the regional policy of the european union as an engine of economic development

8/6/2019 The Regional Policy of the European Union as an Engine of Economic Development

1/61

The RegionalPolicy of theEuropean Union

as an Engine ofEconomicDevelopment


2/61

If you plan for one year,

plant rice.If you plan for ten years,plant trees.If you plan for 100 years,educate people.

Chinese proverb

o my parents


3/61

5

Preface 7

Introduction 11

1. The concept of the European Unions

regional policy 15

1.1 Introduction 151.2 Development of EU

regional policy 191.3 Te institutional framework

of EU regional policy 221.4 Region in the context

of EU regional policy 24Te Croatian experience 27

1.5 Dierences among regionsin the European Union 28

1.6 Implementation ofEU regional policy 31Te 2000-2006 period 32Te 2007-2013 period 34Principles of usingStructural Funds 39

2. Republic of Serbia in the context of

regional policy 43

2.1 Strategic and legislative

framework 442.2 Review of the Lawon Regional Development 46

2.3 Te instrument forPre-Accession Assistance 52

3. EU Regional policy as an engine of

regional competitiveness, economic

growth and employment 61

3.1 Introduction 61

3.2 Dierent views on the eects ofcohesion policy 62

3.3 General overview of the eects ofcohesion policy 68

3.4 Cohesion policy in theservice of knowledge, employmentand entrepreneurship 71Education and employment 71Development of science andtechnology 75Entrepreneurship 77

3.5 Te improvement ofterritorial cohesion throughthe development of transportinfrastructure and environmentalprotection 78ransport infrastructure 78Te environment 81

3.6 Te success of cohesion policy increating local partnership 83

3.7 Improving managementcapacities 85

3.8 What do citizens say about EUregional policy? 87

4. The perspectives and challenges of

regional development after 2013 894.1 Introduction 89

emporary challenges 90Key challenges for Europeanregions in the period until 2020 94

4.2 Te future of EU regional policy 98

5. Conclusion 105

Bibliography 113

Contents

The Regional Policy of the European Union as an Engine of Economic Development


4/61


Te Regional policy of the European Union is becoming a subject of growinginterest among countries which are candidates or potential candidates for full-edged membership, as preparations in view of the Structural Funds and theCohesion Fund, which are available only to the member countries, have alreadybeen initiated while pre-accession funds are currently being used.

Regions and local communities play a key role in the integration process of theEuropean Union. Most questions of key importance to citizens lives utilities,urban planning, environmental protection etc. which are important for economicand social development, are actually regulated at lower levels of managementand policy implementation. Over 60 percent of laws in the EU are implementedat a local level.

Te Unions principle of subsidiarity respects the requirement that decisions betaken as close to the citizens as possible. Tis principle is particularly emphasisedin the latest EU constitutional document, the Lisbon reaty. EU membershipimplies functional and scal decentralisation, as well as modern management,multiple partnerships and the responsibility of authorities at all levels. Tis impliescooperation between regional and local governments, as well as cross-bordercooperation at these levels (cross-border cooperation programmes, establishmentof cross-border European regions, etc.).

Tis means that regions and local communities should not merely wait for public

administration to move to begin preparations for the EU integration process.Experience in new EU member states shows that the preparations should startsimultaneously at all government levels.

During the accession process, Romania and Bulgaria implemented reforms inaccordance with EU directives and managed to cut the poverty level in half.

After becoming full-edged EU members and beneciaries of the Structuraland Cohesion Funds, as well as other EU internal programmes, these countriesmanaged to nance some 400,000 projects at a local level alone. Tis speaksclearly of considerable responsibility placed before lower levels of government

Preface

7


5/61

8 9


to manage numerous projects successfully, many of which are vital for overalldevelopment. In this respect the choice of title for this study is fully justiable:

Te Regional Policy of the European Union as an Engine of EconomicDevelopment.

Tough several studies have been carried out, which have examined someimportant aspects of the EU regional policy, as well as studies of regionalism asa European tradition, this is one of the most useful surveys from the practicalpoint of view. Te analysis of the EU regional policy as applied to Serbia isof particular interest, in terms of its territorial planning, overall development,growth of competitiveness, and employment.

Te authors hands on administrative experience in using EU assistance to date,the Instrument for Pre-Accession Assistance in particular, which demonstratesthe overall logic of the process and the concrete mechanisms which preparecandidate and potential candidate countries for the employment of morecomplex mechanisms of regional policy, to be available in the future, increasesthe practical value of the study. Besides being of academic interest, this study isa valuable guide to all who wish to improve their competency in the use of EUassistance at local and regional levels, both in the current and forthcoming stagesof Serbias EU integration.

It is hoped that this valuable study will be followed by further research on EUregional policy and that the experiences of other countries will provide the bestpractical examples to avoid possible mistakes and make the best use of EUassistance, its funds and programmes. Combining concrete experience and in-depth research, as in this case, doubtlessly contributes to such an outcome.

It is worth noting that clarifying the relationship between regionalism andregionalisation is very helpful; the former is a need to dene functional space

which carries the potential for development, and at the same time solves the

legitimate political, cultural and other aspirations of citizens, while the latterinvolves the establishment of a necessary lower level in the state territorialorganisation, which makes management processes more ecient. Bothprocesses have dierent manifestations in the EU Member States, dependingon constitutional context, historical tradition, and sometimes changes andadjustments made in seeking optimal solutions. Reaching practical solutions isfacilitated by more serious study of these issues and could contribute to theinitiation of positive political, social and economic dynamics in Serbia, as hasbeen the case in other countries in the neighbourhood, which are now full-edged members of the EU.

Finally, it is also important to recognize the partner from the NGO sector thathas published this study. Te European Movement in Serbia already has a longlist of valuable publications in the eld of European integrations to its credit(European Programmes for Local Communities, Programmes of the EuropeanUnion, IPA - Instrument for Pre-Accession Assistance, etc.). It testies theimportant role of civil society in promoting and also implementing EU policies;this is particularly visible at the local level in the stages of integration which are

yet to come.

Jelica Mini


6/61


Europe sees its future as striking a balance between competition andcooperation, collectively tr ying to steer the destiny of the men and women who

live in it. Is this easily done? No. Market forces are powerful. If we left thingsto their own devices, industry would be concentrated in the north and leisurepursuits in the south. But these market forces, powerfulthough they may seem, do not always pull in the samedirection. Mans endeavour and political aspiration is totry to develop a balanced territory. 1

Membership of the European Union is not a must, it is rather a conscious andprecisely determined decision made by a country and its citizens that such a choiceis in their (national, regional and individual) interest. Membership of the EuropeanUnion is not a goalper se, it is a means instead to achieve a long-term nationalstrategy of ecient economic development aimed at improving the overall livingconditions of the population, and therefore it needs to be established by consensus.

Te European Union represents an opportunity for stable development and a morepeaceful future for Serbia as for every other European country. Particular interestswhich direct Serbia towards European integration can be identied in the political,economic and social sphere. However, one of the most signicant is that the process ofEU association and accession enables Serbia to overcome its structural and developmentproblems and creates the conditions for continuous economic development andprosperity of its citizens. Having recognized this opportunity, the Government of

the Republic of Serbia has dened accession to the European Union as a strategicorientation, and conrmed this by adopting the National Strategy for EU accession.

Te basic policy framework for promoting relations among the Western Balkancountries, therefore Serbia and the European Union as well, is the Stabilisationand Association Process. Tis is a political approach by which the EuropeanUnion seeks to contribute to a more rapid implementation of the overall polit ical,economic, institutional and legal reforms which are not only preconditions toprogress in the association and accession process, but also prerequisites for thetransformation and modernisation of Serbia as a society and state.

Introduction

11

1

Statement made in 1989 byJacques Delors, president of theEuropean Commission(19851995).


7/61

12 13


In this process, the Republic of Serbia, as a potential candidate for membershipin the European Union, signed the Stabilization and Association Agreementat the meeting of the Council for General Aairs and External Relations of theEuropean Union in Luxembourg, on 29 April 2008. Te National Assembly ofthe Republic of Serbia ratied the Stabilization and Association Agreement andthe Interim rade Agreement on 9 September 2008 (the Law on ratication ofthe Stabilization and Association Agreement between the European Communitiesand their Member States, on the one hand, and the Republic of Serbia, on theother, and the Law on ratication of the Interim Agreement on trade and tradeissues between the European Community, on the one hand, and the Republic ofSerbia, on the other, Ocial Gazette of RS, no. 83/08).

Te process of European integration of the Republic of Serbia ran in parallel with thenegotiations on this Agreement. Te National Assembly adopted the Resolution onAssociation with the European Union in October 2004 (Ocial Gazette of RS,no. 112/04), which underlined membership of the European Union as a strategicorientation for Serbia. Te Government adopted the National Strategy of Serbia onthe Accession of Serbia and Montenegro to the European Union as a foundationalreference document for the entire European integration process. Tis strategy foreseesthe activities which the Republic of Serbia needs to undertake in all sectors of itssociety, politics and legislation to be prepared to assume the obligations arising fromthe membership in the European Union. Te Government adopted the NationalProgramme for Integration of the Republic of Serbia with the European Union on 9October 2008. Tis document is a precise plan of how to meet all the criteria necessaryto become a member of the Union, from political and economic, to the most detailedstandards which exist in the Union in the areas of trade, agriculture, environmentalprotection, infrastructure, etc.

Regarding nancial assistance, the Federal Republic of Yugoslavia and theEuropean Commission signed a Framework Agreement on 25 November 2000,which was ratied on 31 March 2003 (Law on the Ratication of the Framework

Agreement between the Federal Republic of Yugoslavia and the European Union Ocial Gazette of Serbia and Montenegro International contracts, no. 2/03),making the Republic of Serbia a beneciary of the CARDS2 programme for the2000-2006 period. In addition, on 29 November 2007, the Serbian Governmentand the European Commission signed the Framework Agreement outliningthe conditions of use of the Instruments for Pre-Accession Assistance in the

2007-2013 period. Te aforementioned agreement wasratied by the National Assembly on 26 December 2007(Law on the Ratication of the Framework Agreementbetween the Government of the Republic of Serbia and

the Commission of European Communities on the Conditions for Cooperationrelated to the Financial Support of the European Union to the Republic Serbia inthe Framework of the Implementation of Assistance according to the Rules of theInstruments for Pre-Accession Assistance, Ocial Gazette of RS - Internationalreaties, no. 124/2007).

By signing the Stabilisation and Association Agreement, the Republic of Serbiahas entered a new phase in its relations with the European Union. For the rsttime relations with the European Union stand on a contractual basis, and Serbiaenjoys the benet of being an associated state. By signing this agreement, Serbiahas committed to the gradual harmonisation of its legislation with the acquiscommunautaireof the European Communities, and its consistent implementation.Te agreement creates the basis of the overall improvement of political, economicand trade relations, ensures gradual harmonisation of legislation with theCommunityacquis and provides / promotes cooperation in various elds betweenthe contracting parties. Terefore, this Agreement, which associates Serbia with theEuropean Union, should not be viewed merely as a set of rights and obligations, butalso as a valid instrument for further implementation, direction and the accelerationof reform. Success in implementing this agreement will certainly determine notonly the dynamics of progress towards the European Union, but also the dynamicsof reform in Serbia.

2 Community Assistance forReconstruction, Developmentand Stabilisation (CARDS).


8/61


1.1Introduction

Region (the term derives from the Latin word region) by its denition can indicate anarea, county, zone, region, neighbourhood, district, eld, space, place, or province.In the context of a specic state, regardless of its size, a region is a dened part of itsterritory. It has, on the one hand, a set of characteristics which connects it with the

whole country, and on the other, a set of other characteristics, which makes it specic.

In this context, let us a lso mention various supranational dimensions of the concept ofregion, for example, Western Balkans, South-Eastern Europe, Central and Central-Eastern Europe. Te word region is also used for parts of two or more dierentstates which comprise a territorial whole, for example: the Pannonia region includesparts of Hungary, Serbia, Romania, Croatia, Slovakia, Austria, Slovenia, Bosnia andHerzegovina and Ukraine.

In literary language, and even in professional literature, the related terms regionalismand regionalisation are often intertwined. In addition, the concept of the regionalpolicy of the European Union is often automatically classied under these terms. Inthe legal-political and sociological sense, these terms do not have identical meanings.

According to the Congress of Local and Regional Authorities of the Council of

Europe, the concept of regionalisation can be understood correctly when linked to theinstitutional side of things, and is, therefore, dierent from regionalism as a politicaland ideological movement. Consequently, regionalisation is generally understood asthe creation of a new level in state territorial organisation; the establishment of newinstitutions, which can vary widely with regards to type, responsibility and power, yetalways established above the level of existing local institutions. Tey can be dened in a

very exible manner, and include regions that are only subordinatedlevels of central government, or, in the narrow sense, an expression

where a region is a territorial authority, which can be furtherdierentiated according to its constitutional status (Marcou G.).3

1. The concept of the EuropeanUnions regional policy

3 Jovan Komi, Principievropskog regionalizma,2007, page 13


9/61

16 17


According to the Council of Europe study Regionalisation and its Eects on LocalSelf-Government (1998), regionalism corresponds to the denition of a region asa corpus of human, cultural, linguistic or other characteristics, which are justiablytransformed into political demands for a greater or lesser degree of autonomy.Regionalisation i.e. regionalism, is, therefore, the individual choice of each state,

i.e. a choice of national regional policy.

On the other hand, the European Unions regional policy is designed to reducethe economic and social dierences among the Unions member states by assistingregional development. Consequently, when speaking about EU regional policy, oneshould bear in mind that it does not only concern regional development in the narrowsense of the word, but includes eort to achieve a correlation at the European Unionlevel by reducing the existing development gap among its regions.

Although there is a dierence between the regional policy of the European Unionand national regional policies, the regional policy of the European Union allows forthe recognition of a regional dimension by national institutions, thereby making theregion a sort of common institutional reference point, despite the fact that a commonEuropean concept of a region still does not exist.

Te preamble of the Treaty of Rome set out the commitment of the member states of theEuropean Union to ensure their harmonious development by reducing the dierences existingbetween the various regions and the backwardness of the less favoured regions (1958). Inaccordance with the Article 130a of the Single European Act in order to promote its overallharmonious development, the Community shall develop and pursue its actions leading tothe strengthening of its economic and social cohesion. In particular, the Community shallaim at reducing disparities between the various regions and the backwardness of the least-favoured regions (1986). Although regional dimensions clearly stem from several articlesof the constitutive acts, its authors did not establish a clear basis for the development of a

single regional policy. Tere are two reasons behind this approach:First, a general opinion prevailed that integration was to enable

the reduction of regional dierences by developing interregionaltrade (Vanhove, N. and Klassen, L. H.)4. Secondly, experiencesof national regional policies were relatively new in some countries(France, Italy and Germany) and there was no need to duplicatesuch eorts at the time (Wallace, H.)5

Te political nature of EU regional policy emerges clearly from the provisions of thereaty of Rome and the Single European Act, aimed at bringing the standard ofliving of all EU citizens closer, but also showing that the European Union rested onthe principle of solidarity among member states.

Examining European integration as a process of creating and implementing asingle market, one may conclude that restructuring the economy and adoptingcertain standards implies high costs to individual states. If development requiresmarket integration, free movement of people, removing protectionist barriers, thereplacement of national currencies etc., it is reasonable to expect that a pa rticularauthority is also responsible for enabling all regions and all citizens of Europeto adapt to these changes, reducing integration costs and avoiding risks. Tis isprecisely the reason why the Union was in need of a joint policy, which would enablemember states and their citizens to benet from a single market and currency. AsJacques Delors stated: Te community, which is on theverge of being transformed into the Union, is knowinglyaccepted by the citizens of Europe ... not simply to unitepeople, but to represent the foundation of society.6

However, in addition to purely political reasons there are also reasons of an economicnature, which justify the existence of the EU regional policy.

Tere are also very important arguments coming from economic integrationtheory and growth theory which can be used to justify EU regional policy. First,let us look at European integration in the sense that it established a commonmarket with the Single Market Programme 1992. Integration theory oers twomajor approaches to draw conclusions about the impact on income convergence.In the sense of the classical trade theory and the customs union theory (Wiener1950), market integration would lead to better allocation of resources andspecialization which would benet all partners, although not necessarily to thesame extent. Also, does specialization require restructuring - which can be aheavy temporal burden? New trade theory, in contrast, assuming monopolisticcompetition and innovation based on product dierentiation, suggests thatrich countries are likely to draw more benets from integration. Tus, from theperspective of trade theory, poor EU members may not be able to improve theirincome position vis--vis rich members.

Recent literature (Krugman 1991) also suggests that the rich core in the EUwould rst gain more from integration than the periphery, due to agglomerationadvantages. Tis pattern will only be reversed with very low trade barriers and a costadvantage of the periphery that balances the agglomeration advantage of the core.Finally, growth theory also provides no explicit argument for income convergence.From the perspective of neoclassical growth theory (Solow 1956, Barro and Sala-i-Martin 1995), income convergence is an automatic process if technology is free andcapital mobile, due to higher rents in poor regions. New growth theory (Romer 1990,Aghion/Howitt 1992), in contrast, argues that rich regions can enjoy a continuous

4Fabrizio Barca, An Agenda

for a Reformed Cohesion Policy,2009, page 13.

5Fabrizio Barca, An Agendafor a Reformed Cohesion Policy,2009, page 13.

6 Fabrizio Barca, An Agendafor a Reformed Cohesion Policy,April 2009, page 16.


10/61

18 19


growth bonus through the generation of technologicaladvance, which is based on their better human capitalendowment.7

In summary, therefore, neither trade theory nor growth theory oer an explicitconvergence argument. It is rather the case that market integration may, in the shortterm, lead to particular adjustment diculties in poor regions and that long term gainscan only be reached from improvements in location factors (education, infrastructures).

Tese considerations led the European Union to create and shape EU regional policy.

Te existence of EU regional policy and the process of European integration can also bejustied within the terms ofpolitical economy. In this respect, integration is understoodas a general good, but it is also recognized that dierent member states, rich and poor, havedierent political goals if their economic development levels dier. Cohesion policy aimsat creating homogeneous political interests, which are a prerequisite for general economicintegration. Additional economic arguments for the existence of an EU regional policyare reected in the reality of the European Monetary Union, where dierent levels of

development of individual member states would cause dierentlevels of living standards, failure to full certain criteria andunsynchronized moves which would seriously endanger theexistence of the monetary union (Mundell, 1961).8

Another argument related to EU regional policy stems from the need to avoidmigrations, which results, among other things, from unbalanced development. Richmember states were and still are exposed to massive migrations of population frompoorer member states under the umbrella of free movement of labour among memberstates. o prevent this scenario, decision makers in the European Union supportedthe idea of a common regional policy which would support balanced development ofterritories and thus prevent migratory ows.

Finally, it should be noted that EU regional policydoes not bring benets only for

the beneciaries of the Structural Funds and the Cohesion Fund, but also protsthose who pay most for this policy. Te implementation of programmes and projects,nanced from the Structural Funds and the Cohesion Fund, largely consists of products

originating from the rich member states. For example, inPortugal and Greece approximately 40 percent of products,used for the implementation of specic investment projects,come from rich member states (Hall, 2003).9

In short, one can say that the European Union created its regional policy to ensure theeconomic perspectives of all member states of the Union and to prevent unbalanced

development from threatening the European integration project. Support to lessdeveloped parts of the Union, in other words, cohesion strengthening, was set as anobjective of regional policy. Tis has been partly achieved, but there are those whocritically observe EU regional policy and claim that it has not achieved its goal and ismerely a central mechanism for redistribution of funds to poorer regions.

Te terms regional policy and cohesion policy are used side by side and both referto a policy aimed at solidarity and the reduction of dierences that have always existed,and have deepened after the creation of the Single Market, the single currency, EUenlargements and the implementation of other EU common policies. Tis policy isnanced from the General budget of the European Union and takes a third of thetotal EU budget.

EU Regional Policy is the most important instrument for achieving so-calledcohesion and implies adjusting to new developments, large-scale restructuring(infrastructure development, reducing unemployment, stimulating industry and allforms of economic activity) to improve competitiveness of local economies and,thus, balance disparities in the development of EU regions.

In conclusion, I believe another important clarication is necessary. Social reasonsto safeguard the single market and currency are not the issue here. Tis is more aboutpolitics, with its history, form, plans, quality, results, evaluations and continuity.Would anyone care about these details if they concerned only social redirection offunds to regions that fall under certain categories?

1.2Development of EU regional policy

Europe will not be made all at once, or according to a single plan. It will be builtthrough concrete achievements which rst create a de factosolidarity10 Te development of a common regional policy of

the European Union can be divided into ve time phases.

The rst phase is the period from the outset in 1958 until 1975. During thisperiod there was no explicit or implicit version of a common regional policy. Tesix founding countries of the European Economic Community were relativelyhomogeneous in 1958, with the exception of southern Italy. Tis imbalance ofsouthern Italy compared to the rest of the Community was recognized in theProtocol on the Mezzogiorno, which was added to the reaty of Rome, whichestablished the European Community in 1957, and was ratied in 1958. Article2 of the reaty of Rome set out the principles, which underlie the European

8 Europainstit Vienna, EURegional Policy, Experiences andFuture Concerns, 2004, page 11.

9 Europainstit Vienna, EURegional Policy, Experiences andFuture Concerns, 2004, page 11.

10 Statement of RobertSchuman from 1950 (one of

the founders of the EU)

7Europainstit Vienna, EURegional Policy, Experiences andFuture Concerns, 2004, page 10.


11/61

20 21


Economic Community; one of the principles promotes, through the Community,a harmonious, balanced and sustainable development of economic activities... Tepreamble goes even further, as it speaks of reducing the dierences existing betweenthe various regions. However, the reaty says little regarding the instrumentsnecessary to achieve a harmonious and balanced development. Several exceptions,the weakness of the available tools, and the absence of a chapter on regional policyin the reaty, all show that the founders of the European Economic Communityleft individual governments and the invisible hand of the market to solve theproblem, despite the fact that the existence of dierences was recognized. Te rsttwo Structural Funds were established in 1958: the European Social Fund (ESF)and the European Agricultural Guidance and Guarantees Fund (EAGGF), withthe aim of assisting the implementation of common policies. As for regional policy,a rst communication was issued by the European Commission in 1965, followed bythe establishment of the Directorate General for Regional Policy in 1968. In 1972 inParis, the heads of states and governments adopted a conclusion in which regionalpolicy was described as a key factor in strengthening the Community.

In the second phase, covering the period from 1975 to 1986, a commonregional policy started taking shape. Te development of regional policy was theCommunitys response to the deterioration of the global economic situation,caused by the rst oil crisis in 1973, which ended the golden age of the Europeaneconomy. Tis was also a response to the rst enlargement, which occurred in thesame year. Awareness of the complexity of the problem forced member states totake certain steps. With the rst enlargement, three new members (the UnitedKingdom, Ireland and Denmark) brought their own structural problems andexperiences in solving problems of regional development (especially in the casesof Ireland and Great Britain, the latter was the rst European country to adoptits own regional policy in 1928). Te European Regional Development Fund(ERDF) was established in 1975. Te accession of Greece in 1981, followed bySpain and Portugal in 1986, increased the need for common regional policy. A newqualitative approach to regional inequalities was taken in 1985, with the launch of

the Integrated Mediterranean Programmes. Tese programmes were establishedin 1982 following the Greek request for greater nancial assistance. Te aim ofthe Integrated Mediterranean Programmes was to support the Mediterraneanareas of France, southern Italy and, in particular, the whole of Greece, to assist thedevelopment of tourism, agriculture and small and medium enterprises in theseregions. Although like the rest of regional policy, these programmes came as aresult of tough political eorts and negotiations. Tey represent an important stepin its implementation. Another major step forward was the decision to nancemid-term development programmes, and no longer individual projects, evaluatedcase by case as had been the practice before.

The third phase covers the periodfrom 1986 to the end of 1999.Te Single EuropeanAct, adopted in 1986 with the aim of adjusting to the changes in the European Unionafter enlargement and preparing the ground for the completion of the single marketproject, determined the basis of cohesion policy. Tis problem appeared for the rsttime in the Single European Act under a separate heading, dealing with regionalpolicy. A new XIV heading was introduced, with its articles 130 a-d (now it is headingXVII, articles 158-162), Economic and Social Cohesion. Tis was the rst attemptto link the objectives of Article 2 of the reaty on the European Unions harmonious,balanced and sustainable development with regional policy instruments. Tis periodwas characterised by changes brought about in Delors rst package between 1989 to1993, the rst reform of the Structural Funds, which doubled these funds in real value,reaching 25 percent of the EU budget in 1992, and establishing the principles for themanagement of structural operations and dening goals and standards, necessary forregions to access these funds. Te principle of Partnership was also established in thisperiod. Moreover, two major changes were made in 1992: changes in the StructuralFunds (an increase of the funds available, revision of the goals dening beneciaries,the establishment of a new structural fund and the Committee of Regions) and theestablishment of the Cohesion Fund. Further innovations were introduced, such asa greater role given to other institutions of the European Union, then the EuropeanParliament, and new rules for the evaluation and visibility of programmes and projects.

Te second reform of the Structural Funds, which involved the simplication of therules and principles of the cohesion policy, and preparations for further enlargements,marked thefourth phase, 2000 to 2006. Te Agenda 2000 was under preparationfrom the second half of the nineties and paved the way to the greatest enlargementof the European Union, which took place in May 2004, when 10 countries joined theUnion. Tis historic enlargement increased the population of the European Union by20 percent, while gross domestic product (hereinafter GDP) was increased by only5 percent. With this enlargement, dierences in per capita income widened and theunemployment rate increased. New member states automatically qualied under allthe objectives of the Structural Funds and the Cohesion Fund. However, pre-accession

instruments were available to those countries even during the association process inorder to prepare them to implement the cohesion policy. In accordance with the decisionof the European Council, in March 1999, the budget allocated for the cohesion policyimplementation for the nancial period 2000 - 2006 amounted to 213 billion for15 member states. An additional allocation of 22 billion was reserved for the newmember states in 2004 - 2006. Moreover, economic development, employment andinnovations were recognized as the foundations of the Lisbon strategy in 2000.

Inthe fth phase, including the current period 2007 - 2013, the poorest member statesand regions received the largest budget share ever allocated, with priority focused on rapid


12/61

22 23


economic development, job creation and innovation. Te European Council in December2005 allocated 347 billion through the Structural Funds and the Cohesion Fund, with 81.5percent reserved for regions that fall under the convergence objective. Tanks to simpliedprocedures, nearly all of the 436 programmes, which include all regions and member states,

were harmonized before the end of 2007. Another novelty was also the increase of fundsearmarked for the environment and the ght against climate change.

1.3Te institutional framework of EU regional policy

Like any other common policy of the European Union, in implementing regionalpolicy each EU institutions has a clearly dened role.

The European Commission has a key role in regional policy implementation. It approvesstrategic programmes, monitors their implementation, participates in the preparationof programme documents, and supervises the implementation and use of approvedfunds. Te European Commission represents the interests of the European Union asa whole and all its citizens. Besides being the institution which initiates and proposesthe distribution of funds within six-year programming periods, the Commission alsoapproves the nancing of programmes designed by the member states within theframework of funds allocated by the Council o f Ministers. Te Commission presents aCohesion Report every three years11, while the funds for regional policy implementationare managed by its Directorates General (the Directorate General for Regional Policy,

the Directorate General for Employment and Social Issues, etc.)and specialised directorates within the General Directorates(the Directorate for Policy Development, the Directorate forPolicy Coordination, etc.).

Te body with the highest level of decisional power is the Council of Ministers. TeCouncil of Ministers is responsible for nal decisions on most of the legal regulations,concludes treaties with foreign countries and, together with the Parliament, decides

on the budget of the Union. It is made up of representatives of the member states,invested with the authority to make commitments on behalf of his/her government.Te Council consists of the competent ministers of the member states who meetdepending on the issue in question; therefore, the composition of the Council isvariable. Decisions are made by simple majority, when other types of voting are notenvisaged by the procedure, although special procedures stipulate that the decisionsare usually made by a qualied majority, if not unanimously. Nevertheless, memberstates make eorts to reach decisions by consensus on the most important issues,knowing that next time they themselves could be outvoted on matters of particularimportance to them.

The European Council comprises the heads of states or governments of memberstates, ministers of foreign aairs, the President of the Commission and the HighRepresentative of the Union for Foreign Aairs. From a purely legal point of view, theEuropean Council is not an ocial body of the Union, but emerged from occasionalmeetings of the heads of states and governments in 1974, when it was decided thatthese meetings should become regular. Te European Council obtained its legal statusin 1986, when it was ocially specied in the Single European Act. Even today, the

reaty on the European Union determines the role and importance of the EuropeanCouncil very roughly, describing it as a body which gives the necessary incentive fordevelopment and general political guidelines to the Union. However, it is very dicult tocodify the work of this body, which consists of the leading gures of the member states.A free interpretation could be that the European Council makes the most importantstrategic decisions, which are then developed and transformed into legally binding actsand further implemented by other EU bodies. Primarily, the European Council makespolitical, not legal decisions and, therefore, does not appear as a legislative body, althoughits decisions have far-reaching consequences. It is important to make a distinctionbetween the European Council and the Council of the European Union (consisting ofministers of a given competency), and even more so from the Council of Europe, whichis a separate European organisation, representing all European countries except Belarus.

The European Parliament is the body of the Union with the largest democratic characterand legitimacy, as it represents the citizens of the Union who have elected its membersin direct and democratic elections every 5 years since 1979. Te European Parliamentparticipates in the decision making process, approves the tasks, goals, organisation ofthe Structural Funds, and the manner of implementation of its decisions and givesadvice on the initiatives proposed by the Commission. Te members of the Parliamentrepresent the citizens of the Union and their own political parties, and are, therefore,not distributed according to their nationality, but their party aliation.

Alongside these institutions, which participate in the implementation of all EU policies,there are also institutions established to represent regional and local interests at a Union level.

Te Council of European Municipalities was established in 1951 in Geneva, and changedits name tothe Council of European Municipalities and Regions in 1984. oday, theCouncil comprises more than 100,000 local and regional authorities from 29 Europeancountries, whether members of the Council directly or through 42 large nationalassociations of local and regional authorities. Te highest authority of the Council is theAssembly of Delegates, which elects a number of representatives from each country tothe Political Committee. It also elects the President, the Vice Presidents, the GeneralSecretary and the members of the Executive Bureau. Tese statutory bodies determinethe political position of the Council regarding the European integration processes and, in

11 To date, the EuropeanCommission has published vereports


13/61

24 25


particular, the representation of local authorities before ocial European institutions todefend their interests in the best possible way. Tey dene the activities to be undertakenin this context. Te Council supports initiatives of all national sections and their members

who wish to establish closer ties with two or more other European local communities.Te Council encourages inter-regional and inter-municipal cooperation by supportinglocal and regional authorities in their search for funds associated with EU programmes.The Assembly of European Regions was established in 1985 with headquarters inStrasbourg. It represents over 300 European regions, including those outside the EuropeanUnion. Te main task of the Assembly is to increase the regions political inuence withinthe European institutions, and to promote inter-regional cooperation. On the initiative ofthe Assembly in 1993, the reaty establishing the European Community was modiedto include the principle of subsidiarity and establish an advisory committee of regions.

The Committee of the Regionswas established by the Maastricht reaty in 1992. It consistsof representatives of local and regional authorities. Te headquarters of the Committeeof the Regions is in Brussels. Countries have a quota ranging from 5 to 24 members,depending on their size. Candidate Countries have an observer status in the Committee.It is an advisory body and must be consulted before decisions concerning regional andlocal authorities are made in the European Union regarding regional policy, environment,culture, education and transport. In addition, the Commission, Council and EuropeanParliament may consult the Committee of the Regions on other issues. Te members ofthe Committee are nominated by their national governments and appointed by the Councilof the European Union for a period of four years and their mandates can be renewed.

Alongside these institutions, over 200 regional oces operate in Brussels to cooperatein a more direct way with the institutions of the European Union with the aim ofcommunicating specic regional interests.

On the other hand, each country has its own specic national structure, which dierfrom state to state, responsible for the implementation of EU regional policy.

1.4Region in the context of EU regional policy

Nowadays, the phenomenon of regions and the issue of regionalisation, which fall under theconcept of EU regional policy, have become so popular that their dierent characteristics are

being ignored. On the one hand, the institution of the region is completely absent from thelegal systems and institutions of many countries, while other countries introduce conceptsthat dier so widely that it seems impossible to dene them under the same category.12

On the other hand, what is common to all EU member states is theEuropean concept of region in terms of EU regional policy, created

with the aim of planning and implementing development policies.

Prior to joining the European Union, a candidate country is required to deneappropriate statistical territorial units according to the classication applied by theEuropean Union. Te classication of statistical regions is determined according tothe NUTS methodology (fr.Nomenclature des units territoriales statistiques - NUS,hereinafter referred to as NUS), stipulated in Regulation (EC) no. 1059/2003 of theEuropean Parliament and the Council decision on the establishment of a commonclassication of territorial units for statistics (NUS). After joining the EU, thestatistical classication is ocially accepted as the NUS regions of the new memberstate. In accordance with the aforementioned Regulation, member states can notchange that classication over the following three years.

Te current territorial classication of each member state establishes three basic levels,NUS I, NUS II and NUS III.

Each territorial unit of the NUS classication has a specic code and name, so that territorialunits at the same level in one country cannot be labelled by the same name. Te home statecode is also included when territorial units in two or more countries have the same name.

Te rst criterion in determining the NUS classication is the existing administrativeunits on the territory. If there are no appropriate administrative units for a particularNUS level, the NUS level is constituted by merging a required number of smallerterritorial units, while taking into account other relevant criteria such as geographic, socio-economic, historical and geopolitical circumstances, cultural and natural characteristics.

Te NUS category, to which an administrative unit is assigned, is determined by thenumber of inhabitants.

NUTS I 3.000.000 7.000.000

NUTS II 800.000 3.000.000

NUTS III 150.000 800.000

Table 1. Standards o NUTS classifcation o Regions.

12 Jovan Komi, Principievropskog regionalizma, 2007,page 124.


14/61

26 27


Te European Commission established the NUS classication as a basic criterion formeasuring development levels. According to some authors, this criterion is not appropriatefor two reasons: First, almost all NUS3 regions are neither reasonably large nor have areasonably heterogeneous endowment of factors, to justify treating them as independenteconomic areas. Second, while some NUS2 regions are very large and with a broadendowment of productive factors (e.g. Andalusia in Spain, Aquitaine in France, Lombardyand Sicily in Italy, with populations ranging from 7 to 11 million people), others areextremely small and have an extremely narrow set of available resources (Molise and Vale

dAosta in Italy, La Rioja and Cantabria in Spain, which havepopulations ranging between 100 and 200 thousand). Expectingcommon growth performances across units that are so dierentin their underlying potential, violates common sense, if not basiceconomic theory. 13

Mr Canova is undoubtedly right in asserting that regions, both at the NUS II and NUSIII levels, dier regarding features such as infrastructure, development and education, etc.and have various advantages as well as problems which aect their development. However,the question that remains is how to nd a common denominator which can serve as astarting point in examining all these dierences. Bearing in mind that the EU consistsof 27 member states with systems which range from unitary states to federations, withstronger or weaker regions, and 490 million inhabitants, it is necessary to establish commondenominators for mutual comparison, such as the nomenclature of territorial statistical units(NUS). Despite the assertions of some authors, I feel these basic parameters derived fromthe NUS classications and GDP per capita provide the necessary results, in terms of datafor measuring (under)development levels that are credible, uniform and regularly updated.

o obtain an objective view of the development levels of a given region, other developmentindicators need to be considered. It should be noted that the critics of the existing methoddo not provide any alternative solutions which have the support of all member states.

The NUTS classication should be seen as a common denominator for the collection,

processing, analysis and dissemination of high quality, timely and unbiased

statistical data and information, collected at the level of territorially consolidatedparts (regions), with a set of characteristics which make it specic to obtaining anobjective picture of a regions real development.

Based on data collected in this manner, it is easier to have a foundation for decision-making or further analysis. Within the context of European integration, based on suchstatistics from criteria common to the whole Union, it is possible to dene EU areaseligible for the implementation of EU regional policy instruments. Finally, in thiscontext, one should not forget that producing statistical data i.e. collecting, processingand analysing, needs to be based on well developed methodology and standards.

Te Croatian Experience

In Croatia, the process of determining regions at NUS II levellasted for several years. Te Croatian Bureau of Statistics submittedthe rst proposal to Eurostat in March 2003. Te process ofdening NUS regions in Croatia was undertaken by a smallcircle of experts, with almost no broader discussion on the subject14.

March 2003 Five statistical regions:

Central: more than 1,5 millioninhabitants

North: 570.000 inhabitantsEast: 891.000 inhabitantsWest: 566.000 inhabitantsSouth: 861.000 inhabitants

Eurostat refused the proposal,

since two regions out of ve hadless inhabitants than the minimumdened by NUTS II (the minimum is800.000 inhabitants)

April 2005 Four statistical regions:East: 891.259 inhabitantsCentral: 1.030.252 inhabitantsZagreb: 1.088.841 inhabitants

Adriatic: 1.427.008 inhabitants

Eurostat accepted this proposal. TheCroatian Parliament refused it, basedon the fact that groupings of lessdeveloped areas into the same regionas the capital might threaten thedevelopment of these smaller areas

July 2005 Three statistical regions:Adriatic, Continental and the cityof Zagreb

Eurostat refused this proposal based onthe fact that the city of Zagreb does nothave a sufcient number of inhabitants

June 2006 Two statistical regions:Adriatic and Continental

This proposal was acceptable forEurostat, but was criticized by the

General Directorate for RegionalPolicy (DG Regio)

March April2007

Three statistical regions:Adriatic (6 areas), Central (5areas plus the city of Zagreb),Pannonian (8 areas)

The Government accepted thisproposal. Representatives fromthe north of Croatia, i.e. the areaswhich were grouped with the city ofZagreb, were against this proposal

Table 2. The outcomes o dierent proposals or NUTS classifcations in Croatia

13 Fabio Canova, Are EUPolicies Fostering Growth andReducing Regional Inequalities,maj 2001. godine.

14Interview with FlorianHauser, Head of cross-bordercooperation support projectwith the Ministry of Finance,2009.


15/61

28 29


Te denition of NUS 2 regions in Croatia was characterised by a technocraticapproach. It was presumed that it was possible to nd a quick solution to regionalclassication among numerous other political issues. Although the establishment ofthe NUS regions was an obligation stemming from the Stabilisation and AssociationAgreement, Croatia was still able to draw on lessons learnt from new member states(e.g. Slovenia too, had much tough discussion on this issue). Te establishment ofregions is not something can be achieved over night and there is sucient time todebate it thoroughly. However, it should be noted that the reaction of the EuropeanCommission was somewhat awkward (e.g. the Directorate General for RegionalPolicy was included in this debate rather late).

Looking at the experience of other countries we can conclude that in debates onestablishing the NUS regions, some participants see real needs and developmentopportunities for their country, others identify political dangers to territorial integrity,while a third group nds in the NUS classication a basis for the separation ofregions based on social and territorial principles, i.e. separatism.

In my opinion, the conclusion stands that the NUS regions are statistical-economicregions, the basis for planning and implementing EU regional development policy,and that the NUS classication fully supports countries integrity. Data collectedat this level contributes to the satisfaction of the general and common needs of thepopulation of a given region, whether it be the construction of roads, schools, hospitals,cultural institutions or anything concerning regional progress and the improvement ofcitizens living conditions. In this way a region can avail of opportunities to meet itsgeneral needs, yet keeping in line with more general interests expressed at state level.

1.5Dierences among regions in the European Union

Based on Eurostat statistics, the European Commission assesses regionaldierences in its periodic reports. Statistical data are collected at the NU S I, II and

III administrative levels, according to the Nomenclature of territorial statisticalunits, which is the basis used to identify regions lagging in development and/orfacing problems in certain elds. Data collected in this way are used in Structural

Funds allocations. Tis part of the study will focus only onbasic dierences among regions.15

From the outset, regional policy has been based on the assumption that regions inthe centre of the Union are at an advantage compared to those on the periphery.Such dierences have widened further with the successive accession of new memberstates. At the launch of a particular version of the common regional policy, in 1975,

the greatest dierence between the regions was at 7:1, between the city of Hamburgin West Germany and the area of Calabria in the south of Italy.16 Dierences becameparticularly visible after the accession of Greece (1981), Spain and Portugal (1986), while German reunication (1989) brought in another substantial area (formerEast Germany) with signicant economic and structuralproblems. In the 15 members European Union, the areaslagging behind the most in economic terms were the southof Italy, parts of Ireland, Greece, Spain and Portugal, Corsica,Sardinia, the French overseas departments and remoteSpanish and Portuguese islands.

Before the enlargement of the European Union in 2004, 68 million inhabitants or 18percent of the total population lived in regions with an income below 75 percent ofthe EU average. Regional dierences have widened after the EU was enlarged to 25countries (1 May 2004), since the population in such regions increased to 116 million,in other words 25 percent of the total population, and following the enlargement to27 member states (1 January 2007), this segment of the population reached about 145million, just short of 30 percent of the entire population of the European Union. Withthis last enlargement, the EU territory increased by 8.6 percent and the populationby 6.3 percent - somewhat similar to when Austria, Finland and Sweden joined inthe mid nineties - but GDP per capita at purchasing power parity only by 1 percent,

which is lower than was the case of previous enlargement. Te GDP per capita inBulgaria is 35 percent of the EU average, and in the case of Romania it is 38 percent.

Te accession of these two states has reduced the average EU GDP per capita byabout 4 percent. Research estimates that it will take about 20 years for these twocountries to reach the average EU GDP per capita of 75 percent.

According to the Eurostat report from 2008, in the north-eastern regions of theEU the population is decreasing. Tis problem is especially visible in Germany,Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria, the Balticcountries and partly also in Sweden and Finland. A trend of increased population

growth was recorded instead in Ireland, France and the Benelux countries.

Te average GDP per capita ranges from 24 percent of the EU27 average in north-easternRomania to 303 percent of the EU27 average in London, i.e. 12.5:1. Luxembourg with264 percent and Brussels with 241 percent are in second and third place, while Hamburg

with 202 percent and Vienna with 178 percent take the third and fourth place in thelist of developed regions. Te most developed regions are located in southern Germany,southern Great Britain, northern Italy and Belgium, Luxembourg, the Netherlands,Ireland and Scandinavia. Te capital cities Madrid, Paris and Prague also fall into thiscategory. On the other hand, economically, the most underdeveloped regions are regions

15Source of all data: Eurostat

16 It is interesting that similarrelations also existed on the levelof former Yugoslavia betweenthe Republic of Slovenia and theAutonomous Province of Kosovoand Metohija.


16/61

30 31


at the southern and western periphery of the European Union, eastern Germany and newmember states. It should be noted that there are large dierences in regional development

within the member states. Te widest regional dierences have been recorded in the UK,Slovakia and France, and the narrowest in Ireland and Slovenia.

Te central part of Europe, particularly certain regions of Germany, Austria and theCzech Republic, is characterised by high employment rate, as are regions of northernEurope, Great Britain and the Netherlands. A high unemployment rate, instead, was

recorded in north-eastern regions, in Poland, eastern Germany and eastern Slovakia,as well as in some regions in France, Hungary, Greece, the Czech Republic and Spain.

Among the new member states, the largest wage increase has been registered in theBaltic states and Romania, followed by Bulgaria, Poland, Slovakia and the CzechRepublic. On the other hand, the lowest minimum income in 2008 was registered inBulgaria (112), Romania (137), Latvia (228), Lithuania (232), while the highestminimum was in Luxembourg (1,610), Ireland (1,462), the Netherlands and France(more than 1,300) and Britain (1,148). Te greatest gender disparity was recordedin Estonia where womens salaries were up to 25% lower than mens.

Based on the gures illustrating the levels of development in the regions of theEuropean Union (i.e. dierences among regions and within them), one can concludethat the EU is in need of a common policy which would, with the instruments for itsimplementation, provide incentives for the development of regions that are laggingbehind, revive industrial areas, modernize roads, assist environment protection, andsupport the young and unemployed for a longer period while they seek jobs.

1.6Implementation of EU regional policy

From the outset, in 1975, regional policy played a dual role in European policy. Whileit was supposed to promote regional development, at the same time it was also expectedto provide additional nancial support to member states which were not in favour ofdeeper integration or greater enla rgement. Some authors17 argue that the latter, the roleof regional policy as a source of additional funds, is its primar ypurpose. Tere are strong arguments in favour of this opinion,especially if one analyses the steps of regional policy evolution.Each step towards further integration was accompanied inan appropriate way by greater regional distribution. Tisdichotomy makes dening the general character of regional

policy more dicult, but in my opinion both roles (cohesionand additional funds) work together like engines, pushing theintegration process forward and making it what it is.

Zsuzsanna ron, in her study Te need for regional policy states: Te European Union,as a form of integration, is simply expected to contribute to economic developmentthrough the single market and monetary union. In my opinion, removing trade and otherbarriers and encouraging positive economic eects will enable funds to nd their way tothe most protable projects. However, it should be noted that the benet of these projectsis not evenly distributed among all the players on the European single market. It was clear,

17Hooghe, L. (ed.), CohesionPolicy and EuropeanIntegration: Building a Multi-Level Governance, OxfordUniversity Press, Oxford,1996; Rumford, C. European

Cohesion Contradictions in EUIntegration, Antony Rowe Ltd.,Chippenham, 2000.


17/61

32 33


especially during the seventies, that new member states would benet, in a way, but oftenalso bear the costs of the integration process. Consequently, the prot inequities couldinduce economically favourable structural changes (i.e. related to matters of locationand components) based on presumed diverse macroeconomic conditions, i.e. prosperingmarkets and a free ow of factors. But if the conditions are not given (or too short a timeis available to make structural adjustment) structural changes will yield dierent results in

the economies in question. In the EU, supranational integration,a remedy for emerging social problems, is expected to draw itsresources from the common budget. 18

Structural Funds and the Cohesion Fund are the engines driving the economic andsocial cohesion policy of the European Union and are available only to Union memberstates. Tese resources are used to reduce dierences in development between regionsof the Union and to reduce the disparities in the living standards of their inhabitants.

Tis chapter provides an overview of the characteristics of the 2000-2006 nancialperiod, the aims and instruments for the 2007-2013 period and the principles behindStructural Funds and Cohesion Fund.

Te 2000-2006 period

Between 2000 and 2006, the total sum destined for Structural Funds amounted to213 billion, 18 billion were disbursed over the same period for the Cohesion Fund,26.5 billion for pre-accession assistance (PHARE, ISPA, SAPARD and CARDS),

and about 40 billion for assistance to the new member statesfollowing accession (1 May 2004).

In this period, the following Structural Funds were availablefor development policy funding19:

The European Regional Development Fund (hereinafter referred to as ERDF),aimed at eliminating regional imbalances and promoting stable and sustainabledevelopment;

The European Social Fund (hereinafter referred to as ESF), aimed at the developmentof human resources and employment;

The Financial Instrument for Fisheries Guidance (hereinafter referred to as FIFG),aimed at achieving balanced resource management and competitive structures;

The European Agricultural Guidance and Guarantees Fund (hereinafter referred toas EAGGF), aimed at supporting the Common Agricultural Policy and improvingagricultural structures and rural development.

18 Zsuzsanna Tron, Need forregional policy, 2006, page 11.

Te role of the Cohesion Fund is similar to the role of the Structural Funds, but theoriginal reason behind its establishment was the adjustment of national economies incountries which had decided to introduce the common currency (fullling the so-calledconvergence criteria) and, to some extent, to ease the pressure on the budgets of poorermember states. Projects in the eld of environmental protection and the development oftransport infrastructure, especially the construction of infrastructures connecting moremember states, were nanced from this fund. Te main dierence when compared tothe Structural Funds, lies in the fact that funds are allocated based on the developmentlevel of member states, and not on regions. A key criterion for allocating assistance isGDP per capita lower than 90 percent of the EU average.

In the 2000-2006 period three objectives were dened to strengthen economic andsocial cohesion within the European Union:

Objective 1 (territorial): the development and structural adjustment of regions wheredevelopment was lagging behind (regions with GDP per capita lower than 75 percentof the EU average, remote areas and the coast of Sweden). In the 2000-2006 periodthis objective involved about 50 regions and about 22 percent of the population ofthe European Union. Tese were regions usually about NUS II size, in whichseveral indicators of underdevelopment were present (low levels of investment, highunemployment, shortages in the service sector, and weak infrastructure). Regionscovered by Objective 1 in this programming period were located in southern Italy, themidland and border regions of Ireland, Portugal (except the capital), most parts of Spain,Greece and Eastern Germany. Funds for this purpose were used from al l four funds.

Objective 2 (territorial): the economic and social conversion of areas facing structuraldiculties. Regions covered by Objective 2 were located in Great Britain, France, Spain,Italy, Finland and Austria. Assistance was drawn from from the ERDF and the ESF.

Objective 3 (thematic): referred to the adaptation and modernisation of nationalpolicies and systems of education, training and employment. It took the European

Employment Strategy into account and was used as a reference framework forall measures promoting human resources. Programmes and projects were nancedfrom the ESF and were not directed at specic regions.

In addition to these objectives, there were some Community initiatives in the 2000-2006 period:

INTERREG, which included cross-border cooperation, trans-national cooperation andinterregional cooperation, nanced from the ERDF;

LEADER, which included rural development, nanced from the EAGGF;

19 Group of authors, Upravljanjefondovima Evropske unije,European Project Center withNovi Sad Business Academy,2008.


18/61

34 35


URBAN, which included the economic and social revival of urban areas, nanced fromthe ERDF;

EQUAL, which covered the ght against discrimination and inequality in the labourmarket, nanced from the ESF.

Te 2007-2013 period

For the 2007-2013 period, the approach which has been chosen is of a more strategic naturethan before. Now, there is a clear connection between cohesionpolicy and strategies from Lisbon20 and Gothenburg21. Cohesionpolicy largely contributes to achieving the objectives of thesestrategies. Development and cohesion are mutually supportive. Byreducing economic and social dierences, the European Unionensures that all regions and social groups contribute and also benetfrom the general economic development of the Union. Articles 3and 158 of the reaty of the European Union reect this vision. Forthese reasons, the cohesion policy must be seen as an integral partof the Lisbon and Gothenburg strategy. In other words, cohesionpolicy must include the Lisbon and Gothenburg objectives, andbecome the motor of their implementation, through national orregional development programmes, where they exist.

Regarding other characteristics, a further concentration has beenundertaken, the number of funds has been reduced to three (theERDF, the ESF and the Cohesion Fund), three goals have beenset, the Community initiatives have been revoked and emphasishas been put on the less developed regions (78.5 percent ofavailable resources will be focused on less developed regions).

Te Cohesion policy and its instruments, over the 2007-2013 period, will be directed at

higher growth and employment in all regions and cities of the European Union. Duringthis period the European Union plans the highest investments ever through cohesioninstruments, amounting to 347 billion. o get a better picture of how these are importantto member states, their allocation billions of Euro for some member states in the 2007-2013 period are as follows: Austria (1.5), Czech Republic (26.7), Hungary (25.2), Germany(26.3), Slovenia (4.2), Bulgaria (6.8), Romania (19.6), etc.

In the period in question, the European Regional Development Fund, European Social Fundand Cohesion Fund ought to have contributed to achieving three key objectives: convergence,regional competitiveness and employment and European territorial cooperation.

ERDF

ERDF

ERDF ESF

ESF

Cohesion Fund

Table 3. Goals, Structural Funds and Instruments 2007 2013

Convergence means eorts to promote conditions for increased growth, and factorsthat lead to true convergence of the least developed member states and regions. Amongthe 27 member states of the European Union, this objective applies to 84 regions in18 member states. Te total population in these regions is 154 million (31 percent ofEU27), and the GDP per capita lower than 75 percent of the Community average(when compared to the 2000-2002 period). Tis goal also includes 16 phasing-outregions, with a total of 16.4 million inhabitants and GDP slightly above the denedthreshold, due to the statistical imbalance caused by the enlargement of the EuropeanUnion. Te amount available to achieve the convergence objective is 282.8 billion,81.5 percent of the total funds earmarked for regional policy. From this amount 199.3billion is intended for the regions for convergence, 14 billion for the phasing-outregions (13 regions with 3.4 percent of the population of the Union), and 69.5 billionfor the Cohesion Fund, which is being used by 15 member states (ten new memberstates, Portugal, Greece and Spain during the transitional period).

Regional competitiveness and employment contributes to strengtheningcompetitiveness, ability to attract investments and employment in two ways. First,development programmes assist regions in anticipating and promoting economic changethrough innovation and the promotion of the knowledge society, entrepreneurship andenvironmental protection and improvement of their presence. Second, more quality

jobs will be supported by adjusting the labour force and investing in human resources.Tere are 168 regions, with a total of 314 million inhabitants which meet the criteriafor receiving assistance intended for this objective. Among these, 13 regions, with 19million inhabitants, are in the phasing-out stage, with specic allocation of funds due totheir prior status under the Objective 1. Somewhat less than 16 percent, or 55 billion,

20 e European Commissionadopted the Lisbon Strategy in2000, with the aim that the

European Union would become,by 2010, the most competitiveand the most dynamic worldeconomy based on knowledge,capable of sustainable growthwith a rising number and qualityof jobs and greater social cohesion.

21 e basis of the EuropeanSustainable DevelopmentStrategy, which was adopted bythe European Commission inGothenburg in 2001, is to ensurethat economic development goeshand in hand with the qualityof the environment and theinclusion of social issues, all forthe purpose of improving thelives and welfare of all citizens.


19/61

36 37


has been allocated for the objective of regional competitiveness and employment, ofwhich 11.4 billion is for phasing-out regions. Regions which fall under the regionalcompetitiveness and employment objective are located in 19 member states.

Te earlier programmes Urban II and Equal have now been integrated into theconvergence and the regional competitiveness and employment objectives.

European territorial cooperation is aimed at strengthening cross-border cooperationthrough joint local and regional initiatives, trans-national cooperation designed forintegrated territorial development, strengthening interregional cooperation and the

exchange of experiences. Te population living in the border regions amounts to 181.7million inhabitants (37.5 percent of the total EU population). An amount of 8.7 billion(2.44 percent of the total amount) intended for achieving this goal has been distributedas follows: 6.44 billion for cross-border programmes, 1.83 billion for trans-nationalprogrammes and 445 million for interregional cooperation.

Tis objective is based on the experiences gained through the earlier Communityinitiative INERREG.

During the current period, objectives have been dened to strengthen the economicand social cohesion of the European Union. Tey are nanced from three funds.

The European Regional Development Fund (ERDF), which aims to strengtheneconomic and social cohesion in the European Union by correcting the imbalancesamong regions. ERDF funds can be engaged for interventions lying within the scopeof all three regional policy objectives: convergence, regional competitiveness andemployment and European territorial cooperation. Te ERDF also provides directsupport to companies (especially small to medium enterprises or SMEs) aimed atcreating sustainable jobs, support to infrastructure related to research and innovation,telecommunications, environmental protection, energy and transport.

The European Social Fund (ESF) is designed to increase employment and job opportunitiesin the European Union. Interventions fall within the framework of the convergenceand regional competitiveness and employment objectives. Te ESF supports activitiesin the elds of employment, gender equality, social integration and the ght againstdiscrimination in employment, and the strengthening human capital through the reformof the education system and the establishment of a network of educational institutions.

The Cohesion Fund is intended for member states whose GDP per capita is lowerthan 90 percent of the Community average. Its aim is to alleviate their economic andsocial disadvantages, and to stabilise their economies. It supports initiatives within

the convergence objective and is subject to the same programming, managementand monitoring rules as the ESF and the ERDF. During the 2007-2013 period,the beneciaries of the Cohesion Fund will be Bulgaria, Cyprus, Czech Republic,Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania,Slovakia and Slovenia. Spain falls under the phasing-out category, but only whenits GDP per capita is evaluated according to the EU 15 average. Cohesion Fundnances activities in the area of transport, particularly trans-European transportnetworks and environmental protection including energy eciency, the use ofrenewable energy sources, the development of railway transport, support to inter-modality and the strengthening of public transportation.

The goal o

convergence

Phasing out

The joining

phase

Regional

competitiveness

and employment

Map 2.

Structural unds(2007 2013)


20/61

38 39


An important aspect of the cohesion policy is cooperation between the EuropeanCommission, the European Investment Bank Group and other internationalnancial institutions on nancial engineering issues. In this regard, three initiativeswere prepared for the 2007-2013 programming period:

JASPERS, Joint Assistance in Supporting Projects in European Regions; JEREMIE, Joint European Resources for Micro to medium Enterprises; JESSICA, Joint European Support for Sustainable Investment in City Areas.

Te purpose of JASPERS is to oer technical assistance, in the form of grants tomember states for regions which fall under the convergence objective, to providetechnical assistance in the documentation phases of major investment projects (25million for environmental projects and 50 million for transport projects). Tisincreases the quantity, quality and speed at which the projects are submitted for

approval. JASPERS relies upon a partnership between theEuropean Commission (Directorate General for RegionalPolicy), the European Investment Bank (EIB) and theEuropean Bank for Reconstruction and Development(EBRD)22.

JEREMIE refers to the promotion of increased access tonance for small to medium-sized enterprises in theregions of the European Union. Better access to nancialresources is a priority under the renewed Lisbon agenda,in an attempt to increase the availability of capitalfor the establishment and development of enterprise.

JEREMIE is designed to overcome these diculties bycreating a framework for cooperation with specializednancial institutions like the EIF (European InvestmentFund) and the EIB23.

JESSICA is an initiative of the European Commission in cooperation with theEIB and the Council of Europe Development Bank, which promotes sustainableinvestment, growth and employment in urban areas of the Union. Since projectsare not funded from grants in this case, contributions from the programme forurban development have a revolving character to ensure the sustainability ofinvestments. Funds from the programme are used to nance loans which urbandevelopment authorities funds provide to end users. Tese loans are supported bya guarantee schemes which are established by the urban development authoritiesand participating banks. Since there is no state guarantee for these loans, they donot aect the state of public nance and public debt.

Principles of using Structural Funds

The Management of Structural Funds is a challenge. Implementing large, multi-annual,inter-sector projects within an administrative framework whichcan dier from national practice is extremely complex anddemanding ... a key aspect is learning from the best practicesof previous periods of Structural Funds management and theexchange of experiences between Member States and regions.24

Tere are four basic principles underlying Structural Funds management - the principleof programming, concentration, co-nancing and partnership. Tese were introducedin 1988, with the exception of the principle of co-nancing, which was introduced

with the establishment of the ERDF in 1975. All these principles apply today, and arean integral part of pre-accession assistance.

Programming is a principle which, in practice, represents the process of preparing multi-annual funding programmes from the Structural Funds in accordance with denedobjectives and criteria, moreover within a predened indicative allocation of funds for themember states, to ensure the coherence of investments. Te programming process is therst phase of the project cycle and requires several steps based on cooperation betweenthe beneciary countries and the European Commission.

Concentration was introduced by Delors rst reform, and implies directing fundingwhere it is most needed, i.e. directed at achieving a number of predened goals inthose regions that meet a given criteria. In this regard, the three objectives of theStructural Funds were dened, with a clear regional focus based on the NUSterritorial classication. Concentration, therefore, implies geographic, i.e. economiccriteria.

The co-nancing or the additionality principle, implies that part of the investment indened goals comes from domestic sources, i.e. that the EU co-nances investments

of a beneciary country. Tis was introduced with the establishment of the EuropeanRegional Development Fund in 1975, which stipulated that the Fund cover up to halfof the cost of development projects in eligible regions, while the rest would be nancedfrom domestic sources. Te idea behind this approach was that EU funds do notsimply serve as a replacement for domestic investments, thus undermining the basicpurpose of these funds to accelerate development through increased investment.Co-nancing is provided in the programming process, so that funds from domesticsources are clearly indicated in the respective programming documents (as well asfunds from other sources, such as funds from international nancial institutions, so asto enable coordination).

22 e Western Balkan countriescan benet from the EuropeanFund for South-East Europewithin the framework of theMultibeneciary IPA, whichcorresponds to the JASPERS.initiative to a considerableextant.

23 e Western Balkancountries can benet fromthe Infrastructure ProjectFacility programme withinthe framework of theMultibeneciary IPA, whichcorresponds to the JEREMIEinitiative to a considerableextent.

24Professor John Bachtler:Managing Structural Fundprogrammes: Learning about bestpractice, Inforegio, EuropeanCommission, 2005


21/61

40 41


Partnership implies cooperation and close consultation between all government levelsof a member state and the European Commission. Te principle of partnership isobserved through all stages of a project cycle within the Structural Funds and CohesionFund. Over time, this principle has evolved to include economic and social partners,bodies and organisations dealing with environment protection and gender equality,and now includes civil society and NGOs.

Structural Funds are intended for established goals and development programmes andare implemented according to clearly established and strictly dened rules. The Projectcycle of Structural Funds can be described as follows:

A decision on the budgeting and rules for the use of Structural Funds are decidedby the Council and European Parliament based on a proposal put forward by theEuropean Commission;

Te Commission presents a proposal for the Strategic guidelines on cohesion afterconsulting the member states. Tese guidelines guarantee that the member states willadjust their programming to the European Union priorities, to provide incentives toinnovation and entrepreneurship, foster the growth of a knowledge-based economyand create more and better jobs;

During the dialogue with the European Commission, each member state preparesa National Strategic Reference Framework (NSRF), coherent with the strategicguidelines. Te NSRF denes the strategy of each member state and proposes a listof operational programmes;

Based on the NSRF member states prepare an operational programme (OP) whichpresents the priorities of the member state (and/or regions), as well as the manner ofprogramming and implementation. Te Commission validates certain parts of theNSRF which require its decision, as well as each operational programme. Countriesand regions under the convergence objective must allocate 60 percent of expendituresto the priorities arising from the EU strategy for growth and jobs (Lisbon strategy).For countries and regions falling under the competitiveness and employmentobjective, that percentage rises to 75 percent. Te European Commission has adopted

around 450 operational programmes for the 2007-2013 period. Economic and socialpartners as well as civil society bodies have participated in the programming andmanagement of the OPs. Member states are obliged to dene a certain amount ofco-nancing at the level of operational programming;

After the Commission has decided about the operational programmes, the memberstates and/or its regions implement the programmes, i.e. select and implement theprojects. Tis implementation takes place through the so-called managing authoritiesin each country and/or region;

Te Commission allocates funds (to allow the Member State to initiate a programme); Te Commission pays certied expenditure to the member state;

Te Commission monitors each operational programme alongside the MemberState;

Strategic reports will be submitted both by the Commission and by the MemberStates throughout the 2007-2013 programming period;

Te evaluation and audit of programmes and projects will be carried out during andafter their implementation.

Te Centre for European Policy Studies states that the implementation of the cohesionpolicy requires a highly developed institutional framework. Each member state has itsown characteristics with institutional organisations of varying levels of complexity,nevertheless, a common denominator is found in each countrys level of integrationinto an existing, i.e. parallel system. Te Centre for European Policy Studies hasidentied three dierent approaches:

The differential approach, characterised by the division of structures for cohesion policyimplementation (e.g. the Netherlands, Sweden, Great Britain);

The unied approach, whereby funds are directed through national and regionalministries and agencies (e.g. Austria, Spain, parts of Germany and most of new memberstates);

The combined approach, which is a combination of the previous two (e.g. Finland,France and Italy).

Key factors that inuence the creation of one specic system within these approachesabove are the existing administrative structure (centralised, de-concentrated orfederal, i.e. regional set-up) and the levels of nancing. Paradoxically, even small fundsencourage the creation of parallel systems.

An analysis of decisions made by EU Member States regarding to EU fundsmanagement systems shows that only 36.9 percent of total funds are managed bybodies established at a regional level, while the rest of is under central authorities.25 Asfor funds allocated under the Cohesion Fund, bodies formed at a regional level handle

30.5 percent of the total budget. It should be noted that those are precisely the regionsthat enjoy a greater level of autonomy, such as certain regions in Germany, Italy andSpain, and have specic jurisdiction over the management ofthese resources.

In my opinion, the majority of people who read this study will ask themselves: Whyis there all this fuss, when we still question whether all this (regional policy andEuropean funds) actually works eectively? Te question can only be answered withease when considering the complexity of the rules. An analysis of the evolution ofthe cohesion policy management system, since its reform in 1988, shows that certain

25Source: DG Regio web page


22/61

42


negative aspects of the cohesion policy are caused by attempts to limit the role ofthe European Commission in the management system. Te attitude that certainconditions imposed on the member states in the management of cohesion policy, inrelation to monitoring, reporting, evaluation, s

the regional policy of the european union as an engine of economic development

Documents