  to  labour 
market flexibility. This means defining a new  balance 
where economic  and social  policy are mutually  rein 
forcing,  where  the  pursuit  of  social  cohesion 
strengthens  rather  than  weakens  economic  perfor 
mance  and  where  social  rights,  which  are  closely 
related to basic civil and political rights, are assured 
as an essential component of EU citizenship. 

Environment 

The environmental policies of the EU reflect a concern 
with  a  basic  component  of  the  quality  of  life  for 
European citizens. Today, the aims of these  policies 
are increasingly set in terms of sustainable  develop 
ment (see chapter 2). 

83 

Chapter 4 The policies of the European Union 

EU  environmental  policies  have  traditionally  been 
implemented  by  legislative  measures,  but  there  is 
also  a  number  of other  types  of  instrument  such as 
international  agreements  to which the Community  is 
a  party,  informational  measures,  voluntary  agree 
ments  as well  as direct  support  for  projects  via  the 
LIFE programme. 

• 

• 

• 

the quality of the environment  prior  to implemen 
tation of the legislation in question; 

the  availability  of  infrastructure  for  the  manage 
ment of water resources, waste management, etc; 

the  relative  importance  of  economic  activities 
affected  by environmental legislation. 

EU environmental  policies  have  generated  a sub 
stantial  body  (amounting  to  over  200  items)  of 
legislation.  This  has  mostly  been  in  the  form  of 
directives,  defining  minimum  environmental 
quality  standards, emission  standards, or  specifi 
cations  for  products  traded  within  the  European 
single  market. Naturally the legislation has a com 
pliance  cost,  although  this  can  be  offset  by  the 
benefits  of  environmental  protection. 

The  balance  between  benefits  and  costs  is  not 
necessarily uniform across the Community in terms of 
both their  extent  and their  timing. Thus the effect  on 
Member States and regions depends upon the extent 
to which the legislation is suited to their requirements, 
and  on  the  magnitude  of  compliance  costs  in their 
particular  circumstances. 

Environment  policy  and 
the  cohesion  countries 

The  impact  of  environmental  rules  on  the  least 
developed  parts  of  the  EU  depends  on  three 
respects: 

29  Expenditure  on  environmental  protection, 

1992 

%GDP 

As regards environmental quality, the cohesion coun 
tries  are  distinguished  from the  rest  of  the  Union  in 
terms of geography and resource endowment as well 
as  their  economic  development.  Along  with  certain 
other peripheral areas in the North of the EU, regions 
in the cohesion countries have an exceptional coastal 
endowment. In Ireland, there still exist semi-wild land 
scapes and undisturbed ecosystems, while in Spain, 
Portugal  and  Greece,  there  are  an  unusually  large 
number  of  indigenous  species. This does  not  mean 
that  they  have  no  problems:  Spain,  for  example, 
suffers  from  a  high  degree  of  soil  degradation  and 
erosion  and  in  Ireland the  eutrophication  of  surface 
waters  is an  increasing  problem. Problems  of  water 
supply  and  waste  disposal  are  also  becoming 
increasingly serious. 

At the same time, pollution in the cohesion  countries 
is less in relation to both population and GDP than in 
the richer  EU Member  States. Their  starting  position 
is,  therefore,  generally  more  favourable  in  terms  of 
environmental  quality than  in most other  parts of the 
Union.  Efforts to  promote  faster  growth  and  conver 
gence of productive capacity and real income levels, 
however, create inevitable risks for the  environment. 
Although a high quality  environment  can  be a factor 
for  growth  in  sectors  such  as  tourism,  some  food 
processing  and  high-tech  industries,  where  mobile 
labour is attracted by the quality of life, growth in GDP 
is likely to be associated with increased  problems of 
pollution  and  environmental  degradation  unless  de 
liberate measures are taken to prevent this. 

Research studies  (by, for example, ERECO in 1993) 
show  that  expenditure  on  environmental  protection, 
including  on  infrastructure,  is  lower  in almost  all the 
cohesion countries than anywhere  else in the Union, 
both in absolute terms and relative to GDP (Graph 29 
and table 4.13). Only in Spain is spending close to the 
EU average. The cohesion countries have substantial 
requirements for investment in waste water treatment 
facilities (broad estimates are shown in Table ). Con 
structing  and  upgrading  of these  is,  in many cases, 

84 

Chapter 4 The policies of the European Union 

necessary for  compliance with Union  environmental 
regulations,  such  as  those  for  urban  waste  water 
(Directive  91/271). The  cohesion  countries  also  lag 
behind in the development of waste recovery facilities 
and have a long way to go before complying with the 
rules recently  introduced  for  packaging  and  packa 
ging waste. 

The key issue concerns the effect of EU environmen 
tal  policies on growth, competitiveness  and employ 
ment  in the cohesion countries. To assess this is by 
no means straightforward. Though growth tends to be 
accompanied  by increased demand for  energy  and 
natural resources and higher levels of emissions and 
industrial  waste  from  increased  production  and 
greater use of transport, there is no inevitability about 
this.  More  efficient  and  less  polluting  methods  of 
production can be  introduced to save on energy  as 
well  as  safeguard  the  environment.  Moreover,  as 
real  income  increase,  people  tend  to  attach  more 
importance to cleaner water, better air quality, a more 
attractive environment and so on. 

To  translate  this  preference  into  reality  and  to 
ensure  that  cleaner  and  more  energy-efficient 
techniques  are  adopted  in  the  production  pro 
cess,  however,  requires  deliberate  policy  action 
in the  form of  controls,  fiscal  incentives  (taxes  on 
polluting  activities,  for  example)  and  public 
expenditure.  It  cannot  be  pretended  that  this  is 
costless, that the necessary  change  in  production 
methods  and  the  shift  of  resources  into  more 
environmentally-friendly  activities  can  be 
achieved  instantaneously without adverse  effects, 
even  if  temporary,  on  employment  and  growth 
potential.  In  the  longer-term,  however,  such 
changes  are  essential  if  the  development  of  the 
European  economies,  including  that  of  the  cohe 
sion countries,  is to  be sustainable.  In the  longer-
run,  moreover,  these  changes  are  likely  to 
enhance  growth  potential  and job  creation  rather 
than  damage  them. 

According  to  a  1994  study,  if  all  the  environmental 
policy  measures  now  under  consideration  in  the 
Union — such as a carbon/enegy tax and  legislation 
to raise fuel quality standards and lower vehicle and 
other  emissions,  measures  to  increase  the  use  of 
renewable  energy,  directives  on nitrates, water  and 
sewage — were to be  implemented, there would  be 
significant  environmental  gains.  Any  possible 
adverse effect on GDP, moreover, could be avoided 

by a suitably-designed, combined  package of  fiscal 
measures and charges, aimed at imposing the social 
costs  of  pollution  and  environmental  damage  on 
those responsible for these, together with changes in 
producer  and  consumer  behaviour  as  a  conse 
quence of the changes  in the structure of prices and 
better information. Indeed, if all the changes required 
actually occurred, both GDP and  employment  could 
be increased over the long-term. 

The effect  on individual  Member  States depends  on 
their  prevailing  structure  of  economic  activity  and 
their  competitiveness  in  producing  the  goods  and 
services  which  stand  to  benefit  from  the  measures 
taken.  In the case of the cohesion countries —  such 
as Spain, which is the only  one explicitly  covered  in 
the  study  —  a  slight  decrease  in  GDP  could  result 
because of their dependence on agriculture and road 
transport,  both  of  which  would  experience  a  steep 
increase  in  costs,  the  growing  importance  of  their 
manufacture  of  cars  (Spain,  in  particular)  and  their 
relative unimportance as producers of monitoring and 
emission-control  equipment  and of  'green products' 
generally. Moreover, because they tend to lag behind 
in terms  of  meeting environmental  standards  in cer 
tain  areas  —  especially  waste  disposal  and  water 
supply,  as  noted  above  —  some  compliance  cost 
may be expected. On the other  hand, these  adverse 
effects on GDP could be offset  by the energy savings 
induced by higher taxes. 

The extent of environmental degradation in the cohe 
sion countries tends for the most part to be less than 
elsewhere in the Union, which not only means that the 
costs  of  clean-up  are  lower  but  it could  also  further 
increase  their  attractiveness  as  a  business  location 
as more weight  is attached to the quality of the envi 
ronment in locational  decisions. 

Although the results of the study are based on purely 
hypothetical scenarios, it does illustrate the particular 
problems  facing  cohesion  countries  in trying  to  pur 
sue  a  development  strategy  aimed  at  raising  GDP 
and  productive  potential  towards  the  level  in  other 
parts of the Union without unduly damaging the envi 
ronment.  These  problems  need  to  be  taken  into 
explicit  account  both  in  the  design  of  the  Union's 
environmental  policies,  which  need  to  allow  for  the 
uneven  impact  of  measures  in  different  regions  as 
well as the different  starting-point,  and in the  design 
of  cohesion  policies,  which  can  help  the  poorer 
Member States and regions meet the cost of environ-

85 

Chapter 4 The policies of the European Union 

mental  protection —  even  if this  may only  be  short-
term — and ensure that their  development  path is a 
sustainable one. 

from  one  country  to  another.  Cross-fertilisation 
schemes  under  ERASMUS  also  favour  cohesion 
countries, but the overall scale in budgetary  terms 
is very small. 

Education and vocational training 

Community  action  programmes  in  education  and 
training  were  set  up to  bring  improvements  through 
innovative and transnational actions. They are aimed 
at supporting the successful completion of the single 
market  (free  movement  of  people)  and  raising com 
petitiveness  as well as enhancing opportunities  and 
the quality  of  life of  individuals. They therefore  have 
direct  implications  for  (mostly  social)  cohesion. The 
main Community  funding  for  education  and  training 
comes from the Structural Funds (discussed in Chap 
ter  5). Other  programmes  in this  area are  compara 
tively modest  in scope, amounting to around  72% of 
the Union budget. 

Leverage is important for maximum success, and the 
programmes  are  intended  to  act  as  catalysts  for 
innovation on a European scale through exchange of 
information and experience between Member States. 
There  are  many  programmes  —  ERASMUS  and 
LINGUA  in  the  field  of  education,  PETRA,  FORCE, 
EUROTECNET  and  COMETT  in  vocational  training. 
They  cover  areas  such  as  cooperation  between 
universities  and  industry,  expert  and  student  ex 
change; training for young  people, women and other 
disadvantaged  groups  in  the  labour  market,  and 
foreign  language  tuition.  Two  of  the  largest  pro 
grammes —  PETRA and  ERASMUS —  can serve as 
examples. 

PETRA  was  targeted  on  young  people,  providing 
support  for  training  and  work  experience  in  other 
Member  States, developing  network  of  trainers  and 
supporting  the  exchange  of  good  practice. 
ERASMUS aimed at promoting cooperation  between 
universities, the interchange of students and teachers 
and the mutual recognition of degrees. 

The  main  direct  effect  of  the  programmes  was  in 
terms  of  exchange  (the  indirect  promotion  of 
cooperation  and  development  through  effects 
concerned  transnational  research  and  pilot  pro 
jects).  PETRA  is small  relative to  the target  popu 
lation,  37,000  young  people  participating  in  the 
exchange  scheme  between  1992 and  1994),  with 
a  bias  towards  cohesion  countries  (23%  coming 
from  these).  Evaluation  suggests  that  the  pro 
gramme  had a significant  effect  on participants  in 
terms  of  language  learning,  broadening  of  hori 
zons, self-confidence and ability to adapt to  differ 
ent  circumstances  —  all  of  which  are  important 
assets  in  the  labour  market.  ERASMUS  is  much 
in  relation  to  the  target  population, 
larger 
106,000  students  in  the  academic  year  1994/95 
participating  in  the  scheme,  or  1%  of  those  in 
higher  education (implying that 3-4% of the  target 
population  are  likely  to  participate  at  some  point 
in  their  university  careers,  10%  being  the  long-
term target). Students from cohesion countries  are 
over-represented,  accounting  for  22%  of  partici 
pants. 

As with PETRA, surveys of student  indicate that they 
tend to  gain  considerably  from the  experience.  For 
the universities, the range of  benefits  include  raised 
teaching standards through the pooling of  expertise 
and  experience,  improved  teaching  of  foreign  lan 
guages, more effective dissemination of information, 
improved  academic  recognition  and  better  internal 
administration  procedures.  New or  intensified  colla 
boration in the field of research has also been-shown 
to result from academic  contacts established. 

4.5 Concluding remarks 

Of the training institutions  participating  in  partner 
ships  under  PETRA,  about  30%  came  from  cohe 
sion countries,  nearly  double  their  share  of  Union 
population.  Moreover,  the  benefit  to  cohesion 
countries  is greater than this  proportion  suggests, 
since  training  systems  there  tend  to  be  the  least 
developed. On the other hand, most of the training 
material  produced  so  far  has  not  transferred  well 

The  above  analysis  suggests  that,  where  Union 
policies  have  a  significant  expenditure  dimension 
—the CAP and RTD—at least some if not the majority 
of  cohesion  countries  have  been  among  the  major 
beneficiaries.  Other  policies  which  create  a  frame 
work for change — perhaps most notably with regard 
to competitiveness and liberalisation of telecommuni 
cations  or  transport  —  will  not  necessarily  have  an 

86 

Chapter 4 The policies of the European Union 

even-distribution of the benefits, both geographically 
and socially. In general, such policies seem not to be 
to the absolute disadvantage of less favoured regions 
or social groups, but they tend to benefit them less 
relatively io central regions or more favoured groups. 

In  these  circumstances,  a  primary  obligation  is to 
ensure that efforts are made to maximise the cohesion 
effects of these policies in the context of the pursuit 
of their other  objectives. Possible avenues to be in 
vestigated in this regard are discussed in the conclu 
sions  to  this  report.  But  it  has  to  be  clearly 
acknowledged that it is neither possible nor desirable 
for other policies to pursue cohesion objectives where 
this  involves  considerable  efficiency  losses  to  the 
Union  as a whole.  In these  circumstances,  national 
and Union structural policies perform an essential role 
of  creating  the  conditions  for  regions  and  social 
groups to share the benefits of a more efficient and 
productive European economy. 

87 

Chapter 4 The policies of the European Union 

88 

Chapter 5 
Community structural policies and cohesion: 
a shared responsibility 

5.1  Introduction 

The  role  of  the  Europe  Union  in  promoting  econ 
omic  and social cohesion  is reflected  in two  major 
Treaty  changes  over  the  past  decade:  the  Single 
European  Act  (1987)  and  the Treaty  on  European 
Union (1993). The chapter on economic and social 
cohesion  in the  SEA  provided  the Treaty  basis  for 
the  fundamental  reform  of  the  Structural  Funds  in 
1988. The TEU (Article  B) went  a step  further,  the 
strengthening  of  economic  and  social  cohesion 
becoming  one  of  the  three  priorities  of  the  Union 
alongside  its  economic  objectives  of  the  Single 
Market  and  EMU.  The  TEU  also  created  the 
Cohesion  Fund  for  less  prosperous  Member 
States, and amended the European Social Fund to 
accommodate  new  forms  of  intervention  (see 
Objective  4  below). 

The purpose of this chapter  is to review the  results 
of  EU structural, or  cohesion,  policies  which  have 
been  in  operation  —  in  their  current  form  —  for. 
some  seven  years  since  1989.  The  review  is 
divided  into three sections. Section 5.2  describes 
the  nature  and  purpose  of  structural  policies  for 
cohesion.  Section  5.3  assesses  the  results  indi 
cating  the  extent  to  which  the  policies  have 
yielded  significant  benefits  in terms of  generating 
economic  activity  and  employment  for  Europe's 
more  disadvantaged  regions  and  social  groups. 
Section  5.4  examines  the  delivery  system 
developed  by the EU. 

5.2 The nature and purpose 

of community assistance 

Community interventions in support of cohesion have 
taken  on  a  significant  financial  dimension  over  the 
past decade. Together, the four Structural Funds and 
the  Cohesion  Fund  account  for  around  one-third  of 
the  budget  for  Community  policies  (Table  5.1)  and 
amount  to  nearly  0.5%  of  the  annual  Union  GDP 
(Table 5.2a-5.2b). 

The  implementation  of  Community  cohesion 
policies  is supported  by six  major  financial  instru 
ments.  The  Cohesion  Fund  and  the  loans  of  the 
European  Investment  Bank  are  based  on  a  pro 
ject-financing  approach  and  governed  by  their 
own specific  rules, while the four  Structural  Funds 
operate  within  a  single,  Community-wide  frame 
work according to common  principles:  concentra 
tion,  programming,  partnership  and  additionality 
—  see section  5.4  below. 

The Structural  Funds 

The  evolution  of  European  Union  cohesion 
policies  has  led  to  the  creation  of  four  Structural 
Funds: the European Regional  Development  Fund 
(ERDF),  the  European  Social  Fund  (ESF),  the 
Guidance Section of the agricultural fund, EAGGF, 
and  the  Financial 
I n s t r u m e n t ' f or  Fisheries 
Guidance  (FIFG). 

89 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

The  ERDF established  in  1975,  is  aimed  at  streng 
thening  economic  potential  in the  assisted  regions, 
supporting structural adjustment and helping to pro 
mote growth and lasting employment. To attain these 
objectives,  it  supports  productive  investment,  infra 
structure  projects  and  actions  for  developing  the 
indigenous  economic  potential  of  regions  through 
co-financing  operational programmes, assistance  to 
large  projects,  global  grants,  technical  assistance 
and  preparatory  studies.  It  also  encourages  trans-
border  cooperation  and  exchanges  of  experience 
between the Member States. 

The resources of the ERDF amount to 80.5 billion ECU 
in  the  current  programming  period,  1994-99,  as 
against 35.4  billion ECU in the  period  1989-93. This 
represents  45% of  total  Community  structural  inter 
ventions  in the two  periods  (if the Cohesion  Fund  is 
excluded from the total, the ERDF is 48% of the four 
Structural Funds). Spain (24.1% of ERDF resources), 
Italy (15.2%), Greece (12.4%), Germany (12.2%) and 
Portugal  (12.4%)  are  currently  the  largest  benefi 
ciaries,  as  they  were  also  —  with  the  exception  of 
Germany — in the  1989-93 period. 

The European Social Fund (ESF) was established  by 
the Treaty of Rome. Since the  1988 reform, it has had 
the objective of combating  long-term  unemployment 
and improving the employability of young people and, 
since  1993,  of  promoting  adaptation  to  industrial 
change.  It contributes  to the financing  of  vocational 
training  and  employment  support  measures  and  to 
improvements  in education  systems.  It aims to  inte 

grate those excluded from the labour market, promot 
ing the principle of equal opportunities  and the fight 
against  social  exclusion.  It also  finances  accompa 
nying measures such as development of certification 
systems, training of trainers and public officials, tech 
nical assistance and innovative actions. 

The ESF accounts for 30% of Community interventions in 
the current period, as against 31 % in the first. Spain (20%) 
and Germany (15.9%) are the largest beneficiaries. 

The  Guidance  section  of  the  European  Agricultural 
Guidance  and  Guarantee  Fund  was  established  in 
1962 in the context of the Common Agricultural Policy 
(CAP). It is intended to promote structural adjustment 
in  agriculture,  which  has  been  increasingly  under 
taken  in  the  context  of  the  overall  reform  the  CAP, 
through  measures to modernise  production and de 
velop rural areas. The Fund accounts for 23.7  billion 
ECU,  or  15.4% of  Community  Funds,  in the  current 
period as opposed to about  12 billion ECU between 
1989 and  1993 (17.6% of Community funds). 

The  Financial  Instrument  for  Fisheries  Guidance 
(FIFG), a specific fund established in 1994 to replace 
a number of separate financial instruments operating 
since 1976, was granted 2.9 billion ECU (1.9% of total 
Community  funding).  Spain,  Italy,  France  and 
Portugal are the principal beneficiaries, sharing 69% 
of the available funds. 

Acting  together,  the  Structural  Funds  are  today 
focused on: 

30  Geographical  coverage  of Structural  Funds 

by Objective,  1989-93 and  1994-99 

„  % population 

•  1989-93 
•  1994-99 

50 

30 

Object 1  Object 2  Object 5b  Objecte 

Total 

90 

four regional Objectives which absorb 85% of the 
funding (Table 5.3a-5.3b): 

Objective  1  — for the development and structural 
adjustment of regions where development is lagg 
ing behind, including rural areas. This constitutes 
the major priority of Community structural policies. 
About  26.6%  of  the  Community  population  live 
today  in  regions  covered  by  this  Objective  and 
they  account  for  more  than  two-thirds  of  the 
funding (Graph 28). 

Objective 2 — for thé conversion of areas affected 
by the decline of traditional  industries. This is the 
second  regional  policy  priority.  11%  of  the  total 
financial  means  are  reserved  for  this  Objective 
which  covers  about  16.4%  of  the  Community 
population. 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

Objective 5b — for the development and structural 
adjustment  of  rural  areas.  5%  of  total  funding  is 
earmarked for this Objective which covers 8.8% of 
Community population. 

Objective  6 —  for  the  problems  of very  sparsely 
populated  areas.  This  covers  0.4%  of  the 
Community population and 0.5% of the total finan 
cial resources. 

• 

three Community-wide  Objectives which  absorb 
15% of total financial resources: 

Objective 3 — facilitates  the integration of young 
people  and  the  long  term  unemployed  into  the 
labour market, while reducing the effects of social 
exclusion.  9.4%  of  total  resources  are  devoted 
to  this  Objective.  Young  people  unemployed 
and the long-term unemployed represent, respec 
tively,  1.3%  and  2.4%  of  the  total  Community 
population. 

Objective  4  —  is  an  anticipatory  or  preventive 
measure  to  assist  the  adaptation  of  workers  to 
industrial  change.  1.6%  of  total  resources  are 
earmarked for this Objective. 

Objective  5a — helps to promote the  adjustment 
of  the  agricultural  and  fisheries  sectors.  4.4% of 
total resources are devoted to this Objective, out 
side the Objective  1  areas, with 3.8% for the larger 
agricultural sector  and 0.6% for the fisheries sec 
tor. The numbers  employed  in the primary  sector 
in the  EU is currently  over  8 million or  2% of  the 
total Community population. 

In addition, 9% of the Structural Funds are  reserved 
for  Community  Initiatives. These are decided  by the 
Commission  in  partnership  with  the  Member  States 
and follow  a thematic  approach to add  emphasis or 
explore  innovative  possibilities.  The  main  themes 
applying to the current set of Initiatives are: 

•  experimental  policies  for  the  environment 
(ENVIREG) and  to  tackle  the  crises  in  parts  of 
major urban areas (URBAN); 

• 

reinforcement of national policies on specific issues: 
adaptation  to  the  anticipated  effects  of  industrial 
change (ADAPT),  the acceleration of adjustment in 
areas dependent on activities undergoing restructur 
ing:  steel,  shipbuilding,  coal  mining,  textiles  and 
defence  (respectively,  RESIDER,  RENAVAL, 
RECHAR, RETEX, KONVER)anô a strengthening of 
efforts  to  improve  the  ability  of  specific  groups  to 
participate to the full in the labour market (EMPLOY 
MENT, NOW, HORIZON); 

• 

finally,  in  1995, the  Union  also  agreed  a  Special 
Support  Programme  to  assist  the  process  of 
peace and reconciliation in Northern Ireland. 

Finally, some 1 % of the total finance for the Structural 
Funds is reserved for technical assistance and inno 
vative  measures. A  large  part  of  expenditure  on the 
latter  is decided  by the  Commission  on thé  basis of 
calls  for  tender  requesting  proposals  for  projects 
under  pre-defined  themes.  Currently  these  concern 
internal and external interregional cooperation, urban 
policy, spatial planning, technological  developments 
(including  information  society)  and  endogenous 
development  (including  culture). 

The  Cohesion  Fund 

The Cohesion Fund was established in the Maastricht 
Treaty  and  came  into  operation  only  in  1993.  The 
purpose  of  the  Cohesion  Fund  is  to  help  the  less 
prosperous Member States — as opposed to regions 
—  prepare  for  EMU, and  the  budgetary  disciplines 
which  that  implies, while  maintaining  efforts  to  pro 
mote catching  up. The  Fund can thus  be seen as a 
form of compensation for the weakest Member States 
for taking on substantial spending commitments while 
seeking to control their  budget  deficits. 

• 

• 

trans-border  and  interregional  co-operation 
(INTERREG,  REGEN); 

the promotion of innovative capacity and help for 
the  development  of  small  and  medium-sized 
enterprises  (STRIDE,  TELEMATIQUE,  PRISMA, 
SME), as  well  as  for  local  development  in  rural 
areas  (Leader)  and  areas  dependent  on  fishing 
(PESCA); 

Four Member States benefit from the Cohesion Fund 
at present: Greece, Spain, Ireland and Portugal. It has 
been allocated  14.5 billion ECU for the period  1994-
99,  resources  which  come  on top  of  the  allocations 
under the Structural Funds. The Fund finances trans 
port  infrastructure  projects  which  contribute  to  the 
development  of  trans-European  networks  and  envi 
ronment  projects  which  meet  the  objectives  of  the 
Community's environmental  policies. 

91 

unap:er 5 Community structural policies and cohesion: a shared responsibility 

The  European  Investment  Bank 

Fields of  intervention 

The European Investment  Bank contributes to regional 
development,  with  more  than  two-thirds  of  its  lending 
activity —  about 44  billion  ECU from  1991 to  1995 — 
devoted to eligible areas (Table 5.4). More than half of the 
Bank's loans have gone to Objective 1  regions, while in 
recent years, the EIB has stepped up its lending activity 
in Objective 2 and 5b areas, which now account for 43% 
of  its  financing  for  regional  development.  Mcst  of  the 
financial resources have been allocated to infrastructure 
projects,  many  of  which  help  to  complete  European 
transport and energy networks or protect and improve the 
environment. 

The  scale of  intervention 

One comparison for the appreciation of the scale of 
assistance under EU cohesion  policies  is that of the 
Marshall  Plan,  the  archetypal  structural  aid  pro 
gramme  for  the  reconstruction  of  post-war  Europe, 
which  was  equivalent  to  1% of  US  GDP  and  con 
tributed on average about 2% of the European annual 
GDP over the period 1948-51. The Community's effort 
is some 0.5% per year but it is a longer-term commit 
ment which will have amounted cumulatively to 6.5% 
of  Community  GDP  over  the  decade  1989-99, 
compared  to  4% of  GDP committed  by the  US  be-

• twsen  1948 and 1951. 

Three  broad  fields  of  intervention  are  covered  by 
policies  under  the  Structural  Funds  and  Cohesion 
Fund (Tables 5.6 to 5.8 and Graphs 29 to 31): infra 
structure,  human  resources  and  productive  invest 
ment.  For  Objective  1 areas, the  priority  in  political 
and  financial  terms,  there  is  a  fairly  even  balance 
between  these  three  priorities,  although  amounts 
devoted to  infrastructure  under  the Structural  Funds 
have been falling over time in favour of investment in 
physical and human capital directly linked to compe 
titiveness and production. In the old industrial regions 
or agricultural regions situated in mature economies, 
infrastructure  is  typically  more  developed  requiring 
less financial support at the EU level. Current expen 
diture  in the Objective  1 areas is split as follows: 

• 

Infrastructure:  30%  of  the  Structural  Funds  are 
spent  on this.  Investment  is  eligible  in transport, 
telecommunications  and energy networks as well 
as in water supply  and environmental  protection. 
Since it is intended to reduce infrastructure gaps, 
expenditure is heaviest in the four poorest Member 
States.  Basic  communications  investment  is  a 
priority to improve accessibility while other invest 
ment  encourages  energy  diversification.  A  new 
role has been to support the achievement of trans-
European  networks.  Important  trans-European 

31 

Distribution  of Structural  Funds  by broad  category  of expenditure  in 
BProducHve environment 
Objective  1 regions, 1989-93 and 1994-99 

100  r 

B  Human resources 

Infrastructure 

n  100 

M  80 

60 

40 

20 

D  GR  E 

F 

IRL 

« 

P  UK  EUR  C4 

B  O  GR  E 

F 

IRL 

I  NL  A 

P  UK  EUR  CA 

1989-93 

1994-99 

92 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

transport  networks  are  located  in  the  poorest 
countries  of  the  Union.  The  resources  of  the 
Cohesion  Fund  are  used  exclusively  for  invest 
ments in major  infrastructure  projects  in transport 
and the environment. 

promotion of research and technological develop 
ment, the development of new activities  including 
services such as tourism, the reclamation of dere 
lict industrial sites, the improvement of agricultural 
and fisheries structures  and local initiatives. 

Human resources: 30% of the Structural Funds are 
devoted  to  strengthening  education  and  training 
systems  and  supporting  labour  market  policies'. 
The  main  measures  eligible  include  support  for 
mainstream  education  and  R&D,  vocational 
training,  equal  opportunities,  employment  and 
self-employment and measures aimed at the inte 
gration  of  those  most  excluded  from  the  labour 
market. As indicated in the introduction, the addi 
tion  of  new  forms  of  intervention  regarding  the 
prevention  of  unemployment  and  adaptation  to 
industrial  change  have  widened  the  scope  of 
human resource  policy. 

Productive environment: with 40% of the Structural 
Funds this  is now the  dominant  intervention  area 
in the Objective  1 regions. It is largely  concerned 
with  building  a  dynamic  business  environment 
through  support  for  national  investment  aid 
schemes for industry, with particular emphasis on 
building  an  internationally-competitive  small  and 
medium-sized enterprise sector. In addition, many 
other  ancillary  activities  are  eligible,  notably  the 

5.3. A decade of achievement 

The task of evaluation 

In this section, the  results  of the  interventions  under 
EU cohesion "policies are reviewed. These  include a 
broad  range  of  concrete  improvements  to  the 
situation  of  the  Union's  more  marginalised  regions 
and localities and social groups, which have opened 
doors  to  new  opportunities  on  a  wider  European 
scale. In addition, other outcomes arising from cohe 
sion  policies  are discussed, especially  the role they 
have played as a force for change and innovation, for 
the empowerment  of the grassroots  and in making a 
contribution to the wider process of European integra 
tion. 

The results are most readily set out in summary form 
by attaching numbers, or quantifying, the extent of the 

32 

Distribution  of Stuctural  Funds by broad category  of expenditure  in 
Objective  2 regions,  1989-93 and  1994-96 

•  Productive environment 

B  Human resources 

•  Physical regeneration & environment 

100 

B  DK  D  E 

F 

IL 

NL  UK  EUR 

B  DK  D 

E 

F 

I 

L  NL  A  FIN  S  UK  EUR 

1989-93 

1994-96 

100 

80 

60 

40 

20 

93 

Chapter 5 Community structural policies and cohesion: a shared  responsibility 

changes which have occurred. A considerable  effort 
has  been made to describe  and  analyse the  results 
in this way, but as past experience in Member States 
has demonstrated, quantifying the impact of policies 
is complicated. 

First, the  evaluation  methodology  itself  is  subject  to 
ongoing  development  and,  at  present,  different 
experts  adopt  different  approaches.  Secondly,  the 
impact of EU policies is difficult to distinguish from the 
effects of other factors such as Member States' econ 
omic  policies or the business cycle (indeed, in some 
cases the impact of cohesion policies seems to have 
been  to  mitigate  some  of  the  effects  of  recession). 
Thirdly,  even  if  the  regulations  stipulate  that 
Community  assistance  should  be  additional  to 
national  efforts,  this  is  hard  to  verify  and  levels  of 
investment which would have been undertaken in the 
absence  of  the  Structural  Funds  cannot  be  known. 
Fourthly, some of the results are based on estimates 
from  the  Member  States  (e.g.  the  number  of  jobs 
created  or  maintained)  and  these  are.often  not 
' directly comparable or easy to verify. 

European  solidarity  and  cohesion.  A  concern  with 
quantified  results  can  only  ever  be  part  of. the  ana 
lysis; qualitative elements need to be given due con 
sideration. 

As far as the quantification of results is concerned, an 
attempt  has  been  made  to  evaluate  the  impact  of 
structural  policies  in the  15 Member  States and their 
eligible  regions  for  this  report,  involving  detailed 
macro-  and  micro-economic  assessments  by  the 
Commission assisted  by outside  experts. Two  types 
of  macro-economic  assessment  have  been  under 
taken (see below): 

First,  the  redistributive  effects  of  EU  finance  have 
been  assessed, in terms of the  extent to which  they 
have been successfully targeted on the weaker  parts 
of  the  Community.  While  this  does  not  indicate  the 
degree  of  efficiency  in  the  use  of  the  resources,  it 
provides  essential information on the way  resources 
have  been deployed to help the weaker  parts of  the 
Union. 

In  any  case,  the  temptation  to  consider  only  those 
benefits which can be quantified should be resisted, 
because  to do  so would  be  to  ignore  the  full  depth 
and  breadth  of  the  effects  of  EU cohesion  policies 
and,  in  particular,  how  they  have  contributed  to 

Secondly,  at  the  most  aggregate  level,  macro-
economic  models  have  been  used  to  quantify  the 
effects of structural intervention. Here the focus is on 
the four largest recipient countries where the scale of 
transfers is large enough to have a discernible impact 
at the macro-economic  level. 

33 

Distribution  of Structural Funds by broad category  of expenditure  in 
Objective 5b regions,  1989-93 and  1994-99 

•  Infrastructure 

•  Environment 

H  Human resources 

E Productive environment 

DK  D  E  F 

1989-93 

FIN  UK  EUR 

94 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

The  micro-economic  assessments  (see  below) 
consider  the  extent  to  which  the  goals  defined 
under  the  different  Objectives  of  the  Structural 
Funds  have  been  attained  is  examined.  Since 
EU  policies  are  largely  directed  at  improving 
efficiency  —  'the  supply-side'  —  it  is  important 
to  examine  the  effect  of  intervention  on  factors 
such  as  infrastructure  or  human  resource  endow 
ment  in the  recipient  countries  or  regions. 

Finally,  the  unique  features  of  the  EU  delivery 
system for cohesion policies are underlined, given 
their  particular  contribution  to  European  integra 
tion  (section  5.4). 

Global results 

Trend  analysis 

Analysis of the trends  in the regions eligible for the 
three  regional Objectives  of the first  programming 
period  reveal  some  encouraging  performances 
(see Table  5.6a). 

Objective  1  regions  as  group  experienced  con 
vergence  in  terms  of  GDP  per  head,  closing 
the  gap  with  the  rest  of  the  EU  by  nearly  3% 
points  over  the  5-year  period  1989-93.  On  the 
other  hand,  their  unemployment  rate  deterior 
in  six  of  the 
ated  markedly  affecting  one 
work  force  in  1993  compared  to  one  in  seven  in 
1989. 

High  unemployment  is  the  major  defining  charac 
teristic  of  Objective  2 regions. Whilë'unemployment 
rose on average in these regions between  1989 and 
1993, reflecting the recession of the early  1990s, the 
rate of  increase was  slower  than  for  the  Union  as a 
whole.  Average  income  per  head  in  these  regions 
appears to have fallen relative to the rest of the Union 
over this period. 

Objective 5b regions also also converged on the rest 
of the Union during the period  1989-93, notably with 
regard to unemployment, but also in relation to levels 
of GDP per head. 

Redistributive  effects 

Community structural policies have the effect of trans 
ferring resources from the richer Member States to the 
poorer  ones. The  level  of  aid  to the  cohesion coun 
tries, in both the previous  and present  programming 
periods,  has  been  many  times  larger  than expendi 
ture in the rest of the Union (Graphs 32 and 33). The 
concentration  of  expenditure  in these  countries  can 
be illustrated by means of Lorenz curves which show 
the distribution of EU transfers in relation to the levels 
of income or GDP in Member States or regions (More 
specifically, the percentage of transfer going to coun 
tries or regions which account for a given percentage 
of  Union  GDP).  Redistribution  from  rich  to  poor  is 
indicated by a concave curve. The more concave the 
curve, the greater  this redistributive  effect. A convex 
curve,  on  the  other  hand,  would  suggest  that 
resources are transferred from poor to rich. 

34  Structural aid and GDP in Member States, 

35  Structural  aid and GDP in Member States, 

1989-93 

Aid per head par yaar (ECU) 

•  IRL 

•P 

•QH 

300 

200 

150 

100 r-

1994-99 

Aid per hMd p«r year (ECU) 
• 

350  r 

•  P 
•  GR 

350 

300 

A  200 

200 

•  E 

150 

100 

150  > 

100 

•  E 

E12 
• •I 

^ • k0 

•  E12 
«I 

•  UK  .' 

•  F 

5K  .;•' 

9 
GDP oar head 1986 fPPS 000)  ' 

13 

11 

15 

:12':-jA>:-v".;' 

.20 
GPP par head 1091 (PPS 000) 

16."  .•/'•" 

;. 

250 

95 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

A number  of  curves have been constructed  in order 
to illustrate the redistributive effects of the Structural 
Funds: 

that  resources  were  concentrated  on  the  econ 
omies  with the  lowest  levels  of  GDP  per  head. 

• 

• 

• 

• 

for structural transfers to Member States (Structu 
ral and Cohesion Funds); 

for  structural  transfers  plus  EIB loans to  Member 
States; 

for  structural  transfers  to  Objective  1  regions 
(NUTS II); 

for  structural  transfers  to  Objective  2  regions 
(NUTS III). 

Redistribution  between  Member  States 

The distribution  of  all structural transfers  (Structu 
ral  Funds  and,  from  1993, the  Cohesion  Fund)  is 
set  out  in  relation  to  GDP  per  head  in  Member 
States for the three periods  1986-1988 (before the 
reform),  1989-1993  and  1994-1999  (Graph  34). 

A  comparison  of  the  three  curves  shows  that  the 
1988  reform  of  the  Structural  Funds  significantly 
increased the redistribution of transfers to the  less 
prosperous  Member  States,  which  was  achieved 
through the creation of Objective  1  which  ensured 

Transfers  in  the  period  1994-99  seems  to  be  less 
concentrated  despite  the. creation  of  the  Cohesion 
Fund for the least prosperous Member States. This is 
essentially  explained  by  the  wider  coverage  of 
eligible areas in the more prosperous Member States, 
notably  under  Objective  1 (adding  the new  German 
Lander  and other  regions  in the North of  the  Union) 
and  by the  fact  that  the  curve  for  the  period  1994-
1999 includes the three new Member  States. 

For  the  period  1989-93,  it  is  also,  possible  to 
compare  the  redistributive  effects  of  Structural 
and  Cohesion  Funds,  on  the  one  hand,  and  EIB 
loans,  on  the  other  (Graph  35).  The  effect  of  EIB 
actions  is  less  than  that  of  the  Structural  and 
Cohesion  Funds.  This  is  partly  explained  by  the 
working  of the market for  capital  and  its  response 
to  the  budgetary  constraints  in  poorer  countries. 
The ability of the  least  prosperous  Member  States 
to  borrow  despite  the  advantageous  terms  of  EIB 
loans tends  to  be  more  limited. 

Objective  1  regions 

For  the  group  of  Objective  1 regions,  the  Lorenz 
curve  confirms  the  progressive  incidence  of  the 

36 

Concentration  of Community  structural  assistance  by Member  State, 
1986-88,1989-93 and  1994-99 

Vo cumulative expenditure (ECU) 

100 

-•—1989-93 
- • - 1 9 9 4 - 99 
F  -#-1986-88 

90 

80 

70 

60 

50 

40 

30 

20 

10 

96 

10 

70 
^ 00 
ÏÏ  % cumulative GDP (PPS) ';'• •;: 

80 

90 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

distribution of the Funds, which is more marked in 
the  present  period than in the  period  1989-1993 
(Graph 36). For the previous programming period, 
there  was  a particular  absence  of  a  progressive 
response  to different  levels  of  prosperity  among 
the weakest regions (those with the lowest GDP on 
the left side of the graph). This is explained in part 
by the  fact that  the new German  Lander  had not 
been  fully  incorporated  into  Objective  1 at  this 
time  but  received  interim  assistance,  under  a 
special  programme,  at  lower  rates  than  main 
stream Objective  1  regions. 

Objective 2 regions 

For these regions, the Lorenz curve has been con 
structed on the basis of cumulative distribution of the 
three basic criteria for eligibility for Objective 2 assist 
ance (unemployment rate, share of industrial employ 
ment in the total and the loss of jobs in industry). To 
do this, the three criteria have been assembled into a 
synthetic  index  constructed  as  follows  for  each 
region: 

SI = (Ind - Ch + Un)/3 

37  Concentration  of Community structural 
assistance and EIB lending, 1989-93 

60 

80 

100 

% cumulative GDP by region (PPS) 

where 
SI = synthetic index for the region; 
Ind  =  the  share  of  employment  in  industry  in the 
region; 
Un = the  harmonised  rate of  unemployment  in the 
region; 
Ch = the change  in employment  in  industry  in the 
region. 

Each variable has been adjusted to give them equal 
weight in the construction of the index. The indicators 
included in the index are those which were calculated 
for the programming period 1994-99. 

The two curves  (Graph 37) indicate  that, though a 
redistribution effect is apparent for the first period, it 
is almost completely  absent for the second period. 
This implies that for this second period the gravity of 
the problems, as measured by the three Community 
criteria,  were  taken  into  account  to  only  a  limited 

38  Concentration of Community  structural 
assistance  in Objective  1 regions, 1989-93 

39  Concentration of Community  structural 
assistance  in Objective 2 regions, 1989-93 

% cumulative experxiture (ECU) 

% cumulative expenditure (ECU) 

40 

60 

100 
X  cumulative GDP by region (PPS) 

' 80 

O 
100 
% cumulattve tyrthetlc Index (ot unemployment and kidurtrtal employment) 

60 

80 

40 

20 

97 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

extent  in the allocation of regional assistance  and/or 
in the selection of  regions. This  reflects  adjustments 
to the method of to  determining  eligibility  contained 
in the revised regulations of  1993 where  less weight 
was given to the three  basic  criteria  in the choice of 
areas eligible for Objective 2 and more to the priorities 
of Member States. 

In effect, with 0.3% of EU GDP for 1989-93, an income 
equalisation  (in terms  of  GDP  per  head)  of  3%  was 
achieved.  For  1994-99, 0.45%  of  EU GDP results  in 
an  equalisation  of  5%.  This  equalisation  effect  of 
about  10 times the original volume  of  public  finance 
is of  the  same  order  of  magnitude  as  estimates  for 
explicit redistributive mechanisms between Lander in 
Germany in 1990 and between the different territories 
of Canada and Australia (see European  Commission 
(1993):  Stable  money,  sound  finances).  It  is  also 
considerably  higher  than  the  effects  achieved  in 
federations such as the US which make of  extensive 
use of grants (to states) for pre-determined purposes 
(eg  education)  where  the  equalisation  effect  is  1 to 
5 times the financing volume (though, because of the 
much  larger  volume  of  resources  transferred,  the 
equalisation effect is much larger  in these countries). 

The  results  of the  macro-economic  models 

In analysing the effect of policy, it is important to draw 
a  distinction  between  the  four  poorest  Member 
States,  wholly  (Greece,  Ireland,  Portugal)  or  largely 
(Spain) Objective  1  areas, and Objective  1 regions in 
more  developed  and  prosperous  Member  States. 
Effects  in the latter are more difficult to quantify  both 
because  they  are  on  a  smaller  scale  and  because 
they  tend  to  receive  large  amounts  of  aid  from  na 
tional, regional  and other redistributive  policies. 

In  theory,  the  investment  carried  out  under  EU 
cohesion policies has two main effects: 

• 

• 

it  adds  to  total  demand,  so  stimulating  output 
and employment, through  Keynesian-type  mech 
anisms; 

it  improves  so-called  supply-side  efficiency, 
strengthening production structures and competi 
tiveness. 

The scale of these can only be satisfactorily assessed 
by using an economic model. But it should be empha 
sised that there is no definitive, universally  accepted 

model available  for  this  purpose, given the  diversity 
of  expert  opinion  about  how  precisely  economies 
work. A key controversy concerns the extent to which 
public  interventions  genuinely  add  to  economic 
activity, rather than displacing,  at least partly, private 
activity. There  is, accordingly,  a  range of  models  to 
choose  from,  each  incorporating  slightly  different 
mechanisms  and  behavioural  assumptions  and 
focusing on different  aspects of economies. 

The results obtained from these models will inevitably 
differ. Nevertheless, important insights can be gained 
into the effects of policies through the use of models. 
In  particular,  the  processes  through  which  policies 
affect  output,  real  income  and  employment  can  be 
clarified  and  some  quantitative  impression  can  be 
obtained  of  the  response  of  these  to  the  measures 
taken. Two different model-types are presented here. 

The  first  is  a so-called  input-output  model  (the  Beutel 
model) which attempts to capture the technical relation 
ships  between  sectors  of  production,  as  well  as  the 
processes  through  which  changes  in  demand  affect 
supply,  and  to  trace  the  repercussions  of  changes 
affecting one sector on others parts of the economy. The 
second  model-type examines demand  and output  in a 
less disaggregated way and focuses on global patterns 
of consumption and investment behaviour and the way in 
which they respond and adjust after policy interventions. 
Results from two different  versions of  the second  type 
have been used in the present analysis (the 'Quest' and 
'Hermin' models). 

Both  types  of  model  illustrate  the  way  in  which 
Community  structural  policies  have  affected  output 
and employment in the countries to which assistance 
has been predominantly directed and give an indica 
tion of the scale of these effects. 

According to the input-output  model, in the absence 
of  Structural  and  Cohesion  Funds  support,  GDP 
growth  in  the  four  cohesion  countries  would  have 
been, on average, almost 1/2% a year lower during the 
1989-93  programming  period  than  it  actually  was 
(1.7%  as  against  the  2.2%  growth  achieved).  The 
beneficial effect varies between the countries princi 
pally  according  to  the  scale  of  transfers  relative  to 
GDP, which was larger  in Portugal, Greece  and  Ire 
land than in Spain. Whereas GDP growth in the latter 
is estimated to have been boosted  by  almost  1/2% a 
year, in Portugal and Greece, it was rarsed by almost 
1%  a year  and in Ireland by only slightly  less. Given 

98 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

the increase in the scale of assistance  in the present 
period, 1994-99, the increase to GDP growth is likely 
to  be  somewhat  greater  (just  over  1/2%  a  year  on 
average). 

Much of the significance of structural  assistance  for 
growth  comes  from  the  fact  that  this  tends  to  be 
concentrated  on  investment,  in  human  as  well  as 
physical  capital.  Between  1989  and  1993,  fixed 
investment  associated  with Structural  and  Cohesion 
Funds  expenditure  in  the  four  cohesion  countries 
amounted to more than 8% of the total capital forma 
tion  in  these  countries.  Though  the  proportion  was 
only around 5% in Spain, it is estimated to have been 
as high as 31A>% in Portugal, 6% in Greece and 171/2% 
in Ireland. In the present  programming  period, aver 
age  support  for  investment  could  reach  14% of  the 
total in the four countries. 

The  boost  to  growth  from  Community-supported 
investment also contributed to create and safeguard 
jobs. According to the model  estimates, the  number 
of jobs  dependent  on the  structural  assistance  over 
the previous programming  period was an average of 
272% of the total labour  force in the four  countries or 
by  over  600,000.  In  Spain,  as  would  be  expected 
given the proportionately smaller scale of support, the 
figure was lower  at just  under  172%, but  in Portugal, 
the  boost  to  jobs  is  estimated  at  just  under  472% 
(3.3% in Ireland and 3% in Greece). 

Higher  growth also means higher  imports from other 
Community countries and increased trade. Overall it 
is estimated that  more than a quarter  of the  amount 
transferred  to  the  four  countries  through  structural 
assistance returned to the other Member  States con 
cerned  in the form of  imports  and that  by  1999, this 
figure could rise to almost 35%. 

A key feature of the Quest macro-economic  model is 
that  it  incorporates  explicit  assumptions  about  how 
companies and individuals react both to present pol 
icy as well as their  expectations  about  future policy. 
In  the  model,  the  positive  effects  stemming  from 
increased  structural  interventions  can  temporarily 
wear  off  in  the  medium  term  as  private  investors 
anticipate  upward  pressure  on  real  interest  and 
exchange rates as a result of increased demand and 
thus  reduce their  own  investment.  Meanwhile,  since 
the improvements in the supply-side of the economy, 
from investment in infrastructure, productive capacity 
and labour force skills, tend to take a number of years 

to materialise, they bring long-term gains to the poten 
tial for growth. 

The estimates from the model suggest that the benefi 
cial effects  on output  and employment  over  the pre 
vious  programming  period  are  lower  than  from  the 
previous  model  because  of the  above  features. The 
boost  to  GDP  growth  in  the  Cohesion  countries  is, 
therefore, estimated to havo been about a third lower 
in each  case  than suggested  by the  first  model. As 
the  longer-term  effects  from  investment  materialise, 
however,  GDP  is  estimated  to  be  increased  by  just 
over  1% in Spain and 2-3%  in the other  three coun 
tries  by the end of the decade over  and above what 
it otherwise  would  have  been. More  importantly,  the 
rate of  growth which all of the countries  can  sustain 
over  the  long-term  is  higher  and,  in  consequence, 
unemployment  lower  as a result  of  Community  sup 
port. 

The  Hermin  model  similarly  stresses  the  long-term 
impetus  to  growth  which  result  from  supply-side 
improvements,  notably  through  investments  in  edu 
cation and training systems while it is more sanguine 
about  the  demand  effects.  Thus,  by  the  end  of  the 
decade,  the  combined  contribution  of  demand  and 
supply-side  effects  is  expected  to  lead  to  levels  of 
GDP which are 9% higher than they would otherwise 
have  been  in  Ireland  and  Portugal  and  nearly  4% 
higher  in Spain. 

Overall, the  estimates  produced  by  the  models  are 
varied but positive on the role of structural assistance 
as a significant factor underlying the convergence of 
the  cohesion  economies  towards  output  and  real 
income  levels  in the  rest  of  the  Community  with  the 
expectation  that  this  process  is  likely  to  continue  in 
the future. The results illustrate, moreover, how cohe 
sion  policies,  by  raising  investment  and  economic 
capacity in the weakest regions, contribute to raising 
the economic  potential of the Union as a whole. 

Results by Objective 

The global effects  discussed  in the previous  section 
are reflected in a vast range of projects on the ground 
which have changed — sometimes fundamentally — 
lives and opportunities in the regions which they have 
touched.  Perhaps most important  of all, the  projects 
themselves were generally selected by people on the 
ground; this  involvement  and empowerment  of  local 

99 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

actors  is one of the most  important  achievements of 
EU  structural  policies  since  1989,  as  discussed 
below. 

The most visible impact of CSFs is on basic infrastruc 
ture, where there has been notable progress in reduc 
ing the disparities with the rest of the Union: 

It is not possible to describe  in detail what has been 
achieved  in every  region and  locality. The  following 
attempts  to summarise  some  of  the  more  important 
specific  effects on the regions  receiving  assistance, 
differentiating  by  Objective.  It  draws  mainly  on  the 
evaluations  carried  out  by  the  Commission  since 
1989. 

Objective  1 : 
modernising the  regional  economy 

In view  oi  the  volume  of  resources  targeted  on  the 
priority  Objective  1 regions  (currently  some  70% of 
the  total),  these  are  the  obvious  starting  point. 
Community  strategies  in  these  regions  were 
designed  to tackle  basic  structural  problems  rather 
than to redistribute income, and hence to accelerate 
growth and create durable jobs. 

For purposes of analysis, three groups of regions can 
be  identified: the four  cohesion  countries  discussed 
in  the  previous  section,  the  two  large  Objective  1 
regions  in  other  countries  (Southern  Italy,  Eastern 
Germany)  and  the  small  Objective  1 regions  in the 
UK, France, Belgium and the Netherlands. 

The  Cohesion  countries 

The  four  cohesion  countries  are  the 
least 
developed  in the Union  and  include, especially  in 
Spain  and  Ireland, areas  with  some of the  highest 
levels  of  unemployment.  Community  aid  has  con 
tributed  to  strategic  solutions  to  the  problems, 
supporting  investment  for  growth  and  competi 
tiveness. 

•  a major  effort was made in the period  1989-93 to 
improve  port  and  airport  facilities  in  order  to 
reduce barriers to trade within the Single  Market, 
although some key projects, such as Spata airport 
in  Greece,  have  only  just  begun.  In  Spain  the 
development  of  Andalucia  and  the  Canary 
Islands,  in  particular,  has  benefited  from  such 
investment; 

•  substantial effort is continuing to assist the devel 
opment  of  the  strategic  road  networks  in  the 
Cohesion  countries  —  for  example,  through  the 
improvement  of  the  four  key  road  corridors  in 
Ireland and the completion of the Corinth—Tripoli 
—  Kalamata  motorway  in  Greece. The  length of 
major  roads  scheduled  to  be  constructed  or 
improved  under  the  two  CSF  periods  together 
amounts to 900 km in Greece, 400 km in Ireland, 
1,960 km in Portugal and  14,000 km in Spain. 

•  an  index  measuring  motorway  provision  for  the 
four countries rose from 43.3% of the EU average 
in 1988 to 53.1 % in 1991, whilst that for other roads 
rose from 69.6% to 72.8%. This, however,  under 
states  the  strategic  significance  of  the  projects 
under  way.  In  Greece  60%  of  the  major  TENs 
related  projects  are  scheduled  to  be  completed 
by  1999.  In Portugal,  interregional  journey  times 
have already been reduced by around 30%, whilst 
in Spain a standardised  index of accident  victims 
was halved between  1988 and  1994. But in some 
cases, realising the wider development benefits of 
the investment will depend in part on an upgrading 
of  the  secondary  road  network  which  often 
remains  poor; 

The Community Support Frameworks (CSFs) in these 
countries  have  mostly  operated  in the  framework  of 
national  policies  where  priorities  were  defined  in 
terms  of  sectoral  considerations,  as for  the  CSFs in 
Ireland and Portugal, by regional and spatial planning 
considerations, as in Spain, or a mixture of both as in 
Greece.  Hence  in  Ireland  and  Portugal,  the  CSFs 
were aimed at supporting the economic base while in 
Spain,  thsy  were  directed  more  broadly  at  spatial 
restructuring through major infrastructure investment. 
In Greece, policy tended to encompass  both of these 
aims. 

•  major  investment  is  going  into  upgrading  the 
quality of heavy rail systems, particularly installing 
double  track  lines,  electrification  and  other 
measures to improve operating speeds. However, 
the priority  being given to rail  investment  in most 
Northern Member  States means that  no improve 
ment  in  disparities  is  evident:  the  increase  in 
double track  lines  in the  four  cohesion  countries 
between  1988 and  1990 of  4.2% compares  with 
an  average  increase  of  16%  in  the  other  Union 
countries;  similarly  there  is  an  increase  of  2%  in 
the  networks  electrified  over  the  same  period  in 

100 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

the Cohesion countries as against 4% elsewhere. 
Nevertheless,  investment  is  tending  to  increase 
the use of the system, reversing a pattern of long-
term  decline.  Between  1988  and  1991, rail  pas 
senger  kilometres  in the four  Cohesion  countries 
increased  by  over  10%.  In  Athens  and  Dublin, 
moreover, investment is now going into metro/light 
rail systems to reduce problems of urban conges 
tion; 

• 

in  all  regions,  major  investment  has  gone  into 
telecommunication  systems,  installing  digital 
exchanges and fibre optic  links and this is reduc 
ing disparities  in provision significantly.  By 1999, 
the  number  of  lines  per  100  inhabitants  is 
expected to rise to 56 in Greece (from 33 in 1987), 
38  in  Spain  (25)  and  47  in  Portugal  (16).  The 
proportion  of  main  lines  connected  to  digital 
exchanges  is being  increased and  it is  projected 
that  by  1999,  rates  of  digitalisation  will  have 
reached 80% in Greece,  100% in Ireland, 65% in 
Spain and 75% in Portugal. Substantial reductions 
in call  failure  rates, repair  times  and  waiting  lists 
are occurring as a result. In Greece, waiting times 
for  new  connections  have  been  reduced  from 
700  days  in  1988  to  330  days  in  1993  and  in 
Portugal  from  330  to  120  days.  By  1999,  they 
should fall to only 7 and 30 days, respectively. By 
1999,  a  substantial  proportion  of  the  regions  in 
these  countries  will  have  efficient  systems, 
although  organisational  improvements  may  be 
needed  to ensure  that  the  benefits  of the  invest 
ment  feed  through  into  more  competitive  call 
charges; 

GDP  in  recent  years  (from  165.4,  103.8  and 
126.9% of the Union average respectively in 1988 
to 158.3,87.5 and 120.8% of the average in 1991); 

•  as regards the environment, key support has been 
provided  in  improving  systems  of  water  supply, 
and  in  increasing  the  capacity  of  waste  water 
treatment  facilities.  In  Greece,  the  number  of 
towns  with  waste  water  treatment  systems  will 
more  than  double  between  1993  and  1999,  by 
which time 71% of the population will be covered; 
in  Ireland  the  proportion  of  urban  waste  water 
treated in accordance with EU standards will rise 
from 20% in 1993 to 80% in 1999. In Portugal, the 
proportion  of  the  population  connected  to  a 
potable water supply system will rise from 61%  in 
1989  to  95%  in  1999  and  the  population  con 
nected to the sewerage network will rise from 55% 
in 1990 to 90% in 1999. 

Human  resource  constraints  represent  a  major 
obstacle  to convergence  in the four  cohesion coun 
tries.  As  indicated  in  Chapter  1,  the  Portuguese 
labour force is characterised by low productivity and 
low  educational  attainment  levels. There  are  similar 
problems  of  low  productivity  in  Greece,  while  in 
Ireland and Spain, labour  markets are  characterised 
by high unemployment. 

These problems were actively addressed in the CSFs 
where  great  importance  was  attached  to  improve 
ments  in human capital  and  better  labour  utilisation. 
The effects  of  policy carried out jointly with  Member 
States are evident in: 

progress  in  energy  diversification,  notably  by 
reducing  oil  dependence,  has  been  made,  but 
more needs to be done in this area. Deliveries from 
the  new  natural  gas  distribution  system  should 
begin  in  Greece  in  1997  and  by  1999  12% of 
electricity might be generated from this source. In 
Portugal  600 kilometres  of  gas  pipeline will  have 
been  laid  by  1999  and  gas  account  for  7.5% of 
total  energy  consumption.  Investment  has  also 
gone into modest development of renewables and 
in  Ireland, the  current  CSF  may  help  to  finance 
a  new peat-fired  power  station. Electricity  gener 
ation  capacity  in  these  countries  has  fluctuated 
around 80% of the Union average over the period 
since 1988, showing no clear trend. Greece, Spain 
and  Ireland  have  all  seen  both  absolute  and 
relative  reductions  in their  energy  use  relative to 

• 

the significant  increase in the rate of  participation 
in education among the young in the period  1989-
92. By 1999, it is estimated that, with the exception 
of Portugal, the rate of participation of 15 to 24 year 
olds  will  approach  the  EU  average.  Significant 
progress  was  already  made  in  Portugal,  where 
participation  increased  by  41%  in  post-compul 
sory  secondary  education  and  by  34%  in  third 
level education during the previous  programming 
period; 

•  particular  emphasis  has  been  placed  on  the 
strengthening  of education  and training systems, 
which has reduced disparities in access, particu 
larly in Portugal (where capacity has increased by 
around 20% and 40% of schools have been mod 
ernised)  and  Greece  (where  around  22000  new 

101 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

training  places were established, a large  propor 
tion in the peripheral areas). The Structural Funds 
have also supported the development of improved 
links between school and work. In particular, there 
has  been an  improvement  of  the  apprenticeship 
system  in  Portugal  and  Ireland  (the  number  of 
people  receiving  Community  assistance  amount 
ing respectively to 12% and 50% of the total num 
ber  of  students  in  post-compulsory  secondary 
education), of workshop-schools  in Spain and the 
establishment of a network of Institutes for techni 
cal and professional education in Greece; 

• 

the  Structural  Funds  have  also  supported  adult 
training and other active labour  market measures 
in order to help the workforce adapt to the specific 
skill  requirements  of  the  various  sectors  under 
going change, workers threatened with unemploy 
ment  being the main beneficiaries  in Greece  and 
Portugal.  In addition, they  have  been  concerned 
with  improving  qualifications  and  helping  the 
unemployed  and  the  most  vulnerable  groups  in 
the labour market into work, particularly  in Ireland 
and  Spain where  a large  proportion of the unem 
ployed have benefited from measures  alternating 
period of training with period of employment. The 
increase  in active  labour  market  measures  in the 
four  cohesion  countries  will  enable  a  sizeable 
proportion  of  the  work  forceworkforce  to  benefit 
from training and subsidies (between 4 and 7% in 
the period  1989-99); 

•  Community  policy  has  in addition  led to  a rise  in 
the share of R&D in GDP, from an estimated 0.7% 
in  1969  to  1.2%  in  Spain, from  0.4%  to  0.7%  in 
Greece  and  from  0.5%  to  0.8%  in  Portugal. The 
number of people employed in research and tech 
nical professions is increasing  correspondingly. 

So far as the productive sector is concerned, structu 
ral  assistance  has  been  directed  at  improving  the 
conditions  for  existing  firms  and  encouraging  new 
enterprises,  especially  SMEs.  Strategies  to  attract 
foreign investment have also been important, notably 
in Ireland, partly as a means of encouraging techno 
logical transfer, but also in Spain and Greece, where 
existing  aid  schemes  have  been  supported.  In 
Portugal, where  manufacturing  has  been  historically 
highly deoendent on traditional sectors, while a great 
deal  of  employment  is  still  in  agriculture,  promoting 
industrial  restructuring  has  been  a  priority  under  a 
co-ordinated  programme (PEDIP). This funded  more 

than 7000 industrial projects, involving investment of 
3.8 billion ECU. Firms assisted under this programme 
achieved productivity increases of around 5% a year 
and employment  growth of 272%. 

Progress in eliminating disparities in productivity and 
in adapting their  industrial structures towards  higher 
added value activities has been achieved and further 
improvement can be expected in the future. Changes 
in GDP per head in these countries are linked to their 
different  rates  of  productivity  growth. This was  par 
ticularly  high  in  Ireland  in  the  large  foreign-owned 
sector, which generates over  half of the  manufactur 
ing  value-added.  In  Spain,  some  regions  experi 
enced  productivity  growth  while  in  regions  where 
employment  in services  grew more rapidly,  average 
productivity  actually  declined.  In  Greece,  macro-
economic  problems  —  high  inflation  and  a  large 
public  sector  deficit  —  seem  to  have  unfavourably 
affected  investment. 

For rural development including agriculture, the thrust 
of related measures was the same in all four countries, 
aimed at redirecting  production towards  products  in 
demand,  improving  product  quality,  increasing  farm 
productivity,  modernising  agricultural  structures  and 
improving the conditions for  processing  and market 
ing  of  agricultural  products.  The  proportion  of  the 
work force  in agriculture  in rural part of the Cohesion 
countries  is  still  twice  as  large  as  the  Community 
average (four times in Greece). 

In Greece, the CSF was aimed  at encouraging  more 
young  people  to  enter  farming.  In  Ireland, the  CSF 
encouraged  diversification  into  alternative  crops, 
land  use  and  forestry.  Rural  development  pro 
grammes complemented the specifically  agricultural 
measures. The CSF in Ireland enabled  peat  produc 
tion to be developed, improving the domestic  energy 
balance  as  well  as  increasing  job  creation.  In 
Portugal,  the  CSF  supported  the  establishment  of 
Development  Centres  in  rural  areas, while  in  Spain 
measures  were  directed  against  rural-urban  drift  by 
encouraging  the  development  of  viable  economic 
activities  in rural areas. 

In the  period  1989-93,  substantial  progress  was  also 
made in all four countries in modernising basic infrastruc 
ture in rural areas, notably sewerage and water supply. 

In the  fisheries  sector,  significant  reductions  in fleet 
capacity  in  the  cohesion  countries,  and  Spain  in 

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Chapter 5 Community structural policies and cohesion: a shared responsibility 

particular,  have  been  accompanied  by  measures 
targeted at improving fish processing and marketing 
activities  (notably  Spain,  Portugal  and  Ireland), 
fishing port facilities (particularly Portugal) and aqua-
culture investment (notably Greece and Ireland). 

Objective  1 regions  in Italy and  Germany 

Both  Italy  and  Germany  have  traditionally  had  an 
active regional policy, which in the former has always 
been directed towards the South — the Mezzogiorno 
— while in the latter, since  1990, the focus has been 
on the new Lander. 

Economic  conditions  in  the  Mezzogiorno  bear  a 
closer  resemblance  to  the  four  cohesion  countries 
than to the rest of Italy. The area faces severe barriers 
to  business  development  from socio-cultural  factors 
and  has  a  particularly  weak  manufacturing  sector 
which  has  depended  on  direct  transfers  from  the 
North. 

Here, the emphasis  in Community  policies  has been 
on  infrastructure  investment,  in particular  the devel 
opment of a natural gas distribution network and the 
upgrading of telecommunications which have directly 
improved  the quality of  life of the  population  as well 
as improving conditions  for business. Aid to  industry 
under  CSF  programmes  accounted  for  more  than 
20% of total expenditure and provided assistance to 
about  2,200  SMEs,  generating  around  10,000  new 
jobs. A notable example is the special aid scheme for 
young entrepreneurs  (known as Legge 44/86) which 
has  supported  the  creation  of  more than  400  SMEs 
and  which  is  aimed  at  helping  to  establish  a  more 
entrepreneurial culture in the Mezzogiorno. 

Community  aid  has  also  been  used  to  help  young 
people and the long-term unemployed obtain qualifi 
cations  in  agriculture,  crafts,  tourism  and  services 
and  for training  initiatives  and to  promote  the devel 
opment  of  rural  communities  in  the  worst  affected 
regions such as Calabria and Basilicata. 

Programmes,  however,  have  been  subject  to 
considerable  delay  in  implementation,  partly 
because  of  administrative  inefficiency  and  institu 
tional constraints. 

In the  new Lander, the  main aim of  CSF  assistance 
has  been  to  improve  the  basic  conditions  for  self-
sustaining  growth  and  to  help  rebuild  the  economy 

taking  account  of  the  need  for  environmental  im 
provement. 

Community measures have emphasised job creation, 
partly  offsetting  the  negative  consequences  of  the 
restructuring  process  (which  led to the  loss of  some 
372 million jobs  between  1990  and  1995).  Between 
1991 and  1993, 224 thousands jobs are estimated to 
have been created or maintained. 

Within  the  human  resources  programme,  measures 
have mainly  been directed  at the  problem of  female 
unemployment which amounted to 86% of total unem 
ployment  at  the  end  of  1995.  Women  represented 
77%  of  Objective  1  beneficiaries,  young  women 
being  particularly  targeted,  alongside  older  men. 
Though this age structure should have facilitated the 
integration of women, measures have been relatively 
more effective in improving the situation of men in the 
labour market.  In fact, for male beneficiaries, partici 
pation provided for greater access not only to jobs in 
general, but also to durable  employment  with higher 
qualification. 

In both Italy and Germany, an enormous  adjustment 
effort  has  been  required  in  the  less  developed 
regions.  For  Italy,  in  particular,  this  demands  more 
efficient management of the finance received from the 
Structural Funds, a faster rate of absorption and more 
transparency  to  demonstrate  that  the  principle  of 
additionality  is respected  in practice. 

Smaller  Objective  1  regions 

Objective  1 regions  in the  rest  of  the  Union  differ  in 
terms  of  economic  structure  and  the  problems  they 
face: extreme peripherality  in the case of the French 
DOM  (and  underdevelopment),  peripherality  and, 
occasionally,  difficulties  in regard  to  accessibility  in 
the  case  of  Corsica  (F),  Burgenland  (A)  and  the 
Highlands  and  Islands  and  Northern  Ireland  (UK), 
advanced  industrial  decline  in Hainaut  (B), Nord (F) 
and Merseyside  (UK) and an absence of  local econ 
omic opportunities  in Flevoland (NL). 

The  diversity  of  these  regions  needs  emphasising. 
Some clearly  are not underdeveloped  regions  in the 
classical  sense,  or  similar  in  this  regard  to  other 
Objective  1 areas.  Hainaut  (B), Nord-Pas  de  Calais 
(F), Northern Ireland and Merseyside (UK) are mature 
regions  in  an  economic  sense  which  have  experi 
enced  acute  decline  in  an  industrial  base  typically 

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Chapter 5 Community structural policies and cohesion: a shared responsibility 

established  in the last century. Unemployment  rates 
are well above the EU average in all these cases. On 
the  other  hand, infrastructure  endowments  in  these 
regions  are  not  a  constraint  on  economic  develop 
ment. 

Corsica  (F),  Burgenland  (A)  and  Highlands  and 
Islands  (UK)  are  smaller,  less  densely  populated 
regions with a high dependence on agriculture and a 
small, undynamic manufacturing  sector. 

Only  in the  DOM  is the  pattern of  economic  activity 
more typical of less developed regions. These areas 
suffer multiple handicaps: dependence on traditional 
agriculture, a limited manufacturing base, high unem 
ployment,  and, perhaps  above  all, extreme  remote 
ness from the markets of the rest of the EU. 

Community  programmes  are  adapted  to  circum 
stances  but are focused  mostly on generating  alter 
native  opportunities  in  the  local  economy  (rural 
tourism,  for  example,  has  been  a  major  area  of 
economic diversification and job creation in Corsica). 
As a consequence of high unemployment  in many of 
these  areas,  or  the  absence  of  qualified  labour,  a 
significant  effort  has  been  directed  at  combating 
social exclusion and marginalisation of young people 
and the long-term unemployed. 

In view  of  the  satisfactory  level  of  endowments  in 
infrastructure 
general  there  are  fewer  strategic 
projects.  Because  they  are  different  from  the 
others,  the  DOM  are  an  exception  in this  respect 
and  the  construction  of  ports  and  airports  has 
been  necessary  to  improve  accessibility.  These 
have  helped  alleviate  some  of  the  distance  costs 
suffered  by  local  manufacturing  enterprises  and 
primary  producers. 

Objective  2: promoting  the  business  culture 

Given their  dependence  on old, declining  industries 
such as textiles and clothing, or coal-mining and steel 
production,  the  Objective  2  regions  face  particular 
difficulties  in meeting the challenges  of  international 
competition  and  in  sharing  in  the  Union's  general 
prosperity  including the opportunities  created by the 
single  market.  While  unemployment,  and  hence 
labour availability is generally substantially above the 
EU  average,  skills  are  often  mismatched  with  the 
demands  of  the  modern  economy.  Meanwhile, 
dependence  in a  previous  era  on  a few,  major  em 

ployers  has  limited  the  development  of  an  active 
entrepreneurial culture based on small business. 

The immediate priority for Community assistance has 
been  to  help  to  put  economic  development  policy 
more firmly on the political agenda in these areas. In 
view of the need to reduce dependence on outmoded 
activities,  the  emphasis  has  been  on  restructuring 
and  diversification.  The  means  have  stressed  the 
need for self-help by underpinning the conditions for 
the development  of an indigenous  business culture. ' 
This has been tackled on a number of fronts. 

First,  Community-funded  aid  schemes  for  business 
have  enabled  the  number  of  firms  benefiting  to  be 
increased significantly  and rates of assistance to be 
optimised.  In the  UK, some 300,000 SMEs will  have 
received  assistance  by  the  end  of  1996,  of  which 
more than half were supported over the period  1989-
93. This had  a considerable  impact on  employment 
and  240,000  net  jobs  are  estimated  to  have  been 
created  or  preserved  between  1989 and  1993 as  a 
result of Objective 2 intervention. 

Secondly,  firms  have  been  helped  to  increase  pro 
ductive  efficiency  and  encouraged  to  develop  new 
markets,  both  essential  for  long-term  survival.  For 
example,  an  assessment  of  aid  schemes  in  Haute 
Normandie  (F),  in  1993  found  that  Community 
assistance considerably increased available funding 
for  developments  in  research  and  advanced 
technology  and helped diversification into  up-market 
products less subject to the vagaries of price compe 
tition. More generally, aid programmes have led to an 
emphasis  on  technology  transfer  and  innovation, 
especially in traditional sectors, which was rarely the 
case before. 

Thirdly, support for business has been accompanied 
by training  schemes  in order  to tackle  the  shortage 
and the rapid obsolescence of skills. The  upgrading 
of the skills of both the employed and unemployed as 
part of the process of adaptation to structural change 
has been a priority,  including the acquisition of  new 
business skills as part of the change from economies 
dominated by large firms to ones where SMEs play a 
strategic role. 

Beyond  industrial  restructuring,  the  economic  and 
urban  environment  has  shown  visible  signs  of 
improvement.  In many areas, derelict  industrial sites 
have been transformed into more attractive  locations 

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Chapter 5 Community structural policies and cohesion: a shared  responsibility 

for new businesses with the help of Community pro 
grammes. Moreover, there  is evidence of  increased 
conversion  for  leisure  use  (in  the  broadest  sense). 
The  degradation  of  sites  from industrial  decline  still 
continues. There remain large abandoned sites, par 
ticularly  in  steel  areas,  and  much  reconversion 
remains to be done in the current period. 

Physical regeneration of industrial sites is also linked 
to  policy  measures  on  urban  renewal. A  number  of 
programmes  have  also  focused  on  the  problem  of 
water  for  communities  in  mining  areas  and  have 
helped  provide  more  efficient  systems  of  supply. 
These measures  improve the living conditions of the 
population. They also help to raise general awareness 
of  the  problems  by  involving  local  people  through 
partnerships, which in turn contributes to an inclusive 
approach  to  development  and  to  restoring  self-
confidence  (see section 5.4 below). 

The  quantification  of  the  previously  described  ef 
fects  is  at  an  early  stage.  Systematic  statistical 
data are being  compiled  for the evaluation of  past 
programmes  (1989-93),  and  will  be  published. 
Early  results  suggest  that  the  policies  have  had 
some highly favourable effects on the regions con 
cerned although the availability and quality of data 
vary.  In some Objective  2 regions where  relatively 
sophisticated  management  systems  had  been 
developed,  very  detailed  information  on  outputs 
across  a  broad  range  of  CSF  priorities  could  be 
obtained. 

According  to  the  evaluations,  there  were  some 
900 thousand beneficiaries of ESF-supported training 
programmes  between  1989 and  1993 in Objective 2 
programmes.  ERDF  and  ESF  have  contributed  to-
creating  or  safeguarding  about  850  thousand  jobs 
over  the  period  1989-93. After  making  adjustments 
for  dead-weightdeadweight  and  displacement  ef 
fects,  it is estimated  that  a total of 530 thousand net 
additional jobs  can  be  attributed  to the  Objective  2 
programmes. 

1993  represents  up  to  1% of  the  jobs  in  the  non-
industrial sectors. 

Objective  3:  improving  labour  market  access 

Objective  3  is  aimed  at  complementing  and 
reinforcing  national expenditure  on human  resource 
development  at  a time  of  rising  unemployment  and 
job  insecurity. The sums  involved are substantial: in 
non-Objective  1 countries  they  finance  between  3% 
and  15%  of  Member  States'  labour  market  pro 
grammes  while  in  Objective  1  countries  the  figure 
rises to 50-60%. 

Achievements  under  Objective  3  can  be  best 
measured, by  'coverage  rates'  (number  of  benefi 
ciaries as proportion of the potential target group). For 
the  previous  programming  period,  coverage  rates 
varied from 21 % in Spain to 60% in Belgium for young 
people  and from 9%  in Denmark to, 32%  in  Portugal 
for  the  long-term  unemployed.  These  rates  confirm 
that  the  main  Objective  3 target  groups  have  been 
reached  and  that  young  people  were  more  exten 
sively covered by Objective 3 interventions relative to 
long-term unemployed. 

Although employment  is not an explicit aim of Objec 
tive 3, an  impact  indicator  commonly  used  is place 
ment  rates. At  Community  level, an average  of 50% 
of  mainstream  target  were  placed,  although  net 
effects (i.e. allowing for the fact that some would have 
found  a job  anyway)  amounted  only  to  10%. These 
results  are  in  line with those  of  active  labour  market 
policies in general. Moreover, available data in terms 
of  net  impact  indicate  that  displacement  and  dead-
weightdeadweight  effects  are  much  lower  for  those 
groups which are more excluded  (unqualified young 
people, very long term unemployed, migrant workers 
and so on). The fact that estimates of Objective 3 net 
placement  rates  were  not  significantly  higher  than 
national averages is suggests that the policy was not 
successful  in  reaching  the  most  vulnerable  groups 
during the previous programming  period. 

In addition, these programmes slowed down the pace 
of  decline  in  industrial  employment  in  the  assisted 
regions by helping to maintain jobs at a level that was 
between  1.6% and  2.6%  higher  than  it would  have 
been  in  the  absence  of  interventions.  At  the  same 
time,  the  Structural  Funds  also  made  a  significant 
contribution  to  diversification  in  the  Objective  2 
regions,  since  the  new  employment  generated  by 

This  issue  has  been  addressed  in the  framework  of 
the  1993 reform of the Structural  Funds. Objective  3 
guidelines  were  adjusted to  include: the  diversifica 
tion of the type of actions to be co-financed  (greater 
stress on mediation and job counselling measures as 
well as on different types of employment aid); a wide 
ning  of  target  groups, with the  purpose  of  reaching 
the most seriously excluded; and the development of 

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Chapter 5 Community structural policies and cohesion: a shared responsibility 

the  "pathway  to  integration"  approach  which 
combines different types of measure tailored to each 
individual. 

These  changes  had  an  impact  on  national  policies, 
focusing  renewed attention on those most disadvan 
taged in countries where traditionally they were not a 
priority,  such  as  the  southern  Member  States. 
Community intervention has been decisive in shaping 
policy choices and it has been a source of innovation 
and  experimentation  in  labour  market  and  social 
inclusion policies. 

The  institutional  framework  of  Community  interven 
tions  has  also  had  its  effects  on  organisation  and 
administrative  practices  in  Member  States.  For 
example, the implementation of the partnership  prin 
ciple  has  not  only  increased  coordination  between 
national and Community level but also internally, both 
horizontally (with the social partners for example) and 
vertically (between different  levels of administration). 
Spain  is  a  clear  example,  territorial  organisation 
to  the  creation  of  coordination 
giving  rise 
mechanisms  for  dialogue  with the Community.  Even 
in countries where such mechanisms already existed 
(such as Denmark) a strengthening  and extension of 
partnership  was  evident  during  the  previous  pro 
gramming  period. 

The Structural  Funds have  also led to the improve 
ment  of  training  and  employment  services,  in 
terms  of  general  administrative  organisation, 
training  of  trainers  and  other  staff  and  the  devel 
opment  of  systems  of  certification  at  national  and 
C o m m u n i ty 
level.  Other  change's  c o n c e rn 
improvements  in  the  structures  of  administration 
for  d e s i g n i n g,  m o n i t o r i ng  and  evaluating 
measures for  improving the skills of the work force, 
especially  in  countries  where  no  such  bodies 
existed  before. 

Objective  4: preparation  for  economic  change 

Objective  4 is relatively  new —  having  been  intro 
duced  after  the  policy  review  of  1993  —  and  in 
most countries was only implemented  in late  1995. 
Its  impact  should  be  assessed  mainly  in  terms 
of  its  innovatory  nature.  It  aims  principally  at 
improving  the  management  of  human  resources 
with  regard  to  industrial  change,  in  particular  by 
concentrating  on  workers  threatened  by  unem 
ployment  in SMEs. 

Given  the  innovatory  nature  of  measures  under 
this  Objective,  implementation  has  not  always 
been  straightforward  and  has  varied  significantly 
between  Member  States.  In  some,  it  has  some 
times been difficult to establish needs and to tailor 
Objective  4  aid  to  the  existing  labour  market 
situation  and/or  policies.  It  has  also  proved  diffi 
cult  to  concentrate  assistance  on  small  and 
medium  sized  enterprises  rather  than  large  enter 
prises  and  to  target  it  on  those  most  at  risk  of 
unemployment  within  these.  In  addition,  the 
requirements  for  co-financing  have  sometimes 
been  an  important  constraint  on the  participation 
of  both  private  and the  public  sectors. 

Despite  these  caveats,  positive  consequences  can 
already be detected in three areas: 

•  a  redirection  of  policy  towards  a  more  preventive 
approach'to unemployment. In many Member States, 
forecasting  models  are  being developed, employ 
ment observatories by industrial sector are being set 
up  or  extended  (eg,  in  Greece,  Belgium,  the 
Netherlands and Austria, where this is occurring at a 
regional level, with tripartite discussions of economic 
and  labour-market  issues). New initiatives  are also 
being undertaken at the company level. In Denmark, 
for  example,  labour  market  monitoring  has  been 
developed coupled with efforts to promote the use of 
the data by companies and with help to firms to apply 
the results of forecasts to their human resource policy. 
In Ireland, companies  obtaining support  under  the 
Objective 4 are required to devise a business devel 
opment and training plan; 

v 

• 

• 

the  acceptance  by workers  of the  need to  adapt 
to industrial change. From the experience in some 
Member  States  (Denmark  and  Austria),  greater 
needs than expected have emerged ior general or 
generic  skills  and  less for vocational  or  technical 
training,  while  It  also  seems  to  be  important  for 
training  to  lead  to  formal  qualifications  (eg  as 
recommended  by an evaluation study  in Ireland); 

improving training systems. Measures range from 
the development of courses and types of training 
methods which can be used to establish  training 
structures  at  company  level.  Particular  attention 
has  been  paid to the training  problems  faced  by 
SMEs. For example, in Germany there are plans to 
establish  cooperation  structures  between  SMEs 
for training. 

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Chapter 5 Community structural policies and cohesion: a shared responsibility 

Objective  5a: 
improving structures  in traditional  sectors 

Agriculture 

techniques, 

The agricultural sector  has been subject  to substan 
tial  changes  in recent  years,  including  the  develop 
increased 
ment  of  production 
productivity  and  competition,  and  changes  in  the 
pattern  of  demand. These  have  led  to  a  significant 
reduction  in  the  number  of  agricultural  holdings 
— from 8.6 million in 1989 to 7.8  million in 1993. The 
reduction was particularly  large in Portugal (18%) as 
well  as  in Luxembourg,  France,  Spain  and  Belgium 
(over  10%). At  the  same  time,  the  average  size  of 
holdings increased although, in the Union as a whole, 
small  holdings  of  between  1  and  5  hectares  still 
account  for  60%  of  the  total.  The  rationalisation 
required in the future needs to be accompanied  by a 
reduction in the average age of workers in the sector, 
since  in  1993 over a half of farmers were above 55. 

Objective  5a is aimed at bringing about a restructur 
ing  of  agriculture  across  the  Union,  continuing  the 
measures  co-financed  by  the  Community  budget 
over a number of years to maintain agricultural activity 
in rural areas. It is specifically  directed  at preserving 
viable farming incomes by creating new opportunities 
on  or  close  to the  farm. The  measures  include  both 
direct transfers to farmers in the most  disadvantaged 
areas  and  transfers  designed  to  restructure  and 
develop the sector. 

Direct  compensation  to farmers  is focused  on those 
in  mountainous  or  other  naturally  disadvantaged 
areas,  where  the  decline  of  agriculture  threatens 
serious  depopulation  and 'desertification' and where 
agricultural  income  is  less  than  half  that  elsewhere. 
The system of support  enable farmers in these areas 
to  maintain  a reasonable  level of  income. The areas 
concerned  cover  56% of  usable  agricultural  land  in 
the  Union.  In  the  15  counties  of  the  Union  around 
172 million farmers are in receipt of this compensation 
representing  a  quarter  of  the  holdings  located  in 
these areas. 

Numerous  measures  to  restructure  and  develop the 
sector  have  been  funded  by  the  Community. These 
focus, first of all, on the planned improvement of farms 
themselves.  Subsidies  are  granted  to  increase  the 
competitiveness  of agricultural  holdings  by adapting 
structures  of  production  to  the  needs  of  the  market 

and to promote product quality. They also encourage 
the  diversification  of  activities  which could  generate 
additional  income  (such as rural tourism, the sale of 
farm products and the use of wooded areas), as well 
as  the  improvement  of  working  conditions,  hygiene 
and  animal  welfare  and  the  natural  environment.  In 
the last few years, an average of 40,000 improvement 
plans a year have been approved, half in Objective 1 
regions.  In  1993,  60%  of  these  were  directed  at 
supporting  investment  in holdings  located  in disad 
vantaged areas. 

The Community also offers support for young farmers 
to set up in business not only to provide a job for them 
but also to reduce the average age of the agricultural 
work  forceworkforce,  younger  farmers  being  more 
receptive  to  modern  farming  techniques  and  better 
able to adapt to changes  in production and the need 
to diversify  activities.  In the  last few years, help has 
been  given  to  23,000  young  farmers  a  year,  some 
1.8%  of the total  in the Union. At the same time, the 
early retirement of farmers of 55 and more has been 
encouraged.  For  the  period  1993-97,  more  than 
210,000  farmers  and  agricultural  workers  will  be 
assisted  in this way. 

Finally,  the  Community  funds  investment  in the  down 
stream processing and marketing of agricultural produce 
with the aim of  improving  product  quality and enabling 
producers of primary products to benefit more from the 
added value from processing. Rationalisation and mod 
ernisation  are  essential;  in  1990,  over  90%  of  the 
253,000  firms  in  the  agro-food  sector  had  less  than 
20 employees and 6% between 20 and 39. In deciding 
the assistance to  be given, account  is taken of market 
developments  and the projects for assistance selected 
accordingly. In general, priority has been given to invest 
ment involving technical innovation, enabling costs to be 
reduced, labels of origin to be produced and biological 
products to be encouraged. 

These measures account  for  most of the  ressources 
deployed  under  Objective  5a  actions  in  terms  of 
resources  deployed.  The  other  measures  include 
support  for  producer  cooperatives,  for  service 
centres  providing  mutual  aid,  management  and 
accounting  advice and for vocational training. 

Fisheries 

Structural  intervention  in  the  fisheries  sector  is 
intended  to  facilitate  adjustment.  Measures  include 

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Chapter 5 Community structural policies and cohesion: a shared responsibility 

payments for the permanent  reduction of the fishing 
fleet, assistance for its modernisation, for aquaculture 
investments, and aid for downstream  activities  such 
as processing. 

Structural measures for fisheries  have been in place 
since 1970 but they have only been brought together 
in the  form of  the  Financial  Instrument  for  Fisheries 
Guidance  (FIFG)  since  1994.  The  largest  benefi 
ciaries  have  been the  fishing  communities  in  Spain 
and,  to  a  lesser  extent,  those  in  Italy,  Portugal  and 
Greece. 

Objective 5b: restoring the  rural  economy 

The continuous  decline of  employment  in agricul 
ture  and  of  the  share  of  agriculture  production 
in  GDP  create  real  problems  for  the  mainten 
ance of jobs and population in many of the Union's 
rural  areas,  where  prosperity  and  the  environ 
ment  are threatened.  Safeguarding  rural  areas  is 
essential  to  the  balanced  development  of  the 
Union as a whole and calls for the creation of  new 
economic  activities  or  the  expansion  of  existing 
ones. 

The  integration  of  fisheries  into  the  Structural 
Funds in 1994 was intended to reinforce the efforts 
to  improve  conditions  in  an  industry  undergoing 
extensive  restructuring.  Before  the  FIFG  was 
established,  measures  suffered  from  a  lack  of 
strategic  focus and planning, with aid being  insuf 
ficiently  concentrated.  Nevertheless  a  number  of 
achievements  are  evident: 

•  significant  reductions  in  the  over-capacity  of 
the fishing  fleet  have  been  achieved. Over  the 
period  1991-94  the  tonnage  and  capacity  of 
the  Community  fleet  were  reduced  by  around 
10.5% and 7.4%, respectively,  mostly in Spain, 
Portugal,  Denmark  and  Germany.  Although 
these  reductions  were  within  the  global  objec 
tives  set  out  in the  Multiannual  Guidance  Pro 
grammes  (MAGPs),  the  overall  situation, 
however,  conceals  wide  variations  between 
Member  States; 

•  health and safety conditions  on-board  ships  and 

in processing  plants have been improved; 

• 

the development of fish farming has been encour 
aged,  with  notable  success  in  Greece,  Italy, 
Ireland  and  the  UK  (Scotland),  and  has  con 
tributed to local economic  development. 

In the  current  period, there  is a continuing  focus  on 
reducing fleet capacity in accordance with the targets 
set  out  in  the  MAGPs  and  on  the  coordination  of 
measures  for  fishing  communities  most  affected  by 
reductions. 

108 

Objective  5b is aimed at promoting  rural develop 
ment  by  assisting  structural  adjustment  in  areas 
which are particularly vulnerable. It includes areas 
outside those  covered  by Objectives  1 and 6 with 
low  incomes  or  other  handicaps,  such  as  a  loca 
tion on the periphery or in remote islands or moun 
tainous  areas,  an  uncompetitive  structure  of 
agricultural holdings, the ageing of the work force, 
or the  pressures on the  rural  environment. 

The  assisted  areas  are  sparsely  Dopulated  and 
the challenges of providing access to services are 
accordingly  especially  difficult. 

the 

i n t e g r a t ed  programmes, 

Through 
the 
Community  has  helped  to  restore  the  economic 
potential  of  rural  areas  and  their  capacity  to  pro 
vide viable  jobs. Around  70% of the  EU's  funding 
is  currently  directed  at  the  development  of  the 
economic  base  of  rural  areas.  There  are  three 
main priorities: firstly, support for the development 
and  diversification  of  agriculture  and  forestry 
— including the promotion of quality products  and 
the  restructuring  of  production  away from the  use 
of  exhaustible  resources;  secondly,  the  develop 
ment  of  new  SMEs,  where  the  Union  has  sup 
ported the establishment of industrial sites and the 
creation  of  services  for  assisting  businesses; 
thirdly, the development of rural tourism which can 
be  a source  of  additional  income  for  farmers  and 
their  families. 

These  measures  are  complemented  by  others  to 
improve  labour  force  skills  or  protect  the  natural 
environment.  Measures  also contribute to  improv 
ing the built environment through the  regeneration 
of villages. This represents  a potential  opportunity 
for job creation while  protecting the local  heritage 
and  improving  quality  of  life. 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

Global estimates suggest that over the period  1989-
99 as a whole, more than 500JOOÔ jobs will be created 
or  preserved  in  Objective  5b  areas  as  a  result  of 
Community programmes. Of 20 Objective 5b regions 
examined in more detail, the data suggest that popu 
lation  has  stabilised  in  around  half  of  them  and  in 
creased in six. GDP declined in only two of the regions 
and increased or remained the same in the rest. 

Objective  6: innovation and  accessibility 

The new Objective 6 created on the accession in 1995 
of  Finland  and  Sweden  addresses  problems  of  ex 
treme  peripherality, climate and low population den 
sity.  These  regions  typically  benefit  from  relatively 
well-developed, national infrastructures, especially in 
regard  to  transport,  energy,  and  modern  telecom 
munications. However, unemployment is high and the 
regions  are  highly  dependent  on  public  sector  em 
ployment. 

t 

Objective  6  programmes  have  been  used  as  the 
opportunity to address these deficiencies. Innovation 
has been at the heart of the strategies adopted for the 
period  1994-99,  and  expenditure  on  research  and 
technological  development  and the  new  information 
and  communication  technologies  has  been  a  top 
priority.  In  Finland, this  accounts  for  over  a third  of 
Community  assistance. 

It is, of course, too early to assess the results of these 
programmes. The indications so far stress the benefi 
cial effects of both the measures themselves and the 
programming  process, which has encouraged crea 
tivity through the decentralisation of  management to 
the regions. 

Community  Initiatives 

Through  Community  Initiatives,  the  Union  has  been 
able  to focus  attention on particular  European prob 
lems  and  opportunities  in  the  field  of  regional  and 
social development  emphasising  actions to promote 
the  development  of  networks  and  co-operation  in 
regions  across  national  frontiers.  They  have  some 
times  been among the most valuable  and  innovative 
actions  under  the  Structural Funds,  helping  to set a 
new policy agenda for mainstream programmes  and 
a particular  appeal to citizens and local actors on the 
ground. They have also been very popular which has 
produced  its  own  set  of  problems  in  relation  to  the 
volume of themes  requested  for new Initiatives. 

Given the limited resources available in the face of the 
variety of issues which have been addressed, lever 
age  has  been  the  guiding  principle  in  the  use  of 
Community  finance.  Accordingly,  Community  Initia 
tives  focus  much  less  on  major  'hardware'  invest 
ments  themselves  but  have  sought  to  create  the 
conditions for national public  and private  investment 
in the priority expenditure areas. Detailed evaluations 
for most Community Initiatives for the first programm 
ing  period,  1989-93,  are  now  under  way,  while  a 
number  of  new  Initiatives  were  introduced  only  re 
cently. 

Community  Initiatives  have  had  a  particular  role  in 
emphasising  the  trans-border,  trans-national  and 
inter-regional dimension. There can be few more im 
portant  priorities in the process of European integra 
tion  than  the  removal  of  the  traditional  barriers 
between Member  States which have distorted econ 
omic  structures  and  reduced  opportunities,  espe 
cially for border  communities. 

With regard  to  cross-border  co-operation,  INTER-
REG / (1989-93)  achieved  considerable  success 
measured  in terms  of  interest  aroused  with  some 
31 programmes  funded. Their  unique  contribution 
has been to promote the development  of  coherent 
regional  strategies  across  national  frontiers.  In 
this way they have attempted to overcome  national 
barriers  to  economic  and  spatial  development 
which  have traditionally  reduced  opportunities  for 
border  communities  or  led  to  a wasteful  duplica 
tion  of  effort.  Over  half,  56%,  of  the  resources 
funded  projects  directed at publicising  cross-bor 
der  opportunities,  underlining  the  extensive 
benefits of a Europe without borders. Initiatives for 
cross-border  mobility  were  less  in  evidence,  but 
11 % of the projects were aimed at developing  new 
practices  in  economic  cooperation  based  on  the 
transfer  of  information  and  know-how;  8%  were 
concerned  to  improve  the  management  of  natural 
resources  and  therefore,  the  attractiveness  and 
quality  of  life  offered  by  border  areas;  6%  were 
aimed  at  developing  university  and  research 
centre  networks and promoting  cross-border  tour 
ism.  Most  of  these  projects  contributed  to  job 
creation  directly,  partly  through  the  development 
of  SMEs. 

INTERREG  II will carry this forward  and seek to pro 
mote programmes which are genuinely  cross-border 
in content.  It has considerably  increased  resources, 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

in particular  for actions in Objective  1 regions, and it 
will also help fund the completion of energy networks 
to provide connections with wider European networks 
funded under the REGEN initiative. 

V 

During  the  first  programming  period,  REGEN  ex 
posed  the  limits  of  a  uniquely  national  approach  to 
planning. It led to a strengthening of collaboration (for 
example,  between  Greece  and  Italy,  and  between 
Spain and  Portugal), encouraging  the  diversification 
of energy sources  and services (creation of gas dis 
tribution  systems),  promoting  the  establishment  of 
networks. 

In order to introduce cooperation between EU regions 
and regions  in Central and Eastern Europe  adjacent 
to the Union, the implementation of projects financed 
under the external aid programme  PHARE has been 
linked to INTERREG. More recently, an innovation has 
been  to  introduce  a  spatial  planning  dimension  in 
Community Initiatives for the first time (INTERREG lie) 
which will open up possibilities for developing trans 
national cooperation (around the Baltic Sea, the Alps, 
the Mediterranean and the Atlantic). The REGIS initia 
tive  aims  at  improving  integration  of  the  remote  re 
gions  of the  Union  by  strengthening  their  economic 
base  and  consolidating  links  with  the  rest  of  the 
Union, 

Community  Initiatives  have  also  given  impetus  to 
innovation, the  transfer  of  know-how  and the  inte 
gration  of  R&D  in  regional  policies  in  the  less 
developed areas. Under  STRIDE, 68 new research 
centres  were  created  and  over  100  others  were 
re-equipped  or  upgraded.  Almost  300  new  pro 
ducts  and  processes  and  46  patents  were  gener 
ated  through  research  activities  and  4,400  jobs 
are  estimated  to  have  been  directly  or  indirectly 
created.  Under  TELEMATIQUE,  17,000 SMEs  in a 
wide range of industries developed advanced  ser 
vices:  databases  for  open  use;  support  for  dis 
tance  working  to  32,000  new  users.  PRISMA  has 
contributed  to  the  creation  of  single  market  by 
enhancing  standardisation  and  quality  control 
procedures.  It has financed  some 300 projects  for 
certification  and  quality  services  which  have  pro 
duced  systems  used  by  4,500  organisations  for 
checking  materials  and  products  to  ensure  that 
they  conform  with  EU  standards.  These  three  in 
itiatives  are  reflected  in  the  SME Initiative  for  the 
second  programming  period  (1994-99)  aimed  at 
assisting  SMEs, especially  in Objective  1 regions, 

to  adapt  to  the  Single  Market  and  international 
competition. 

Rural development  projects designed and  managed 
locally in rural areas were supported under LEADER, 
which  is  aimed  at  disseminating  good  practice 
through  innovative  measures,  exchange  of  experi 
ence and transnational  cooperation. Through a 'bot 
tom up' integrated approach to rural development, it 
has helped to set up 217 Local Action Groups in the 
first phase, while for the period  1994-99 the number 
of Groups may increase to some 700. The design and 
implementation  of  transnational  projects  has  been 
promoted using the European rural development net 
work,  which  offers  a  permanent  facility  for  the  ex 
change of experience and know-how. 

In 1994, the Commission launched the URBAN Initia 
tive, aimed at social and economic regeneration and 
at improving the environment.  URBAN has sought to 
maximise  the  involvement  of  the  grassroots,  em 
powering  local  communities  and  encouraging  local 
people  to  determine  priorities  and to take responsi 
bility for their  own areas.  It has  generated  consider 
able  interest,  receiving  some  133  applications  for 
funding. 

Other  Community  Initiatives  (RESIDER,  RENAVAL, 
RECHAR, RETEXand KONVER) are narrowly focused 
on areas with particular sectoral problems and aim to 
help  local  economies  dependent  on  such  sectors 
diversify.  Given  their  small  budget  in  relation to  the 
size of the problem, their main contribution has been 
to  secure  private  investment  in  areas  which  have 
suffered  from  progressive  disinvestment  and  which 
were  seen as  unattractive.  Evaluations  suggest  that 
Community  funding  was  essential  to  released  re 
sources for virtually all of the RECHAR projects under 
taken,  and  for  95%  of  RESIDER and  RENAVAL 
projects.  In  financial  terms,  they  have  had  a  high 
leverage  effect,  inducing  public  and  private  funding 
of  over  272 times the amount  provided  by the Com 
munity  and  helped  support  about  5,000  projects  in 
the  areas  concerned.  Given their  success,  some of 
the  Community  Initiatives  (RECHAR,  RESIDER, 
RETEX and  KONVER)  were  renewed  in the  second 
programming periods with certain adjustments, such 
as  an  extension  of  their  geographical  scope  or  the 
addition of new measures. 

The two major Community  Initiatives for the develop 
ment  of  human  resources  —  EMPLOYMENT and 

110 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

ADAPT— aim to focus attention throughout the Union 
on a skilled work force as a key element in the strategy 
in the Commission's  1993 White Paper. 

led to healthy competition between local and regional 
authorities. 

The EMPLOYMENT nitiative consists of three inter-re 
lated programmes: 

•  NOW,  which  promotes  equal  opportunities  for 

women in the labour  market; 

•  HORIZON, which addresses labour market oppor 
tunities for the disadvantaged  and the disabled; 

•  YOUTHSTART, which promotes the labour market 
integration  of young  people  under  20,  especially 
those without basic qualifications or training. 

From  1997,  a  fourth  programme,  INTEGRA will  be 
added,  concentrating  specifically  on  social  exclu 
sion; after its introduction, HORIZON'will focus exclu 
sively on helping the disabled. 

The ADAPT initiative  is aimed, in conjunction  with 
Objective  4,  at  helping  the  work  force  adjust  to 
structural  change,  and  with  effect  from  1997  will 
be  reinforced  by  a  special  priority  measure  con 
cerned  with  the  social  aspects  of  the  Information 
Society  (ADAPT-bis).  (The  Commission  and  the 
Member  States  agreed  at  the  outset  a  specific 
transnational  framework  and  timetable  for  imple 
menting the two  initiatives  in two phases,  1995-97 
and  1997-99.) 

The  response  at the  local  level to the  Initiatives  has 
been  substantial.  In  the  first  phase,  2,400  projects 
were  launched  under  EMPLOYMENT (770  under 
NOW,  1,100  under  HORIZON,  and  500  under 
YOUTHSTART),  while  1,350 projects were  accepted 
under  the  first  ADAPT Call  for  Proposals.  A  further 
5,000  projects  are  expected  under  the  second  Call 
for  Proposals to be launched  in January  1997. 

It is estimated that, under EMPLOYMENT'and ADAPT, 
over  1.1  million people will directly receive training or 
other forms of support to improve their job  prospects 
in an increasingly competitive  European labour  mar 
ket. 

ENVIREG,  aimed at environmental  protection, which 
has  funded  about  800  projects  across  Europe,  has 
given an impetus to the integration of the environmen 
tal dimension  into the  existing  programmes  and has 

In 1994, the Commission  launched the PESCA Initia 
tive, aimed at helping fishing communities  cope with 
the economic and social consequences of decline by 
contributing  to the  diversification  of  activity  and  the 
creation of new jobs. 

Finally,  the  European  Union  established  a  Special 
Support  Programme  in  1995  to  help  underpin  the 
peace process  in Northern Ireland, through a variety 
of measures to  promote  opportunities  for  reconcilia 
tion  between  the  communities  both  in the  province 
and in the six border counties in Ireland. This initiative 
has  been  an  opportunity  to  make  a  major  break 
through in terms of rising the involvement of local and 
community groups. 

Although  Community  Initiatives  reflect  considerable 
diversity, so far experience  so far suggests that their 
strengths  have  been  to  foster  cooperation  and  the 
formation  of  new  partnerships,  generate  a  spirit  of 
experimentation  and  innovation  and  encourage  the 
involvement of the grassroots  (bottom-up  approach) 
and the wider  dissemination  of  best  practices. They 
have  been  an  important  force  for  European  integra 
tion. 

The experience  acquired  during the first  programm 
ing  period  as well  as  the  first  results  of  the  present 
period  suggest  that  three  of  them  in  particular  — 
INTERREG, LEADER  and  URBAN  —  have  suc 
ceeded  in translating  the  intentions  of  their  authors 
into effective action. These initiatives and the partner 
ships  which  they  have  been  responsible  for  estab 
lishing  have  strengthened  the  integrated  nature  of 
local  development  policies  and  have  had  a  marked 
effect on the ground, mobilising those concerned into 
action.  In the future, they are expected to  lead to an 
exchange of experience and know-how  in respect of 
projects which can  be implemented  generally  in dif 
ferent parts of the Union. 

INTERREG in  particular  represents  an  unpre 
cedented example of regional cooperation under the 
Structural  Funds, which  will  be  developed  further  in 
the  present  programming  period, while  the  'bottom-
up'  approach  of  LEADER has  made  it  possible  to 
mobilise  people  in  local  areas  and  attract  private 
capital which has had significant multiplier  effects. In 
addition,  the  URBAN  Initiative  has  encouraged  a 

•Mr 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

number  of  Member  States to implement a multi-sec 
toral approach to urban problems and will help prob 
lem areas to be integrated into the overall process of 
economic  development  in Member States. 

As a result, these  Initiatives have succeeded  in their 
aim of adding value to Community cohesion  policies 
as  whole,  maintaining  an  identity  which  is  distinct, 
without becoming submerged within the  mainstream 
programmes. 

Pilot  projects 

Pilot  projects  initiated  under  the  Structural  Funds 
promote  a  concerted  approach  to  innovation,  ex 
perimentation  and  diffusion  of  know-how  across  re 
gions in Europe. They have demonstrated the scope 
for  mobilising  individuals  and  organisations  at  local 
level in both the public and private sectors with limited 
resources  as  well  as  the  potential  for  development 
and employment creation of  partnerships. 

Since  1984,  the  Commission  has  co-financed  the 
creation of  European  Centres of  Bussiness  and  Ino-
vation (EC BIC) in assisted areas of the Union and the 
formation  into  a network  within the  European Bussi 
ness  Network  (EBN). These  centres,  which  are  the 
product  of  local  partnership,  provide  to  innovative 
SMEs in the areas in question a wide range of essen 
tial  services,  from the  identification  of  potential  new 
ideas to their concrete  development. 

Since  1996,  the  TACIS  programme  provides  the 
possibility  for  cross-border  cooperation  including  a 
linking with the INTERREG programme, with a budget 
of ECU 30 million. 

5.4 The delivery system: 

a force for change 

An important part of the gains from cohesion  policies 
stems  from  the  delivery  system  developed  for  the 
implementation of structural intervention. The system 
has its origins in the 1980s, notably, in the  integrated 
Mediterranean  Programmes  in  France,  Italy  and 
Greece and in a small number  of integrated  regional 
policy  programmes  in the  UK  and  the  Netherlands. 
Lessons  learned  from these  innovative  programmes 
formed  the  nucleus  of  the  reform  of  the  structural 

policies  in 1988 and have been further  built on since 
then. 

The delivery system has a number of key elements: 

• 

• 

• 

• 

it is targeted on particular types of activity, particu 
lar localities or social groups; 

it is based on medium-term programmes, respon 
sive to, often locally-defined, needs; 

it  is  supported  by  systems  of  financial  manage 
ment  and  control  and  encourages  the  develop 
ment of an evaluation culture; 

it is driven by subsidiarity  by involving those who 
benefit from the programme, for whom this repre 
sents the  most  concrete  expression  of  the  Euro 
pean Union in practice; 

• 

it  has  a  leverage  effect  through  attracting  addi 
tional resources  from the  public  and  private  sec 
tors. 

Targeting 

By  targeting  resources  and  attention  on  particular 
types  of  investment  and  particular  areas  and  social 
groups, the  delivery  system  increases  the  effective 
ness  of  European  structural  policies.  Experience 
since  1989 has shown the virtues  of  focusing  on  an 
objective measure of need and confirmed the import 
ance of comparability across the Union and of adopt 
ing  a  common  set  of  criteria  for  determining  the 
allocation of finance. 

This  has  important  side-effects.  It  ensures  that 
policies are genuinely European in scope and that the 
amount  of  European  aid  is  determined  in the  same 
way  whether  policies  are  being  applied  in  Bilbao, 
Birmingham or Berlin. It also helps minimise the infla 
tionary  effect  of  expenditure  since  the  increase  in 
demand induced is matched by an increase in invest 
ment  and  hence  productive  potential.  This  will  be 
especially  important  in  the  context  of  a  single  cur 
rency. 

Medium term  strategic  programmes 

The  strategic,  or  'programming',  approach  adopted 
under  EU  structural  policies  has  itself  been  an 
innovation for many Member States since its introduc-

Chapter 5 Community structural policies and cohesion: a shared responsibility 

tion  in  1989.  It  is  an  approach  with  three  distinct 
phases: the diagnosis of problems, the formulation of 
a strategy and the definition of concrete objectives to 
be achieved. As such, it has been recognised as an 
effective tool for the management of public funds.and, 
in  some  cases,  it  has  been  adopted  by  Member 
States for implementing their own policies. It has also 
led  to  some  administrative  reorganisation  in  some 
Member  States  (a  more  regionalised  approach  im 
plemented  in the  UK  and  Portugal  and  a  more  effi 
ciency-oriented  approach in Greece, for example). 

The programming approach has enabled medium-term, 
or  'multi-annual',  development  planning  to  be  im 
plemented  and  has  encouraged  the  poorer  Member 
States, in particular, to consider  not just present  policy 
pressures  but  to  plan  for  the  future  in  a  longer-term 
perspective with guaranteed finance from the Union. 

Above  all, perhaps, it has helped encourage  a spirit 
of  innovation  and  experimentation  in  policy.  Experi 
ence has shown that the task of designing and imple 
menting  such  strategies  often  motivates  those 
involved and releases  local potential, stimulating the 
development  of policy measures tailored to local cir 
cumstances. The  innovative  nature  of the  measures 
implemented  can  present  a  considerable  manage 
ment  challenge  to  the  Commission  and  the  national 
and regional administrative authorities concerned. 

This  diversity  in the  measures  undertaken  is one of 
the reasons for the number of programmes to tend to 
increase, which  itself  poses  additional  management 
problems;  it  remains  an  ongoing  challenge  for  the 
Commission and Member  States to strike the correGt 
balance  between  the  imperatives  of  effective  man 
agement and innovation. 

Programmes  are the  means  through  which  different 
European, national and regional structural  measures 
are integrated  and there  has been marked  progress 
in  this  area  since  1989  with  almost  all  European 
regional  policy  programmes  furthering  Community 
policies  for  industry, training, transport, environmen 
tal  improvement,  research  and  development,  small 
businesses and tourism. 

attached  top  priority  to  ensuring  that  appropriate 
systems  are  in  place  in Member  States  for  financial 
management and control. If they are not, the targeting 
of  EU  resources  is  undermined  and  public  con 
fidence in the programmes is eroded. This is particu 
larly important since cohesion  policies account  for a 
third of the Community  Budget. 

Arrangements  for  financial  management  and 
evaluation  emphasise  the  shared  nature  of  re 
sponsibility  for  policies  and for the efficient  use of 
resources. The Commission  has overall  responsi 
bility for implementing the Community  budget,  but 
reflecting  the  decentralised  nature of  the  delivery 
system,  Member  States  have  the  main  regulatory 
responsibility  for ensuring  effective  financial  man 
agement  and control. 

The  prior  need  in  this  regard  is  to  have  an  unam 
biguous  understanding  of  the  respective  responsi 
bilities  of  the  Commission  and  the  Member  States. 
This  is  currently  underway  through  the  signing  of 
protocols  dividing  tasks  and  coordinating  auditing 
schedules and  methodology. 

A role for the Commission is to ensure that appropri 
ate systems are in place for effective financial control. 
The Commission makes on-the-spot checks and sys 
tem audits to ensure the efficient use of EU resources. 
Other improvements will be developed in the context 
of the wider  exercise  inside the Commission  (known 
as  Sound  and  Efficient  Management  2000,  or  SEM 
2000) to improve the management of resources. The 
existing  spot  checks  and  systems  audits  will  be 
backed  up by an improved follow-up of the findings. 
The exploitation  of  the  opportunities  offered  by  new 
information technology will help in this regard, as well 
as in increasing transparency. 

The  cohesion  policies  introduced  after  1988  also 
included  provision  for  evaluation of  measures,  both 
ex-ante and  ex-post.  For  many  Member  States, the 
systematic  assessment of results was not a standard 
part  of the  policy-making  process. The  Commission 
has  therefore  been  a  force  for  the  diffusion  of  an 
evaluation  culture,  drawing  on  best  practice  in  the 
Union. 

Financial  management,  control and  evaluation 

The  effectiveness  of  EU  cohesion  policies  requires 
that they be used for the purposes for which they were 
intended. To help  achieve  this, the Commission  has 

Evaluation has improved over time. In the first gener 
ation  of  programmes  introduced  in  1989.  ex-ante 
evaluation  and  the  quantification  of  the  results 
expected  were  inadequate.  This  was  a  serious 

113 

Chapter 5 Community structural policies and cohesion: a shared responsibility 

weakness  with  knock-on  effects  on  ex-post  evalu 
ation, which is normally  based on thus. 

Leverage 

Programmes financed from the Structural  Funds are 
supplemented  by  additional  resources  from  public 
and, increasingly, private sources in Member States. 
Indeed, there is a formal requirement that Community 
structural aid should not substitute for national expen 
diture.  Such  leverage  effects  are  often  the  direct 
result of the devolution of policy implementation  and 
of  the  mobilisation  of  support  from  widely  drawn 
groups  of  the  population  as  described  above. This 
mobilisation  is  itself  often  reflected  in  greater  con 
tributions  of  matching  finance  coming  from  public 
and  private  sectors  with  a  corresponding  improve 
ment in the result of  programmes. 

For  the  current  generation  of  programmes,  much 
effort  has  been  made  to  address  this  weakness. 
Particular  emphasis  has  been  given  to  identifying 
quantified  indicators to establish a base-line against 
which  the  effect  of  measures  can  be  assessed, as 
well  as creating  networks  of  expert  support,  regular 
publications on best practice and case studies. 

Subsidiarity  and  partnership 

The  notion  of  subsidiarity  in  public  policy  reflects  a 
recognition of the virtues of decentralisation, involving 
the  relevant  authorities  at  all  levels  in the  pursuit  of 
agreed objectives, and the sharing of responsibilities 
for  decision-making  between  central and  lower  tiers 
of  government,  closer  to the  grassroots. This  is im 
portant, since it means the involvement of those near 
est  to  the  problems  for  which  solutions  are  being 
sought. 

The  notion  of  shared  responsibility  and  partnership 
extends  to the social  partners, the  precise  arrange 
ments for their  involvement together with the different 
levels of government  varying  between countries. 

Partnerships  formed  with  the  Commission  have 
played  a fundamental  role  in  EU cohesion  policies. 
By  acting  as  a  mechanism  for  dialogue  they  have 
helped  ensure  that  political  priorities  determined  at 
European level are transmitted all the way down to the 
local level. 

Although the form of partnership differs between pro 
grammes and Member States, it has proved a robust 
and  adaptable  means of  implementation, at national 
level (in the case of  Ireland, for  example, under  Ob 
jective  1  policies)  and  at  local  level  (many  pro 
grammes under the URBAN Initiative being operated 
by local partnerships). It is also adaptable to all types 
of programme (the INTERREG Initiative even requires 
cross-border  partnership)  and  to  different  national 
circumstances. 

The  development  of  a vigorous  partnership  that  is 
genuinely  accountable  helps  ensure  that  pro 
grammes  are  adapted  to  the  needs  of  benefi 
ciaries,  that  there  is  support  for  policies  among 
the  people  and that  a wide  range of  measures  are 
co-financed. 

114 

Chapter 6 
Ways forward 

6.1 The ongoing need for 

European Union cohesion policies 

Policies  to  promote  solidarity  exist  in  all  Member 
States of the Union. There are two major reasons why 
this should be so. 

First,  there  is  a  need  to  compensate  for  major 
inequalities  in the  capacity  of  regions  to  generate 
income and in the ability  of different  social  groups 
to compete  effectively  in the labour  market. These 
inequalities  tend to diminish only slowly over time. 
Economists  have  identified  many  reasons  for this, 
in particular,  differences  in factor  endowments  (in 
the  skills  of  the  labour  force  or  the  provision  of 
infrastructure),  the  rate  of  technical  progress,  or 
the  rate  of  diffusion  of  new  products  and  pro 
cesses,  the  effects  of  economies  of  scale  and 
so-called  externalities  (which  arise  from  the  con 
centration of activities  in a particular  place), trans 
in  the  competitive 
port  costs,  imperfections 
process  and  unequal  access  to  technical  know-
how.  All  of  these,  especially  in  combination,  are 
capable  of  preventing  a  balanced  distribution  of 
the gains from trade and economic  integration. As 
the evidence of Chapter  2 confirms, distance  from 
the  centre of  economic  gravity  appears  to  be  one 
of the more convincing  explanations  of  disparities 
in regional income  in Europe, but not of  unemploy 
ment. 

Secondly, the idea of a 'people's Europe' guarantees 
certain  rights  to individuals  with corresponding  obli 
gations  on  the  state.  Neither  regional  location  nor 
social  position  are  permitted  to  circumscribe  life-
chances. 

The solidarity  policies of the Member  States reflect a 
political  desire  to  maintain  the  European  model  of 
society which, as discussed in chapter  1, is based on 
the  social  market  economy.  With  closer  economic 
integration, the European Union shares responsibility 
for  the  maintenance  of  this  model  of  society,  which 
calls for active cohesion policies at European level. 

EU cohesion  policies  contribute  to the  maintenance 
of  the  European  model  of  society  at  a  number  of 
levels. 

At the  economic level, they contribute to a reduction 
in  disparities  between  regions  and  social  groups, 
allowing more of the population to contribute to econ 
omic  growth. Even though  European  integration  is a 
historical process without precedent, generating sub 
stantial overall economic  gains, there  is the risk that 
the competitive forces unleashed by the  introduction 
of  the  Single  Market  could  overwhelm  the  weaker 
parts  of  the  Union  and  the  weaker  social  groups 
unless they adjust in order to be able to take advant 
age  of  the  new  opportunities.  Unassisted, such ad 
justments  can take an unacceptably  long time to be 
accomplished,  since  the  starting  point  is  the  often 
severely  disadvantaged  position  of  the  weakest 
Member States and regions in terms of infrastructure, 
productive  potential, the capacity  for  innovation and 
the skills of the labour force (chapter  2). The alterna 
tive to  assistance  is  large-scale  migration of  labour, 
which  is  not  only  socially  undesirable  but  tends  to 
reinforce  regional  disparities  since  the  most  skilled 
and able are  likely to be  best equipped  to find a job 
elsewhere. 

The disparities at European level are much wider than 
those which exist  in any Member  State. Moreover, it 
is  in  the  poorer  Member  States  that  budgetary 

115 

Chapter 6 Ways forward 

resources to remedy structural problems and reduce 
disparities tend to be the most scarce. 

At the social level, cohesion policies help to improve 
access  to  employment,  both  in  general  and  for  the 
most  disadvantaged  groups.  More  than  anything 
else,  the  existence  of  high  levels  of  unemployment 
and  the  growing  incidence  of  poverty  act  to  under 
mine the European model of society. Increasing em 
ployment  has  become  a  top  priority  in  the  Union. 
Cohesion  policies  make  a direct  contribution  to  this 
by  promoting  restructuring  and  development  and 
creating  durable jobs.  In addition, cohesion  policies 
explicitly  address the equally important  issue of who 
takes  up  those  jobs,  by  attempting  to  equip  young 
people,  women  and  those  who  have  been  out  of  a 
work  for  long  spells  to  compete  more  effectively  for 
employment. 

At  the  political  level,  cohesion  policies  are  an  ex 
pression of mutual support  between Member  States. 
They underpin the notion of European solidarity, cre 
ating  a new  framework  of  opportunity  which  is  both 
additional  and  complementary  to  the  national  one. 
This is not simply a matter of resource transfer,  but a 
Community  approach,  or  method,  which  seeks  to 
make  the  fullest  use  of  the  potential  of  the  Union 
economy  as a whole  by  implementing  best-practice 
techniques  and  taking  decisions  as  close  to  the 
grassroots  as possible. By involving a wide  range of 
people and organisations  at regional and local level, 
Community cohesion policies give the most concrete 
expression to the principle of  subsidiarity. 

Against  this  background,  the  Commission  remains 
determined  to  maintain,  and  where  possible 
strengthen, the Union's structural policies for promot 
ing the overall harmonious  development  of the Com 
munity. 

The  following  analysis  addresses,  first,  ways  of  in 
creasing  the  effectiveness  of  EU  cohesion  policies 
and, secondly, and without prejudging the content of 
future  policy  some  of  the  policy  challenges  for  the 
future. 

6.2 Raising effectiveness 

Targeting the problems: the 

concentration of resources 

An  appropriate  starting  point  for  the  analysis  is  the 
targeting, or concentration, of resources on the most 
serious problems. Through concentrating resources, 
the  Union  has  been  able  to  mobilise  financial  re 
sources  to  have  a  significant  impact  on  the  worst-
affected  areas  and  social  groups.  More  generally, 
concentration  of  support  on  physical  and  human 
capital has ensured that, in all Member  States, each 
ECU from the Community  is specifically  targeted  on 
investment for the future. 

Concentration  is, therefore, the  key  principle  under 
lying the effectiveness  of cohesion policies. 

Enough geographical 

and financial concentration? 

The  effectiveness  of  cohesion  policies  depends  in 
large  measure  on  targeting  resources  on  the  most 
serious problems and problem areas. Excessive dis 
persal  generally  limits  the  effectiveness  of  what  is 
spent,  although  there  is  an  inevitable  temptation  to 
spread  resources  thinly  among  both  regions  and 
social groups. 

At the same time, cohesion policies  must be open to 
critical  and  continuous  appraisal to ensure that they 
are as effective  as possible. This chapter  addresses 
policy  weaknesses  and  identifies  areas  for  possible 
improvement  in the future. Such improvements  could 
in  some  degree  already  be  introduced  during  the 
current  programming  period, but it is equally  import 
ant to begin a reflection on areas for more fundamen 
tal change which can be addressed  in the context of 
future  developments  linked  to  preparations  for  the 
new  programming  period  scheduled  to  begin  after 
1999. 

So far as Objective  1 is concerned, the rule requiring 
unanimity among  Member  States for the adoption of 
the  list of  eligible  areas makes the rigorous enforce 
ment of economic  criteria more difficult at the margin 
(The  Commission  proposed  majority  voting  as  the 
general rule in its submission to the Inter-Governmen 
tal  Conference  "Reinforcing  political  union  and  pre 
paring  for  enlargement").  Political  compromise  in 
1993 led to the inclusion under Objective  1  of 7.4 mil 
lion people, 8% of the total eligible  population, living 
in regions with GDP per  head  more than 75% of the 
Union  average  (ie  above  the threshold  for  eligibility 

116 

Chapter 6 Ways forward 

established in the relevant regulation). The regions in 
question, however, had GDP.per head well below the 
average  and some were suffering  a trend  decline  in 
economic  performance as confirmed by  subsequent 
data (see chapter  2). Some regions  have  been suc 
cessful  in catching  up, moving  from  below to above 
the 75% threshold over recent years. The system has 
largely  succeeded  in achieving the concentration of 
resources  on the most serious  problem  areas in two 
programming  periods. So that this remains the case, 
it may have to be re-examined in the future. 

As  regards  financial  allocations  under  Objective  1, 
some  of the variation  in aid  intensity  (Union  funding 
per head) between Member States reflects the appli 
cation of objective criteria. Some, however, reflect the 
'weight  of  the  past'.  In  other  words,  it  has  proved 
difficult  to remove  inertia entirely  from the  system in 
order  to  adjust  allocations  to  objective  needs, 
although  in conditions  where the  sums  involved  are 
large  it  is  also  desirable  to  avoid  abrupt  changes. 
Overall, the EU funding per head in Objective  1  areas 
has  increased  by  around  one-third  in  real  terms 
between programming  periods. 

Under  Objective  2,  16.4% of the  Union's  population 
lives in currently eligible areas, only slightly above the 
15%  established  as  a guideline  in the  pre-amble to 
the Regulation (Table 5.11a). This is marginally below 
the  coverage  in  the  previous  period  (16.8%).  The 
additional  resources  made  available  to  Objective  2 
for  the  1994-99  period  have  been  used  to raise the 
amount  of  aid  per  head.  Here,  the  distribution  of 
finance  between  Member  States  reflects  objective 
criteria and the Member  States have carried through 
a similar methodology to the regional level. Just under 
one-fifth of the  population  covered  by  Objective  2 is 
not,  however,  eligible  for  assistance  under  national 
schemes of regional aid. 

Under Objective 5b, 8.1 % of the population is curren 
tly in eligible areas, up from 5% in the previous period. 
The  extra  resources  made  available  for  the  second 
programming  period  have  been  absorbed  by  the 
increase  in  coverage  so  that  aid  per  head  has  re 
mained  virtually  unchanged  (Table  5.11a).  Even so, 
choices  made  in  one  or  two  Member  States  meant 
that some of the more populous medium-sized urban 
centres  were  not  included,  even though  they  could 
have provided a natural location for the promotion of 
new  activities  (and  SMEs),  including  producer 
services,  in the  development  programmes.  The  ex 

tended  geographical  coverage  under  this  Objective 
in the current period is a reflection, in particular, of the 
change  in the selection method for the period  1994-
99, and only half of the regions eligible under  Objec 
tive  5b  are  eligible  under  national  schemes  of 
regional aid. 

Objective 6, created on the accession of Nordic Mem 
ber  States  in  1995,  has  an  extensive  geographical 
coverage  but,  because  it  assists  areas  of  very  low 
population  density,  only  comparatively  few  people 
live in eligible  areas — 0.4% of the EU total — while 
aid  per  head  of  population  is" below  that  in  Objec 
tive  1. Over 99% of these are covered under  national 
regional policies. 

The  present  situation  is  one  where  just  over  half 
(50.6%) of the total population  is eligible  for  the four 
regional  Objectives  of  the  Structural  Funds,  while 
47%  is covered  by regional  aid schemes.  In view of 
the  need  for  resources  to  be of  a certain  amount  in 
order to be effective, the preceding analysis suggests 
that  there  may  be  a  case  for  a  more  determined 
application  of  the  principle  of  concentration.  It  is 
essential  that  under  all  the  regional  Objectives,  the 
most  serious  problems  and  disadvantaged  regions 
are identified and targeted. 

First,  as  discussed  in  chapters  3  and  4,  improved 
coordination  between  the  determination  of  eligibility 
under  the  regionalised  Objectives  of  the  Structural 
Funds and the decisions  on eligibility  for  assistance 
under  Member  State  regional  policy  (ie  derogations 
for  regional  aid  under  competition  policy  rules)  may 
be  necessary.  The  fact  that  a  region  is  eligible  for 
assistance under the Structural Funds should be one 
of the criteria for eligibility  for national assistance. At 
present, 7.1% of the population lives in regions which 
are  covered  by  EU  regional  Objectives  but  not  by 
national  regional  policy,  while  3.2%  lives  in  regions 
eligible for the latter  but not the former. More coordi 
nation  would  enable  Member  States  and  the  Com 
mission to address these  inconsistencies. 

Secondly, the  intensity of EU aid, in terms  of expen 
diture per head, may have to be more finely tuned to 
the  position  in  eligible  regions  to  ensure  that  the 
resources  made  available  reflect  objective  needs. 
This,  however,  needs  to  be  balanced  against  the 
need to avoid abrupt changes in the level of financial 
aid  to  Member  States  and  regions.  This  also  would 
imply that when lists of assisted regions are reviewed, 

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Chapter 6 Ways forward 

there  should  be  a  phasing  out  of  assistance  (rather 
than it being brought to a sudden halt). 

Concentration  is  equally  an  issue  for  the  non-
regional  Objectives.  For Objective  3, the  difficulty 
has been to establish a real policy dialogue to help 
focus  the  efforts  at  the  Union  level  on  the  most 
vulnerable  groups  in  the  labour  market  so  as  to 
increase the effectiveness  of assistance  and raise 
its visibility.  In the case of the  recently  introduced 
Objective  4,"the  d e s i r ed  concentration  of 
assistance  on SMEs and  the  involvement  of  other 
social  and  business  partners  have  been  difficult 
to  achieve  in  practice. 

More performance  orientation? 

In addition to greater  concentration, a more focused 
application of the Structural Funds results might also 
increase their effectiveness. This was an issue taken 
up by experts in the Commission report Stable Money 
—  Sound  Finance  which  suggested  a  number  of 
possible  modifications  to the operation of  the Struc 
tural  Funds,  including  avoiding  fixed  a priori  alloca 
tions  to  Member  States  with  more  incentives  for  the 
achievement of verifiable targets. Targets  suggested 
concerned  project  realisation,  the  overall  improve 
ment made in structural adjustment and the achieve 
ment of macro-economic  policy aims. 

But  performance  orientation  in  these  terms  has  its 
limits. The allocation of resources must focus on those 
most  in  need, whether  regions  or  social  groups. As 
shown  in  chapters  2  and  3,  social  and  economic 
disparities remain substantial, even if there has been 
significant progress in narrowing them in some cases, 
and  their  reduction  must  be  the  over-riding  aim. A 
fundamental  requirement  is  that  any  performance 
criteria  should only  be related to the achievement of 
cohesion objectives  and not to other ends. 

The  essential  precondition  for  increased  perfor 
mance orientation is the existence of clearly  defined 
cohesion  objectives,  which  today  may  need  to take 
employment  developments  into  account.  Other 
requirements  include  more efficient  financial control, 
a rer.ewed drive  against  fraud  and irregularities  and 
further  improvements  in  monitoring  and  evaluation. 
The  Commission  has  already  made  'sound  and  effi 
cient management' one of its major  political priorities 
during  the  present  period  and,  for  the  Structural 

Funds  in  particular,  progress  has  already  been 
achieved.  Nevertheless,  the  impending  review  of 
structural  policies  for  the  period  after  1999  is  an 
appropriate occasion to consolidate and deepen the 
progress already made. 

Any  move  away  from  fixed  a  priori  allocations  to 
Member State would have to be treated with caution. 
On the one hand, it is probably true that the quality of 
programmes could be improved by more competition 
for  scarce  public  resources.  On the  other  hand, as 
discussed in the previous chapter, medium-term pro 
grammes  can  only  be  developed  against  a  back 
ground  of  predictability  and  stability  and  those 
involved  in the  planning  process  must  have  a  clear 
idea of the amount of Community financial assistance 
they  can  expect. The option of  allocating  resources 
to Member States only after they have submitted their 
plans seems unrealistic for largely practical reasons. 
Nevertheless, while the  point  is a sensitive  one, the 
advantages  and  disadvantages  of  some  additional 
degree  of  flexibility  in the  allocation  of  resources  to 
take  account  inter  alia of  changing  circumstances, 
would seem to merit further consideration. 

The absorption  issue 

Successful  concentration  of  financial  support  de 
pends  on  Member  States  being  able to take  up  the 
funds.  There  is  little  point  in  making  the  resources 
available if for one reason or another  Member  States 
are  unable  to  make  use  of  them.  Absorption  con 
straints  in countries  and regions  arise for three  main 
reasons: 

•  physical absorption problems  arise where the re 
ceiving authorities do not have the  administrative 
capacity  to  absorb  the funds  on offer,  to  identify 
suitable programmes and projects and to manage 
their implementation; 

•  budgetary  absorption  problems  arise  where, 
under  matching  funds  arrangements,  Member 
States are unable to raise the counterpart  finance 
because of budgetary constraints; 

•  macroeconomic  absorption difficulties  potentially 
take  various,  but  generally  less  tangible,  forms, 
such  as  inflation, the  crowding  out  of  private  in 
vestment  by  EU-funded  public  expenditure,  an 
unduly large growth in imports and the leakage of 
transfers from investment into consumption. 

Chapter 6 Ways forward 

These are far from being theoretical  constraints. The 
implementation of  cohesion  policies  has  sometimes 
encountered  significant  absorption  problems  (see 
European  Commission  (1996):  Seventh  Annual 
Report on the Structural Funds,  pp  202-206). Some 
easing of these  might  be  achieved  by  more  flexible 
financial procedures. The  absorption  problem, how 
ever, needs to be considered with the issue of addi 
tionality, taking into account the general context of a 
more restrictive  budgetary  policy environment within 
which structural policy has to operate. 

leverage  exists  in  relation  to  Union  financing  and 
less  concerned  as  to the  source  of  finance  within 
the  Member  States,  possibly  taking  into  account 
private  sources. 

This  should  not  pre-empt  a  reflection  on  other 
possible  ways  of  increasing  Member  State  invol 
vement  and  their  responsibilities  for  ensuring  a 
successful  outcome  from  the  implementation  of 
structural  policies. 

Additionality 

Better financial engineering 

In  the  existing  system,  the  principle  of  addition 
ality  is  one  of  the  important  means  for  achieving 
better  performance.  It  is  intended  to  ensure  that 
Community  support  for  economic  development 
does  not  replace  national  government  efforts.  On 
the other  hand, additionality  has not  been  made a 
compulsory  element  of the  Cohesion  Fund as one 
of  its prime purposes  is to help the Member  States 
concerned  meet  budgetary  targets  for  satisfying 
the  conditions  for  monetary  union. 

While  there  have  been  improvements  in  the  cur 
rent  programming  period  on  the  verification  of 
additionality  (a clearer  and  more  practical  defini 
tion was included in the revised regulations), it has 
been  a complicated  methodological  task. 

It'might be argued in the extreme that  the.principle 
of  additionality 
in  view  of  the 
is  o u t d a t ed 
overriding  concern  today  for  budget  discipline. 
But  experience  has shown that the  means  chosen 
for  reducing  budget  deficits  is  often  determined 
by  political  expediency,  resulting  in cuts  in  public 
investment rather than in current expenditure, with 
detrimental  effects  on  growth,  running  counter  to 
the  essential  aim  of  Union  support. 

The  principle  of  additionality  protects  against  the 
substitution  of  Union  aid  for  national  spending.  In 
the  light  of  experience  gained  in the  current  pro 
gramming  period,  the  methodology  could  be 
adapted taking account,  for example, of  demands 
by some Member States that verification should be 
related to the relative  scale of  Union assistance  in 
the  programmes  under  consideration. 

Another  possibility  could  be  that  the  Commission 
would  be  concerned  to  ensure  that  appropriate 

With tight  constraints  on  public  finance,  a combi 
nation  of  increased  use  of  loans  and  greater  pri 
vate  sector  participation  could  provide  additional 
resources  for  cohesion  policies. 

In  financing  development  programmes,  the  bal 
ance between grant aid and other sources of fund 
ing  remains  an  important 
issue.  A  greater 
recourse  to  loans  would  contribute  to  introduc 
ing  market  discipline  and  stimulating  more  effi 
ciency  while  lowering  some  of  the  costs  of  failure 
involved  in  financing  projects  largely  or  exclu 
sively through grants. Where projects  are  revenue 
generating,  it  seems  appropriate  to  increase 
the  scale  of  loan  finance.  Where  revenue  returns 
are  very  long-term,  which  is  perhaps  more  likely 
to  be  the  case  in the  poorer  countries,  the  scope 
for  loan finance  (and  private  capital)  may  be  more 
limited. 

The  experience  of  the  European  Investment  Bank 
(EIB)  suggests  that  a  new  balance  needs  to  be 
struck  between grants and loans, since, in particu 
lar cases, EIB activities  seem to have  been  limited 
by the  (too)  ready  availability  of  EU grants. 

Future  improvements  should  seek  to  raise  the 
level of  involvement  of  EIB and other  loans  as well 
as  the  guarantees  and  equity  participation  of  the 
European  Investment  Fund, and to deepen  private 
sector  involvement  through  public-private  part 
nerships. The latter  implies  a more systematic  use 
of  the  seed-capital  and  development-capital 
funds available  in the regions, some of which have 
been  created  or  supported  by  the  Structural 
Funds  themselves,  while  not  precluding  the  on 
going  search  for  other  innovative  approaches  to 
financing  programmes. 

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Chapter 6 Ways  forward 

For  large  projects  on the other  hand, such  as  major 
infrastructure  investment,  separate  identification  in 
the  programming  process  and  individual  appraisal 
might  be  called  for  (including  consideration  of  the 
appropriate balance between grant and loan finance). 

Secondly, in the mainstream case where programm 
ing remains appropriate, transparency  and  adminis 
trative  effectiveness  could  be  enhanced  by 
addressing  the various  aspects  of  the  problem  in a 
more coherent manner. At present, within an individ 
ual  regional  authority  area,  or  group  of  areas,  it  is 
possible  that  different  parts  may  be  eligible  for 
Objectives  2 and 5b, while assistance  under  Objec 
tives  3,  4  and  5a  might  also  be  given,  implying  a 
considerable administrative overhead in terms of co 
ordination between the five different Funds and other 
sources  of finance. Community  Initiatives  might  also 
add further  layers of administrative complication. 

It  therefore  seems  necessary  to  examine  existing 
systems  to  ensure  that  there  is an efficient  balance 
between quality and simplicity. 

The programmes  are also the instance where possi 
bilities  for  synergies  between  cohesion  and  other 
policies of the Union are reflected. Improved coordi 
nation  at  this  stage  is  important  to  identify  oppor 
tunities for the other policies to contribute to cohesion 
—  including  the transfer  of  best  practices  —  and to 
establish  the  necessary  steps  to  be  taken  via  the 
programmes to put them into practice. 

Finally, the success  of the SPD method depends  on 
the way that  is implemented  in practice. A  smoother 
decision process, avoiding undue delays in the com 
mitment  of  Community  resources,  requires  Member 
States to undertake sufficiently detailed work in each 
of  the  preparatory  phases  of  the  programming  pro 
cess  referred to  in chapter  5 above, while  the Com 
mission  must  also  avoid  unjustified  delays  in  its 
approval  procedures. 

Community  Initiatives 

Actions  under  Community  Initiatives  are  aimed  at 
pursuing  common  aims,  encouraging  experimenta 
tion and  innovation in areas which otherwise tend to 
be  insufficiently  emphasised  in  the  programmes. 
They  include  Initiatives  to  promote  cross-border, 
transnational  and  inter-regional  cooperation  as  well 
as those which address European problems such as 

Overly complex  programming 

procedures? 

As discussed above, the strategic, or  programming, 
approach  adopted  under  EU structural  policies  has 
been a key aspect of the delivery system. Since the 
first  programmes were  introduced  in  1989, the  diffi 
culties  encountered  do  not  concern  the  principle 
itself, but there have been some teething problems in 
practice, while the  process  remains overly  complex 
in certain respects. 

When the first programmes were adopted, the exer 
cise was affected by shortages of time, which meant 
that  in some  cases the Community  Support  Frame 
works  were  composed  of  a  series  of  loosely  con 
nected  proposals  for  discrete  action.  Steps  were 
taken  in  the  second  programming  period  which 
began  in  1994  to  improve  the  preparatory  phase, 
notably  through  a  more  systematic  identification  of 
regional  strengths  and  weaknesses,  a more  careful 
reflection on the strategic priorities to tackle problems 
and on their  coherence  and  a fuller  quantification of 
the objectives to be achieved. 

In  responding  to  the  procedural  problems,  the 
so-called  Single  Programming  Document  (SPD) 
was  introduced for the current  period. Outside  the 
main  Objective  1 areas, this  gave  Member  States 
the  option  of  dispensing  with  the  procedure  for 
committing resources which formerly required  two 
decisions on the part of the Commission — the first 
to  approve  the  Community  Support  Framework, 
the second to approve the  individual  programmes 
within  it — in favour  of  a single  decision  based  on 
a SPD setting out the strategy  and  the.operational 
means  of  achieving  it. 

Further  streamlining 

Possibilities for simplifying  programming  procedures 
need  to  be  examined  for  further  streamlining  and 
simplifying.  First, there  is the question of  the  appro 
priateness of the programming approach in all cases. 
For certain kinds of intervention, such as those involv 
ing  small amounts  of  money  or  which  depend  on a 
significant  input from the grassroots, it may be better 
to use a global grant procedure appointing a qualified 
intermediary to handle implementation and to reduce 
the  involvement  of  the  Commission  in  day-to-day 
management. 

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Chapter 6 Ways forward 

the crisis affecting urban districts or the restructuring 
of the European defence  industry. 

At  the  same  time,  there  remains  a  perception 
that  the  effort  has  been  dispersed  across  an 
excessively  large  number  of  Initiatives,  often  in 
response  to  specific  demands  from  the  Member 
States, implying a need to define more restrictively 
the  fields of  intervention  of the  Initiatives.  In addi 
tion,  experience  and  best  practices  developed 
through the Initiatives need to be transferred  more 
systematically  and  effectively  than at  present  into 
mainstream  policies  and  programmes.  Finally, 
procedures  require  simplification  and  the  Initia 
tives  need to be made more amenable to transna 
tional cooperation between countries, regions and 
local  areas. 

Subsidiarity and partnership 

In  the  implementation  of  EU structural  policies,  the 
major  expression  of  the  principle  of  subsidiarity  is 
the operation of partnerships  in the Monitoring Com 
mittees. However, these have only just begun to con 
tribute  creatively  to  problem  analysis  and  to  the 
assimilation  and  local  implementation  of  new 
Community guidelines and priorities (in areas such as 
employment,  the  environment  and  equal  oppor 
tunities). The situation  is improving  rapidly  in certain 
Member  States  where  Monitoring  Committees  have 
seized  the  initiative,  organising  separate  but  com 
plementary initiatives of their own, improving the dis 
semination  of  information,  undertaking  rigorous 
problem analysis  and so on. 

A basic  need is one of information on the functioning 
of  partnerships  in practice  and, by  analysing  this, it 
should be possible to identify best practices and their 
transferability. 

In  some  cases,  where  partnerships  are  less  de 
veloped,  it would be helpful to the operation of the 
Monitoring  Committees  to  make  a  distinction  be 
tween decision-making  and consultative  partners, 
the  former  consisting  of  the  authorities  respon 
sible  for  co-financing,  the  latter  being  mainly  the 
social  partners  and  representatives  of  interest 
groups.  This  might  allow  the  political  authorities 
responsible  to  take  a  more  objective  and  con 
structive view of the latter  and embrace their invol 
vement  more  whole-heartedly. 

Finally, there  might  be  other  ways  of  increasing  the 
commitment of the partners to the overall aims of EU 
cohesion  policies,  in particular,  by  greater  efforts  to 
explain  the  Union's  priorities,  more  informal  oppor 
tunities for dialogue (on the lines of the informal work 
ing group set up by the social partners in  1995) and 
pilot  actions  in  conjunction  with  certain  national 
and/or  regional  authorities  (eg  territorial  employ 
ment  pacts). 

6.3 Policy Challenges 

Priority concerns for current 

Structural Funds programmes 

In  their  effort  to  reduce  regional  disparities  and  to 
promote economic  and social  cohesion, Community 
structural  policies  seek  to  address  the  political 
priorities of the European Union and the main preoc 
cupations  of  its  citizens.  The  actions  under  these 
policies are therefore selective rather than 'catch-all' 
— and a complement to Member States' own actions. 
The policies have proven to be flexible and adaptable 
in.response  to  changing  circumstances  and  it  is 
recognised that there can be no single remedy for all 
structural problems and all circumstances. 

Mobilising the required effort on the part of the Mem 
ber States on the main priorities is an additional issue. 
In procedural terms, one way of ensuring that agreed 
EU  priorities  are  better  understood  is  through  the 
issuing of guidelines in advance of the preparation of 
the plans. This has been a feature of the  preparation 
for  Objective  2 for  the  period  1997-99,  and  experi 
ence suggests that its generalisation to other  Objec 
tives may be worthwhile. 

During the current  programming  period, four  priority 
areas  have  emerged  which  EU  cohesion  policies 
have specifically sought to address: employment cre 
ation, competitiveness, environmental protection and 
equality of opportunity  between the sexes. 

Employment 

The fight  against  unemployment  and the  creation of 
new  jobs  to  provide  work  for  over  18 million  unem 
ployed is an overriding priority for the European Union 
and  the  Member  States.  The  1993  White  Paper 

121 

stressed an approach which combined an emphasis 
on developing  the competitiveness  of the  European 
economy  with  a  renewed  search'for  employment 
opportunities  in  growth  sectors  including  those  in 
non-traded  activities at the  local  level in the cultural, 
social and environmental fields. 

The  Essen European  Council  in  1994 took  up  these 
ideas and  identified five  main priority areas for  short 
to  medium-term  action  to  increase  employment 
through  co-ordinated  multi-annual  programmes.  Of 
these,  four  —  promotion  of  investment  in vocational 
training,  increasing  the  employment  intensity  of 
growth, improving the effectiveness of labour market 
policy  and  strengthening  measures  to  help  those 
particularly  affected  by  unemployment  —  fall  within 
the scope of the Structural Funds. The Madrid meet 
ing of the European Council underlined 'the mutually 
beneficial  effects  of  greater  coordination  of  the 
Union's economic  and structural  policies'. 

EU  cohesion  policies  have  helped  to  focus  more 
attention  on  employment  and  Member  States  have 
increased  the  importance  attached  to job  creation. 
The Structural Funds play an important role in promot 
ing  employment;  not only  do they  boost  demand for 
good  and  services  in recipient  regions  in the  short-
term  but,  by raising economic  potential  and  improv 
ing  the  skill  level  of  the  work  force,  they  provide 
support  for  the  creation  of  durable  jobs  over  the 
long-term. It is within such a time-frame that the major 
part  of  the  contribution  of  the  Funds to  employment 
growth  must  be expected. This  applies  to  Objective 
1 regions, where policies address the persistence of 
major  gaps  in  basic  infrastructure  endowments. 
These contribute to short-term job creation during the 
construction  phase while  the  fact  that the  individual 
projects are generally part of a coherent development 
strategy geared to competitiveness and growth which 
is  sustainable  and, ultimately,  self-sustaining,  helps 
to ensure that they contribute to longer-term, durable, 
jobs.  As  discussed  above,  the  results  of  macro-
economic  model simulations  for  Objective  1 regions 
and  the  global  estimates  for  Objectives  2  and  5b 
suggest that the effects on employment are substan 
tial. 

Chapter 6 Ways forward 

of  spending  power  and  the  creation  of  local  jobs. 
Supporting  the  adaptation  of  workers.to  industrial 
change  helps to develop  a  preventive  rather  than  a 
purely reactive approach to saving jobs. Training the 
unemployed not only gives them a better chance of a 
job  but  helps  to  create  a  pool  of  skilled  labour  and 
expands the human resource potential of the EU as a 
whole  by  integrating  those  who were  previously  ex 
cluded. In addition, by promoting indigeneous devel 
opment,  EU  policies  have  helped  to  create 
self-sustaining  local  economies,  including  those  in 
rural areas, providing employment  in social, cultural, 
commerce and craft activities which are not affected 
by global competition. 

The  effects  of  recession,  and  economic  changes 
more generally, mean that reinforcing the job creation 
aspect of EU structural policies must remain a priority. 
To  this  end,  the  Commission  has  proposed  (Com 
munication  'Community  Structural  Assistance  and 
Employment')  to  use  available  margins  of  flexibility 
within the  programmes  for  the  period  up  to  1999 to 
increase the  rate of job  creation of  expenditures,  by 
offering  support to the  main sources  of  employment 
—  the  SMEs —  and  promoting  new  sources  of  job 
opportunities. 

Meanwhile,  the  Heads  of  State  meeting  at  the 
European  Council  in  Florence  in June  1996  invited 
Member States, on a Commission proposal, to imple 
ment  co-ordinated  actions  at  the  local  level specifi 
cally  focused  on  new  employment  (Employment 
Pacts}. A number  of areas or  cities which could  par 
ticipate in pilot projects  in  1997 were agreed. 

Competitiveness 

One of the main contributions of structural policies is 
in raising the competitiveness of structures of produc 
tion. As explained  in Chapter  1, improving  competi 
tiveness  is not a euphemism  for  uncertainty  and job 
insecurity.  On  the  contrary,  increasing  productivity 
and competitiveness  is part of the process  by which 
economies  generate  increasing  wealth  over  time  to 
raise living standards and the quality of life. Compe 
titiveness, is not therefore an end in itself but a means 
of consolidating the European model of society. 

The Structural Funds promote job creation in a num 
ber  of  other  ways.  Aid  to  small  and  medium  enter 
prises  is an important aim in many programmes, and 
these are the major source of employment  in the EU. 
Promotion of tourist-related projects leads to an inflow 

Structural policies contribute to raising the productiv 
ity of both labour and capital by increasing efficiency 
and  reducing  costs.  Investment  in  upgrading  infra 
structure, including  investment  forming  part of trans-

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Chapter 6 Ways forward 

European  networks,  improves  accessibility  and  re 
duces distance costs for business. Assistance to the 
private sector is designed to stimulate innovation and 
support  investment  in  new  capital  equipment.  EU 
policies  attach priority to efforts  to support  RTD, es 
pecially  to encourage  product  and  process  innova 
tion  in  SMEs  where  the  finance  required  is  more 
limited. Combined with efforts to improve the skills of 
individual  workers  through  training,  this  raises  the 
productive  potential.  This  is  supported  by  modern 
thinking in regional economics which stresses the role 
of these 'endogenous factors' emphasising the need 
for the transfer of knowledge and know-how to weaker 
regions and the promotion of innovation. 

As  a  result,  the  links  between  competitiveness, 
growth  and  employment  creation  are  being  made 
more explicit. Regions which succeed in raising their 
productivity and increasing their  cost advantage will 
be  more  competitive  by  definition,  which  is  a  pre 
condition for further growth and employment creation. 
Competitiveness  is  not  only  a  matter  of  costs  but 
involves other dimensions. In particular, the develop 
ment  of  a  solid  SME  base  —  a  priority  under  EU 
structural  policies  —  appears  to  be  central  to  long-
term competitiveness, although there are many exter 
nal economic factors as well as social and institutional 
ones which affect their  performance. 

Environmental  protection 

The impact of the Structural Funds on the environment 
and  their  coherence  with  the  Union  environmental 
policy,  is one of the  most  closely  monitored  aspects 
of their  activity. As the Commission has  emphasised 
(COM (95) 509), development  has  both positive and 
negative effects on the environment,  but the environ 
ment itself is a major factor for regional development. 
There are many cases, notably in the cohesion coun 
tries  and  in  Eastern  Germany,  where  considerable 
resources have been targeted on improving the envi 
ronment, on the grounds that this is a prerequisite for 
sustainable growth. Moreover, as noted above, many 
Objective  2  programmes  include  measures  to  im 
prove  urban areas  blighted  by the dereliction  left  by 
former  industrial activities. 

The challenge for structural  policies  is to ensure that 
economic  development  is  reproducible  because  it 
does not exhaust non-renewable resources. All major 
project  proposals  are  now  required  to  include  an 
assessment  of  costs  and  benefits  including  those 

relating to the environment. While specific effects can 
be measured by changes in indicators such as water 
quality,  air  purity,  disposal  of waste  and  so on, it  is 
much  more  difficult  to  balance,  for  example,  a 
possible  increase in water  pollution  resulting  from a 
particular  investment  project  against  a  reduction  in 
traffic  emissions.  Nevertheless,  the  Commission  is 
committed to developing indicators and environmen 
tal assessment techniques to enable better prediction 
and monitoring of  environmental  effects  of  structural 
policy measures. 

Since the Communication on Cohesion  Policy  and 
the  Environment 
(1995),  progress  has  been 
achieved  in  the  implementation  of  measures 
aimed  at  increasing  the  environmental  dimension 
of  Structural  and  Cohesion  Funds  measures.  Half 
of  Cohesion  Fund  expenditure  will  be  devoted  to 
environmental  projects  and in its guidelines on the 
new  Objective  2  programmes  (1997-99),  the 
Commission  has  stressed  the  environment  as  a 
main priority. Current studies to identify  preventive 
measures  and  best  practice  in  Objective  2 areas 
will  be  used for  later  programme  negotiations. 

As  part  of the drive to  make sustainability  a  primary 
objective of the regional development strategies, and 
raise  the  environmental  quality  of  programmes  and 
projects,  the  Commission  has  also  intensified  its  ef 
forts  to  encourage  Member  States  and  regions 
through  the  Monitoring  Committees  to  adopt  better 
environmental  appraisal,  including  holding  environ 
mental training seminars. 

Equality  between  men  and  women 

Cohesion policies are also aimed at reducing inequal 
ities  between  men  and  women,  an  objective  which 
has  been  reinforced  following  the  policy  review  of 
1993  which  explicitly  established  the  promotion  of 
equal  opportunities  as  one  of  the  priorities  of  the 
Funds, to be taken into account at every stage of the 
process. 

Here cohesion policies appear to be working with the 
grain of  labour  market trends, since  employment  for 
women, unlike that for men, increased over the period 
1989-94 while activity rates rose by even more, again 
in contrast  to that  of  men. The  increase  in both was 
especially  marked  in  the  Cohesion  countries.  Con 
cerns  remain, however,  about the quality  of  some of 
the jobs which have been taken up by women. 

123 

Under the Social Fund, particular  attention has been 
paid to equality of opportunity since  1989, as well as 
to the issue of job quality. This includes actions under 
the Community NOW Initiative (New Opportunities for 
Women) which was launched in 1991 providing man 
agement  training  and  supporting  local  networks  of 
small  firms. These  measures,  however,  with  limited 
funding,  remain  essentially  experimental  in  nature. 
The next step must be to build on the lessons learned 
and to integrate similar types of project into the main 
stream programmes of the Structural Funds. 

A renewed impetus for using more fully the talents of 
women in traditional male areas has resulted from the 
accession  of  Finland and Sweden to the  EU. Nearly 
all  of  the  measures  in  the  various  Swedish  pro 
grammes  pay  particular  attention to the  principle  of 
equal opportunities and the participation of women in 
the  activities  being  promoted.  These  programmes 
contain many examples of highly  innovative  projects 
helping to realise the potential of women as entrepre 
neurs,  which  could  be  taken  up  as  best  practice  in 
other regional development  programmes. The Struc 
tural  Funds  play  an  important  role  in  supporting 
measures  aimed  at  providing  a full  package  of  ser 
vices such as information, financial assistance, train 
ing and on-going  consultancy. 

Local or regional business service centres for women 
entrepreneurs could make available a whole range of 
shared services at a lower cost and, at the same time, 
serve  as  a  forum  for  encouraging  commercial  part 
nership. Progress has also been made in other areas, 
such  as  through  the  URBAN  Community  Initiative, 
which  explicitly  includes  measures  for  increasing 
equal opportunities. 

Maintaining relevance 

It  is  important  to  ensure  that  the  priorities  identified 
remain  relevant  to the circumstances  existing  at the 
time.  It  is  inevitable  that  the current  priorities  will  be 
added  to  or,  in some  cases,  replaced  by  others, at 
some time in the future, including the ongoing exam 
ination of the relevance of the Objectives of the Struc 
tural Funds themselves. " 

Chapter 6 Ways forward 

fisheries  and  a refocusing  of  labour  market  policies 
towards  retraining  workers  in  sectors-undergoing 
technological  change.  With  the  accession  of  the 
Nordic  countries in 1995, a new Objective 6 to cover 
sparsely populated regions was created. The general 
approach  has  been  successful  on  the  whole  and 
recognition  of  its  virtues  has  helped  shape  the  re 
gional policies operated in certain countries. 

New challenges continue to emerge. Sectoral change 
driven  by  new  technology  has  quickened. The  glo 
balisation of economic activity and financial services 
only  serves  to  accelerate  the  rate  at  which  the 
changes occur. It has given rise to new problems, and 
new opportunities. 

In Europe, industrial restructuring has taken its course 
and employment in many regions is now significantly 
less  dependent  on  traditional  industries,  such  as 
steel, coal and shipbuilding, than 20 years ago. More 
recently, new problems of  restructuring  have arisen, 
for example, developments  affecting the defence in 
dustry. 

Economic  activity  depends  to  a greater  extent  than 
before on intangible investment  in highly-skilled acti 
vities, such as research and  information  technology. 
Economies  with  a  highly-trained  labour  force  and 
good communication infrastructure stand to gain from 
these developments. 

This has major geographical  and social implications. 
Many of the  new activities  have  requirements  which 
could favour  the large metropolitan  areas and/or  the 
most  highly  qualified workers. They, therefore,  pose 
a new  set of challenges  for  the  future  to the  Union's 
efforts to promote a more even distribution of oppor 
tunities  between regions and to ensure that all social 
groups have access to these. 

Structural  policies  will  have  to  respond  through  ap 
propriate  investment  in  infrastructure  and  in  human 
resources to strengthen education and training, facili 
tate adjustment to the demands  of  new work organi 
sation,  and  to  promote  regional  and  local  initiatives 
and more effective  labour  market policies. 

The Objectives  have already  been subject to adjust 
ment at the time of the review in 1993. Then, the major 
innovations  were  two-fold:  a  recognition  of  the  par 
ticular  difficulties  facing  communities  dependent  on 

The  development,  and  the  widening  application, of 
information and communication  technology  (ICT), is 
also a factor. Again there are geographical and social 
implications. The speed of  introduction of  ICT varies 
between  countries,  regions,  sectors,  industries  and 

124 

Chapter 6 Ways forward 

enterprises.  The  benefits,  in  the  form  of  increased 
prosperity,  and  the  costs,  in  the  form  of  burden  of 
change,  are  unevenly  distributed  between  different 

\  parts of the Union and between social groups. 

spatial level which have yet to be fully and systemati 
cally addressed. Accordingly, there is a case for more 
resolute  action  in  territorial  planning.  This  is  very 
much the purpose of the actions proposed under the 
new INTERREG He Community Initiative. 

ICT  is  also  an  opportunity  to  create  an  inclusive 
society.  It  requires  an  approach  which  recognises 
that the  information  society  should  be  about  people 
and it should be used as a tool to unlock the power of 
information,  not  to  create  inequalities  between  the 
'info  rich'  and the 'info  poor'.  Structural  policies  and 
policies to develop the information society need to be 
more closely  integrated and to promote  involvement 
at  local  level; territorial  employment  pacts  could  be 
an important vehicle to exploit the opportunities. 

Many of the problems of adjusting to change appear 
to  have  fallen  on  some  of  the  Union's  major  urban 
areas. There  is a very  real danger  of  a further  frag 
mentation  within  European  cities,  rising  unemploy 
ment  and social exclusion  being accompanied  by a 
deepening of social divide between haves and have-
nots.  In some Member  States, the  urban  problem is 
already  regarded  as the major  challenge  to  national 
cohesion and they have designed  and  implemented 
new  integrated  urban  policies.  A  more  focused 
approach may also be necessary at Union level. 

Meanwhile, the  rural areas  of  the  Union  continue  to 
face  the  many  handicaps  described  in  chapter  5. 
Seizing  new  opportunities  will  depend  on  an  inte 
grated,  comprehensive  rural  development  policy. A 
starting  point  is  to  recognise  the  diversity  of  rural 
situations, and of the need for sustainability, develo 
ping  policy  responses  which  seek  to  balance 
economic,  social  and  environmental  concerns.  It 
requires a partnership between sectors and the invol 
vement of local actors in order to exploit the particular 
economic potential of individual areas, including their 
natural and cultural potential. 

The  urban  and  rural  problems  are  also  part  of  a 
broader  question of persisting imbalances  in the use 
of  European territory  as a whole. This  is reflected  in 
severely  congested  urban  centres,  the  absence  of 
genuinely  trans-European  communications  and 
energy networks, the unsustainable use of resources 
and  depopulation  in rural  areas. This  results  in part 
from the problems generated by the historical legacy 
of  separate development  — and  development  plan 
ning — within the confines of  15 nation states which 
has  led  to  inconsistencies  and  imbalances  at  the 

In this  context, there  is also a need  to  pursue  more 
concretely the priorities which have been developed 
in past discussions between the Commission and the 
Member  States  in the context of the work on Europe 
2000. These have been elaborated  in the  'European 
Spatial  Development  Perspective'  (ESDP)  which 
represents  a  shared  vision  of  the  problems  and 
opportunities,  though  in  accordance  with  the  prin 
ciple  of  subsidiarity  its  policy  guidelines  are  purely 
indicative.  Further  discussions  on  the  ESDP  are 
planned for 1997. 

All  of  these  developments  suggest  that  it  will  be 
necessary to  review  carefully the  priority  Objectives 
of the Structural Funds before the next  programming 
period  beginning  in  2000  to  make  sure  they  are 
adapted and relevant to the problems facing Europe's 
citizens. 

One of the conclusions  which  emerges  is that  rapid 
change  has  become  endemic.  Consequently,  there 
seems  to  be  an  unavoidable  need  to  adopt  more 
flexible approaches in the process by which priorities 
for  structural  policies  are defined  and  implemented. 
The  existing  system  permits  only  occasional  and 
limited review while programming  priorities, once es 
tablished, are relatively  rigid. 

In  the  current  programming  period  which  ends  in 
1999, the Commission will make the fullest use of the 
margin of flexibility which exists, while fully respecting 
commitments agreed by the European Council meet 
ing in Edinburgh in 1992. The mid-term review in 1997 
and  the  financial  leeway.created  by  the  process  of 
adjusting  planned  resources  for  inflation,  provide 
some  room  for  manoeuvre  and  opportunities  to 
change  priorities. The Commission  has  encouraged 
the Member States to exploit the possibilities in favour 
of the top priority — the fight against  unemployment. 

125 

Chapter 6 Ways forward 

126 

Chapter 7 
Conclusions 

The contours of the global economic  landscape have 
changed  radically  over  the  past  two  decades.  Glo 
balisation  of  production  and  financial  markets  and 
rapid technological progress have led to far-reaching 
changes  in national  and  regional  economies,  in pat 
terns of employment  and in the organisation of work. 
These have had positive effects, although unemploy 
ment  and  greater  social  exclusion  have  become 
structural problems of the Union economy over recent 
years. 

The Union, meanwhile, is entering a critical  period in 
the  history  of  its  integration  process,  with  monetary 
union,  enlargement  and future financing  high on the 
agenda. 

In the face of the challenges, the Member  States and 
the  Union  need  to  work  in  partnership  to  help  the 
adjustment  to  new  circumstances  and  to  seize  new 
opportunities  for  the  benefit  of  all  its  regions  and 
people. 

The  primary  responsibility  for  improving  economic 
and  social  cohesion  falls  on the  Member  States. Ef 
forts  to maintain  fiscal  discipline  and  to  combat  the 
recent  rise in public  debt need to be continued. This 
should be done in a way which guarantees the main 
tenance of structural programmes which invest in the 
future while ensuring that  incentive systems, fiscal or 
otherwise, favour job creation. 

At the same time, and as recognised  by the Member 
States  themselves  when  they  signed  the  Maastricht 
Treaty, the harmonious  development  of the Union as 
a whole cannot be achieved through national policies 
alone. The Union's  structural  policies  address cohe 
sion  directly  while  its  other,  non-structural,  policies 
can also make an important contribution. 

The  most  far-reaching  of  the  non-structural  policies 
has  been  the  Single  Market  Programme  which  has 
swept away many of the obstacles to trade and cre 
ated an integrated European economy. Fears that this 
would overwhelm the poorer Member States have not 
been borne out in practice. 

Many of the  Union's non-structural  policies  have the 
potential to make a greater  contribution to cohesion. 

For  the  market  policies  of  the  Common  Agricultural 
Policy, the Commission confirms  its  intention to  con 
tinue  resolutely  the  approach  begun  with  the  1992 
reforms  in  such  a  way  as  to  develop  further  the 
environmental  and social aspects  in the context of a 
more  integrated  rural development  policy, thus  con 
tributing even more effectively to cohesion. 

For EU competition policies: 

• 

the Commission has reacted positively to the need 
for more flexibility  in the granting  of  state aids  by 
revising  the  de  minimis rules  and  by  creating  a 
framework which addresses specific  urban prob 
lems. It is the intention of the Commission to pur 
sue  its  efforts  to  increase  efficiency  and 
transparency in the management of state aids; 

•  permitted aid ceilings for investment in the poorest 
regions  of the Union tend to  exceed  levels  affor 
dable from national budgets, while  lower  aid ceil 
ings  are  exploited  more  fully  in  richer  Member 
States. The question  arises  as to  whether  a  con 
certed  effort  should  now  be  made  to  achieve  a 
general reduction in expenditure on state aids; 

•  within  the  context  of  the  concentration  of  re 
sources  on the  most  disadvantaged  regions, the 

127 

Chapter 7 Conclusions 

Member  States and the Commission  need to ad 
dress, in partnership, inconsistencies between the 
regions  which  are  supported  under  national  re 
gional  policies  and  those  which  are  supported 
under Union regional policies. Eligibility for Union 
regional aid should in the future become one of the 
criteria  for  allowing  assistance  under  Member 
States' own regional policies. 

For the Union's RTD policy, which aims at promoting 
European  competitiveness  through  scientific  excel 
lence,  efforts  to  develop  research  activities  and ca 
pabilities  in the  weaker  parts  of  the  Union  must  be 
continued. Innovation, mobility of researchers as well 
as  increasing  linkages  and  networks  between  RTD 
facilities  in the  Member  States  are  particularly  valu 
able to structural development.  Efforts to ensure the 
widest diffusion of results and the pursuit of research 
attuned  to  the  strengths  of  the  weakest  regions  are 
also  important.  It  is  essential  that  the  scientific  and 
technological  base of the  less advanced  regions  be 
further  strengthened  as  a major  factor  in helping  to 
close the development  gap with the richer  regions. 

For Union network policies in transport, telecommuni 
cations  and  energy  supply,  the  basic  need  is  to 
ensure  that  the  whole  Community  shares  in  the 
benefits from innovation and  liberalisation: 

•  public  service  contracts  and/or  universal  service 
obligations  must  be  maintained  and  current  tar 
gets  achieved  to  ensure that  regional  and  social 
needs  are  met  in  conditions  where  the  market 
alone would not otherwise  meet these needs; 

• 

• 

• 

in transport, Union actions for intermodal networks 
must continue to promote sustainable mobility and 
ensure good linkages with local networks to maxi 
mise  cohesion  benefits. The  advantages  of  pub 
lic/collective transport for cohesion should be fully 
recognised; 

in telecommunications,  steps  may be required to 
promote  access  on favourable  terms to  new ser 
vices  in  schools,  hospitals,  libraries,  etc.  Such 
measures  should  include  adequate  training  and 
provision of the necessary  equipment; 

in energy  supply,  greater  effort  is  required  to in 
crease access to different  energy sources in view 
of  the  greater  dependence  on  oil  in  the  poorest 
Member  States. 

For social  policy, further  efforts  need to be pursued; 
the reduction of unemployment and the promotion of 
fundamental  rights,  and,  in  particular,  equal  oppor 
tunities, will remain high on the Union's agenda. 

For  Union  environment  policies,  the  challenge  for  the 
cohesion  countries  is  to  strike  a  balance  between 
the push for economic growth and the need to protect the 
environment in order to ensure sustainable development. 
This challenge can be met by accompanying environ 
mental measures in the form of an appropriate package 
of fiscal incentives, charges and public expenditure. 

Finally,  in  addition  to  improvements  in  the  policies 
themselves,  opportunities  for  synergy  with  the 
Union's cohesion policies need to be more systemati 
cally  identified  and  addressed  in  order  to  make  a 
more effective contribution to reducing economic and 
social disparities, while respecting the primary objec 
tives of these policies. 

The starting point for the Union's structural policies must 
be to  guarantee  long-term  support  for  the  poorest  re 
gions, in view of the profound disparities which  persist 
between the lagging regions (Objective  1) and the rest. 
Solidarity  with these  regions  is  an  important  basis  for 
progress  not  just  for  social  reasons,  but  in  order  to 
increase the economic potential of the Union as a whole. 
Catching-up tends to be a slow process, necessitating a 
long-term commitment. 

The problems affecting other  parts of the Union must 
also  be  recognised:  rapid  economic  and  structural 
change  including  changes  affecting  rural  areas, 
urban  deprivation, social  exclusion, congestion  and 
other territorial imbalances and the unsustainable use 
of  scarce  resources.  The  Union  must  be  ready  to 
support the process of adjustment affecting  different 
regions, local communities and social groups, to ac 
celerate  their  adaptation  to  new  circumstances  and 
to promote employment. 

The Union's response to these problems is a strategic 
one which  seeks to  promote,  in  partnership with the 
Member  States,  investment  in  new  areas  of  growth 
and  sustainable  development,  improving  physical 
and  human  capital  to  raise  competitiveness  while 
helping  SMEs  to  exploit  their  full  potential  for  job 
creation and develop their  innovative  capacity. 

Effectiveness  must be ensured through the quality of 
strategic  responses  and  by  the  streamlining  of  the 

128 

Chapter 7 Conclusions 

delivery system. There are a number of key areas for 
reflection: 

•  scarce  resources  must  be better  targeted on the 
most  serious  problems  and  problem  areas  while 
addressing priority concerns which are relevant to 
the prevailing economic  circumstances; 

•  a greater degree of performance orientation could 
be  introduced  into  cohesion  policies  by  directly 
linking  performance  criteria  to  the  attainment  of 
cohesion  objectives.  The  Commission  and  the 
national authorities  must cooperate  further  to im 
prove  programming  and  to  increase  the  trans 
parency  of  policies  and  to  ensure that  effective 
monitoring, control and evaluation systems are in 
place; 

•  more effort should be made to increase the use of 

loans and private sources of finance; 

•  opportunities must be more exhaustively explored 
for networking across regions and across borders 
to  attain common goals  and to exchange experi 
ence and best practice; 

• 

in view of the  complexity  of  present  procedures, 
all  avenues  for  the simplification  of  the  financing 
and implementation of the measures must be ex 
plored; 

•  strengthened subsidiarity should go hand-in-hand 
.  with widely drawn partnerships, which should play 

an active role in the programmes. 

With  regard  to  the  content  of  the  Structural  Fund 
programmes themselves, four priority concerns have 
emerged which Union cohesion policies  have speci 
fically  sought  to  address:  employment  creation, 
which  is the overriding  priority for the  Union and the 
Member States, competitiveness, environmental pro 
tection,  and  equality  of  opportunity  between  the 
sexes. 

Finally,  structural  policies  as  whole  must  become 
more  flexible  than  at  present  in  order  to  adapt  to 
changing circumstances and, in particular, to be able 
to  respond  to  new  challenges  and  opportunities  as 
they arise. 

In seeking to prepare the way forward, it is important 
to begin dialogue now. This Report is intended to lend 

structure to this dialogue.  It will  be  used to launch a 
debate  involving the other  institutions and  bodies of 
the  Union  which  are  preparing  their  own  position 
papers on the future. 

It will be complemented by further initiatives. The first 
is the organisation of a major conference — a Cohe 
sion  Forum —  in  Spring  1997  which  will  provide  a 
platform for a debate on structural  policies with rep 
resentatives of all interested parties. 

Secondly, during 1997, the Commission will complete 
the  mid-term  review  of  progress  under  the  different 
Objectives  since  1994. This  will  provide  an  oppor 
tunity to adapt  the  programmes  to  new  priorities  for 
the remainder of the period, as well as serving as an 
experimental basis for actions to be taken after 1999. 
Meanwhile,  new  strategies  recently  negotiated  for 
Objective  2 (only)  for  the  period  1997-99  will  be  in 
place which will give the Commission the opportunity 
to see how far they reflect a more focused  approach 
to the  major  priorities  which  have  been  agreed  be 
tween the Member States and the Commission. 

The  Report  should  therefore  be  seen  as  a  further 
contribution to the process of improving the effective 
ness of Union action to promote economic and social 
cohesion. 

129 

Chapter 7 Conclusions 

130 

Tables 

Table 2.1 
Regional disparities in income, productivity and unemployment in the Union, 
1983 and 1993 

GDP per head 

GDP per person employed 

(PPS, EUR15=100) 

(EUR15=100) 

Unemployment 

(% labour  force) 

1983 

)993 

1983 

1993 

1983 

1993 

Between Member  States 

Best-off 

Worst-off 
Best-off/Worst-off(a) 
Standard Deviation 

(Gini coefficient) 
Between  Regions 
Best-off 

Worst-off 
Best-off/Worst-off(a) 

10 Best-off 

10 Worst-off 
10 Best-off/Worst-off(a) 

25 Best-off 

25 Worst-off 
25  Best-off/Worst-off(a) 
Standard  Deviation 

(Gini coefficient) 

134.8 
55.1 
2.4 

17.2 
(0.089) 

184.0 

39.0 
5.0 

154.0 

44.0 

3.2 
140.0 
53.0 
2.5 

26.8 

(0.149) 

160.1 

63.2 

2.5 
12.8 
(0.059) 

189.0 
37.0 
4.5 
158.0 
48.0 
3.1 

142.0 

55.0 

2.5 

27.2 
(0.153) 

124.2 

51.3 

2.4 
13.5 

398.0 
32.1 
12.4 

146.0 
49.4 
3.0 

131.3 

63.3 
2.1 
18.0 

124.3 

58.6 

2.1 

14.4 

420.4 
36.6 
11.5 

156.0 

48.6 

3.2 

130.7 

63.1 
2.1 

17.6 

3.3 

17.4 

5.3 
3.1 

.1.7 

22.5 

13.2 

3.8 
19.4 

5.1 

4.8 
17.2 
3.6 
4.2 

2.3 
22.3 
9.7 
4.6 

3.2 
33.3 
9.0 
3.9 
26.4 

6.8 

4.6 

22.4 
4.9 
6.0 

(a) For unemployment, highest  unemployment rate/lowest unemployment rate 

Table 2.2 
Regional disparities in income and unemployment by Member State, 1983 and 1993 

GDP per  head 

Unemployment 

Employment 

PPS (EUR15 = 100) 

Regional  disparity 
(standard  deviation) 

% labour  force 

Regional  disparity 
(standard  deviation) 

Annual 
%  change 

B 

DK 

D(W) 

GR 

E 

F 

IRL 

I 
L 
NL 

A 

P 
FIN 

S 

UK 

1983 

105.4 

108.6 

116.5 

61.9 

70.5 

113.4 

63.6 

101.6 

131.9 

102.7 

107.6 

55.1 

100.7 

1123 

93 7 

1993 

113.6 

112.0 
107.9 
64.5 
77.8 
109.1 
80.2 

103.5 

162.2 
103.6 
112.0 
68.2 
91.4 
98 2 
989 

1983 

14.5 

20.7 

6.6 

12.7 

27.0 

23.4 

27.7 

1993 

17.1 

24.5 

7.6 

15.3 
27.9 

24.6 

11.8 

15.0 

20.2 

1983 

11.1 

8.9 

6.9 

7.1 

17.5 

8.1 

14.0 

7.7 

3.5 

9.7 

4.1 

7.8 

6.3 

3.9 

18.4 

19.0 

11.1 

1993 

8.9 

10.1 
5.9 
8.6 
22.8 
11.7 

15.6 
10.3 
2.7 
6.6 
4.1 

5.7 
17.5 
95 
105 

1983 
0.5 

1993 

1.4 

1.7 
0.7 
3.9 
1.6 

2.8 

1.4 
36 

1.9 
2.4 
5.5 
2.0 

5.9 

0.7 

0.9 

1.9 

2.2 

1.1 

24 

1983-93 
0.4 
0.2 
1.0 

0.8 

0.8 

0.1 

0.2 
0.1 
2.5 
1.9 

0.6 

0.3 

-1.8 

-0.4 

06 

131 

Tables 

B 

DK 

D 

GR 

E 
F 

IRL 

I 

L 

NL 

A 

P 

FIN 

S 

UK 

Table 2.3 
Income distribution and poverty by Member State 

Adjusted wage share  ^ 
(%GDP) 

Personal income 
distribution (Gini coeff.){b) 

% population living below poverty line(b) 

1983 

1993 

early 80s* 

late 80s' 

Reference  years 

early 80s' 

late 80s' 

0.228 

Ô.235 

1978(79)-87(88) 

76.5 

75.2 

72.3 

74.7 

75.5 

76.0 

80.8 

74.2 

73.4 

69.3 

72.4 

73.7 

72.2 

73.9 

71.8 

73.1 

69.5 

68.7 

64.5 

67.9 

68.0 

71.9 

71.4 

73.5 

67.1 

69.5 

64.8 

69.6 

72.5 

73.8 

1981-87 

1983-88 

1982-88 

1980-90 

0.296 

1984(85)-89 

1980-87 

1985-88 

1988 

1980-88 

1980-89 

0.26& 

0.215 

0.220 

0.304 

0.297 

0.330 

0.310 

0.238 

0.247 

0.207 
0.199 
0.270 

5.5 

4.2 

10.9 

18.5 

18.7 

13.2 

18.4 

19.6 

5.0 

27.3 

6.6 

4.9 

11.2 

19.9 

17.3 

14.9 

15.8 

22.0 

9.2 
6.2 

26.5 

1985-88 

14.3 

17.2 

(a)  Compensation of employees as a % of GDP at factor cost, adjusted for self-employment 
(b)  See box for data definitions 

Table 2.4 
Growth of GDP per head in the cohesion countries, 1983-95 

1983 

1984 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

1995 

1983-1993 

1983-1995 

1983-1993 

1983-1995 

1983 

1988 

1993 

1995 

GR 

0.4 

2.8 

3.1 

1.6 

-0.5 

4.5 

3.8 

0.0 

3.1 

0.4 

-1.0 

1.5 

2.0 

1.8 

1.8 

0.5 

0.5 

61.9 
59.6 
64.5 
64.3 

E 

2.2 

1.5 

2.6 

3.2 

5.6 

5.2 

4.7 

3.7 

2.3 

0.7 

-1.2 

2.1 

3.0 

3.0 

3.0 

0.2 

0.2 

70.5 

72.4 

77.8 

76.2 

IRL 

-0.2 

4.3 

3.1 

0.3 

4.7 

4.3 

6.1 

7.8 

2.2 

3.9 

3.1 

6.7 

8.6 

3.9 

4.5 

0.2 

0.2 

63.6 
65.0 
80.2 
89.9 

P 

-0.2 

-1.9 

2.8 

4.1 

5.9 

5.5 

5.3 

4.6 

2.3 

1.1 

-1.2 

0.8 

2.5 

2.8 

2.6 

0.0 

0.0 

55.1 

56.5 

68.2 

68.4 

EUR4 

EUR11 

E U R 15 

1.5 

1.4 

2.7 

2.9 

4.7 

5.1 

4.7 

3.6 

2.4 

0.9 

-0.9 

2.1 

3.2 

2.9 

2.8 

0.2 

0.2 

66.2 
67.4 
74.2 
73.8 

1.7 

2.5 

2.5 

2.9 

2.7 

4.1 

3.3 

2.9 

1.4 

0.9 

-0.7 

2.8 

2.3 

2.4 

2.4 

0.4 

0.8 

1.7 

2.3 

2.5 

2.9 

2.9 

4.2 

3.5 

2.9 

1.5 

0.9 

-0.7 

2.7 

2.4 

2.5 

2.5 

0.4 

0.7 

107.4 

107.2 

1053 

105.4 

100.0 

100.0 

1000 

1000 

Annual  growth  rate 

in GDP  (%) 

Annual  population 

growth  (%) 

GDP per head (PPS) 

EUR15=100 

132 

Table 2.5 
GDP per head in richest and poorest regions in the Union, 1983 and 1993 

Tables 

1983 

Regions 

EUR15=100 

1993 

Regions 

(GDP per head In PPS) 

Hamburg (D) 
Ile de France (F) 
Rg.Bruxelles-Cap./BrusselsHfdst.Gew.(B) 
Wien (A) 
Bremen (D) 
Darmstadt (D) 
Greater  London (GB) 
Oberbayern (D) 
Stuttgart (D) 
Luxembourg (L) 
Highest  10 
Ahvenanmaa/land (SF) 
Stockholm (S) 
Uusimaa (SF) 
Lombardia(l) 
Grampian (GB) 
Berlin (D) 
Valled'Aosta(l) 
Emilia-Romagna (I) 
Antwerpen (B) 
Dûsseldorf (D) 
Karlsruhe (D) 
Mittelfranken (D) 
Trentino-Alto Adige (I) 
Salzburg (A) 
Noord-Holland (NL) 
Highest  25 

Açores (P) 
Guadeloupe (F) 
Extremadura (E) 
Madeira (P) 
Voreio Aigaio (GR) 
Centro (P) 
Guyane (F) 
Alentejo (P) 
Runion (F) 
Norte (P) 
Lowest  10 
Ceuta y Melilla (E) 
Ipeiros (GR) 
Algarve (P) 
Martinique (F) 
Andalucia (E) 
Ionia Nisia (GR) 
Dytiki Ellada (GR) 
Dytiki Makedonia (GR) 
Castilla-la Mancha (E) 
Thessalia (GR) 
Kriti (GR) 
Kentriki Makedonia (GR) 
Anatoliki Makedonia, Thraki (GR) 
Galicia (E) 
Calabria (I) 
Lowest  25 

German new Lander: no data for 1983 

"1 

2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

184 
168 
165 
151 
149 
149 
144 
140 
138 
135 
154 
133 
132 
131 
131 
130 
130 
128 
128 
126 
125 
124 
124 
119 
118 
118 
140 

39 
40 
43 
43 
43 
43 
"  44 
45 
45 
46 
44 
48 
50 
50 
54 
55 
56 
56 
57 
57 
57 
58 
58 
59 
61 
63 
53 

Hamburg (D) 
Rg.Bruxelles-Cap./BrusselsHfdst.Gew.(B) 
Iles de  France 
Darmstadt (D) 
Luxembourg (L) 
Wien (A) 
Oberbayern (D) 
Bremen (D) 
Greater  London (GB) 
Stuttgart (D) 
Highest  10 
Antwerpen (B) 
Grampian (GB) 
Lombardia(l) 
Valle d'Aosta (I) 
Karlsruhe (D) 
Mittelfranken (D) 
Emilia-Romagna (I) 
Ahvenanmaa/land (SF) 
Salzburg (A) 
Trentino-Alto Adige (I) 
Dsseldorf(D) 
Liguria(l) 
Lazio(l) 
Friuli-Venezia Giulia (I) 
Stockholm (S) 
Highest  25 

Guadeloupe (F) 
Açores (P) 
Alentejo (P) 
Madeira (P) 
Runion (F) 
Ipeiros (GR) 
Centro (P) 
Voreio Aigaio (GR) 
Mecklenburg-Vorpommern (D) 
Martinique (F) 
Lowest  10 
Thùringen(D) 
Sachsen(D) 
Sachsen-Anhalt  (D) 
Dytiki Ellada (GR) 
Extremadura (E) 
Ionia Nisia (GR) 
Guyane (F) 
Brandenburg (D) 
Kriti (GR) 
Andalucia (E) 
Algarve (P) 
Thessalia (GR) 
Galicia (E) 
Anatoliki Makedonia, Thraki (GR) 
Calabria (I) 
Lowest  25 

EUR15=100 
189 
1 
183 
2 
163 
3 
164 
4 
162 
5 
161 
6 
158 
7 
154 
8 
144 
9 
141 
10 
158 
137 
134 
132 
131 
127 
127 
127 
127 
125 
'125 
123 
122 
121 
119 
119 
142 

11 
12 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 

37 
42 
42 
44 
47 
47 
49 
50 
52 
52 
48 
52 
53 
54 
55 
55 
56 
57 
57 
58 
58 
59 
59 
60 
60 
61 
55 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

133 

Tables 

Table 2.5a 
Indicators for agricultural, industrial and service regions 

Employment 

Population 

GDP 

Unemployment 

million 

hab/km2 

PPS per  Annual  % 

%199S 

Regions most 
dependent  on{ a ): 

% total 
employment 
1993 

Annual % 
change 
1983-93 

Agriculture 

Industry 

Services 

EUR 15 

27.4 

43.9 

68.8 

0.3 

0.9 

0.7 

0.5 

43.4 

86.7 

88.5 
369.0 

91 

327 

786 

116 

head 
1993 

change 
1983-93 

66 

109 

116 

100 

2.2 

2.3 

2.4 

2.5 

17.1 

8.3 

10.1 

10.7 

% point 
change 
1983-93 

4.3 
-1.0 

1.6 
0.9 

(a> Defined as the 20% of regions  with the highest share of employment in the relevant sector in 1983 

Table 2.6 
Disparities in GDP per head in PPS by region within Member States, 1983-1993 

1983  1984 

1985 

1986  1987  1988  1989  1990 

1991 

1992 

1993 

(EUR15 = 100, standard deviation) 

B 

D (excl new  Lander) 

D (incl new  Lander) 

GR 

E 

F 

I 

NL (incl  Groningen) 

NL (excl  Groningen) 

P 

UK 

A 

FIN 

S 

14.5  16.2 

16.3 

14.9  15.0  15.2  15.2  15.4 

15.9 

16.3 

20.9  21.5 

21.7 

22.4  22.2  21.6  21.7  22.9 

24.5 

25.0 

39.3 

36.8 

6.6 

6.9 

6.5 

6.6 

6.9 

6.9 

6.3 

6.2 

7.0 

7.3 

12.7 

12.5 

13.0 

13.8 

14.0 

14.0 

15.0 

15.0 

16.0 

16.0 

26.7 

25.6 

26.7 

23.4 

23-.5 

24.7 

27.4 

29.6 

32.3 

12.4 

13.7 

18.7 

12.5 

12.9 

18.7 

12.3 

12.9 

18.8 

24.2 

24.0 

25.2 

17.5 

17.5 

17.7 

26.1 

25.3 

19.4 

11.9 

14.9 

20.4 

25.1 

17.6 

28.4 

25.2 

12.8 

10.8 

17.2 

21.2 

25.9 

18.6 

9.3 

9.5 

9.5 

9.5 

9.5 

28.8 

25.9 

11.6 

11.0 

15.3 

21.5 

25.0 

18.8 

12.0 

28.9 

26.1 

10.8 

10.3 

15.7 

21.1 

24.9 

18.3 

11.8 

29.2 

30.2 

28.2 

26.0 

25.0 

25.4 

10.7 

12.0 

11.7 

9.9 

16.9 

20.6 

25.2 

18.4 

11.6 

10.1 

18.5 

19.1 

10.1 

19.1 

18.8 

18.2 

15.7 

11.3 

10.8 

26.1 

26.2 

27.1 

16.8 

23.4 

32.7 

7.7 

15.3 

27.7 

24.8 

11.8 

10.6 

19.9 

19.0 

17.1 

10.5 

27.2 

12.8 

EUR 15  (by  region) 

26.8 

27.1 

27.5 

27.2 

27.0 

26.9 

26.7 

26.9 

29.7 

28.8 

EUR15 (by Member  State) 

17.2 

17.6 

17.5 

17.3 

16.6 

16.2 

15.7 

15.7 

13.5 

13.5 

134 

Table 2.7 
Unemployment rate in worst and least affected regions in the Union, 1983 and 1993 

Tables' 

1983 

Regions 

. 

Andalucia (E) 
Cataluna(E) 
PaisVasco(E) 
Canarias(E) 
Merseyside (UK) 
Extremadura (E) 
West Midlands (County) (UK) 
Region de Murcia (E) 
Comunidad Valenciana (E) 
Northern Ireland (UK) 
Highest  10 
Cleveland. Durham (UK) 
Comunidad de Madrid (E) 
Limburg(B) 
Sardegna(l) 
Dumfries & Galloway, Strathclyde  (UK) 
Comunidad forai de Navarra (E) 
Northumberland, Tyne and Wear (UK) 
Castilla-la Mancha (E) 
Ireland (IRL) 
South Yorkshire (UK) 
Gwent, Mid-South-West Glamorgan (UK) 
Liège (B) 
Principado de Asturias (E) 
Hainaut (B) 
Castilla y Leôn (E) 
Highest  25 

Rate 

22.5 
21.3 
20.4 
19.2 
18.4 
17.3 
17.3 
17.0 
-  16.8 
16.8 
19.4 
16.7 
16.5 
16.0 
15.9 
15.8 
15.7 
15.3 
15.2 
14.8 
14.4 
14.3 
13.7 
13.7 
13.6 
13.6 
17.2 

1 
2 
3 
'  4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

1995 

Regions 

Andalucia (E) 
Ceuta y Melilla (E) 
Extremadura (E) 
Campania (I) 
Calabria (I) 
Canarias (E) 
Sicilia(l) 
Pais Vasco (E) 
Region de Murcia (E) 
Comunidad Valenciana (E) 
Highest  10 
Sardegna(l) 
Itâ-Suomi (FIN) 
Cantabria(E) 
Pohjois-Suomi (FIN) 
Principado de Asturias (E) 
Comunidad de Madrid (E) 
Castilla-la Mancha (E) 
Castilla y Le6n(E) 
Cataluna(E) 
Molise(l) 
Etelâ-Suomi (FIN) 
Vâli-Suomi (FIN) 
Basilicata (I) 
Galicia (E) 
Sachsen-Anhalt  (D) 
Highest  25 

Uusimaa(FIN) 
Stockholm (S) 
Luxembourg (L) 
Smâland med Oarna (S) 
Stuttgart (D) 
Vastsverige (S) 
Ostra Mellansverige (S) 
Tubingen (D) 
Oberbayern (D) 
Freiburg .(D) 
Lowest  10 
Kriti (GR) 
Trentino-Alto Adige (I) 
Darmstadt (D) 
Sydsverige (S) 
Karlsruhe (D) 
Schwaben(D) 
Mellersta Norrland (S) 
Surrey, East-West Sussex (UK) 
Etela-Suomi (FIN) 
Vali-Suomi (FIN) 
Ile de France (F) 
Alsace (F) 
Niederbayern (D) 
Unterfranken (D) 
Liguria (I) 
Lowest  25 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

1.7 
1.9 
3.3 
3.8 
4.0 
4.0 
4.2 
4.3 
4.4 
4.6 
3.8 
4.6 
4.7 
4.9 
4.9 
5.0 
5.0 
5.0 
5.6 
5.6 
5.6 
5.7 
5.7 
5.8 
5.8 
5.8 
4.8 

Salzburg (A) 
Ionia Nisia (GR) 
Tirol (A) 
Notio Aigaio (GR) 
Niederôsterreich (A) 
Luxembourg (L) 
Kriti (GR) 
Kârnten(A) 
Oberbayern (D) 
Vorarlberg (A) 
Lowest  10 
Trentino-Alto Adige (I) 
Schwaben(D) 
Niederbayern (D) 
Centro (P) 
Burgenland (A) 
Madeira (P) 
Steiermark (A) 
Tubingen (D) 
Berkshire, Buckinghamshire, Oxfordshire (UK) 
Oberôsterreich (A) 
Koblenz (D) 
Trier (D) 
Unterfranken (D) 
Oberpfalz(D) 
West-Vlaanderen (B) 
Lowest  25 

Rate 

33.3 
33.0 
30.5 
24.7 
23.7 
23.7 
23.5 
23.0 
22.2 
22.2 
26.4 
21.7 
21.7 
21.4 
21.1 
20.9 
20.7 
20.4 
20.3 
19.9 
18.7 
18.3 
18.1 
17.6 
17.2 
16.7 
22.4 

3.2 
3.4 
3.4 
3.5 
3.6 
3.8 
3.8 
4.1 
4.1 
4.3 
3.9 
4.5 
4.5 
4.6 
4.7 
4.7 
4.9 
4.9 
4.9 
5.2 
5.2 
5.4 
5.4 
5.5 
5.5 
5.5 
4.6 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
'  24 
25 

135 

Tables 

B 

D<"> 

GR 

E 

F 

I 

NL 

P 

UK 
A( b) 

FIN<b> 
s( b) 

EUR12 

Table 2.8 
Disparities in unemployment rates by region within Member States, 1983-95 
(standard deviation) 

1983 

1984 

1985  1986  1987  1988 

1989 

1990 

1991 

1992 

1993 

1994 

1995 

0.5 

1.7 

0.7 

3.9 

1.6 

2.8 

3.5 

1.4 

4.2 

4.2 

3.1 

1.0 

2.0 

0.9 

5.4 

1.9 

3.0 

3.3 
1.0 

1.2 

4.8 

5.0 

3.8 

1.4 

2.2 

1.8 

5.1 

2.0 

3.3 

3.3 

1.1 

2.6 

1.1 

5.3 

5.4 

4.3 

1.3 

2.2 

2.6 

5.0 

1.8 

4.0 

2.9 

3.3 

0.8 

2.6 

1.1 

5.3 

5.4 

4.2 

1.3 

2.2 

•1.9 

5.7 

1.8 

5.2 

2.6 
3.5 
1.0 
2.5 
1.0 
5.5 
5.6 
4.1 

1.6 

2.2 

2.1 

5.0 

1.9 

6.4 

1.1 

3.1 

3.3 

1.2 

2.3 

0.7 

5.4 

5.5 

3.9 

1.4 

2.0 

1.9 

5.4 

1.8 

7.1 

1.0 

2.4 

3.3 

1.2 

1.9 

0.6 

5.2 

5.3 

3.5 

1.3 

1.8 

1.9 

5.4 

1.7 

6.4 

1.2 

2.0 

3.2 

1.1 

2.0 

0.5 

4.9 

4.9 

3.6 

1.0 

1.6 

2.1 

5.3 

1.8 

6.7 

0.8 

1.5 

2.6 

1.1 

2.2 

0.7 

5.0 

5.0 

3.7 

0.9 

1.9 

2.1 

5.4 

2.0 

4.3 

0.7 

1.2 

2.3 

1.0 

2.1 

0.9 

4.9 

4.8 

3.4 

1.0 

1.8 

2.4 

5.6 

1.9 

5.4 

0.7 

1.3 

2.3 

0.8 

2.5. 

1.1 

5.7 

5.6 

4.4 

1.4 

1.8 

2.4 

5.4 

2.1 

6.4 

0.8 

1.8 

2.4 

0.9 

2.4 

1.1 

6.1 

6.0 

5.0 

1.4 

1.9 

2,4 

5.5 

2.0 

5.9 

0.7 

1.9 

2.4 

0.9 

2.2 

1.1 

6.0 

6.0 

4.6 

EUR15 (by region) 

EUR15 (by Member State) 

(a)  West Germany only 
(b)  National data for the years 1983-91 

Table 2.9 
Civilian employment by sector, 1983 and 1993 
agriculture  (%) 

industry  (%) 

services  (%) 

Ireland 
1983 

1993 
Spain{ a) 

1983 

1993 
Portugal( a) 

1983 
1993 
Greece 

1983 

1993 
EUR 5 benchmark(b) 
1983 
1993 

17.5 

13.1 

16.2 
10.2 

21.5 
11.6 

30.0 

21.3 

5.4 

3.6 

30.6 

27.1 

31.8 
30.8 

33.9 
32.9 

27.1 

24.2 

36.3 

31.8 

51.9 

59.7 

51.9 

59.0 

44.4 

55.6 

42.9 
54.5 

58.0 

64.3 

total  ('000s) 

1118 

1155 

10834 

11868 

4225 

4464 

3509 
3715 

78945 

93881 

<a)  1986 and  1993 
(b)  EUR 5 benchmark  is a weighted  average of Belgium, Germany,  France, the Netherlands and the UK. Germany includes  the new 
Lander in  1993 but not in 1983. 

136 

Tables 

.  Table 2.10 
Participation and employment rates by age and sex 
in the Cohesion Four, 1983 and 1993 

Men 

Women 

Participation 

Employment 

Participation 

Employment 

(%  population 

in each age group) 

(% population in each age group) 

1983 

1993 

1983 

1993 

1983 

1993 

1983 

1993 

Ireland 

15-24 

25-54 

55-64 
Spain  w 
15-24 
25-54 
55-64 
Portugal *a) 

15-24 

25-54 

55-64 

65.4 
95.0 
76.4 

54.5 

94.4 

66.1 

69.7 
93.5 
64.7 

50.4 

Greece 
15-24 
25-54 
55-64 
70.8 
EUR 4 benchmark(b) 

95.1 

15-24 

25-54 

55-64 

54.0 

95.3 

55.8 

49.5 

91.1 

65.2 

47.5 
93.0 
59.2 

51.9 
94.0 
62.8 

43.1 

94.3 

58.6 

49.5 
93.6 
48.8 

50.2 

82.7 

70.3 

30.4 

80.6 

57.5 

58.3 

89.0 

63.1 

41.8 
90.5 
68.8 

46.4 
90.3 
52.9 

36.2 

78.2 

60.1 

28.9 

78.8 

52.1 

46.9 
90.7 
60.1 

34.5 
89.9 
56.9 

42.9 
87.9 
45.1 

55.2 

36.8 

20.2 

38.8 

36.0 

19.2 

53.0 
61.5 
29.2 

36.2 

43.8 

25.7 

47.5 

58.8 

25.6 

44.0 

51.4 

20.1 

38.0 

51.9 

20.4 

43.0 

72.2 

34.0 

34.6 
53.1 
22.3 

45.5 
70.1 
26.5 

44.8 

31.2 

18.6 

19.5 

30.0 

18.0 

39.5 

56.2 

28.6 

25.3 

40.1 

25.2 

39.2 

54.1 

24.2 

34.1 

43.9 

18.0 

20.3 

38.5 

18.7 

36.6 

68.4 

33.4 

21.1 

47.0 

21.9 

39.0 
64.1 
24.3 

(a)  1986 and 1993 
(b)  EUR 4 benchmark is a weighted average  of Belgium, Germany  France and the Netherlands 

Table 3.1 
Population coverage of national assisted areas, 1996 (%) 

Overall coverage 

Least developed regions 

Other problem  regions 

GR 

IRL 

P 

E 

I  . 

L 

F 

FIN 

UK 

D 

A 

B 

DK 

S 

NL 

100.0 

100.0 

100.0 
75.9 
48.9 

42.7 

42.4 
41.6 
38.1 

37.6 

35.2 

35.0 
19.9 
18.5 

17.3 

100.0 
100.0 
100.0 
59.6 
34.2 
0.0 
2.5 
0.0 
2.9 
20.8 
3.5 
0.0 
0.0 
0.0 
0.0 

0.0 

0.0 

0.0 

16.3 

14.7 

42.7 

39.9 

41.6 

35.2 

16.8 

31.7 

35.0 

19.9 

18.5 

17.3 

137 

Tables 

Table 3.2 
The impact of government expenditure and taxes on regional disparities in GDP per head 
in selected Member States, 1993 
(Gini coefficients of the distribution of GDP between regions before and after transfers) 

Before transfers 

After  transfers 

Equalisation effect  (%) 

F 

D 

I 

P 

E 

S 

UK 
Average  reduction in inequality(a) 

11] 

0.12 

0.15 

0.13 

0.15 

0.11 

0.05 

0.07 

Reduction in inequality in 7 countries as a whole: 

in GDP (ECU) 

in GDP (PPS) 

0.19 

0.14 

[2] 

0.11 

0.12 

0.10 

0.13 

0.07 

0.04 

0.04 

0.17 

0.12 

[2]/[1] 

-8 
-16 
-28 
-11 
-38 
-14 
-33 
-23 

-10 
-15 

See Sources for an explanation of the Gini coefficient  and  the method used to derive the estimates of the effect of budget  transfers. 
Budget  transfers are government expenditure, including  social protection  benefits and allov/ances (except in France and Germany), 
less taxes. 
(a) vseighted by  population 

Table 3.3 
The effect of budget transfers on selected regions with similar GDP per head, 
1993 

Transfers 

GDP 

Net GDP 

% regional GDP 

ECU per  head 

ECU per  head 

ECU per head * 

Lisbon  & VT (P) 

Brandenburg  (D) 

Wales  (UK) 

Aragon  (E) 

North  (UK) 

North-West  (UK) 

West  Midlands  (UK) 

East Anglia  (UK) 

Languedoc-Roussillon (F) 

Toscana  (I) 

Bretagne  (F) 

Midi-Pyrénées  (F) 

See the notes  to table 3.2 
'GDP plus  net transfers (Column 2) 

-2 
17 
8 
-3 
9 
4* 
1 
-3 
9 
-7 
3 
5 

-187 

1807 

932 

-379 

1176 

552 

75 

-358 
1272 
-1025 
395 
869 

10207 

10637 

11734 

11776 

12433 

12507 

12722 

14140 

14500 

15450 

15621 

15842 

10020 

12444 

12666 

11397 

13609 

13059 

12797 

13782 

15772 

14425 

16016 

16711 

138 

Tables 

4„1  Flows  generated  by  t he  CAP  ( m a r k et 

4 >%  Flows  generated, by  the  CAP  ( m a r k et 

•  Direct  payment 

•  Net  trade  transfer 

200 

150 

policies),  1994 

ECU per  head 

•  Direct  payment 

•  Net trade  transfer 

policies),  1991 

ECU  per  head 

200  r 

50  V 

I O 

B/L  DK 

IRL 

BO. 

DK 

GR 

IRL 

I 

NL 

-100 

The calculation of tra 
of simplifying assume 
no international re fen 
Transfers  arise  betw-: 
States — 'a net trade 
producers  are  estimé 
support'. OECD data. 
relate to a period ben 
Direct payments are 
comparisons involvin 
transitional arrangerr, 

-sfers associated  with the CAP was undertaken  by external experts (College of Europe). It involves a number 
•:ions,  due  to the individual nature of different agricultural  markets and the fact that for some products,  there is 
•r,ce price.  See Sources and  Methods below. 
•r=n  consumers  and producers  as a result of  EU price  support.  This gives  rise to transfers between  Member 
yansfer' — which depends  on national patterns  of consumption and production.  Transfers from consumers to 
•.:ed  by  multiplying  the amount  of  each product  available  for consumption in  each  country  by  the EU  'price 
s used to calculate PSEs (Producer Subsidy equivalent) and CSEs (Consumer Subsidy Equivalent). These data 
ye  the Uruguay Round Agreement.  Support rates for fruit, vegetables, wine and olive oil, had to be estimated, 
unrelated  to production  and  affect  sectors  such  as  cotton  and  tobacco.  In the case  of Portugal  and Spain, 
g  data  for  the period  before  1993 are of limited  relevance  because  their agricultural  sectors  were subject  to 

nts, negociated  on accession  in  1986,  during  that period. 

Trans-European Transport  Networks - expenditure by main mode 

Table 4.8 

Total spending 

EIB loans 

Structural Funds 

TENs 

of which: 

EUR 4 

(ECU mn) 

24489 

26473 

3751 

5968 

8577 

1272 

76617 

( % )• 

11 

67 

9 

61 

15 

68 

35 

of which: 

of which: 

of which: 

(ECU mn) 

3574 

6551 

38 

1041 

1284 

234 

13485 

EUR 4 
(%) 
22 
63 
86 
24 
14 
58 
40 

(ECU mn) 

11 
3309 
23 
1608 

303 

104 

5373 

EUR 4 
(%) 
100 

96 

100 

100 

100 

100 

98 

(ECU mn) 

164 

78 

102 

51 

0 

3 

445 

EUR 4 
(%) 
4 

87 

27 

31 

0 

3 

27 

TGV 

Roads 

Combined  transport 

Rail 

Air 

Ports 
TOTAL (a) 

(3)  Includes spending on other modes 

Table  4.9 

Improvements  in market  access due to TENs 

(increase  in % population  reachable within a 6 hour round trip) 

Major Cities - Core 

Major Cities -  Periphery 

Medium Cities - Core 

Medium Cities - Periphery 

Paris 

Frankfurt 

Brussels 

Amsterdam 

5% 

11 % 

26% 

19% 

Madrid 

Barcelona 

Lisbon 

Athens 

20% 

20% 

16% 

26% 

Liege 

Utrecht 

Lille 

Odense 

61% 

35% 

29% 

61% 

Cuenca 

Umea 

Alexancrcpoulous 

Mede 

10% 

11% 

11% 

5% 

139 

4.2.  EAGGF  Guarantee  and  Guidance  expenditure,  by  Member  States 

EAGGF Guarantee expenditure (1) 

1990 

2 

1991 

3 

1992 

4 

1993 

5 

1994 

6 

1 

I 

1468.5 
1220.3 
5234.5 
2211.2 
3314.3 
6394.4 
1731,1 
5353.4 
2.8 
2679.3 

315,6 

1378,2 
1166.8 
4830.5 
2231.4 
3578.1 
6916.5 
1452,8 
5141.5 
1,1 
2389.8 

423,8 

1298,7 
1334.7 
4976.2 
2715.0 
4175.7 
8184,8 
1649,9 
4765,4 
7,3 
2328,1 

. 
1170,4 
1278,4 
5179,9 
2718,9 
4408,3 
8001,2 
1480,0 
3460,6 
12,1 
1916,0, 

478J 

708.4 

2391,3 
69.2 
32385,9 

2451,1 
145,9 
32107,5 

2737,9 
96,4 
34748,2 

2939,0 
139.0 
33412,2 

873.7 
1113.7 
4355.2 
1949.7 
2120.8 
5142.2 
1668.4 
4150,3 
5,2 
2868.7 

214,2 

1975.9 
15,5 
26453.5 
L_ 

1 

EUR 15 
Belgique/België 
Danmark 
BR Deutschland 
Ellâda 
Espana 
France 
Ireland 
Italia 
Luxembourg 
Nederiand 
Osterreich 
Portugal 
Suomi/Finland 
Sverige 
United Kingdom 
Community (3) 
EUR 12 

Source : European Commission, Directorate-General for Agriculture. 

(1) Adjusted for expenditure  against carryovers and the financial consequences of clearance of accounts decisions 

(ECU -377,9 million in 1990, ECU -437.8 million in 1991, ECU +78,9 million in 1992. 
ECU -384.8 million in 1993 and ECU -612 million in 1994). 

(2) Expenditure from appropriations for commitment. 
(3) Payments direct to recipients made by the Commission for the EAGGF Guarantee Section and "multi-State" expenditure for the EAGGF'Guidance Section. 
(4) Financing under Art.8 for 25 beneficiaries  across the Member States. 

139a 

Table 4.11 
Output and employment 
in the energy sector, 1985 and 1992 

1985 

% total GDP 

1992 

% total employment 

1985 

1992 

4.9 

2.4 

4.9 

4.4 

5.6 

5.0 

5.1 

4.7 

2.1 

11.8 

3.7 
10.7 
6.2 
5.3 
6.4 

4,4 

2.6 

3.7 

4.0 

6.2 

5.1 

3.1 

5.5 

1.4 

6.4 

3.0 

5.3 

4.7 

5.3 

4.6 

1.8 

0.8 

2.1 

2.4 

1.9 

1.5 

2.0 

1.3 

0.9 

1.6 

1.4 

2.6 

1.9 

1.9 

1.9 

1.1 

0.8 

1.7 

2.2 

1.3 

1.2 

1.7 

1.2 

0.5 

1.3 

1.2 

1.7 

1.4 

1.4 

1.4 

Table 4.12 
Funding for TEN energy projects (ECU mn) 

Cost 

294.9 

1538.0 

1727.7 

601.0 

2791.7 

913.5 

4193.6 

1947.0 

145.4 

14447.7 

6253.2 

EIB 

88.5 

280.4 

563.8 

70.7 

1126.4 
370.9 
1312.0 

598.8 

91.8 

4591.8 
2166.8 

EIF 

SF 

Other EU 

178.5 

160.2 

116.0 

86.8 

222.0 

763.5 

676.8 

83.0 

102.0 

185.0 

107.2 

107.2 

107.2 

Tables 

B 

DK 

D 

GR 

E 
F 

IRL 

I 

L 

NL 

P 

UK 

EUR 12 

EUR 4 

EUR 8 

B 

DK 

D 

GR 

E 

IRL 

I 

P 

UK 

TOTAL 

EUR 4 

140 

Tables 

Table 4.13 

Expenditure on environmental protection in the Community, 1992  ^ 

Total 

Division per medium  (%) 

Environmental  expenditure 

Environmental 
Investment^ 

ECUbn 

Waste 

Air 

W a t e rw  Noise(c) 
• 

Nature 
protection 

%  GNP 

ECU 
per  head 

% total 
investment 

B/L 

DK 

D 

F 

I 

NL 

UK 

GR 

E 

IRL 

P 

1.2 

1.2 

20.5 

12.9 

6.8 

3.5 

12.4 

0.3 

3.9 

0.3 

0.3 

Total 

63.3 

40 
33 

24 

34 

47 

33 

35 

22 

35 

52 

30 

33 

17 
10 

23 

8 

4 

13 

12 

2 

2 

11 

4 

13 

30 
53 

50 

54 

47 

43 

46 

72 

46 

33 

52 

49 

5 
1 

2 

2 

1 

4 

3 

1 

1 

3 

1 

2 

8 
3 

1 

2 

1 

7 

4 

3 

16 

1 

13 

3 

0.7 

1.1 

1.5 

1.3 

0.7 

1.4 

1.5 

0.5 

0.8 

0.7 

0.5 

1.2 

120 
225 
255 
226 
119 
232 
214 

29 

100 

73 

34 

183 

1.1 

3.0 

3.0 

1.6 

0.8 

1.6 

4.9 

1.0 

1.4 

2.0 

1.0 

2.2 

{a) Expenditures on environmental protection,  excluding R&D, nuclear power and water resource management (dams, drinking water), 
improvement of living conditions  (urban  spaces, pedestrian  zones), development  of renewable  energy sources and better energy 
use, expenditure by private  households ("ecoproducts").  On the other hand, expenditure on street cleaning and additional  cost of 
clean  technologies are  included 
(b)  Waste water treatment, excluding  protection  of ground  water and  water abstraction (though in some countries the latter is partly 
included) 
(c)  Tns definition and the accounting  of expenditure on this vary widely from one country to another;  the estimates must therefore  be 
interpreted  with caution 
(d* Figures vary substantially from year to year due to cyclical fluctuations in total investment,  the timing of which itself differs  between 
courrjies. 

Table 4.14 
Estimated environmental investment requirements in the cohesion countries 
up to 2005 (ECU mn) 

Urban waste water 

Industrial waste  water 

Urban solid waste 

Industrial solid waste  ^ 

Other  (maintenance, training, 

ballaswater  and  education) 

Total 

GR 

1000 
200 
100 
10 
100 

1410 

IRL 

600 

(a) 

200 

1 

100 

901 

P 

1300 
2000 
100' 
200 

200 

3800 

E 

7700 

2400 

400 

110 

310 

EUR 4 

10600 

4600 

800 

311 

700 

10900 

17011 

(a)  included  in urban water 
(b)  For Spain includes only Objective  1 regions 

141 

Tables 

Table 4.15 
The Spanish economy in 2010: alternative environmental policy scenarios 

PIP, INT and INT+relative to base  projection 
(unless otherwise  stated) 

GDP 

Investment 

Employment 

Unemployment  rate  ^ 

(Difference  from  base 
projection) 
Public  deficit (% GDP) 

PIP 

0.02 
1.4 
0.1 

12.7 

-0.1 

-2.9 

INT 

-0.1 
2.6 
0.7 

12.4 

-0.4 

-2.5 

INT+ 

0.6 

3.0 

2.2 

12.2 

-0.6 

-2.7 

Base projection, policy  enacted  up to 1992 
PIP (policy in the pipeline), projection  incorporating  the 5th Environmental Programme 
INT (integration of  environmental  objectives into  economic policy),  projection  with revenue from environmental taxes  spent  on  tne 
environment and returned to consumers in lower other taxes 
INT+ (integration of environmental objectives into economic policy plus  'double dividen  '), projection v/ith revenue from environmental 
taxes used to reduce  taxes on employment (social  charges) 
(a)  Levels in each scenario 

Table 5.1 
Community resources, 1988-99 

1988 

ECUbn 
(1988  prices) 

1993 

ECUbn 
(1992  prices) 

Agriculture 

Structural action  of which: 

Cohesion  Fund 

Structural  Funds 

Internal  policies 

External  action 

Other 

Total  commitments 

27.5 
8.9 

8.9 

2.2 

6.7 

45.3 

60.7 

19.6 

19.6 

4.8 

14.8 

100 

35.2 

21.3 

1.5 

19.8 
3.9 
4.0 
4.8 

69.2 

% 

50.9 
30.8 
2.2 
28.6 

5.6 

5.8 

6.9 

100 

1999 

ECUbn 
(1992 prices) 

38.4 

30.0 

2.6 

27.4 

5.1 

5.6 

5.0 

84.1 

45.7 

35.7 

3.1 

32.6 

6.1 

6.7 

5.9 

100 

142 

Table 5.2a - 5.2b 
Scale of structural intervention (including Cohesion Fund and Community Initiatives), 
1989-93 and 1994-99 

Tables 

Total 

357 
157 
6151 
3091 
6201 
3408 
2212 
5232 
25 
419 
3789 
2469 
33511 

1989-1993 (annual average) 
Total 

EU intervention 

ECU mn 

EU intervention 

% GDP (a) 

173 
86 
1680 
1834 
3017 
1387 
980 
2374 
15 
163 
1892 
1066 
14666 

0.22 
0.15 
0.48 
4.47 
1.54 
0.35 
5.99 
0.60 
0.28 
0.18 
6.15 
0.31 
0.63 

0.11 

0.08 

0.13 

2.65 

0.75 

0.14 

2.66 

0.27 

0.17 

0.07 

3.07 

0.13 

0.29 

1994-1999 (annual average) 

Total 

EU intervention 

Total 

EU intervention 

ECUmn 

%  GDP( b) 

1050 
426 
13852 
5793 
13703 
6940 
2180 
9581 
56 
1256 
5300 
' 4781 
64916 
1438 
1077 
848 
68279 

349 
140 

3622 

2956 

7066 

2491 

1234 

3608 

17 

436 
2940 
2164 
27024 
316 

331 

261 

27932 

0.55 

0.34 

0.80 

7.20 

3.37 

0.62 

4.98 

1.12 

0.48 

0.52 

7.17 

0.56 

1.10 

0.86 

1.31 

0.16 

1.10 

0.18 

0.11 

0.21 

3.67 

1.74 

0.22 

2.82 

0.42 

0.15 

0.15 

3.98 

0.25 

0.45 

0.19 

0.40 

0.37 

0.51 

B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EUR12 

B 
DK 
D 
GR 
E 
F 
IRL 
I 
L 
NL 
P 
UK 
EUR12 
O 
SF 
S 
EUR15 

(a)  verageGDP,  1989-93 

GDP in  1994 

143 

Tables 

B 

DK 

D 

GR 

E 

F 

IRL 

I 

L 

NL 

P 

UK 

EUR 12 
% 

B 

DK 

D 

GR 

E 

F 

IRL 

I 

L 

NL 

P 

UK 

A 

SF 
S 
EUR 15 
% 

Table 5.3a - 5.3b 
Breakdown of Structural Funds by objective, 1989-93 and 1994-99 

Obj.1 

Obj.2 

Ob]. 5a 
agric. 

1989-93 (ECU mn) 
Ob). 5b 
Ob]. 5a 
fish. 

Total 

C I/ 

Obj.3 
&4 
344 
171 
1054 

214 
25 
581 

134 
91 
878 

1506 
1225 

837 
1442 

229 
1274 

387 
12 
165 

903 
11 
405 

493 
29 
79 

2015 
6130 
9.7 

1502 
6669 
10.6 

316 
3523 
5.6 

2955 
7528 
10171 
957 
.4460 
8504 

8450 
793 
43818 
69.6 

Ob].  1 

Ob]. 2 

Obj.3 

Ob].4 

15 
94 
36 

92 
135 

106 

43 

58 
579 
0.9 

33 
21 
511 

265 
874 

360 
3 
33 

132 
2232 
3.5 

740 
402 
6015 
7528 
13100 
5907 
4460 
10753 
55 
725 
8450 
4816 
62951 
100 

124 
28 
416 
712 
1129 
566 
295 
667 
22 
89 
724 
513 
5285 

730 

13640 
13980 
26300 
2190 
5620 
14860 

150 

13980 

2360 

162 

93972 
68.0 

341 
119 

1566 

2415 
3769 

1462 
15 
650 

4580 
99 
179 
157 
15352 
11.1 

396 
263 

1681 

1474 
2562 

1316 

21 

923 

3377 

329 

254 

342 

12938 
9.4 

1994-99 (ECU mn at 1994 prices) 

Ob].5a 
agric. 
170 
127 

Ob].5a 
fish. 
25 
140 

69 
38 

260 

1070 

75 

369 
641 

399 
1 
156 

60 
83 
170 
2246 
1.6 

326 

1746 

680 

39 
118 

186 

377 

324 

88 

5251 

3.8 

120 
190 

134 
1 
47 

89 

2 

23 

39 

885 

0.6 

Ob].  5b 

Ob]. 6 

Total 

C.I.* 

77 
54 
1227 

664 
2236 

901 

6 

150 

817 

403 

190 

135 

6860 

5.0 

1808 

741 

19519 
13980 
31668 
13334 

5620 

19752 

83 

2194 

13980 
11409 
1432 
1503 
1178 

138201 

100 

288 
102 
2211 

1154 

2781 
1605 
484 

1897 

19 

422 
1061 
1573 
144 

151 
126 
14018 

450 
247 
697 
0.5 

'  Community  Initiatives, including  200 mn. ECU (at  1995 prices)  resulting  from a revision to the financial  forecasts  decided  by  the 
Council  in order  to fund the PEACE Initiative, but  excluding  around 64 mn. ECU for networks. 

-\AA 

Tables 

Table 5.4 

EIB financing and of regional development 

EIB financing 

. 

Individual loans  and credits extended on 

global current loans 

Total  EIB activity  in Member  States 

Regional development 

Objective  1 regions 

Objectives 2,5b and 6 regions 

Other regions in receipt of Community 

assistance 

Other regions in receipt of national aid 

Projects covering several regions 

Regions eligible  under  Structural  Funds 

- of which: individual  loans  in receipt  of 
Community  subvention 

Amount 

(ECU mn) 

70,008 

47,128 

25,046 

16,916 

1,5000 

1,306 

2,360 

41,962 

10,669 

1989-99 

% total 

activity 

100 

67 

36 

24 

2 

2 

3 

1994 

1995 

%  regional 

development 

Amount 
(ECU mn) 

Amount 
(ECU mn) 

100 

53 

36 

3 

3 

5 

10 

25 

16,605 

12,035 

5,748 

4,875 

60 

1,352 

10,623 

3,246 

17.782 

12,143 

5,881 
5,449 

813 

11,330 

4,434 

EIB financing (individual  loans and credits  on global loans) in areas eligible for  Structural  Fund aid 
Division by Objective and  sector 

Transport  Telecom  Water/ 

Energy 

Other 

Environment 

Total 
infrastruct. 

Agriculture, 
industry, 

Total 

services 

of which: 
credits  on 
global 
loans 

Objective 1 

ECUmn 

% 
Objectives  2+5b 

ECUmn 

% 

5598 

5176 

1498 

22 

21 

6 

5016 

1423 

. 30 

8 

2411 

14 

3909 

9 

Total Obj. 1+2+5b 

10614 

6599 

% total Objectives 

Total  regional 
development 
% total reg. devel. 

Obj.  1+2+5b, % 
regional  development 

25 

16 

12677 

7466 

4473 

27 

84 

16 

88 

9 

87 

1989-93 

1169 

18300 

5 

73 

542 

3 

1712 

4 

1816 

4 
94 

10669 

63 

28969 

69 
32771 

70 

4859 

19 

1276 

8 

6135 

15 

6339 

13 

97 

6745 

27 

6246 

37 

25045 
100 

16916 

100 

12991 

41960 

31 

100 

14359 

47130 

30 
90 

100 

89 

3757 
15 

4171 

25 

7928 

19 
9320 

20 

85 

Total activity 

17809 

.8935 

7830 

12018 

2123 

48715 

21293 

70008 

14490 

1994 and 1995 

Objective 1 

ECUmn 

% 

Objectives  2+5b+6 

ECUmn 

% 
Total Obj. 1+2+5b+6 

% total Objectives 

Total  regional 

development 

% total reg. devel. 

Obj.  1+2+5b,% 
regional  development 
Total activity 

4307 

1901 

37 

9 

900 

8 

2320 

20 

3949 

38 
8256 

38 

297 

1040 

1614 

3 
1388 

6 

10 
1940 

9 

16 
3935 

18 

8595 

2810 

1995 

4113 

36 

96 

12 

49 

8 

97 

17 

96 

549 

5 

240 

2 

789 

4 

789 

3 

100 

9167 

79 

7140 

69 

16307 

74 

18302 

76 
89 

2461 

21 

3184 

31 

5645 

26 

5877 

24 
96 

11269 

1044 

100 

9 

10324 
100 

21953 

100 

2061 

20 

3104 

14 

24178 

4645 

100 

91 

19 
67 

12079 

3040 

3668 

6467 

941 

26195 

8192 

34387 

7098 

145 

Tables 

Spain 

Portugal 

Greece 

Ireland 
Total(a) 

Spain 

Portugal 

Greece 

Ireland 
Total(8) 

Table 5.5 
Breakdown of Cohesion Fund, 1993 and 1994-99 

Actual commitments for 1993 (ECU mn at current prices) 

Transport 

Environment 

ECUmn 

606 

161 

105 

86 

958 

3983 

1380 

1235 

665 

7262 

% 

71.0 

57.0 

38.0 

61.0 

61.0 

• 

ECUmn 

252 

123 

175 

56 

606 

Estimates for 1994-99 as in CSF (ECU mn at 1994 prices) 

50.1 

53.0 

47.5 

51.1 

50.2 

3967 

1221 

1367 

636 

7192 

% 

29.0 

43.0 

62.0 

39.0 

39.0 

49.9 

47 0 

52.5 

48.9 

49.8 

Total 

859 

284 

280 

142 

1565 

7950 

2601 

2602 

1301 

14454 

<a) Including  technical assistance and studies 
Expenditure on transport and environment for  1994-99 is estimated on the basis of actual commitments in 1994 and 1995. 

Table 5.6 
Distribution of Structural Funds by broad target area in Objective 1  regions, 
1989-93 and 1994-99 (%) 

Infrastructure 

1989-1993 

Human 
resources 

Productive 
environment 

Infrastructure 

1994-1999 

Human 
resources 

Productive 
environment 

B 

D 

GR 

E 

F 

IRL 

I 

NL 

P 

UK 

O 

Average 

EUR 4 average 

22.5 

40.9 

54.0 

39.4 

27.7 

38.7 

29.2 

29.5 

35.2 

38.0 

26.5 

25.6 

24.2 

28.7 

38.0 

21.6 

26.1 

46.0 

29.6 

28.5 

48.5 

34.7 

21.5 

31.1 

33.4 

39.3 

37.7 

22.5 

33.6 

31.8 

18.9 

40.5 

45.9 

40.4 

27.9 

19.7 

29.8 

24.0 

29.7 

28.4 

19.8 

29.5 

33.9 

34.7 

28.0 

24.6 

28.4 

27.2 

43.9 

21.4 

26.7 

29.4 

37.9 

25.9 

29.8 

31.6 

45.8 

30.5 

27.8 

30.5 

34.2 

36.2 

48.2 

37.3 

35.7 

30.2 

51.9 

37.1 

32.6 

146 

Table 5.6a 

Income and unemployment trends in assisted regions, 1983-93 

Regional data by Objective 

GDP per  head 

(PPS, EUR12 = 100) 

Unemployment  rate 

(% labour  force) 

1983 

1989 

1993 

1983 

1989 

1993 

1 

64l6 

65.4 

67.2 

12.4 

14.5 

16.2 

2 

98.0 

96.3 

92.1 

12.5 

11.0 

12.2 

5b 

86.0 

84.4 

85.3 

7.7 

6.5 

6.9 

Tables 

EUR12 

Average 

100 

100 

100 

9.6 

8.8 

10.3 

Note:  the figures  for Objective  2 and 5b  are estimates, since  the geographical  coverage does not correspond  precisely  with any 
regional  classification  for which comparable  data exist. 
M  Objective  1 excludes  new Lander. 

Table 5.7 
Distribution of Structural Funds by broad target area in Objective 2 regions, 1989-93 and 
1994-99 (%) 

Physical 
regeneration  & 
environment 

1989-1993 

Human 
resources 

Productive 
environment 

(•) 

Physical 
regeneration  and 
environment 

1994-1999 

Human 
resources 

Productive 
environment(a) 

B 

DK 

D 

E 

F 

I 

L 

NL 

UK 

O 

SF 

23.9 

37.8 

67.7 

37.0 

42.4 

85.2 

16.9 

13.4 

19.1 

60.0 

5.8 

2.6 

19.3 

17.9 
4.3 
43.6 
19.0 

56.2 

34.5 

54.5 

29.4 

43.1 

38.3 

7.8 

37.1 

67.5 

S 
Average *b' 

36.0 

21.3 

40.9 

16.9 

25.1 

18.9 

23.5 

19.6 

57.2 

15.4 

15.8 

10.3 

15.8 

18.2 

33.1 
57.0 
40.0 
28.0 
34.8 
29.8 
28.6 
37.8 
34.2 
27.9 
31.7 
34.2 
34.8 

47.5 
41.0 
33.4 
52.4 
40.2 
49.0 
14.3 
43.8 
49.0 
60.3 
65.1 
49.0 
45.4 

(a)  Includes  expenditure  on economic  infrastructure 
(b)  Technical assistance,  representing  an average  of  1.3% of total funding, not included 

147 

Tables 

Table 5.8 
Distribution of Structural Funds by broad target area in Objective 5b regions, 1989-93 and 
1994-99 (%) 

1989-1993 

1994-1999 

Infra 
structure 

Environment 

Human 
resources 

Productive 
environment 

Infra 
structure 

Environment 

Human 
resources 

Productive 
environment 

B 

DK 

D 

E 
F 
I 

L 

NL 
UK 
O 
SF 

S 
Average *a) 

9.1 

28.2 

9.0 

39.6 

17.0 

18.9 

17.9 
6.7 
33.9 

11.9 

27.9 
16.9 
13.3 

9.3 

19.8 
9.8 

24.0 

30.0 

17.4 

14.8 

20.3 

14.2 

10.7 

26.8 

21.3 

54.9 

41.8 

44.5 

28.7 

47.6 

55.9 

71.4 

45.4 

35.0 

3.8 

8.3 

11.9 

10.3 
9.2 
0.8 
34.4 
0.7 
8.4 
4.0 

7.1 

16.9 

10.2 

10.9 
10.5 
8.2 
23.8 

7.8 

7.8 

8.1 

20.0 

12.1 

20.0 

47.2 

8.4  • 

10.3 

(a)  Technical assistance, representing an average of  1.5% of total funding,  not  included 

16.6 

19.6 

17.9 

13.4 

12.8 

13.4 

12.8 

11.4 

16.1 

16.9 

16.6 

15.3 

69.9 

78.3 

51.5 

66.1 

65.1 

74.0 

41.0 

62.8 

66.5 

69.9 

66.6 

64.7 

Table 5.9 
Distribution of Structural Funds by broad target area in Objective 6 regions, 1995-99 

Finland 

Sweden 

Total (ECU mn  1994) 

Total  (%) 

Infrastructure 

% 

6.0 

4.0 

36.7 

5.3 

Human 
resources 
% 

Productive 
environment 
% 

25.4 

27.6 

182.2 
26.1 

66.7 
63.5 
456.9 
65.6 

Other 

Total 

% 

1.9 

4.9 

21.1 

3.0 

ECU mn  1994 

450.0 

246.8 

696.8 

148 

Tables 

Table 5.10 
Breakdown of expenditure on human resources (ECU mn) 
under Objectives 3 and 4 

1989-93 
Obj. 3 & 4 
% 

% total 

1994-96/99 

Ob]. 3 

of which (% expenditure in Member States): 
E.O. 
LTU 

Y.P. 

E.P. 

B 
DK 
D 
E 
F 
I 
L 
NL 
UK 
0 
SF 
s 
Tota! (%) 
Total (ECU mn) 

5.2 
2.6 
15.8 
12.5 
21.6 
13.5 
0.2 
6.1 
22.5 

100.0 
6670 

3.6 
2.4 
15.2 
13.3 
23.2 
11.9 
0.2 
8.3 
13.6 
3.0 
2.3 
3.1 
100.0 
11065 

33.6 
54.8 
56.6 
33.8 
27.5 
32.1 
28.6 
52.0 
37.4 
34.0 
42.4 
27.9 
38.1 
4220 

21.5 
20.9 
26.3 
49.2 
38.5 
43.0 
14.3 
13.0 
31.6 
7.0 
31.8 
50.0 
33.7 
3733 

31.3 
22.1 
4.6 
12.7 
27.9 
10.0 
47.6 
30.0 
23.9 
32.6 
23.9 
18.2 
19.7 
2182 

LTU: Long-term unemployed 
Y.P.: Youth unemployed 
E.P.: People excluded from the labour market (unemployed and inactive) 
E.O.: Equal opportunies 
A. VJ. : Adaptation of workers to industrial change 

6.8 
0.0 
9.5 
4.2 
0.7 
8.0 
4.8 
0.0 
6.0 
18.2 
0.0 
0.0 
4.7 
523 

Ob 

.4 

% total 

of which: 
A.W. 

1.5 
0.8 
6.2 
21.9 
17.8 
23.7 
0.1 
9.3 
0.0 
3.6 
4.9 
10.1 
100.0 
1682 

92.3 
92.3 
100.0 
100.0 
100.0 
80.5 
100.0 
100.0 
0.0 
96.7 
95.2 
91.2 
93.9 
1580 

149 

Tables 

Table 5.11a-5.11b 
Population assisted and allocation per head by Objective, 1989-93 and 1994-99 

Objective 1 

Objective 2 

Objective 5b 

. 

% national 

allocation 

population 

(ECU/head) 

% national 
population 

allocation 
(ECU/head) 

%  national 
population 

allocation 
(ECU/head) 

1989-93 

100.0 
57.7 
2.7 
100.0 
36.4 

100.0 

2.8 

21.7 

62.0 

150.0 

91.0 

120.0 

253.0 

82.0 

171.0 

87.0 

123.3 

22.1 
4.9 
12.4 

22.2 

18.3 

6.6 

38.0 

9-9 

35.5 

16.8 

19.0 

20.0 

16.0 

35.0 

25.0 

21.0 

16.0 

22.0 

20.0 

20.6 

2.7 

2.1 

7.4 

2.5 
9.7 

5.0 

0.8 

3.0 

2.6 
5.0 

26.0 
39.0 
23.0 

53.0 

34.0 

25.0 

187.0 

15.0 

16.0 
29.6 

Objective  1 

Objective  2 

Objective  5b 

Objective 6 

%  national 
population 

allocation 
(ECU/head) 

%  national 
population 

allocation 
(ECU/head) 

%  national 
population 

allocation 
(ECU/head) 

%  national 
population 

allocation 
(ECU/head) 

1994-99 

12.8 

95.0 

20.6 

100.0 
59.7 
4.4 
100.0 
36.7 

. 

1.5 
100.0 
5.9 

3.7 

145.0 

225.0 

188.0 

143.0 

262.0 

117.0 

115.0 

235.0 

115.2 

120.0 

14.2 

8.5 

8.8 

20.4 
25.1 

11.0 

34.6 

17.4 

30.9 

7.5 

15.7 

11.5 

16.4 

40.0 

45.0 

37.0 

51.0 

43.0 

39.0 
19.0 
42.0 

43.0 

31.0 

45.0 

32.3 

41.9 

4.5 

6.8 

9.7 

4.4 

16.7 

8.3 
7.9 
5.4 

4.9 

28.7 

21.6 
9.2 
8.8 

29.0 
25.0 
26.0 

64.0 

38.0 

31.0 

33.0 

31.0 

48.0 

35.0 

35.0 

33.8 

35.0 

16.7 

5.3 

0.4 

107.0 

110.0 

108.5 

B 

DK 

D 

GR 

E 
F 
IRL 

I 

L 

NL 

P 

UK 

EUR 12 

B 

DK 

D 

GR 

E 
F 
IRL 

I 

L 

NL 

P 

UK 

O 

SF 

S 

EUR 15 

26.6 

169.5 

150 

Table 5.12 
Allocations on Community Initiatives, 1989-93 

ENVIREG 

PRISMA 

INTERREG 

REGEN 

RECHAR 

RESIDER 

RENAVAL 

REGIS 

STRIDE 

Tables 

B 

DK 

D 

GR 
E 
F» 
IRL 
I 
L 
NL 

P 

UK 

Total 

84.0 

139.2 

32.5 

30.4 

171.2 

101.8 
17.7 
576.8 

17.7 

32.2 

0.2 
9.4 
22.6 

17.5 

5.7 

105.3 

41.6 

2.4 
59.2 
252.5 
265.3 
95.8 
42.2 
42.6 

9,1 

30.3 

179.8 

54.3 
1075.0 

27.6 

18.6 

87.6 

93.2 

89.9 

118.4 

2.0 

82.2 

292.5 

25.3 

52.4 

3.4 

184.2 

380.4 

52.4 

58.8 

23.0 

8.7 

5.0 

4.7 

6.5 

12.4 

37.3 

18.2 

65.3 

20.5 

27.6 

24.0 

87.3 

4.5 

2.2 

4.3 
59.3 

155.9 

16.4 

13.1 
94.9 

2.1 

4.6 

54.1 

30.2 

78.4 

49.6 

53.4 

264.4 

299.1 

181.4 

441.5 

(a)Includes  14.7 million ECU for Envireg/Stride and 5.1 million ECU for PRISMA/TELEMATIQUE 

Table 5.12a 
Allocations on Community Initiatives, 1994-99 (ECU mn) 

LEADER 

REGIS 

EMPLOI 

ADAPT 

RECHAR 

RESIDER 

INTERREG & 
REGEN 
Floods  and 
drought 

non  Obj. 1/6 
Obj. 1 

non  Obj. 1/6 
Obj. 1 

non  Obj. 1/6 
Obj. 1 

46 
22 
159 

36 

211 

93 
4 
185 

52 

51 

287 

620 

643 

53 

162 

287 

348 
69 

6 

10 

113 

71 

219 

121 
1 
9 

52 

12 

4 

91 
161 
326 
6 

82 

201 

3 

128 

25 

22 

214 
262 

124 

808 

2520 

613 

1048 

600 

37 

18 

31 

86 

12 

30 

15 

57 

895 

2577 

24 

16 

12 

52 
665 

3 
12 
4 

18 

1066 

600 

B 

DK 

D 

GR 

E 

F 

IRL 

I 

L  ' 

NL 

P 

UK 

Network 

EUR 12 

O 

SF 

S 

EUR 3 

EUR 15 

14 
121 

108 

181 

116 

60 

164 

794 
26 
26 
22 
74 

868 

non  Obj. 1/6  non  Obj. 1/6 
Obj. 1 
29 

16 

non 
Obj. 1 

Obj. 1/6  non 
Obj.1 

Obj.  1/6 

16 

1 

17 

11 

Obj.  1 
30 
31 
178 

106 
266 

124 

68 

303 

76 
69 
333 
7 
87 
277 

45 

25 

55 
6 
35 
3 

31 

73 

33 

181 

7 

27 

91 

1 

21 

7 

83 

6 

27 

96 
3 
28 

8 

2 

1 

178 

150 

38 

63 

60 
13 
23 

49 

934 

1107 

449 

311 

140 

414 

149 

12 

19 

12 

43 

1 

4 

1 

6 

2 

2 

6 

2 

8 

5 

5 

942 

1150 

455 

313 

140 

419 

149 

Part of the commitments on Community Initiatives allocated  at  1995 prices have been converted into  1994 prices  for comparison 

151 

Tables 

B 

DK 

D 

GR 

E 

F <" 
IRL 
I 

L 

• 

NL 

P 

UK 

Total 

Table 5.12 
Allocations on Community Initiatives, 1989-93 

TELEMATIQUE 

LEADER 

EUROFORM 

NOW 

HORIZON 

RETEX 

KONVER 

TOTAL 

6.9 
2.2 
23.8 
59.1 
120.0 

65.0 

27.2 

80.9 

0.8 

1.4 

52.0 

15.4 

454.6 

7.5 

3.0 

21.5 

24.1 

65.7 

41.0 

14.3 

55.2 

9.3 

33.1 
39.3 
313.8 

4.8 
1.5 

11,0 

13.8 

34.4 

19.0 

7.1 

31.4 

0.2 

4.6 

16.9 

10.3 

154.8 

5.3 

3.6 

38.8 

54.0 

41.4 

32.0 

19.5 

28.3 

1.3 

7.5 

33.9 

30.2 
295.5 

1.9 

10.8 

17.4 

4.0 

2.0 

12.1 

30.0 

8.2 

86.4 

0.9 

0.8 

37.5 

5.0 

7.6 

32.4 

0.2 
17.9 

3.6 

1-8 
20.1 

124.0 

28.0 

415.9 
711.5 

1128.9 

566.0 
294.7 
667.4 

22.1 

88.9 

724.4 

512.8 

127.8 

5284.7 

41.3 

75.5 

1.7 

11.0 

64.7 

35.6 

5.4 

235.2 

(a)Includes  14.7 million ECU for Envireg/Stride and 5.1 million ECU for PRISMA/TELEMATIQUE 

Table 5.12b 
Allocations on Community Initiatives, 1994-99 (ECU mn) 

RETEX 

KONVER 

PME 

URBAN 

PESCA 

PEACE 

TOTAL 

TOTAL 

non  Obj. 1/6  non  Obj. 1/6  non  Obj. 1/6  non  Obj. 1/6  non  Obj. 1/6  Obj. 1 
Obj. 1 

Obj. 1 

Obj. 1 

Obj. 1 

Obj. 1 

B 

DK 

D 

GR 

E 

F 

IRL 

I 

L 

NL 

P 

UK 

Network 

EUR 12 

O 

SF 

S 

2 

15 

42 

37 

39 

1 

202 

22 

12 

13 
2 
130 

11 

85 

3 

3 

34 

25 
49 

51 

12 

30 

59 
77 
62 

9 
35 

27 

172 

29 

11 

125 

14 

14 

428 

445 

276 

165 

3 

152 

82 

223 
9 
28 

158 

2 

122 
14 
20 
819 
1 

5 

4 
9 
829 

53 
5 
209 
8 

6 
13 
27 
236 

6 
2 
31 

51 

71 

28 

1 

22 

84 

13 

82 

50 

186 

8 

20 
105 

49 

38 

2 

19 

10 

12 

33 

18 

11 

36 

3 

295 

552 

144 

13 

5 

18 

3 

4 

7 

4 

13 
30 
33 

8 

19 

2 
29 
7 
3 
143 

1 

EUR 3 

EUR 15 

3 
168 

428 

3 

3  • 
449 

276 

313 

556 

151 

143 

295 

non  Obj.  1/6 

Obj. 1 

172 
102 
1026 

506 
1242 

116 

1186 

1154 

2275 

363 

484 

681 

1217 

59 

19 

414 

236 

1126 

20 

295 

5306 

129 

88 

102 

319 
5625 

6 

1061 

447 

45 

8355 
17 
62 
25 
103 

8459 

288 
102 
2211 

1154 

2781 

1605 

484 

1897 

19 

422 

1061 
1573 
64 
13661 

146 

149 

127 

423 

14084 

Pari of the commitments  on Community Initiatives allocated  at  1995 prices  have been converted into  1994 prices  for  comparison 

152 

Sources and methods 

Most  of  the  data  analysed  in  this  Report  have  pre 
pared  within  the  Commission. The  main  exceptions 
are  the  estimates  of  net  budgetary  transfers  within 
Member  States  in Chapter  3 which  are the results of 
a  special  study  of  selected  countries  and  the  esti 
mates of net transfers under the CAP in Chapter 4. 

ment are estimated from the comparable  series on the 
basis of registration figures at labour offices. 

The specific source for each of the graphs, maps and 
tables  is listed  below. 

The  analysis  of  disparities  in  Chapter  2  is  based  on 
national  and  regional  accounts  data  and  on series for 
employment and unemployment, compiled by the Statis 
tical Office of the European Commission (Eurostat). 

GDP  (Gross  domestic  product)  is  a  measure  of  the 
total  output  of  resident  producers,  it corresponds  to 
the production of goods and services in the economy, 
excluding  consumption  of  intermediate  goods  and 
services, but (when measured at market prices rather 
than  factor  cost)  including  value-added  tax  on  pro 
ducts  and net taxes on imports. It is also an indicator 
of the  income generated from such production. 

For comparisons between Member States, the figures for 
GDP are expressed in terms of PPS, or purchasing power 
standards, which  aiiow  not onty for  exchange  rate dif 
ferences but also for differences in the overall price level 
in  one  country  relative  to  that  in  others  (ie  even  after 
conversion of GDP figures into ECU, comparisons are still 
affected  by differences  in the  level of  prices which the 
PPS adjustment is aimed at correcting). 

The  figures  for  employment  for  Member  States  are 
from the national  accounts  and  are averages  for the 
year; for regions, the figures are based on the annual 
Community Labour  Force Survey (LFS), which is also 
the source of the sectoral data. 

For unemployment, the data for Member States are from 
the  Eurostat  comparable  unemployment  series  (which 
are based on the LFS). The data on regional unemploy-

NUTS classification  of  regions 

The  NUTS (Nomenclature  of territorial  unit for statis 
tics)  classification  represents  a standard  framework 
for  analysing  economic  and  social  developments  in 
the Union's regions, which is largely based on institu 
tional  spatial  divisions.  The  analysis  in Chapter  2 is 
mainly  carried out at the  NUTS 2 level, which distin 
guishes 206 regions across the Union as a whole. This 
is the level at which eligibility for aid from the Structu 
ral Funds for Objective  1  and Objective 6 purposes is 
determined (for other  regional Objectives, the level is 
NUTS  3).  Though  most  of  the  regions  are  broadly 
comparable  in size and  population, there are a num 
ber which differ markedly (Ile de France and Lombar-
dia, for example, have 9-10  million inhabitants, while 
16  regions  have  less  than  300  thousand,  including 
Corse, Burgenland  and  Highlands  and  Islands). For 
more details, see Eurostat, Regions, nomenclature for 
territorial unit for statistics, NUTS, March  1995. 

Studies 

Apart  from  various  studies  cited  in  the  text,  the 
preparation  of  the  Report  was  assisted  by  outside 
experts as follows: 
Chapter 3: EPRC, UK and OEIL, FR 
Chapter 4: College of Europe, Bruges, B 
Chapter 5: ECOTEC, UK 

153 

Sources and methods 

Estimates of budgetary net 

transfers between regions 

The  estimates  of  inter-regional  transfers  reported  in 
Chapter 3 are based on a study commissioned specially 
for  this  Report  carried  out  by  the  EPRC, University of 
Strathclyde  in  conjunction  with  L'OEIL  in  France. This 
covered 7 Member States (the four largest countries plus 
Spain, Portugal and Sweden) and was based on a unified 
approach,  breaking  down national  budgets  (excluding 
social insurance funds as far as possible) for  1993 into 
separate revenue and expenditure items which were then 
allocated  between regions  using  a number  of  different 
indicators  and various  assumptions  about the  regional 
incidence  of  different  taxes.  Estimates  of  expenditure 
assigned to each region and of the tax revenue originating 
from each were then aggregated to give the net amount 
of transfer (the difference between the amount received 
and the amount contributed to the budget). 

Two approaches to the allocation of expenditure between 
regions were adopted in the study. The one most relevant 
for this report, and referred to here, is the 'flow' method 
which attempts to measure where expenditure is incurred 
or where transfers  go. The expenditure on a particular 
government  function on this  method  is allocated to the 
region (or regions) where the ministry or department and 
the various agencies attached to it are located. (The other 
method is the 'benefit' approach under which spending 
is allocated to where the beneficiaries of the service in 
question are located.) 

Expenditure,  however,  excludes  spending  on  social 
protection  in  France  and  Germany  on  both 
approaches and the estimates for these two countries 
may, therefore, significantly  understate net transfers. 

Since the transfers estimated do not conform to national 
accounting conventions, they are not directly comparable 
with  GDP  and, accordingly,  are  indicative  only  of  the 
relative scale of budgetary flows between regions. 

number  of  simplifying  assumptions,  due  to the  indi 
vidual nature of different agricultural markets and the 
fact that for  some  products, there  is no  international 
reference price. 

Transfers  between  Member  States 

Transfers  from  taxpayers  in  each  country  are  esti 
mated  by assuming that the share of each in the EU 
agricultural  budget  equals  the  share  of  its contribu 
tion to the overall Community  Budget. Transfers  also 
arise between consumers  and  producers  as a result 
of price support. This gives rise to transfers  between 
Member  States  —  'the  net  trade  transfer'  —  which 
depends  on  national  patterns  of  consumption  and 
production. Transfers from consumers are estimated 
by multiplying the amount of each product  available 
for  consumption  in  each  country  by  the  EU  'price 
support'. Total support' is based on OECD data used 
to calculate PSEs (Producer Subsidy equivalent) and 
CSEs  (Consumer  Subsidy  Equivalent).  Because 
these  data  relate  to  a  period  before  the  Uruguay 
Round Agreement,  they  may  not  necessarily  reflect 
the relationship between EU prices and world  prices 
after  the agreement. This could  mean that the  scale 
of  EU  price  support  is  over-estimated.  Since  the 
OECD does  not  compute  support  rates  for  fruit, ve 
getables,  wine  and  olive  oil,  these  had  to  be  esti 
mated. 

Transfers  between  regions 

Food  consumption  per  head  and  average  tax  rates 
are  assumed  to  be  the  same  across  all  regions  in 
each  Member  State.  Both  assumptions  are  likely  to 
mean that the burden on richer regions is under-esti 
mated in relation to that on poorer regions, and more 
refined  assumptions  might,  therefore,  produce  a 
greater  cohesion  effect.  In the  case  of  Portugal  and 
Spain, comparisons  involving data for the period be 
fore 1993 are of limited relevance  because their agri 
cultural  sectors  were  subject  to  transitional 
arrangements, nogatiated on accession in 1986, dur 
ing that period. 

Estimates of 
net transfers under the 
Common Agricultural Policy 

Measures of disparity 

The calculation of transfers  associated with the CAP 
was  undertaken  by  external  experts.  It  involves  a 

Two  statistical  measures  of  the  degree  of  disparity 
between regions or individuals are used in the report, 
the standard deviation and the Gini  coefficient. 

154 

Sources and methods 

Standard  deviation 

18 Eurostat, Community Labour  Force Survey 

The  standard  deviation  measures  the  dispersion of 
data  (such  as  for  unemployment  rates)  around  the 
mean.  In  formal  terms,  it  is  the  square  root  of  the 
variance which is defined as L((xrXmn)2)/n, where *  is 
the ith observation and x™ is the mean of the obser 
vations  (ie  in  the  case  of  regional  unemployment 
rates,  it  is essentially  a measure  of  the  average dif 
ference of  the rate in each  region from the  average 
rate). To allow for variations in the size of the regions 
analysed, regions are weighted  in each case by the 
most  relevant  variable  (ie  population  in the  case of 
income  per head and the  labour  force  in the case of 
unemployment). 

19-20 Commission services 

21-22 EPRC 

23-25 DG XII, College of  Europe 

26 Commission services 

27 IDATE, College of Europe 

28 Commission services 

29 ERECO 

30-35 Commission services 

36-39 ULB 

Gini  coefficient 

The Gini coefficient measures the degree of inequality 
in the distribution of a particular  set of data (such as 
income). More formally, it is a measure of the degree 
of curvature of the Lorenz curve, which itself indicates 
the relationship  between the cumulative  percentage 
of  individuals, groups or regions  and the  cumulative 
percentage of the total of a particular  variable, such 
as  income, which they account  for, ordered  by  size 
(ie it shows the percentage of total income in a given 
country  going to a given  percentage  of the  popula 
tion). If there were a perfectly  equal  distribution of  a 
given  variable,  the  line  describing  the  relationship 
would be straight and 45 degrees to each of the axes. 
The  Gini coefficient  is defined  as  the  area  between 
the Lorenz curve and the 45 degree  line as a ratio of 
the area above the 45 degree  line. The value of  the 
coefficient,  therefore,  varies  between  0  (when  the 
Lorenz curve follows the 45 degree line) and 1 (where 
it follows the axis and there is perfect inequality), and 
the higher  the value, the  more  unequal  the distribu 
tion. 

Maps 

1-12 Eurostat, National Institutes of Statistics for three 
new Member States; calculations  by DG XVI 

13-14 College of Europe 

Tables 

2.1 - 2.2 Eurostat and DG XVI 

2.3 Eurostat, DGs II, V and XVI 

2.4 DG II and calculations  by DG XVI 

2.5 Eurostat and DG II, calculations  by DG XVI 

2.5a - 2.8 Eurostat, calculations  by DG XVI 

2.9 - 2.10 Eurostat, Labour  Force Survey 

Graphs 

1 Commission services 

2 Eurostat, calculations DGXVI 

3 Eurostat 

4-13 Eurostat, calculations  DGXVI 

3.1 DG IV 

3.2 EPRC, OEIL 

3.3 EPRC, OEIL 

4.1/4.2 College of Europe 

4.8 College of Europe 

14-15 Eurostat, Community Labour  Force Survey 

16-17 OECD 

4.9 Commission Services, UTS Study and College of 
Europe 

155" 

Sources and methods 

4.11 Eurostat, National Accounts ESA and College of 
Europe 

4.12 Commission Services and College of  Europe 

4.13 ERECO 

4.14 ERL 

4.15 DRI 

5.1 - 5.3 Commission Services 

5.4 European Investment Bank 

5.5-5.12 Commission Services 

156 

Sources and methods 

157 

ISSN 0254-1475 

COM(96) 542 final 

DOCUMENTS 

EN 

01  05  10  13 

Catalogue  number  :  CB-CO-96-566-EN-C 

ISBN 92-78-11391-3 

Office  for  Official  Publications of the European  Communities 

L-2985 Luxembourg