Opinion of the Economic and Social Committee on the 'Sixth Periodic Report on the Social and Economic Situation and Development of the Regions of the European Union'
Date: 1999-09-22
Institutions: European Economic and Social Committee
Subjects: Structural Funds, regional development, regional policy, socioeconomic conditions, structural policy

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

(1999/C 329/08)

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

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

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

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

1.

Introduction

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

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

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

This periodic Report is being considered at the same
1.4.
the Commission and the Member States are
time as (i)
preparing the allocation of the Structural Funds for the years
2000-2006 and (ii) the Commission is negotiating with several

States their accession to the Union. A significant value of the
Report is the analysis and identification of those factors
which make an effective contribution to economic and social
development (or the absence of which could inhibit such
development). The Economic and Social Committee would
emphasise the importance of ensuring that these lessons are
applied region by region across the enlarged Union, and are
reflected in Structural Funds implementing documents and in
arrangements negotiated with new Member States.

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

2. General Comments

2.1.
The Economic and Social Committee notes that one of
the main conclusions of the Sixth Periodic Report is that
regional disparities in per capita income across the EU have
narrowed over the period since 1988. Moreover, despite
less success being demonstrated in terms of the level of
unemployment, which remains unacceptably high across the
EU and markedly so in the disadvantaged regions, Table 28
does show that positive employment growth in the Union’s
assisted regions has occurred over the duration of Structural
Funds interventions, particularly in the period 1993-1997.
Although many factors have contributed to this success,

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including the establishment of the Single European Market and
inwards investments, it is the case that the Structural Funds
have been a key element in this. The Economic and Social
Committee takes this opportunity of applauding the significant
success of the Structural Funds over the period since 1988,
and attaches the utmost importance to the continued evolution
of the Funds as required in accordance with attaining the
Treaty commitment to the principle of economic and social
cohesion.

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

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

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

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

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

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

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

It

(1) Throughout this opinion GDP figures are, as prepared by Eurostat,

using Purchasing Power Standard (PPS).

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

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

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

long term and youth unemployment

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

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

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

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

3. The Situation in the Regions

3.1.
The Economic and Social Committee notes that,
although the annual average rate of economic growth recorded
by the four Cohesion countries as a whole exceeded the
average for the EU as a whole over the period 1986-1996
(2,9 % compared to 2,1 %), this obscures the fact that Greece
and, though to a lesser degree, Spain recorded average annual
rates of economic growth significantly below the rates of
growth achieved in Ireland and Portugal. Consequently, the
success of the cohesion effort in two of the four countries

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must not lead us to conclude that this effort has been uniformly
successful across the four as a whole. In the context of future
Cohesion Reports, the Committee would welcome comments
from the Commission that account for differences in perform-
ance between the Cohesion countries, particularly the respect-
ive contributions to regional economic growth made by the
Structural Funds and the Cohesion Fund.

Although the success of

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

3.2.1.
In this regard, the Economic and Social Committee
repeats a comment made in its Opinion on the Fifth Periodic
Report (1), namely that the Commission should include in its
next Cohesion Report a general commentary concerning the
impact of national economic policies on cohesion within
Member States.

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

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

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

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

It

that

is evident

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

It

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

3.4.2.
The distortions that can arise from the prevailing
classification of disadvantaged regions was demonstrated to
the Study Group during its visit to the Highlands and Islands
of Scotland. This region is geographically extensive and is
characterised principally by an extremely fragile economy
based on a very low population density. However, the region
has a relatively strong economic centre based around the town
of Inverness and the income generated around that centre has
pulled up the average per capita income for the region as a
whole to be very slightly above the 75 % Objective 1 threshold.
There is a real risk that the economic development support

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that continues to be essential to secure sustainable economic
development for the region as a whole is being undermined by
virtue of the economic strength of the main urban area within
that region. And although there are some beneficial economic
effects that
flow from the dominant centre to the rural
hinterland, these are both extremely weak and unreliable with
the attendant risk that a new form of economic dualism is
appearing.

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

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

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

Notwithstanding this positive development,

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

3.8.
The Report indicates that employment creation in
Objective 5b regions has been significantly above that for the
EU as a whole, and that much of this can be attributed to SME
activity. The Committee considers it to be essential that the
effort made in supporting the development of the rural and

peripheral parts of
the EU (including the upland areas)
continues, and that assisting the SME sector should remain a
priority within this approach. It is imperative that the new
Structural Funds Regulations do not result in any diminution
of such efforts.

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

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

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

4. Competitiveness

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

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

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

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

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

However,

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

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

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

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

4.5.1.
In the preparation of this Opinion, evidence present-
ed to the Study Group while visiting the Highlands of Scotland
demonstrated very well the contribution to sustainable econ-
omic development that arises from partnership. Involving
local economic and social partners ensures that many groups
in the local region effectively become ‘stakeholders’ in the
economic development efforts. Not only does this enhance the
quality of the programmes themselves, it creates a determi-
nation and capacity on the part of individuals and groups in
the disadvantaged areas to work together to achieve economic
and social progress. It is essential that resources are available
to local partners to allow ‘capacity-building’ in this regard;
that is, to provide them with the relevant knowledge and
the issues surrounding local economic
understanding of

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EN

Official Journal of the European Communities

17.11.1999

development programmes to ensure that they are able to play
an active role in the design and implementation of public
policies. Such participation through partnership is a key
element in the success of these economic development efforts,
though one that may be underestimated.

5. Enlargement

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

Overall

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

5.3.
As expected, the data within the Report reveals that
although GDP levels in all of the applicant countries remains
substantially below the EU average, and certainly within a
range rendering most regions within these economies eligible
for Objective 1 support under current Regulations. Nonethe-
less, the Committee does note that since 1993 there has been
strong economic growth in some of the principal zones within
these countries. Indeed, the Commission notes that it is likely

Brussels, 22 September 1999.

that,
in some instances, specific regions around the main
centres of economic activity in the applicant countries will
achieve per capita GDP levels above 75 % of the EU average
by the time of enlargement. This is encouraging, although it
remains the case that this catching-up process has been patchy
and in some countries has not occurred at all.

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

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

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

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI