Fourth report on Economic and Social Cohesion {SEC(2007) 694}
Date: 2007-05-30
Institutions: European Commission
Subjects: economic and social cohesion, report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 30.5.2007 
COM(2007) 273 final 

FOURTH REPORT 

on Economic and Social Cohesion 

(presented by the Commission) 

{SEC(2007) 694} 

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FOURTH REPORT 

on Economic and Social Cohesion 

Article  159  of  the  Treaty  provides  that  the  Commission  shall  submit  a  report  to  the 
European  Parliament,  the  Council,  the  Economic  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 provided in 
that Article (Member States' and Community's policies) have contributed to it. 

This fourth cohesion report provides, firstly, an update on the situation and outlook with 
regard  to  economic,  social  and  territorial  cohesion  and,  secondly,  an  analysis  of  the 
impact of policy at national  and  Community level on cohesion in the Union. Particular 
emphasis is given to: 1) the preliminary assessment of the impact of European cohesion 
policy  in  the  2000-2006  programming  period,  and  2)  to  a  first  assessment  of  the 
preparation  for  the  new  period  2007-2013,  based  on  the  national  strategies  and  draft 
operational programmes submitted to the Commission by Member States up to the end of 
April 2007 (see SEC(2007) 694)1.  

1. 

THE ADDED VALUE OF COHESION POLICY 

There  are  a  range  of  factors  which  influence  the  effectiveness  and  the  impact  of 
European  cohesion  policy.  An  economic  context  characterised  by  price  stability  and 
sound  budget  balances  will  benefit  from  lower  interest  rates.  This,  in  turn,  stimulates 
investment  and  capital  accumulation,  increasing  both  productivity  and  employment.  It 
also helps to increase the rate and diffusion of innovation and reduces the cost of capital. 

The efficiency and effectiveness of public administrations on national, regional and local 
level is another  critical factor.  Finally  it  is often external factors, notably globalisation, 
that are the main driving factors of structural changes at all levels and which have a large 
impact on economic development and job creation.  

However, as a result of a rigorous approach, cohesion policy has succeeded in making a 
difference to standards of living and levels of opportunity across the Union. 

•  Convergence is occurring at national and at regional level 

As  a  group  the  major  financial  beneficiaries  of  European  cohesion  policy  programmes 
during  the  period  2000-2006  have  continued  to  exhibit  impressive  growth  rates.  At  the 
regional level, strong economic performance in regions with low GDP per capita over the 

1 

In 2000-2006 five funds contributed to cohesion policy – ERDF, ESF, Cohesion Fund, EAGGF 
Guidance  and  FIFG.  For  the  current  2007-2013  period  the  present  report  focuses  on  the 
contribution to Cohesion policy of ERDF, ESF and Cohesion Fund. The former EAGGF guidance 
section  has  now  been  absorbed  in  the  new  Rural  Development  Fund  which  also  contributes  to 
economic and social cohesion.  

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past decade has meant that, across the EU, regions have been in a process of convergence 
measured in terms of GDP per capita. 

•  Estimates suggests that these trends will continue  

For  the  period  2007-2013,  studies  suggest  that  the  investment  undertaken  under  the 
programmes will add some 5-15% to absolute levels of GDP in most of the new Member 
States, in comparison with the baseline scenario. In addition, it is estimated that by 2015 
around 2 million additional jobs will be generated due to these levels of investment. 

•  Cohesion  policy  supports  growth  and  job  creation  also  outside  the  convergence 

regions 

Growth and development in a market economy inevitably mean that restructuring takes 
place,  often  associated  with  job  losses  and  creation  of  new  jobs  which  are  unevenly 
distributed  and  can  give  rise  to  a  territorial  concentration  of  social  and  economic 
problems.  Reinforcing  the  Union's  capacity  to  adapt  to  change  and  to  create  new 
sustainable  employment  is  one  of  the  roles  of  European  cohesion  policy,  also  in  the 
Union's more prosperous Member States. Over the period 2000-2005, estimates suggest 
the  creation  of  over  450 000  gross  jobs  in  six  countries,  which  account  for  some  two-
thirds of the European assistance allocated to Objective 2. 

•  Cohesion policy supports the innovative capacity of Member States and regions 

Cohesion policy made an important contribution to R&D efforts in the 2000-2006 period, 
and strengthened innovative capacity notably in Objective 1 regions. On the basis of the 
programmes available at the moment of adopting this report, the proportion of cohesion 
policy  resources  to  be  invested  in  innovation  and  R&D  will  more  than  double  in  the 
period 2007-2013. 

•  Cohesion policy investment in people has high returns 

Raising the quality of human capital explains more than half of the productivity gains in 
the last decade. European cohesion programmes co-finance the training of some 9 million 
people annually, with more than half of them women. A high percentage of beneficiaries 
either  (re)enter  into  employment  after  training  or  report  better  employment  conditions 
and higher income. 

•  Cohesion  policy  leverages  public  and  private  capital  in  support  of  productive 

investment 

Between  2000  and  2006  every  euro  invested  by  cohesion  policy  led  to  further 
expenditure in Objective 1 regions averaging 0.9 euros. In the Objective 2 regions, this 
induced  expenditure  can  go  as  high  as  3  times  the  amount  initially  invested.  This  is 
achieved  through  policy  rules  such  as  co-financing  and  partnership  and  through 
increasing  involvement  of  private  capital,  including  a  variety  of  public-private 
partnerships arrangements. 

More  recently,  the  Commission,  in  cooperation  with  the  international  financial 
institutions,  has  developed  innovative  financial  instruments,  to  combine  with  and  to 

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complement European grant financing: JEREMIE for the promotion of SMEs and micro-
credit  and  JESSICA  for  urban  development.  This  will  transform  grants  into  recyclable 
forms of finance making them more sustainable over the longer term; it will increase the 
leverage  effect  brought  about  by  using  such  grants  to  attract  and  combine  with  private 
capital; and will introduce stronger incentives towards better performance. 

•  Cohesion policy has fostered integrated approaches to development  

Cohesion policy helps to foster development, including the impact of complex problems 
such  as  challenges  posed  by  globalisation,  climate  change,  demographic  trends,  in  an 
integrated  manner  which  gives  coherence  to  different  sectoral  policies.  This  integrated 
approach has helped to improve the overall impact of sectoral interventions by exploiting 
synergies  between  policy  domains  and  controlling  for  their  side  effects;  by  favouring 
dialogue  between  administrations;  and  by  better  adapting  interventions  to  the  socio-
economic characteristics of regions and localities. 

•  Cohesion policy helps to improve the quality of public investment 

The  7-year  programming  approach  of  the  policy,  based  on  a  secure  budget  over  this 
period, has significantly improved long-term budgetary planning in many Member States 
and regions. In addition, cohesion policy helps to identify priorities for public investment 
decisions,  thereby  resulting,  notably  in  cohesion  countries,  in  a  more  effective  and 
efficient  use  of  public  investment  in  general,  not  only  where  that  investment  was  co-
financed  by  the  Community.  In  this  way,  cohesion  policy  influences  the  investment 
pattern, shifting it towards higher productivity and greater sustainability. 

•  Cohesion policy has promoted partnership as a key element of good governance 

The partnership principle is a fundamental principle underpinning all aspects of cohesion 
policy – programming, implementation, monitoring and evaluation – and has now been 
widely  accepted  as  a  key  element  of  good  governance.  The  system  of  multi-level 
governance,  based  on  strategic  approach  and  involving  Community,  national,  regional 
and  local  authorities  and  stakeholders  helps  to  ensure  that  actions  are  adapted  to 
circumstances on the ground and that there is a genuine commitment to success. 

2. 

SITUATION AND TRENDS IN ECONOMIC, SOCIAL AND TERRITORIAL DISPARITIES 

2.1. 

Economic Cohesion 

•  Convergence is occurring both at national… 

The  largest  beneficiaries  of  cohesion  policy  during  the  period  1994-2006  –  Greece, 
Spain,  Ireland  and  Portugal  –  as  a  group  have  achieved  an  impressive  growth 
performance. Between 1995  and  2005, Greece reduced the gap with the rest of EU-27, 
moving from 74% to reach 88% of the EU-27 average in 2005. By the same year, Spain 
and Ireland had moved from 91% and 102%, respectively, to reach 102% and 145% of 
the Union average. At the same time growth in Portugal has been below the EU average 
since 1999. In 2005 its GDP per head was 74% of the EU average. 

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It  is  among  the  new  Member  States,  especially  those  with  a  very  low  GDP  per  capita, 
where faster growth and more rapid catching up are visible. The GDP of the three Baltic 
States  has  almost  doubled  over  the  decade  from  1995  to  2005.  Poland,  Hungary  and 
Slovakia have also performed well with growth rates more than double the EU average.  

However, due to very low starting points for GDP per capita, and assuming the current 
growth rates, it seems likely that it will take more than 15 years before Poland and, most 
especially,  Bulgaria  and  Romania  will  reach  a  GDP  per  head  of  75%  of  the  EU-27 
average. 

•  …and at regional level 

Relatively  strong  economic  growth  in  regions  with  a  low  GDP  per  head  over  the  past 
decade  has  meant  that,  overall,  EU  regions  have  been  converging.  Between  1995  and 
2004,  the  number  of  regions  with  a  GDP  per  head  below  75%  of  the  EU  average  fell 
from 78 to 70 and the number of those below 50% of the EU average declined from 39 to 
32. 

The  lagging  regions  in  the  EU-15,  which  were  major  recipients  of  support  under 
cohesion policy during the period 2000-2006, showed a significant increase in GDP per 
head relative to the rest of the EU between 1995 and 2004. In 1995, 50 regions with a 
total of 71 million inhabitants had a GDP per head below 75% of the EU-15 average. In 
2004,  in  nearly  one  in  four  of  these  regions  home  to  almost  10  million,  GDP  per  head 
had risen above the 75% threshold.  

•  …but disparities remain important 

In  spite  of  this  progress,  absolute  disparities  remain  large.  This  is  partly  as  a  result  of 
recent enlargement and partly as growth tends to concentrate – during the initial phases 
of development – in the most dynamic areas within countries. 

Even  some  of  the  most  developed  regions (those which have  GDP level above 75%  of 
the  EU-27  average)  are  starting  to  experience  very  low  or  even  negative  economic 
growth  rates.  In  the  period  2000-2004,  real  GDP  per  head  fell  in  27  regions  and  in  a 
further  24  it  grew  by  less  than  0.5%  a  year.  In  five  of  these  regions,  GDP  per  head 
slipped below 75% of the EU average.  

•  Increases in employment and productivity are raising growth in the regions 

The lagging regions are catching up rapidly in terms of productivity. This is particularly 
evident  in  new  Member  States:  in  the  three  Baltic  States  and  in  parts  of  Poland 
productivity grew four times faster than the EU average between 1995 and 2004. Some 
of these regions, however, start from very low levels. As the employment in these regions 
shifts to higher added-value sectors, regional productivity is likely to rise even if sectoral 
productivity remains stable. 

In 2004 the regions in Portugal, Greece, Ireland and Spain still had considerably higher 
productivity  levels  than  the  new  Member  States.  Ireland  combined  the  highest 
employment  growth  in  the  EU  with  significant  increases  in  productivity.  Regional 
economic growth in Spain, on the other hand, relied almost exclusively on employment 

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growth which suggests that such growth might be difficult to sustain over the long-term. 
In Portugal, employment rose substantially up to 2001 but has remained flat since, while 
in  Greece  employment  growth  was  limited  up  to  2001,  but  afterwards  has  increased 
significantly.  

Nine out of ten of the more developed regions have seen their employment increase and 
almost  as  many  saw  their  productivity  increase.  Nevertheless,  between  1995  and  2004, 
productivity  declined  in  29  regions  in  Italy,  France,  Spain  and  Germany,  while 
employment declined in 16 regions mostly in Eastern Germany and in Northern England. 

2.2. 

Social Cohesion 

•  Employment rates converged at the EU level and the national level … 

Between  2000  and  2005,  regional  employment  rates  converged  within  the  EU.  Yet  in 
2005 employment rates in the lagging regions were still some 11 percentage points lower 
than those in the rest of the Union. 

Over  this  period  certain  countries  experienced  a  consistent  and  widespread  increase  of 
employment,  while  others  –  such  as  Romania  and  Poland  –  recorded  a  decline  in  the 
majority of regions, in some cases by more than two percentage points.  

In order to achieve the Lisbon employment rate targets, the EU needs to generate some 
23.5 million more jobs of which 7 million should be taken by women and 7 million by 
people aged 55-64. Creating jobs on this scale will require investment in new activities 
matched by trained labour to take them up.  

•  … and disparities in unemployment rates have decreased 

Between 2000 and 2005, unemployment fell from 13.4% to 12.4% in the lagging regions, 
though in 17 of them unemployment increased by over 2 percentage points. 

In the more developed regions, unemployment remained stable between 2000 and 2005 
with a rate just below 8%, though with Spanish, Italian, French and UK regions generally 
experiencing  a reduction in the  rate  and German,  Austrian,  Dutch  and  Belgian  regions, 
some increase.  

In 2005, the unemployment rate of women was higher than the one of men in the EU, but 
the difference shrank by a third between 2000 and 2005. The gap was biggest in Greece, 
Spain and Italy. 

•  Poverty remains a challenge… 

The share of the population at risk of poverty remains relatively high in some Member 
States. Defined as those having an income of 60% below the national median income, in 
2004 the proportion falling into this category reaches around 20% in Lithuania, Poland, 
Ireland,  Greece,  Spain  and  Portugal,  but  only  10%  in  the  Netherlands,  the  Czech 
Republic and Sweden. On average, those at risk of poverty in 2004 totalled 16% of the 
EU  population,  or  around  75  million  people.  This  risk  is  higher  for  women,  young 
children, the elderly and the unemployed. 

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•  Education levels are increasing but remain low in lagging regions 

An  important  factor  in  a  competitive  knowledge  economy  is  an  educated  and  well 
qualified  workforce.  Improvements  over  time  can  be  seen:  the  share  of  young  people 
aged 25-34 with a university degree or equivalent is increasing and is now almost twice 
the  proportion  of  the  older  generation  aged  55-64.  However,  educational  attainment 
levels of young people are lagging behind in some Member States, notably in Romania, 
the Czech Republic, Italy and Slovakia.  

In  2005,  some  23%  of  people  aged  25-64  in  the  EU  had  an  education to  tertiary  level, 
ranging  from  35%  in  Finland  to  around  10%  in  Romania.  The  differences  between  the 
regions are even bigger and they are not converging. On average, lagging regions have a 
smaller proportion of people aged 25-64 with tertiary education.  

2.3. 

Territorial cohesion 

•  Less territorial concentration of EU-27 GDP in the traditional core of Europe… 

Evidence  suggests  that  economic  prosperity  in  the  EU  is  becoming  less  geographically 
concentrated: the traditional economic "core" of Europe (the area between London, Paris, 
Milan, Munich and Hamburg) contributed a substantially smaller share of EU-27 GDP in 
2004  than  in  1995,  while  its  share  of  the  population  remained  stable.  This  tendency  is 
due  to  the  emergence  of  new  growth  centres  such  as  Dublin,  Madrid,  Helsinki  and 
Stockholm, but also Warsaw, Prague, Bratislava and Budapest. 

•  ... But more so at the national level… 

Within the Member States, however, economic activity has become more concentrated in 
capital city regions throughout the EU, with the exception of Berlin and Dublin. Between 
1995 and 2004, on average the capital region's share of national GDP increased by 9%, 
while their population grew by 2%. This trend was particularly strong between 1995 and 
2000, especially in Warsaw and Bucharest.  

Increasing concentration of population and economic activity in capital city regions could 
in  the  longer  term  constrain  overall  economic  growth  as  negative  externalities  such  as 
increases  in  housing  costs,  shortages  of  business  space,  congestion  and  pollution 
negatively affect their image and competitiveness. Secondary growth poles might help to 
reduce  the  pressure  on  the  capital  city  region  and  promote  higher  overall  growth 
potential.  

•  … With a trend towards suburbanisation, … 

The  dominant  trend  in  European  cities  is  towards  suburbanisation.  Between  1996  and 
2001,  in  90%  of  urban  agglomerations,  population  in  the  suburbs  grew  at  higher  rates 
than in the core of the city. One third of these urban agglomerations lost population over 
this  period,  yet  most  of  these  cities  saw  their  suburbs  grow  while  the  city  centres 
declined. The suburbanisation of population inevitably places greater strains on the urban 
transport  system,  while  the  suburbanisation  of  economic  activity  can  lead  to  the 
economic decline of the traditional city centre. 

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The  concentration  of  deprivation  in  urban  neighbourhoods  remains  an  issue  in  many 
European  cities.  Despite  the  concentration  of  employment  in  cities,  city  dwellers, 
especially  the  less  qualified,  have  difficulty  finding  a  job,  while  one  third  of  jobs  are 
taken by people commuting into the city.  

This is combined with the concentration of unemployment in particular city districts. In 
these  high  unemployment  districts,  other  aspects  of  deprivation  are 
typically 
concentrated.  This  includes  low  quality  housing  and  inadequate  public  transport  and 
other services such as education as well as low income levels and high crime rates. 

•  … while some rural areas continue to lose population 

Significant outward migration from rural areas is still the prevailing trend in large parts 
of  the  EU,  notably  in  the  South  of  Italy,  the  North  of  Finland,  Sweden  and  Scotland, 
Eastern  Germany  and  in  the  eastern  parts  of  Poland.  The  lack  of  job  prospects  outside 
agriculture and lower living standards drive people, especially the young and qualified, to 
seek opportunities elsewhere. This has cumulative effects on the areas concerned, leaving 
them with an ageing population and shrinking basic services2. 

•  … and there is large potential for more cross-border exchanges 

Many  years  of  cross-border  programmes  have  improved  co-operation  between  border 
regions  within  the  EU-15,  especially  between  the  Benelux  countries,  Germany  and 
France.  The  new  internal  borders  are  not  as  permeable  yet  and  traffic  flows  are  much 
lower.  

Increasing  the  permeability  of  these  borders,  both  physically  and  administratively,  will 
facilitate  the  flow  of  people  and  goods  between  these  regions  and  lead  to  the  levels  of 
economic  exchange  matching  the  economic  potential  of  these  regions.  This  type  of 
cooperation  activity  is  even  more  important  for  the  border  regions  located  along  the 
external border. 

3. 

THE REFORM OF COHESION POLICY – 2007-2013 

The European Spring Council in 2005 indicated that: 

"It is essential to re-launch the Lisbon Strategy without delay and re-focus priorities on 
growth and employment. Europe must renew the basis of its competitiveness, increase its 
growth  potential  and  its  productivity  and  strengthen  social  cohesion,  placing  the  main 
emphasis on knowledge, innovation and the optimisation of human capital. 

To achieve these objectives, the Union must mobilise to a greater degree all appropriate 
national  and  Community  resources  –  including  the  cohesion  policy  –  in  the  Strategy's 
three  dimensions  (economic,  social  and  environmental)  so  as  better  to  tap  into  their 
synergies in a general context of sustainable development." 

2 

The  rural  Development  Fund  has  an  important  role  to  play  to  meet  these  challenges.  See 
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  on 
Employment in rural areas: closing the job gap - COM(2006) 857, 21.12.2006. 

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The bulk of the EU effort to reduce disparities in the EU at the territorial level is through 
cohesion policy. This takes the form of a conditional grant, with the conditions attached 
to  the  transfers  at  the  level  of  aims  and  at  the  level  of  the  implementation  system.  In 
particular, Member States are required to draw up a medium-term strategy for the use of 
the resources, to co-finance European aid from national resources, to work in partnership 
at  national,  regional  and  local  level,  and  to  respect  EU  laws  and  policies.  These 
conditions  have  resulted  in  the  development  of  a  shared  management  system,  between 
the  European,  national,  regional  and  local  levels:  in  short,  a  system  of  multi-level 
governance. 

Following the reform of cohesion policy in 2006 for the period 2007-2013, the main aim 
of cohesion policy remains to reduce disparities between the Member States and regions 
through the concentration of resources on the less developed areas. For the period 2007-
2013,  the  bulk  will  be  concentrated  on  the  poorest  regions  and  countries:  whereas  in 
1989, 56% of available resources were allocated to the lowest income regions, at the end 
of  the  new  programming  period,  the  proportion  will  be  85%.  The  new  Member  States, 
which represent around 21% of the population of the EU-27, will receive just over 52% 
of the total over the period. However, in line with the new growth and jobs agenda and in 
the context of globalisation, cohesion policy is putting increasing emphasis on improving 
the competitive position of regions in the world economy. Thus, resources are focused on 
all  the  regions  coping  with  structural  adjustment  and  on  investment  with  a  particular 
emphasis  on  the  cluster  of  activities  around  research,  innovation,  and  the  information 
society and business development.  

The  result  of  these  aims  is  that,  in  the  period  2007-2013,  cohesion  policy  will  pursue 
everywhere the same growth and jobs agenda, but with the intensity of support from the 
Union  reflecting  the  needs  and  available  resources  of  Member  States  and  regions.  The 
outcome of the negotiations on the Financial Perspective for the period 2007-2013 which 
resulted in a major allocation to cohesion policy (35% of the total EU budget) suggests 
that  there  is  a  high  degree  of  political  consensus  around  this  system  for  delivering 
Community priorities. 

3.1. 

Delivering Europe's new growth and jobs strategy 

The  generation  of  growth  and  jobs  has  historically  been  at  the  centre  of  EU  cohesion 
programmes  and  the  reform  of  the  policy  for  2007-2013  has  sought  to  reinforce  this 
dimension. 

•  A new strategic approach 

A  more  strategic  approach  based  on  European  priorities  will  frame  the  process  of 
implementation at EU level of cohesion policy, at the national level and then down to the 
regional and local level. This should contribute to increased economic effectiveness, as 
well  as  increasing  transparency  and  facilitating  political  accountability.  This  is  the 
approach set out in the Community Strategic Guidelines, which reflect the priorities set 
by  the  renewed  Lisbon  strategy  and  which  create  in  turn  the  framework  for  the 
preparation of the national strategies under cohesion policy and programmes.  

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•  Earmarking 

Member States decided in December 2005 that the authorities responsible for preparing 
the new generation of cohesion programmes should "earmark" a certain proportion of the 
resources  for  the  key  investments  linked  to  the  renewed  strategy  for  Growth  and  Jobs 
industrial 
(R&D 
competitiveness;  renewable  energies,  energy  efficiency,  eco-innovations;  human 
resources),  and  in  particular  60%  in  the  least  developed  regions  and  75%  in  other 
regions.  

infrastructures  of  European 

importance; 

innovation; 

and 

According  to  the  programming  documents  available  for  this  report,  these  targets  have 
been largely reached. In the EU-27 the average proportion of the resources earmarked for 
key Lisbon investments is 61.2% under the Convergence objective and 76.7% under the 
regional  competitiveness  and  employment  objective.  Overall,  around  €  200  billion  will 
be  allocated  to  these  investments.  Compared  to  the  previous  period,  this  represents  an 
increase of more than € 50 billion.  

3.2. 

Better regulation: simplification and proportionality 

While the use of the resources of cohesion policy needs to fulfil the standards of control 
and  good  financial  management,  important  steps  have  been  taken  to  streamline 
legislation and simplify rules for managing cohesion policy. In particular: 

•  One set of management rules 

There  is  now  a  single  Commission  implementing  regulation  for  the  2007-2013 
programming  period,  which  replaces  10  regulations  for  the  2000-2006  programming 
period. The rules for management of programmes financed by the Cohesion Fund have 
been  aligned  with  those  of  the  Structural  Funds.  This  will  make  managing  the  Funds 
easier and less costly. 

•  One set of eligibility rules for expenditure 

Member  States  will  be  able  to  use  national  eligibility  rules  for  co-financed  projects, 
rather than two sets of rules as in the past (one for Community co-financed projects and 
one for nationally-funded projects), thus greatly simplifying project management.  

•  Simplification of financial management 

The financial plans, the setting of the intervention rate and EU reimbursements will now 
be  made  at  a  higher  level  (at  programme  or  priority  axis  level,  instead  of  at  measure 
level, as before). This will simplify management of the programmes, and limit the cases 
where financial plans need to be modified, thus giving a wider autonomy to the national 
authorities in charge of the management of operational programmes. 

•  Increased proportionality and simplification for control systems 

For  smaller  programmes,  a  part  of  the  requirements  on  control  arrangements  can  be 
carried out by national bodies established according to national rules, thus reducing the 
need to comply with certain Community audit requirements. 

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•  Clearer rules on information and communication 

Citizens and potential beneficiaries of the Funds in all Member States will have the same 
access  to  information  on  funding  opportunities  and  awards  from  cohesion  policy,  thus 
reducing the time and effort they have to spend in finding such information. 

•  Electronic government in practice 

For the first time, document exchange between the Member States and the Commission 
will  be  done  only  electronically.  This  marks  the  beginning  of  a  new  era  in  terms  of 
electronic  data  exchange  and  e-Governance.  It  will  save  much  time  in  running 
programmes  and  will  reduce  the  risk  of  disagreement  between  the  Commission  and 
Member States on the amount and type of information to be provided. 

3.3. 

Cohesion policy and the projection of EU values and policies 

Countries outside the Union have been expressing increasing interest in, and a desire to 
learn  more  about,  European  cohesion  policy  as  a  means  of  fostering  more  balanced 
regional development. In particular: 

•  On 15 May 2006, a Memorandum of Understanding on regional policy co-operation 
was  signed  between  the  Commission  and  China.  The  Chinese  authorities  made  a 
balanced  regional  development  one  of  the  key  priorities  of  their  five-year 
development  plan  and  are  increasingly  concerned  with  widening  regional  income 
gaps.  Since  2005  China  and  India  have  also  agreed  joint  action  plans  and  signed 
memoranda  of  understanding  in  the  area  of  employment  and  social  policy  with  the 
European Commission. 

•  On  23  May  2007,  a  Memorandum  of  Understanding  on  regional  policy  cooperation 
was  signed  with  the  government  of  the  Russian  Federation  to  exchange  information 
and best practices on experiences in setting up and implementing cohesion policy. 

Similar  approaches  are  being  discussed  with  countries  such  as  South  Africa  and  Brazil 
and with economic integration groupings such as Mercosur. At the same time European 
cohesion  policy  is  raising  the  interest  of  the  United  Nations,  OECD  and  World  Bank 
Committees. A key part of the added value of European cohesion policy in this context is 
to  underpin  European  views  on  such  issues  as  free  markets,  gender  equality  and  equal 
opportunities, sustainable development, and a system based on participative democracy. 

4. 

NEW CHALLENGES  

Berlin declaration on the occasion of the 50th anniversary of the signature of the Treaties 
of Rome:  

"There are many goals which we cannot achieve on our own, but only in concert. Tasks 
are shared between the European Union, the Member States and their regions and local 
authorities." 

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Growth  and  employment  in  Europe  require  policies  which  are  able  to  anticipate  and 
manage  new  challenges.  Some  of  these  challenges  are  particularly  relevant  to  cohesion 
policy since they have an uneven impact on Europe’s territory and may widen social and 
economic disparities. 

•  Increasing global pressure to restructure and modernise 

Virtually all regions are confronted with the need to restructure, modernise and facilitate 
continuous knowledge-based innovation, in products, management and processes as well 
as  human  capital,  to  face  the  challenge  of  globalisation.  Even  against  a  background  of 
impressive growth rates, regions of the new Member States have an economic structure 
largely concentrated on sectors where competition from the emerging Asian economies is 
high. The economic imperative for these regions will be the anticipation and facilitation 
of change. This will help minimise the costs of change and also be an enabling factor for 
change. For these reasons, anticipative measures must be taken well in advance to equip 
and prepare the people and the regions for change. 

Similarly,  many  regions  in  the  more  prosperous  Member  States  have  a  high  share  of 
employment  in  traditional  sectors,  where  competitive  advantage  is  largely  based  on 
lower-cost, lower-wage production methods. 

Competition  based  on  cost  factors  alone  is  not  a  viable  option,  and  regions  need  to 
modernise  and  diversify  their  economic  structure  into  high  added-value  sectors  by 
creating  the  conditions  for  businesses,  and  particular  SMEs,  to  adopt  and  adapt 
innovative  products  and  processes,  to  establish  cooperation  networks  with  other 
enterprises and with research institutes, to access risk capital, and to internationalise their 
activities. 

Leading  edge  economic  activities  and  talent  tend  to  be  geographically  highly 
concentrated in a few urban centres that are global players. This is creating opportunities, 
but  research  shows  that  after  a  certain  size,  negative  externalities  linked  to  the 
concentration  of  population  such  as  pollution,  urban  sprawl,  and  congestion  start  to 
emerge. 

There  are  many  regions  in  the  Union  which  rank  among  the  most  competitive  and 
innovative  regions  in  the  world  and  which  are  benefiting  from  globalisation.  This  has 
been achieved by investing in new skills, building or attracting new reservoirs of talent, 
and  favouring  networks  and  clusters.  It  is  by  building  on  these  successes  and 
development strategies that the Union can mobilise all its potential and place its economy 
on high-growth, sustainable path. 

•  Climate change 

Many  regions  throughout  Europe  will  be  increasingly  confronted  with  the  asymmetric 
impact of climate change. This will pose serious challenges to agriculture, fisheries and 
the  tourism  industry  in  certain  areas,  and  will  require  significant  investment  to  face 
drought,  fires,  coastal  erosion  and  flooding.  These  changes  may  have  disproportionate 
effects on disadvantaged or low income groups which might lack the means to adapt to 
them.  Significant  investments  will  also  be  necessary  to  comply  with  the  Community 
acquis and the emission reduction targets that result from  the  Spring Council of  March 

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2007.  All  available  economic  reports  indicate,  however,  that  the  cost  of  not  acting  in 
terms of natural disasters by far exceeds the costs of reducing greenhouse gas emission to 
a level that is compatible with the EU's objective of limiting climate change to 2 degrees 
Celsius. 

The  fight  against  climate  change  provides  regional  economies  with  new  economic 
incentives  and  opportunities  through  eco-innovation,  the  growth  of  environmentally 
friendly industries and employment in this area. 

•  Increased energy prices 

Increased  energy  prices  will  affect  EU  regions  in  different  ways  depending  on  their 
energy  mix,  economic  structure  and  the  energy  efficiency  of  their  firms.  Increased 
transport  costs  tend  to  hit  the  geographically  peripheral  regions,  such  as  the  northern 
parts of Finland and Sweden or the most southern parts of Portugal, Spain and Italy, and 
in the islands, including Malta and Cyprus. Key sectors for many such regions, such as 
tourism, could be vulnerable to cost increases although this could be offset in the short-
term by the gains in efficiency from low-cost air carriers. Increases in energy prices have 
a  disproportionate  effect  on  low-income  groups  and  increase  the  energy  poverty  of  the 
disadvantaged. 

Developing or expanding renewable energies and investing in energy efficiency provide 
major opportunities for most regions, with a high local job potential. For example, it is 
estimated  that  the  annual  revenues  of  the  global  solar  equipment  industry  will  increase 
four-fold  in  the  three  years  to  2010.  Also,  increases  in  energy  prices  could  encourage 
growth  strategies,  especially  in  the  lagging  regions,  based  on  less  energy-intensive 
methods of production. 

•  Emerging demographic imbalances and social tensions 

One  in  three  regions  in  the  Union  experienced  population  decline  between  2000  and 
2003.  In  the  majority  of  cases,  this  was  due  to  both  natural  population  decline  and  net 
outward  migration.  Projections  indicate  that  natural  population  growth  will  continue  to 
decline, including in many of the lagging regions. These regions will thus face a double 
challenge  of  fostering  growth  and  employment  while  tackling  the  adverse  impacts  of 
aging and population decline. 

Demographic  change  and  decline  puts  future  employment  growth  at  risk.  Until  2011, 
there is still scope for significant employment and economic growth. Between 2012 and 
around 2017 rising employment rates can be expected to offset the decline in the size of 
the  working-age  population.  From  2017  onwards,  however,  the  shrinking  working-age 
population could lead to stagnation and, subsequently, a reduction in the absolute level of 
employment.  

In parallel, regions will have to cope with a number of social challenges posed by skill 
mismatches  (labour  market  segmentation  between  high  skills/high  salaries  and  low 
skills/low salaries, increased immigration) as the economy moves up the value chain into 
knowledge based activities, against an environment where traditional security institutions 
are eroding. 

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•  National  policies  face  increasing  difficulties  in  keeping  up  with  the  rapid  pace  of 

change imposed by these trends 

While  public  investments  are  increasingly  managed  at  the  sub-national  level,  the  trend 
over the past years has been on a declining path as national and sub-national budgets are 
confronted with the consequences of an ageing population (reform of the pension system, 
more  costly  systems  for  health,  education  and  social  services)  and  economic  reform 
based in part on lower taxation.  

In  addition,  resources  which  remain  available  to  accompany  the  modernisation  of  the 
economy are mainly directed towards growth poles. This may create large diseconomies 
of  agglomeration  (congestion,  pollution,  social  segregation,  urban  sprawl)  on  the  one 
hand, and increasing regional disparities on the other. 

5. 

NEXT STEPS 

During 2007 and 2008 the Commission will develop its approach to the budgetary review 
2008/2009,  setting  criteria  for  policy  assessment,  looking  at  future  policies,  testing  the 
viability  of  different  options.  Within  this  framework,  and  without  prejudging  the 
outcome of the budgetary review, this report indicates a range of challenges with which 
cohesion  policy  may  be  confronted  in  the  coming  years.  The  Cohesion  Forum,  which 
will take place on 27/28 September, will provide a first opportunity to discuss them with 
relevant  stakeholders.  More  specifically,  the  Forum  could  be  organized  around  the 
following questions.  

1. 

1.1. 

1.2. 

What  lessons  can  be  drawn  from  the  experience  of  preparing  the  2007-2013 
programmes?  In  this  context  and  in  the  light  of  the  analysis  provided  by  this 
report,  how  far  is  cohesion  policy  adapted  to  the  new  challenges  European 
regions will face in the coming years? For example:  

How can the regions react to restructuring pressures from dynamic competitors 
in low and medium tech sectors?  

Given wide differences in birth rates, death rates and migratory flows at regional 
level, what is the role of cohesion policy in responding to demographic change?  

1.3. 

To what extent is climate change a challenge for cohesion policy?  

2. 

2.1. 

How  can  cohesion  policy  further  develop  an  integrated  and  more  flexible 
approach to development/growth and jobs in this new context? 

How can cohesion policy better promote harmonious, balanced and sustainable 
development  taking  into  account  the  diversity  of  EU  territories,  such  as  least 
favoured  areas,  islands,  rural  and  coastal  areas  but  also  cities,  declining 
industrial regions, other areas with particular geographic characteristics? 

2.2.  What are the impacts of the challenges identified in the report for key elements 
of  social  cohesion  such  as  inclusion,  integration  and  opportunity  for  all?  Are 
further efforts needed to anticipate and counteract these impacts? 

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2.3.  What  are  the  key  future  skills  that  are  essential  for  our  citizens  in  facing  new 

challenges?  

2.4.  What are the critical competencies that should be developed at the regional level 

to make regions globally competitive? 

3. 

3.1. 

3.2. 

3.3. 

Following the appraisal of the previous questions, what is the assessment of the 
policy management system for the period 2007-2013? 

Given the need for efficient management of cohesion policy programmes, what 
is  the  optimum  allocation  of  responsibility  between  the  Community,  national 
and regional levels within a multi-level governance system?  

How can cohesion policy become more effective in supporting public policies in 
Member  States  and  regions?  What  mechanisms  of  delivery  could  make  the 
policy more performance-based and more user-friendly? 

How  can  we  further  strengthen  the  relationship  between  cohesion  policy  and 
other national and Community policies to achieve more and better synergies and 
complementarities?  

3.4.  What  are  the  new  opportunities  for  co-operation  between  regions,  both  within 

and outside the EU? 

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