EU Cohesion Policies
A significant amount of EU expenditure is on Cohesion Policies. Cohesion policies have been integral to the EU since the outset. Ireland, in particular, benefited significantly from cohesion funds until the early years of the 21st century.
In the preamble to the Treaty of Rome, it was declared that the member states were anxious to strengthen the unity of their economies and to ensure harmonised development by reducing the differences between various regions and the backwardness of the less developed regions.
The European Investment Bank was established and given the task of financing projects for developing less-developed regions. In framing various policies including transport policy, regional policy is to be taken into account.
While State Aid is restricted and controlled, aid which is for the promotion of the economic development of areas where the standard of living is below average or there was high unemployment, may be permitted.
The Treaty of Rome provided for the European Social Fund, which was established in 1958 to assist the mobility of workers in geographical and occupational terms. Its objective was to improve employment opportunities and contribute to raising standards of living. It made funds available for vocational retraining and resettlement allowances.
The EAGGF element of the Common Agricultural Policy aids some rural development measures.
The ESF was given a much bigger budget in 1971 and targeted specific groups such as declining sectors and youth unemployment.Regional policy developed more slowly. When UK and Ireland joined the EU, Regional policy was particularly important to the UK given its relatively low level of benefit from the Common Agricultural Policy.
The European Regional Development Fund, ERDF was established for a three-year trial period. It and the ESF are managed centrally by the European Commission with member states determining how monies are spent.
Single Market Impetus
The Single European Act 1986 made Cohesion Policy more explicit, by adding a new aq title on economic and social cohesion. This was to balance the establishment of the single market providing benefits to all sectors and regions, in particular, Ireland, Spain, Portugal, and Greece.
The Single European Act mandated the EU Commission to review structural funds and rationalise their operations. The Co-ordination regulation on structural funds developed an EU level regional development tool. It concentrated on four key principles. It concentrated on a limited number of objectives and on a numbe of regions.
Objective 1 promoted development and structural adjustment of regions whose development was lagging behind. Objective 2 focused on the convergence of regions seriously affected by industrial decline. Objective 3 focused on combating long-term unemployment. Objective 4 facilitated the occupation integration of young people. Objective 5 focus on the adjustment of agricultural structures and development of economic areas. Objective 6 sought to develop sparsely populated areas following the accession of Finland and Sweden.
Multiannual programming was developed based on analysis, strategic planning, and evaluation. Standard administrative rules and more decentralised management was provided for state submitted regional development plans, which were negotiated with the Commission to make establish the EU support framework. The frameworks outlined the priorities to be addressed by the operational programs.
Partnership in the design and implementation of operational programs required the involvement of regional and local authorities as well as states and the EU Commission. This was expanded in 1993 to include social partners within the framework of national rules and practices. In 2006, it was extended to non-governmental organisations and civil society bodies. EU expenditure must be additional and not replace national expenditure.
There was a large increase in the annual budget for structural funds from €6 billion ECU in 1988 to 20 billion ECU in 1993. The structural funds were advanced under the ERDF, ESF, and EAGGF. 80 percent of the ERDF funding was concentrated on Objective 1 less-disadvantaged areas. The whole of Ireland was at that point an Objective 1 area.
The budget was divided into a number of initiatives dealing with INTERREG (cross-border co-operation) LEADER (rural development) REGUS outermost regions REGEN (Energy Networks) RECHAR (diversification of coal mining areas), STRIDE (research and development) PRISMA (business services linked to the single market) EUROFORM (qualifications) NOW (equal opportunities for women) HORIZON (access to the labour market for handicapped persons and minority groups).
The Maastricht Treaty (1992) reformed Cohesion Policy. Social and economic cohesion and solidarity between the states was made a core objective of the EU.
It established a Committee for the Regions as a forum for regional input to EU policy-making. It required the EU Commission to publish triennial reports on progress to the goal of social and economic cohesion. It gave the EU Council new powers to introduce other measures, based on a Commission proposal in consultation with the European Parliament.
States submitted single programming documents. Rules prescribed what was to be included. The range of measures eligible for support was broadened with the inclusion of education and health in Objective 1 regions and a strong focus on environmental pollution. The whole of Ireland remained Objective 1 as to East Germany, Greece, parts of Northern Scotland, most of Spain and Portugal and the south of Italy under the 1994 to 1999 program
The Maastricht Treaty requires the EU Council to set up a Cohesion Fund and provide a financial contribution to projects of environmental and transport infrastructure. The Regulation determining the criteria looked at gross national income per person and prioritised those with less than 90 percent of the EU average.
There was a further significant increase in EU resources. Structural and related funds rose to 30 percent of the total EU budget with €161 billion (in 1991 prices) for the structural funds and other operations and €15 million for the cohesion fund.
The Maastricht Treaty introduced trans-European networks to overcome the problem of insufficient infrastructure linkages between states. It also introduced a new title on industry providing for a common industrial policy.
The New Millennium & Accession
The funds and arrangements were reformed in 1999 in the expectation of the accession of 10 new member states by 2004. This increased the population of the EU by 20 percent, but its GDP by only 5 percent.
Objective 1 continued to promote development and structural adjustment of lagging regions. Objective 2 supported economic and social conversion of areas facing structural difficulties. Objective 3 applied to all regions and, supported the adoption and modernisation of education skills and training.
Under the 2000 to 2006 program, the west and northwest of Ireland remained Objective 1. Parts of the North of Scotland were Objective 1 by a phasing out period. Much of the North of England and West Coast were Objective 2. Parts of Wales were also Objective 1.
The 10 new member states and large parts of Spain, Greece, southern Italy and East Germany remained Objective 1. A ceiling was placed on structural spending at 0.46 of GDP for the period, equivalent to €239 billion.€18 billion was set aside for a cohesion fund. A formula was adopted known as the Berlin formula, to work out financial allocations for states based on GDP and other economic data.
There was increased emphasis on value for money with an absorption cap linked to national GDP to ensure that transfers do not exceed the capacity of a new member state to spend them. The cap was initially 4 percent of GDP but was lowered in subsequent program periods.
The European Solidarity Fund was established following floods that affected Central Europe in 2002. It provides assistance to states affected by major national catastrophes, being those assessed with damage over €3 billion or 0.6 percent of national GDP. There is an annual limit of €1 billion on payments from the fund.
The Lisbon Treaty made some changes to the Cohesion Policy. It introduced territorial cohesion into the title and statement of aims. It applies the ordinary legislative procedure more widely. The 2007 to 2013 programming period included the 10 new member states with Bulgaria and Romania which acceded in 2007 and Croatia which acceded in 2013.
The overall budget was €50 billion annually; 36 percent of the EU budget. The UK received 9.4 billion being a decrease of 49 percent from the previous allocation. There was a desire to use structural funds to support the implementation of the Lisbon strategy and to turn the EU into the most competitive knowledge-led economy.
The principal objective of the funds was to promote
- convergence to help the least-developed member states and regions to catch up more quickly with the EU average by improving conditions for growth and employment.
- regional competitiveness and employment; this covers all the regions and aims to strengthen competitiveness, employment and the attractiveness of regions other than those which are the most disadvantaged
The north and west of Ireland were subject to phasing out while most of Ireland ceased to qualify. Northern Scotland and West Wales qualified as convergence regions as did most of the Eastern European States, the South of Spain, the South of Italy and parts of Greece.
The Lisbon strategy involved a greater top-down element to programming with the adoption of the EU’s strategic guidelines to provide an indicative framework for interventions funded by the structural and cohesion funds. They supported the drawing up of national strategic reference frameworks at member state level and in turn informed the preparation of programs.
The European Investment Bank became more involved in delivering Cohesion Policy using innovate financial instruments as an alternative to grants. This includes
The JERMIE program giving regions the opportunity to use part of their structural funds to finance small and medium-size business by way of equity loans or guarantees.
- JESSICA a series of urban development funds,
- JASMINE a pilot initiative launched in 2008 to help non-bank microfinance institutions scale up operations
- JASPER technical expertise for major infrastructure schemes financed by the structural and cohesion funds.
The European competitiveness and innovative program is a framework program which seeks to encourage the competitiveness of European enterprises, in particular, small and medium-sized enterprises. It had a budget of €3.6 million. It supported innovation activities including eco-innovation. It sought to provide better access to finance and deliver business support in the regions.It encouraged a better take-up and use of information and communication technologies and promoted the use of renewable energies and energy efficiency.
The European Globalisation Adjustment Fund was established in 2006 to provide support for workers who had been made redundant due to major structural changes in world trading pattern. This includes redundancies caused by the global, economic and financial crisis. It provides for up to €150 million per annum.
2013 to 2020
Over half of EU funding is channeled through five European structural and investment funds (ESIF). They are jointly managed by the European Commission and the EU countries.
The purpose of the funds is to invest in job creation and a sustainable and healthy European economy and environment.
The ESIF mainly focus on 5 areas:
- research and innovation
- digital technologies
- supporting the low-carbon economy
- sustainable management of natural resources
- small businesses
The European Regional Development fund (ERDF) promotes balanced development in the different regions of the EU.
The European Social Fund (ESF)- supports employment-related projects throughout Europe and invests in Europe’s human capital; workers, young people and all those seeking a job.
The Cohesion Fund (CF) funds transport and environment projects in countries where the gross national income (GNI) per inhabitant is less than 90% of the EU average. In 2014-20, these are Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, and Slovenia.
The European agricultural fund for rural development (EAFRD) focuses on resolving the particular challenges facing EU’s rural areas.
The European maritime and fisheries fund (EMFF) helps fishermen to adopt sustainable fishing practices and coastal communities to diversify their economies, improving quality of life along European coasts.
The above funds are managed by the EU countries themselves, by means of partnership agreements. Each country prepares an agreement, in collaboration with the European Commission, setting out how the funds will be used during the current funding period 2014-20.
Partnership agreements lead to a series of investment programmes channeling the funding to the different regions and projects in policy areas concerned.
Investment areas include
- jobs, growth and investment
- digital single market
- energy union and climate
- internal market
- economic and monetary union
- justice and fundamental rights
For the 2014 to 2020 period, the Competitiveness in Innovation program has been replaced by the program for the Competitiveness of enterprises and SME’s (COSME). There is a budget of €2.3 million.