Does EU Regional Policy have a future and will Latvia be able to benefit from it?

Table of contents

Abstract

Zusammenfassung

Samenvatting

Preface

Glossary

Chapter 1 Introduction
§ 1.1 Personal interests and the way to Latvia
§ 1.2 Research outline

Chapter 2 EU Regional Policy, a package deal in relation to other policy areas?
§ 2.1 Introduction
§ 2.2 The rise of Regional Policy in a multi-level framework

Chapter 3: European Regional Policy
§ 3.1 History
§ 3.1.1 European regional development till the Berlin summit 1999
§ 3.1.2 Agenda 2000
§ 3.2 Defining the terms and strategy
§ 3.3 Starting point Regional Policy
§ 3.4 Regions
§ 3.5 Instruments of solidarity
§ 3.5.1 The four Structural Funds:
§ 3.5.2 The three priority Objectives:
§ 3.5.3 The four community Initiatives:
§ 3.5.4 The Cohesion Fund
§ 3.5.5 Other programmes
§ 3.5.6 Pre-accession instruments and other assistance to candidate states
§ 3.6 Decision making processes and actors involved
§ 3.6.1 How is support being transferred from the European to the regional levels
§ 3.6.2 The role of the regions
§ 3.6.3 Other actors involved
§ 3.7 Budget of EU Regional Policy
§ 3.7.1 Introduction
§ 3.7.2 Budget of Structural and Cohesion Funds
§ 3.7.3 Budget of the pre-accession Funds and allocation to the new member states
§ 3.7.4 Future and reform of the budget
§ 3.8 A state of the art
§ 3.8.1 A closer look at the goals and reasons for Regional Policy
§ 3.8.2 A closer look at the effectiveness of Regional Policy
§ 3.8.3 Dilemmas and problem areas faced in the light of enlargement
§ 3.8.4 What can be done?
§ 3.8.5 Proposals new Cohesion Policy by the EC for the planning period 2007-2013
§ 3.9 Summary and concluding remarks

Chapter 4 Goals and fears from the main actors involved
§ 4.1 The trend towards Western Europe
§ 4.2 Enlargement

Chapter 5 Implementation of EU Regional Policy in Latvia
§ 5.1 Introduction
§ 5.2 Decentralisation and its effects
§ 5.2.1 Developments of the decentralisation process
§ 5.2.2 Defining Self-government in Latvia
§ 5.2.3 Practical example: Enforcing the EU Requirements on Water Management in Latvian Municipalities
§ 5.3 Different authorities dealing with Regional Policy
§ 5.4 Governance structure regarding Regional Policy
Managing authority
Paying Authority
Intermediate bodies
Final beneficiaries
Monitoring Committee
Steering Committee
§ 5.5 Political environment and political will

Chapter 6 Latvia’s (development) strategy to use EU Regional Policy finances
§ 6.1 Introduction
§ 6.2 Analysis
§ 6.3 Strategy
§ 6.4 Horizontal Objectives – Coherence with the Policies of the EU
§ 6.5 Funding priorities and available finances
§ 6.6 How to measure it?

Chapter 7 Conclusions

Bibliography

Abstract

In this thesis I took a closer look at the second largest and most flexible policy field of the EU: Regional Policy. At present, there are debates about the future of EU Regional Policy, closely linked to the current debate about the EU budget for the planning period 2007-2013 for it is this budget that sets the boundaries for the financial resources of EU Regional Policy. I assume that the future of the EU, its acceptance within the community and its legitimacy by the community, is dependent on the outcome of this ongoing debates and the future of regional policy. By analysing the developments and the ongoing debates concerning EU Regional Policy so far I give prospects for the future of the EU in general and EU Regional Policy in particular. The eastern enlargement is highly influencing regional policy and will result in a financial shift from west to east. I used Latvia as a case study to show in what way concrete structures of a post-Soviet state are being influenced and developed.

In order to investigate and do the appropriate research concerning my case study I lived in Riga, the capital and political Walhalla of Latvia, for half a year. By being there and participating in seminars and congresses and by carrying out a project with a main focus to bridge the information gap between local Latvian authorities and the EU, I got a good overview how the different governmental officials, but the “normal people” as well, judge the EU and EU Regional Policy in particular.

I learned that regional policy is extremely subject to the spectators view. The judgement of EU Regional Policy depends on different political, social and moral argumentations. That the angle on how to look at the topic is very different seems obvious: Let’s take a Latvian mayor who is also part-time farmer as an example: Although he is interested in EU support he is barely able to fulfil the administrative and material conditions necessary to be eligible for EU support. His Dutch colleague on the other hand is concerned about the financing of his relatively efficient local administration and he might judge financial support to weaker EU regions as competition. This example shows the different starting points. The decision-making process shows similar disparities. At the moment there is a clear gap between net-contributors and net-beneficiaries within the Union. They have not come to a compromise concerning EU Regional Policy and the budget yet.

The most likely outcome of the ongoing process is that the budget of the EU and the percentage earmarked for cohesion or regional policy will not increase. I am deeply concerned about this and foresee that a wished reform of regional policy is postponed again. This puts a heavy burden on the targets and goals of regional policy. Without the necessary financial resources, an effective regional policy from the side of the EU is not feasible. This trend leads me to conclude that EU regional policy will continue to stumble on at a low level, not achieving the results it is able to. The synergy effect this policy field could bring about is not being recognised by all actors in the web. However, despite its limitations, not in the last place because of the set ceiling of 4% of GDP that a country is supposedly able to absorb, EU Regional Policy can be of use in Latvia. Main improvements of the effectiveness of regional policy, especially in the new member states, have to be made concerning the establishment and improvement of the “right” national institutions, dealing with the transfer, distribution and control of EU policies. These institutions are often missing or underdeveloped. It is arguable whether we can speak of a regional policy concerning Latvia at all, since due to its administrative capacity and its financial resources, Riga is the only city able to actively involve this policy field. In that sense, EU Regional Poliy in Latvia is depending on Riga and its willingness to actively promote the development of the regions. Financial support to the regions often seems to be stuck in the capital and is therefore contradicting with the goals of EU Regional Policy. This does not automatically mean that the money is not spend effectively on programs, but in order to grant the objectiveness of the implementation of EU Regional Policy, efforts should be made to overcome this problem.

Zusammenfassung

Meine Arbeit beschäftigt sich mit einem der wichtigsten Handlungsfelder der Europäischen Politik: der Regionalpolitik. Im Augenblick debatiert man über die Zukunft der EU-Regionalpolitik besonders im Hinblick auf den EU-Haushalt, denn diese Regionalpolitik ist stark verknüpft mit der Bereitstellung finanzieller Mittel für die kommende Planungsperiode 2007-2013. Ich gehe davon aus, dass die Zukunft der EU – ihre Akzeptanz in der Bevölkerung und ihre Legitimierung durch die Bevölkerung – in starkem Maße abhängig ist vom Ausgang der momentan geführten Debatten und der sich daraus ergebenen Bereitschaft finanzielle Mittel aus dem EU-Etat für Strukturmaßnahmen der einzelnen Regionen zur Verfügung zu stellen. Ich konzentriere mich in meiner Arbeit auf einige wesentlichen Aspekte dieser EU-Regionalpolitik. Durch die Analyse der Entwicklung und der momentan geführten Debatten habe ich versucht, Zukunftsperspektiven der EU im Allgemeinen aber speziell ihrer Regionalpolitik zu entwickeln. Die Osterweiterung beeinflusst in hohem Maße die Regionalpolitik durch einen Finanztransfer von West nach Ost. Am Beispiel Lettland zeige ich auf, inwieweit konkrete Strukturen eines ehemals sowjetischen Mitgliedstaates durch die EU-Regionalpolitik gestaltet und beeinflusst werden.

Ein 6 Monatiger Aufenthalt in Riga – der Hauptstadt und dem politischen Zentrum Lettlands – ermöglichte es mir, o.g. Strukturentwicklungen „aus der Nähe“ zu beobachten und zu untersuchen. Ich habe in dieser Zeit an verschiedenen Seminaren und Kongressen teilgenommen und ein Projekt verantwortlich mit durchgeführt, das zum Ziel hatte, lokalen lettischen Funktionären EU-Politik näher zu bringen. Dies hatte zur Folge, dass ich mit verschiedenen Regierungsfunktionären aber auch mit „Normalbürgern“ in Kontakt kam und mir so einen guten Überblick verschaffen konnte, wie man in Lettland der EU-Politik gegenübersteht.

Die Beurteilung der EU-Regionalpolitik ist natürlich subjektiv und hängt in starkem Maße ab vom jeweiligen Betrachter. Sie wird beeinflusst durch unterschiedliche politische, soziale und moralische Wertvorstellungen und dem messbaren bzw. nicht messbaren Ergebnisse dieser Politik. Nehmen Sie z.B. einen lettischen Bürgermeister, der gleichzeitig noch als Nebenerwerbslandwirt tätig ist. Er ist zwar an Förderung interessiert aber kaum in der Lage, die administrativen und materiellen Voraussetzungen zu schaffen, um EU-Fördermittel zu erhalten. Auf der anderen Seite seinen niederländischen Kollegen. Er ist um die Finanzierung seiner hochmodernen Gemeindeadministration und der von ihm erwarteten Aufgaben bemüht und kann deshalb die Vergabe von EU-Geldern an schwächere EU-Regionen als Konkurrenz empfinden. Dieses Beispiel soll stellvertretend die Bandbreite an Standpunkten, der am Entscheidungsprozess von EU-Richtlinien partizipierenden Teilnehmern dokumentieren.

Es bestehen divergente Vorstellungen zwischen Netto-Einzahlern und Netto-Empfängern und ein übergreifender Kompromiss ist bis dato noch nicht in Sicht.

Das meiner Meinung nach wahrscheinlichste Ergebnis im politischen Entscheidungsprozess wird sein, dass sich weder der EU-Gesamthaushalt prozentual erhöht noch die zur Verfügung gestellten finanziellen Mittel für die Regionalpolitik innerhalb dieses Etats. Die Entwicklung verfolge ich mit großer Skepsis und vermute, dass eine durchgreifende Reform in der Regionalpolitik ein weiteres Mal zurückgestellt wird. Dies wirkt sich auf die gesteckten Ziele und ihre Realisierung natürlich contraproduktiv aus. Die strukturellen Maßnahmen der EU bleiben somit weit hinter ihren Möglichkeiten zurück und der Synergieeffekt scheint nicht von allen Beteiligten in ausreichendem Maße erkannt zu werden.

Trotz alledem bietet die momentane Regionalpolitik der EU Möglichkeiten für Lettland und ihre Regionen. Allerdings bedeutet die angestrebte Regelung, dass ein Mitgliedsland maximal 4 % ihres Bruttosozialprodukts als Fördermittel aus dem EU-Regionaletat erhalten können, eine deutliche Einschränkung. Zur Förderung der Effektivität von Regionalpolitik – vornehmlich in den neuen Mitgliedsstaaten – ist es von größter Wichtigkeit, nationale Strukturen und Institutionen so zu installieren, dass eine gerechte Verteilung der Fördergelder innerhalb des Landes – entsprechend der aufgestellten Kriterien – garantiert werden kann. Im Falle Lettlands kann konstatiert werden, dass entsprechende staatliche Institutionen noch teilweise ganz fehlen bzw. unterentwickelt sind und bis heute nur Riga über eine entsprechende finanzielle, materielle und personelle Ausstattung verfügt, um EU-Richtlinien entsprechend als Ansprechpartner zu gelten und finanziell unterstützt zu werden.

Samenvatting

In dit afstudeerverslag houd ik me bezig met het op een na grootste, en in mijn ogen het meest flexibele politieke veld van de Europese Unie: het regionale beleid. Men probeert momenteel op het Europese toneel voornamelijk tot overeenstemming te komen over het EU-budget voor de periode 2007-2013. Dit is van cruciaal belang voor de toekomst van het regionale beleid van de EU, aangezien met het toekomstige budget ook een financiële afbakening van dit beleid overeengekomen zal worden. Ik ga er vanuit dat de toekomst van de EU, haar acceptatie en legitimatie door de bevolking, in sterke mate afhangen van deze onderhandelingen en de daaruit resulterende bereidheid financiële middelen voor structurele maatregelen ten behoeve van de Europese regio’s ter beschikking te stellen. In dit verslag beschrijf ik de fundamentele karakteristieken van dit politieke veld. Door analyse van de hedendaagse ontwikkelingen en de huidige debatten heb ik geprobeerd toekomstperspectieven voor de EU en het regionale beleid te schetsen. De uitbreiding die in mei dit jaar plaatsvond zal de regionale politiek van de EU sterk beïnvloeden, hoofdzakelijk door herschuiving van de financiële geldstroom van West naar Oost. Door Letland als case-study te gebruiken laat ik zien hoe nationale structuren van dit post-communistische land (opnieuw) gecreëerd en beïnvloed worden door de Europese Regionale Politiek.

Tijdens de zes maanden die ik in het kader van dit onderzoek in Riga, de hoofdstad en het politieke en sociale centrum van Letland, doorbracht, heb ik bovenstaande ontwikkelingen van dichtbij kunnen volgen en onderzoeken. In deze periode heb ik aan verschillende seminars and congressen deelgenomen. Bovendien was ik mede verantwoordelijk voor een project dat ten doel had de kloof tussen de EU en Letlands locale autoriteiten te analyseren en oplossingen aan te dragen om deze kloof te dichten. Op deze manier ben ik in contact gekomen met ambtenaren van de verschillende overheden en tevens met de “normale bevolking”. Ik hoop dat het me op deze manier gelukt is een genuanceerd beeld te verschaffen van hoe men in Letland de EU, en specifiek haar regionale politiek, beoordeelt.

Hoe het regionale beleid van de EU beoordeeld wordt hangt in sterke mate af van de toeschouwer. Naast meetbare en niet-meetbare resultaten spelen vooral politieke, sociale en morele drijfveren een grote rol. Neem bijvoorbeeld een burgemeester in Letland die naast zijn politieke baan parttime in de agrarische sector werkt. Hoewel hij geïnteresseerd is in subsidies vanuit de EU is hij nauwelijks in staat aan de administratieve en materiële voorwaarden te voldoen om voor financiële EU-middelen in aanmerking te komen. Zijn Nederlandse collega is daarentegen vooral bezig met de efficiëntie van zijn bestuurlijke orgaan en de verantwoording van zijn takenpakket. Hij zou geneigd kunnen zijn om een financiële geldstroom naar zwakkere Europese regio’s als concurrentie te veroordelen.

Dit voorbeeld dient ter verduidelijking van de verscheidenheid in standpunten en denkwijzen onder de actoren van het regionale beleid van de EU. Ook op nationaal niveau hebben netto-betalers en netto-ontvangers nog niet tot elkaar kunnen vinden, een compromis is nog niet in zicht.

De, mijns inziens, meest waarschijnlijke uitkomst van het politieke besluitvormingsproces zal zijn dat de EU-begroting procentueel niet significant verhoogd zal worden. De beschikbare financiële middelen voor de regionale politiek zullen waarschijnlijk evenmin toenemen. Deze trend volg ik met grote scepsis want er is dringend hervorming van het regionale EU-beleid nodig. Uitstel zal een contra-productieve uitwerking hebben op de doelen van het beleid. De structurele maatregelen blijven dan ver achter haar mogelijkheden terug, het synergie-effect dat dit politieke veld kan hebben wordt op deze manier niet behaald. Een belangrijke taak op korte termijn zal dan ook zijn om de voordelen van dit synergie-effect op Europees niveau duidelijk te maken.

Toch biedt het huidige regionale beleid van de EU mogelijkheden voor Letland en zijn regio’s. De voorgestelde regeling dat een lidstaat maximaal 4% van zijn BNP aan financiële middelen uit de verschillende regionale fondsen van de Unie op kan nemen is echter wel een duidelijke beperking. Om de effectiviteit van het regionale beleid, voornamelijk in de nieuwe lidstaten, te verhogen is het essentieel om de benodigde nationale structuren en instanties zo te installeren, dat een rechtvaardige distributie van de ter beschikking staande middelen, op basis van de opgestelde criteria, binnen de nationale grenzen, gegarandeerd kan worden. In het geval van Letland is geconstateerd dat dergelijke instanties en structuren gedeeltelijk missen of onderontwikkeld zijn en dat tot op heden slechts Riga over financiële, materiële en personele vermogens kan beschikken die het mogelijk maken als partner in het besluitvormingsproces op te treden en financiële middelen uit Brussel aan te trekken.

Preface

This Thesis is part of the Master of Science (MSc) degree in European Studies at the University of Twente and the University of Münster. It is the closure on the education that leads to the Master of Science degree. I would like to thank the two universities for giving me the opportunity to participate in these programs and to add an international component to it which stimulated me to look across borders.

I would like to use this opportunity to give special thanks to my advisors Prof. Dr. J. de Wilde of the University of Twente and Prof. Dr. R. Meyers of the University of Münster. As a third reader I thank Dr. R. Wessel of the University of Twente for his comments.

Also, I express my gratitude to the University of Latvia which gave me the possibility to use their academic staff, attend lectures and who provided me with an office where I could find rest and peace to work on my thesis. Special thanks in that sense goes out to Dr. Tatyana Muravska, Evija Bleidele and Linda Zidere.

Besides, I want to thank all people that provided me with helpful advice and remarks along the way. Their questions often got me back on the ground, away from the purely academic inside contents of the topic. I therefore have good hopes that this thesis is accessible for both layman as well as experts.

Chris Breuer

Enschede, September 2004

Glossary

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Chapter 1 Introduction

§ 1.1 Personal interests and the way to Latvia

§ 1.2 Research outline

§ 1.1 Personal interests and the way to Latvia

At the end of 2000, when I started a half-year internship at EUREGIO, a cross-border public organ between Germany and the Netherlands, I became interested in the Regional Policy of the European Union. EUREGIO mainly deals with the INTERREG program of the EU, promoting cross-border, trans-national and interregional cooperation. This program is financed by the European Regional Development Fund (ERDF) and this ERDF is on its turn one of the four of the structural funds that forms the lion’s share of EU’s Regional Policy.

From January till August 2004, I was working on a project called ”The environmental helpdesk” in Latvia. This project, initiated by the Dutch Province of Overijssel, was set up in order to bridge the gap of information of water management related topics between the EU and the local governments in Latvia. The Ministry of Environment of Latvia and the national government have difficulties to cope with the new burden that additionally lies on them since enlargement. In that sense, I studied the institutional structures of the country and the main characteristics of the governance system and its links. It has been very important to understand the relevant actors’ points of view and the potentialities for change in Latvia. Some EU criteria are, at minimum, questionably institutionalized in Latvia.

For the above mentioned project, I lived in Latvia from January until June 2004. During my stay, I was able to talk to both officials and local residents about their country and regional policy in particular. I presented in several seminars, congresses and at university lectures. The experience I got there has been a mayor source of information I would not have had while reading written documents and investigating this topic as a desk research only.

The above mentioned project has been my mainspring to take Latvia as a case study.

§ 1.2 Research outline

In this thesis I will describe the characteristics, the problem areas and the future reforms of Regional Policy in the EU, taking Latvia as a case study. Which rules and criteria are set up with regard to Regional Policy? What are the bottle necks, how do partners influence the outcome of Regional Policy and which dilemmas does the EU face concerning the reform of this policy field?

Let me start by examining “Regional Policy” definition in Wikipedia encyclopaedia^[1].

“Although the European Union is one of the richest parts of the world, there are striking internal disparities of income and opportunity between its regions. The May 2004 Enlargement , has widened these gaps. Regional Policy transfers resources from richer to poorer regions. It is both an instrument of financial solidarity and a powerful force for economic integration”.

This definition is very simplistic. The transfer from richer to poorer regions is not a static conception. It is not only influenced by the ‘poorness’ or ‘richness’ of a region, but also by bargaining on all involved levels (mainly the national level) and by moral and psychological reasons.

How can the EU criteria and rules be implemented by Latvia? How does this process work? How does Latvia deal with it, what does Latvia do in order to create the institutional framework necessary to distribute the resources from Brussels to the different actors and regions within the country?

Problem situation

The cost of not pursuing a vigorous cohesion policy to promote growth and tackle disparities is measured not only in terms of a loss of individual and collective well-being but also in economic terms, in a loss of potential real income and higher living standards. Given the interdependencies inherent in an integrated economy, these losses are not confined to the less competitive regions or to individuals who are not working or who are in unproductive jobs but affect everyone in the Union.^[2]

According to me, Regional Policy is the EU’s most important policy field. On the same hand, it is highly underestimated by its citizens. We have seen that EU’s Regional Policy affects everyone in the Union. However, not everyone in the Union is pleased with this policy field. A joint letter issued on December 15th, 2003 by Germany, France, Great Britain, the Netherlands, Austria and Sweden (all net-contributors) made clear that these member states pled for a maximum of the EU budget of 1% of EU GDP. Now the negotiating process concerning the future budget is thoroughly in progress this letter will certainly influence the outcome of Regional Policy in the future.

The eastern enlargement that took place this year will lead to even bigger disparities between the regions in the Union. This requires an even better coordinated and efficient regional approach. Therefore, a reform of the anyway debatable Regional Policy field is one of the main tasks of the EU at the moment.

Latvia is, when looking at the GDP, the poorest country in the EU^[3]. Regional disparities are also very high within the country itself. Applying Regional Policy will therefore be a real challenge in Latvia.

Arguing from the side of the local governments, there is simply no money available to carry out the necessary feasibility studies (which have to be carried out in order to be eligible for financial support from the EU) or to co-finance projects. Besides, the local governments are very reluctant to the idea that the national government will take care of it. Awareness and responsibility on the local level remain low. This situation shows the controversy argumentation about the initial start of project.

Political decision making power will partially move from Riga to Brussels, regional funding will change in nature and people will automatically “feel” the European influence in their daily life. The question is how this change will affect Latvia and its citizens. Is Latvia willing to change and is it able to do so? These are main questions to be asked.

Purpose of the research

I want to give an overview of the complex Regional Policy of the EU and its actors. Besides, since a reform is coming up, I want to investigate how this policy is likely to change and what is done to improve it.

With regard to Latvia, I will describe how the transition period linked to the creation of the institutional framework necessary to be eligible for EU funding has proceeded. I want to give an objective example about how EU Regional Policy is practically incorporated in domestic policies.

Theoretical framework

The parts of this thesis outlining EU Regional Policy are primarily based on documents from the European institutions. They present a good overview about the priorities, criteria, objectives and principles the EU are using to achieve their goals. However, when it comes to the achievements, results and opinions regarding Regional Policy, their texts have to be read with scepticism. Therefore, with regard to these questions and issues, I analysed information written by scholars with no direct affiliation or commitment to the EU primarily.

This division is about the same when it comes to the parts on Latvia: Governmental reports to describe the present goals, objectives and priorities and work from scholars to give a more or less objective meaning on it. However, it has to be said that not much is written about Latvia from scholars within the country. This is still due to the fear to write texts contradicting or blaming the national government. Besides, the turbulent transition period inholds that information from a year ago can be regarded as old and outdated already. In that sense, when reading information about Latvia it is important to keep in mind who wrote it, to what purpose and when.

Problem definition and research question

In order to be able to draw conclusions about Regional Policy I will investigate this EU policy field. Besides, I will investigate how Regional Policy in Latvia is being dealt with and how this fits in the concept of EU Regional Policy. Latvia is only able to benefit from EU Regional Policy if the right national framework is available in order to cope with the means and goals of this policy field. In that sense, I will explore the national framework and the institutions dealing with Regional Policy. Combining the above described problems and the purpose of the research I came to the following research question:

„Does EU Regional Policy have a future and can Latvia benefit from it?”

In order to be able to answer this question I will organise my investigation by using several sub-questions:

- What are the set goals, priorities and features of EU Regional Policy?

A description of the policy field ”Regional Policy”, its goals, objectives, priorities and its possibilities.

- Who influences the policy field ”Regional Policy”?

The EU as a multi-level decision-making process is highly depending on its actors and member states. An overview about who influences Regional Policy, how this happens and where it leads to.

- How will EU Regional Policy proceed and what are the most likely outcomes of the reforms after enlargement and the new budget?

The enlargement will bring 10, mainly poor, member states in need of help and support into the Union. How will support be used after enlargement and how will it affect the budget? What dilemmas and problems are arising due to these matters and how can this be dealt with by all actors involved.

- How does EU Regional Policy affect Latvia?

Latvia, as a case study, will be examined in order to turn theory into practice. How can the set framework be implemented by the country and how do the financial transfers actually ”reach” the eligible projects?

- Does EU Regional Policy achieve its goals?

Does EU Regional Policy achieve its own goals and does it achieve the goals of the regions and people it is meant for?

- Can Latvia benefit from EU Regional Policy?

Is Latvia able to not only attract financial resources from the EU but also to use them effectively in order to support regional development within the country?

Outline of the report

Chapter two will place EU Regional Policy on the current EU framework. Linkages with other policy fields are explained and I will describe that EU Regional Policy is more than just ‘throwing money’ at problems

Chapter 3 deals with EU Regional Policy. What does the EU do to support lagging regions, how is it coordinated and what are the results so far, these are the main questions to be investigated. The present debate about the future of Regional Policy and the EU budget is paid attention to and the most likely outcomes are highlighted. In chapter 4, the different opinions concerning enlargement in general and the circulating fears around it will be described.

Chapter 5 and 6 are dedicated to Latvia. Is Latvia, as a case study, able to profit from support from EU Regional Policy finances? The administrative structures had to be revised and partly new established. I will describe how Latvia converged to the EU criteria and how this is linked to Regional Policy. What Latvia can expect from the EU in this specific matter and what the EU expects from Latvia are main questions.

Chapter 2 EU Regional Policy, a package deal in relation to other policy areas?

§ 2.1 Introduction

§ 2.2 The rise of Regional Policy in a multi-level framework

§ 2.1 Introduction

In this chapter I will explain the institutional framework in which Regional Policy is being developed. Besides a description of the actors I will give examples from the past in order to show how Regional Policy has been influenced by other policy fields.

Is the allocation and reimbursement of finances from the Structural Funds a policy area that stands for itself or is it affected by other policy fields such as the Common Agricultural Policy (CAP)? Is it just a tool for buying off resistance of southern European countries against the recent EU enlargement? I will try to look for linkages and answers within the total EU environment.

One can see the EU as an experiment of trans-national governance. European integration has always been a consistent try of institutions and institutional relations^[4]. The involved partners were even encouraged to test the flexibility of their institutions^[5].

Concerning EU Regional Policy, is has been doubted whether it is in fact influenced by set rules, cooperation and negotiations between member states (and other institutions) or a mixture of both.

It is often stated that decisions are not only influenced by set rules but are the outcome of negotiations on all levels of decision making. A fashion word, established over time, represents this typical way of decision-making: Package deal.

A package deal represents an EU-typical way of balancing interests during negotiations, especially in the Council of Europe. Numerous individual issues that, because of differing interests in member states, cannot be resolved, are put together to form a comprehensive and finely balanced package, which balances advantages against disadvantages for every state to be adopted as a package. Individual national delegations are then prepared to accept disadvantages in one area, provided it is set against advantages in another^[6].

The starting point is the EU’s Multi-level system:

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Figure 2.1 The EU’s Multi-Level System^[7]

The EU is made up of all these ingredients together; they determine its policies and its progress. Just think of the central role played by parliamentary discussions on European politics in countries like Great Britain and Denmark. In line with this master thesis’ topic, just think about regional policies that would be unable to be implemented without cooperation from regional entities.

§ 2.2 The rise of Regional Policy in a multi-level framework

In this section I will describe the way how Regional Policy developed from the emphasised need mentioned in the Protocol 30 of Ireland’s accession Treaty (1972) to the policy area that currently makes up more than a third of the total EU budget.

The preamble of the Treaty of Rome (1957) mentioned the need to reduce regional disparities, but the treaty itself included few redistributive mechanisms. We can say that the Treaty of Rome was a package deal to distribute losses and gains among member states, not to distribute resources between rich and poor regions. In any case, with the notable exception of the South of Italy, regional disparities in the EC of six member states were not as striking as in the enlarged EC of nine, ten, and twelve member states or in the EU of fifteen member states^[8]. In that sense, enlargements increased regional disparities and in 1972 the need to end regional disparities was emphasised (Protocol 30 of Ireland’s accession Treaty). However, the ERDF was established only in 1975 and mainly to compensate Britain for its poor return from the CAP. The EC began co-ordinating member states aid schemes in the late 1970s, although its own regional aid policy remained rudimentary.

The Southern enlargement from the 80’s was regarded as positive and necessary for politically strategic reasons. However, there were concerns regarding the economic and constitutional changes that could lead to a decreased efficiency and a damaged decision making system. The struggle was all about the fundamental differences over the direction of future integration. The struggle caused delay on numerous summits, with an ultimate turning point at the summit in Fontainebleau in 1984 (finally resulting in the SEA). The outcome of the negotiations, among others, was that Regional Policy had to be expanded in order to gain approval on the internal market from the new members. This example shows that the flexibility of Regional Policy as a policy field in the EU is important to cope with apparent unbridgeable differences. Regional Policy is a tool in order to reach package deals in the multi-layered EU system.

Jacques Delors, the then president of the Commission signalled the enhanced importance of structural policy during that time. In March 1985, Delors warned the EP that enlargement negotiations with Greece, Spain and Portugal had “revealed a tension in Europe” which is a tension between north and south. This tension not only originates from financial problems but from a lack of understanding, from a clash of cultures, which seems to be promoting certain countries to turn their backs on the solidarity pact that should be one of the cornerstones of the Community, solidarity being conceived not in terms of assistance, but rather as an expression of the commonwealth, contributing to the strength of the European entity.

Apart from the “solidarity principle”, the likely economic and political impact of greater regional disequilibrium strengthened the case for cohesion. The EC would not prosper, let alone survive, if excessive disparities caused poorer member states to block legislation and impede completion of the single market. As a result, the SEA added a title on economic and social cohesion to the TEC. This title committed the EC to “reducing disparities between the various regions and the backwardness of the least favoured nations”, called for coordination between other EC policies and cohesion, and obliged the Council to reform the structural funds within a year of the SEA’s implementation on the basis of a Commission proposal. This reform led to a substantial increase of the funds under Delors. Great Britain rejected (under Thatcher) but thanks to Kohl, who sympathised with the southern member states, the European Council could resolve this matter at the Brussels summit in February 1988. A delighted Delors called the decision to double the structural funds by 1993 a “second Marshall plan”. Despite Thatcher’s efforts, the northern countries’ endorsement of the Delors I package demonstrated their acceptance of redistributional solidarity as part of market integration. However, substantially increasing the structural funds was not enough to redress regional imbalances. As Delors told the EP in January 1988, “Cohesion is not simply a matter of throwing money at problems… It implies rather a willingness to act at Community level to redress the disparities between regions and between different groups”^[9]. These developments led to an radical reform in 1988 of which the principles of additionality, partnership and concentration are the most important.

The 1988 structural funds had political as well as economic implications, as the principles of concentration and partnership allowed the Commission to work closely with regional authorities, often bypassing national governments. The Commission used these contacts “to act as a lever for regions that are not yet traditionally recognised” and to promote the emergence of new “Euroregions” that straddle national frontiers. Most regions opened offices in Brussels and became active in the Assembly of European Regions (AER), an interest group. Increasingly, therefore, the formulation and implementation of cohesion policy strengthened regionalism in Europe and contributed to the emergence of multi-level governance in the EU.^[10]

The TEU that followed a couple of years later reinforced the trend toward regionalism in the EU by establishing a new consultative body, the Committee of the Regions (COR).

This issue of regional aid is highly controversial for the member states. Along with other mayor recipients, Spain is fighting hard to maintain the EU subsidies to its poorer regions, which are due to receive nearly 2/3 of all available structural and cohesion fund under the current EU budget agreement. Under current EU rules, the largest part of the structural funds is only available to regions which have an average GDP below 75% of EU average. Since the 1st of May 2004, virtually all the regions that fulfil these criteria will be in central and Eastern Europe, because the entry of poorer countries will lower EU average GDP to a point below that of the currently poorest regions.

Prior to the Gothenburg summit, the Spanish government tried to trade of the German position on transitional periods for central European workers against its own regional aid demands. This example shows that these two negotiating chapters are linked only by member state power politics. But there will be further such stand-offs where budget demands are linked to difficult areas in negotiations. For instance, the French government argued before that priorities on free movement of capital should be linked to agricultural policy, which would have prevented progress in that area for the following year. Both these attempts were unsuccessful, but they were important markers on the positions that those countries took in 2002^[11].

Chapter 3: European Regional Policy

§ 3.1 History

§ 3.2 Defining the terms and strategy

§ 3.3 Starting point Regional Policy

§ 3.4 Regions

§ 3.5 Instruments of solidarity

§ 3.6 Decisions making processes and actors involved

§ 3.7 Budget of EU finances

§ 3.8 A state of the art

§ 3.9 Achievements and conclusion

§ 3.1 History

§ 3.1.1 European regional development till the Berlin summit 1999

The Treaty of Rome (1957) refers in its preamble to the need “to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences between the various regions and the backwardness of the less favoured regions”^[12]

Tools to achieve these goals are the European Social Fund (1958), the European Agricultural Guidance and Guarantee Fund (1958) and the European Regional Development Fund (1975). The ERDF was created in order to redistribute the Member States’ budget contributions to the poorest regions. The Single European Act (1986)^[13] lays the basis for a genuine Cohesion Policy designed to offset the burden of the single market for southern countries and less favoured regions. The solidarity Funds (now called Structural Funds) are revisited at the Brussels Summit in 1988 and allocate 68 billion € to them (at 1997 prices). It was also decided in 1988 to reform the Funds so, that instead of each having its own rules and objectives they would be based on four shared principles:

- concentration (involving the collective use of the Funds in areas of greatest need)
- programming (mostly based on medium-term programmes for regional development, rather than ‘one-off’ projects)
- partnership (preparation, decision-making, and implementation of programmes and projects to be shared responsibility between the Commission, national governments, and sub-national bodies)
- additionality (programmes and projects to be co-financed by the Community and appropriate national bodies)

With the Treaty of the European Union (1992)^[14], cohesion has become one the main objectives of the Union, alongside economic and monetary union and the single market. It also provides for the creation of the Cohesion Fund to support projects in the fields of the environment and transport in the least prosperous Member States.^[15]

In December 1993, at the Edinburgh European Council, it is decided to allocate almost 177 billion ECU (1999 prizes) to Cohesion Policy. At that time this amount counts up to one third of the Community budget. Alongside the Structural Funds, a new Financial Instrument for Fisheries Guidance (FIFG) is created.

The Treaty of Amsterdam (1997)^[16] confirms the importance of cohesion and also includes a Title on Employment which stresses the need to work together to reduce unemployment.

§ 3.1.2 Agenda 2000

The Berlin European Council meeting in March 1999 has made reforms to the Structural Funds and the operation of the Cohesion Fund. This summit brought about the “Agenda 2000”, which contained proposals for improving the efficiency and visibility of the Structural Funds. Central to the Commissions proposals were:

1. Reducing the number of Objectives from seven to three: support for the poorest regions, support for the economic and social conversion of areas with structural difficulties, and support for the development and modernisation of education and training and employment policies.^[17] Regions capita income GDP must be under 75%.
2. Reduce the number of Community Initiatives from 14 to 3 (INTERREG, LEADER and EQUAL), subsequently increased to 4 by the European Parliament through the addition of URBAN).^[18]
3. Simplifying and decentralizing the management of the Funds, essentially by means of a new partnership between the Commission, the member states and the regions.^[19] This is also done by reducing the geographical coverage of the Funds from about 50% to between 35 and 40% of total EU population.

These “Agenda 2000” proposals were subsequently accepted by the member states. As part of the reform of management procedures, it is intended that there should be one programme per region and more room for manoeuvre on the monitoring committees.

This agenda 2000 carried along a lot of expectations. The reform from the 1980s, mainly put through by Delors as president of the Commission, was often compared to this reform. However, despite these expectations, the Agenda 2000 agreement in that sense failed to bring about mayor reform of Cohesion Policy. With enlargement still several years away, member states were not under sufficient pressure to bite the political bullet and radically overhaul one of the EU’s most costly and controversial policies.^[20]

Conclusions:

- Although first steps to ensure the harmonious development by reducing differences between the various regions have been taken with the Treaty of Rome (1957), a real rise of awareness of Regional Policy (introducing Cohesion Policy) took place in the mid 1980ies.
- Financial resources allocated to Regional Policy increased substantially.
- The need to reform Regional Policy has been acknowledges in 1997 but important decisions have been postponed. The Agenda 2000 did not bring about a substantial reform.

§ 3.2 Defining the terms and strategy

Let me start by defining the terms. Cohesion policy and Regional Policy are difficult to differentiate from each other. This is partly due to the fact that Cohesion and Regional Policy nowadays overlap that much, but also because scholars themselves often do not have a clear distinction between the two and therefore help to confuse the whole matter essentially. Cohesion, first introduced as a priority in the Treaty of the European Union, was originally designed to support certain member states to converge to EU averages. However, since that time, cohesion has become a ‘fashion’ word more or less, representing the efforts of the EU concerning Regional Policy priorities. It therefore represents the goal of the EU to cope with all differences between regions and the policy to achieve this.^[21] In that sense, Cohesion Policy and Regional Policy are more or less used for the same topic and policy. I mostly use the word Regional Policy. Sometimes, mainly when using materials who mention Cohesion Policy explicitly I use Cohesion Policy as well.

In an effort to improve the performance of the EU economy, the Heads of State and Government of the EU meeting in Lisbon in March 2000 set out a strategy designed to make Europe the most successful and competitive knowledge based economy in the world by 2010. The Nice Council in December 2000 translated the Lisbon objectives on poverty reduction into a coordinated EU strategy for social inclusion. At the Gothenburg Council in June 2001, the Lisbon strategy was widened adding new emphasis on protecting the environment and achieving a more sustainable pattern of development.

Cohesion Policy makes an important contribution to realising these aims. In effect, growth and cohesion are mutually supportive. By reducing disparities, the Union helps to ensure that all regions and social groups can contribute to, and benefit from, the overall economic development of the Union. Articles 3 and 158 of the Treaty reflect this vision, which has been reinforced in the draft Constitution by the introduction of a clearer reference to the territorial dimension of cohesion.^[22] The main questions that rise while reading this EU document are whether or not the mentioned disparities are actually reduced or not. Although the report states this, it remains an undeniable fact that disparities still exist, despite the efforts of the EU.

§ 3.3 Starting point Regional Policy

The rationale and purpose of Regional Policy has been controversially discussed for a long time. From the pure neoclassical viewpoint, any policy to strengthen lagging regions remains futile, as according to the assumption of decreasing returns to scale, there will be an automatic process of convergence, because the lagging regions grow faster than the more advanced (Solow). Of course this ideal model has only proofed to be realistic under (modelled) perfect market conditions. In practice one finds mayor market imperfections and particularly a considerable inequality of opportunity. Inherent regional disadvantages and insufficient fiscal capacity have forestalled to turn the neoclassical model into the real world. Therefore, there has been a mayor justification to subsidise regional development of lagging or declining regions and thus to pursue active Regional Policy fostering convergence of the regions across the EU. This is the underlying rationale for the EU Structural Funds. The additional EU Cohesion Fund was introduced in 1993 to support the poorer member states in upgrading their transport infrastructure and the environment. This was considered as an indirect budgetary aid in order to facilitate process of integration into the EMU and to cope with the demanding fiscal and monetary criteria.

However, the desired effects have varied considerably among the member countries since there are, apart from Structural and Cohesion Funds, many more exogenous variables determining a process of convergence and cohesion (e.g. institutional behaviour, macro- and microeconomic management, locational issues etc.).^[23]

Let me start by saying that there is no solid scientific or statistical justified base or reason for the priorities of EU Regional Policy outside of the measures under Priority 1. Besides Priority 1, the measures are mainly shaped by political negotiations and package deals with other policy areas^[24]. These priorities, goals and instruments will de described later on in this chapter.

However, before we can look at this policy field in substance we should think about whether regional disparities increase or decrease by themselves over time. Income and regional disparities will decrease and disappear according to the neoclassical Growth-theory of Solow (1956)^[25], who states that a region is striving towards a equilibrium condition. The alternative ”Polarisation”-model argues the opposite way: Disparities will increase. Developments in the core and in the periphery will emerge separately, leading to increased disparities. This theory is mainly highlighted by Perroux (1948)^[26].

In the line of this contradiction, Ireland and Greece can be taken as examples. When Ireland “joined Europe” in 1973, its per-capita income was just 62% of the EU average; by 2002 it was 121%. Pat Cox, the Irish president of the European Parliament, says membership “turned us from a stagnant, backward, failed part of the British regional economy into a modern and prosperous European country.” However, EU membership does not automatically confer riches. Greece had a GDP-per-head of 64% of the EU average when it joined in 1981, and by 2002 the figure was only about 70%.^[27]

The above described example shows the diverse development of regions, or states in this case. Do regions have the possibility to overcome ‘bad times’ themselves or should the EU make finances available to countries who are lagging behind when it comes to regional development? Does it help or is it just a waste of money? How should the support look like?

Conclusions:

- The neoclassical (Polarisation) theory (Perroux) suggests that disparities will increase under normal market conditions; the Growth (Solow) model suggests the oppsosite.
- Due to the complex environment it is almost impossible to measure the effects of EU Regional Policy.
- The development of single countries or regions proceeds differently (example Greece-Ireland).

[...]

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^[1] Wikipedia, the free encyclopaedia, www.wikipedia.org, used September 6th, 2004.

^[2] European Commission, A new partnership for cohesion: convergence competitiveness cooperation. Third report on economic and social cohesion, 2004

^[3] Eurostat, Press Release 73/2004 – 3 June 2004. Latvia’s GDP in 2003 has been 42% of the EU-25 average.

^[4] J. Detjen, Europäische Unübersichtlichkeiten, in ”Europa verstehen lernen, eine Aufgabe des Politikunterrichts” (G. Weißeno, ed.), Bonn, 2004.

^[5] H. Wallace, Die Dynamik des EU-Institutionengefüges, in ”Europäische Integration” (M. Jachtenfuchs, B. Kohler-Fuchs, ed.), Opladen, Stuttgart, 2003

^[6] D@dalos – International UNESCO Education Server for Civiv, Peace and Human Rights Education, http://www.dadalos-europe.org/int/materialien/begriffe_g-p.htm#24, downloaded July 2004.

^[7] D@dalos – International UNESCO Education Server for Civiv, Peace and Human Rights Education, http://www.dadalos-europe.org/int/grundkurs1/grundkurs_1.htm#1, downloaded July 2004.

^[8] D. Dinan, Ever closer Union, an introduction to European integration, 2nd edition, London, 1999

^[9] Jacques Delors, address to the European Parliament (speech), January 20, 1988

^[10] L. Hooghe (ed.), Cohesion Policy and European integration: Building Multi-Level Governance, Oxford, Oxford University Press, 1996

^[11] H. Grabbe, Profiting from EU enlargement, working paper from the Center for European Reform, July 2001

^[12] http://europa.eu.int/abc/obj/treaties/en/entr6a.htm#11

^[13] http://europa.eu.int/abc/obj/treaties/en/entoc113.htm

^[14] http://europa.eu.int/en/record/mt/top.html

^[15] EC, http://europa.eu.int/comm/regional_policy/intro/regions2_en.htm

^[16] EU, http://europa.eu.int/abc/obj/amst/en

^[17] Neill Nugent, ” The government and politics of the EU”, 4th edition, Ney York, 1999, page 126

^[18] http://www.lboro.ac.uk/departments/eu/structural_eurofunding.html

^[19] Neill Nugent, ” The government and politics of the EU”, 4th edition, Ney York, 1999, page 126

^[20] D. Dinan, ”Ever closer Union, an introduction to European integration”, 2nd edition, London, 1999

^[21] Information from the spokesperson of DG Regional Policy, Gilles Gantelet, phoned on Agust 16th 2004

^[22] European Commission, A new partnership for cohesion: convergence competitiveness cooperation. Third report on economic and social cohesion, 2004

^[23] Bergs, Rolf, EU Regional and Cohesion Policy and Economic Integration of the Accession Countries (September 2001). Policy Research & Consultancy Discussion Paper. http://ssrn.com/abstract=297437

^[24] H-J. Axt, EU-Strukturpolitik, Einfuehrung in die Politik des wirtschaftlichen und sozialen Zusammenhalts, Opladen, Augsburg, 2000.

^[25] R. Solow, A contribution to the theory of economic growth, in Quaterly journal of economics, 1956.

^[26] F. Perroux, Esquisse d’une théorie de l’économie dominante, in Économie apliquée, 1948.

^[27] The Economist, Dancing an Irish Jig, 15th of April 2004.