Cohesion Policy in the European Union: The Building of Europe

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Cohesion Policy in the European Union The Building of Europe

Robert Leonardi

Cohesion Policy in the European Union

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Cohesion Policy in the European Union The Building of Europe By Robert Leonardi

© Robert Leonardi 2005 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–4955–4 hardback ISBN-10: 1–4039–4955–7 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Leonardi, Robert, 1945– Cohesion policy in the European Union : the building of Europe / by Robert Leonardi. p. cm. Includes bibliographical references and index. ISBN 1–4039–4955–7 (cloth) 1. European Union. 2. Political planning–European Union countries. 3. Decentralization in government–European Union countries. 4. Regionalism–European Union countries. 5. Regional disparities–European Union countries. 6. European Union countries–Economic policy. 7. Social policy–European Union countries. I. Title. JN30.L464 2005 341.242′2–dc22

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In memory of Emil Noel, past Secretary General of the Commission and President of the European University Institute, who as a friend and mentor encouraged me to begin in 1988 the study of cohesion policy in the European Union.


Contents List of Figures

viii

List of Tables

ix

Acknowledgements

xi

Preface: by Romano Prodi

xii

Chapter 1

Cohesion and Regional Policies in the European Union

1

Chapter 2

The CSF Revolution: The Origins and Structure of EU Cohesion Policy

33

Chapter 3

Cohesion Policy as Learning: The Planning Process and Administrative Responses

67

Chapter 4

Have Regions Converged? Sigma and Beta Convergence in Objective 1 and Other EU Regions between 1988 and 1999

89

Chapter 5

Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe?

107

Chapter 6

The Challenge of Enlargement and Cohesion in the Ten New Member States

140

Chapter 7

Conclusions: The Constitutionalization of the European Union and the Future of Cohesion Policy

173

Notes

191

Index

212

vii

List of Figures Figure 1.1 Figure 1.2 Figure 2.1 Figure 3.1 Figure 3.2

Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6 Figure 4.7 Figure 5.1 Figure 5.2 Figure 5.3

Figure 5.4 Figure 5.5

Figure 5.6 Figure 7.1 Figure 7.2

Definitional components of the concepts of cohesion, convergence and integration Dynamics of the cohesion model Comparisons of national regional policy and EU cohesion policy: before and after 1989 Conceptual framework for the multi-level and multi-phase governance of EU cohesion policy Analytical framework for the implementation of the EU’s cohesion policy by type of response, administrative dimension and type of impact Upward convergence by poorer regions Dispersion of GDP per capita in EU15 regions, 1988–1999 Dispersion of GDP per capita in Objective 1 regions, 1988–1999 Comparison of GDP density function by three regional groupings, 1988 and 1999 EU unemployment rates (%) for EU15 and Objective 1 regions, 1988–2000 EU employment rates (%) for EU15 and Objective 1 regions, 1988–2000 EU activity rates (%) for EU15 and Objective 1 regions, 1988–2000 Variation of GDP for the regions of the Mezzogiorno, 1963–1999 GDP per capita differentials by macro areas vis-à-vis Italian average, 1981–2000 (% PPS values) GDP per capita differentials (southern regions vis-à-vis Italian average), 1981–2000 (% Euro fixed prices 1995 values) lnvestment/GDP ratio (Mezzogiorno and North-Central regions) Differentials in investments per capita by Macro areas vis-à-vis the Italian average, 1980–2000 (% Euro fixed price 1995 values) The socio-political logic of the production of common versus individual goods Proposed reform of cohesion policy, 2007–2013 Comparison of 2000–2006 and 2007–2013 financial instruments and objectives viii

10 12 38 70 81

96 99 100 101 103 103 104 112 115 115

117 118

136 187 189

List of Tables Table 1.1 Table 1.2 Table 1.3 Table 1.4

Table 1.5 Table 2.1 Table 2.2 Table 2.3 Table 2.4

Table 2.5 Table 2.6

Table 2.7 Table 3.1

Table 4.1 Table 4.2 Table 5.1 Table 5.2 Table 5.3

EU population covered by territorialized cohesion policies, 1989–2006 and beyond Allocation per country of Objective 1 funds, 2000–2006 Comparison of expenditures for agriculture and cohesion policies between 1989 and 1999 (MECU) Impact of enlargement on the number of Objective 1 regions among EU15 based on 2000 GDP per capita in PPS figures Annual GDP growth in four cohesion countries, 1988–2002 ERDF allocations to EEC-10, 1975–1984 (% of total allocations) ERDF allocations from 1975–1987 (MECU in current prices) Overall distribution of the Structural Funds 1989–93 (MECU in current prices) Total allocations for 1989–1993 CSFs in terms of SF, EIB, private and national contributions (MECU in current prices) Overall distribution of Structural Funds, 1994–99 (MECU in current prices) Total allocations for 1994–1999 CSFs in terms of SF, EIB, private and national contributions (MECU in current prices) Overall distribution of the Structural Funds 2000–2006 (MEUR in 1999 prices) Structural Funds expenditures by country with Objective 1 regions 1989–1993 and 1994–1999 (MECU in current prices) Beta and sigma convergence across time and countries Beta convergence in Objective 1 and Non-Objective 1 regions, 1988–1999 Comparison of GDP per capita (PPS) in Objective 1 regions in 1989, 1994 and 2001 Employment rates and unemployment levels in Objective 1 regions, 2002 Number and types of crimes reported to the Italian national police, 1999 ix

16 16 26 28

28 42 43 51 55

57 59

63 87

97 100 110 119 127

x List of Tables

Table 5.4

Criminal activity carried out by organized crime in Italy’s eight southern regions, 1995–2001 (per 100,000 inhabitants) Table 5.5 Structural Funds expenditures in Italian Objective 1 regions, 1989–2006 Table 5.6 Change in GDP in Italy’s southern regions, 1999–2002 Table 6.1 Annual GDP growth rates (%) of new member states and candidate states, 1990–2002 Table 6.2 Inflation rates (%) in new member states and candidate states, 1990–2002 Table 6.3 Unemployment rates (%) in new member states and candidate states, 1990–2002 Table 6.4a Levels of foreign trade and FDI in new member states and candidate states, 1998 and 2002 Table 6.4b FDI and EU percentage (1989–2001) Table 6.5 State of public finances in the new member states and candidate states, 1996–2002 Table 6.6 The state of negotiations for enlargement as of 9 October 2002 with twelve candidate states Table 6.7 2004–2006 budget for new member states (MEURO in 2002 prices) Table 6.8 Structural Funds allocated for the ten new member states, 2004–2006 (MEURO in 2003 prices)

129

131 134 152 154 155 156 157 158 161 169 170

Acknowledgements I would like to thank the members of the Economic and Social Cohesion Laboratory who have helped me gather much of the data presented in this volume. A special thanks goes to Simona Milio, Garbiele Amorosi, Francesco Boccia, Michele Limosani, Fabrizio Fasulo, Diego Artuso and Marcello Leonardi.

xi

Preface In 2004 the European Union witnessed the most extensive enlargement ever undertaken. With the increase in the number of member states from the previous fifteen to the current twenty-five, the European Union has extended the reach of its socio-economic policies to new geographic areas. Eight of the ten countries are located in Central and Eastern Europe, the part of Europe that before 1989 was behind the Iron Curtain. The other two countries are located in the middle of the Mediterranean Sea and provide a significant southern thrust to EU activities. With the entry of Cyprus, an historic change has taken place. Turkish and Greek Cypriots have begun talking to each other for the first time since 1974 even if that dialogue has not yet achieved the full unification of the island. Enlargement carries with it an important number of innovations in the definition of the European Union’s institutional structure and policies. I would add that the current enlargement has contributed not only to redefining Europe as an economic and political entity but also to reformulating its role in the world. The expansion of the EU to twenty-five member states has helped to advance the European unification process, which was launched by the founding fathers (Monnet, Spinelli, Schuman, Adenhaur, Spaak, DeGasperi) at the beginning of the 1950s. But it has also served to reinforce the main principles that have characterized the European Union from the outset. The first of these principles is the re-unification of the European continent based on a policy of peace and prosperity. As Jean Monnet initially defined the logic of integration – “to make war in Europe unthinkable”, – the increase of membership from fifteen to twenty-five and eventually to more than thirty states represents the attempt to create for Europe a common institutional, economic and political structure. Further expansion of the EU into southeastern Europe and the Balkans will help to consolidate the unification of Europe’s national commercial and financial markets within the structure of the Single Market and the Single Currency. The second principle of European integration has been to raise the level of well-being in Europe. Since the launch of the Single Market in 1993 and the enlargement process Europe that expanded the EU from the original six to the current twenty-five member states, Europe has witnessed a significant increase in intra-European trade. One of the direct outcomes of the expansion process has been the increase in foreign direct investments by European firms in the economies of the candidate states and those countries expected to eventually join the Union. The launch of the Single Currency has had a parallel effect in the stabilization of even the national xii

Preface xiii

currencies that have remained outside of the euro zone. Thus, the creation of the euro has had beneficial impacts on interest rates and exchange rates for both the EU members and non-members of the euro zone. As a consequence, the prospects of joining the European Union has served to eliminate many of the uncertainties associated with international confidence in the national currencies of small and intermediate sized states along the EU borders that are waiting to join the expanding Union. The expansion of the European Union has served to consolidate a more stable and prosperous European market for the new member states as well as expanding the opportunities of trade and investment on the part of the old member states. Thirdly, enlargement has helped to redefine Europe’s role in international economic and financial affairs. The Europe of twenty-five member states has become a major player at the international level, both in terms of economic as well as political issues. Expansion of the borders of the Europe Union toward the east and the south has encouraged the development of a clearer policy toward its neighbours and increased its ability to co-operate effectively in influencing developments. Finally, enlargement has also placed an emphasis on the political role of the European Union internally and externally. As has been evident ever since the 2000 Nice European Council, enlargement has pushed forward the agenda on the definition of a political Europe and the need to redefine internal operations on the basis of a new European Constitution. But this book is not merely an analysis of enlargement and the activities of the current Commission. Instead, it asks the basic question of what has been the role of cohesion policy in the expansion of the membership of the EU toward the south and east? Has the track record of the EU’s cohesion policy since 1989 served to attract new member states or has its role been neutral or negative in nature? The book argues convincingly that the cohesion policy has served as one of the main attractions for joining the Union on the part of the less developed countries on the EU’s southern and eastern borders. Is this because the cohesion policy represents another means of subsidizing uncompetitive firms or handouts to citizens? This book argues to the contrary that the cohesion policy has assumed since the beginning the political objective of laying down the principle of mutual solidarity. The concept of solidarity has been translated by the reform of the Structural Funds in 1988 into the goal of achieving economic and social cohesion throughout Europe on the basis of a policy of economic restructuring and growth in the most backward areas. In fact, since 1989 the cohesion policy has concentrated on those Objective 1 regions with the greatest needs to stimulate economic growth, productive investments and job creation. What have been the results of this policy? Have the backward regions made strides forward? Have they grown faster than the European average?

xiv Preface

Has the gap in levels of socio-economic well-being been reduced and are formerly backward regions better off today than they were in 1989? The results that are presented in the book argue clearly that the EU’s cohesion policy has had a significant impact in terms of improving levels of socio-economic well-being in the formerly less developed areas. In the most recent list of Objective 1 areas we have seen the exit of a number of regions that before were previously problematic: Abruzzo and Molise in Italy, Cantabria in Spain, Lisbon-Tagus Valley in Portugal, the entire southeastern part of Ireland, the Highlands and Islands of Scotland and Northern Ireland, Corsica and Valenciennes in France, Flevoland in Holland, and Hainault in Belgium. During the next planning period after 2006 another large contingent of current Objective 1 regions in Portugal, Spain and Greece will also exit. Such a record of performance holds the prospect that the new states and regions that have entered the Union in 2004 will also have the prospect in the short to medium term of building-up their economic base and employment opportunities through the consolidation of the public-private partnership that is at the heart of the cohesion policy. The book also critically looks at the European, national and regional responses to the cohesion policy across the Objective 1 and 2 regions and argues that there has not always been an optimal response on the part of the administrative structure and that “policy learning” is an important but often forgotten aspect of innovation in policy making and implementation. The book argues convincingly that the ability to learn does not always correlate with levels of socio-economic development nor does learning take place immediately or only once during the lifetime of a policy. Thus, countries with weak economies but a strong will to develop may be able to grow at rates that will allow them to significantly converge toward the European average in terms of socio-economic well-being and employment rates in the short to medium term rather than having to wait decades for economic restructuring to take place. The analysis contained in the book has been very useful in the debate undertaken on the future of cohesion policy in the 2007–2013 period. The evidence presented in Chapter 4 makes a convincing case that the convergence witnessed at the European level is due in large part to the convergence of the EU’s Objective 1 areas. This conclusion was confirmed in the data presented in the Commission’s Third Cohesion Report. Another valuable insight is the emphasis placed on the institutional response to the policy at the national and regional levels. Up until now the assumption has been that long standing member states have had all of the necessary administrative capacity to successfully implement the cohesion policy in their less developed areas. The book shows that this has not always been the case. Both new as well as older member states have had to rethink their administrative approaches to regional policy in order to maximize returns and impacts. In the new member states the goal of building national

Preface xv

institutional capacity will be carried forward through the aid provided by the Structural Funds, and new programmes are on the horizon to help build greater capacity also at the regional and local levels. Cohesion policy has helped political and administrative leaders to understand that it is no longer acceptable for policy making and implementation to be focused only at the national level. Regional and local levels need to be involved if development is to be sustainable over time and capable of using the endogenous potential that is available in Europe’s countries and regions. Finally, the book makes a convincing argument that the major objectives of my presidency – introduction of the single currency, enlargement, and the Constitution – are interconnected and constitute integral parts of the political objectives of European integration. In this manner, the book makes a contribution not only for the students of cohesion policy, but it also informs policy makers of their role in making certain that the general objectives of European integration (solidarity, unity, and the building of common institutions) are not forgotten in the conflicts over budgets, the allocation of resources, and the minutia of policy making. This Commission has not forgot these objectives, and they represent the legacy that will be passed on to the new Commission that takes office in November. Romano Prodi, Brussels, 15 April 2004


1 Cohesion and Regional Policies in the European Union

1.1

Introduction

In 2004 the European Union’s cohesion policy entered into its fifteenth year of existence. Since its inception in 1989, the policy has covered a significant part of the European Union (EU) member states’ territory and population. What distinguishes the EU’s cohesion policy from regional development policies undertaken by national governments in Europe and the regional policy implemented by the Community before 1989 is that it represents a revolutionary change in the way development policies are conceived and carried out. While previous regional policy concentrated extensively on the role of the national administrative system or specialized development agencies in the implementation of projects, the present approach is characterized by an extensive involvement of different administrative levels and socio-economic groups in the formulation and implementation of the policy. The other elements that distinguish EU cohesion policy are the planning and implementation components that have been part of the policy from the very beginning, such as, quantified objectives (reducing regional disparities, restructuring regional economies, creating jobs, and stimulating private investment), a legal European framework,1 a specific policy structure (multi-annual planning documents and operational programmes), multi-annual budgets, five specific financial instruments (four Structural Funds2 and the Cohesion Fund) and a multi-level and multi-subject form of interaction in the formulation of decisions and implementation of programmes and projects. Prior to 1989 the Community’s regional policy was allocated a limited function: it objective was defined as the provision of financial support for the carrying out of national regional development policies. DG XVI (the administrative arm of the Commission responsible for regional policy) and the European Regional Development Fund (financial instrument supplying financial support for regional policy) were created in 1975, but they did not carry out any planning or oversight function in the field of regional 1

2 Cohesion Policy in the European Union

policy.3 Those responsibilities were completely left to national governments. The Commission disbursed funds to the member states on the basis of the projects presented by the member states to the Commission. However, the Commission was not in a legal position to conduct a verification of the expenditures undertaken, the results achieved by the projects, or the validity of the national approach in the attempt to achieve regional development. In addition, no thought was given to involving the regions in national regional development policies because national regional development initiatives did not specifically foresee a role for regional institutions in the policy process nor was a role on the part of sub-national institutions considered to be necessary or advisable in achieving the objectives of the policy.4 With the introduction of the cohesion policy in 1989 the Commission was empowered to formulate the rules and regulations for the implementation of the policy on the part of member states and regions.5 The treaty basis for the cohesion policy is provided by the 1986 Single European Act (SEA) as part of the measures for the creation of the European Single Market in 1993. The goal of cohesion policy as enunciated in Article 130a of the SEA was to “reduce disparities between the various regions and the backwardness of the least-favoured regions” or the most recent phrasing of this commitment in the EU treaties is expressed as “…the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands”.6

1.2

Regional policy within the European Union

The literature on cohesion has grown over the years as the policy has been implemented in the less developed areas (Objective 1) and in those traditionally developed areas undergoing industrial decline or characterized by large pockets of unemployment (Objective 2). Accordingly, the topic has attracted attention from a number of disciplines. The most prominent literature – and the most relevant to the goals of the cohesion policy – is the Economics literature interested in the role of public policy (i.e., programmed interventions) in affecting economic outcomes (prospects of growth and job creation). The basic question being asked here is whether cohesion policy matters in determining the competitive position and growth of the less developed countries and regions in the Single Market.7 A second body of literature emerges from Regional Science. Here, the concern is whether the EU’s cohesion policy is a variation of traditional regional policy or whether it represents a new approach to traditional problems. Regional Scientists are concerned with the policy process – i.e., outputs and outcomes – and how cohesion policy addresses the two main objectives of regional policy: efficiency of development efforts and equity in the distribution of well-being throughout the national territory. Much

Cohesion and Regional Policies in the European Union 3

less attention is paid in this literature to the politics of the decision-making process.8 Instead, in the third body of literature produced by Political Scientists, the objective is to look into the politics of cohesion policy: due to what combination of forces has the policy emerged and under what conditions is it managed? The most prominent explanatory paradigm emerging from the Political Science literature is the concept of multi-level governance.9 Cohesion policy has also fueled a significant amount of literature in the field of Europeanization studies: is cohesion the quintessential Europeanized policy and what are the impacts of the policy on domestic administration and internal politics at the national and regional levels? Political Scientists are interested in both the decision-making as well as implementation aspects of the policy because each phase provides evidence of the existence of multi-level governance patterns and the type of interaction taking place among the institutions responsible for the policy and the stakeholders who should be the main beneficiaries of policy outputs. The final body of literature that needs to be mentioned is the studies that have come out of the general field of International Relations. Students of International Relations are not necessarily concerned with outputs or outcomes. They are interested, instead, in the fundamental questions of “how did the policy emerge” and “who are the principal actors” in the process and whether the European Union fits into the model of an international regime.10 The methodological approach that will be used in this volume is not restricted to any one academic discipline. In our opinion the political importance of cohesion policy for the EU as a whole and especially for the future of the European Union is too great for the analysis to be limited to a single approach. However, all of the above mentioned sets of literature need to be addressed in order to provide a full, balanced and realistic evaluation of the policy in terms of its origins, decision-making and implementation dynamics, and the impact of its outputs in determining socio-economic outcomes for the less developed areas. Our definition of regional and cohesion policy starts from the literature on public policy. Stuart Nagel has defined public policy as “governmental decisions designed to deal with various social (and economic) problems”.11 We would add that social and economic policies, such as those incorporated into regional policy, are used by policy makers to correct, supplement or change outcomes produced by the market. If markets produce equitable and efficient outcomes, there is no reason or incentive to intervene with public policies to correct territorial imbalances. Where this is not the case, then public policy to redress the disequilibrium becomes necessary. In our case the decision to redefine the Community’s regional policy that originated in 1975 was taken not only to solve some of the Community’s social problems but, more importantly, to address the economic risks raised


by the introduction of the Single Market. As expressed by Tommaso PadoaSchioppa, in the creation of the Single European Market there were “serious risks” of aggravating existing regional imbalances. Therefore, “adequate accompanying measures are required to speed adjustment in structurally weak regions and countries”.12 What was necessary in the eyes of the Commission to implement the necessary measures was a reform of the Community’s regional policy and a significant increase in the allocation of financial support for the Community’s Structural Funds. The Commission’s goal was to use the new cohesion policy to achieve two objectives. On the one hand, as Padoa-Schioppa suggests the policy was necessary for the purpose of helping to adjust the regional economies to the exigencies of open market competition. In this context, the cohesion policy was conceived as a form of “shock absorber” to manage the impact of the Single Market. On the other hand, the policy was also used to reduce the differences in regional well-being that existed between core and peripheral regions and to help the latter catch-up with the more developed areas. In this second case the cohesion policy served to accelerate economic growth by making the less developed regions more competitive vis-à-vis their more developed neighbours. These two goals may appear, at first glance, to have been contradictory in nature, but they reflected well the actual combination of fear (the negative consequences of the Single Market on the less developed areas) and hope (ability to make use of the untapped economies of scale present in the less developed areas) reflected in the Commission’s One Market/One Money 1987 study and the other two studies (the Checchini and Padoa-Schioppa reports) produced to measure the potential impacts of the Single Market. Another important distinction that we need to make in discussing public policies is the one between formal and informal policies. From our perspective, the former requires the existence of a formal legal framework, the provision of public funds, the involvement of public institutions in the decision-making and implementation process, and the goal of creating common goods and benefits for a defined territory and population. Formal policies also need a self-regulatory mechanism provided by close public scrutiny through representative institutions, public fora and evaluation procedures to guarantee that the original objectives of the policy are not altered by new circumstances or that if the objectives are altered they be made explicit to both policy makers and the public. In the case of regional policies, the stated aim of the national regional policies initiated in the postwar period was to increase the development prospects of economically depressed areas and to achieve a more equitable social distribution. As expressed by Norbet Vanhove, regional policy or regional planning “includes all forms of public intervention intended to ameliorate the geographical distribution of economic activities”.13 From this perspective, the objective of regional policy is to correct the spatial dis-


tortions produced by the operation of the market. For this purpose, the national administrative system or specialized agencies are given the task of implementing national regional policies. In these cases regional policy is formally governed by national laws and procedures and conflicts arising from the implementation of the policy are settled in national courts. The existence of informal public policies is more difficult to identify and analyze. The study of informal public policies requires different research strategies capable of distinguishing the implicit aspects of a policy from the explicit ones. Informal public policies are common where the political system has not been able to mobilize the consensus necessary to make the policy explicit or where the administrative structure is not in a position to deliver the policy as formulated. The inability to make the policy explicit forces the national government to intervene due to political pressure from the top leadership or from the bottom, the voters. For example, the delivery of public social services where the coverage is supposed to be universal may not be possible due to the lack of adequate financial resources, administrative staff, or organizational structure. Such a situation has been common in the pursuit of regional policies. Where funding for the policy is not adequate, the administrative structure has to choose (on an informal basis) who receives what, when and how without the backing of a formal policy request from the executive or legislative branches of government. In regional policy these informal types of support allocated to particular areas or particular economic sectors have been common where the management system has been given wide discretion in choosing where and when to spend financial resources. In other cases, a formal policy can undergo a shift in objectives and be transformed into a de facto informal policy due to its “capture” by organized interests, informal groups, or political leaders. If the situation is allowed to consolidate itself over time, the delivery of the formal policy becomes institutionalized around an informal approach and content. Such cases have been common with regard to national regional policies in the postwar period. For example, in the Italian Mezzogiorno and the German laender regional policies have been “captured” by particular political groups and leaders or by certain areas and industries to the point where it has become impossible to end the policy or bring the policy back to its original objectives. The question that needs to be asked in this context is: when regional policies do not reduce disparities or mobilize endogenous economic potential what do they do? Experience with regional policy would suggest that if regional policies (or even other policies) are to stick to their original objectives, they need to be subjected to constant independent evaluation and scrutiny. Otherwise, policy drift and capture become common or even natural outcomes where substantial financial outlays are being undertaken. In the case of national regional policies, both phenomena have been common in the past.14


Within our overall definition of regional policy, we believe that cohesion policy belongs to the broad family of regional policies. However, cohesion is a regional policy with a difference, and that difference became apparent after 1988 with the provision of a new legal basis for the Commission’s new form of regional policy. We would argue that before 1988 regional policy at the European level – i.e., the policy financed by the ERDF – consisted of underwriting national regional policies. Only in very few instances did the Commission undertake to develop and finance regional projects on an autonomous basis. These exceptions were represented by the first experimentations with the coordination of expenditures by the ERDF, ESF, and EAGGF-Guidance that started in 1979 with small pilot projects in Naples and Belfast and a few years later in the Lozer department in southern France. At the beginning of the 1980s, more extensive experimentational projects focussing on an integrated approach to regional planning were undertaken in other parts of the Community through the Integrated Development Operations (IDOs). Finally, the largest experimental programme financed at the European level was the Integrated Mediterranean Programmes (IMPs) that were allocated in 1986 to Greece, Italy and France. Otherwise, the regional policy at the European level was completely subordinated to the support of national regional policy initiatives and objectives. Before 1989 the European level was in no position to influence or determine how the national regional policies operated and what national regional policies addressed. That situation radically changed in 1988. Not only was the European level empowered to become involved in deciding “how” and “what” regional policy addressed, but it also became involved in deciding “who” was to participate in the decision-making and implementation phases of the policy. What made cohesion policy distinct from national regional policy was the discovery of “territory”. The importance of the role of territory was fundamental in: (1) identifying the place where the policy was to be implemented, (2) proposing the level at which the policy was to be implemented, and (3) involving the institutions present in the territory (regional and local governments) in the definition of the policy priorities and objectives. With the discovery of territory the Commission was in a position to abandon the exclusive focus of the previous regional policies on economic sectors and interventions administered by national administrative structures. Thus, the discovery of the territorial dimension allowed the shift of the policy objectives from individual economic sectors (e.g., industry, agriculture, infrastructure, etc.) to individual regions (i.e., those areas of a member state that were particularly underdeveloped and in need of significant programmatic interventions).

1.3

The importance of the territorial dimension

The significance of the wording of Article 130a in the Single European Act was that the Community placed emphasis on the regional dimension15


and abandoned the exclusive emphasis on the national level. MariaAngeles Diez has argued that the opening up of the regional policy process to regional actors implied a radical shift in the policy.16 In emphasizing the regional level the EU had to devise a system for classifying territorial units if it wanted to avoid a nation-by-nation approach. It resolved the problem by adopting the definition of territorial units developed by Eurostat at the beginning of the 1980s to differentiate the European territory into five levels of geographic aggregations: from sections of a country (NUTS 1) to villages and towns (NUTS 5). Aside from very small states, in most countries the five classifications defined territorial units at the subnational level.17 The regional level was defined as NUTS 2, and this level became the basis for the definition of the focus of the EU’s territorialized cohesion policy interventions. The other important difference introduced in 1988 was that national quotas were eliminated and, instead, regions at the sub-national level were incorporated into the policy based on their objective socio-economic needs. In other words, regions had to qualify for participation in the policy according to objective criteria. Whole countries could be covered (as was the case for Ireland and Portugal until 2000 and Greece up until now), but this result was based on the fact that their regions as a whole qualified on the basis of the 75% or less of GDP per capita rule. In this manner a whole country could be covered if its regions qualified and a region could qualify for coverage even if the country in which it was located did not qualify as a whole.18 Thus, cohesion was not conceived as a general national development policy. It was instead targeted to specific regions for the purpose of concentrating the flow of financial resources to those areas most in need. Another innovate aspect of the nascent cohesion policy was that it represented the first major development effort since the introduction of the Marshall Plan in the immediate postwar period that was financed and managed at the supra national level.19 Never before had a supranational body (OECD, UN, EFTA or NAFTA) provided for the expenditure of such a quantity of funding on a policy to promote the convergence of its most backward regions in order to achieve a more economically and socially integrated system. The factor that made this objective possible within the context of the European Community in 1988 was, I would argue, the principle of mutual solidarity that was explicitly formulated in the Single European Act and reiterated in the subsequent reforms of the basic treaties as one of the fundamental principles of the European Union. This commitment to help the backward regions develop was first accepted by the member states in 1986 in the conviction that the operationalization of such an approach promoted the common good and interests of the entire European Union. The 1992 Maastricht Treaty added to the goal of socio-economic cohesion the dimension of political cohesion, thereby expanding the goal of a more


cohesive economic and social system to include a more integrated and cohesive political structure. Mike Manning has argued that the combination of the Single Market, the European Monetary Union initiative and periodic enlargements made it essential to find a resolution of the age old problems of economic disparities and changed the significance of the Community’s regional policy from one prior to 1989 of “side-payments” to an economic and political policy designed to alleviate the worst aspects of regional disparities: The EU’s regional policy can no longer be perceived as a side payment for member states who felt unfairly done to, with regard to their EU budgetary balance, nor as a supplement to the efforts of member state governments to mitigate the worst effects of peripheral “economic lag”. Regional policy in the 1990s has emerged as a tool to promote solidarity within a straining Union.20 As a consequence, the objective of mutual social and economic solidarity expressed in the 1986 SEA did not remain a dead letter. In fact, the commitment was confirmed and given financial backing by subsequent European Council summits (Hanover 1988, Edinburgh 1992, and Berlin 1999) in which the EU’s multi-annual budgets were formulated. The commitment to cohesion as a broader European objective was reaffirmed in the Amsterdam and Nice Treaties and in the Constitution drafted by the European Convention. In the 1997 Amsterdam Treaty cohesion was transformed into one of the basic defining principles of the European Union, thereby transforming it from an objective of a specific policy to an overall principle that was to be reflected in all policy sectors – from cohesion to research, and from agriculture to transport and social policy. Thus, mutual solidarity represents one of the essential pillars of the cohesion policy and of overall policy-making in the European Union. In the Constitution (Article 1.3) cohesion is identified as one of the main objectives of the Union: “To promote economic, social and territorial cohesion in addition to the solidarity among the Member States.”21

1.4

The concept of cohesion

The concept of cohesion provides a response to the question of “what” is the objective of the policy. The thesis of this volume is that cohesion ultimately represents a political goal tied to the pursuit of a more egalitarian and just society capable of creating opportunities for all EU citizens, no matter where they live. This goal has served to change since 1986 the course of European integration by expanding its objectives and making it possible to define political union as the ultimate goal of the integration


process. In a parallel manner, cohesion has also helped to change the significance of the concept of economic convergence. Convergence is no longer only an economic process. It is instead the process by which a greater form of equity is achieved in European society. The Third Cohesion Report clearly refers to cohesion policy as one of the three pillars of the construction of a European political and economic space in addition to the Single Market and Single Currency: It is worth recalling that cohesion policy – one of the pillars of the European construction together with the single market and the monetary union – is the only policy of the European Union that explicitly addresses economic and social inequalities. It is thus a very specific policy involving a transfer of resources between Member States via the budget of the European Union for the purpose of supporting economic growth and sustainable development through investment in people and in physical capital.22 The political importance of cohesion policy is associated with its goal of providing for a more just and cohesive Union through budgetary transfers from the richer to the poorer areas through a financing mechanism that is formally controlled at the European level by the Commission. As we will argue throughout this volume, the EU’s cohesion policy has always been controlled from the very beginning in 1989 to the present day on the basis of a Community approach and not on basis of an inter-governmental governance process. If the first concept (cohesion) represents the political objective, the second concept (convergence) is the means by which the political objective is achieved. Convergence provides the answer to the question of “how” cohesion is achieved, and it becomes manifest as the socio-economic differences between countries and regions belonging to the European Union decline over time. If socio-economic convergence does not take place, then the political objective of cohesion cannot be realized. In other words, cohesion is the overall outcome of the process of convergence. Over the medium to long-term, convergence is not sustainable if there is not a parallel process of integration. The third concept of integration refers to the construction over time of, in the case of Europe, the supranational institutions in the form of new institutions (i.e., the need to engage in institution building) and the adoption of new rules that permit the underpinning of the process of convergence and the achievement of the objectives of cohesion. Integration responds to the question of “when” and the response requires a long period of institution building and adjustment. The central element of integration is the building of European-level institutions capable of engaging in decision-making and producing adequate institutional outputs. According to our conceptual scheme, it is not


possible to pursue the political goals of cohesion without strengthening over time European-level institutions and policies. Figure 1.1 presents the three concepts discussed above and the four elements that distinguish their evolution. Cohesion represents a political objective that is defined by the realization of greater equality and equity in society as measured within the territorial units of the Union. In the last analysis, cohesion needs to be evaluated as a political goal. The question that has arisen over the discussion of the future budgetary proposal for 2007–2013 is whether it is politically acceptable to maintain cohesion as a primary goal of European policies or should it be substituted by other economic goals, such as overall national economic growth and job creation, without a specification of where in terms of territory the EU should target financial support. That debate still has to be concluded, and it will have a significant impact on the fourth round of Structural Funds interventions and the prospects of further enlargement of the European Union.23 Convergence, instead, is a process that is put into motion by cohesion policy. The goal of convergence is to reduce the socio-economic disparities that exist between different parts of the Union and achieve greater well-being throughout European society. Convergence has the objective of reducing disparities not by reducing the levels of the most developed (i.e., by downward convergence), but by promoting the economic development of the less well-off areas through upward convergence so that the less developed areas grow faster than the more developed areas. To measure upward convergence longitudinally empirical indicators need to be used. And the actors that are in a position to promote convergence are those socio-economic forces active in the economy. In the last analysis, convergence is produced if the

Cohesion

Convergence

Integration

Political objective

Policy process

Institutional architecture

Objective/rationale

Equality/opportunity

Well-being/ Quality of life

Efficacy/ Institutional performance

Principal dimension of analysis

Political

Economic

Temporal

Civil society

Entrepreneurs/ markets

Representative institutions

Concepts Definitional components Nature/essence

Principal actors

Figure 1.1 Definitional components of the concepts of cohesion, convergence and integration


cohesion policy is in a position to increase the added value of investment activities undertaken by private entrepreneurs and public bodies to boost socio-economic activities. Finally, the third concept of integration is defined in institutional terms given its relationship to the institutional architecture of the EU. Its objectives are measured in relation to the efficacy of EU institutions in pursuing the political mandate associated with cohesion and the capacity to do so in terms of institution building and institutional performance at the European level but also at other levels where the policy is decided and implemented. The concept of integration is also composed by the relationship established between the formal and informal rules that govern the policy process. The analysis of integration can be measured longitudinally in terms of the new institutional arrangements and rules that are created to manage particular policies and oversee their implementation by EU level institutions. To measure the level of institutional change it is important to look at the participants in the policy process and the role that they play. With regard to cohesion policy the number of participants has expanded, their roles have changed, and the impact of the policy has increased. Therefore, it is no longer possible to look at only one set of actors at one point in time. Instead, we must be able to account for the entire policy process and analyze the role of all of the relevant actors over time in order to understand the overall achievements (or failures) of the policy and how it has changed from one planning cycle to another. In synthesis, Figure 1.2 illustrates the relationships and interactions among the three concepts. In our conception, cohesion is the ultimate political objective that is achieved through a process of socio-economic convergence and institution building at the European level. Cohesion without convergence remains an abstract political concept that is not attainable. In the long run, cohesion becomes possible when the political actors are in a position to create the formal institutions and rules that permit the necessary decisions to make cohesion a concrete reality. Thus, cohesion is achievable at the European level as long as EU institutions are entrusted with the pursuit and achievement of the policy goals. At the same time, cohesion as a political concept can operate to stimulate the necessary political initiatives and decisions to create the policies capable of achieving convergence and integration. In our conception of cohesion, if the policy were returned to the national level, it would not at all contribute to the achievement of cohesion and political integration for the wider European Union. The operationalization of the concept of “cohesion” into a European policy was designed to achieve the convergence of socio-economic wellbeing, economic growth, investments and job creation in the less developed areas toward the European mean. Such a policy was expected to produce, over time, a more cohesive and integrated economic, social and

12

European Unification

Cohesion Integration process

Convergence Process

Economic dimension * * * *

Wealth produced Redistribution of wealth Growth Management of the economy –Inflation and interest rates –Debt –Deficit

Figure 1.2

Social dimension * New employment profiles * Reduction of unemployment * Dimension of social exclusion * New poverty * Equal opportunity * Social inclusion of immigrants

Dynamics of the cohesion model

Political dimension * Institutional decentralization * Devolution of decisions * Institutional performance * Quantity and quality of public goods * Vertical interaction among institutions * Horizontal interaction among institutions

Institutional architecture outputs * European Commission [new functions and decisionmaking rules] * European Court of Justice [impact of rulings] * European Parliament [representativeness and functions] * Committee of Regions [representativeness and functions] * European Council [acceleration of decisions] * Intergovernmental conference [reform of treaties] * European Central Bank [manage common currency]


political system. In other words, since the SEA the European Union has continued to move toward greater economic integration and monetary union, and this commitment has been accompanied by the attempt to create new institutions to consolidate the political and socio-economic gains achieved. According to our perspective, “cohesion” represents one of the fundamental elements that permit the expansion and consolidation of the EU into a wider and deeper organization of member states capable of engaging civil society in a programme of deepening and widening the European Union. Without cohesion as a basic EU concept and goal, the most recent enlargement (and even future enlargements) of the European Union would have been much less appealing and important to the new member states. Cohesion is the policy that lifts considerations in the Union above the mere calculation of “just retour”. Instead, cohesion places emphasis on the creation of a more just European Union that is concerned with economic growth but that it is equally committed to making certain that the growth is spread out more evenly among it component countries and regions. The process of economic and social convergence at the heart of the EU’s cohesion policy has been particularly important during the last decade given the application of twelve countries to join the European Union. Ten have already joined,24 and since 2000 they have been the beneficiaries of the EU cohesion policies. Subsequent enlargements after 2007 will bring in two other countries (Romania and Bulgaria) with even more severe problems of underdevelopment. The new entrants see in the EU’s economic structural adjustment policy a key reason for wanting to join the European Union and they perceive that the cohesion policy represents an important instrument for improving their chances of competing economically with their European neighbours and improving the socio-economic conditions of their citizens. This expectation also applies to other potential member states in the future, such as Turkey and Croatia. The argument that will be made here is that the importance of the EU’s cohesion policy is not limited to the measurement of the annual transfer of EU funds to individual member-states. Instead, it involves the added impact or value that the policy has had on socio-economic outcomes (i.e., economic growth and job creation), on the political and institutional structures of the Union at large and, in particular, on public policy instruments and approaches within the individual member states – that is, on the system of governance that underpins policy-making and implementation at both the EU level as well as within member states and their regions.

1.5

Governance and cohesion policy

Governance is defined broadly as the interaction between political institutions and civil society in the management of formal public policies. The


concept of governance tries to identify the relevant actors in the decisionmaking and implementation components of public policies that go beyond the realm of the formal government institutions – i.e., national, regional or local governments. In the case of the cohesion policy, important roles in the policy process have been attributed to organized groups in civil society, such as voluntary groups, civic organizations, labour unions, and employer groups.25 Thus, our notion of governance is not limited to only the upward phase of decision-making. Instead, it also involves the important aspects of the downward process of implementation.26 But once policies are implemented, they need to provide a feedback mechanism so that subsequent considerations on the policy (e.g., mid-term adjustment of the policy or a new policy cycle) are in a position to benefit from what has been learned during previous phases. The democratic aspects or objectives operating within a governance system have, from the beginning, been highly relevant to the management of cohesion policy: the achievement of democratic governance was based on the attempt to broaden the participation in the policy beyond the formal national government institutions. For cohesion policy this objective translates into making certain that there is on a horizontal basis a broad inter-ministerial cooperation in defining the policy and assuming responsibility for its correct implementation, and vertically it must also provide for the participation of different levels of government in member states – national, regional, and local – and groups representing civil society in both the formulation and implementation of the policy.27 Jerome Vignon in his preface to the volume published by the Commission in 2001 on governance, argues that the European Union has arrived at a point beyond the ‘substantive rationality’ which characterizes the functioning of national institutions. In his opinion, a strict separation between legislative, executive and judicial branches cannot function at the Community level. EU governance needs, he states, to be founded on the cooperation among these three separate institutions at the European level, but it must also try to maximize the participation of other relevant political and socio-economic actors. Vignon observes that participation in EU policies has to be sufficiently broad and capable of taking into account the great diversity of interests and views that exists within the Community. He concludes that the emphasis by the Commission on the notion of governance is tied to the growing importance of the territorial dimension in Community policies: “It is not by accident that the territorial dimension, which is inter-sectoral by nature and conducive to participation, is imposing itself upon the new European governance”.28 Territory matters, and it is through territorial policies that the EU is in a position to interact directly with a substantial number of EU citizens.29 In the White Paper on Governance the Commission offered the view that the European Union represents a system of multi-level governance30 and in such a system “the real challenge is establishing clear rules for how


competences are shared – not separated; only that non-exclusive vision can secure the best interests of all the Member States and all the Union’s citizens”. How can this general approach defined by the White Paper be applied to cohesion policy? The answer has to be found in the distinction that Hooghe and Marks make in their 2003 definition of “type II” multi-level governance.31 They define type II governance (in contrast to type I governance represented most clearly by federalism) as “one in which the number of jurisdictions is potentially vast rather than limited, in which jurisdictions are not aligned on just a few levels but operate at numerous territorial scales, in which jurisdictions are task-specific rather than general purpose, and where jurisdictions are intended to be flexible rather than durable” (p. 237). Given that in cohesion policy we do not have universal application of the policy but rather territorialspecific coverage, cohesion would fall into the Hooghe-Marks category of “task-specific jurisdiction” where the governance structures “fulfill distinct functions”. However, what is different in the case of cohesion policy is that its “task-specificness” covers all of the EU territory based on a set of criteria that are applied generally to all regions in selecting the participants in the policy. Instead, the examples used by Hooghe and Marks are “function specific” – special districts to manage public utilities (e.g., sanitation districts), transport systems (BART in the San Francisco Bay area), or regional economic basins (e.g., Delware River and Bay Authority or the Chicago Gary Regional Airport Authority). In other words, in the countries from which examples are drawn for task-specific jurisdictions, nothing compares with the coverage, breadth and scope exercised by the EU cohesion policy. The jurisdiction exercised by the Commission and other EU institutions over the participants is more federal in nature, in that it operates on the hierarchy of jurisdiction that recognizes in the Community the higher level of responsibility in formulating and applying the rules associated with the policy.32 This is not the case with regard to special districts cited in the APSR article. Thus, the EU’s experience with multi-level governance in the delivery of cohesion policy represents a different type of multi-level governance to the two types described by Hooghe and Marks. The EU version combines federal and task-specific jurisdictions focussed on the territories participating in the policy. Thus, cohesion policy has a functional specificity in terms of policy area, but its scope is much broader in contributing to the building of the Union in both political and economic terms. In the case of regional policy the territory covered is substantial. As illustrated in the data in Table 1.1 during the first cycle of funding, 1989–93, EU cohesion policy covered 43% of the population through territorialized33 programmes – i.e., in Objectives 1, 2, and 5b where a specific area or territory of a member state was designated as a participant/recipient of the policy. In 1994–99 that percentage rose to half of the EU population. For the period 2000–2006 overall coverage has been reduced by 10% to ensure the concentration of EU aid to the areas with the severest socio-economic problems.


In 2007 and beyond it is expected that Objective 1 will cover approximately 25% of the existing population of 25 member states. The Commission’s proposal for the old Objective 2 programmes will no longer be based on interventions in specific sub-regional zones suffering from deindustrialization, de-population of rural areas, or marginalized urban areas. Instead, the focus will be on regional competitives and employment. For the current 2000–2006 planning period, the EU’s territorialized component of the cohesion policy covers 22% of the population with Objective 1 programmes. Greece is the only country where Objective 1 programmes still cover the entire country while in Austria, Objective 1 covers only 3% of the population (see Table 1.2). Only three countries – Luxembourg, Denmark and Holland – do not have any Objective 1 programmes during the current cycle. Table 1.1 EU population covered By territorialized cohesion policies, 1989–2006 and beyond EU population covered by

1989–93

1994–99

2000–06*

2007– ?

Objective 1 Objective 2 Objective 5B Objective 6 Total

22% 16% 5%

25% 16% 9% 0.4% 50.4%

22% 18% – – 40%

25%

43%

* In the 2000–2006 period, the previous Objectives 1 and 6 were merged into Objective 1 and the previous Objectives 2 and 5B were merged into a new Objective 2. Source: ESOCLAB-LSE.

Table 1.2

Allocation per country of Objective 1 funds, 2000–2006

Member states Germany Greece Spain France Ireland Italy Austria Portugal Finland Sweden United Kingdom Total EU

Millions of inhabitants

% National population

16,850 10,476 23,219 1,644 965 19,302 275 6,616 1,076 5,079 5,079 81,368

Source: ESOC-Lab, LSE: calculations based on EU data.

17% 100% 60% 5% 37% 34% 3% 71% 21% 5% 8% 22%

Allocation per capita 238 332 269 216 377 188 180 449 141 272 220 285


An additional 18% of the EU population is covered by the territorialized Objective 2 programmes that address problems of industrial decline, urban decay and rural under-development. The decision of the December 2002 Copenhagen Council to enlarge the Union on 1 May 2004 to ten new members that are even less developed than the previous fifteen members (through accession of the ten new member states the average GDP per capita in the Union dropped by 12.4%) signifies that the EU’s cohesion policy has to remain one of the EU’s major budget items and policy area into the medium to long-term.

1.6

The Europeanized regional policy between 1989 and 2006

Since the adoption of the first Regulations in 1988 for the management of expenditures and the coordination of the Structural Funds, there has been what is termed a strong “Europeanization” drive in the field of regional and local development policies. The Europeanization of regional and local development policies is based on the de jure transfer of the legal (rules and regulations) and financial (definition of budget) responsibilities for the policy from the national to the European level. Radaelli (2003: p. 30) defines Europeanization as the “Process of (a) construction (b) diffusion and (c) institutionalization of formal and informal rules, procedures, policy paradigms, styles, ‘ways of doing things’, and shared beliefs and norms which are first defined and consolidated in the EU policy process and then incorporated in the logic of domestic (national and subnational) discourse, political structures, and public policies”.34 The logic of Radaelli’s definition suggests that, first, the policy needs to be formulated at the European level with all of its associated instrumentation and then it descends to the national level for absorption and incorporation. In reality, it is difficult to separate the EU and the national levels in explaining the birth of cohesion policy, though the attribution of roles in policy-making and implementation has been clear on the basis of the 1988, 1993, and 1999 Regulations. Up until now, very little attention has been paid in the literature to the dual aspects of public policy – that is, the differentiation between policymaking and policy implementation. The latter is rarely discussed, and there are significant gaps in understanding how the policy is made in the first place and then is managed in large and small states or in centralized versus decentralized political structures.35 With regard to cohesion policy, it is possible to clearly identify the different phases in both policy-making (definition of the budget, formulation of the rules and regulations, undertaking the initial planning) and policy implementation (formulation of the operational programmes, specification of the responsibilities of the management authorities, definition of the roles of the social partners, setting out the role of programme evaluation in the verification of outputs, and


spelling out how oversight and control will be operationalized). But what is of interest with regard to cohesion policy is that one finds the Europeanlevel “imprint” in all of the innovative aspects of the policy. Cohesion policy offers an extraordinary opportunity to examine how Europeanization affects the policy process with regard to a policy area that traditionally was national in its origin but which since 1989 has seen the introduction of a new European level in terms of its policy structure and content. Therefore, cohesion policy provides a clear case study of the impact of the Europeanization of a policy on member state responses and behaviour. Another interesting aspect of the cohesion policy is that it does not “fit” into any national model or experience because it represents an addition to existing national regional policies rather than a substitute for national policies. The formulation of the structure and content of cohesion policy was the product of a combination of inputs from the European Commission, national governments, regional actors, and academic experts that came together in the mid-1980s to provide a practical answer to the negative impact that the Single Market was expected to produce for the EC’s less developed areas36 and to the ambitious political objectives written into the SEA. In the historical literature on important watersheds in the life of the EU, commentators are more comfortable in attributing innovations in European policies to British, French or German sources.37 This is not the case with regard to cohesion policy. Yes, the process did begin at the EU level as part of the discussion on the Single Market and Single Currency projects within the Delors cabinet and affiliated academics, but the idea of an integrated approach to the policy was produced by the experimentation with integrated approaches carried out during the first part of the 1980s under an Italian and a Greek Commissioners of DG XVI: Antonio Giolitti (1979–84) and then Gregorios Varfis (1984–89). The formulation of the Integrated Mediterranean Programmes (IMPs) that began in 1986 provided the initial blueprint for what later became known as the “cohesion policy method” – i.e., based on integrated planning and multi-year financial package.38 However, all of these innovations would not have found an appropriate context had the nation states not been struggling with the need to spell out a new role in development policies for regional governments that were beginning to demand an effective voice in policies allocated to them by national constitutions. In other words, it was impossible to territorialize the new cohesion policy without involving the existing regional institutions. This was the case in Italy, Spain and Portugal – three out of the five major countries to be involved in the future cohesion policy – during the 1980s. Therefore, at the end of the 1980s cohesion policy provided an opportunity for different institutional actors – the Commission, member states, and regions – to realize their political objectives through the creation of a new policy that did not


fit well with their pre-existing practices but which provided a greater promise in meeting immediate policy needs and longer term prospects of socio-economic development. At the European level another major change was being produced by the creation of the Single Market. The challenge posed by the Single Market allowed the Commission to fully assume the responsibilities transferred to it by the SEA; national governments on the periphery were given access to the financial resources necessary to counter the economic shock that was expected to be produced by the Single Market; and regions were empowered to become involved in a policy process that allowed them to fulfill their constitutional responsibilities and have a say in determining their response to the challenges posed by the realization of the Single Market.39 The new 1988 ERDF Regulation (and subsequently that of the ESF, FIFG and EAGGF-Guidance) transferred to Brussels the responsibilities for rule making and the allocation of resources in the implementation of the Community’s cohesion policy. This Europeanization of policy-making in the field of regional development did not necessarily mean that national regional policies would have to be eliminated.40 If we look at the amount that member states still spend on state aids to industry and other economic activities, it significantly overshadows the amount of aid that goes to their less developed areas, especially in non-Objective 1 countries, through EU funding. The objective of cohesion policy was to add a European dimension and level to already existing national development policies. By providing European financing to existing national funds in supporting regional development policies,41 the expectation was that policy would be in a position to deliver a substantial “economic investment shock” that would stimulate a positive response from the less developed economies, induce them to undergo a profound restructuring and enable them to achieve economic take-off.42 The Europeanization of a policy area did not imply that the member states were no longer in a position to influence policy choices and implementation. On the contrary, member states continued to exercise a central role in a number of phases in the process, but the initiative and the formulation of the basic rules – that is, rule making – by which the cohesion policy was to be implemented effectively was moved from the national to the European level with the implementation of the Single European Act and the definition of the new regulations in 1988 for the operation of the Structural Funds. The first phase in the formulation of cohesion policy is necessarily associated with the preparation of the regulations governing the management of the policy. Every time a new policy cycle is initiated it is necessary to redefine the rules under which the four Structural Funds operate. Thus, member states are in a position to provide input into the definition of the


new regulations during the deliberations on the Commission’s proposal within the European Council. Once each member state has made its views known, the decision is taken as a whole – i.e., it is a collective decision of all of the member states that subsequently has to be ratified by the European Parliament.43 In comparison to the situation prior to 1988, national governments are no longer in a position to exclusively determine on their own the rules by which the policy is formulated and how the policy is to be implemented on their own territory. That function is now shared by a number of European level institutions and where the initiative to propose the contents of the regulations lies with the Commission. A second moment when member states can make their views known is in the formulation of the overall EU budget. It should be understood that individual states are not in a position to determine their own financial allocations with regard to the cohesion budget. Instead, that decision depends on the overall size of the budget as proposed by the Commission and the amount that the Commission earmarks for cohesion policy initiatives. For example, the current Commission presented its proposal for the next 2007–2013 budget on 10 February 2004, and in the proposal it outlined its suggestions in the distribution of the budget across various policy areas and on July 14th, it quantified the amount to be allocated to the next phase of cohesion policy at 336.1 billion €. Once the Commission has made its proposal, member states can discuss the proposal and ask the Commission to make changes or ammendments to its initial draft. However, in turn, the Commission can accept or reject the request and then ask the Council to vote on its revised proposal. Once the proposal gets through the Council, it then goes to the European Parliament for consideration. What does not happen in the Council or Parliament is the earmarking of the budget for individual countries. The nature of the budgetary process does not allow member states to bargain for their own individual allocations in the area of cohesion policy.44 Once the two parameters of overall size of the budget and the amount allocated to cohesion are decided, then a mathematical formula proposed by the Commission is applied to distribute the money to each member state according to the development objectives (1, 2 and 3) which are operative in each country. The fact that the development objectives and formula for distributing funds is known beforehand makes it possible for member states to workout how much will be eventually allocated to their individual regions, but these sums represent the “outputs” of the policy process rather than “inputs” into the process to begin the bargaining on allocations. Finally, the power to allocate the budget (i.e., deciding how much and when to allocate it) and oversight on how it is spent resides with the Commission and not the member states. In addition, the member states need to receive the Commission’s approval for the CSFs and for the national and regional operational programmes before initiating expenditures


allocated to the programmes. Therefore, the member states are responsible to the Commission on how the allocations are spent, and if problems arise then the member states can be asked to reimburse the amount that was misspent or not spent at all. Where the member states have a significant role to play in determining the allocation of funds is in distribution of Objective 1 funds to national vis-à-vis regional operational programmes. Beginning in 1989 large member states with a significant number of Objective 1 regions (i.e., Greece, Italy, Portugal and Spain) divided the budget for Objective 1 between “national” operational programmes with an inter-regional thrust (i.e., involving more than one region) from those that were more “regional” or intra-regional in focus. The former were controlled from the national level by ministries of the national government while the latter were managed by individual regional governments (Italy and Spain) or regional administrative structures (Portugal and Greece) specifically set-up for this purpose. During the first two CSF cycles the split between inter-regional and regional programmes was approximately 50–50 in all four large countries. In 1999 Italy broke from this tradition by allocating 73% of the funds for Objective 1 to the regions in the 2000–2006 programming cycle. For the other objectives – i.e., 2 and 3 – the entire sums were regionalized. The national government transferred the management of the funds to the regions in order to concentrate on the strategic planning and coordination functions with regard to these two objectives. Thus, the allocation of the funds to finance cohesion policy is not at all based on the exclusive role of the member state. The rules and regulations formulated by the Community over the last fifteen years have allocated to the Commission a considerable role as guardian of the policy, and the budgetary decisions on the nature and objectives of the CSF programme have also been substantially Europeanized from 1989 onwards. What has changed has been the fine tuning of the management, oversight, control, and evaluation functions. Everyone in the process – Commission, national governments, and regions – has learned how to be more efficient and effective in implementing the policy through being engaged in an interactive loop process that has stimulated institutional adaptation and learning. This is amply demonstrated by the role that the Commission’s report, Agenda 2000, had on defining the broad outlines and objectives of the cohesion policy for 2000–2006 and the way member states and regions have been more efficient in the implementation of Structural Funds programmes during the latest period. Given these rules and regulations, it is difficult to argue that the Commission operates as the agent of the member states. Evidence is much more abundant that in cohesion policy it is the member states and the regions that operate as the agents of the principal, as represented by the European Commission. In a principal-agent relationship, if the principal is


dissatisfied with how the policy is being implemented by the agent, there are remedial steps that can be taken by the principal to tighten its control over the agent or to reclaim the resources allocated. Such was the case in 1996 and 1999 when the Commission, through a revision of the regulations, tightened its control over the member states and regions by requiring more systematic monitoring and reporting of expenditures, introducing evaluations as an obligation, and having to certify through independent external agencies the veracity of expenditures.45 If these obligations were not observed, then the member state was liable to sanctions by the Commission. During the current programme cycle the control exercised by the Commission has become even more intrusive by the introduction of the N+2 rule (expenditure of allocations within two years or forced restitution of the non-used portion) and the mid-term evaluation for the purpose of distributing the 4% of the Structural Funds budget held back by the Commission from member state allocations for all Objective 1, 2 and 3 programmes.46 In this last example, each operational programme at the regional and national level has to be independently evaluated by an external actor, and on the basis of this evaluation the Commission has reserved the right to use the 4% of the budget it retained to reward those operational programmes that were successfully implemented and could demonstrate significant impacts and punish those programmes that were not successful in meeting their obligations in producing the necessary outputs and outcomes.47 Why have member states accepted such a carrot-and-stick approach to the implementation of cohesion policy and in the allocation of the cohesion budget within national boundaries? The answer has to be sought in two directions: 1) the need to generate additional resources for the purpose of spurring socio-economic development within member states and an increasingly competitive European market and 2) the need to accept a more transparent and equitable approach to the allocation of Community resources as a whole as part of the European integration process. Since the end of the 1980s, member states have been in a difficult position to finance their own regional development policy or even co-finance their portion of the EU cohesion policy. Many of the countries with Objective 1 regions found their budgets strained in keeping up with the cofinancing commitments that they had made initially in 1988. Upon the formulation of the Maastricht Treaty the truth of this insight was amply demonstrated. Rather than being able to increase government spending to meet co-funding obligations, many national governments had to significantly cut domestic expenditures in order to bring their annual deficits within the convergence criteria spelled out in the 1992 Treaty. In 1992 the Amato government in Italy was forced to abolish the national regional policy for the South and used the available national funds to cofinance (with difficulty) the 50% level necessary for the cohesion policy’s


national and regional operational programmes. In the four “cohesion” countries – Greece, Ireland, Portugal and Spain – the level of co-financing from the EU reached 75% of total expenditures, but even in these cases the national governments were hard pressed to come up with their additional 25%. Spending on regional development in the four less developed countries did increase dramatically – in some cases it reached over 5% of GDP – but this was largely due to the money transferred to national coffers from Brussels. We should not forget that in 1993 the Cohesion Fund was created to relieve the four cohesion countries from the additional burden of using the national budget to finance other necessary infrastructural and environmental projects. In the case of Cohesion Fund projects member states could request the Commission to finance up to 80% of the total cost of the project. Thus, cohesion policy has provided an invaluable source of funding for investments necessary for member states to effectively compete in the Single Market. Without these funds, less developed countries would have been at the mercy of wealthier member states. The second motivation is that in a democratic and open society where countries and regions are involved in a constant series of interlocking negotiations and interactions at the EU level it is difficult to justify the less than optimal use of resources. On this basis it was impossible for the member states not to accept external inspections, evaluations and the monitoring of expenditures. This was not politically possible due to internal political reasons and external peer pressure. Which member state could argue that it needed to keep its administration of Community funds hidden from public scrutiny and evaluation? Such an attempt is even more difficult to sustain in a system of governance when a multiplicity of actors are involved. Multi-level governance practices associated with cohesion policy have helped to open-up the policy process to much more public scrutiny than had ever been the case in the conduct of national regional policy and that movement has helped to redefine the rules and procedures associated with public policies within the European Union. The movement of development policies to the European level helped to usher in a system of “multi-level” and “multi-actor” governance based on formal rules and explicit forms of control. As argued above, the EU’s cohesion policy is not determined by a single actor (the nation state) nor by a duopoly represented by the Commission and national governments. Instead, the cohesion policy is based on a network system of actors (European, national, regional, local and representatives from civil society) and interactions that are governed by a hierarchy of rules (EU regulations, national laws, regional and local legislation, and the procedures of interest groups and voluntary associations) that make possible their participation in the various phases of the policy process. What multi-level and multi-actor governance structures also achieve is the distribution of responsibilities among the various stake-holders in the policy.


The exact functions carried out by each level below that of the European Commission depends to a great extent on the institutional structure of each member state. The role of regional and local actors is more pronounced in regional or federal systems, as is the case in Italy, Spain, and Germany. But the generalization holds also in some highly centralized systems such as Greece where since 1986 the country enjoys (or was constrained to provide for) the existence of “administrative” regions to manage European regional development programmes (first the Integrated Mediterranean Programmes – IMPs – and then cohesion policy) and the mobilization of socio-economic groups to broaden the consensus behind development policies. In contrast, centrally dominated systems continued to exist in Portugal and the UK during the first two planning cycles. In the UK the creation of the two regions – Scotland and Wales – served to devolve to the regions responsibility for cohesion programmes, but in the other cases in the UK the management authorities were strictly controlled by national ministries and agencies. In other words, where functioning regional institutions were not operative, there was a lot less of multi-level governance applied to the operationalization of the cohesion policy. Portugal adopted a similar decision with regard to its two island regions – Madeira and Azores – while on the continent it created regional coordination commissions to manage the regional operational programmes. However, for both national and regional programmes consultations on priorities were open to large municipalities (large metropolitan areas in the region, such as Lisborn, Oporto and Faro) or to the association of municipalities in representing small and medium sized cities, but the form of consultation remained limited vis-à-vis those developed where regional governments were operative.48 In Ireland up to 2000 the cohesion policies were administered centrally by the national bureaucracy without going through regional operational programmes or commissions. But all of that changed at the beginning of the third CSF cycle.49 In 1999 the Irish government set out to create eight regional boards and two management bodies for the implementation of the operational programmes for the areas continuing under Objective 1 (West, Midlands and Border) and those in transition out of Objective 1 (South-east, South-west, Dublin/Mid-east, and Mid-west). The multi-level governance model adopted for the management of cohesion policy in Ireland significantly opened up the process to the participation of interest groups and other representatives of civil society. Since the second planning period, there has been a growing emphasis in the CSFs on the mobilization of socio-economic forces at the national, sub-national and local levels in both decision-making and implementation. Development is no longer perceived as the exclusive responsibility of the public sector. Now, the private sector is being mobilized to participate in the formulation of the development priorities and implementations of the programmes.


Thus, the Community acquis with regard to cohesion policy is not based on a policy system that requires the existence of directly elected regional governments. Instead, the acquis is based on rules and regulations that require the involvement of different levels of political representation (national, regional, local depending on what exists within each member state) and different sectors of society (business organizations, trade unions, environmental groups, farmers’ representatives, consumers, women’s groups, etc.). Once again, the actual groups involved in the process depends on their representativeness in civil society and the willingness of the programme managers to involve them in the process. It is this interaction between different institutional levels and societal actors that has to be guaranteed from the point of view of the EU and not the specific institutional characteristics of politically autonomous subnational representative structures. The reason for insisting on this multi-level and multi-actor logic in the operationalization of EU cohesion policy is the belief, on the part of the Commission and a majority of member states, that the mere expenditure of public resources will not be sufficient for the mobilization of development. Instead, the public allocation of resources must, in the final analysis, be able to mobilize investment from the private sector to create a multiplier effect that can sustain in the medium to long term the conditions for endogenous and sustainable development. Without this public-private partnership and interaction, socio-economic development cannot be sustained over time nor can less developed areas be weaned away from dependence on a constant stream of financial subsidies to non-competitive firms in the region. If the development policy does not function to create a public-private partnership, then the consequences for the region are clear: sooner or later the allocation of funds will be trimmed back given the lack of impact.50 The rationale of the EU policy is not a side-payment designed to sustain the investment in less developed regions indefinitely. It is not realistic to believe that an area can continue to benefit from financial subsidies designed to spur socio-economic growth when that growth and change are not forthcoming. The objective of the cohesion policy is not to create a condition of financial dependence but of socio-economic growth, and this is why monitoring and measuring socio-economic impacts of the policy are so crucial in the cohesion policy process.

1.7

Cohesion policy, agriculture and the impact of enlargement

In this context, we would argue that the cohesion policy has clearly reflected its political goals and that the transfer of resources from resourcerich to resource-poor states underlines the essential political objectives and the commitment to European integration. Member states and regions are


covered by the cohesion policy when they meet the empirical criteria for eligibility; once they have gone beyond that defined level, they no longer qualify for support. Their contribution to the EU budget then goes to aid those member states and regions with continuing social and economic problems. In both its objective and procedures, the EU’s cohesion policy has been radically different from agricultural policy. Entry into the Agricultural Fund Guarantee section (or price support mechanism where the bulk of the funds are spent) is not dependent on meeting the criteria of “need”, and one does not “exit” once a certain level of well-being is achieved. In the Agricultural Fund the distribution of payments is not conceived as a temporary or transition system of support but rather as a permanent system of benefits;51 CAP makes no distinction between rich and poor producers; until recently it had no explicit territorial component; implementation is automatic; and there is no attempt at differentiating distribution according to the wealth of a country’s agricultural sector. Nonetheless, in the past, the European Union has continued to allocate more resources to agricultural than to its cohesion policy, as is made evident by the figures presented in Table 1.3. Agricultural Fund expenditure data show how countries have benefited at different levels from agricultural vis-à-vis cohesion policies. Developed countries have received more from Table 1.3 Comparison of expenditures for agriculture and cohesion policies between 1989 and 1999 (MECU) Member States

Belgium Denmark Germany Greece Spain France Ireland Italy Luxemburg Holland Austria Portugal Finland Sweden United Kingdom

1989–1993

1994–1999

CAP*

Cohesion**

CAP*

Cohesion**

5536 5810 22213 10734 14898 30995 7256 23718 18 13112 – 1602 – – 10830

864 430 6431 9161 15086 6942 4901 11872 77 814 – 9461 – – 5329

6764 7668 33660 15832 28136 53432 9944 24951 109 9810 3838 4005 2413 2947 21998

2096 844 21731 17736 42400 14939 7403 21651 103 2616 1441 17629 1510 1180 12981

*EAGGF: Guarantee Section (i.e., price support system) ** Cohesion: Structural Funds + Cohesion Fund Source: ESOCLAB calculations based on data from the EU Commission.


agricultural policy than have the less developed states. In 1999 the countries with the highest allocation of Agricultural Funds were France (23.6%), Germany (14.5%), Spain (13.2%), Italy (11.8%), and the UK (9.9%). Portugal, in contrast, received only 1.7% of Agricultural Fund financing from a total 1999 budget of 39,541 million EUCs. As new member states join the Union, they are gradually integrated into the agricultural price support system. When Portugal and Spain joined in 1986 they were subject to a long transition period before they were able to fully benefit from the Common Agricultural Policy. The Commission has projected that the new member states will initially receive a much lower level of support (approximately 25%) from the Agricultural Fund and that this level will rise to 35% in 2006. Full subsidies on the part of the new member states will, instead, be reached by 2013.52 In compensation, the new member states will receive greater support for the rural development scheme within the EAGGF-Guarantee section initiated by the European Union in 2000 to ease the transition away from price support to rural development, sustainability and greater emphasis on environmental management. In contrast, the transition to full participation in cohesion policies will be much shorter. The Commission has set into place a transitional framework for the 2004–2006 period that is based on the operating rules and procedures of the Cohesion Fund rather than the Structural Funds. Full integration of the new members in the cohesion policy as formulated through the programming method will take place after 2006 when the new programming cycle begins, but one third of the resources for the central and eastern European countries will come from the Cohesion Fund, thereby taking advantage of the familiarity that will have been built up with the operation of the Cohesion Fund during the 2004–2006 period. It is expected that the next 2007–2013 budget will bring spending for agricultural policy into line with the cost of cohesion policy, given the acute problems faced by the new member states in fully integrating into the single market. After 2006 the Commission has already suggested that in an EU of 25 member-states Objective 1 regions should be restricted to 25% of the population. Assuming that there is no further change in GDP per capita figures between now and 2005 (which now seems to be highly unlikely), the present projection is that sixty-eight regions in the enlarged EU will qualify for continued Objective 1 support and thirty-two of those will be located in the existing EU15 member states. As Table 1.4 suggests taking into account the present fifty-nine Objective 1 regions without any change in the standards for qualification based on the 2000 figures, eleven regions would already have exited leaving forty-eight still qualifying for aid. In an EU of 25 member-states the total would be raised to sixty-seven and thirty would still be from the original fifteen member states. In an EU of

Impact of enlargement on the number of Objective 1 regions among EU15 based on 2000 GDP per capita in PPS

Current Objective 1 regions (2000–2006)*

In EU15 = 100 in 2000 PPS € 22,603

59 59 81 81 22 22

48 48 68 68 18 18

Number of regions Below 75% threshold Belonging to EU15 Population in millions Belonging to EU15 Percentage population Belonging to EU15

In EU25 = 100 in 2000 PPS € 19,661

In EU27 = 100 in 2000 PPS € 18,530

67 30 116 47 26 12

68 18 122 24 25 6

Source: Second Progress Report on Economic and Social Cohesion, Brussels, 30.01.03, COM(2003)/4, Table 6 as elaborated by the ESOC-Lab, LSE. * The designation of the current Objective 1 regions was carried out on the basis of GDP p.c. figures in PPS for 1994–1996.

Table 1.5

Annual GDP growth in four cohesion countries, 1988–2002 1988

EU 15 Greece Spain Portugal Ireland

4.2 4.3 5.1 4.0 2.1

Source: EUROSTAT.

1989 1990 1991 3.5 3.8 4.8 6.4 6.0

2.9 0.0 3.8 4.0 6.3

1.5 3.1 2.5 4.4 1.4

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1988/ 2002

1.3 0.7 0.9 1.1 4.2

–0.4 –1.6 –1.0 –2.0 1.4

2.8 2.0 2.4 1.0 5.8

2.4 2.1 2.8 4.3 9.9

1.6 2.4 2.4 3.5 8.1

2.5 3.6 4.0 4.0 11.1

2.9 3.4 4.3 4.6 8.6

2.6 3.4 4.1 3.8 11.3

3.3 4.3 4.2 3.7 10.1

1.6 4.1 2.8 1.6 6.2

1.0 3.8 2.0 0.4 6.9

2.2 2.6 3.0 3.0 6.6

28

Table 1.4 figures


27 members the total number of regions qualifying for Objective 1 status would increase only slightly to sixty-eight while only eighteen would come from the present fifteen member states. Under the EU25 scenario, Italy would lose two more Objective 1 regions – Sardinia and Basilicata – but would maintain Campania, Puglia, Calabria and Sicily. Portugal would lose two regions – Madeira and the Algarve – and keep Norte, Centro, Alentejo, and the Azores. Spain would keep Castilla-La Mancha, Galicia, Andalucia and Estremadura and would have to give up Asturias, Valencia, Castilla-Leon, Murcia and Ceuta y Melilla – i.e., all of its Mediterranean regions down to Andalucia and its two island regions in the Mediterranean and Atlantic.53 None of the Irish regions would continue to qualify and nor would West Wales, Merseyside, or South Yorkshire. Only Cornwall & Isles of Scilly would still qualify in the U.K. Germany would be reduced to sub-areas in the current eastern laender such as Magdeburg, Dessau and Chemnitz. Greece could cling to the regions of Crete, Northern Aegean, Western Macedonia, Thrace, Eastern Macedonia, Peloponnese, Ionian Islands and Epirus. Instead, it would lose four of its current Objective 1 regions in Attica, Central Macedonia, Southern Aegean, Continental Greece. Finally, Austria would see Burgenland being phased out of Objective 1. Such a restructuring of Objective 1 regions would leave room for the new areas from Central and Eastern Europe to benefit from EU funding. The 2000–2006 budget provides for the transition out of Objective 1 of the regions of Molise, East Berlin, Cantabria, Lisbon-Tegus Valley, Northern Ireland, Scottish Highlands and Islands, Flevoland, Corsica, Southern and Eastern Ireland, Valenciennes, and Hainaut with 3.97% (or 8.41 billion €) of the budget. After 2006 the Commission has earmarked 8.38% of the budget for the seventeen or more regions that would no longer qualify for Objective 1 support due to the statistical impact produced by the entry of ten less developed countries into the Union. Under these conditions it will not be possible to extend the expenditure limitations imposed at the 1999 Berlin European Council meeting of the ceiling for appropriations of 1.09% of GDP. The Commission is proposing to raise that limit to 1.14% of GDP for the 2007–2013 budgetary cycle. This is one of the many difficult issues that needs to be discussed and resolved during the negotiations in 2005 between the Commission, Parliament and member states. Whatever the response will be, the activities of the cohesion policy in the next planning period will be measured against the record achieved during the 1989–2002 period. As illustrated by the data in Table 1.5, during this period the four cohesion countries have grown on average at a higher annual rate of growth than the average for the EU 15 member states. The ability to sustain such a high level of economic performance would have been deemed highly unusual or unlikely prior to 1989 for peripheral economics, but after 1989 it has become a common occurance. In the volume we will look at


whether this result can be attributed to the operations of the cohesion policy. The results do raise some interesting questions about the ascendency of the periphery within a context of ever increasing competitive European markets and whether the growth of the cohesion countries is sustainable over time.

1.8

The structure of the volume

The following volume is structured into six additional chapters that cover the important aspects of the EU’s cohesion policy from an interdisciplinary perspective. Where possible empirical data on socio-economic conditions on EU regions will be used to document certain analytical points and conclusions. Chapter 2 presents a detailed discussion of the revolutionary principles and features of cohesion policy when compared to the Community’s pre-1989 regional policy. The chapter presents data on the financial support available for regional policy between 1975 and 1988 and the three cycles of the Community Support Frameworks: 1989–1993, 1994–1999 and 2000–2006. Chapter 3 looks at the impact of cohesion policy on the policy-making and implementation process and the institutional response that has been generated from the member states and regions participating in the policy. Four aspects have been very important in structuring the member states’ and region’s institutional response to the dictates of cohesion policy. They are: “institution building” – i.e., the creation of new institutions where they did not exist, such as regional administrative structures in centralized state systems; “institutional capacity” – the increase in the ability of existing institutions to undertake new functions and processes in fulfill their obligations in the new integrated planning approach and in interacting with nongovernmental stateholders in the development process; “administrative capacity” – need to increase the efficiency and effectiveness in the administration of policies (managing policies, providing oversight and carrying out evaluations of the policies) on the part of governmental administrative institutions; and “multi-level and multi-subject governance” – interacting with different institutional levels and different sets of socio-economic groups in the formulation and management of policies. Chapter 4 provides an empirical statistical examination of the convergence hypotheses with regard to the Union’s Objective 1 regions from 1981 to 1999. The chapter will test whether convergence has taken place in Objective 1 and non-Objective 1 regions after the cohesion policy began to be implemented (i.e., 1988–1999), and compare the rate of convergence with the previous period, 1981–1988, when the cohesion policy was not in place. Analyses will also be presented on what has happened in the EU’s Objective 1 versus non Objective 1 regions in terms of the rate of unemployment and activity rates.


Chapter 5 moves from the EU-wide to one member state, Italy, to analyze what has happened in the Mezzogiorno, given that it has demonstrated some of the lowest rates of convergence in all of the European Union. Here, we will look at the impact of “softer” variables such as institutional capacity, social capital, and organized crime on regional institutional and socioeconomic outcomes. Chapter 6 delves into the subject of the ten new member states and their ability to effectively use the cohesion policy to accelerate socio-economic growth. The comparison will be presented within the eight Central and Eastern European (CEECs) and the two Mediterranean countries. Attention will also be paid to the two countries that are continuing to negotiate with the EU for future membership and to Turkey which still has to open negotiations. Will the entry of these new member states change the fundamental nature of cohesion policy or will the policy also be able to incorporate these new members within its traditional objectives? Chapter 7 concludes the volume with a consideration of the impact of the deliberations of the European Convention and the formulation of the draft Constitution on cohesion policy and multi-level governance. The question of immediate concern to the regions is tied to their desire to have a greater voice in EU deliberations, but from the point of view of this volume the deliberations of the European Convention are an example of the process of integration described above: the creation of new institutions and institutional relations in order to consolidate the achievements made through existing EU policies. For the regions the EU Constitution is important in that it sets out to create a new institutional framework for the pursuit of cohesion and other socio-economic policies designed to deepen the Union, and for the Union the Constitution has been important in reiterating the EU’s commitment to the policy during the next budgetary period, 2007–2013. The chapter concludes with an analysis of the future of cohesion policy as presented in the Commission’s February 2004 budgetary proposal for the next planning period, the conclusions of the Third Cohesion Report, the speeches of prominent members of the Commission, and the Commission’s 14 July 2004 proposal for the next round of Structural Funds. In summary, the volume attempts to highlight the socio-economic as well as political impact of cohesion policy on the structure of decisionmaking and implementation as well as on the political considerations involved in the constitutionalization of the European Union. From a methodological approach the volume provides a unique analysis of the scope and impact of cohesion policy that is not bound by the restrictions of any one academic discipline or methodology. In our opinion, a multidisciplinary approach is vital in order to understand the operation of what is considered to be the most important policy in building the outline of Europe’s future.


The volume draws data from a variety of national and European sources. Most commonly they come from Eurostat or national statistical agencies, such as Istat in Italy, and much of the data has been re-elaborated for use during the research activities undertaken by the LSE’s Economic and Social Cohesion Laboratory (ESOCLAB). The Laboratory has undertaken a number of studies for the Commission, Committee of Regions, national governments, regional authorities and local governments on various aspects of the EU’s cohesion policy. Some of these studies have been used to verify certain outputs and outcomes during various phases of the policy while other have been conducted for the purpose of evaluating particular operational programmes. An additional source of information for the current volume has been the author’s direct involvement with important phases in the development of cohesion policy at the European level as researcher, as consultant to regional governments, and as an appointee by the Italian national government to the committee on Structural Funds and the ESDP of the Council of Ministers. Thus, the perspective provided in the volume is not only that of an external researcher but also of a participant-observer who has had close contact with many of the relevant actors in the multi-level process that has been used to manage cohesion policy in the European Union.

2 The CSF Revolution: The Origins and Structure of EU Cohesion Policy

2.1

Introduction

The Treaty of Rome of 1957 which established the European Economic Community (EEC) contained in its preamble a broad goal of ensuring the harmonious development of the economies of the member states by “reducing the differences existing between the various regions and the backwardness of the less favored regions” (EC Treaties, 1987: 119). The goal was restated in Article 2 of the Rome Treaty through which the member states formally pledged to promote “the harmonious development of economic activities” throughout the Community. However, in a real sense, these statements were expressions of a goal in search of a policy given that no specific regional development policy was part of the Rome Treaty nor, as a consequence, was there any provision in terms of institutional machinery or specific funding to fulfill that goal. The institutions that were designed to have an impact on regional disparities were the European Investment Bank (EIB) to provide low interest loans for national government to undertake infrastructure projects and the European Social Fund (ESF) to provide aid to immigrant workers. Regional policy was not yet considered to be an appropriate policy for the Community. At the time, regional policy was strictly in the hands of the member states and no thought had been given immediately before or after the signing of the Rome Treaty to moving the responsibility for the policy from the national to the European level. The reasons for this can be attributed to two dimensions: the first involving the institutional structure and the second to the dominant sectorial approach to policy that reigned at the time. From an institutional perspective, the Treaty of Rome was structured on two horizontal and vertical levels. The first was the interaction among the member states and the second was between member states and EEC institutions – i.e., the Commission, the Council of Ministers and the European Court of Justice. In 1957 no provision was made for the participation of 33


sub-national levels of government – such as the regions, provinces or cities – or groups in civil society in policy-making and implementation. In the Rome Treaty European integration was restricted to economic integration – i.e., creation of the Customs Union – and not explicitly to wider political objectives. Sub-national levels of government or groups in civil society were not considered important in the management of policies for agriculture, mobility of the workforce, trade and competition. The other dimension that impeded a new approach to regional development policies was that EEC interventions were strictly sectorial in nature and the procedures followed in implementing these policies were monopolized by the national governments. The political developments that saw the imposition of a French veto on the passage from the first phase of integration – emphasis on the Tariff and Customs Union – to the second Single Market phase prolonged into the 1970s and 1980s the emphasis on the sectorial approach. Even after the creation of the European Regional Development Fund (ERDF) in 1975, no change in role on regional policy was formulated for the Commission, aside from providing funding to national government regional development schemes. Looking at the choices made by national governments in operationalizing regional development objectives, it is clear that during the 1950s and 1960s the emphasis was on the creation, development and protection of basic industries – such as coal mining, steel manufacturing, atomic energy plants, shipbuilding, etc. – connected to the industrialization process. Equally important was the protection of these industries from foreign competition. Efforts were undertaken to improve the infrastructure grid going into remote areas, but this was done more to link those development areas to the rest of the country or the nation’s capital rather than to ease access to foreign markets. The growth pole theory first expounded by Perroux in 1955 served as the rationale for a variety of regional development programmes in different national contexts.1 What was important was industrialization, and the regional policies of the time did not tend to differentiate one underdeveloped area from another based on their endowment of diverse environmental, cultural and historical resources. There was even less concern for the involvement of sub-national institutions and civil society in the underdeveloped areas to create a partnership for the management of the development programmes. During these two decades, national preferences were strongly oriented toward top-down programmes and procedures. A shift in emphasis began to take place in the 1970s once the Customs Union (1969) was in place. The combination of the two oil shocks and the declining competitiveness of European industry vis-à-vis its Asian (especially Japanese) and American competitors contributed to the re-launch of European integration and the development of new approaches to regional policy. At the beginning go the 1980s the Commission launched a series of small-scale experimental programmes in integrated development bringing together

The CSF Revolution: The Origins and Structure of the EU’s Regional Policy 35

financial support from the ESF (European Social Fund) and ERDF in Naples and Belfast and the ESF and EAGGF (European Agricultural Guarantee and Guidance Fund) Guidance section in the Department of Lozer. In 1982 all three funds were brought together to finance IDOs (Integrated Development Operations) to test the feasibility of coordinating all three funds in the attempt to achieve synergies in local development efforts. It was in 1985 with the formulation of the Single European Act (SEA) and the launching of the Integrated Mediterranean Programmes (IMPs) that a radical departure took place vis-à-vis the original approach to regional development policies that had characterized the Rome Treaty. In the SEA the objective of achieving economic and social cohesion became explicit. It was spelled out in Articles 130 a–e and was inserted as a fundamental principle that had to be taken into account in evaluating the overall impact of sectorial policies. In contrast to the Rome Treaty, the SEA provided the legal basis for a new approach to regional policy that was structured on the combined resources of the three existing Structural Funds (ERDF, ESF, and EAGGF-Guidance section), providing for the coordination of the interventions undertaken by the three Funds, and giving the Commission the power to formulate the rules and regulations for the management of the development programmes. In retrospect, it is clear that the implementation of the SEA provisions on socio-economic cohesion effectively Europeanized the bulk of regional development policies in the member states. The reasons for this is that in a number of member states the national government had ceased to support regional development policies (UK) and a number of national governments were no longer in a position to exclusively finance such schemes (Italy, Spain, Greece, Portugal, and Ireland). In addition, some member states (Belgium, Italy, France, and Spain) had set out to create sub-national institutions to which responsibility for the implementation of development policies had been allocated. Thus, by the mid-1980s national governments were no longer the exclusive arbiters of regional development policies within their borders. This fact might suggest that it was easier than expected to share the responsibility for cohesion policies with the Commission because in a number of pivotal countries the national government had already lost control of this policy area in relation to the regions. What was still missing was the right and opportunity for the regions and other expressions of subnational government to be represented at the European level. That gap was closed with the provisions of the 1992 Maastricht Treaty creating the Committee of Regions and in the practical ramifications of the coming into effect of the Single Market in 1993. Thus, by 1994 the nature of the institutional process at the European level had completely changed. Regions were no longer impeded from interacting with European administrative and political organs in pursuing their interests. They now had a consultative


input into the formulation of socio-economic policies at the European level, and they had increased responsibilities for the implementation of policy within their territory. The Single European Act came into effect on the 1st of July 1987, and soon thereafter the important elements of the new EU policy approach went into place. The June 1988 Hanover European Council succeeded in resolving the budgetary impasse when Germany assumed a disproportionate burden in financing the five-year budgetary plan that covered the period 1989–1993. In Hanover the EU budget ceiling was established at 1.27% of GDP for the European Community and the financial base for the cohesion policy was set at 0.40% of overall GDP.2 The second important institutional change was the formulation of the new regulations for the operation on an integrated basis of the three Structural Funds: ESF, EAGGF-Guidance, and ERDF. These two innovations opened the way to a completely new approach to regional development policies within the EC based on multi-year integrated programmes that were no longer based on the exclusive role of one institutional level (i.e., the national). Instead, the new regulations required the participation of a multiplicity of levels – i.e., the Community, national, and regional/local levels. The goal was to produce a frame-work programme – defined as the Community Support Framework (CSF) – that would subsequently be translated into multi-Fund operational programmes. The thesis of this chapter is that the Europeanization of EU regional development policy through the adoption of the CSF approach to regional development policies has significantly changed the nature of relations between institutions and has led to the emergence for the first time of sub-national institutions as significant actors. This is true with regard to both the participation in the formulation and implementation of European policies. The change in the approach to the definition and structure of cohesion policies represented a sea change in the traditional approach to regional development policies. Policies were no longer structured in an exclusively top-down manner. They were now in a position to combine both top-down as well as bottom-up characteristics.3 A corollary to this thesis is that in large and medium-sized nation states the new European approach to regional development has had an impact on the reconfiguration of linkages among national, regional and local levels within member states and has reinforced the regional devolution of policies. Since 1989 we have seen some dramatic changes in the internal structure of nation-states. Belgium has moved from a regional to a federal system. Italy has reinforced the autonomy of its regions through policy innovations as well as constitutional reforms. France has begun to devolve substantial powers in the area of regional planning and development. In the UK the existence of EU cohesion policies helped to mobilize support for the first devolved units of government – the regions of Scotland and

The CSF Revoltion: The Origins and Structure of EU Cohesion Policy 37

Wales – created on the heels of the Labour victory in 1997.4 Thus, the importance of analyzing the structure and content of the EU’s cohesion policy is not only tied to an understanding of what happens at the European level but, even more important, to the link between cohesion policy and the evolving internal structure of the member states. This chapter begins with a consideration of the sectoral approach to regional policy introduced by the Treaty of Rome and identifies the important turning points in the formulation of a new approach by the end of the 1980s. Attention will also be placed on the procedural innovations and the new role of sub-national institutions that was made possible by the reform introduced by the Single European Act and the Maastrict Treaty.

2.2 The evolution of regional policy in the EU: an analytical framework Since the Treaty of Rome there has been a change in the objectives, contents and procedures associated with the activities of the Community in reducing regional disparities and in improving the prospects for the less developed regions. In Figure 2.1 we present an analytical framework of how the logic behind regional development policies has changed from how the policy was conceived between 1975 and 1988 once the ERDF began to operate and from 1989 onwards in terms of its policy/planning strategy and implementation instruments. During the first phase of the EEC’s regional policy the development strategy had the following characteristics: • predominance of sectorial objectives and programmes in coordination with those established by national policies; • focus on the entire national territory with expectations that there would be positive spillovers for the less developed regions; • formulation of programmes and projects with single objectives; • articulation of interventions over the span of a single year; • definition of policies through an inter-governmental process linking national governments; • EEC role as one of compensating national governments for what they have done in terms of regional policy. The implementation instruments for the EEC regional policy reflected the overall policy objectives and assumed these characteristics: • minimal involvement of the Commission either before or after 1975 and the predominance of the national administrative apparatus; • use of Community resources to reaffirm the state’s role in regional policy and the imposition of a system of quotas in the bargaining process among member states;


• annual allocation of Community resources according to the quotas deliberated by the member states; • granting of total discretion to the member states in the use of Community resources to pursue regional policy; • definition of the provision of Community resources as “reimbursements” for the expenditures undertaken by the member states for regional development policies; • absence of a role on the part of regional governments or social partners in the formulation or implementation of the regional policy. After this first phase, which lasted for more than a decade, and after the first timid experimentation, the Community’s regional policy drastically changed direction and formed with the redefinition of the Regulations of the Structural Funds a new policy approach. The new approach, as described in the right-hand column of Figure 2.1, defined a development strategy that was significantly different from the previous one. The new policy focused on: • the prevalence of multi-sectorial objectives and interventions for economically lagging regions and those that had undergone deindustrialization as specified in each country’s Community Support Framework; Figure 2.1 Comparisons of national regional policy and EU cohesion policy: before and after 1989 Dimension of the analysis

National regional policy Pre 1989

EU cohesion policy 1989–2006

Policy/Planning Strategy Objectives/policy content Geographic coverage Approach to planning Time span Principal actors Type of impact Implementation Instruments Decision-making Networks Financial criteria Financial allocations Instruments of verification

Sectorial National Sectorial Short-term National Compensatory

Territorial Regional/local Integrated Medium-term Regional/local Synergetic

Bi-level Trans-national Quotas Annual Automatic/no accounting

Budgetary measures Social partners

Reimbursement None

Tri-level Trans-regional Evaluation of needs Multi-annual Evaluation of impact/ semesterly accounting/ inspections/evaluation Additionality Concertation


• identification of the specific regions and localities in which interventions would take place; • formulation of a formal programme that incorporated an integrated approach to planning with the simultaneous pursuit of multiple development objectives; • articulation of the programme over a number of years based on a 5, 6 or 7 year budgetary and programming cycle; • definition of the CSF though the direct participation of representatives from the regions, localities and civil society; • search for synergy in the funding of projects outside of the CSF. As a consequence of these provisions, it was necessary to redefine the implementation instruments for the new regional policy, enriched by the participation of a wider range of individuals and institutions but also by the requirement that new and more rigorous technical instruments be employed based on the following features: • full participation on the part of the Commission through DG Regio through the attribution of specific roles and power (i.e., oversight of budget and programming) and an important and increasing operational role allocated to the regions and local authorities in relation to programme content and operationalization; • increase in transregional cooperation – that is, direct relations among regions within the same country or among other countries in the EU – sharing similar problems and prospects for development – in the search for similar solutions and the exchange of best practices through Community Initiatives (e.g., Leader, Interreg, etc.); • allocation of Community resources on the basis of a definition of needs (in this case, below 75% of GDP/capita) calculated on the basis of comparative well-being across all of the European regions; • fixed and multi-annual allocation of resources to finance the interventions identified in the CSF programme at the regional and multi-regional level; • identification of specific projects within sectorial sub-programmes and their coordination within the overall programme; • transformation of the programme (CSF and operational programmes) into formally binding legal documents whose provisions could be enforced in the courts; • reduction of the discretion of member states in the use of Community resources and the request for an explicitly ex-ante, mid-term and ex-post evaluation of the implementation and the measuring of the socio-economic impact of programmes on the basis of European-wide standards; • co-financing of development projects on the part of member states in the manner that Community funding was added to the funding that


would have taken place without the intervention of European level financing; • inclusion of social partners in the implementation of the new regional policy and the establishment of a partnership between the Community and national and regional officials that was formalized through the creation of management committees that met regularly to oversee the implementation of the operational programmes.

2.3 The shift from a sectoral to a territorial approach in regional development policies As we have discussed above, the Rome Treaty had enunciated a general goal of harmonious development within the Community but for two reasons it did not contain the policy instruments to realize this goal. In the first place, regional development policies were not a Community responsibility but rather a national one. Secondly, the economic assumption was that the creation of a large common market would have eventually eliminated regional differences in levels of growth and well-being. The Treaty made it explicit that the spurring of economic growth would have promoted balanced development by “establishing a Common Market and progressively approximating the economic policies of the member states” (Article 2). The dominant economic thinking of the day shied away from any suggestion that the EEC should undertake a pro-active interventionist development policy, arguing instead that regional disparities would be overcome through the pervasive spreading out or trickling down of growth generated by the functioning of the Common Market. Coherent with this view, the founding fathers of the Community favoured a “vertical/sectorial” approach to the formulation of Community development policies rather than a “horizontal/ territorial” one – that is, focus on individual regions and localities – that would have singled out the problem of disparities in levels of economic development within specific regions. A decade after the Community went into operation, evidence began to accumulate that the economic assumption on which the Treaty was based was wrong: the sectorial policies adopted by the Community to promote development far from being neutral vis-à-vis the issue of regional imbalances ended up producing unfavourable results for the weakest regions (Thompson Report). For example, it has been widely recognized that in the past the Common Agricultural Policy (CAP) has served to increase regional disparities in that its main tool – the Guarantee section of the EAGGF created in 1964 – benefited predominantly the most productive regions capable of sustaining an intensive form of agricultural production that was more common in the central and northern parts of the Community. Similarly, it was argued that the Social Fund, in promoting the policy of free movement of workers from high unemployment to low unemployment areas, did not promote


the development of less favoured regions. Instead, it served to encourage the more skilled and motivated workers to migrate from low salaried areas with high levels of unemployment to more developed areas offering employment opportunities and better wages. In this manner, it was not necessary for firms to relocate to poorer areas given that the workers had an incentive to move to more prosperous areas.5 By the end of the first decade and on the heels of the completion of the Tariff and Customs Union it was no longer politically possible to ignore the negative implications produced by the lack of territorial specificity in Community policies. A first step that was taken at the very beginning to support national regional development programmes was the creation in 1958 of the European Investment Bank (EIB) – the only institution created by the Treaty of Rome with the specific objective of contributing to the goal of a balanced and stable growth in the less favoured regions by providing low interest loans to infrastructure and productive investment projects as proposed by the national governments and private financial institutions. The EIB limited itself to financing infrastructure projects in the area of telecommunications, water and energy projects, and to help the industrial, agricultural and service sector to undertake productive investments. It excluded, instead, the possibility of support investments in the educational and health sector – i.e., loans to build schools and hospitals. According to the rules of the bank, the EIB could not cover more than 50% of the cost of the planned investment. During the first twenty years, between 1958 and 1977, the EIB focused 65% of its loans for regional development projects, and two-thirds of these loans were located in the less favoured areas of the Community. In 1978 the EEC expanded its sphere of activity into the area of development policies by creating the New Community Instrument (NCI) that made available to small and medium sized enterprises a significant source of capital in financing the increase in productive capacity as well as the development of market and technological know-how. In the realm of social policy the European Social Fund began to introduce regionally targeted provisions into its actions. The 1977 revision of the ESF included among its programmatic priorities the development of projects in regions affected by serious problems of long-term unemployment. The geographical concentration of ESF funds was further accentuated in the 1983 revision of the policy (accounting for 40% of its allocation) and again after 1986 following the accession to the Community of Spain and Portugal, when the ESF allocation to the less favoured regions went up to 44.5%. The designation of less-favoured regions included all of Ireland, Greece and Portugal, in addition to Northern Ireland, the French Overseas Departments, the Italian Mezzogiorno, and parts of Spain. The regionalist features in the ESF were also enhanced through its participation in the Community’s experimental integrated programmes, although the Fund’s particular procedures – annual


planning, time table for application, and single-purpose project approach – made it difficult to coordinate its actions with those of the other Structural Funds. By 1975 the creation of a specific regional fund to finance a variety of development projects could no longer be postponed, even if the Rome Treaty had not foreseen it. Part of the motivation for creating the European Regional Development Fund was the expansion of the Community in 1972 to include Denmark, the United Kingdom, and the Republic of Ireland. The entry of the latter was particularly important in bringing to the forefront the need to establish a common instrument that was assigned the task of harmonizing levels of development. But the birth of the ERDF was also solidly rooted in the notion that regional development continued to be predominantly a national rather than a Community concern. The principles that governed the activity of the ERDF during its first four years placed the process of decision-making and implementation exclusively in the hands of the national authorities. The Community was simply limited to the task of providing additional financial resources to member states for the pursuit of regional development policies. In 1979 a report by the European Parliament on how the ERDF was being managed concluded that a “conspiracy of silence” was in place on the part of the Commission and the member states due to the lack of transparency in the purpose and use of regional funds. The veracity of this criticism was in large part due to the view shared by member states that the ERDF was not an instrument to do more for regional development but instead a way of reimbursing the national governments for what they were already doing to favour regional development. Table 2.1 presents the negotiated quotas of ERDF funds that the member states received during the 1975–1984 period. The overall tendency in the Table 2.1

ERDF allocations to EEC-10, 1975–1984 (% of total allocations)

Member states Italy United Kingdom France Greece Germany Ireland Netherlands Belgium Denmark Luxembourg TOTAL

1975–77

1978–80

1981–84

40 28 15

39.4 27 16.9

6.4 6 1.7 1.5 1.3 0.1 100.0

6 6.4 1.6 1.4 1.2 0.1 100.0

35.5 23.8 13.6 13 4.6 5.9 1.3 1.1 1.1 0.1 100.0

Source: ERDF n. 724/75, 214/79, e 3325/80; Eurostat 1985.


annual negotiation process was to distribute the funds among all member states irrespective of their problems with underdeveloped areas. However, the greatest change in ERDF allocations took place on the heels of accession into the Community by Greece. Between 1981 and 1984 Greece was allocated 13% of ERDF expenditures, and as a result the allocations for Italy had to fall from its initial level of 40 to 35%. Similar cuts were made to the UK allocation. France and Germany also suffered cuts in their percentage allocation while the other five member states were able to maintain the relative size of their allocation. While percentage allocations changed significantly only after 1981, the size of the budget did change after 1975. In almost every year after 1975 the allocation of ERDF funds increased dramatically. The data in Table 2.2 show that the initial allocation of 257.6 million ECU for the ERDF increased ten-fold over a decade and, before the Community initiated its cohesion policy in 1989, the ERDF allocation had reached 3.3 billion ECUs, accounting for almost 10% of the EC annual budget. The growing significance of ERDF allocations between 1975 and 1985 placed pressure on the Community to begin rationalizing expenditures and coordinating them with other EEC economic investments. In 1979 a reform of the ERDF was undertaken that modified the Fund’s initial operating procedures. At the beginning of the 1980s the internal operating instruments used to manage the ERDF and the other Structural Funds (ESF and EAGGF-Guidance) were changed in order to enhance their capacity to function as the instruments for the elaboration of a Community regional development policy. But even these changes in procedures did not substantially alter the way national governments used ERDF money given the relative Table 2.2

ERDF allocations from 1975–1987 (MECU in current prices)

Year

ECU

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987

257.6 394.3 378.5 581.0 945.0 1165.0 1540.0 1759.5 2010.0 2140.0 2289.0 3098.0 3311.0

Annual increase – +53.1 –4.1 +53.5 +62.7 +23.3 +32.2 +14.3 +14.2 +6.5 +7.0 +35.3 +6.9

% Community budget 4.8 5.6 4.9 4.6 6.1 6.7 7.3 7.6 7.6 7.6 7.3 8.6 9.1

Source: European Commission, ERDF, Thirteenth Annual Report (2987), COM (1988) 728 10.1.89, p. 65.


small amounts dedicated to Community initiatives. Basically, there was still no legal basis for the Commission to assume a leading role in the planning, management and evaluation of the impact of these expenditures. The need for increasing the accountability of expenditures and the evaluation of the outcomes of the projects being financed forced the Community to undertake another phase in reforming the European Regional Development Fund. These discussions began in 1981 and were not completed until 1988 when the final dispositions for the new ERDF Regulation had been passed. In 1981 the Commission presented to the Council a proposal for the radical reform of the ERDF. On the basis of its study of greater regional disparities,6 the Commission presented two new ideas to the Council: (1) the targeting of 80% of the ERDF on “priority regions” that were to be identified by criteria utilizing a socio-economic index of needs prepared by the Commission and (2) the adoption of the integrated programming approach in the planning and implementation of development policies.7 The proposal not only entailed the formulation of credible multi-year programmes by the member states – including the quantification of objectives and the specification of budgetary responsibilities – but also a change in the relations between EC institutions and member states to permit greater Community involvement as well as participation on the part of sub-national institutions. The proposal proved to be too radical for the Council to accept. As a result, the Council modified the Commission’s proposal in 1984 through Regulation 1787. While the Regulation accepted the idea of requiring multi-year planning at the national and Community levels and referred for the first time to a specific role on the part of the regions in the formulation of regional policy, it did not explicitly retain the criterion of targeting resources on the basis of an objective criteria of need to be formulated by the Commission. Thus, in 1984 the member states pulled back from any commitment to territorially target investments, and instead preferred to continue with maintaining a free hand in determining where investments were to be made. Member states paid lip service to making interventions dependent on multi-annual programmes and involving the regions, but little was achieved in this direction until the Single Market objective revolutionized economic thinking in Europe, especially in relation to issues involving regional policies and development.

2.4 Experimental programmes and the search for a Community regional policy Even though the role of the regions was not formalized in the 1984 regulation, it was enhanced on the basis of the launching of a series of new experimental and integrated programmes. The notion of an “integrated approach” to planning had been examined by the Commission in 1979 on


the basis of the increased conviction that only combined investment efforts on the part of the Community and national governments could succeed in decreasing regional disparities. The first experiments with an integrated approach took place in Naples (1979) and Belfast (1981), but the outcome was less than brilliant. The two pilot schemes consisted of intersectorial programmes for employment, the retraining of workers and providing incentives to local industry. Investments came from the ERDF and ESF, and the management of the interventions was overseen by DG XVI (Regional Policy) and DG V (Social Policy). However, the programmes made no provision for the creation of local management bodies to oversee implementation. That function remained with the national government authorities. In 1981 the Community also began to target small rural areas for experimentation under the EAGGF-Guidance programme in the form of Integrated Development Programmes (IDPs). Three IDPs were initiated in 1981 in the Outer Hebrides (UK), Lozere department (France), and the less favoured areas of Belgium. The IDPs drew resources from all three Funds, but also in this case individual DGs were responsible for management on a separate Fund-by-Fund basis. Thus, prior to 1985 the Community financed twenty-five “pilot projects” to test the practicality of the integrated approach, but in all of these early pilot schemes the institutional reference point remained the national government administrative apparatus as the level responsible for the implementation. Another form of experimentation with the integrated approach was provided by Article 34 of Regulation 1787. This article allowed the Commission to detail a procedure by which integrated operations could be undertaken involving the three Structural Funds. The initiative for such an operation could come from a member state or the Commission and involve any distressed area in the Community. The request had to be supported by a feasibility study and the Community could contribute up to 75% of the programme’s cost. The Commission established general criteria for evaluating the proposals, including the adequacy of local administrative structures and monitoring capacity. An important innovation was introduced by this integrated procedure, and it involved the concept of “partnership” among the Community and national and regional governments. The institutional arrangements to be created could be defined on a case-by-case basis. Following these procedures, thirteen Integrated Development Operations (IDOs) were adopted between 1987 and 1989. However, the most advanced example of the integrated approach was provided by the Integrated Mediterranean Programmes (IMPs). They were the most numerous – 29 in three countries – and financially significant experimental programme ever attempted by the Commission before 1989. The IMPs were funded by a substantial allocation of resources (6.6 billion ECUs). They incorporated a wide range of eligible actions and were


structured into sub-programmes whose activities were territorially specific in the form of individual measures and actions. What was most important with regard to the IMPs was that a new regulation had to be formulated (No. 2088 of 23 July 1985) to allow them to operate, and that regulation became the model for the 1988 reform that was to revolutionize regional policy in the Community and member states from 1989 onwards. The passage of the IMP Regulation represented the culmination of a long series of events that led to a significant reformulation of the Community’s regional policy, even though the programme was to operate in only three of the twelve member states (i.e., Greece, Italy and France). The original intention of the IMPs was to provide support to the agricultural sector in France, Italy, and Greece that was most exposed to the competition from the accession of Spain and Portugal into the Community in 1986. The driving force that led to Regulation 2088/85 was the fear that the two Iberian countries would undermine the ability of the other Mediterranean nations, already members of the EEC, to compete on an equal basis in the field of Mediterranean agricultural products. The IMPs were designed to aid the three member states in undertaking market adjustment measures – a major portion of which were focused on the upgrading of agricultural product lines, the reconversion to new crops, and the termination of production of outmoded or uncompetitive products. Of particular concern was the production and sale of wine, table grapes, raisins, and olive oil.8 During the discussions on the accession to the Community by the two Iberian countries, the Greek government took the lead in requesting that the Community set aside additional funds – beyond those already earmarked in the Community’s three Structural Funds – to help the Mediterranean areas adjust to the accession. Moreover, Greece conditioned its approval of the accession to the launch of the IMPs. This position led to the consideration of two innovative ideas: the first was that the IMPs should consist of a comprehensive set of inter-sectorial actions and the second that a special fund for the Mediterranean countries should be created. Both requests were implemented in a manner slightly different from the way that Greece had initially expected or hoped. The other member states and the Commission with the proviso of creating a special IMP budget line of 1.6 billion ECUs accepted the request for additional Community resources. The remainder of the IMP budget, consisting of 2.5 billions in EIB loans and 2.5 billions from the three Structural Funds, would bring the total allocation to 6.6 billion ECUs. But the most important innovation came in the acceptance by the member states of the Commission’s proposal to require comprehensive and integrated development programmes as the basis for allocating the funds. Thus, in 1985 with regard to the IMPs (and allocations of additional funds to Greece, Italy and France) the member states accepted the principle of the programming approach to be applied to the disbursement of funds, a


position that they had rejected in 1984 given that the year before it had been proposed as applicable to all member states receiving Structural Funds allocations. The creation of the IMPs for the first time broke the predominance of the sectorial approach to policy-making which had characterized the use of the three Structural Funds. With the IMPs the Community for the first time adopted an explicit “integrated” strategy designed to coordinate investments in industry, agriculture, and services with infrastructure development and vocational training, so that Community investment programmes could become cumulative in impact and leverage adequate additional resources to trigger a process of endogenous and sustainable local development. Another innovation introduced by the IMP was the change in the institutional reference point for the operationalization of the programmes. In previous programmes the bargaining, decision-making, and implementation process was monopolized by the national governments. The Community’s role was limited to providing the money concerned, and the implementation of the development projects was left to the national governments through their administrative departments and agencies. The IMPs, instead, introduced a novel institutional principle of partnership in making decisions and in implementing the programmes: it placed for the first time emphasis on the implementation of the programmes by sub-national levels of government and administrative structures. With the IMPs the regional governments became central to the process and, through them, private interest groups were mobilized to support the investment initiatives. In this manner, the regions were called upon to: (1) develop the programmes to be financed, (2) implement the individual “measures” and “actions”9 contained in the investment programmes, and (3) monitor the progress of the programme and evaluate its overall implementation and socio-economic impact at the regional and local levels. A third change introduced by the IMPs was the choice of management structure for the programmes. For each IMP a committee with permanent staff was constituted at the regional level, and the responsibility for overseeing the implementation of the programme was give to a monitoring committee made up of representatives of the regions, national governments, Commission, and representatives of socio-economic groups. This monitoring committee had the legal responsibility for the overall implementation of the programme and had the legal powers to change allocations within the programmes. The IMPs also inserted a requirement that had never before even been mentioned in national or European development programmes – i.e., the need for an ex-ante and ex-post assessment. Prior to implementation, the authorities responsible for managing the programme were called upon to undertake an ex-ante evaluation which would render explicit the expected


outputs (quantification of results) and outcomes (quantification of the impact in terms of an increase in projected GDP, jobs and private investments) produced by the programme. In addition, once the programme was completed an ex-post evaluation was to be carried out in order to measure whether the expected outputs and outcomes had been realized. To carry out these activities, the IMPs provided a small budget for technical assistance so that the monitoring committees could tender to external firms the task of evaluating how the programmes had been carried out and to measure their overall socio-economic impact.10 A fifth and final innovation was the provision of a legally binding contract between the Commission and member states/regions that committed both sides to the provisions contained in the overall programme. No one party to the agreement had the possibility of acting unilaterally to change the nature, conditions, and contents of the programme. In this manner, the changes to the programme were kept to a minimum, and where changes were made they had to be agreed by all members of the monitoring committee. Otherwise, the Community had the right to withdraw the money allocated.

2.5 The keystone to the reform of regional policy: The Community Support Frameworks But the most comprehensive and radical reform of the Community’s regional policy was achieved with the introduction in 1989 of the policy aimed at strengthening socio-economic cohesion as provided by the Single European Act. The goal of creating a Single Market by the end of 1992 re-ignited the debate on the impact of the operation of an integrated market in the less developed areas. A succession of Commission proposals and studies – the White Paper on the Single Market (1985), the Cecchini Report (1987), the Padoa-Schioppa Report (1987), the results of a series of Commission seminars (published in One Market, One Money (1989) predicted that the Single Market would produce an accelerated rate of growth throughout the Community. But there was little agreement on what impact the Single Market would have on the Community’s less developed regions. For Padoa-Schioppa it was clear that the creation of the Customs Union and the gradual opening of European markets in the postwar period had, in fact, decreased regional disparities but that regional disparities began to increase once again in response to the two oil shocks of the 1970s.11 This was, at least, the common sense notion that was also transmitted by the first two Periodic Reports on regional disparities produced by the Commission in 1981 and 1984.12 The two reports highlighted the difficulties in reconciling regional needs with the logic of the market. Notwithstanding these official findings, some voices were raised within the Commission that argued in favour of the development opportunities to be


offered initially by the Single Market and subsequently by the Single Currency in the peripheral areas. These views were argued in terms of the less developed regions’ comparative advantage, unrealized economies of scale, niche markets, and attractiveness to foreign direct investment.13 In both cases, however, the two sides of the argument were in favour of putting into place a specific and incisive policy for overcoming regional disparities and accelerating the growth of the less developed regions. The 1986 Single European Act specifically committed the Community to strengthen its “economic and social cohesion” and determined that this goal needed to be considered one of the cardinal policies to underpin the implementation of the Single Market. Thus, differently from the Rome Treaty, the Single European Act went beyond a statement of goals and instead contained a specific policy commitment to put into place operational measures to reduce regional disparities. The mandate given to the Commission by the SEA was to attack the structural conditions, which produced regional disparities. For this purpose the Act identified three sets of measures: (1) coordination of the economic policies of the member states; (2) systematic inclusion of the goal of cohesion in the formulation of all Community policies aimed at the realization of the Single Market; and (3) specific action on the part of the Community through its Structural Funds and financial instruments. With regard to the first set of measures, the primary responsibility for orienting their socio-economic and fiscal policies toward the goal of cohesion remained with the member states, but the responsibility of the Community to probe, stimulate, and monitor such behaviour increased. Underlining this position was the recognition that the regional policies of both the member states and the Community could not presume to have – if they remained disconnected – a decisive impact on supporting the pace of economic development. Through the second measure, the SEA adopted a comprehensive view of a Community regional policy structure. What emerged was a definition of the new cohesion policy, which did not limit the Commission’s mandate to Structural Funds interventions but stimulated the incorporation of the goal of Community-wide socio-economic cohesion into the formulation of all Community policies, such as agriculture and research and development policies. What is of primary interest here is the third set of measures envisioned by the SEA in the “support” provided “by the action it (the Community) takes through the structural funds (EAGGF-Guidance, ESF, and ERDF), the European Investment Bank and the other existing financial instruments” (Article 130b). The ERDF was officially identified in the SEA as the principal tool for regional development. It was assigned the task of helping to “redress the principal regional imbalances in the Community by participating in the development and structural adjustment of regions whose development is lagging behind and in the conversion of declining industrial


regions” (Article 130c). To this new and explicit utilization of the Structural Funds and financial instruments as tools for regional development was added the goal of increasing their overall impact by rationalizing and coordinating the Community’s activities through new management structures and rules. The SEA asked the Commission to submit a comprehensive proposal to the Council in order to amend the “structure and operational rules of the structural funds as are necessary” (Article 130d). The reform mandated by the SEA was carried out through the five Council Regulations which became effective 1 January 1989: the Framework Regulation (2052/88) and four implementation Regulations of which 4253/ 88 defined the horizontal coordination of the actions of the Funds and the financial instruments; while the other three (4254/88, 4255/88, 4256/88) contained, respectively, the new norms for the activities of the ERDF, ESF, and EAGGF-Guidance. The reform revolutionalized the importance and reach of the Community’s regional policy by generalizing it to all of the structural actions of the Community. In 1989 the Commission was finally able to implement the policy principles that it had for a long time advocated in previous attempts to introduce an integrated planning approach, a regional focus and the principle of partnership in the implementation of the IDPs and IDOs. The first policy principle, which characterized the reform of the Funds which was to revolutionize the decision-making and implementation procedures associated with the new cohesion policy, was the geographical targeting of resources. Interventions were no longer to be planned on a national basis. Instead, they would be given a specific regional focus and target. This change was achieved through the Framework Regulation, which identified five priority objectives: from Objective 1 (the development of the less developed regions) to Objective 5a (restructuring of agricultural enterprises) and 5b (development of rural areas). What distinguished the first package of Structural Funds from previous interventions was that the greatest amount of resources was concentrated on the territorialized objectives (Objectives 1, 2, and 5b). As can be seen in Table 2.3 the bulk of resources was targeted to Objective 1 regions, which received over 61% of the total resources of the three Funds and to which the highest rates of Community support (up to 75%) applied. This later level of support was limited to the four cohesion countries – Greece, Ireland, Portugal and Spain – while the other countries with Objective 1 areas (i.e., Italy, France and the UK) were allocated Community support up to 50% of the total investment for individual projects. Table 2.3 also demonstrates that the three territorialized objectives (1, 2 and 5b) accounted for almost three-fourths of the entire Structural Funds budget (52,180 MECUs). If we add to this total the remaining amounts left over by the IMPs (1,562 MECUs) the regional total raises to 53,742 MECUs or 75% of the entire value of Structural Funds investments.

Table 2.3

Overall distribution of the Structural Funds 1989–93 (MECU in current prices)

Member states

Ob. 1

Ob. 2

Ob. 3 & 4 Ob. 5a (agric.)

Ob. 5a (fish)

Ob. 5b

IMP

Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal United Kingdom Total Percentage

_ _ 2955 7528 10171 957 4460 8504 _ _ 8451 793 43819 61.50%

214 25 581 _ 1505 1225 _ 387 12 165 _ 2015 6129 8.60%

344 171 1054 _ 837 1442 _ 903 11 405 _ 1502 6669 9.30%

15 94 36 _ 92 135 _ 106 _ 43 _ 58 579 0.80%

33 21 511 _ 265 874 _ 360 3 33 _ 132 2232 3.10%

_ 124 _ 28 _ 416 648 705 _ 1128 462 573 _ 297 452 667 _ 22 _ 89 _ 725 _ 513 1562 5287 2.20% 7.40%

134 91 878 _ 229 1274 _ 493 29 79 _ 316 3523 4.90%

CI

CF

Total

_ _ _ 280 859 _ 144 _ _ _ 285 _ 1568 2.20%

864 430 6431 9161 15086 6942 4901 11872 77 814 9461 5329 71368 100.00%

Percentage 1.20% 0.60% 9.00% 12.80% 21.20% 4.70% 4.90% 16.70% 0.10% 1.10% 13.20% 7.50% 100.00%

Source: European Commission. The impact of structural policies on economic and social cohesion in the Union 1989–1999. (Luxembourg, 1997). IMP: Integrated Mediterranean Programme CI: Community Initiatives CF: Cohesion Fund

51


A second principle of the reform was the large increase in the endowment of the Funds. The yearly allocation of resources over the five year period would go up to 14.5 billion ECUs (1993) from the allocation of 7.2 billion (1987) for a total of 58 billion ECUs in 1989 prices but which was to reach 71,368 MECUs in current year prices. At the 1988 Hanover Summit the European Community had decided to allocate 0.4% of the Community’s GDP for regional development/economic adjustment policies, thereby providing the Objective 1 and other areas in need of development a substantial amount of funding capable of delivering a significant positive economic shock to the regional economic structure. The fall of the Berlin Wall in November 1989 caused a major increase in Structural Funds allocations, especially to Germany’s eastern laender. In 1988 it was expected that Germany would be a minor recipient of Structural Funds allocations for its limited industrial areas in decline and rural areas requiring economic adjustment (Objectives 2 and 5a and 5b). However, with the entry into the Federal Republic of six new laender from East Germany a major rethinking of allocations had to be undertaken. In 1991 Structural Funds were allocated to six laender to the tune of 2,955 MECUs, thereby doubling Community funded investments in Germany. A third innovation introduced by the EC’s cohesion policy was the manner in which eligibility for the funding was determined. The reform gave to the Community the responsibility of determining the eligibility criteria. This signaled the end of the phase when eligibility for participation in Community programmes was defined with reference to the areas covered by national aid schemes. The regions eligible, for example, under Objective 1 were those where the GDP per capita was below 75% of the Community average. In using an empirical evaluation of needs at the regional level, the Structural Funds reform broke with the notion of automatic, historical allocations – i.e., the quota system – that kept subsidies flowing where they had always gone. Instead, the new approach was based on an empirical evaluation of the needs manifested by each region. In this manner, four member states which were comprehensively below the 75% level in terms of national GDP (i.e., the socalled “cohesion countries”: Greece, Ireland, Portugal and Spain) were allocated 70% of the financial package for Objective 1 areas and benefited from financing that could reach in terms of Structural Funds support up to 75% of the investment. For the non-cohesion countries (i.e., Italy, France and G.B) with Objective 1 regions, the total of Community support could reach 50% of the individual investment. In this manner, investments in the four cohesion countries were made more attractive than those in countries where Objective 1 regions represented a small part of the national territory. On the other hand, the non-cohesion countries were in a better position to co-finance Structural Funds investments with national funds. But the reform of the Funds was particularly important when it introduced the fourth principle: integrated planning. As with the IMPs, the


overall financial package offered by the Community was structured into a planning document and contract underwritten by the Commission, the member states and the regions. This document was labelled the Community Support Framework (CSF), which contained a multi-year planning of the actions over a five-year period (1989–93). The preparation of the CSF took place in three phases. The first phase was the submission of the overall development plans by the member states, consisting of national programmes for the Objective 1 regions and an indicative distribution of the funds in relation to single region and multi-regions operational programmes. The plans for Objective 1 were supposed to be presented to the Commission by the end of March 1989. Phase two began with the review of the national plans conducted by the Commission, which had six months to study the proposals and to ask for amendments. When the amendments were inserted, the Commission adopted the national proposals in the form of a Community Support Framework. By the end of 1989 six of the seven national plans for Objective 1 areas had been agreed. The CSF for Greece was postponed, given the series of national elections that prevented the Greek government from presenting its plan to the Commission within the pre-established deadline. The Greek Community Support Framework was finally adopted at the end of March 1990. Once the CSFs were adopted, the member states and regions were required to transform the general lines of integrated planning for economic development into specific operational programmes. The formulation of the operational programmes at the regional and national levels required additional time, and in many cases the effective spending of the Structural Funds budgetary allocations did not take place until after 1991. In a few cases the time necessary to operationalize the programmes required even more time.14 A similar procedure was implemented in the formulation of the national plans for Objective 2 and 5b areas. Once again, the regions were called upon to prepare the initial drafts of their operational programmes into Single Programming Documents (SPDs), which contained both the overall plan as well as its operational version. Once these SPDs were ready, they were presented for national government and Commission approval. For the other objectives (3 and 4), the planning process were not territorialized and remained tied to traditional implementation approaches managed at the national level. In many cases, the national plans were prepared with great difficulty by the member states. In a number of cases, national procedures had to be reformulated in order to comply with the new European rules. This was especially the case with regard to the oversight function as activated through the joint monitoring committees. The requirement of an ex-ante evaluation caught many governments by surprise, and it proved to be quite difficult to implement.


In Italy, for example, the new approach for the use of Structural Funds did not have an immediate impact at either the national or regional level. On the one hand, the preparation of the documents for the EC’s new cohesion policy was allocated to a ministry without portfolio – Ministry of EC affairs – which the country’s traditional regional policy was managed, by the Ministry for the South and the Ministry for the Budget. Given that the country’s interventions in favour of regional development was very much a top-down process, the country’s regional governments had never been mobilized to interact with the national level in the formulation and implementation of regional policy. As a result, the introduction in 1989 of a European level regional policy went mainly unnoticed. An example of the lack of immediate impact of the Commission’s cohesion policy on the Italian state and its regions is reflected in the contents of the annual report produced by SVIMEZ on the state of the economy in the South or Mezzogiorno. It first mentioned the presence of Structural Funds and the Italian CSF in its 1995 edition – that is, six years after the EU’s cohesion policy had been in place!15 Part of the reason for this lack of visibility was attributable to the management of cohesion policy by the new Ministry for EC affairs rather than to ministries with portfolios (i.e., budgets to manage). The situation dragged on until 1994 when a drastic reorganization of ministerial responsibilities for the cohesion policy was undertaken by the Ciampi government. One of the essential elements of the reform of the Structural Funds was the introduction of the principle of additionality in the formulation of the CSFs. As can be seen in Table 2.4 the Community resources were in addition to those allocated by each member state and the private sector. During the first CSF cycle, 1989–93, the budget for total financial commitments in Objective 1 areas more than doubled due to the national and private contributions. In the Italian case additional private (4,243 MECUs) and EIB (10,283 MECUs) funding served to effectively triple the overall value of the CSF to 37,708 MECUs. Spain experienced a similar increase in overall funding in taking account of the contributions by the state, private sector and EIB. Taking together the Structural Funds contributions with those of the national governments, private investors and EIB loans, the total allocations for the 1989–93 cohesion policy was 211.317 billion ECUs. Overall, the Community allocation represented only 0.4% of EC GDP, but the amounts allocated to individual member states were significant in terms of national GDP. Table 2.4 demonstrates that in Portugal and Ireland the CSFs accounted for, respectively, a 7.81% and 6.27% increase in GDP while in Greece and Spain the amount was 4.89% and 2.09% of national GDP. A fifth innovation in the structuring of the Community’s new regional policy was the institutionalization of the principle and, most importantly, the practice of partnership through Article 4.1 of the ERDF Regulation. In 1989 the member states and the Commission engaged in a

Table 2.4 prices)

Total allocations for 1989–1993 CSFs in terms of SF, EIB, private and national contributions (MECU in current

Member states Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal United Kingdom TOTAL

Total Structural Funds 864 430 6431 9161 15086 6942 4901 11872 77 814 9461 5329 71368

National contribution 1042 519 9593 5164 11317 9750 3216 11310 116 1205 5415 6108 64755

Private contribution 519 419 8457 1124 5275 3887 2944 4243 12 424 4071 1858 33233

EIB loans 245 1120 3137 1463 10510 4424 1333 10283 24 142 5123 4157 41961

Total* 2670 2488 27618 16912 42188 25003 12394 37708 229 2585 24070 17452 211317

Annual impact on GDP 0.33% 0.47% 0.58% 4.89% 2.09% 0.51% 6.27% 0.87% 0.50% 0.22% 7.81% 0.44%

Source: European Commission. The impact of structural policies on economic and social cohesion in the Union 1989–93. (Luxembourg, 1997). * Total = Structural Funds + EIB, private and national contributions.

55


prolonged negotiation over the CSF and operational programmes. In the member states with effective regional government (Germany, Italy, Spain, and partially in Portugal), the Structural Funds allocations were divided between the regional component where regional operational programmes (ROPs) managed the allocation of resources and the multi-regional ones where the national government was in charge. In the interplay with the Commission the national governments were at an advantage given the lack of any generalized institutional access by the regions to the Commission. Legislation permitting such regional access to the Commission had not been supplied by the member states.16 The implementation of the first cycle of CSFs presents a highly differentiated situation from one country to another. Italy and Greece experienced the most difficulty while Ireland, Portugal and Spain quickly adapted to the procedures introduced through the 1988 reforms. Four years into the CSFs Italy’s southern regions had been able to spend less than half of the funds allocated. Italy’s difficulties were compounded by the collapse in 1992 of its development policy for southern Italy and the need to cut government spending in order to meet the Maastricht convergence criteria in preparing for monetary union. As a result, national government spending on infrastructure projects was cut by more than half and net income transfers to the regions were significantly reduced. These changes placed into question the ability of the national government to co-finance Structural Funds projects in relation to the commitments made in the CSF proposal. The operational programmes of the bigger southern regions – Campania, Puglia and Sicily – were mostly affected while the other fours smaller regions – Abruzzo, Molise, Basilicata, and Sardinia – were in a better position to cope with the cuts in national transfers.

2.6

The second CSF cycle, 1994–99

The second cycle of CSFs saw a basic reaffirmation of the principles introduced in the 1988 reforms. In 1993 the Structural Funds undertook to open participation in the regional development policy to the private sector and extending the partnership principle to organized socio-economic interests. Steps needed to be taken to re-emphasize the principle of additionality (Article 9 of regulation 2082/93) which some member states had not adopted fully in their implementation of the operational programmes. The reforms also undertook to redefine Objectives 3 and 4, with the latter emphasizing the objective of reinserting workers into the market place rather than dealing with problems of long-term unemployment through subsidies for the unemployed. The principle of continuous education for workers and those unemployed began to be implemented. As is evident in Table 2.5, the most important change introduced by the second CSF was the effective doubling of the Structural Fund allocations,

Table 2.5

Overall distribution of the Structural Funds, 1994–99 (MECU in current prices)

Member states

Ob. 1

Ob. 2

Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal United Kingdom Total Percentage

730 _ 13640 13980 26300 2190 5620 14860 _ 150 13980 2360

341 119 1566 _ 2415 3769 _ 1462 15 650 _ 4580

465 301 1941 _ 1843 3203 _ 1715 22 1079 _ 3377

14917 9.20%

13946 8.60%

93080 57.90%

Ob. 3 & 4

Ob. 5a (agric.) 170 127 1070 _ 326 1746 _ 681 39 118 _ 186 4463 2.70%

Ob. 5a (fishing) 25 140 75 _ 120 190 _ 134 1 47 _ 89 821 0.50%

Ob. 5b 77 54 1227 _ 664 2236 _ 901 6 150 _ 817 6132 3.80%

CI

CF

Total

288 103 2212 1154 2782 1605 482 1898 20 422 1048 1572

_ _ _ 2602 7950 _ 1301 _ _ _ 2601 _

2096 844 21731 17736 42400 14939 7403 21651 103 2616 17629 12981

13586 8.40%

14454 8.90%

162129 100.00%

Percentage 1.30% 0.50% 13.40% 10.90% 26.20% 9.20% 4.60% 13.30% 1.60% 10.90% 8.00%

100.00%

Source: European Commission. The impact of structural policies on economic and social cohesion in the Union 1989–1999. (Luxembourg,1997). CI: Community Initiatives CF: Cohesion Fund

57


which arrived at a total of 162,129 MECUs for the original twelve member states. In 1995 Structural Funds were also allocated to the three new member states: Austria (1,578 MECUs), Finland (1,652 MECUs) and Sweden (1,383 MECUs). Among the previous twelve member states a greater distribution of Objective 1 funds was undertaken through the relaxation of the regional basis for the selection of areas to be assisted. In 1994 smaller units (NUTS 3) were used to award Objective 1 status to Flevoland (Holland), Hainaut (Belgium) and to the French Hainaut.17 The French allocation included the insertion of its “ultra-peripheral” regions (Guadeloupe, Guyana, Martinique and Reunion) while in the UK two additional Objective 1 regions were inserted (Merseyside and the Scottish Highlands and Islands). Northern Ireland continued to receive funding as an Objective 1 area. As a result of these changes, the French and British allocations increased, respectively, two-fold and three-fold. Spain also made major gains in more than doubling its allocation of funds moving from 15,085 MECUs in 1989–93 to 42,400 MECUs in the second period. The Spanish allocation accounted for over a quarter of all Structural Funds payments. Germany was able to fully integrate its eastern laender into the CSFs and thereby increased its allocation to 13.4% of the total. The countries, which experienced percentage drops between the two periods, were Greece (12.8 to 10.9%), Ireland (6.9 to 4.6%), Italy (16.7 to 13.3%) and Portugal (13.2 to 10.9%). The presence of private funding underwent a four-fold increase in the second round of CSFs. While during the first CSFs private investment accounted for half of national government allocations, in the second round (as illustrated in Table 2.6) it almost equaled the contribution by the national government sector (111,527 to 119,981 MECUs). The role of the private sector increased substantially in Italy, Greece, Spain, Portugal and Ireland. It remained significantly under-represented in the UK where the nature of local budgetary controls made it difficult to consolidate a publicprivate partnership at the local level.18 In contrast, the EIB contributed far less in the second period vis-à-vis the first. EIB support of Structural Funds investment fell in the second period to 27,419 MECUs from a high of 41,961 MECUs. This drop was particularly felt in Italy and France while Germany and Great Britain became major beneficiaries of EIB loans. Another major change introduced in 1993 to the EU’s cohesion policy was the creation of the Cohesion Fund. The new Fund was restricted to those countries (Greece, Ireland, Portugal and Spain) which were already major beneficiaries of the Structural Funds but whose overall national GDP was below 90% of the EU average. In contrast to the Structural Funds, Cohesion Fund allocations were not broken down on a regional basis. They were instead allocated on a project-by-project basis to cover improvements in infrastructure (50% of budgetary allocations) and 50% for environmental projects. In the first category we find projects dealing with roads,

Table 2.6 prices)

Total allocations for 1994–1999 CSFs in terms of SF, EIB, private and national contributions (MECU in current

Member states Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal United Kingdom Total

Total Structural Funds 2096 844 21731 17736 42400 14939 7403 21651 103 2616 17629 12981 162129

National contribution 2802 928 20906 8065 21504 19282 3101 19240 198 4919 7005 12031 119981

Private contribution

EIB loans

Total*

Annual impact on GDP

1634 783 41091 8958 18576 8420 2573 17442 41 1451 6897 3661 111527

239 _ 5400 2368 9000 150 1800 1732 _ 80 6100 550 27419

6771 2555 89128 37127 91480 42791 14877 60065 342 9066 37631 29223 421056

0.71% 0.45% 1.21% 9.05% 4.14% 0.76% 5.96% 1.76% 0.55% 0.62% 8.67% 0.63%

Source: European Commission. The impact of structural policies on economic and social cohesion in the Union 1989–93. (Luxembourg, 1997). * Total = Structural Funds + EIB, private and national contributions.

59


railroads, ports and airports while in the second we find projects involved with solid waste, water and air pollution, water supply, and restructuring of urban centers. The purpose of the Cohesion Fund was to help the cohesion countries bring their national budgets into line with the Maastricht convergence criteria, which translated into the need to cut governmental spending in the area of public works and environmental projects. In accessing Cohesion Fund financial support the member state had to present a detailed dossier to justify the project and its expected socio-economic impact and had to nominate a project manager that would then respond directly to the Commission. One change, which was to prove to have a major impact on the formulation of the EU’s cohesion policy, was the creation of the Committee of Regions (COR) in March 1994. Having been foreseen by the Maastricht Treaty, the COR served to open up the EU decision-making process to the regions and localities. Prior to the creation of the Committee of Regions it was difficult for regions to open offices in Brussels in order to advance their interests by interacting with the offices of the Commission. However, after 1994 such offices were not only useful but also necessary for the smooth functioning of the COR. The heads of the regions and local government officials assumed their posts in the COR and were able to scrutinize Commission proposals in a wide variety of matters that had a direct impact on their voters. It can be argued that with the creation of the Committee of Regions DG XVI was given a clear constituency to which it had to respond, and it became common practice for the Commissioner of regional policy to address each plenary session of the COR. Monica Wolf-Mathies who headed DG XVI between 1994 and 1999 particularly felt this commitment as a personal obligation.19 Michel Barnier continued this commitment under the Prodi presidency when visits by the President of the Commission also became a common feature of COR plenary sessions.20 The creation of the Committee of Regions also had a major impact in restructuring national government policies toward their own regions at the national and European levels. National governments no longer could argue with any credibility that regional contacts across national frontiers within the Single Market could continue to be considered “foreign policy” concerns and needed to be vetted by the ministries of foreign affairs. This was particularly difficult to sustain while the Commission was actively encouraging trans-regional networking through a series of Community Initiatives such as the Interreg, Leader, Overture, and Recite’.21 In addition, with the creation of the Single Market it was no longer possible to prohibit the free circulation of people (even if they were regional presidents and representatives) in the EU. The second half of the 1990s was also the period when a significant debate began on the regional and local implications of the principle of subsidiarity (article 3b of the Maastricht Treaty). Right after the ratification of


the Maastrict Treaty, national governments attempted to use the debate on subsidiarity as a vehicle to address the balance between national governments and the European Commission by arguing that certain tasks could be better accomplished by the national governments. However, with the entry of Austria and the advances in the discussion of federalism in regionalized states such as Italy and Spain, subsidiarity was increasingly interpreted as requiring a re-enforcement of the regional and local roles vis-à-vis national governments. Such was the interpretation advanced by Germany, Austria and Belgium to the protocol inserted into the 1997 Amsterdam Treaty.

2.7

The third CSF cycle, 2000–2006

Formulation of the third round of CSFs was dominated by two factors, which were not present during the previous two periods. The first was the launching of European Monetary Union on 1 January 1999 which emphasized the integrated nature of regional and national markets within the European Union and, secondly, by the prospect of expanding the European Union eastward during the course of the third cycle of CSFs.22 The latter required the earmarking of certain funds for pre-accession activities in the candidate countries, but it also posed the prospect of full (or even partial) accession on behalf of the twelve candidate countries23 which would produce a radical realignment of eligible areas after 2006 – i.e., most of the western European regions would have to give up their allocations in favour of the needier regions in the east. The third round of CSFs also stressed the nature of the EU’s cohesion policy as a policy that should advance internal (i.e., intra-national) socio-economic cohesion. It was no longer in doubt that the previous CSFs had assisted in reducing regional disparities and creating a stronger economic base throughout the EU.24 Now, the emphasis was focused on making sure that development was sustainable and did not endanger the environment.25 Based on this prospect, the Commission’s report on the future organizations of CSFs (Agenda 2000),26 which was issued in 1997, stressed the need to improve the efficiency and effectiveness of cohesion policy. The new regulations were adopted by the member states in June 1999 along with a financial budget that projected another 25% increase in allocations for the EU’s cohesion policy. In the new regulations the struggle against unemployment was given a much higher priority. Member states were now obliged to adopt annual national employment plans and introduce more vigorous national employment policies. These objectives brought about another restructuring of the previous objectives 3 and 4, which were now part of one objective (3). Objective 3 was focused entirely on professional education for unemployed as well as employed workers. A significant role was also allocated to the objective of equalizing job opportunities for


women and reducing the transition period between secondary education and gainful employment. The new Objective 3 programmes also effectively regionalized the policy – i.e., it was now the regions that were given the responsibility of translating the national CSF for Objective 3 into regional operational programmes. The national government was left with the role of coordinating regional interventions. The increased territorialization of Structural Fund initiatives was discernible in two other major areas. The first was the bringing together of the previous objectives 2 and 5b into a new Objective 2 which placed the region at the center of the decision-making process. Here, there again there was no national CSF. Instead, each region had to present its SPD (Single Planning Document) containing the overall objectives of the programme and its operational components. In the case of Objective 2 the national coordination role completely disappeared. Now, the regions interacted directly with the Commission without the allocation of any coordination function to the national government. The second innovation – in terms of the territorialization of development policies – involved the new rural development programme. It was also launched in 2000, and the Guarantee section of the Agricultural Fund that in the past had exclusively financed the price support mechanism financed it. Also, in the case of rural development the region was placed in the driver’s seat. Regions were required to draw up plans on how the allocations of 10% of the EAGGF-Guarantee section were to be undertaken on rural development programmes.27 The financial package for the seven-year, 2000 and 2006, period was agreed by the member states at the Berlin European Council in March 1999. It allocated a total of 213 billion Euros (between Structural Funds and Cohesion Fund) for the fifteen member states and 47 billion Euros for the applicant countries that were expected to enter prior to the end of the current budgetary cycle. Seven billion out of the 47 were to be spent immediately (i.e., from 1 January 2000) to finance pre-accession structural policies (ISPA) and rural development programmes (SAPARD).28 Looking at the funds set aside by Agenda 2000 for the fifteen member states (see Table 2.7), we see that the reorganization of the objectives led to a significant increase in the availability of funds for Objective 1 areas. For 2000–2006 65.7% of the allocation were earmarked for current Objective 1 areas and 4.3% for the phasing out of former Objective 1 areas. Objective 2 – which now combined the old Objective 2 and 5b – was slightly cut to make way for a significant increase in Objective 3 programmes (the old 3 and 4) as recommended by the results of the 1998 Amsterdam summit. The country-by-country distribution of the funds illustrated by the contents of Table 2.7 shows that the three new member states – Austria, Finland and Sweden – accounted for only 3% of allocations and the phasing out of Objective 1 mini areas in Holland (Flevoland), Belgium (Hainaut)

Table 2.7

Overall distribution of the Structural Funds 2000–2006 (MEUR in 1999 prices)

Member states

Obj. 1

Transition Obj. 2 ex Obj. 1

Transition ex Obj. 2 & 5b

Obj. 3

Fishing out Obj. 1

CI

Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Austria Portugal Finland Sweden United Kingdom Reserve Total Percentage

0 0 19229 20961 37744 3254 1315 21935 0 0 261 16124 913 722 5085

625 0 729 0 352 551 1773 187 0 123 0 2905 0 0 1166

368 156 2984 0 2553 5437 0 2145 34 676 578 0 459 354 3989

65 27 526 0 98 613 0 377 6 119 102 0 30 52 706

737 365 4581 0 2140 4540 0 3744 38 1686 528 0 403 720 4568

34 197 107 0 200 225 0 96 0 31 4 0 31 60 121

209 80 1608 862 1958 1046 166 1172 13 651 358 671 254 278 961

19733 9.31%

2721 1.28%

24050 11.35%

1106 0.52%

155 10442 4.92%

127543 8411 60.20% 3.97%

Cohesion fund

3060 11160 720

3060

18000 8.50%

Total

Percentage

2038 825 29764 24883 56205 15666 3974 29656 91 3286 1831 22760 2090 2186 16596

9.60% 0.30% 14.04% 11.74% 26.53% 7.39% 1.87% 13.99% 0.04% 1.55% 0.86% 10.74% 0.98% 1.03% 7.83%

155 211851 100%

0.07% 100.00%

Source: INFOREGIO News, Newsletter n.65, June 1999; Note of the Commission on the distribution of the Funds for the Community Support Frameworks, 17/11/00. CI: Community Initiatives

63


and France (Corsica and the French Hainaut – i.e., the districts of Valenciennes, Douai and Avesnes) helped to reduce the allocation for central versus peripheral regions. Thus, the Italian Mezzogiorno, eastern Germany, Greece, Spain and Portugal consequently registered significant gains in their allocations. In the UK even though the Scottish Highlands and Islands and Northern Ireland were placed into phasing out, new Objective 1 areas were added covering South Yorkshire, West Wales, and Plymouth. In Germany East Berlin entered phasing out as was the case for the Lisbon-Tagus Valley in Portugal. Other former Objective 1 areas were to be found in Italy (Molise),29 Ireland (five out of the eight counties)30 and Spain (Cantabria). As a result of these changes, the third cycle of Structural Funds allocations had to make a provision for those regions transferring out of Objective 1 (4.0% of the budget) while for the former Objective 2 and 5b areas put into phasing-out the cost was much lower (1.3%). Despite the general goal to begin the implementation of the third wave of Structural Funds by 1 January 2000, most countries had to delay their implementation due to the need to clarify ambiguities in the development plans and operational programmes presented by the national governments and regions. This was the case in Italy for both Objective 1 and 2 regions. Another complicating factor was due to the overlapping of the programme expenditures for the two CSFs due to the fact that the end of the 1994–99 cycle was prolonged to the end of December 2001 – i.e., two years after the new programming cycle had begun. For many national and regional governments, the first priority in 2000 and 2001 was the expenditure of the financial contributions of the old programme while the initiation of the new CSF cycle was considered to be less pressing. The expectation was that once the 1994–99 expenditures were completed the management authorities could make up the lost time with a quick implementation of the new programmes. This expectation was borne out by the results. Most countries and regions were able to bring expenditures to completion by the 31st of December 2001 and in 2002 began to accelerate the implementation of the new programmes. Rapid implementation of the new programmes became a necessity due to the new factors that were built into the 2000–2006 planning cycle. The first was the N+2 rule. In the new planning cycle the operational programmes received 7% of their overall budgets out front by the Community, and they had to spend this amount by the end of the second year. If by the end of the second year this amount was not spent, then the following year’s anticipatory payment would be reduced and the unspent amount of the first year’s budget would have to be returned to the Community. The second important mechanism, which accelerated programme implementation, was the creation of the “4% performance reserve”. In this case the Commission withheld from the member states 4% of their total Structural Funds allocation for the 2000–2007 period. The allocation of this 4% was to be based on the satisfaction of the Commission’s criteria in


terms of performance measures. The Commissions working paper (N. 4) on the implementation of the performance reserve identified three criteria for the allocation of the reserve: (1) effectiveness criteria measuring the outputs and results of the programmes on a yearly basis, (2) management criteria focusing on how projects were monitored, controlled and selected, and (3) financial criteria based on how much money was spent and commitments made after the third year. The information on the three criteria was to be incorporated in a mid-term evaluation report undertaken by outside evaluators. This report had to be submitted to the Commission by the regions and national authorities by the end of 2003, and the Commission would had three months to make its decision on how the reserve was to be allocated.31 The mid-term report had also to include a proposal by each managing authority of what it had learned from the evaluation and how it proposed to expand or cutback specific programme provisions. Such an exercise was important for the Commission to understand how the allocation of the reserve would impact on the overall programme objectives and prospects for a speedy and efficient implementation. It was understood that with the implementation of the reserve the Commission could award an operational programme more or less than 4% on the basis of the evaluation report it submitted. The approach serviced to introduce into the management of the programmes an explicitly interregional competition among the managing authorities within each member state and between member states.32

2.8

Conclusions

The analysis of the evolution of the European Union’s regional development policy as implemented through the Structural Funds evolved from an initial stage (1975–88) that was characterized as a budgetary transfer policy or two-level interaction between the Community and member states. The Community functioned as the paymaster while the member states played the role of immediate beneficiaries where the size of the transfer payment to each state was decided by the Council. In deciding the size of the exchange the Commission played no role. Why this was the case is easily understandable: no plans explaining how the expenditures were to be undertaken were required; no reporting of how the funds had been spent were requested; and no evaluation of what effect the expenditures had had on the regional and national economies were submittted. Thus, we can conclude that before 1988 no explicit policy to stimulate socio-economic development was in place at the European level. The hope was that the transfer payments would have some effect, but no verification mechanism was put into place to check whether this impact was ever achieved. The situation changed gradually due to two significant innovations. The first was the expansion of the EU into southern Europe through the


admission of Greece, Portugal and Spain. With these three additional member states it was no longer acceptable to wait for a trickle-down effect of market integration in spurring regional development. A much more pro-active stance was required. The second important change that took place in Europe during the 1980s was the shift to the Single Market and Single Currency objectives. With the Single European Act and the Maastricht Treaty the EU was no longer focused solely on the creation of a Customs Union. Its horizon had expanded to the creation of a fully integrated market and single currency, and these two innovations could no longer tolerate a “hands off” approach to regional development. It became imperative for the European Union to introduce a pro-active regional development policy under the heading of promoting socioeconomic cohesion within the European Union from 1989 onward. This new approach to regional development did constitute a true “policy” in that it did not only allocate resources but it based the allocation of resources from the European to the national and regional level on the basis of a planning programme supplied with the specifications of interventions, the monitoring and reporting of expenditures, the measurement of outputs and the evaluations of outcomes. What was equally important in the 1989 transformation of the policy was the commitment to solidarity between rich and poor areas in the Union that was introduced by the concept of cohesion. With the introduction of cohesion the EU was no longer conceived as a mere economic union but rather moved into the direction of a political union. A final conclusion is that with the introduction of cohesion as one of the fundamental principles of the Union the cohesion policy could not be reduced to a mere ‘side payment’ or budgetary transfer. Instead, it represented the expression of the principle of mutual solidarity in helping the less developed areas to converge toward the economic levels achieved in the more prosperous countries and regions in the Community. Thus, market integration brought with it the prospect of greater opportunities for economic growth and social well-being and the removal of the structural impediments that have blocked development in the past in the Union’s less developed areas.

3 Cohesion Policy as Learning: The Planning Process and Administrative Responses

3.1

Introduction

From the very beginning cohesion was conceived as a dynamic policy process that was not only interested in certain “outputs” (the expenditure of money and administrative undertakings) as has been the case with the agricultural policy’s guarantee section but rather with “outcomes” (the impact of the policy on socio-economic levels) in the less developed regions. For cohesion the primary policy outcome is defined as the reduction of regional disparities between the less and more developed areas of the Community. Cohesion policy, therefore, has a territorialized socioeconomic impact; it was never designed to achieve the reduction of disparities between social groups.1 The question that arises in attempting to change socio-economic outcomes through regional socio-economic policy outputs is whether the change in socio-economic structure is possible without a parallel change in the institutions responsible for producing those policy outputs? Another way of conceiving the role of institutions in regional policy is: do institutions matter in the production of outputs and outcomes in regional policy? As we have seen in Chapter 2 cohesion policies are designed to mobilize different institutional levels and socio-economic groups, but can these actors “fit” into the domestic rules and procedures used to implement the policy? In other words, can institutions accustomed to the management of national sectoral policies and regional development policies easily adopt or adapt their behaviour to the new European rules and regulations proposed by the Commission in 1988 and subsequently modified during later phases of the policy? The answer to this question depends on whether rules and procedures governing the action of institutions assigned the task of deciding and implementing programmes matter. We have argued in Chapter 2 that in our opinion the change in the rules governing the activities of the Structural Funds did make a difference in how the cohesion policy was administered after 1988. In our opinion the EU regulations cannot be set aside or 67


be considered optional in the use of EU financial allocations. These rules and regulations are referred to as the Community “acquis”, and the acquis is highly relevant in the formulation and implementation of cohesion policy at the national and regional levels from 1989 onward. Given that the Community policy process is built on the assumption and practice that rules do matter,2 member states are faced with the task when they become involved in the Community policy of incorporating the rules and regulations into their daily operations. The incorporation of Community rules into the domestic legal and administrative arena requires, in many cases, significant adjustments in administrative rules and procedures at both the national and regional levels. Guy Peters has argued that “when rules change, institutional behaviour needs to adopt. Otherwise a crisis occurs”.3 In the case of cohesion policy if the changes instituted by the Commission are not acceptable, then a country has the option of not participating in the policy, not spending the allocated money, or being found in breach of the EU regulations. However, each of the three options is not acceptable to national governments and regional authorities from either a political or financial perspective. From the very beginning in 1958 the Commission has been allocated responsibility over budgetary matters (i.e., it is responsible to the Community organs – European Parliament, Court of Accounts, and European Council – for the correct administration of the Community policies and expenditure of the Community budget). If in the case of cohesion policy it feels that member states and regions are in breach of the rules, then the Commission has the responsibility to act to block expenditure and retrieve the funds through action in the European Court of Justice. The number of instances where the Commission has taken member states to Court is low. But they have taken place. In all cases that have been adjudicated by the Court, the misallocated funds have been returned to the Community. Member states are basically reluctant to being cited for breaches of EU regulations because of its potentially negative impact within the country (interest groups and governmental units crying out against the block placed on resources) and the peer pressure taking place in EU level organs. In most of the cases where citations have taken place, the ultimate sanction has not usually been applied because member states undertake to bring their practices into compliance with the rules. What we want to do in this chapter is to look at the institutional and administrative response to cohesion policy from the perspective of the institutions and groups involved in the formulation and implementation of the policy. The chapter will discuss the difficulties that have cropped-up on the part of member states and regions in adhering to the rules associated with cohesion policy and how these difficulties have been overcome by the creation of new institutions or adapting existing institutions.

Cohesion Policy as Learning 69

3.2

The conceptual framework behind cohesion policy

As discussed above, the method used to implement cohesion policy within the EU represents a policy approach that not only values but requires the participation of different socio-economic forces as well as different levels of government in both the policy-making and policy-implementation phases of the process. As indicated in Figure 3.1 the formulation and implementation of the EU’s cohesion policy is based not only on a system of a vertical multilevel governance but also on a horizontal form of interaction capable of involving a multiplicity of political/administrative as well as socio-economic actors in the process. On the left-hand side of Figure 3.1 we find the multiple institutional actors involved in the multi-level aspects of governance used to formulate and carry out the current cycle of cohesion policies. In the member states with operational regional institutions that have official responsibilities in economic development, vocational education, transport, agriculture, tourism, and other socio-economic sectors, these regional governments actively participate in the formulation of their own operational programmes for Objectives 1, 2 and 3.4 During 1999 these negotiations were carried out through formal meetings, seminars, roundtables and other types of encounters designed to achieve agreement between the national and regional levels on the planning and financial commitments that provided the legal basis for carrying out cohesion policy within particular countries and regions in the Union. Another aspect of the planning system created by the cohesion policy that is reflected in Figure 3.1 is the conceptual distinction and practical differentiation between decision-making and implementation.5 In order to understand the practical process and institutional implications of the form of multi-level governance associated with cohesion policies, decisionmaking and policy implementation need to be taken as a whole or as the result of a continuous policy. It serves no purpose and, in fact, distorts a full understanding of the policy process if particular phases of decisionmaking (e.g., allocation of resources or the formulation of the plans) are analysed separately from the rest of the process. In addition, decisionmaking cannot be divorced from the analysis of how policy implementation is carried out. In turn, the implementation of the policy needs to be carefully evaluated (in the form of an explicit ex-post evaluation) so that the lessons learned from the previous policy cycle can be fed into the subsequent stage of policy formulation. The decision-making phase of cohesion policies begins with the definition of the resources to be allocated to cohesion as part of the determination of the overall EU budget. The Commission undertakes the preparation of a budget proposal, and it is presented to member states at European Council meeting. The last three European summits that have effectively

70

Participants in Governance

Cohesion Policy Preparation of integrated development programmes for objectives 1, 2 and 3; ex-ante evaluation

European Union

National, regional and local governments and administrations

Interest and voluntary groups and associations at the national, regional and local levels

Figure 3.1

Analysis of social and economic conditions; SWOT analysis

Measurements of outputs: ex-post evaluation and verification of expenditures

Selection of priorities: sectors and areas to be treated by policies

Evaluation: intermediate evaluation half-way through the programme cycle; verification of results

Management mechanisms: controls monitoring certification

Conceptual framework for the multi-level and multi-phase governance of EU cohesion policy

Principles for implementation: synergy partnership coordination additionality transparency


defined the size of the EU budget and determined how much money was to be allocated to cohesion policies took place in Hanover (1986), Edinburgh (1992) and Berlin (1999). Agreeing the amount of the European budget is very much an “inter-governmental” process, but it also depends on the ability of the European Commission to defend its initial proposal and for the European Parliament to accept the parameters set for the budget by the Commission and member states. However having agreed to the size of the budget and roughly to its allocation among policy areas, does not mean that the decision-making process is over. In fact, with regard to cohesion policy it has hardly begun. As Figure 3.1 suggests, practically the entire policy process associated with cohesion policy still needs to be put into place. Governance of the cohesion policy is by its very nature multi-level, and the process begins with the formulation of the new regulations by the Commission. Since 1988 the Commissions’ role has historically been associated with rule making, and it has exercized oversight on the procedures adopted by the member states and regions in undertaking decision-making and implementation with regards to the programmes. On the other hand, national governments continue to play important roles in the decision-making and implementation process, but the nature of their role varies greatly from one country to another. The exact role played by the nation state depends on existing internal arrangements for the management of development policies, the pattern of sub-national institutional structures and the distribution of policy-making responsibilities in the fields of territorial and regional planning. In regional and federal systems that role is usually allocated to the regional level. As Figure 3.1 suggests, once the level of funding has been decided and the Regulations have been formulated, the process of decision-making begins with the drafting of the development programmes for the three territorialized objectives. For Objectives 1 and 3 a national Community Support Framework is prepared by the national governmental authorities while for Objective 2 that programme is the responsibility of the regions. Where regions do not exist that function is usually fulfilled by a regional administrative structure operating under the authority of the central government.6 One of the important elements that needs to be incorporated into the planning document for Objectives 1, 2 and 3 is a SWOT analysis of the socio-economic context7 based on consultations with representatives of civil society and organized interests to identify the strengths and weakness of the territory and the priorities that need to underpin the future development programme. For countries containing Objective 1 areas, the national government is responsible for the formulation of the initial development plan that is then transformed into the Community Support Framework (CSF) in negotiations with DG Regio of the European Commission; regional


governments are subsequently responsible for the formulation of their individual regional operational programmes (ROPs). In contrast, for Objective 2 programmes each region is responsible for the formulation of its own planning and operational document (Single Programming Document, SPD). In the case of Objective 3 programmes dealing with vocational education and the fight against unemployment, the national CSF is translated at the regional level into Objective 3 ROP documents by each region. In 2000 the ROPs for Objectives 1 and 3 were subsequently finalized into Complementary Planning Documents that attempted to define the actual “measures” – set of projects – and “actions” – individual projects – that were to be used to operationalize the programme objectives. What comes out of the SWOT analysis is the selection of the development priorities that will be technically translated into specific “axes” or sub-programmes covering particular policy sectors that can range from aid to industry and investment in infrastructure to support for local development schemes. The choice of axes provides the basis for preparing the planning document based on an integrated approach to the development of the regions under consideration. The planning document also provides for a multi-annual financial package whose overall socio-economic impact is estimated through the conduct of an empirical ex-ante evaluation. In member states where a significant number of Objective 1 regions exist, the operational programmes are divided between those formulated and implemented by the regions (regional operational programmes) and those formulated and implemented by the national governments (national operational programmes). During the first two cycles of the cohesion policy (1989–93 and 1994–99) the division between national and regional operating programmes was approximately 50% in Greece, Italy, Portugal and Spain. During the current cycle, 2000–2006, a greater amount of the funds have been shifted down to the regional level. In the Italian case the division is 73% allocated to the regions and 27% for the national authorities.8 The system of governance applied to the administration of the cohesion policy is based on a number of management principles. These include the incorporation of principles involving: “synergy” – that is, the explicit interaction between measures and actions within different sub-programmes in order to increase the impact of the chosen projects; “additionality” – the co-financing of measures by different institutional actors (e.g., the EU, national and regional governments, and the private sector) to provide additional funding and increase the impact of the investments; “partnership” – the choice of objectives and implementation strategies in concertation with the socio-economic groups operating in the sector, and “transparency” – the need to make the activities of the programme known to the general public and open to public scrutiny. With regard to implementation, each operational programme incorporates the EU rules and procedures on: (1) the way funds need to be


managed and in choosing the beneficiaries or targets for the intervention; (2) the control and oversight to be exercised on the implementation of the programmes, measures and projects; the monitoring and reporting on the progress of programmes over time; (3) the evaluation of the impacts of the projects on local and regional socio-economic conditions; and (4) finally, the certification of the completion of the projects and the provision of final payment. Twice a year monitoring committees at the regional and national levels are held to evaluate the progress that has been made in implementation. Ex-officio members of the monitoring committees are representatives of the region, the national government, the Commission, interest groups and local authorities. The results of the monitoring committees are published on the web sites of the regional and national governments for public scrutiny. Among the list of procedures required by the regulations for control of policy implementation is: programme evaluation. During the last five years evaluation has become one of the fundamental activities associated with the cohesion policy process. As argued by Edward Parson and his collaborators, the purpose of evaluation (in his case, “assessment”) is “not primarily to advance scientific knowledge, but rather to synthesize available knowledge to support decisions, whether by government officials or other actors, in pursuit of societal goals”.9 In addition to the ex-ante evaluation of the expected socio-economic impacts to be produced by the programme priorities and expenditures, the current (2000–2006) cohesion policy cycle foresees an obligatory evaluation of the impact of the programmes half-way through the planning period (i.e., mid-term evaluation) in order to ascertain whether the initial goals of the programmes are being met and to determine whether implementation is taking place according to the schedule foreseen. The mid-term evaluation tried to answer the question of whether the expected results were being achieved.10 If not, modifications could be undertaken to make the operational programmes and their specific measures more effective so that the programme objectives could be achieved. The stipulations were that those programmes, which met their spending, and impact targets would be able to benefit from a 4% increase in financial allocations from the Commission. Finally, once the programmes has been brought to completion within the time-frame provided, an ex-post evaluation is conducted to measure the overall impact in both quantitative and qualitative terms.11 The role of the ex-post evaluation is considered to be extremely important not only for learning what has worked and what has not been successful in the programme for the benefit of the authorities at the regional and national levels responsible for the implementation of the programmes, but it also is important for the European level institutions, such as the Commission and the Court of Accounts, in reporting the overall results of the policy and


redesigning more effective Regulations to govern the subsequent stage in the policy. Ever since the beginning of the cohesion policy, the Commission has been held responsible to the member states and to the European Parliament to provide periodic reports on the outputs and outcomes of the programmes while the Court of Account has had the obligation to report to the European Parliament on whether programme expenditures have taken place according to the regulations. The ex-post evaluation is also important to other participants in the policy process by providing data and insights into the changes that are necessary in preparing for the subsequent cohesion policy cycle. Accordingly, in addition to an ex-post evaluation of the efficiency and effectiveness of the programmes in achieving their objectives, a full report of expenditures is undertaken by the regions and national governments to document all that has been spent on the programmes and to provide for the restitution of money not spent within the allotted time provided. A detailed independent evaluation of the expenditures is also conducted by the national and EU Court of Auditors on a sample representing 5–10% of the overall budget to make certain that what was spent was carried out according to the rules and regulations set out by the European Commission and the national authorities. Given that the EU’s cohesion policy was not intended from the beginning as a one-off intervention but, rather, as part of a continuous series of socio-economic “shocks”, the phases of the decision-making and implementation process described in Figure 3.1 can be conceived as a series of interactive learning loops. These learning loops are necessary in order to allow member states and regions over time to come into full compliance with the rules and objectives of the policy and to maximize the impact of the cohesion policy in mobilizing indigenous resources. For Diez evaluations play a key role in turning regions into “learning regions” capable of promoting a process of “organizational, individual and collective learning”.12 As we have argued in Chapters 1 and 2 the revolutionary nature of the cohesion policy created a policy process that did not “fit” into any preexisting approach to national regional policy. This “lack of fit” that requires substantial institutional adjustment and learning on how to use the policy has led some scholars to question the advantage gained by regional governments in participating in cohesion policy programmes.13 In most cases, national regional development policies have not foreseen the participation of the regions or socio-economic groups, and this has made it difficult for governments to comply in mobilizing the participation of sub-national institutional levels and representative socio-economic groups. In the past, development planning at the national level was usually carried out for the regions rather than by the regions and within federal


states the regional authorities were not accustomed to consulting with interest groups or sub-regional level institutions in establishing development partnerships. In fact, most of the phases of policy implementation discussed in Figure 3.1 in the decision-making and implementation phases were completely absent from national regional policy formulation. In addition, internal or externally conducted evaluations were not systematically required, and the only oversight exercised on the policy was carried out by the committees of the legislative assemblies or by national courts of account. Therefore, the institutional investment that had to be made in managing national regional policy was kept to a minimum in that expenditures were renewed on an annual basis and the planning of interventions was kept to a minimum. Another consideration that we have to take into account is that other EU policies have not been based on a reiteration of the programming cycle and an explicit learning process. Agricultural price support schemes are based more on the accounting of production rather than in learning an integrated policy process. In the R&D framework programmes, the list of participants varies widely over time, and there is no explicit learning process on the part of the participants. The learning, instead, is targeted at Community officials and programmes. In the cohesion policy learning is focused at the various levels of the policy process – i.e., European, national and regional – in that it allows for changes to be made if there was a less than perfect understanding of: the regulations, the socio-economic context, the correct choice of priorities and projects to be implemented, or the choice of faulty implementation procedures. A similar learning dynamic applies to the territorialized LEADER II Community Initiative designed to stimulate the participation of local community in rural development programmes.14 The repetition of the planning process over a number of cycles and the formalization of evaluation procedures permit corrections to be made in all phases of decision-making and implementation. Among the initial twelve member states that participated in Objective 1 and Objective 2 programmes between 1989 and 1999, a majority have continued over all three planning periods.15 Thus, those who have remained in the programme have had the opportunity to learn from their previous mistakes and profit from their successes. The repetition of the process has permitted “individual” as well as “institutional” learning to take place at all four levels that have been involved in the policy process: European, national, regional and local. At the European level the evaluation of the results of the programmes provides the Commission a better understanding of how the rules and regulations in the use of the Structural Funds can be improved to increase their impact, transparency and efficiency. The national governments, on their part, are in a position to improve their level of coordination in guaranteeing a smoother implementation of the programmes. The regions


can learn what works and what does not work in spurring socio-economic development and thereby improve their overall selection of projects to be financed. Finally, local governments and socio-economic groups can learn how to improve their inputs into the policy so that the selection of projects can be more effective in spurring local development and encouraging the creation of a larger multiplier effect in relation to private investment. From the outset, the innovative nature of the reform of the Structural Funds and the initiation of the EU’s cohesion policy in 1989 presented significant problems of learning and acceptance on the part of the participating institutions. A preliminary review of the implementation of the programmes during the first two cycles, 1989–1993 and 1994–1999, showed that the results differed greatly from those that were initially proposed.16 In contrast to later developments, the formulation of the initial 1989–93 programmes usually followed a top-down approach that was essentially controlled by the national governments. The innovative approach suggested by the 1988 Regulations was not immediately taken on board by all of the national governments. Many had to find temporary compromises with the dictates of the Regulations and put off effective change of internal procedures and processes to the future.17 As a consequence, very little consultation with other levels of government or with the private sector took place. Only in very few cases were the programmes accompanied by an exante evaluation of the expected outcomes or were provided with a list of the empirical indicators to measure progress in the implementation of the programmes. No mid-term evaluation was foreseen, and it was difficult to close the books on programme expenditures. The holes in the control and reporting procedures left by the 1988 Regulations made it difficult to verify expenditures at the regional or national levels. An illustration of the difficulties associated with the first CSF cycle is provided by the fact that the Commission has not yet been able to reconstruct a final list of expenditure by region or country, by year or by Fund; nor has it been able to close the budgets for the 1989–1993 period despite providing first a two-year and then a three-year extension.18 The provisions requiring independent evaluations or outside technical assistance in implementing the programmes were not applied during the first period. The few ex-post evaluations that were conducted by national administration did not provide credible indications on impacts and procedures, nor did they significantly help in the internal or external learning process. In effect, between 1989 and 1993 each national and regional administration implemented the first cycle of the cohesion policy heavily influenced by its previous experience with national regional policies. Adjustments to the new policy were made in restricted cases, such as Ireland and Portugal. Other member states (e.g., Spain, Italy and Greece) had difficulty in making a rapid adjustment to the new principles and procedures. The Commission’s ability to


oversee and control the implementation process left much to be desired even though they participated directly in the monitoring committees for each operational programme. Direct participation on the part of Commission personnel in the monitoring was no substitute for clarity in procedures and clear adherence to programming principles. As a result, national and regional governments were able to sidestep a number of rules and principles introduced by the new regulations. Despite the fact that during the second programming cycle the Commission continued to participate in the monitoring committees, the revision of the regulations undertaken in 1993 and 1996 sought to provide the Commission with a more strategic oversight of the operationalization of the programmes and to make certain that the rules were no longer an option to be accepted or rejected by the member state or region responsible for the implementation of the programmes. Adherence to the rules now had to become a sine qua non condition for the funds to be allocated and spent. An additional problem associated with the first programming cycle was the predominant role allocated to the public sector in the financing of the development programmes. In the 1989–1993 period the vast majority of the funds earmarked for development came from the public sector. The role of the private sector remained marginal in most member states. In 1993 a first tightening of the rules took place with the introduction of Regulation 2082, but the major shift took place in 1997 with Regulation 2064. The effect of the two Regulations was to sweep away the predominantly particularistic approach to implementation that took place between 1989 and 1993 and substituted it with a more transparent and homogenous procedure for implementation throughout the Union. The implementation of the 1994–1999 programmes continued, however, to run into recurring problems. During the 1996–97 period some governments opted not to spend EU funds swiftly in order not to increase national public spending and run afoul of the Maastricht convergence criteria. But there were also a number of examples of significant learning taking place. In the Italian case, the national government instituted a more formal reporting procedure so that the Ministry of the Treasury, responsible for the reporting of Structural Fund expenditures, could provide semesterly reports on what was being spent at the national and regional levels on the cohesion policy. The Greek government appointed managers to oversee large infrastructure projects and outsourced to private consulting firms the management of regional programmes. In a number of cases, Greece’s administrative regions were not up to the task of managing such a complex socio-economic programme. A basic shortcoming of the second CSF cycle continued to be the lack of systematic ex-ante evaluations of the 1994–99 programmes capable of providing unambiguous empirical targets that then could be verified in the intermediate and ex-post evaluations. Without an explicit empirical ex-ante evaluation it


was difficult to determine whether, in the final analysis, the programme objectives were being achieved. This problem was repeated at the individual project level where the empirical objectives of the interventions were not always stipulated beforehand and therefore projects were in a number of occasions selected to respond to local political commitments rather than on the basis of maximizing their added value and impact on the local socioeconomic structure. All in all, during the second cohesion policy cycle significant improvements were made in accounting for the expenditure of funds but less progress was achieved in making sure that the implementation was conducted in an efficient and effective manner. Such a guarantee could only be provided if the rules required a more systematic and thorough monitoring of the investment projects chosen from the very beginning of the programmes and by making sure that the final evaluation of the programmes provided a detailed analysis of how a sample of projects were conceived, managed and completed.19 Those exigencies were met in preparation of the third cycle in the EU’s cohesion policy. The formulation of Regulation 1260 was completed in June 1999 and introduced some significant changes in the administration of Structural Fund spending. In addition to the new Regulation, the member states and regions had accumulated eleven years of experience in managing cohesion policies, and therefore, had developed a series of good practices and had made a clear commitment to transparency in the implementation of the programmes. The combination of the new Regulation and the accumulated experience served to create an acquis or model of good governance for the use of Structural Funds. The 1999 regulations introduced two innovations that would prove to have significant and widespread effects on the implementation of the Structural Funds by member states and regions. The first was the introduction of the N+2 principle for transfers. According to this new rule the Commission transferred 7% of the total budget once the operational programme was adopted. Within two years the region or member state had to demonstrate that the amount had been spent or otherwise there would be an automatic clawing back of the sum by the Commission. The N+2 rule provided an incentive on the part of the managing authorities of the operational programmes to speed up the initiation of the programmes and not to procrastinate, as had been the case with the two previous cycles. The second major innovation was the introduction of the 4% reserve fund for all Objective 1, 2 and 3 programmes and linking the disbursement of this reserve to the performance of the regions and national governments in using the previous allocations of funds as documented by the “intermediate” or mid-term evaluation. Accordingly, the requirements linked to the disbursement of the performance reserve served to focus attention on the quality of the programme evaluation. In the 2000–2006 period evaluation


stopped being only a formal requirement on the part of the Commission to satisfy the formal provisions of the regulations. Instead, the intermediate evaluation became the central operation in increasing programme budgets and providing a rational basis for reconfiguring some of the interventions during the second half of the programming cycle.

3.3 The response of national and regional administrations to cohesion policy As we have suggested above, the system of governance applied to the administration of cohesion policy during the two programme cycles was not uniform in all member states and regions. The learning curve varied for different levels of government and different regions within member states as is evident from the number of evaluation studies conducted on the implementation of the Objective 1 programmes and Community Initiatives during the 1994–99 period. This section will look at what has happened in practice and how national and regional administrations reacted to the new planning and implementation procedures introduced by the more detailed Regulations 2082/93 and 2074/97. The literature on Europeanization has attempted to define the possible reactions to the process from a theoretical as well as analytical perspective. Tanja Borzel and Thomas Risse look at the domestic response to Europeanization as a reaction to a basic lack of fit between domestic structures and European requirements: “Europeanization must be ‘inconvenient’, that is, there must be some degree of ‘misfit’ or incompatibility between Europeanlevel processes, policies, and institutions, on the one hand, and domesticlevel processes, policies, and institutions on the other”.20 They argue that the response to the inconvenience of Europeanization has a number of possible consequences. It can lead to changes in the domestic opportunity structures, the redistribution of power among domestic actors, the capacity of actors to exploit opportunities and avoid constraints, and bring in new actors into the Europeanized policy process. In the case of particular policy areas the alternatives available to the domestic institutional actors are somewhat limited and the response needs to be provided within a limited time period. In a previous article on domestic responses to European environmental policies, Borzel used three effective images in outlining the possible responses: “pace-setting”, “foot-dragging”, and “fencesitting”.21 Claudio Radaelli added to Borzel’s categories one other potential response, retrenchment, which signifies the re-enforcement of the national approach to a policy sector as a means of warding off the impact of the Europeanization of a particular policy area. One of the weaknesses of the Borzel and Radaelli analyses of Europeanization is that they do not hypothesis which policy areas can be subjected to these alternative response. On our part, we would argue that retrenchment is not a possible response in the field of


cohesion policy because the choice of participating in the policy is voluntary, but once that choice has been made the policy applies to all participants, irrespective of their national institutional structures or administrative traditions. We propose the use of the definitions of the potential responses to the particular case of the ‘inconvenience’ of cohesion policy on domestic institutional structures as presented in Figure 3.2. Figure 3.2 operationalizes the three basic responses that have been generated at the national and regional levels with the initiation of the EU’s cohesion policy and the implementation of the Structural Funds according to the new rules and procedures. In the case of cohesion policy it would be wrong to assume (as was the optimum case represented in Figure 3.1) that just because new funds are made available for regional development there is an automatic response to or acceptance of the new rules and procedures on the part of the national and regional administrative systems. As we have already seen with regard to the funds still to be spent from the previous two funding cycles, the mere availability of funds does not always guarantee that they will be spent, to say nothing about whether they are spent efficiently and effectively. Figure 3.2 proposes three types of possible responses that we have termed negation, adaptation and learning.22 These three potential responses can, in turn, be differentiated according to the impact that they have: (1) at the individual level – i.e., individual members of the administrative structure or political leadership responsible for the policy; (2) at the level of the organizational structure; (3) on management outputs, and (4) on socio-economic outcomes or the ability to stimulate growth and development – i.e., the nature of the economic shock delivered and the response of the local and regional economy. We hypothesize that if a regional or national administration were to adopt a “negation” or “denial of change” strategy it suggests that the national/ regional political and administrative elites have, in essence, rejected the incorporation of the new rules and procedures into the way they manage the implementation of the cohesion policy and undertake to use (or not use) the available funds.23 Rejection on the part of the administration or political elites may not necessarily constitute an “irrational” response to the new regulations. In fact, the response may be completely rational from an internal administrative and political perspective. Non-compliance may be motivated by fears that the new approach will significantly undermine established internal procedures and political equilibrium painstakingly created over time. Thus, the “costs” of the new policy in terms of undermining the status quo and generating internal conflicts are evaluated to be counter-productive vis-àvis the assumed limited benefits produced by using the funds according to the rules and procedures suggested. In essence, the costs to the internal equilibrium within the political institutions and administrative structures are immediate and therefore considered to be greater than the external benefits

Type of Response Administrative dimension NEGATION

ADAPTATION

LEARNING

Individual

Rejections of new concepts, rules and procedures; no change; professional behaviour unchanged; general resistance

Minimal change in behaviour; passive application of new concepts, rules and procedures; adjustment gradual

Change in professional behaviour; new responsibilities accepted; socialization in new concepts, rules and procedures

Structural

Lack of use of new concepts, rules and procedures

Selective and formalistic application of new concepts, rules and procedures

Formal and substantive acceptance and diffusion of new concepts, rules and procedures

Management outputs

A critical transposition of objectives, lack of integrated planning

Partial use of objectives and methodological approaches in regional planning of operational programmes

Full transfer and use of objectives and CSF methodology; integrated planning; development of partnerships with socioeconomic actors

Impact on growth

None In 2000–2003 money is spent But no increase in GDP & jobs, and private investment

Minimal Expenditures produce partial change in GDP, job creation, private investment

Maximum Significant increases in GDP, job creation, private investment, group mobilization

Type of impact

81

Figure 3.2 Analytical framework for the implementation of the EU’s cohesion policy by type of response, administrative dimension and type of impact


to be accrued by civil society and the economy in the medium to long term. In this manner, the immediate administrative/political costs outweigh the medium to long-term socio-economic benefits produced by adhering to the rules and principles of the new policy. Based on this analysis “veto players” may be able to stop any attempt to bring on board the new rules and regulations. We hypothesize in the Figure that such a lack of response will most likely lead to a minimal use of available resources and that the net impact on socio-economic change or growth will be low or non-existent.24 The second major form of response has been labelled an “adaptation” to the new rules and procedures of the policy in a fairly passive manner. In contrast to the “negation” response, the new rules and procedures are incorporated by the national and regional administrations through a nonmaximizing approach that attempts to innovate as little as possible and to segment the policy during its implementation through the adoption of an ‘incremental approach’ or the ‘compartmentalization’ of the new policy into a narrow area of the public administration and political decisionmaking process in order to limit its impact on existing procedures – i.e., the attempt is to ensure that the impact is limited to the policy being administered and it does not spill-over into other policy areas. The emphasis in this approach is to accept the formal adoption of the changes but to limit the impact of their implementation in day-to-day administrative behaviour. As with the previous response, the maintenance of the administrative status quo for as long as possible is considered to be a higher good than the full implementation of the policy. Therefore, the extent of internal changes are reduced to a minimum, and what change is introduced has to be carried out in an incremental and gradual fashion. The outcome of this approach is that the bureaucracy adopts a non-maximizing approach and, therefore, is only capable of engaging in a partial expenditure of the funds due to the lack of adequate planning, management or reporting procedures. The consequence is that only a limited impact is produced on the local social and economic structure. Finally, the third response defined as “learning” reflects a full compliance with the new rules and regulations in an attempt to maximize the impact of cohesion programmes. In most cases such a learning response requires a significant restructuring of the available information base and the internalization of the new norms and procedures at the individual level and a substantial modification of existing procedures and behaviour within the organizational structures. The status quo and internal equilibriums are sacrificed to the task of fully implementing the policy in the hope of generating substantial socio-economic impacts on the current economic structure. Immediate administrative/political costs are accepted in the hope of reaping medium to long-term socio-economic results that maximize the development potential of the socio-economic context.


The data in Table 3.1 illustrate the fact that it was the least developed countries (Ireland, Portugal and Spain) that had the most success in spending cohesion policy allocations for Objective 1 areas during the 1989–1993 period and that success was then continued through to the 1994–1999 period. The more developed countries (e.g. Italy, UK, France and Holland) experienced greater difficulties in spending Objective 1 allocations during both periods. The “learning” response helps to facilitate the rapid institutionalization of the policy at the national and regional level and permits the full realization of “increasing institutional capacity” in line with the dictates of EU regulations and objectives of the cohesion policies. Learning may also require the creation of new “institutions” – i.e., offices or agencies – within the administrative structure to handle policy formulation, evaluation, and monitoring of policies and the recruitment of new personnel with the technical skills required by the policy management process. But learning may also stimulate the growth of existing institutional capacity to handle the functions necessary for a full implementation of the programme. What is important in the pursuit of both strategies is to bring the national, regional and local policy-making and implementation structure into line with the exigencies proscribed by the European regulations and this requires an intervention by the national and sub-national authorities on both the institutions as well as the rules governing the behaviour of those administrative system linked to the operationalization of the policy. Based on the framework presented in Figure 3.2 we can look at some specific examples of national and regional administrative behaviour that illustrate the variety of responses described. The implementation of a resistance or negation response may seem unacceptable for political reasons in less developed areas trying to close the gap vis-à-vis their more developed neighbours, but examples of this type of response are plentiful if we look at the difficulties encountered during the late 1980s with the implementation of the Integrated Mediterranean Programmes (IMPs) that were the forerunners to the 1989 Structural Funds reform and the first two cycles of the cohesion policy. Evaluations of the implementation of the IMPs showed that many regional and national elites feared that the adoption of an integrated planning approach and a strong coordination among sectoral departments would significantly undermine the autonomy and authority of individual political/administrative structures. The top administrators felt that the cost of compliance with the new rules would be too high in terms of redistributing power and influence. In Sicily and in the other three large southern Italian regions it was impossible to create a coordinated approach among the regional offices responsible for the implementation of various parts of the programme as required by the logic of the IMPs. It was felt that coordination would undermine the individual authority of the department heads and lead to a


concentration of power in the department responsible for coordination and planning or in the office of the president of the regional government. The result was that after five years into the life of the programme the level of implementation was minimal. By 1992 the Italian regions, as a whole, had spent only 17.5% of their allocations vis-à-vis 68.1% of the Greek and 57.8% of the French regions. Among the largest regions in the southern Italy expenditure levels were even below 5%.25 Other examples of “negation” can be found in the first two planning cycles in Italy and Greece for Objective 1 programmes and Community Initiatives such as Interreg. In these cases, the implementation of the programmes underwent long periods of delay of over two years before the authorities could come to terms with the new procedures. Midway through the first CSF programme cycle it dawned on many Greek and Italian officials that if there wasn’t a change in heart the two countries faced the prospect of loosing the funds allocated. As awareness of the Structural Funds spread, it became harder for political leaders and administrators to adopt a negation response. This was even more the case as multilevel and multi-actor governance processes began to kick-in with regard to the implementation of the policy. Examples of a negation response declined in the second programming cycle, and by the third cycle it was difficult to find among the member states and regions. By 2000 the Europeanization of regional policy has been acquired as a given reality that had to be accepted. It was finally understood that the Structural Funds could not be used in a way that did not reflect the roles and procedures dictated by the Regulations. In addition, the third cycle shortened the period of verifying the ability of the regions and national governments to spend their allocated resources and to produce results. Therefore, a strategy of postponement and delay became unviable due to the seriousness of the sanctions to be imposed – i.e., loss of the funds after two years and an overall cut in allocations. The processes of adaptation can be found in the initial negotiations between the Commission and individual member states: the UK, Germany and Italy who had initially different views on what should be the role of the Commission and what constituted a regional policy in the experience of the member states prior to 1989. This “lack of fit” between the Commission’s rules and procedures and those of the individual member states was then repeated in delaying the start-up of both the 1994–1999 programmes in all three countries and the 2000–2006 programmes in a number of member states.26 The adaptation strategy, therefore, becomes a common response in circumstances where there is a lack of fit between European and domestic rules and procedures, where the institutional capacity is not adequate to meet the requirements of the cohesion policy, and where the institutions to carry out the procedures are missing or have to be built. In other words, adaptation may be considered an intermediate position


between resistance and learning whose parameters and distinction vis-à-vis the other two responses are less clear and more difficult to distinguish in practice. If domestic institutions are not yet adequate to meet the needs of the EU regulations and time is necessary to build new institutions and increase the capacity of existing institutional structures, then adaptation represents a logical response until the adequate structures are in place and fully able to function. Another example of difficult adaptation to EU cohesion policy procedures is provided by the operationalization of the partnership principle in Germany’s Objective 1 programmes but also in those of France, Holland, and Ireland. In the past the implementation of development policies was a public responsibility. The private sector was considered to be a beneficiary of the policy rather than an integral part of the decision-making and implementation process. In Italy during the first two programme cycles the private sector involvement was translated for the national CSF Objective 1 programme as participation by national economic bodies, such as the state railway and road and telephone authorities, rather than by companies in the private sector. Participation by the latter was much more common in regional operational programmes. This approach was drastically changed in the third programme cycle where the private sector became a vital component in the programmes.27 In Germany a similar lack of flexibility greatly diminished the capability on the part of the programme to create synergies and coordinate its activities with private sector investments. The nature of the administrative response to the implementation of the cohesion policy can change over time. In fact, Figure 3.1 posited the prospect of a continuous learning loop as the policy was implemented and refined over the three programming cycles. It is completely feasible for countries and regions to have had initial difficulties in fully understanding and incorporating the policy at the beginning of the cohesion policy programming cycle as we have seen above. However, over time and through the accumulation of experience those policy instruments were increasingly incorporated and institutionalized into the way the policy has been effectively implemented by national and regional administrations over the last decade. Examples of “learning” and the adoption of maximization strategies are provided by the significant restructuring of administrative systems, which took place in Ireland and Portugal during the first planning cycle and the creation of management bodies, and the use of extensive external technical expertise in Greece. Italy also learned how to better manage its cohesion policy programmes by undertaking a radical revision of its administrative structures in 1997.28 Looking at the evolving content of the regulations informing the use of the Structural Funds, a certain learning process can also be identified at the European level – i.e., even within the Commission. This is particularly the case in relation to the rules and regulations on evaluation, the manage-


ment of the operational programmes, control over the expenditure and the reporting of expenditures. Thus, a fully operational system of multi-level governance applied to cohesion policies required on the part of national and regional administrations a flexible and evolving set of perceptions and behaviour that permitted individual administrators and organizational structures to remain abreast of the changes being introduced in the policy at the European level.

3.4 The impact of cohesion policy on policy-making and institutions Over the past fifteen years cohesion policy has played a crucial role in involving and broadening the base for the participation of a variety of socio-economic groups in European policy-making, but it has also been important in empowering sub-national levels of government in the area of EU decision-making and implementation. This process of empowerment has not been limited to only temporary effects on administrative structures but has instead been translated at times into constitutional change leading to a restructuring of nation-states. Such has been the outcome in relation to the recent Italian constitutional reform, which has substantially changed the nature of ties between central and regional governments.29 Other examples are provided by the introduction of devolved governments in Scotland and Wales, the strengthening of sub-national institutions in such states as Greece and Sweden, and in the introduction of regional government reform in the larger candidate countries from central and eastern Europe. In medium to large states a full exploitation of the positive effects of the cohesion policy can be enhanced through sub-national governmental institutions rather than by depending on a predominantly national approach. In smaller states both decision-making and implementation are concentrated at the national level. Whichever solution is adopted by member states to manage the cohesion policy, there is still a significant effort to learn the Community acquis on cohesion policy. This has been true, as we have seen, in older member states, as it will be the case for the new member states. The Community acquis on cohesion policy does not fit any one country or group of countries. Ex-post evaluations of the 1994–1999 programmes have argued that the existence of decentralized forms of government and administration does help to fine tune programmes to individual regional needs and to involve a broader base of grass roots organizations in the selection of priorities and participation in the implementation of projects.30 The existence of subnational forms of government capable of managing the implementation of Structural Funds also provides a greater legitimacy and transparency to the process. The participation of local groups and institutions is a lot easier if there are multiple regional programmes rather than if there is one, large

Cohesion Policy as Learning 87 Table 3.1 Structural Funds expenditures by country with Objective 1 regions 1989–1993 and 1994–1999 (MECU in current prices) 1989–1993

Greece Spain France Ireland Italy Portugal United Kingdom

EU Commitments

EU Payments*

%

7570.64 10970.52 1025.28 4161.34 8449.4 7994.61 861.86

6383 9619 861 3937 6179 7285 716

84 87 84 95 73 91 83

EU commitments

EU payments#

%

760.63 14227.9 14345.6 27269.1 2226.5 5793.3 15369.9 157.8 174.6 14421.5 2308

544.1 11547.6 10574.3 22467.5 1525.6 5041.2 10263.4 107.1 135.2 12950.4 1637.2

72 81 73 82 67 87 67 67 77 89 67

*As of 31 December 1993

1994–1999 Belgium Germany Greece Spain France Ireland Italy Netherlands Austria Portugal United Kingdom #

As of 31 December 1999 Source: ESOCLAB-LSE calculations based on Commission data.

national programme. At the national level there is a greater chance that national considerations and groups will crowd out local priorities. When decision-making is centralized at the national level it is more difficult for local civil society to become involved in the development process. Thus, the importance of the EU’s cohesion policy is to be found in both its potential socio-economic as well as in its political-institutional impact. The treaties have emphasized in the past the socio-economic objectives in increasing the production of wealth and a better balance in well-being among the regions of Europe. But the objective of reducing socio-economic disparities is not merely restricted to the economic field. Instead, it also reflects a basic political commitment to institutional reform in order to make public institutions and policy-making more responsive to the needs of the electorate.


For the new member states, cohesion policy will require further adaptation as they make the transition from the project mode (ISPA & Cohesion Fund approach) to the programmatic approach associated with the Structural Funds. During the next planning period, 2007–2013, the Cohesion Fund interventions will also be associated with a seven-year programme. Therefore, the differentiation between the Structural Funds and Cohesion Fund will disappear. The implications of this development are particularly important for the ten new member states. Heather Grabbe has argued that the impact of cohesion policy has been particularly noticeable among the candidate countries because of their former asymmetrical relationship with the EU (they were not on the inside) and the uncertain nature of the accession process. These doubts have been clarified in the new Commission proposal for the next planning period. Therefore, the new member states have three years to prepare themselves for full participation in the cohesion policy. The name of the game will be focussed on learning the Community method with regard to the ins and outs of the cohesion policy rather than wasting time on, using Borzel’s expressions, dragging one’s feet or sitting on the fence.31

4 Have Regions Converged? Sigma and Beta Convergence in Objective 1 and Other EU Regions between 1988 and 1999

4.1

Introduction

The definition and significance of cohesion has been hotly debated among political scientists and economists since the concept first made its appearance in the Single European Act (SEA), but it was with the subsequent Treaty on European Union (i.e., the Maastricht Treaty) of 1993 (Article B) that economic and social cohesion became one of the three primary economic objectives along with the Single Market and European Monetary Union (EMU). Many had argued that the full opening of national markets to European-wide competition and the elimination of the ability of member states to manipulate exchange rates to compensate for the decline in national and regional competitiveness would have a significant negative impact on less developed areas,1 and therefore, a significant change in the approach adopted by the European Union to the challenges of regional development in an open European market had to be implemented. The Europe of twelve member states which existed after the 1986 accession of Portugal and Spain was characterized by a strong “peripherality” – significant distance from core markets – of countries and regions that stretched from Ireland and Scotland in the north to Portugal, Spain, the Italian Mezzogiorno and Greece in the southern extensions of Europe. These peripheral areas suffered from a series of negative factors, such as, higher transport costs to bring goods to market, higher interest rates to borrow capital, lower levels of technological inputs into manufacturing, lower concentrations of entrepreneurial skills and skilled labour. In compensation, others argued that the less developed areas in the European periphery had significant advantages vis-à-vis the more developed areas as expressed by lower labour costs, the low cost of land, mixed economic bases thereby avoiding the dependence on one dominant sector, less urban congestion, a young labour force, and an under exploitation of 89


economies of scale in the industrial sector.2 The question that remained unresolved during the 1980s and even the 1990s was how these positive and negative factors would interact to promote development once the combined factors of a cohesion policy, a single market and a single currency were to be enacted.3 The review of the first fifteen years of the European Regional Development Fund (ERDF) presented in Chapter 2 clearly shows that during the 1970s and 1980s a strictly European regional development policy did not exist. The Commission was, in fact, limited to providing support to national regional development policies by transferring relatively small sums to member states as a way of compensating them for their regional development efforts. During the first year of operation of the ERDF (i.e., 1975) 4.8% of the EEC budget was allocated to member states on the basis of a quota system that closely paralleled the approach adopted in 1964 to create the Common Agricultural Policy (CAP) based on national quotas and annual allocations. By 1987 that sum had grown to only 9.1% of the EC budget. In using ERDF expenditures, there was no provision for the Commission nor for regions to decide how the money was to be used (i.e., the sectors and activities it should be supporting) nor was a system of oversight created to make sure that the money was not spent for other activities, such as expenditure unrelated to regional issues. The first real attempt to come to grips with the issues of regional development began in 1988 with the formulation of the new regulations for the Structural Funds (ERDF, ESF, and EAGGF-Guidance) that changed the rules of operation and permitted the three Funds to co-ordinate their activities in achieving a synergetic impact in the promotion of local development. Of fundamental importance in the new approach provided by the SEA was the ability to concentrate expenditures in the less developed regions as defined by the NUTS 2 regional classification of sub-national areas. The dual objectives of, on the one hand, doubling the funds available for the operationalization of the cohesion policy and, on the other, concentrating almost two thirds of that amount in the “Objective 1” regions went a long way in providing a real test for the development prospects of the less developed regions in a context of the imminent creation of the Single Market and the eventual introduction of European Monetary Union.

4.2

The measurement of convergence/divergence

As discussed in Chapter 2, the SEA did define the concept of cohesion and how it should be measured in subsequent evaluations. But the SEA could not establish what indicators would be used to test the objective that market integration combined with the cohesion policy (and eventually the introduction of the single currency) would serve to promote the convergence of the less developed regions toward the European mean in

Sigma and Beta Convergence in Objective 1 and Other EU Regions 91

socio-economic measures of well-being and thereby reducing the gap in social well-being and economic activity between the EU’s initially more and less developed regions. However prior to the initiation of the new cohesion policy, the Commission had published four studies on regional disparities in the EC (i.e., the Periodic Reports), and in these studies the variable that was commonly used to measure disparities was GDP per capita. GDP per capita had also been used by scholars prior to the Periodic Reports to determine whether regional economies had converged or diverged during the period between 1950 and 1970.4 The Single Union Act identified two basic ways of measuring economic and social cohesion. Economic cohesion was to be operationalized by the use of real GDP per capita and Purchasing Power Standards (PPS) per capita while social cohesion was to be measured by unemployment levels. Of course it is possible to use other indicators of cohesion, such as poverty, social exclusion, and income inequalities, but these other indicators are more difficult to tackle from an objective empirical and comparative basis. Normally, measures of GDP rather than GNP are used because the latter is not commonly available at the regional level. The GDP figure is used on a per capita basis rather than on a per worker basis due to the persistent differences in activity and unemployment rates that characterize countries and regions in Europe. Calculation of the average per capita of a region on the basis of the employed population could significantly hide differences in unemployment rates and differences in the number of people that are active in the economy. Comparative cross-national studies of GDP per capita have one persistent weakness: GDP may vary not only according to incomes and productivity but also due to the changes in exchange rates of national currencies. An exclusive use of GDP figures could produce convergence of levels of wellbeing as long as the national currencies of the weaker economies are appreciating vis-à-vis those of the more advanced countries. Or the reverse could be true: divergence could be produced by the persistent devaluation of national currencies irrespective of what was happening in terms of labour productivity or personal income. These inherent weaknesses in the comparability of the GDP figures over time is the main reason why the Commission adopted Purchasing Power Standards (PPS) per capita to measure the relative position of NUTS II regions vis-à-vis the European average. Purchasing Power Standards measure the ability of individuals to purchase a pre-established basket of goods in the local economy. In this manner the impact on the variation in exchange rates is eliminated and changes over time can be more clearly attributed to the changes in the ability of an economy to compete at the European level. It is for this reason that PPS per capita figures are used by the Commission to distinguish the Objective 1 regions (i.e., those regions falling below 75% of the EU average in PPS per capita) that are eligible for special aid through


the support provided by the EU’s Structural Funds from other regions in the European Union. Unemployment is the other important datum that is used by the Commission as a tool for the identification of the Objective 2 sub-regional areas that are eligible for EU support in the pursuit of policies to aid economic restructuring efforts in regions that are above the 75% PPS per capita threshold. Here, the relevant territorial classification is NUTS 3 which is equivalent in most countries to provinces, departments or counties. Through the 1990s there has been a steady process of harmonizing the methodology by which unemployment is defined by standardizing the questions asked in national surveys, and this has made the measurement of unemployment across countries and regions much more meaningful for comparative analyses.

4.3

Previous studies of convergence/divergence

The literature on the impact of cohesion policy is varied. It runs from econometric studies on regional disparities covering all member states of the European Union to case studies in particular countries. A number of these studies have been financed by institutions of the European Union (Commission and European Investment Bank),5 but many have also been produced by individual researchers carrying out independent studies. 6 Despite the fact that some studies arrive at the conclusion that convergence is taking place (the Commission’s 7th Periodic Report and the 2nd and 3rd Cohesion Reports) others arrive at diametrically opposed conclusions (for example, Boldrin and Canova). 7 Aside from the different methodologies used to measure convergence (standard deviations, interquartile ranges, Tukey boxplots, stochastic kernels and ergodic distributions), what differs previous studies are the following: 1) an inconsistent understanding of the content of the data bases used in running the regressions or correlation analyses. The most commonly used dataset is the one produced by Eurostat and which is contained in the REGIO and CRONOS datasets marketed by Eurostat. Few researchers are aware that this dataset has changed the definition of the units of analysis for NUTS 2 regions three times during the course of the last twenty years. The initial definition was proposed in 1977. The second was introduced in 1987 and the third was changed in 1993. Unless care is taken to maintain the definition of the units of analysis constant, divergence is produced by the mere addition of cases (through accession of new member states) or in the redefinition of regional boundaries.8 One of the most recent cases is provided by the 1993 redefinition of NUTS 2 regions in the UK when London was extracted from the Southeast region and subdivided between Inner-London and Outer-London, thereby


producing the substantial divergence between the PPS per capita scores for Inner-London of 246 in 1999 compared to 89 for Outer-London. 2) the inability to clearly distinguish the structure and content of regional or cohesion policies within the EU since the creation of the ERDF in 1975. In their 1991 ground-breaking study on convergence, Robert Barro and Javier Sala-i-Martin, did not make any assumptions about what was or was not incorporated into regional policy within the EU. Their study represented an analysis of the rates of convergence within large economies (i.e., EU, US and Japan) irrespective of what was or was not being done to spur convergence through governmental regional policies. However, since then, a number of economists have undertaken to test the Barro-Sala-i-Martin convergence hypothesis. Armstrong pushed back the analysis to the 1950s and included in the database three southern European member states (Portugal, Spain and Greece). He found convergence of regional economies, but the pace of that change proved to be slower than what was predicted by Barro and Sala-i-Martin (see Table 4.1).9 In a number of other cases (e.g., Boldrin and Canova, 2000) the analysis of convergence covers the period since the ERDF has been in existence. However, the authors make no distinction between the nature of the funding or the approach to development adopted by the ERDF before and after 1988. As we have seen above, prior to 1989 the EU’s regional policy was small in financial terms; it was spread out to cover all countries; it was not explicitly targeted toward underdeveloped areas; and no verification of programme, expenditure or implementation was possible. After 1989 four of these elements were present. Therefore, it makes sense to look at the relationship between the EU’s cohesion policy and the course of regional disparities only after 1988 because before regional policy was strictly in the hands of national governments and not an explicit target of EU cohesion policy. Before this date, all that the comparisons can show is the impact of market integration on regional disparities and not the impact of cohesion policies or ERDF expenditures on the less developed regions.10 3) then there are the “how much”, “when” and “where” questions to be resolved. Money that is allocated is not necessarily the money that is spent according to the financial prospectus contained in the national and regional operational programmes. It is even harder to know where funds for national operational programmes were spent. As of today, data on expenditures on cohesion policies on an annual and regional basis are not uniformally available. The 1989–93 programme was given a three year extension (1994–1996) to complete, but now we know that a large number of the first cycle projects were not completed by 1996 and many are still open. The 2003 objective of the Commission was to bring the 1989–93 CSF expenditures to a close by the end of the year but we know that this has not taken place. The same is true for 1994–99


programmes. In addition, the first five-year funding cycle was not provided with a system for the reporting of expenditures. As a result, it is impossible to identify where and when the funds were actually spent. This is an especially worrying problem with the multi-regional programmes which existed in Portugal, Spain, Italy and Greece. The second funding cycle, 1994–1999, had the possibility of spending the allocated funds until the 31st of December 1999 but then it was prolonged until 31 December 2001. With the second funding cycle it is possible to do an analysis of the region-by-region expenditures in the 1994–99 period, but it is still not certain when these expenditures were actually carried out – i.e., in 1994, 1995, 1996, or after. Thus, we are limited in the analysis of measuring the impact of the cohesion policy expenditure on annual changes in regional income and unemployment because the expenditures of 1994–99 CSF allocations were brought to a conclusion on 31 December 2001 but a number of member states still have to finalize their expenditures. Given these limitations, it is difficult to identify the causes of convergence, assuming that convergence does take place. What we will try to do in this chapter is to look at the trends which manifested themselves in regional productivity and income and unemployment over the 1980s and the 1990s in order to hypothesize whether the EU’s policy has had an impact in the EU’s less developed regions in reducing disparities and achieving the objective of a more cohesive and integrated Europe. We are not yet in a position to test empirically whether there is a causal link between rates of regional convergence and the EU’s cohesion policy, but we will try to measure what happened in the period 1988–1999 to the rate of convergence among the EU regions vis-a`-vis earlier periods. The analysis will attempt to distinguish what happened to regional convergence rates for Objective 1 and non-Objective 1 regions. A distinction will also be made in what happened to the rate of convergence before 1988 and after 1988 in the Objective 1 regions. Our measures of convergence will be based on two criteria: sigma and beta convergence.11 The traditional theories on convergence are derived from the neoclassical economic growth model proposed by Robert Solow (1956) that proposed the fundamental nature of savings and increases in population as the factors promoting the growth of capital stocks in a particular economy and determining the steady-state level of growth in pro-capita wealth in the short run. Nevertheless, the model in question is not able to explain the phenomenon of persistent growth that one finds in the major part of modern economies. Thus, it was necessary to introduce the role of technological change into the model as an exogenous variable capable of justifying long-term economic growth.12 In addition, the traditional analysis of the concept of convergence assumes a decline in the returns to scale, thereby


proposing that the more backward areas will grow at higher rates than those of the more advanced economies. We will use as the fundamental base for our analysis of regional convergence the concepts of sigma and beta convergence introduced by Barro and Sala-i-Martin (1991). According to these concepts, we have sigma convergence when there is a reduction in the dispersion of per-capita incomes over time. In other words, if we use standard deviation as a measure of dispersion, we have sigma convergence when σt+T < σt, where σt is the standard deviation of the logarithm of GDP of the i-th economy at time t (log (yi,t) and T is the period of time considered.13 We need, however, to add that the analysis of sigma convergence does not allow us to identify the causes of this convergence in that we are not able to establish if the result is due to the higher economic growth produced by less developed regions, decrease in the unemployment and/or increase in activity rates in the less developed areas or by lower levels of growth, increases in unemployment rates or decrease in activity rates in the more developed areas.14 Beta convergence refers to an analysis of cross-sectional data, relative to an aggregate of – in our case – regional economies that highlights the negative correlation between the rate of growth in per-capita income and the relative initial value. In other words, we have beta convergence when the less developed economies are growing faster than the developed ones. To explicitly define the concept of beta convergence based on relevant cross sectional data on GDP per capita for a number of economies, we can define γi,t,t + T = (yi,t + T/yi,t)/T as the yearly growth of GDP between t and t + T (where T is the period of reference). If we estimate the model:

( )

␥ i,t ,t +T = ␣ − ␤ log y i,t + ε i,t ,

(1)

and we find the parameter β > 0, then we can affirm that we are in the presence of (absolute) β-convergence. It would be useful at this point to underscore how the two concepts of sigma and beta convergence are connected. In fact, if we refer to the variation of log (yi,t) of equation (1), keeping in mind that the rate of growth is the difference between log(yi,t + T) and log (yi,t) divided by T, we obtain a relationship between σt + T and σt, that depends from β. Using intuitive logic it is easy to understand that if the income levels become increasingly similar over time this is due, most likely, to the fact that the weaker economy is growing at rates higher than that of the stronger economy. This result can be demonstrated clearly in Figure 4.1 that tracks the relative income levels of two economies, A & B, in two distinct periods, t and t + T; as is illustrated in the graph the distance between the two levels of income distribution (in our case the σ dispersion), at time t + T has decreased and this is due to the fact that economy B has grown much faster as is required by the concept of beta convergence.


A Log (GDP)

B t Figure 4.1

t+T

Time

Upward convergence by poorer regions

Nevertheless, it is possible to propose another distinction with regard to beta convergence by introducing the concept of “conditional” beta convergence that is derived from the presence of differences in structural characteristics between the units analyzed, and in this case we can have different steady state conditions, with the result that the level of per capita income does not tend to be equal in all of the economies considered. Instead, the latter situation appears in the presence of “absolute” beta convergence that suggests a convergence of all of the economies analyzed toward one single steady state. In De la Fuente (1997) we find a proposed model for the empirical analysis of convergence that essentially reflects the one proposed by Barro and Sala-i-Martin and is defined by the equation: ⌬y i,t = x i − ␤y i, y + ε i,t

(2)

where y is the relative income level, Δyi,t is the approximation of the rate of growth, β is the convergence coefficient, xi a vector of fundamentals and ε the term of stochastic disturbance. On the basis of what appears above, we are in a situation in which “conditional” beta convergence is present when β appears between 0 and 1, while “absolute” beta convergence also implies an identical xi for all of the sample.15 Armstrong and Taylor have reported that beta convergence has been much slower during the period 1950 and 1990 than had been initially estimated.16 Table 4.1 reports the findings published by Armstrong and Taylor and Sala-i-Martin. In the Table we can see that, despite the huge difference in the time period covered, the beta convergence in the EU is slightly lower than in the US while beta convergence in some member states is higher. In Italy the beta convergence is lower (i.e., 1% per annum). The sigma convergence in the US has practically stopped with the same score registered in 1970 and 1990. For certain member states (Spain, Italy

Table 4.1

Beta and sigma convergence across time and countries Rate of convergence

Country

US Japan Europe Germany Sweden UK France Italy Spain Canada

N. regions

48 47 90 11 24 11 21 20 17 10

Period

1880–1990 1955–1990 1950–1990 1950–1990 1911–1993 1950–1990 1950–1990 1950–1990 1955–1987 1961–1991

(Beta convergence)

Differences in regional GDPe (Sigma convergence)

% Per annum

1940

1950

1970

1990

0.35 0.63

0.24 0.29

0.17 0.23

0.17 0.15

0.26

0.31 0.15 0.17 0.21 0.43 0.34

0.2 0.1 0.1 0.17 0.33 0.27

0.19 0.07 0.12 0.14 0.27 0.22

1.7 1.9 1.5 1.4 2.4 3 1.6 1 2.3 2.4

Source: Our analysis plus data in Harvey Armstrong and Jim Taylor, Regional Economics and Policy, Oxford: Blackwell, 2000, p. 83.

97


and France) there has been sigma convergence when we compare the 1970 and the 1990 figures. In the UK sigma convergence has been reversed in 1990 which is a finding corroborated by the ESOCLAB study for the Cohesion Fund (Commission, 1999). In the 1996 study carried out by Salai-Martin, the most convergence in the cohesion countries was taking place in Greece and much less convergence characterized Spain. In Danny Quah’s study carried out for the ESOCLAB (Commission, 1999) of the rates of convergence in the four cohesion countries17 plus the UK, France and Italy showed that in Portugal, through the massive growth of the Lisbon area, was moving toward a twin peak phenomenon or divergence. With regard to the rest of the EU regions, the study concluded that: … most of the interesting changes across Europe are simply hidden at gross levels of disaggregation. This becomes especially clear when individual non-Cohesion EU member states are studied: the UK shows the greatest increasing regional disparity, with that in France and Italy growing only roughly in step with overall growth. But in France and the UK this increase in inequality is due primarily to only a small number of leading regions; Italy, on the other hand, shows an emerging polarization, even if its overall measures of regional cohesion do not increase dramatically through time.18

4.4 4.4.1

The analysis of the regional data, 1988–1999 Convergence in term of PPS

The objective of the cohesion policy stipulated in the Single European Act was that over time the levels of economic well-being and unemployment in the less developed regions would converge toward those of the more developed areas of the European Union – in other words, that both beta and sigma convergence would take place. The data presented in Figure 4.2 covers the period between 1988 and 1999 when the first two cycles of the Community Support Frameworks were carried out. The number of cases covered is 184 NUTS 2 regions. 19 For Objective 1 it was possible to collect income per capital data on 51 NUTS 2 regions. As can be seen in the two graphs (2 and 3) in relation to sigma convergence, there has been an almost negligible rate of convergence between 1988 and 1999. The average went from 0.27 to 0.26 in 1999. The Objective 1 regions, however, have registered a more significant though uneven change in sigma convergence by moving from 0.19 in 1988 to 0.16 in 1995–96 and returning to 0.18 in 1999. One of the factors that we should not forget in interpreting these results is the significant impact of the change in methodology undertaken by Eurostat in the calculation of PPS which produced divergence results within individual member states.

Sigma and Beta Convergence in Objective 1 and Other EU Regions 99 0.35

0.3

0.25

0.2

0.15 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ESA 95

Figure 4.2

ESA 79

Dispersion of GDP per capita in EU15 regions, 1988–1999

For the measurement of beta convergence we have used three sets of regions: first, 189 NUTS 2 regions covering the entire EU; second, 51 Objective 1 NUTS 2 regions; and third, the other 138 non-Objective 1 NUTS 2 regions. To test for beta convergence we have used the model traditionally derived from Barro and Sala-i-Martin but re-elaborated by Quah.20 ⎛ 1 − e − ␤t ⎞ T −1 Yi (T ) − Yi (0) = a − ⎜ ⎟ Yi (0) + ui (T ) ⎝ T ⎠

[

]

(3)

where Y represents the logarithm of pro capita income; the right-hand part of the equation represents the long term rate of growth, β the rate of convergence and u the residual component. Reorganizing the parameters of the equation (3), we have:21 T −1Yi (T ) = a + e − ␤T .T −1Yi (0) + ui (T )

(4)

Also in this case, as was illustrated before, the control variables that usually are inserted in the regressions between countries (xi in equation 2) have not been included in light of studies that have demonstrated that their presence does not influence the estimates of the β score.22 In addition, testing the hypothesis of absolute beta convergence represents an attempt to verify the rate of regional convergence in light of the main objective of EU cohesion policies of reducing regional differences. Table 4.2 illustrates the results for the EU regions between 1988 and 1999 and the differences registered by the beta scores for Objective 1 and nonObjective 1 regions. With regard to the Objective 1 regions the data show that there has been a strong level of convergence as illustrated by the beta

100 Cohesion Policy in the European Union Table 4.2 Beta convergence in Objective 1 and Non-Objective 1 regions, 1988–1999 1988–1999

# Regions

EU 15

189

Obj. 1 regions Non-Obj. 1 regions

51 138

ß

R2

1.4 (0.03) 3.9 (0.01) 0.2 (0.005)

0.84 (0.01) 0.60 (0.01) 0.73 (0.009)

score (3.9).23 The value of the beta coefficient is statistically significant and triple the level estimated by previous studies. This result implies a strong reduction in disparities within this group as well as the reduction of the gap between this group and the other EU regions. This aspect emerges from both the absence of convergence among the non-Objective 1 regions as well as in the distribution of relative income in Figure 4.4. With reference to the entire sample of EU regions we have arrived at a beta score that is similar to the one obtained by Armstrong for the regions of the twelve member states for the period 1950–1990 with a beta per annum percentage of 1.5 compared to our 1.4 for the period 1988–1999. This result is very significant and allows us to argue that in Europe there is a significant trend in the reduction of regional disparities as expressed by GDP per capita scores, and that this convergence is based essentially on the upward convergence of the poorer regions in the EU. In addition, comparing the sigma and beta convergence data for the US and the EU which appear in Table 4.1, there seems to be a significant similarity with the data 0.35

0.3

0.25

0.2

0.15 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ESA 95

Figure 4.3

ESA 79

Dispersion of GDP per capita in Objective 1 regions, 1988–1999


EU 15 50 40 30 20 10 0 20

60 100 140 180 GDP% (UE 15 = 100)

220

Objective 1 Regions 20 1988

15

1999

10

5

0 25

50

75

100

125

GDP% (UE 15 = 100)

EU15 (excluding Objective 1 Regions) 40

30

20

10

0 50

100

150

200

Relative GDP (EU15 = 100)

Figure 4.4 and 1999

Comparison of GDP density function by three regional groupings, 1988


of our analysis in terms of both sigma and beta convergence. Our sample is much bigger and therefore so is the possible dispersion to say nothing of the different levels of integration that was brought about in the US through the existence of a federal government with vast resources for over a century in relation to the level of integration and the availability of limited resources at the European level over the past twenty years to promote significant rates of convergence. This result would indicate that we should look at the EU integration process in a new light even when we look at what has happened with regard to the rate of beta convergence in a few large member states such as France, Germany and Italy. The analysis of the level of beta convergence supplies results that represent average values of the units of reference, but it does not explain the dynamics of how the average incomes have changed. It is therefore useful to look at the density function, appropriately normalized, of the GDP variable in order to better understand the changes over time. Figure 4.4 demonstrates that interesting patterns in the distribution of income relative to the European average in the period between 1988 and 1999 have taken place within the three groups of regions we have analyzed above (i.e., all EU regions, Objective 1 regions, and non-Objective 1 regions). In the first place, there has been a decrease in the dispersion in GDP per capita in Europe’s less developed regions and an increased concentration of these regions towards the European mean through the mechanism of higher rates of growth. In contrast, there has been an almost stationary situation with regard to the non-Objective 1 regions in terms of concentration and therefore convergence. 4.4.2

Unemployment

As stated at the beginning of this chapter, if economic cohesion is operationalized through measures of income per capita, that of social cohesion is operationalized through the creation of new employment opportunities for citizens or through the reduction of unemployment levels. The data on unemployment present in Figure 4.5 show that the trends over the last twelve years have been fairly uniform throughout the European Union. The variation and trends demonstrated by the unemployment figures for Objective 1 regions have fundamentally followed that which were traced by the fifteen member states as a whole. Unemployment rates fell in the Objective 1 regions parallel to their fall in other non-Objective 1 areas. They went back up during periods of recession, and once again headed downward when the national economies began to grow after 1997. It is worthwhile noting that the differences between the two rates has grown by two percentage points after the slowdown in Europe’s regional economies (the gap went from 8.9%/14.3% in 1992 to one of 10.8%/18.2% in 1996). After 1996 the gap remained fairly stable. It fell by less than one percentage point in 2000.


4.4.3

Levels of employment

The gap between levels of employment has also remained fairly stable over the period being considered. As illustrated in Figure 4.6 the gap was nine percentage points in 1988 and ten percentage points in 1999. The maximum difference was achieved in 1995–96 when the gap increased to eleven percentage points. This demonstrates that during the period of economic recession the impact on poorer regions was more severe. But they also demonstrate a livelier response on the part of the Objective 1 regions at the end of the decade than their counterparts in the rest of the European Union. 21 18 15 12 9 6 3 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 EU15

Ob.1 Regions

Figure 4.5 EU unemployment rates (%) for EU15 and Objective 1 regions, 1988–2000 70 65 60 55 50 45 40 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 EU15

Figure 4.6

EU12

Ob.1 Regions

EU employment rates (%) for EU15 and Objective 1 regions, 1988–2000

104 Cohesion Policy in the European Union 58 56 54 52 50 48 46 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 EU15

Figure 4.7

4.4.4

EU12

Reg. 1

EU activity rates (%) for EU15 and Objective 1 regions, 1988–2000

Activity rates

One of the objectives of EU employment policies is that of increasing participation in the workforce that is measured by activity rates or the relationship between the population between the ages of 15 and 65 and the number of those employed. The relatively low activity rates of the past were mainly produced by the low participation rate among women or by the early retirement of workers. The data in Figure 4.7 demonstrate that there was an increase in the gap between Objective 1 regions and the rest of the EU from the beginning of the 1990s until 1997. After, there seems to be a slight tendency to narrowing the gap through an increase in activity rates among the Objective 1 regions.

4.5

Conclusions

The empirical analysis presented in this chapter covers a relatively short period of time (1988–1999), and it is not sufficient to evaluate long-term convergence trends. However, the results presented are of great interest. In the first place, the data presented on Objective 1 regions show that they have made great strides in reducing the per capita income gap with respect to the other parts of the European Union. This finding is supported by both measures of sigma and beta convergence. Second, if there is a convergence of income levels, there is not an equivalent trend in the reduction of the gap between Objective 1 and nonObjective 1 regions in terms of rates of unemployment, employment, and participation in the workforce. Only in the period 1997–1999 has a reduction


of the gap in three indicators been achieved, and if these trends are confirmed in the post-2001 period, then considerable advances in multifaceted aspects of economic and social convergence may have been achieved. The data presented in this chapter fully justify the approach to regional development adopted by the European Commission in the late 1980s and pursued within the context of the first three CSF cycles. In particular, the concentration of resources in the most backward areas (i.e., the Objective 1 regions) has been vindicated as an important accelerator in regional growth. What the data in Figure 4.4 clearly demonstrates is that in the EU we have not had the phenomenon of polarization that Danny Quah found at the world level – i.e., the emergence of a “twin peaks” phenomenon where the rich become richer and the poor become poorer. Based on these results, it is difficult to understand how Mark Pollak and others can maintain that EU cohesion policy represented a “side payment” in order to buy the reluctant support of less developed countries and regions for the Single Market, knowing full well that the increase in funds would not buy them competitiveness or increase their well-being vis-à-vis Europe’s richest regions.24 If the cohesion policy has reduced the gap in regional disparities for the regions with initially the lowest levels of development, what impact has it had on those areas previously covered by the old Objectives 2 and 5B and now the new Objectives 2 and 3 that aim at reducing differentiated rates of unemployment and induce greater entry into the workforce on the part of both sexes? Our analysis has demonstrated that the previous Objective 2 and 5B programmes have not had a substantial impact in accelerating beta convergence in GDP per capita nor have they reduced regional dispersion as measured by sigma convergence. This outcome can be accounted for by the reduced amount of resources used to finance these programmes and the territorial focus of these interventions at the sub-regional level or even at restricted areas at the sub-provincial level. To analyze the impact of these programmes it would be more appropriate to use data at the NUTS 3 level rather than at the NUTS 2 as has been the case with our analysis above. In a recent study carried out by the Tuscan Region on the impact of Objective 2 and 5B programmes at the provincial level, it has been pointed out that in the provinces with access to these programmes there has been a positive response in terms of higher levels of economic growth, reduction in unemployment and job creation.25 These results suggest that the study of impact should reflect the territorial boundaries within which the programme is implemented. Higher levels of aggregation at the regional level when the programmes are in reality focused on the province or even subprovincial level will only serve to water down the measurement of the overall impact of the programme and produce unreliable analyses. These results seem to suggest that once the 2000–2006 cycle for Objective 2 programmes is brought to an end it would be an error to fully “de-territorialize” Objective 2 programmes as suggested by some regional authorities.


Instead, it might be more useful to restrict even further the designation of the areas where these policies should be implemented in order to concentrate the impact and therefore outcome of the programmes. What the initial results of programme evaluations show is that Objective 2 programmes in advanced economic areas should be co-financed to a much greater extent than is now the case by the private sector given that the private sector is the main beneficiary of such programmes. The same logic should apply to Objective 3 programmes that are now extended to the entire region rather than to those areas most in need of re-qualifying their workforce or those sectors of the population (women, youth, immigrants, handicapped, etc.) that have encountered difficulties in entering the workforce and need a specific form of professional training required by the local economy. In conclusion, this chapter has been able to answer the question of what has happened to the rates of convergence between 1988 and 1999 in Europe’s Objective 1 and non-Objective 1 areas. While sigma convergence has remained problematic, beta convergence has shown significant progress. The Objective 1 regions are growing at a faster pace than other regions in Europe, and the rate of convergence compares favourable with convergence rates in the US and within individual member states since the post-war period. This conclusion is of primary importance for the candidate countries that entered the EU in 2004 and became significant beneficiaries of EU cohesion policy. We have still not proved that the significant rate of beta convergence is due to the implementation of the EU’s cohesion policy. But the comparison with the Armstrong data on beta convergence between 1950 and 1990 shows that after 1988 the rate increased three-fold for the Objective 1 regions vis-à-vis the EU regions as a whole and that the non-Objective 1 regions demonstrated no beta convergence during the same period. To prove that the cohesion policy was the causal element in the strong beta convergence we would need annual Structural Fund expenditure data at the regional level and that datum is still not available.

5 Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe?

5.1

The Mezzogiorno in comparative perspective

The Italian Mezzogiorno, consisting historically of eight regions,1 has contained Objective 1 regions since the beginning of the Community’s cohesion policy in 1989. Even before that year, the Italian South as a whole (rather than the regions as distinct institutions) was the recipient of an extensive national development policy that began in the immediate post-war period. In 1950 Italy inaugurated its ambitious drive to develop the South by creating with law 646 the Cassa per opere straordinarie di pubblico interesse nell’Italia meridionale (Casmez) or “Fund for extraordinary projects of public interest in southern Italy”. As was the case with the EU’s cohesion policy, the primary goal of the Italian national policy was to reduce the gap that differentiated socio-economic levels in terms of wealth, levels of consumption, and employment opportunities present in southern Italy from those that existed in the rest of the country. Reflecting the existing thinking on regional policies at the time that conceived regional development as an instrument to stimulate the growth of specific economic sectors – e.g., manufacturing industry, agricultural production, etc.–, the Casmez was given the responsibility of administrating a national development policy for key economic sectors of the South. The policy was not targeted toward specific regions. Instead, it was sectorially oriented – i.e., it focussed on specific economic sectors as a means of spurring the overall socio-economic development of the southern areas. Thus, the Casmez experiment began with investments in land reclamation, reforestation, and water supply projects to basically help modernize southern agricultural production. In 1959 industrialization was added as a goal for the operation of the Casmez through the designation of the first industrial growth poles. The poles were conceived as important foci for public investment and development based on vertically organized, capital intensive facilities operating in the manufacturing of steel (Bagnoli in Naples and Taranto), petrochemicals 107


(Brindisi and Gela), oil refining (Gela and Milazzo) and automobile manufacturing (Termini Imerese and Termoli). Six years later tourism was inserted as an important economic sector. In 1965 the Casmez also initiated social programmes to aid particularly impoverished areas in terms of income maintenance schemes. This was the first time that an explicitly territorial component was inserted into the intervention, but it was more for purposes of providing specific handouts to specific areas rather than to launch territorially based development plans focused on a differentiation of regional needs. Twenty-one years later the Casmez had run its course. Its initial financial allocation had been exhausted, and it was now time to rethink the whole Casmez experience. However rather than closing down the Casmez completely, in 1986 a new agency was created: the Agency for the South (Agensud) through law 64. With the 1986 legislation the national government reaffirmed its strong commitment to the South, but surprisingly it continued to ignore the existence of the regional governments that after 1972 and 1976 had been granted powers by national legislation in the areas of territorial planning and economic development. Nevertheless, the Agensud was given a ten-year financial allocation and demonstrated very little willingness to consult with regional governments in setting development priorities and financing projects in specific regions. The Agensud never fulfilled its full mandate. In 1992 the Amato government unexpectedly terminated the Agensud without the creation of an alternative mechanism for administrating national regional development policy. As a consequence, all further interventions were redirected through EU cohesion programmes and ad hoc national regional policy measures. What is striking about the four-year period between 1989 and 1992 is that the South was the recipient of two development policies: the first and largest was the national one and the second was the European policy. The national regional development policy was supposed to pump into the South the equivalent of approximately 4.3 billion ECU a year while the Structural Funds provided 2.9 billion ECU a year contribution. Such a large financial outlay became unbearable for the national budget once the 1992 Maastricht Treaty was signed. Something had to be cut, and what went on the block was the independent national development policy. The termination of the Agensud had a crippling effect on the southern regional economies. All of a sudden, the South found itself devoid of the national funds that had for over forty years financed public investment. The eight southern regions were called upon to assume a role that previously had not been theirs – i.e., the responsibility for conceiving and administrating regional development policies.2 That shift in funding source and increased institutional responsibilities was accompanied by the “Clean Hands” judicial investigation of public contacts. For a number of years it was impossible to continue financing public works projects or stipulate new

Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe? 109

contracts in both the North and South of the country. As a result of these developments, in 1993 the Mezzogiorno entered into a period of recession that lasted until 1996.

5.2 The impact of the Casmez and Agensud interventions on the regions Despite the initial allocation of one thousand two hundred billion lire (600 million euros) for the Casmez (decade of the 1950s) and then 87 thousand billion lire (43 billion euros) managed by the Agensud for the period 1986 onwards (both allocations were estimated to be worth an annual GDP shock of 4%), the socio-economic differences between North and South were not reduced. The gap between the southern regions and their centrenorth counterparts remained substantially the same. In 1950 GDP per capita in the North was 3.81 time higher than in the South. Thirty-five years later that ratio was still 3.78/1.3 In a similar fashion GDP per capita scores also did not change significantly after 1989. Table 5.1 presents data for all of the regions that were given Objective 1 status during the first cycle, 1989–1993, of the cohesion policy. Looking at the GDP figures for the member states we see that the position of Italy, as a country, has remained constant and close to the EU average (i.e., 101%) throughout the period. France, as a whole, has declined from 106.1% to 101.1% during those twenty years while the UK has risen from an average per capita GDP of 97.5% in 1989 to 105.4% in 2001. The same upward trend characterizes the four “cohesion” countries of Greece, Ireland, Portugal and Spain.4 Ireland almost doubled its GDP per capita score during the two periods (1989 versus 2001) while Spain and Portugal added almost ten percentage points increases to their initial scores in 1989. Greece gained slightly less, +8.3%, during the same period with a lot of its growth coming after the mid-1990s. The East German laender have also demonstrated spectacular growth, and they started in 1991 with the lowest levels of GDP in all of the European Union. The figures at the regional level reflect the static nature we have observed at the national level with regard to Italian regions vis-à-vis their counterpart in other peripheral areas of the EU. Indeed, the data suggest that very little has changed in relation to the GDP scores for the eight southern regions with the exception of Basilicata. What is interesting to note in the 2001 vis-à-vis the 1989 figures is that four of the southern Italian regions have always been close to overcoming the threshold figure for Objective 1. Three – Abruzzo, Molise and Sardinia – have hovered closed to or above the 75% GDP per capita mark from the very beginning. In fact, in 1994 Abruzzo finally exited from Objective 1 in recognition that according to its GDP score it should never have been assigned Objective 1 status. In 2000 the second Italian southern region to exit Objective 1 was Molise. Sardinia

Comparison of GDP per capita (PPS) in Objective 1 regions in 1989, 1994 and 2001 1992

1994

2001

EU

100

100

100

Germany Brandenburg Mecklenburg-Vorpommern Sachsen Sachsen-Anhalt Thuringen Member States & Regions

105.2 44.6 44.5 43.0 41.3 41.0 1989

110.4 71.8 70.1 70.8 67.1

100.4 67.0 65.9 67.3 65.3 66.2 2001

1994

Diff. 92–01 100 –4.8 22.4 21.4 24.3 24.0 25.2 Difference % 2001/1989

France Corse

106.1 78.6

104.5 77.1

101.1 79.9

–5.0 1.3

Greece Anatoliki Makedonia, Thraki Kentriki Makedonia Dytiki Makedonia Thessalia Ipeiros Ionia Nisia Dytiki Ellada Sterea Ellada Peloponnisos Attiki Voreio Aigaio Notio Aigaio Kriti

58.8 49.6 56.7 62.0 52.8 41.5 49.4 46.0 55.7 52.4 63.2 47.5 66.6 57.9

64.9 54.5 63.5 58.7 56.1 42.7 55.5 52.0 56.6 53.2 73.9 57.4 73.4 64.5

67.1 53.4 67.1 67.7 60.2 54.0 59.9 52.7 94.9 63.9 71.2 62.0 76.5 64.4

8.3 3.8 10.4 5.7 7.4 12.5 9.5 6.7 38.2 10.5 8.0 14.5 9.4 6.5

110

Table 5.1

1989

1994

2001

Diff. 89–01

Spain Galicia Principado de Asturias Cantabria Castilla y León Castilla-la Mancha

74.5 58.8 68.7 72.0 66.9 62.6

77.8 61.8 70.0 72.3 72.4 65.4

84.2 66.5 72.4 82.7 78.0 67.1

9.7 7.7 3.7 10.7 11.1 4.5

Comunidad Valenciana Extremadura Andalucia Murcia Ceuta y Melilla (ES) Canarias (ES)

75.2 44.9 55.8 66.3 56.4 71.6

75.5 51.6 58.0 66.6 60.0 73.5

81.1 53.5 63.1 71.2 68.0 79.1

5.9 8.6 7.3 4.9 11.6 7.5

Italy Abruzzo Molise Campania Puglia Basilicata Calabria Sicilia Sardegna

101.1 85.5 76.7 67.0 67.4 64.1 60.4 63.7 74.1

102.9 87.9 77.7 66.7 68.2 69.3 60.2 67.2 78.6

101.1 82.8 78.1 65.1 65.0 70.5 62.1 65.3 76.0

0.0 –2.7 1.4 –1.9 –2.4 5.4 2.7 1.6 1.9

Portugal Norte Centro (P)

61.1 50.7 45.6

70.1 59.8 55.5

70.7 56.9 57.9

9.6 6.2 12.3

Table 5.1

Comparison of GDP per capita (PPS) in Objective 1 regions in 1989, 1994 and 2001 – continued 1992

1994

2001

Diff. 92–01

Ireland

65.4

87.3

117.6

52.2

United Kingdom Northern Ireland

97.5 72.2

98.2 79.0

105.4 82.4

7.9 10.2

Lisboa e Vale do Tejo Alentejo Algarve Açores (PT) Madeira (PT)

1989

1994

2001

Diff. 89–01

83.3 59.2 60.4 42.9 47.0

93.4 56.7 66.3 50.2 59.0

94.7 60.7 72.4 55.0 78.4

11.4 1.5 12.0 12.1 31.4

Source: ESOCLAB LSE Elaboration of data from EUROSTAT.

111


was saved from transition outside of Objective 1 by a difference of 0.2%! Current GDP per capita scores for Sardinia suggest that the region will exit from Objective 1 in the subsequent cycle of cohesion policy (2007–2013). This group of three relatively well-off small, southern regions has recently been joined by Basilicata, the region (population of 604,000) sandwiched between Puglia and Calabria in the instep of the Italian boot. In contrast to these four smaller southern Italian regions, the other four southern regions (Campania, Puglia, Calabria and Sicily) – which are larger in terms of population and territory – have throughout the 1990s and during first two years of the century remained anchored to where they were in 1989 in terms of relative GPD per capita. In other words, their socio-economic status and GDP scores vis-à-vis their counterparts in the rest of the country and in the rest of the European Union have not significantly changed over the last two decades. This point is emphasized by the data in Figure 5.1 that show very little change in the relationship between the GDP of the southern Italian regions vis-à-vis their northern counterparts between 1963 and 1999. The graph suggests that basically little has changed since 1966 in the reduction of the development gap between northern and southern Italy. Looking again at the regional scores in Table 5.1, we note that in other Objective 1 areas the tide of growth seems to have “lifted all boats”. In Greece the islands regions of the Northern and Southern Aegean (Voreio

0.07

0.06

0.05

0.04

0.03

0.02

0.01

0 1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

Figure 5.1 Variation of GDP for the regions of the Mezzogiorno, 1963/1999. Source: ESOCLAB elaboration of Istat data.

1999


Aigaio and Notio Aigaio) and Crete (Kriti) have growth faster than the Ionian Islands (Ionia Nisia), but all of Greece’s thirteen regions have made gains. The two metropolitan regions around Athens (Attiki) and Thessalonica (Kentriki Makedonia) have moved strongly upwards. By 2001 the Athens area had reached 71.2% level of EU GDP while Sterea Ellada (an adjacent region to Athens) the level of GDP had reached 94.9%. In Spain the remotest regions – Canary Islands, Ceuta and Melilla, and Extremadura have grown significantly in comparison to Murcia and Castilla-la Mancha. In Portugal all regions have grown and some in spectacular fashion, such as the area around the nation’s capital – Lisbon/Tagus Valley – and the tourism hotspots represented by the Islands of Madeira and the Azores and the southern Algarve. The more rural Alentejo has not grown so quickly but nevertheless progress has been made in reducing this region’s isolation and in creating alternative economic activities to supplement the relative weakness of agriculture in producing high added value through investments and job creation. In comparing the Objective 1 regions cross-nationally, we see that in 1989 Calabria was the poorest Italian region. In Greece ten of the thirteen regions had GDP per capita scores lower than Calabria. In Spain that number was four out of the ten regions, and in Portugal five out of the seven regions were worse off than Calabria. If we make the same comparison based on the 2001 figures, we find that the situation has significantly changed. In Greece six out of thirteen still have GDP per capita figures inferior to that of Calabria, but four have surpassed Calabria’s GDP per capita score. In Spain only one region (Extremadura) still has a GDP level lower than Calabria and in Portugal that number has been reduced to three. If we compare the figure for Calabria to that of the East German laender, none of the latter have now a score lower than that of Calabria while in 1992 all had GDP p.c. figures twenty points below those of Calabria! In essence, Calabria as well as the larger southern Italian regions can be considered to represent significant “under-performers” both within the Italian context (vis-à-vis the smaller southern regions) as well as within the EU in comparison to other Objective 1 regions. Based on this comparative longitudinal analysis, the question needs to be asked, why have the southern Italian regions had such a low level of economic performance over such a long period of time, despite the allocation of conspicuous resources by the national government and European Community to develop their regional economies? In addition, we need to ask: what is the link in Italy between the new cohesion policy and the original regional development policy that was initiated in 1950 to bridge the gap between the north and south of the country? Has there been continuity (or fit) between these two approaches in spurring regional development or have the two approaches been significantly different? Has the new cohesion policy required a substantial retooling in regional planning, the choice


of sectors and the methods of intervention? What has been the impact of the cohesion policy in changing institutional structures and capacities in Italy’s southern regions? We will try to answer these question by looking, first, at the empirical indicators in relation to the southern Italian economy and, second, to the “softer” variables dealing with the performance of the administrative structure in the South, the level of social capital, and the role of criminal organizations in depressing the level of economic growth and skewing the decision-making and implementation process.

5.3 The socio-economic impact of cohesion policies in Italy’s Objective 1 regions The following four graphs present a comparison of the trend in GDP between 1981 and 1999 of the twenty Italian regions grouped into five macro-regions. All of the regional groups are composed of four regions. The southern regions are divided into two groups: the small southern regions containing Abruzzo, Molise, Sardinia and Basilicata while the large southern regions represent Campania, Calabria, Puglia and Sicily. The regions of the Centre are: Lazio, Marche, Umbria and Tuscany. The Northeast is represented by: EmiliaRomagna, Veneto, Friuli-Venezia Giulia and Trentino-Alto Adige, and the Northwest incorporates: Lombardy, Piedmont, Liguria and Val d’Aosta. In Figure 5.2 zero represents the Italian average, and the five regional groups are clearly distributed above and below this average. As the graph clearly demonstrates, the two groups of southern regions remain below the Italian average throughout the period while the gap between the southern regions and the rest of the country grows over time. In a parallel fashion, the difference between the “small” versus “large” southern Italian regions grows after the introduction of the EU’s cohesion policy. Thus, the main or most important southern regions do not demonstrate the same capacity as the smaller southern regions in reducing the GDP gap over time. Instead, other regional groups (Northeast and Centre) in the country have, as a whole, been able to significantly improve their relative positions vis-à-vis other regional groupings in Italy. In the rest of the country the Northeast regions have caught up and surpassed their Northwest counterparts in 2000 before the recession hit. At the same time, the central Italian regions have maintained their positions in relation to the more northern regions. The performance of the central regions is of interest because in the 1950s and 1960s they shared a number of socio-economic characteristics with the southern regions: large agricultural sector, industrialization restricted to large public corporations, and remoteness from major national infrastructure linkages. However, as a result of Italy’s “second industrial revolution” during the 1970s and 1980s5 the regions of the Centre have grown substantially and by the 1990s had achieved a stable position close to or above the national average.

Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe? 115 30

20

10 North West North East Centre Mezz. Small Mezz. Large Italy

0

–10

–20

–30

–40 1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

Figure 5.2 GDP per capita differentials by macro areas vis-à-vis Italian average, 1981–2000 (% PPS values) Source: ESOC-Lab, European Institute, LSE, based on Eurostat data.

0 –5 Abruzzo –10

Molise Campania

–15

Puglia

–20

Basilicata –25

Calabria Sicily

–30

Sardinia

–35

ITALY –40 –45 1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Figure 5.3 GDP per capita differentials (southern regions vis-à-vis Italian average), 1981–2000 (% Euro fixed prices 1995 values) Source: ESOC-Lab, European Institute, LSE, based on Eurostat data.


From the data presented it is clear that it is the South that has had difficulty in taking advantage of either the first (1950s) or second (1980s) Italian industrial revolution. Endogenous forms of development have not taken root in a homogenous pattern throughout the southern Italian regions. The data in Figure 5.3 show that in the South there is an increasing differentiation between the small and large regions. The graph presents the differences in levels of GDP per capita for all of the eight regions of the Mezzogiorno between 1980 and 2001. In 1980 all of the southern regions were closely grouped, but since then differences have grown steadily. By 2001 the smaller southern regions were grouped in the upper part of the Graph, just below the national average, while the larger regions were moving steadily down to the lower part of the Graph. In comparing the different regional positions in 1980s versus those of 2001 we see that one region, Basilicata, has moved from the less developed group of southern regions, which incorporated the largest regions, to join the more advanced smaller regional grouping, and this change has coincided with the introduction of the Structural Funds in 1989. This datum is confirmed by the initial rate of expenditure of Structural Funds undertaken by Basilicata: it had expenditure rates twice the average of other regions in the South.6 5.3.1

The search for explanations: rate of investment

Explanations for the lack of convergence of the southern regions and the increasing gap between large and small southern regions need to be sought in a number of directions. The most obvious is associated with capital investments: have the fixed capital investments in the South continued at rates higher than elsewhere as was the stated policy of the Italian government during the Casmez period? Has the Italian state continued to channel investments into the South during the 1990s and has the flow of private sector funds followed in its wake? Prior to 1992 the main instruments available to state authorities in channelling public investments into the South were the Cazmez/Agensud support for private entrepreneurs through investment subsidies (Law 488 of 1986) and the state’s investment in public enterprises located in the South. These two instruments were dealt body blows by the 1992 financial crisis that forced the state to close down the national regional policy, sell-off or close-down enterprises that were not viable from a market perspective, and privatizing profitable state assets (Telecom, ENI, ENEL, and banks) in order to use the proceeds to lower the size of the accumulated debt. Figure 5.4 presents the rate of investment in relation to the regions’ GDP. From this graph we see that beginning in 1964 the rate of investment in the South exceeded that of the Centre-North, but both have declined over time. With the introduction of the Structural Funds, the rate of investment in the South continues to decline until it falls below that of the CentreNorth in 1994–95. Disaggregating these data at the individual regional level

Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe? 117 0.40

0.35

0.30

0.25

0.20

South Center north

0.15

0.10

0.05

0.00 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

Figure 5.4 lnvestment/GDP ratio (Mezzogiorno and North-Central regions) Source: Crenos data.

in terms of investments per capita (Figure 5.5), we again observe the same phenomenon that we have already cited above with regard to the smaller southern regions vis-à-vis their larger counterparts: the former have had higher rates of investment than the latter. Additionally, the graph shows that the trend seems to pick-up momentum after 1992. An aggregation of the regions by group shows that the small southern regions increase their rate of investment in 1989, respond to the economic crisis of the beginning of the 1990s with a fall, and then start to once again increase investments in 1996. Instead, in the large southern regions investments already began to drop off in 1985, and the trend has not been reversed with the introduction of the Structural Funds. The trend in investments in the large southern Italian regions does not seem to respond to even the economic upturn experienced during second half of the 1990s. With regard to the rest of the country, Northeast and the Northwest regions continue to operate as the investment motors of the country. The Centre is able to reach levels above the national average only in 1996. But the regions of the South are consistently below the average for the country. Such a trend does not speak well for the medium to long-term prospects of the southern regions in catching up or reducing the gap with those of the Centre-North. Despite the massive transfer of financial resources through the Structural Funds and national co-financing, the South has not been able to bridge the difference: investments continue to lag behind the rest of the country. What seems to be lacking in the South, and especially in its

118 Cohesion Policy in the European Union 40 30 20 ITALY 10

North West North-East

0 Centre –10

Mezzog. Small Mezzog. Large

–20 –30 –40 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Figure 5.5 Differentials in investments per capita by Macro areas vis-à-vis the Italian average, 1980–2000 (% Euro fixed price 1995 values) Source: ESOC-Lab, European Institute, LSE, based on Eurostat data.

largest regions, is a robust role on the part of private investment. Public investment continues to roll into the Objective 1 regions, but there seems to be no parallel capacity or will on the part of the private sector to add funding to the level of public investments. Foreign private investment is also conspicuously lacking in the South. Thus, once the public coffers run dry, there seems to be little capacity on the part of domestic or foreign private investors to fill the gap, and as a consequence the multiplier effect of private investment being generated by public investment in southern Italy is one of the lowest in the country and the European Union.7 5.3.2 rates

The search for explanations: unemployment and employment

The unemployment and activity rates of southern Italian regions are substantially different from those registered in the rest of the country: the unemployment rates are generally higher than the national average while the employment rates are generally lower. The only two regions, which have had at times unemployment rates lower than the national average, have been Molise and Abruzzo. The other southern regions have been continuously above the average throughout the period. The same negative generalization can be made in relation to employment rates. The South has had employment rates well below the national average of 55.5% in 2002 (see Table 5.2). Excluding Abruzzo and Molise the other

Table 5.2

Employment rates and unemployment levels in Objective 1 regions, 2002 Employment rates

Unemployment levels

Employment rates

Unemployment levels

Total Men Women 64.2 72.9 55.6

Total Female Youth 7.8 8.8 15.2

Total Men Women

Total

Germany Brandenburg MecklenburgVorpommern Sachsen SachsenAnhalt Thuringen

65.4 61.9 58.9

71.6 58.8 64.9 58.8 61.9 55.8

9.4 20.4 23.6

9.1 21.3 23.7

10.7 20.7 18.0

61.0 59.5

64.0 57.8 62.7 55.2

21.3 23.5

21.8 26.1

17.7 18.4

62.5

66.6 58.3

17.6

19.8

13.7

Austria Burgenland

69.0 67.9

76.5 61.5 76.2 59.3

4.0 4.2

3.9 4.8

6.2 7.1

France Guadeloupe Martinique Guyane Reunion

62.9 45.9 48.2 44.0 41.3

69.6 52.1 53.2 52.8 48.7

56.4 40.3 43.6 35.2 34.2

8.7 26.0 22.9 24.4 29.3

9.8 28.6 26.0 29.0 32.1

18.9 57.8 55.2 46.5 48.6

Greece Anatoliki Makedonia, Thraki Kentriki Makedonia Dytiki Makedonia

56.7 58.6

71.4 42.5 71.4 46.6

10.0 10.4

15.0 15.4

26.5 24.5

54.2

70.1 39.3

11.5

17.5

29.4

53.6

68.4 39.0

14.7

23.3

36.8

EU-15

Female Youth

71.7 67.9 64.2 71.3

78.0 74.4 69.6 78.2

65.3 61.1 58.7 64.2

5.1 5.2 6.6 4.2

4.5 3.7 5.4 3.2

12.0 12.4 14.3 11.0

64.0

70.4 57.6

5.9

5.6

14.6

Spain Galicia Principado de Asturias Castilla y León Castilla-la Mancha Comunidad Valenciana Extremadura Andalucia Murcia Ceuta y Melilla (ES) Canarias (ES)

58.4 57.1 51.5

72.6 44.1 69.3 45.0 65.0 38.2

11.4 12.2 9.8

16.4 17.5 13.8

22.2 24.6 23.1

57.4 57.6 60.8

72.9 41.4 75.9 38.5 74.6 46.9

10.4 9.4 10.3

16.9 16.4 14.4

24.3 17.4 20.1

50.7 49.6 57.6 49.7 57.6

67.0 65.6 74.0 65.8 70.7

33.7 33.6 41.4 31.5 44.1

19.2 19.6 11.3 5.3 11.1

28.5 28.5 16.6 8.5 15.4

31.7 31.5 22.2 13.1 19.8

Italy Campania Puglia Basilicata Calabria

55.5 41.9 45.3 46.1 41.9

69.1 60.1 63.7 62.8 57.5

42.0 24.1 27.5 29.4 26.4

9.0 21.1 14.0 15.3 24.6

12.2 30.6 20.6 23.8 35.6

27.2 59.5 37.8 43.4 58.2

119

United Kingdom South Yorkshire Merseyside Cornwall & Isles of Scilly West Wales

120

Table 5.2

Employment rates and unemployment levels in Objective 1 regions, 2002 – continued Employment rates

Unemployment levels

Employment rates

Unemployment levels

Total Men Women 64.2 72.9 55.6

Total Female Youth 7.8 8.8 15.2

Total Men Women

Total

Female Youth

EU-15 Thessalia Ipeiros Ionia Nisia Dytiki Ellada Sterea Ellada Peloponnisos Attiki Voreio Aigaio Notio Aigaio Kriti

55.9 56.1 57.7 55.0 55.9 63.5 57.0 51.9 55.5 61.6

72.8 71.9 72.3 71.6 72.4 76.7 70.7 69.8 74.4 73.8

38.9 41.0 43.6 38.9 38.4 50.1 44.1 34.2 38.0 49.7

10.6 10.6 9.0 10.5 9.8 7.3 9.2 9.2 14.2 7.7

Sicilia Sardegna

41.9 46.7

60.2 24.2 62.2 31.2

20.1 18.5

28.4 26.4

51.2 48.3

Portugal Norte Centro (P) Alentejo Algarve Açores (PT) Madeira (PT)

68.2 67.8 73.6 65.2 68.6 61.5 65.1

75.9 76.0 80.1 74.0 77.1 78.3 74.5

5.1 4.9 3.0 6.6 5.3 2.5 2.5

6.1 5.9 3.8 9.2 6.7 4.3 3.0

11.6 10.6 11.2 16.9 14.3 7.9 5.2

Ireland Border, Midland & Western

65.0 2.2

74.7 55.2 72.4 51.7

4.3 5.5

17.6 16.9 10.9 16.8 17.1 10.1 13.3 13.5 21.6 11.5

32.4 36.4 21.5 32.6 28.8 26.0 22.5 29.0 30.6 24.3

3.8 5.5

7.8 9.6

Source: European Commission, Third Cohesion Report, 2004, “Main regional indicators”, pp. 188–203.

60.8 59.9 67.3 56.5 60.0 44.5 56.5

: :


southern Italian regions have all had employment rates below 47%. In the rest of Italy employment rates are generally above 60%; the peak level of employment for 2002 is achieved in Emilia-Romagna with 67.5.0%. Thus, the two parts of the country (North versus South) are significantly different in terms of employment rates and are separated by approximately a 20% gap. Such differences combined with the gap in unemployment rates represent the existence of two highly differentiated economies. In 2002 unemployment rates between the northern and southern parts of the country diverged by at least ten percentage points: the Centre-North had an unemployment rate at 5% or below and in the Objective 1 regions unemployment rates were generally above 15%. Such a gap in employment rates and unemployment levels provide dramatic proof that Italy is characterized by a dualistic economy.

5.4

The persistent duality of the Italian economy

The above analysis demonstrates the dramatic differentiation of economic activity which characterizes southern Italy from the rest of the country. These differences are not the result of recent trends, but unfortunately they have afflicted the Italian economy since the beginning of the postwar period. In reality, Italy has always had three groups of regions: the group of developed regions, the underdeveloped group and the group that was in transition from underdevelopment to development. During the 1950s the developed area of the country was the Northwest (Val d’Aosta, Piedmont, Liguria and Lombardy) and the underdeveloped area stretched from the southern regions to include the two central regions of Umbria and the Marche. The area that was “in transition” was represented by the three Northeast (Veneto, Friuli, Alto Adige) and by the two (i.e., Emilia-Romagna and Tuscany) north central regions. During the 1960s and 1970s EmiliaRomagna and Tuscany along with the other regions of the Northeast were able to join the developed regional group while Umbria and Marche detached themselves from the other underdeveloped regions and entered into a phase of transition. During the 1970s these two regions were able to join the regions of the Centre-North along with Lazio and definitely leave the group of “underdeveloped or regions in transition” in terms of socioeconomic development as reflected by their levels of GDP, activity rates and unemployment rates. On its part, the South continued to reflect all of the contradictions of an unbalanced form of growth that was very much dependent on a large public sector controlled from the centre. During the period of the “first economic miracle” (1950s and 1960s) that was concentrated mainly in the creation and expansion of large industrial plants of the Northwest regions, the South supplied the extra manpower needed in the factories. While the Northwest industrialized, the South concentrated its development goals on


agriculture and the creation of the necessary infrastructure to mobilize future economic development. When industrialization was brought to the South in the 1960s, it was very much designed along the lines of the industrial model that had been favoured in the industrial triangle of the Northwest: vertically organized large industry based on the principle of economies of scale. Given that the South did not have an endogenous group of industrial entrepreneurs, factory managers, skilled labour, and many subcontractors had to be brought down from the North. The South continued to supply the unskilled factory workers to be employed in the large enterprises. As we have seen above, the sectors that were chosen during the 1960s for investments in the South were concentrated in oil refineries and petrochemicals, steel manufacturing, and mining. The private sector made significant investments in the automobile industry (Alfa Romeo and Fiat). But these sectors could be considered “strategic” as long as the national market was protected from foreign competition and the enterprises could be guaranteed unlimited subsidies by the state. However, once the internal market for automobiles and other manufactured goods was opened to European and international competition, Southern firms had difficulty in responding to the increased competitive pressures. In addition, the rush to create large production units capable of guarantee employment for a politically significant number of workers during the 1960s made it more difficult to shed workers during the economic downturns of the 1970s. The scale of the plants also made it difficult to enforce environmental standards in the construction and operation of the enterprises. As a result, after a number of years it became apparent that the oil refineries, chemical plants, and steel mills located in the South were poisoning the environment as well as the inhabitants.8 Thus, to keep them open even more money had to be spent to bring the plants up to acceptable environmental standards, which once again placed into question their economic viability and the environmental risks posed by the plants. What was missing in the South, from the very beginning, was the presence of a class of endogenous small and medium sized enterprises capable of filling the void left by the vertically organized large public firms in meeting the needs of local consumers.9 The appearance of a substantial number of SMEs finally started to manifest itself in the South during the 1980s when the phase of transition began to make significant inroads into the three most northern regions of the South – Abruzzo, Molise and Sardinia. As discussed above, these three regions had not yet come fully into line with those of the Centre-North given their continued weakness in terms of their relatively underdeveloped service sector, high levels of unemployment and low activity rates, low level of skills and difficulties in transporting goods to market. However, during the 1990s these regions did succeed in making substantial headway in these five indicators


and narrowed the gap with their counterparts in the Centre-North. A parallel process of growth and transition made itself felt in one other southern region, Basilicata, during the 19990s. Thus, despite the continuing gap between southern and central northern regions, the South has undergone a process of change that has permitted individual regions to detach themselves progressively from persistent levels of underdevelopment.

5.5 Explanations of the duality of the italian economy: The “softer” variables The search for the explanation of the duality of the Italian economy has already looked at the differences in levels of well-being, investment patterns, unemployment and employment rates and discussed the fact that the second phase of Italian industrial development did not significantly penetrate down into all southern Italian regions. The Italian South continues to be more dependent on agriculture and has a smaller industrial base than does the Centre-North, but there are other important differences separating the two parts of the country that are not so dependent on “hard” economic variables. These are the “softer” variables that have to do with the efficiency of the administrative structure, the presence of criminal activity, and the stock of social capital. It has long been recognized that the existence of diffused forms of small and medium sized enterprises requires a significant amount of interpersonal trust and an extensive stock of social capital.10 Is there enough social capital available to sustain a medium to long-term development effort that does not break down into clientelistic politics seeking to favour the political fortunes of the local leader? Is there sufficient social capital in the South, or can social capital be created where it is scarce in reinforcing the actions of local and regional administrations and generating stronger links between local entrepreneurs and associations? Subsequent studies of economic activity in the South have highlighted the importance of other factors in making the small and medium enterprises and industrial district model entirely transferrable. The first of these other factors is the security of the entrepreneur and his/her investment from organized crime. The argument is that: as long as criminal organizations are able to control the territory, the entrepreneur will be forced to continue to pay bribes; the bidding process on public contracts will not be open or fair; and it will cost more to borrow money than in other parts of the country. Therefore, a vicious cycles is set into motion where entrepreneurship is stifled by the surrounding social and security context and investments are difficult to activate and sustain. The second is related to the functionality of the local and region institutions and their ability to efficiently and effectively manage development policies and deliver socio-economic services. Can the outputs and the


outcome of sub-national institutions meet the needs of entreprenuers and ordinary citizens for effective and efficient public services and can their internal institutional capacity improve over time? To understand the potential impact of these softer variables on the socioeconomic conditions in the South, we will first look at the the state of organized crime and the level of institutional performance. Then, we will consider the question of social capital in the South and whether the South is doomed to lower levels of economic development vis-à-vis the North and other parts of Europe. 5.5.1

Economic development and organized crime in the Mezzogiorno

It has been generally recognized that high levels of criminality discourages the existence of healthy economic activity. This is true in ghettos in the United States as well as in bandit infested areas in Afganistan. In both cases no “legitimate” economic base exists outside of economic transactions tied to illegal activities such as drugs, prostitution, protection, gun running and the sale of people. These types of economic activities are present, but they have little to do with legal and open forms of economic interactions capable of sustaining open markets and traditional economic transactions. In the same manner, the Italian South and its prospects for growth cannot ignore the impact of criminal activity. The literature on the roots and the impact of “mafia”11 organizations on local politics and society is extensive,12 and it is of particular interest to our considerations on the prospects of economic growth in the South. A number of economists have argued that the strong presence of organized crime places into question of very existence of a classic market economy.13 The thesis presented here is that the existence within a territory of a dense presence of criminal organizations capable of accessing different levels and sectors of the economy impedes the functioning of open and competitive market forces.14 If criminal organizations control the territory, the state is not able to guarantee law and order, the two essential conditions for the correct functioning of a market economy. If the state is not capable of guaranteeing social order, then that role is assumed by the mafia which imposes its definition of the rules and imposes its order. Under these circumstances legitimate entrepreneurs have to either exit from the market or fall into line with the guarantors of the “uncivil” order.15 Under these circumstances, it is the mafia that controls access to external actors such as local institutions, political parties, and economic associations. The cost to entrepreneurs of a system of local guarantees controlled by criminal organizations is tantamount to operating under a double system of taxation: one and the least effective is imposed by the state and the other is imposed by the mafia. This double system of taxation automatically places the southern entrepreneur at a disadvantage vis-à-vis his competitor in other parts of the country or in the rest of the world. Under these


conditions the overall “tax” burden of the southern entrepreneur is higher than his counterpart in the North given that he/she has to pay both state taxes as well as the mafia tax. Given the difficulty in sustaining a double system of taxation, the usual result is that there is a strong incentive to pay less to the party whose form of sanction for non-compliance is, at most, a fine or a legal reprimand. Instead, the non-payment of the mafia tax promises much more serious consequences in terms of the entrepreneur’s life and property. In this context, the ordinary rules determining who enters and who exits from the market are substantially altered. If these conditions persist, the result is a weaker economy incapable of accumulating capital and the development of endogenous entrepreneurship. Where the mafia is territorially dominant, it is in a position to control the entry of factors of production (capital, know-how, and information) and the exit of profits, goods and services. The very concept of competition among firms that determines winners and losers is compromised and ultimately placed into question. This is true for those firms that try to resist the pressures of organized crime and internalize the heightened costs of security as well as those who submit and sub-contract the security function to local mafia organizations. We could also argue that in the past the South has been further damaged by the actions of the state that helped to weaken the sound management of economic activity through its intrusive presence in key economic sectors through public corporations and the supply of a constant stream of subsidies to private firms. The use of national resources was often channelled to finance political clienteles and support firms close to important political elites. This was particularly the case with regard to public works projects and government subsidies to public and private firms.16 The past collusion between the mafia, politicians and public/private firms has been well documented during the maxi-trials of mafia leaders in Sicily during the 1980s by Giovanni Falcone and Paolo Borsellino. Those firms in collusion with the mafia were in a position to benefit more and more often from public contracts and the protection system operated to the detriment of the firms that decided not to comply. As Pino Arlacchi has written, the mafia’s firms expelled from the market the real entrepreneurs.17 The first requirement for the Mezzogiorno to begin a process of endogenous development based on market considerations is for the state to guarantee the security of individual firms and their investments (i.e., building sites). It is important that firms do not acknowledge the right of the mafia organization to collect protection money. A second requirement is the elimination of privileged access to public finances through political channels. One of the important innovations of the rules for the allocation of the Structural Funds is the open and transparent manner in which public funds are allocated through open tenders and invitations to apply for funding. This requirement is operative if those administrating the allocation of funds


do so in a legal manner and do not use their role to favour certain applications vis-à-vis others. There are still doubts on whether the process of selection of projects to be funded by the Structural Funds is completely unbiased and free from contamination on the part of the mafia,18 but the situation today is much more transparent and open to scrutiny than it ever was under the Casmez or Agensud. A third requirement is the reduction of acts of violence that have a negative effect on law and order in particular areas of economic activity. The two tables that follow illustrate the presence of organized crime and the level of violence that characterize the South vis-à-vis the other parts of the country, but they also show that crime in the South is not uniform: it varies greatly from one region to another and from one province to another at the sub-regional level. Table 5.3 presents a breakdown of murders and dynamite and incendiary attacks on people and property in the eight southern regions and in their constituent provinces. The first important finding is that there is a clear distinction between the four large regions (Campania, Calabria, Puglia and Sicily) in the number of murders and dynamite/incendiary attacks. The four smaller regions account for only 12% of the murders and 18% (almost all concentrated in Sardinia) of the attacks. Campania has the largest number of murders (30% of the total) while Calabria holds the lead with one-third of the dynamite/incendiary attacks. Comparing these figures to previous ones,19 we see that after 1992 there has been a significant decline in murders committed in various parts of the country, and especially in the South. The level of murders seems to go in cycles: it was relatively low during the 1950s, it picked up pace in the 1960s, declined again in the 1970s and spurted once again ahead in the 1980s and early 1990s. The murder of Giovanni Falcone and Paolo Borsellino and the vigorous response on the part of the national police and judicial authorities had a significant effect on dampening this type of spectacular “disorder” during the mid-1990s. At the provincial level it is clear that in Campania the most deadly provinces are Naples and Caserta. The other three provinces account for only 22 out of the 151 murders. The same conclusion can be drawn for Palermo and Catania in Sicily. In Puglia and Calabria the murder rate is more uniform throughout the two regions. When it comes to dynamite and incendiary attacks, the largest number in Calabria has occurred in the province of Reggio Calabria which accounted for 305 out of the 383 that took place in Calabria during 1999. In Sicily the province of Caltanisetta accounted for 180 out of the 300 attacks during the same year. The same disproportion also characterizes the province of Nuoro in Sardinia. Moving to a longer temporal framework presented in Table 5.4 we see that between 1995 and 2001 there has been a gradual rise in the level of organized criminal activity in both the South and in the rest of the country. The index of crimes attributable to organized criminal organizations went

Table 5.3

Number and types of crimes reported to the Italian national police, 1999 Murders

Region

Province

Abruzzo Chieti L’aquila Pescara Teramo

5

3

3 1 1

Molise Campobasso Isernia Campania Avellino Benevento Caserta Napoli Salerno Basilicata Matera Potenza Calabria

Dynamite and incendiary attacks

151 8 1 40 89 13

Murders – percentage of total for Mezzorgiorno

Attacks – percentage of total for Mezzogiorno

1 1 1

1.00% 0.00% 0.60% 0.20% 0.20%

0.26% 0.00% 0.09% 0.09% 0.09%

3 2 1

0.00% 0.00% 0.00%

0.26% 0.17% 0.09%

88 16 8 15 33 16

30.20% 1.60% 0.20% 8.00% 17.80% 2.60%

7.65% 1.39% 0.70% 1.30% 2.87% 1.39%

1.60% 0.20% 1.40%

0.00% 0.00% 0.00%

8 1 7 82 7 20 15 36 4

383 39 14 4 305 21

16.40% 1.40% 4.00% 3.00% 7.20% 0.80%

33.28% 3.39% 1.22% 0.35% 26.50% 1.82%

Bari

91 19

171 20

18.20% 3.80%

14.86% 1.74%

Puglia

127

Catanzaro Cosenza Crotone Reggio Calabria Vibo Valentia

Number and types of crimes reported to the Italian national police, 1999 – continued Murders

Region

128

Table 5.3

Province Brindisi Foggia Lecce Taranto

Sicily Agrigento Caltanissetta Catania Enna Messina Palermo Ragusa Siracusa Trapani Sardegna Cagliari Nuoro Oristano Sassari Total Mezzogiorno 100.00%

Dynamite and incendiary attacks

Murders – percentage of total for Mezzorgiorno

Attacks – percentage of total for Mezzogiorno

19 32 14 7

22 35 76 18

3.80% 6.40% 2.80% 1.40%

1.91% 3.04% 6.60% 1.56%

116 11 11 30 4 7 27 9 8 9

300 8 180 5 12 19 15 4 12 45

23.20% 2.20% 2.20% 6.00% 0.80% 1.40% 5.40% 1.80% 1.60% 1.80%

26.06% 0.70% 15.64% 0.43% 1.04% 1.65% 1.30% 0.35% 1.04% 3.91%

47

206 28 137 5 36

9.40% 0.00% 4.20% 0.80% 1.60%

17.90% 2.43% 11.90% 0.43% 3.13%

21 4 8

500

1,151

100.00%

Source: Istat – Interforze Note: The data refer to crimes reported to the judicial authorities by the state police forces and do not include those reported to the judicial authorities by other organs or individuals.

Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe? 129 Table 5.4 Criminal activity carried out by organized crime in Italy’s eight southern regions, 1995–2001 (per 100,000 inhabitants) Regioni,

Anni 1995

Abruzzo 6.8 Molise 5.1 Campania 16.5 Puglia 9.5 Basilicata 6.4 Calabria 9.9 Sicily 14.2 Sardinia 9.5 – North-west 9.9 – North-east 7.5 – Centre 6.9 – Centre-North 8.3 – Mezzogiorno 12.3 Italy 9.8 – Non Obj. 1 regions 8.3 – Obj. 1 regions 12.7 – Obj. 1 regions (escl. Molise) 12.8

1996 1997 1998

1999

2000

2001

8.4 4.5 18.4 10.2 5.6 9.7 14.6 9.0 11.1 8.1 7.7 9.2 13.1 10.6 9.2 13.4 13.5

9.1 3.1 23.1 11.8 8.5 10.2 16.0 11.5 13.7 10.3 11.2 12.0 15.4 13.2 11.9 15.8 16.0

8.1 4.6 22.2 10.7 7.2 8.8 15.2 12.9 12.9 10.7 11.7 11.9 14.6 12.9 11.8 15.0 15.2

7.3 5.5 27.1 11.5 7.8 9.7 13.1 12.0 12.8 10.4 11.5 11.7 15.6 13.1 11.6 16.2 16.4

8.4 4.6 19.9 10.1 6.8 10.9 14.9 9.3 11.7 8.6 8.3 9.8 13.7 11.2 9.7 14.1 14.2

10.1 4.4 20.5 10.9 11.7 10.5 16.3 10.7 12.4 9.8 10.4 11.0 14.7 12.4 11.0 15.0 15.2

Source: ISTAT.

from 2.8 per 100,000 inhabitants in 1995 to 3.1 in 2001. In the Objective 1 regions that index went from 4.4 in 1995 to 4.7 in 2001. Here again there is a significant difference among the regions. Campania has always had an index of organized crime per capita above the average for the South while Sardinia has been consistently below. The other southern regions find themselves in various positions on the index. Abruzzo and Molise are well below the southern and national averages with 1.8 incidents in 2001 of organized crime per 100,000 inhabitants. Puglia was at 4.8, Sardinia at 5.5, Sicily at 5.9 and Calabria at the top with 7.3. 5.5.2 Economic development and institutional capacity in the Mezzogiorno The second “soft” requirement to change the trend in economic development of the South is represented by the functionality of local and regional institutions that is associated with the capacity to effectively formulate and administer policies dealing with economic development, especially those relevant for economic growth and investments. Past longitudinal studies on the Italian regions have revealed the low level of performance of southern regions.20 In these studies institutional performance was operationalized as: (1) the efficient use of financial resources and, (2) the administration of policy areas devolved to the regions as part of the decentralization reforms undertaken during the


1970s and 1980s. The concept of institutional performance was measured in terms of a composite index of seven different measures of institutional outputs, from the approval of regional budgets within the pre-defined time parameters to the actual expenditure of the funds allocated to fund regional policies. The study of regional performance was carried out in two different periods. The first covered the “start-up” of the regional reform – i.e., the years between 1970–76 spanning the period when the regions were created to the year when the 616 and 617 decrees were formulated, thereby transferring considerable powers from the national to regional level from 1977 onwards. The second period, 1977–86, looked at the years when the regions became important policy makers in the areas of regional planning, urban planning, artisanry, transportation, agriculture, tourism, health and other policy areas.21 Two of the eight sourthern Italian regions (Sicily and Sardinia), given that they had the status of special regions, had been created respectively in 1946 and 1948 and were already exercising their powers in addition to legislating in matters related to small and medium sized enterprises and limited taxing powers that had not been allocated by the 1976 decrees to the fifteen ordinary regions. From a comparison of the data a clear north-south grid became apparent. The highest performing regions turned out to be Emilia-Romagna and Umbria and the lowest performing regions were Campania and Calabria. All of the southern regions were found in the lower part of the index. What was surprising, though, was that in the South the best performing region turned out to be Basilicata, despite the fact that during the 1970s it was Italy’s least developed region. The other southern regions with better than average performances were Abruzzo and Molise, exactly those southern regions which have displayed in the 1980s and 1990s a significant level of socio-economic development and a better record in the use of EU Structural Funds. Puglia, at the time the most prosperous southern region and the region that attracted the most attention from students of southern development, had one of the lowest levels of institutional performance.22 The empirical evaluation of regional performance correlated quite well with the opinions provided by regional councillors of their own regions, by representatives of interest groups within each region, and by individual citizens asked to evaluate the performance of their regions. All three samples of interviewees were highly intercorrelated and were in turn highly correlated with the objective measures of regional institutional outputs. It is significant that in the interviews with regional councillors and interest group representatives the low level of institutional performance was attributed to: a low regard for the problems of economic development, absenteeism on the part of the political and administrative personnel, the role of clientelism and scarce regard for professional qualifications in the recruitment of personnel, and the misuse of resources. The persistent problems associated with the low levels of performance of regional and local government institutions in the South and the negative


impact that this has had on the prospects for development were repeated after 1989 in relation to the European Union’s cohesion policy. As illustrated by the data in Table 5.5 the southern Italian regions have systematically had difficulty in using EU financial allocations than regions in other parts of southern Europe. Basilicata has consistently been the best performer of the southern Italian Objective 1 regions. During the first period, 1989–93, after five years it had Table 5.5 Structural Funds expenditures in Italian Objective 1 regions, 1989–2006 Planning period

Region

I Cycle 1989/93

Molise

344

Abruzzo

593

Campania

1.617

Puglia

1.027

Basilicata

II Cycle 1994/99

Funds available (in milions of Euro)

768

Calabria

1.156

Sardinia

1.087

Sicily

1.687

Molise

616

Campania

3.091

Puglia

2.645

Basilicata

1.272

Calabria

1.911

Sardinia

1.816

Sicily

3.194

Funds spent (%) 54% (by 31/12/1993) 77% (by 31/12/1996) 34% (by 31/12/1993) 79.8% (by 31/12/1996) 31% (by 31/12/1993) 61.8% (by 31/12/1996) 45% (by 31/12/1993) 57.3% (by 31/12/1996) 56% (by 31/12/1993) 92% (by 31/12/1996) 44% (by 31/12/1993) 79.5% (by 31/12/1996) 51% (by 31/12/1993) 77.4% (by 31/12/1996) 39% (by 31/12/1993) 64% (by 31/12/1996) 53.47% (by 31/12/98) 98.57% (by 30/09/2001) 98.61%(by 31/12/2001) 54.56% (by 31/12/98) 79.95% (by 30/09/2001) 91.92% (by 31/12/2001) 53.22% (by 31/12/98) 75.47% (by 30/09/2001) 91.52% (by 31/12/2001) 58% (by 31/12/1999) 102.58% (by 30/09/2001) 102.7% (by 31/12/2001) 45.88% (by 31/12/98) 83.92% (by 30/09/2001) 86.68% (by 31/12/2001) 63.52% (by 31/12/98) 92.10% (by 30/09/2001) 102.1% (by 31/12/2001) 40% (by 31/12/1999) 77.35% (by 30/09/2001) 91.35% (by 31/12/2001)

132 Cohesion Policy in the European Union Table 5.5 Structural Funds expenditures in Italian Objective 1 regions, 1989–2006 – continued Planning period

Region

III Cycle 2000/2006

Molise

Funds available (in milions of Euro) 618

Campania

9.247

Puglia

6.695

Basilicata

1.614

Calabria

5.302

Sardinia

4.671

Sicily

10.279

Funds spent (%) 4.08% (by 30/09/2001) 35.1% (by 30/09/2004) 3.37% (by 30/09/2001) 25.0% (by 30/09/2004) 4.00% (by 30/09/2001) 21.8% (by 30/09/2004) 1.96% (by 30/09/2001) 36.6% (by 30/09/2004) 3.18% (by 30/09/2001) 29.0% (by 30/09/2004) 4.98% (by 30/09/2001) 33.5% (by 30/09/2004) 0.44% (by 30/09/2001) 18.3% (by 30/09/2004)

Source: ESOCLAB LSE calculation of data from Ministry of the Economy, IGRUE, 02/12/2004.

completed 56% of its allotted expenditures and by the end of 1996 it had achieved an expenditure rate of 96%. Sicily and Campania, on the other hand, by 1996 had only spent respectively 64% and 61.8%. That pattern continued to be repeated in the second CSF cycle and once again during the third and latest cycle of Structural Funds. Difficulty in spending allocated funds had already been witnessed in the previous Integrated Mediterranean Programmes. Official evaluations have indicated significant problems with the time necessary to, first, allocate funds and, secondly, to spend them.23 Difficulties in the implementation of the operational programmes in Italy forced the Commission to constantly prolong the closing of the programmes. For the first CSF, 1989–93, the Commission was forced to prolong the period allocated for expenditure to, first, 1996 and then at the end of 1996 to the 31st of December 1997. A similar, but even worse, situation took place for the 1986–1991 IMPs. By the end of 1991 the first attempt by the Commission to introduce integrated development programmes. By the end of 1991 the southern regions had spent a fraction of the available funds, with Campania and Sicily at the bottom of the list with respectively 5.2 and 3.3%.24 A similar result continued to be repeated during the second CSF cycle, 1994–1999. At the end of 1997 the Italian government had succeeded in getting the Objective 1 regions to “allocate” (identify where the expenditures were to be made) only 30% of their available budgets while in other countries the regions had already “spent” (i.e., paid out) that percent of their allocation.25 The difficulties associated with the allocation and expenditure of the EU funds made it difficult to realize the immediate socio-economic


impacts or “outcomes” associated with these expenditures. The delays in the planning and allocation of funds made it extremely difficult for the private sector to take advantage of the public investment and to plan complementary investment initiatives.26 The final date for spending the 1994–99 allocations had to be postponed for another two years to the end of 2001.27 During the last three months of that year, all of the stops were taken out to accelerate the rate of expenditures, and most regions were able to meet their spending targets. However, to avoid repeating this exercise in the new planning period for the 2000–2006 allocations, the Italian government introduced an additional financial incentive to the one decided by the EU Commision in order to encourage regions to comply with the rules of the 1999 regulations and achieve the performance standards set out at the beginning of the programme. The Commission had allocated 4% of the total CSF budget while the Italian government held back 6% with the objective of encouraging the regions to meet all of the formal exigencies tied to the implementation of the programmes – i.e., passage of regional legislation, creation of insitutional agencies, and hiring of personnel required to implement the programmes. Instead, the EU performance fund was more oriented to the achievement of performance indicators associated with institutional outputs – i.e., expenditure of first two years of Structural Funds allocations by the end of 2003 (N+2 rule) and the achievement of 60% in the first two years of “physical” achievements as measured by project indicators, such as kilometers of road constructed, technical training courses completed and students processed, grants to industry, etc. The Italian government’s evaluation was completed in 2002 and the indications were that the southern Italian regions were still characterized by widely divergent levels of performance among the six Objective 1 regions. Not surprisingly, Basilicata emerged as the region with the best level of performance and Calabria was at the bottom of the list. However, the distribution of the remaining four regions did hold some surprises given past performances. Sardinia did not do as well as could have been expected in relation to its performance during the second programming cycle, and Campania did much better than past performances would have predicted. The figures on the expenditures of the 2000–2006 financial appropriations by the six Objective 1 regions tell the same story as before. By the end of September 2004 Basilicata had spent more than a third of its budget (36.6%) while Sicily had spent only 18.3% of its allocation. Sardinia had also succeeded in adequately spending its funds. Campania instead, had initial problems. By September 2003 it had spent only 14.2% of its budget. However three months later that expenditure ratio had increased to 16.2% due to the breakthrough in doubling ESF spending (from 8.9% to 15.0%) and in increasing EAGGf-Guidance expenditures from 18.8% to 23.5% of funds allocated. By September 2004 it had achieved an overall expenditure level of 25% of its budget.

134 Cohesion Policy in the European Union Table 5.6

Change in GDP in Italy’s southern regions, 1999–2002

Abruzzo Molise Campania Puglia Basilicata Calabria Sicily Sardinia Mezzogiorno Italy CSF ex-ante evaluation* Jorge Beutel estimate**

1999

2000

2001

2002

1.16 –1.03 1.59 4.71 4.29 3.44 1.17 1.41 2.00 1.70 2.20

5.04 4.00 2.55 2.15 0.29 2.06 3.25 1.82 2.60 3.10 2.60 2.75

1.50 3.02 2.59 1.06 –0.43 2.48 2.64 3.22 2.01 1.80 2.10 3.01

0.19 1.63 1.78 0.48 1.08 0.00 –0.07 1.15 0.78 0.30 0.80 3.00

Source: ISTAT. * London School of Economics: “Valutazione intermediate del QCS Obiettivo 1, 2001–2006”, Ministero dell’Economia, February 2004. ** Jorge Beutel, “The Economic Impact of Objective 1 Interventions for the period 2000–2006”, May 2002, EU Commission, May 2002, pp. 78–85.

A similar unexpected result emerged from the comparison of the rate of economic growth of the remaining six Objective 1 regions between 1999 and 2002 (see Table 5.6). In Italy as well as in other parts of the world, economic growth slowed down after 2001, and this was particularly the case with regard to the northeastern and the northwestern parts of the country. In contrast, the South did better than the Italian average in three out of the four years for which we have data. The regions of the Mezzogiorno did not do as well as the Commission’s ex-ante forecast (produced in May 2002) due to the significant downturn in the international economy and to the lower level of expenditure allocated by the national government. In Italy, as elsewhere, the gearing-up process for the expenditures of the 2000–2006 Structure Funds took more time than expected, especially with regard to large national infrastructure programmes. In Table 5.6 all of the regions have registered significant variations over the last four years, but one region, Campania, has demonstrated a consistency in maintaining regional growth patterns that differentiate it from the performance of Puglia (consistent decline), Calabria (no growth in 2002), and Sicily (negative growth in 2002). These better than expected performances in GDP figures for Campania are reflected in the higher level of institutional capacity that the region has been able to demonstrate in the evaluation conducted for the 6% reserve distributed by the Italian government to the Objective 1 regions. Since 2000 Campania has made remarkable progress in changing its overall level of institutional performance. Why is this the case? To answer this question we need to look at the remaining explanatory “soft” variable: social capital.


5.5.3 Economic development and social capital: the prospects for change in the south28 The third prerequisite for endogenous economic development in the South is the widespread conviction that growth is perceived as a collective good by those socio-economic forces operating in southern regions. Research dating back to the 1950s has highlighted the fact that the South is characterized by particular norms and attitudes that regulate social interaction in relation to economic and social activity. Studies on Italian regions have documented the differences in the norms that underline political and socio-economic activity in the North vis-à-vis the South. These differences are also strongly correlated with and serve to explain the performance of local and regional institutions, and the same seems to be the case in terms of economic performance and outcomes. The social norms that predominate in the North, referred to here as social capital,29 emphasize the acceptance on the part of citizens of the positive role played by collective action – that is, organized group activities – in the creation of collective goods associated with economic growth and social protection.30 According to this conception, there is no inherent contradiction between the increase in individual well-being and the creation of collective goods – i.e., the increase in individual wealth may be a byproduct of a common effort to create the conditions for social and economic development. Individual gains do not necessarily have to be accrued through the sacrifice of the common good. These social norms, in fact, indicate that one can trust others in relation to formal as well as informal accords related to the production and exchange of goods as part of a networked productive process that characterizes industrial districts. The situation is substantially different where general societal norms are not based on mutual trust. In this context, collection action is not conceived as a viable option when it comes to the pursuit of individual gains. According to this perspective, first identified by Banfield (1958) as amoral familism, individual and collective goals are seen to be in fundamental contrast. 31 Here, the logic of interpersonal action is reflective of the prisoner’s dilemma game in which collective action succumbs to the priority of individual interests and short-term gains. Within this logic one has the incentive to exit from the agreement before the other can in order to achieve a short-term advantage. If others exit first, then one is left with nothing or even less than before entering into the agreement. This latter prospect was quite common in 19th century mutual aid societies where the societies loaned the savings of their members on a rotating basis. If trust persisted, then each member had the opportunity to invest the capital made available by the other participants in the mutual aid society and repay the loan with interest. If, instead, one member decided to run away with the money and never pay it back, then all of the members lost and faced potential financial ruin. In these circumstances the social sanctions were severe. The consequences ran

136

Logic for producing common goods

Logic for producing individuals goods

Social capital values

Individualism and amoralism familism values

Collective social norms

Individual social norms

Demands on political system for public policy oriented towards collective goods

Demands on political system for public policy oriented towards individual goods

Political platform oriented towards the delivery of collective goods

Political platform oriented towards the delivery of individual goods

Elected political class

Elected political class

Policies oriented towards collective goods

Policies oriented towards individual goods

Production of collective goods

Production of individual goods

Figure 5.6

The socio-political logic of the production of common versus individual goods


from social banishment to death. The operationalization of the “exit” strategy characteristic of the prisoners’ dilemma in the economic sphere makes it difficult to engage in cooperative agreements because the expectation based on the “rational” action of the other individuals is that sooner or later someone will bail out of the agreement to gain a temporary advantage. As a consequence, individual norms and objectives gain the ascendency over collective norms and group activity, and individual goals are achieved at the expense of collective or more societyoriented goals. This is the paradox of social capital: individual logic suggests that one should never engage in collective action but if that is the case then there is no prospect of furthering common goals such as economic growth and well-being for the whole of society. The two logics reflecting the self-reinforcing nature of the behavioural consequences related to the goals in the production of common goods or of individual goods are illustrated in Figure 5.6. Research on civic traditions in Italy poses the conclusion that where strong social norms have persisted over time the community has built up social capital in that individuals have been socialized into the norms of mutual trust and have the ability to undertake collective action to achieve common goals. Under these circumstances social capital can be perpetuated over time; where social capital exists in abundance, it can be called upon to create systems of social, political and economic interaction based on intense and continuous cooperation. But the question remains: where social capital is not abundant, can it be built, and what are the necessary conditions for this to take place? The hypothesis that seems most logical given the changes we have begun to witness in parts of the Italian South over the last thirty years is that social capital can be built (or destroyed) over time. Our in-depth research over the last fifteen years in Basilicata,32 Naples 33 and Sicily 34 points to the role of the elected political class in breaking the amoral familism cycle. In the case of Naples the triggering devise was represented by the election of Antonio Bassolino as Naples’ mayor in December 1994 and the radical restructuring of policy-making in Naples in the period 1995 to the present. At the level of the city administration Bassolino’s policies and the orientation of decisionmaking to the production of collective rather than individual goods have been continued by the new mayor, Rosa Russo Iervolino who took office in 2001. Under Iervolino, the former Minister of the Interior in the Prodi government, the city administration has continued to emphasize policies aimed at strengthening the social and economic base of the city. In 2000 when Bassolino resigned as mayor he took on the role of President of the Campania region. He easily won the regional elections and was able to impose his mark on the region’s decision-making and implementation process. The Bassolino style of government broke from past practices. One of his first steps was to significantly restructure the regional


administrative system by replacing the old directors for regional policies and appointing his own people that were selected from inside of the regional administration and even from outside of the region on the basis of their technical expertise and know-how. The new appointees were given a free hand in choosing their own staff and using financial incentives to recruit “the best and the brightest” that existed in the market of regional development experts. Secondly, each director was charged with the achievement of quantified standards of institutional outputs within strict time parameters. In this manner the head of the administrative units had both the incentives (financial rewards) and means (powers derived from the President) to make significant changes in personnel and in controlling the behaviour of the middle and lower staff in addition to achieving quantifiable results according to clear deadlines. The third change was the formulation of a regional strategy oriented toward the maximization of outputs and outcomes. Financially, the objective was to maximize the use of the available allocations from the Structural Funds and to archive the performance criteria for the allocation of additional funds from the two performance reserves. Economically, the objective was defined as the maximization of outcomes – that is, achieving the highest level of economic performance possible. These two changes functioned to significantly alter the performance levels of the regional administrative structure and to begin achieving the economic objectives set forth by the regional political leadership. In 2002 Campania achieved for the first time the objective of becoming Italy’s fastest growing region. The question remains whether these changes have served to create social capital in Campania and Naples. Studies have not yet been completed in measuring this result, but at the present it is clear that the process in building social capital illustrated in Figure 5.1 is under way: the political leadership in Naples and Campania have broken with the amoral familism logic and are now clearly oriented toward the building of social capital. Time will tell if social capital has been fully created, but now we can see that the socio-economic outcomes of such a logic – faster economic growth – are becoming manifest in one of Italy’s traditionally backward regions.

5.6

Conclusions

The southern Italian regions have in the past been significant underperformers in comparison to other Objective 1 regions in the European Union and to the other regions in Italy. Rates of economic growth during the last twenty years have not served to reduce the gap between North and South in Italy and since 1989 some of the Italian regions have slipped behind their counterparts in other parts of the European periphery. The


social structure present in the South is largely based on low levels of employment and high levels of unemployment, especially among women and young people, and this model has persisted ever since the end of the large labour migrations to the northern industrial triangle during the early 1960s. The ramifications of southern Italy’s unique social structure is particularly evident in terms of the activity rates and unemployment levels reported in Table 5.2. Italy’s six Objective 1 regions have the lowest activity rates in the continental European Union, ranging from the 46.7% in Sardinia to 41.9% in Campania, Calabria and Sicily. Only the ultra-peripheral French regions share similar activity levels. In Spain the lowest activity level is registered in Andalucia (49.6%) while the rest have levels of employment that reach half of the population. What is even more striking in the southern Italian case is the low level of employment among women. Only a quarter of females are actively engaged in the workforce vis-à-vis the two-thirds of men. No where else is the gap between men and women so large. A similar distinction can be applied to the Italian southern regions when it comes to unemployment levels. In this case the total level of unemployment of the South is similar to the eastern German laender and the four French Objective 1 regions. What distinguishes further the Italian regions is the large number of female unemployment (usually 8 to 10% higher than the overall level of unemployment) and of youth unemployment. In many regions the level of youth unemployment accounts for half of the population between the age of 15 and 24 years of age. Youth unemployment levels in the French ultra-peripheral regions are also similar to those found in southern Italy. Thus, the chief objective of the cohesion policy in the South should be the creation of jobs and spurring a rate of economic development above the Italian and EU average. This is the current objective of the 2000–2006 CSF programme, but the results seem to be sporadic in nature. The “therapy” seems to be working in some of the Objective 1 regions (e.g., Basilicata and Campania) but not in all regions (e.g., Calabria and Sicily). The uneven nature of the results may be due to the negative influence of organized crime, low levels of social capital, and low institutional capacity that we have discussed, but the outcomes demonstrate that cohesion policy in southern Italy has worked less effectively than in other Objective 1 regions. As a consequence the Italian South is being overtaken in terms of well-being and levels of employment by Europe’s other peripheral regions, and this trend needs to be reversed. During the last four years, significant steps have been made in this direction. However, many more still have to be taken before the situation significantly improves.

6 The Challenge of Enlargement and Cohesion in the Ten New Member States

6.1

Introduction: The preparation for enlargement

Since the 1st of May 2004 the European Union incorporates over half a billion people and extends to the historical limits of the European continent. The enlargement towards the East and South has transformed the Union from the assembly of fifteen nation-states to a union of almost all of the countries that consider themselves to be part of Europe.1 The difference is not just quantitative but it represents a qualitative change in the nature of the EU. The increase of the membership in the European Union to twenty-five member states represents the realization of the vision of a single market for all of Europe and the creation of one political organization that encompasses almost all of the countries found between the Atlantic and the borders of Russia and the Ukraine.2 Enlargement implies not only the prospect of an economically stronger but also a more politically united Europe after a half century of divisions and conflict imposed by the logic of the “cold war”. Enlargement also favours the prospect of increased relations between Europe and its neighbours to the East and to the southern Mediterranean countries. With the further incorporation of Romania and Bulgaria expected to take place in 2007 and the opening up of negotiations for membership with Turkey, the European Union will expand into the most western part of Asia and extend its horizon into the frontiers of the Islamic world. The future of the European Union is also expected to involve the Balkan states that, since the beginning of the 1990s, have witnessed some of the most intense inter-ethnic fighting seen in Europe after the Second World War. Croatia is expected to begin negotiations to enter the EU in March 2005. Enlargement is not to be considered a Utopia. Instead, it is the realization of a hardnosed approach to numerous economic, political and institutional challenges. A long round of meetings of the European Council, starting in Copenhagen in 1993 and ending, once again, in Copenhagen in 2002 identified the candidate countries and outlined the conditions 140

The Challenge of Enlargement and Cohesion in the Ten New Member States 141

for their entry into the EU. After three years of negotiations the December 2002 European Council was in a position to take the decision to provide for the formal entry of ten new member states. For the first time, the number of new members went beyond the previous maximum of three, thus making this the biggest enlargement of the EU ever undertaken. In addition, all of the countries considered for membership were underdeveloped from an economic perspective when compared to the previous group of member states, thus making this one of the most complex enlargements ever undertaken.3 As in the past, the Commission has had the responsibility of monitoring the ability of the candidate countries to adopt the acquis communautaire (i.e., the rules and procedures operating in the member states in their relations with the EU and in the conduct of internal policy-making and implementation) and informing the Council and Parliament once this goal has been achieved. The verification process was concluded by the Copenhagen summit in December 2002 when the Commission announced that accession could proceed. Formally, the acquis covered all of the institutional and legal reforms that needed to be incorporated by the candidate states so that the standards and procedures regulating decision-making and policy implementation within the candidate states were in line with those shared by the other fifteen member states. There was also a financial and economic acquis regulating the state of public finance and economic performance. The candidate countries were evaluated to verify their ability to participate in Europe’s competitive market system and, if necessary, to qualify for participation in European Monetary Union. This chapter outlines the experience undergone by the new member states in meeting the criteria for membership. Particular attention will be paid to the compliance of the new member states with the acquis in one policy area – i.e., cohesion policy – that has had ramifications for a variety of institutions and policy sectors (e.g., financial and budgetary provisions, financial control, agriculture, transport, social policy and the environment). The compliance of the candidate countries with the cohesion policy acquis effectively measured the ability of these states to engage in the type of multi-level and multi-actor governance that characterizes cohesion policy and the other territorialized policy area (i.e., rural development) within the European Union. The cohesion policy acquis consisted not only of formal compliance with the rules and regulations applied to the carrying out of the decision-making and implementation phases of the policy but also to the creation of the structures necessary for an efficient and effective policy process. Where the candidate state structures were lacking, the Commission undertook through the PHARE programme4 to finance national initiatives in “institution building” – i.e., creation of planning and management authorities – where these institutions did not exist, and to increase “institutional capacity” where the


candidate state was weak in overseeing the instruction of administrative personnel in the various phases of cohesion policy.5 Specifically, institution building means “designing management systems and training and equipping a wide range of civil servants, public officials, professionals and relevant private sector actors.” Instead, institutional capacity is more oriented toward the strengthening of “public administration and organisations that have a responsibility in implementing and enforcing Community legislation”.6 The Commission’s task in institution building is not limited to encouraging the creation of new institutions where they do not exist, but it also involves the creation of new links with sub-national actors and socioeconomic groups where they are missing in the policy-making and implementation process. Focus on increasing institutional capacity, instead, attempted to adapt existing institutions to the carrying out of new tasks as required by the cohesion policy rules and procedures. Thus, the objective of the EU sponsored programmes and analysis of a country’s adherence to the acquis was designed to make adjustments in the institutional structure and increase the capacity of institutions to efficiently and effectively manage EU cohesion policy. A significant part (30%) of the PHARE programme was dedicated to institution building in preparation for the management of the cohesion policy. David Bailey and Lisa DePropris have argued that the PHARE programme has “evolved over the last decade from a general and unfocused demanddriven programme of support for transition countries through to the recent accession-driven, targeted support for institution-building, adopting the acquis, and pursuing economic and social cohesion in candidate countries”.7 However, the pace of accession left a number of tasks still to be carried out, such as, tackling the technical aspects of monitoring and evaluation, multi-annual planning, and multi-level and multi-actor governance patterns. One of the most important innovations in attempting to increase institutional capacity was the “twinning” initiative whereby administrative personnel from existing member states were seconded to an administrative office in the candidate country to help the local personnel learn how to prepare and implement the policy. The candidate countries in relation to one or more member state generated twinning proposals. Between 1998 and 2000 the Commission financed more than 475 twinning projects. Below we will look at the experience of the new member states in the implementation of the pre-accession programmes associated with cohesion policy (i.e., ISPA) and the territorialized agricultural development policy (SAPARD). However, before turning to the analysis of the experience of the ten new member states with ISPA and SAPARD we need to analyze the socio-economic profile of the ten countries that have recently entered the Union and the three that are expecting to enter in the not-to-distant future. The purpose of the analysis is to understand the


socio-economic problems faced by the new member states and remaining candidate states and determine whether the EU’s cohesion policy is in a position to help these countries converge toward the standards of the other EU member-states and regions.

6.2 The transition from closed to open economies and societies The analysis begins with the economic profile of the ten new member states and the two (Bulgaria and Romania) + one (Turkey) candidate countries during the previous decade. The choice of the years to be analyzed is dependent upon the availability of data. Another important element is the assessment of each country’s institutional capacity (at both the national and sub-national level) to use the resources made available for development in a manner capable of interacting in a constructive manner with representatives of interest groups and civil society as well as lower levels of government in order to mobilize a sustainable and endogenous form of development. The governance of the cohesion policy process is one of the institutional aspects that have received the most attention from the Commission in the past negotiations with the single candidate countries.8 The reason for this emphasis on governance mechanisms is that studies of previous enlargements – but also the experience undertaken by the weaker regions in the European Union (i.e., the Objective 1 regions) – have highlighted the importance of existing governance mechanisms in maximizing the impact of cohesion policies in stimulating local socio-economic development.9 For instance, in their analysis of the experience of the Objective 1 regions, Hurst, Thisse and Vanhoudt10 note that the ex-post evaluation studies of Objective 1 programmes have emphasized the correlation between low growth rates and administrative inefficiency: The quality of regional government is critical if development programmes are to be sufficiently fine-tuned to local conditions. Since the information needed to design good policy is very high, we can expect many mistakes. However, the mistakes seem to occur with disproportionate frequency for some authorities. (p. 27) It can be debated whether it was necessary to require such a long transition (fifteen years) in allowing candidate countries to learn a new way of formulating and implementing the EU’s brand of regional policy. Given that the cohesion policy does not consist of a mere transfer of funds from the EU to national budgets, it was considered important for the new member states to be prepared to implement the policy according to the cohesion acquis. Otherwise, it was feared that bottlenecks would develop


in the implementation of the policy and the use of available funds. If the policies were not carried out according to the Regulations, then the whole enlargement process could be brought into disrepute and the prospect of achieving economic and social cohesion would be undermined. This was not a risk that the Commission was prepared to run nor could candidate states request to postpone or be exempt from the use of Community regulations in the implementation of the cohesion policy. The Commission’s position was that the same policy could not be run according to different sets of rules in different parts of the Union.11 During the negotiations over enlargement it was emphasized by all that the candidate countries needed to align their administrative institutions and procedures with the Community acquis. But the candidate countries had an additional problem to face: the alignment of their economies which had for forty-five years ignored the existence of the market and the competitive standards present in the economies of Western Europe. The candidate states, therefore, had to undertake two types of transitions: one to market standards and the other to institutional standards, and that dual convergence process was not easy to undertake in a simultaneous fashion. However, in contrast to the procedures applied during the 1980s for the accession of the three southern European countries (Greece, Portugal and Spain), attention was now paid to the institutional aspects of the difficulties in bringing into line national and regional procedures required by the cohesion acquis for a correct implementation of the policy. Economic convergence was also crucial in preparing the candidate countries to meet the competition of other member states once they fully entered into the Single Market. Therefore, stress was initially placed on the economic acquis to promote rapid rates of growth, maintain inflation under control, reduce unemployment, and keep annual budgets deficits within the parameters of the Maastricht convergence criteria. How did the conditions placed on the ten candidate countries compare with previous enlargements? Were the eight Central and Eastern European (CEE) countries and the two southern European island states treated differently from those that joined during the 1970s, 1980s and 1990s? The simple answer is: yes. This most recent enlargement has represented such a massive reorientation of economic structures and institutional arrangements that it does not compare at all with previous accession processes. Given the magnitude of the shift, this accession was much more micromanaged than previous accessions. The reasons for this can be attributed to three factors: the large number of countries entering the Union at one single moment, the relatively backward economic and institutional conditions in many of these countries, and the legacy of the Community’s past experience with enlargement. In Eastern Europe under the previous regimes, the dividing lines between state and government and state and party structures were never clear.


Under these conditions the rule of law was at times an option that could be used but it never constituted the real rationale for decision-making. What predominated in most cases was the will of the party and the ruling elites. In addition, the role of the state vis-à-vis civil society was structured on the basis of a top-down command process rather than on the mobilization of socio-economic groups into a bottom-up political process. Bottom-up inputs into the political arena and decision-making process were not a priority, and public scrutiny of government implementation was practically unknown. This concern was not limited to the eight CEE member states but also applied to the three candidate countries that still have to start or complete negotiations for entering the Union.

6.3

The experience with previous enlargements

The EU has grown incrementally since the first six Member States created the European Economic Community (EEC) with the adoption of the Treaty of Rome (1957). Up until now, four enlargement processes have been undertaken and the accession of the current group of new member states represents the fifth enlargement of its kind. The previous enlargements have provided a certain body of experience, and this background is important in evaluating the pre-accession phase that was completed in May 2004. The first enlargement took place in 1974 when Denmark, Ireland and the United Kingdom became members of the EEC. Then came the accession of Greece in 1981. In 1986 both Iberian Peninsula countries, Spain and Portugal, joined, and in 1996 three new states in northern and central Europe joined. Austria, Finland and Sweden entered while Norway was blocked for the second time from joining the Union due to the results of the popular referendum. A first conclusion to be drawn from the four previous enlargements is that the process of becoming a member of the Union is less traumatic for the candidate countries than many had foreseen. This mismatch between expectations and reality is partly due to the fact that during the negotiations (all enlargement phases have been long and drawn-out affairs) the candidate countries already begin the process of reforming their institutional structures and rules in qualifying for accession. In other words, the acquis begins to be incorporated by the candidate countries into the domestic arena even before formal negotiations or accession starts.12 Voluntarily incorporating the acquis is seen by the Commission and member states as a gesture of good faith on the part of states submitting their application for membership and demonstrating their determination in joining the Union. The enlargement negotiations have always been an opportunity for the candidate countries to anticipate adjustments and undertake them in an incremental fashion so that when accession takes place no country has ever


experienced an institutional or economic “big bang”. Upon accession, the major institutional and policy procedures are already in place. This was true, at least, for both underdeveloped countries such as Ireland or other so-called peripheral countries (Greece, Portugal and Spain) during the 1970s and 1980s as well as for developed countries such as Finland or Austria in the mid-1990s. A second consideration concerns the rapidity of the adjustment process within the candidate countries, once they become member states, to the European political and institutional framework governing the complex relations between the Council of Ministers, the European Commission and the European Parliament. When a new member state joins the EU it does partially lose its sovereignty in certain policy areas, but it gains the opportunity of becoming a member of a decision-making process that affects all countries in the Union. In addition, participation in the EU provides countries with the opportunity to have a stronger input into European and global affairs, which has not usually been the case for small, and medium sized states in Europe. A third consideration concerns civil society and organized socioeconomic groups. Membership in the EU provides these groups with new opportunities to influence decision-making at the supranational level. The prospect of entry into the EU has always attracted many of the medium and large private entrepreneurs but also the small ones, such as in Greece, and the trade unions and environmental groups, for example in Ireland. The availability of resources for socio-economic development through cohesion policies and the access to the resources of the agricultural policy have in the past been two strong financial inducements to support entry from organized economic groups. But there are other policy fields, such as social policy and the environment, that have been important in mobilizing the interest of non-governmental organizations in the formulation of policy on a broad European-wide basis. After these basic considerations on past enlargements, we need to look at the institutional and economic conditions that characterize the current group of new member states. Nine of the ten entrants have regions that qualify for regional aid under Objective 1; all ten will be recipients of agricultural price supports,13 and all ten will participate in the realization of the European infrastructure grid financed by the Trans-European Network policy. In comparative terms, it is not easy to separate the impact of the structural features of regional economies (for instance, the state of the infrastructure or the skills of the workforce) on the rate of economic growth from that of the political and administrative traditions of the regions (for instance, the presence of regional political parties or the existence of an autonomous administrative structure). Looking at the previous group of fifteen member states, we can see that the differentiation of political and


administrative traditions is marked. A first group of countries has had subnational institutions based on a regionalized or federal system, such as Germany, Austria, Belgium, Spain, Italy and France. Other countries have introduced forms of partial, asymmetric devolution – as has been the case with the United Kingdom, which has created two different forms of devolved regional authorities in Scotland and Wales and a metropolitan authority for London. In a similar fashion, Portugal created regional governments for Madeira and the Azores in 1976 but did not do the same for the rest of the country. Once joining the Union, Portugal did create on the mainland five administrative regions for the purpose of implementing EU regional policy.14 A third group of countries has maintained a centralized political and administrative structure with only marginal modifications of the decisionmaking and implementation process with regard to the management of development policies. In 1986 Greece instituted regional districts that are directed by prefects appointed by the state, but it did not proceed to set-up representative institutions at this level. Ireland, Sweden and Finland have also experimented with ad hoc regional administrative structures, but they have never institutionalized them nor provided them with a popular political base through the calling of elections to select representatives to regional councils or create regional executive governmental structures. Even within the first group of countries with regional and federal systems the institutional differences are huge. Although all of these countries created sub-national governments, the policy-making decisions assigned to them varied greatly. The French regions have much more limited powers in managing the financial resources in pursuit of development policies in comparison to the Spanish and Italian regions. In the United Kingdom, Scotland has more powers with regard to territorial planning and development than does Wales. In Germany, although the Länder have the same political status, there is a huge difference in the economic power and influence enjoyed by the Länder in the east when compared to those in the western part of the country. In light of the great heterogeneity of structures and powers of the subnational institutional systems between countries, there is no EU acquis with regard to the nature of the political institutions that should exist at the sub-national level. The Commission has favoured the creation of regional political bodies, but they have never become the sine qua non condition imposed by the Commission for the new member states. This is also due to the fact that six out of the ten new member states have quite limited populations and territories. Due to this high level of institutional differentiation, it is easier to study the connection between different levels of economic and institutional performance within the borders of one country rather than across countries.15 Countries with regional political structures (irrespective of their economic


endowments and institutional capacities) are not necessarily in a better position to use cohesion policies to harness economic growth than those without equivalent regional structures. However, the existence of a common European cohesion policy with common rules and procedures emphasizes the fact that it is important for national and regional administrative structures to have institutions capable of managing the policy in an efficient and efficacious manner according to the rules established at the European level. What is not acceptable is for national idiosyncrasies and traditions to nullify the legal obligations imposed by the EU cohesion policy regulations. The EU acquis on cohesion policy is not insistent on one institutional model of how the policy should be managed, but it does insist that whatever institutional model is proposed (centralized versus decentralized) it be bound by the rules and regulations set out at the European level to implement the policy. The eight Central and Eastern European countries – the so called CEECs – together with Malta and Cyprus have had to simultaneously face the problem of developing their socio-economic structure and at the same time undertake a restructuring of their governmental institutions in order to manage the policy in the future according to the Community acquis. Thus, as we have seen above, the accession process with regard to cohesion policy heavily emphasized the building of institutional capacity as it was in introducing a new form of policy process that took into account the views and wishes of not only central authority but also of actors at the subnational level and within civil society as part of the multi-level governance process. This emphasis on democratic involvement of non-central government actors is not to be found in any other policy area. It is particular to cohesion policy. Drawing from the experience of the previous member states in managing the cohesion and other policies, the rule has been to resist trying to find one institutional approach or solution that could fit all of the cases, from the big countries to the small ones, from those that are still in the transition from planned economies to those that have had mature market economies for a long time, and from those who have already experienced respectable levels of growth to those that have not yet succeeded in initiating a sustained development process. Christian Weise and his collaborators, in their recent study on the ten CEE countries, have drawn the conclusion that a crucial role in transition is played by institutional learning and the ability to implement the policies according to prevailing procedures and norms. Starting from this conclusion they propose a primary role for the national level: Given the institutional traditions in many CEEC countries and the absence of regional government and the slow process of administrative reform, it is important to recognize for the moment the primary role


of the national government in managing the implementation of the development programmes and the need to respect the institutional differences that exist among the different countries. 16 The fact that there is an inevitable learning curve in the use of EU programmes is easily confirmed by the experience of the Italian and Greek regions over the past decade or the experience of other governmental institutions having to come to grips with the management of cohesion policies. The observation that the CEE countries will not be an exception to the rule of undergoing a learning curve is convincing. The examination of the Italian regional cases suggests that the length of the learning period depends on two fundamental elements: the technical and administrative capacity of each region (or, in the case of the CEECs, of each country) to adopt the rules and procedures governing EU policies and the political will to undertake the necessary institutional reforms to connect actors in the centre and the periphery through an effective multi-level form of governance. The Commission played its part by insisting, during the negotiations with the candidate countries, that all countries had to (1) adopt the same legal and policy acquis in the governance of the cohesion policy and (2) establish strong ties with civil society in not only collecting policy preferences but also involving organized groups and civic organizations in implementation. But it also agreed that small member states (Cyprus, Estonia, Latvia, Lithuania, Malta and Slovenia) could operate on the basis of one single programming document and that the countries would constitute one NUTS 2 region (as was the case in Ireland before 2000). Other countries (Poland, Hungary, Czech Republic and Slovakia) will have to have national as well as regional operational programmes once the institutional structure of the cohesion policy is fully implemented after 2006. The same rule will have to apply to Romania, Bulgaria and Turkey assuming they enter the Union after 2007. With the conclusion of the European Council of Laeken of December 2001 and the Commission’s note of the 30th of January 2002 on “Common Financial Framework for the Accession Negotiations”17 the number of countries joining the EU was officially reduced from the twelve considered by Agenda 2000 and by the Second Cohesion Report18 to the ten. The Commission felt that Romania and Bulgaria had not been able to immediately open negotiations with the EU on a series of policies area nor did the state of their economies and the status of their public finances indicate that they were ready to meet the requirements for membership. These same types of consideration – in addition to concerns about basic human rights – have stalled the opening up of negotiations with Turkey until 2005. Up to the end of 2002, the challenge of enlargement required the ten candidate countries to complete negotiations and use the following year to ratify the agreements. The ratification process required each candidate country to


ratify, either through referendum and/or an act of Parliament, the accession agreement. Ratification by national parliaments and referenda did not take as long as expected. Therefore it was possible in April 2003 to sign the accession agreement with the ten new member states and set the date of formal entry on the 1st of May 2004.19

6.4

The economic context of enlargement

The state of the economy of a candidate state was one of the key points in the accession negotiations. It was not only a matter of collecting statistical information but of evaluating the measures undertaken by each government to modernize the economy and, even more, of analyzing the prospects for growth after having joined the EU. The objective was to examine the possible impact of enlargement on the institutional and economic equilibrium of the Union and to consider what would be the prospects for further enlargements after 2004. Would this be the last enlargement or were others on the horizon? The examination of the economic context of eight of the ten candidate countries, the so called CEECs, is particularly interesting because during the last decade they have undertaken a radical reform of their economic systems. Each of them went from a national version of the Soviet model of a centrally directed economy to an evolving version of a market economy. In all eight countries the challenge was to position the national economy so that it could compete at the European and worldwide level. This transition has required a significant restructuring of industry, agriculture and services that saw a generalized privatization of public firms, especially of the large firms responsible for basic services and industrial production. Besides the transition from the previous economic system, these countries had to undertake a redirection of their commercial ties by moving out of the strict confines of the intra-Soviet trade block to a new set of commercial relations with the rest of Europe and the world. Looking at the geographical positions of the eight new member states from the point of view of their infrastructure and access to the markets of the other western European member states, we already note some important differences. Five out of the eight countries (Slovenia, Hungary, the Czech Republic, Slovakia, and Poland) border directly with three member states (Germany, Austria and Italy) and already enjoy good logistical positions vis-à-vis European infrastructure networks. Little needs to be done to connect them to the existing Trans-European Transport Corridors identified by the EU during the 1990s. The focus of Cohesion and Structural Funds expenditures in the pre-accession period made available to the new members have focussed on connecting the infrastructure grid in central and eastern Europe to the one in the western part of Europe that was extended and restructured during the 1980s and 1990s.


The other three CEE countries (Estonia, Lithuania and Latvia) do not border directly with other members and are effectively cut-off from direct connections to other CEE member states by the Russian territory of Kaliningrad. Given their position on the eastern coast of the Baltic Sea, the short and medium term prospect is that they will have to use the sea to provide a more efficient and effective access to other EU states such as Finland and Sweden or Poland and Germany. However, during the last three years negotiations with Russia have clarified the rules that will manage the flow of goods and people across Russian territory between the new member states and between Russia and Kaliningrad. The other two candidate countries, Malta and Cyprus, represent two small insular states in the Mediterranean Sea that historically have had close economic ties with the countries of the Union. Both have been British Colonies and both have experienced strong political turmoil since independence.20 During the nineties both Malta and Cyprus underwent a period of significant economic growth, similar to that of the three southern European countries (Portugal, Spain and Greece). As a result, their state of need in developing their economies is less acute than that of the other new member states. The one exception to this rule is the Turkish part of Cyprus, which has one third of the GDP per capita of the Greek part. In fact, the entry of a united Cyprus would have allowed the country to benefit from Objective 1 status.21 The decision to exclude both Romania and Bulgaria from the most recent EU enlargement phase has facilitated the creation of consensus on enlargement.22 The economic conditions of the current eight CEE countries are stronger than that of the two countries whose active candidacy has been delayed and of Turkey whose candidacy is still under consideration. Table 6.1 presents the first indications of the differences in economic growth, which existed, among the different countries between 1990 and 2002. The data show that Malta and Cyprus have always been in line with the levels of growth in the other three southern European countries. The growth rates for the twelve years examined are similar: 5.2% and 3.8% for Malta and Cyprus and 2.2%, 3.0% and 2.8% for Greece, Portugal and Spain respectively. In contrast, the CEECs experimented negative growth rates in the years between 1989 and 1994 when they undertook the most radical economic structural adjustments. The averages for the first five years in the Baltic countries were, for example, –12% for Latvia and –10.3% and –8.2% for Lithuania and Estonia. From the second half of the nineties, five out of the eight countries (Poland, Hungary, Slovenia, Czech Republic and Slovakia) registered growth rates that brought them back to their pre-1989 levels.23 The three Baltic states have not matched that of the other five CEE states: –3.4% for Latvia, –2.3% for Lithuania and –1.6% for Estonia. The two future members, Romania and Bulgaria, remain around the averages for the

Annual GDP growth rates (%) of new member states and candidate states, 1990–2002

New Member States

1990

1991

1992

1993

1994

1995

1996

Estonia Latvia Lithuania Poland Czech Republic Slovakia Slovenia Hungary Cyprus Malta

–7 –1 9 –5

–8 –10 –6 –5

–21 –35 –21 3

–9 –15 –16 4

–2 1 –10 5

4 –1 3 7

4 3 5 6

–1 –3 – –3 7 6

–12 –15 –9 –12 1 6

–1 17 –5 –3 9 5

0 –4 3 –1 1 4

2 5 5 3 6 6

6 7 4 1 6 6

4 7 4 1 2 4

–6 –9

–13 –8

–9 –7

2 –1

4 2

7 3

0 8 4 4

3 2 2 2

1 3 2 1

–2 3 –1 –1

2 6 2 2

2 10 3 3

1997

1998

152

Table 6.1

1999

2000

5 4 5 5

–1 1 –4 4

7 7 3 4

5 8 6 1

5 6 7 2

–1 7 5 5 2 5

–1 4 4 5 5 3

0 2 5 4 4 4

3 2 5 5 5 5

3 3 3 4 4 –1

2 4 3 3 2 1

4 –10 7

–6 –7 7

–5 4 3

–2 2 –5

2 6 7

5 4 –7

5 5 8

2 8 4 2

3 11 4 4

3 9 4 4

3 10 3 4

4 7 3 4

4 6 2 3

4 7 0 2

10 9 7 7

2001

2002

Candidate States Romania Bulgaria Turkey

Objective 1 (UE 15) Greece Ireland Portugal Spain

Source: 1990–1995 data from World Bank, Indicators of World Development 2000 in Weise et al., p. 33 and 1996–2002 data from Eurostat as elaborated by ESOCLAB, LSE.


Baltic countries with a –2.0% and –2.3% for the whole period. However, by 2001 five of the CEE countries had succeeded in completely restructuring their economies and creating the basis for future economic growth. The countries that had made the most progress have been Poland (129% of real GDP in comparison to 1989), Slovenia (121%), Hungary (112%), and Slovakia (110%).24 Table 6.2 presents data on the inflation rates registered by the thirteen countries between the same period, 1990–2002. A first consideration is that the rates of the ten new member states have been significantly reduced since the early 1990s, in almost all cases to levels under 10% by 2001 and 2002. In 2001 only two states had an inflation rate above 10%: Romania (34%) and Turkey (58%) and in 2002 Turkey went down to 45% and Romania to 22%. These results have been achieved despite the three-digit inflation rates of the early nineties. The tendency for improvement began during the second half of the nineties when economic growth started to pick-up. In essence, the inflation rate of the first five years can be explained by the fact that as the economy shrank the same amount of money was chasing fewer goods. Poland, Slovakia, and Hungary registered two-digit inflation rates. The improvement in their inflation rates (i.e., moving from three to two and then to one digit inflation rates) reflects the effects of economic recovery, the opening of markets and increased rates of unemployment. The jobless rates in the new member states and candidate countries, with the exception of Malta and Cyprus, show peculiar characteristics that are much different from those registered in the other EU member states, both in terms of the levels and trends during the nineties (Table 6.3). At the end of the period, the unemployment levels in the eight CEE countries were generally high, almost always at two digit levels. In 2001 Slovakia, Bulgaria and Poland registered unemployment levels above 15%, but high levels were also reported in Latvia and Estonia with 13% and 12% respectively. In five of the CEE countries, the trend during the nineties was to increase the jobless rates, while at the same time there was an increase in growth rates. These contradictory trends may suggest that there was a problem of data reliability in reporting the unemployment figures during previous years (the effective employment rate was higher or all of the jobs were not necessarily counted by the national government’s statistical offices) or there has been a significant increase in labour productivity – i.e., with fewer workers it was possible to produce more goods. In contrast, Hungary, Slovenia and the Czech Republic have had jobless rates in line with those of the current member states. 25 Malta and the Greek zone of Cyprus have always had very low levels of unemployment. Given their relatively low standards of living and levels of product specialization, the CEE countries contributed only marginally to imports

154

Table 6.2

Percentage of inflation rate in new member states and candidate states, 1990–2002

New Member States Estonia Latvia Lithuania Poland Czech Republic Slovakia Slovenia Hungary Cyprus Malta

1990

1991

1992 243

555

1993 90 109 410 37

77

45

61

10

29 5 3

34 5 3

23 7 2

23 32 22 5 4

24

336 231

91 211

73 255

1994

1995

1996

1997

1998

48 36 72 33 10 13 20 19 5 4

29 25 40 27 9 10 13 28 3 4

20 18 25 20 9 6 10 23 3 2

9 8 9 15 8 6 8 18 3 3

9 4 5 12 10 7 8 14 2 2

96 137

123 39 80

1045 155 86

1999

2000

2001

2002

3 2 1 7 2 11 6 10 1 2

4 3 1 7 2 11 9 10 5 2

6 2 1 5 4 – 9 9 2 2

4 2 2 2 1 3 7 5 3 2

3 46 65

10 46 55

34 7 58

6 6 45


62 32

19 59 85

Source: 1990–1995 data from World Bank, Indicators of World Development 2000 in Weise et al., p. 35 and 1996–2002 data from Eurostat as elaborated by ESOCLAB, LSE.

Table 6.3

Unemployment rates (%) in new member states and candidate states, 1990–2002

New Member States Estonia Latvia Lithuania Poland Czech Republic Slovakia Slovenia Hungary Cyprus Malta

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002*

1 – – – – – 5 2 2 4

2 – 0 – – 7 8 9 3 4

5 2 4 13 – 11 12 10 2 4

8 6 4 14 4 13 9 12 3 5

8 7 5 14 4 14 9 11 3

10 19 7 13 4 13 7 10 3 4

10 18 6 12 4 11 7 10 3 4

10 14 7 11 5 12 7 9 3 5

10 14 13 11 6 12 8 8 3 5

12 14 14 15 9 16 8 7 4 5

14 15 14 16 9 19 7 6 3 4

12 13 16 18 8 19 6 6 4 6

10 12 14 20 7 19 6 6 3 5

2

11 3

15 8

21 10

20 8

17 8

14 7 7

14 6 6

16 6 7

17 9 8

16 9 7

7 20 8

8 18 10


Source: 1990–1995 data from World Bank, Indicators of World Development 2000 in Weise et al., p. 33 and 1996–2002 data from Eurostat as elaborated by ESOCLAB, LSE. * NB: During the same year the unemployment rate in the EU was 7.8% distributed among the member states in the following manner: Holland 2.8%, Luxembourg 2.6%, Austria 4.0%, Portugal 5.1%, Ireland 4.3%, Denmark 4.6%, United Kingdom 5.1%, Sweden 5.1%, Belgium 7.5%, Germany 9.4%, France 8.7%, Italy 9.0%, Finland 9.1%, Greece 10.0% and Spain 11.4%. Source: European Commission, Third Cohesion Report, Brussels, 2004, Main Regional Indicators.

155

156 Cohesion Policy in the European Union Table 6.4a Levels of foreign trade and FDI in new member states and candidate states, 1998 and 2002 A. Foreign Trade

New Member States

Foreign trade (1998) % imports % exports from EU to EU

Foreign trade (2002) % imports % exports from EU to EU

Estonia Latvia Lithuania Polond Czech Republic Slovakia Slovenia Hungary Malta Cyprus

60.1 55.3 50.2 68.3 63.3 55.8 50.4 64.1 69.3 61.9

60.1 55.3 50.2 68.3 63.3 55.8 50.4 64.1 52.8 54.3

57.9 53.0 44.5 61.7 60.2 50.3 68.0 56.3 67.0 55.8

68.0 60.4 48.4 68.7 68.4 60.5 59.4 75.1 46.6 48.0

45.0 57.7

45.0 57.7

50.2 58.4 45.5

55.6 67.1 51.5

Candidate States Bulgaria Romania Turkey

Source: Eurostat data elaborated by ESOCLAB, LSE.

and exports from the EU (Table 6.4a). In 1998 the eight CEE countries accounted for 5% of total EU exports and for 4% of its imports. The three member states that have had the most active exchanges of goods and services with the candidate countries are Germany, that alone registered respectively 42% and 47% of EU exports and imports, followed at a certain distance by Italy (13.1% and 11.5%) and Austria (8.1% and 8.6%).26 The EU represents, instead, the main source of imports for CEE countries and the first market for their exports. In Table 6.4a we can see that in 1998 and 2002 the percentage of imports for all CEE countries was above 50%. In the case of the three most developed countries – Hungary, Czech Republic and Poland – both imports and exports from and to the EU were over 60%. The largest part of these imports and exports concerned machinery and electrical household appliances, electrical material and components, and vehicles. These data highlight the spread of the European car industry into the areas of Central Europe and the increase in demand for basic consumer goods (such as cars and appliances) by citizens in the new member states.

The Challenge of Enlargement and Cohesion in the Ten New Member States 157 Table 6.4b

FDI and EU percentage (1989–2001) FDI as of 31/12/01

EU percentage

New Member States

In millions of Euros

Per capita in euros

%

Cyprus* Estonia Latvia Lithuania Malta* Poland Czech Republic Slovakia Slovenia Hungary

1612 20931 2636 2560 2392 31508 23503 3915 1659 21063

2303 1450 1114 696 5978 814 2280 726 833 2099

– 85 51 72 – 64 83 70 81 64

3579 7343 7843

441 329 122

58 57 –

Candidate States Bulgaria Romania Turkey*

Source: EBRD Transition Report (2001) in European Commission, Enlargement of the European Union: An Historic Opportunity (2001).

The data on foreign investments in Table 6.4b show a very strong differentiation from one country to another. The indicator of the total amount of foreign investment shows that between 1989 and 2001 Estonia, Poland, Czech Republic and Hungary took the lion’s share with, 20931, 31508, 23503 and 21063 million Euros respectively, which represented 74% of the total amount of foreign investment in the area. In terms of the rate of foreign investments per capita, Czech Republic, Hungary and Estonia are the three CEE countries with the highest amounts – i.e. with 2,280, 2,099 and 1,450 Euro respectively. At the same time Malta with 5,978 and Cyprus with 2,303 € are the countries with the highest investment levels per capita. Looking at the indicator of foreign investments coming from the European Union, we see that Estonia and Czech Republic have the strongest presence with percentages of 85 and 83% respectively, followed by Lithuania with 72% and Hungary and Poland with 64%. Considering the indicators of foreign investments altogether, Czech Republic, Hungary and Poland, in that order, are the countries that have been able to profit the most. A good part of this capital comes from Germany, France and Great Britain. Sweden has, instead, been the main investor in the three Baltic countries where in 1998 Swedish capital represented 99.7% of EU investment in Lithuania, 97.6% in Estonia and 60.9% in Latvia.27

158

Table 6.5

State of public finances in the new member states and candidate states, 1996–2002 Annual budget deficit

Public Debt/GDP

New Member States

1996

1997

1998

1999

2000

2001

2002

1997

1998

1999

2000

2001

2002

Estonia Latvia Lithuania Poland Czech Republic Slovakia Slovenia Hungary Cyprus Malta

–1.6 – – –2.3 –1.7 –2.1 0.3 –3.2 –3.3 –7.7

2.0 – – –4.3 –2.7 –5.7 –1.2 –6.8 –5.2 –10.7

–0.4 –0.7 –3.1 –2.3 –4.5 –4.7 –2.3 –8.0 –4.9 –10.8

–4.1 –5.3 –5.7 –1.5 –3.7 –6.4 –2.2 –5.6 –4.5 –8.2

–0.4 –2.7 –2.6 –1.8 –4.0 –10.4 –3.3 –3.0 –3.1 –7.0

0.2 –1.6 –2.2 –3.0 –5.5 –7.3 –2.8 –4.7 –3.0 –6.8

1.2 –3.0 –2.0 –4.1 –3.7 –7.2 –2.6 –9.2 –3.5 –6.2

– – – – 13.0 29.7 – 64.2 – 51.5

6.0 10.6 17.1 41.6 13.7 28.9 25.1 61.9 61.7 64.9

6.5 13.7 23.4 42.7 14.3 43.8 26.4 61.2 62.1 60.8

5.1 13.9 24.3 37.2 16.6 46.9 27.6 55.5 61.7 61.3

4.8 15.7 23.4 37.3 23.3 48.1 27.5 53.4 64.2 66.1

5.8 15.2 22.7 41.8 29.1 42.6 28.3 56.3 58.6 66.4

– – –

– – –

1.7 –3.2 –12.0

0.4 –4.5 –19.0

–0.5 –4.6 –6.0

0.2 –3.3 –28.0

–0.6 –2.2 –10.0

– – –

79.6 18.0 50.0

79.3 24.0 67.0

73.6 23.9 58.0

64.4 23.1 105.0

53.0 22.7 95.0

Candidate States Bulgaria Romania Turkey

Source: Eurostat data as elaborated by ESOCLAB, LSE.


The latest information available on public finances in the candidate countries and new member states is presented in Table 6.5. The period covered is the seven years between 1996 and 2002. Current account deficits for the three Baltic states indicate that these countries have had low budgetary deficits since 1998 except for 1999 when in all three countries it crept up close to –5%. However, in 2000 and in the subsequent two years the current deficit has remained limited in scope. The yearly budget deficit for the other CEE countries is also low. But it has tended to grow over the past few years, and its current level would not qualify these countries for entry into the Single Currency. Significant budgetary deficits have been run by the Czech Republic, Slovakia, Poland and Hungary since the 1998 period, and it is difficult to conceive how they can be maintained in the medium to long term. The financial situation of the CEE countries is much better in terms of the size of the overall public debt. Only Hungary among the CEECs has gone over the maximum of 60% established by the Maastricht Treaty. However, in the two Mediterranean accession states (Cyprus and Malta) the overall debt has hovered consistently around the 60% margin while their current budgetary deficits have consistently been higher than the 3% annual deficit limit stipulated by the Growth and Stability Pact, especially in the case of Malta. The economic context that emerges from the tables presented above serves to highlight the fact that four of the CEE countries (Poland, Hungary, Czech Republic and Slovakia) have during the last decade significantly integrated their economic structures into those of the other 15 EU member states. This suggests that they will not encounter significant problems in fully operating within the Single Market. The data concerning Romania and Bulgaria, on the contrary, show that these two countries are not fully in line with the new member states. Their import and export ties with the rest of Europe are still relatively weak, and inflation is still rampant. However, the state of public finances in Romania and Bulgaria seem to be under control. In Romania the annual budget deficit hovers around 3% while the overall debt is still less than one-quarter of the country’s level of GDP. Bulgaria, instead, finds itself in the opposite position: a low current budget deficit and a relatively high public deft/GDP ratio. The situation in Turkey seems to be completely out of control with very high annual deficits, which surprisingly do not translate into a significant accumulation of overall public debt. Some questions remain in relation to the Baltic states. Their economic bases remain weak; GDP still needs to be increased to reach pre-1989 levels; and the state of their public finances is still questionable. However, it needs to be noted that their tight political and economic interaction with the Scandinavian countries, particularly with Sweden, has played in their favour and significantly helped them in sustaining their application for


membership. Their period of transition within the Single Market will, in effect, be highly influenced by their interactions with Sweden and also with Finland. One last remark about Slovenia, which represents a bit of a surprise given that it has not shown a particularly sustained trend in economic growth despite its geographic location along the Austrian and Italian border. Foreign investments have remained limited and the level of GDP growth is similar to that of Bulgaria. However, Slovenia has had the best levels in terms of public finance indicators, and it has at its disposal significant tourist and natural resources for such a small country. Slovenia is in a position to maximize the benefits of opening its economy to the rest of Europe, and it needs that opening to fully develop its economic potential.

6.5 The negotiations over institutional structures in candidate states and the management of cohesion policy In the negotiations for accession the Commission concentrated its efforts on evaluating the capacity of candidate states to adopt the acquis in all of its dimensions – i.e., for all of the legal and administrative chapters involved in the negotiations. As has been stated above, the Commission emphasized the importance of the legal, financial and administrative acquis in the enlargement process. The Commission’s position was that “EU membership affects everyday lives directly, and what goes on in one Member State has consequences in the others” and that accession represented “a new contract between our citizens and not merely a treaty between states”.28 Therefore, the Union needed to be able to make enlargement a smooth and rapid process that was in a position to ensure the functioning of the internal market and maintain public confidence in areas such as food safety, cooperation in the field of justice and home affairs, and development projects intended to promote socio-economic cohesion across the Union. It is useful to look at the state of negotiations prior to the 16 April 2003 Assession Agreement signed in Athens in order to understand how far compliance with the acquis had reached. Table 6.6 reassumes the state of the negotiations in October 2002. Then, as well as in the last report on the state of compliance released in December 2003, the Commission emphasized that “great progress had been made” but that full compliance had not yet been reached. Important tasks still had to be undertaken between December 2003 and May 2004. The Table reflects well the major obstacles that were faced by the candidate states in complying with the full EU acquis in October 2002. In examining the progress made up until that point it should be remembered that four of the ten new member states – Latvia, Lithuania, Malta and Slovakia – had begun negotiations later than the others. The first six

Table 6.6 N° Chapter 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Cyprus Czech R Estonia Hungary Poland Slovenia Bulgaria Latvia Lithuania Malta Romania Slovakia

Free circulation of goods Free circulation of people Free circulation of services Free circulation of capital Legislation for enterprises Competition Agriculture Fishing Trasportation Taxation EMU Statistics Social policy Energy Industry SMEs Science and research Education and training Telecomunications Culture and audiovisual services

X

X

X

X

X

X

X

X

X

X

O

X

X

X

X

X

X

X

X

X

X

X

O

X

X

X

X

X

X

X

X

X

X

X

~

X

X

X

X

X

X

X

X

X

X

X

O

X

X X O X X X X X X X X X X

X O O X O X X X X X X X X


X O O X X X X X X X X X X



X O O X O X X X X O X X X



X O O X X O X X X X X X X

O O ~ X O O X X X O X X X


X

X

X

X

X

X

X

X

X

X

X

X

X X

X X

X X

X X

X X

X X

X X

X X

X X

X X

O O

X X

161

19 20

The state of negotiations for enlargement as of 9 October 2002 with twelve candidate states

162

Table 6.6 N° Chapter

The state of negotiations for enlargement as of 9 October 2002 with twelve candidate states – continued Cyprus Czech R Estonia Hungary Poland Slovenia Bulgaria Latvia Lithuania Malta Romania Slovakia

21 Regional policy X X X 22 Environment X X X 23 Consumers and X X X protection of health 24 Justice and X X X internal affairs 25 Customs union X X X 26 External relations X X X 27 Foreign and X X X security policy 28 Financial controls X X X 29 Financial O O O provisions and budget 30 Institutions X O X Chapters still open 30 30 30 Chapters closed 28 25 28 0 : Chapter still open, negotiations underway X : Chapter provisionally closed

X X X

X X X

X X X

O O X

X X X

X X X

X X X

O O X

X X X

X

X

X

O

X

X

X

O

X

X X X

X X X

X X X

X X X

X X X

X X X

X X X

X X X

X X X

X O

X O

X O

X O

X O

X O

X O

O ~

X O

O 30 26

X 30 27

X 30 28

X 30 22

0 30 27

X 30 28

~ 30 25

X 27 13

X 30 27

Source: European Commission, Towards the Enlarged Union, 9.10.2002, COM(2002) 700 final.


candidates had begun active negotiations during the Finnish presidency in 1999 while the other four started one year later. The Nice European Council established the institutional framework of the negotiations in December 2000 when the debate on the changes in EU institutions was separated from that of negotiations with the candidate countries for entry into the EU.29 While significant progress was quickly made on a variety of issues, the resolution of problems regarding Chapter 21 or the operationalization of cohesion policies required a prolonged period of negotiations. In part this was due to the fact that the positive closure of this chapter required the resolution of two difficult issues. The first, representing a “horizontal” issue, concerned the mechanisms used for the implementation of programmes at the national level between ministries and administrative structures that participated in the formulation and implementation of the cohesion policy. Instead, the second represented a “vertical” issue regarding the link between centre and periphery – i.e., the relationship between national and sub-national institutions and socio-economic actors. In all cases, the candidate states did not have a tradition of autonomous sub-national political and administrative structures. In the communist regimes the centralization of decision-making structures was the norm and the existence of devolved decision-making and administrative functions was the exception. A similar situation existed in the Mediterranean countries of Portugal, Spain and Greece until the fall of their fascist regimes during the 1970s. The evaluation produced by the Commission in October 2002 stated that five countries were in a position to complete the transition of their administrative structures in the time that was left to complete the negotiations (i.e., December 2002). By the time that these five states – Cyprus, Czech Republic, Estonia, Hungary, and Poland – entered the Union in 2004 their institutions would be completely in place and capable of operating according to the acquis and the rules and regulations of the Structural Funds. This first group of countries already had functioning institutions and were well on the way to acquiring at the intermediate level those multi-level management systems capable of engaging in socio-economic planning and interacting with interest groups and institutions at the local and European levels. The other five countries – Latvia, Lithuania, Slovakia, Slovenia and Malta – still had to undertake significant changes before being able to fully implement the formal contents of the acquis. In Latvia, Lithuania and Slovakia it was still unclear who (which ministry or which office in the ministry) would assume responsibility for the planning and the implementation of the Funds. This problem was encountered at both the horizontal level between the ministries participating in the operationalization of the cohesion policy as well as in vertical interactions between ministries and sub-national actors.


At the end of 2001 Latvia had proposed to consider the whole country as a NUTS 2 region which would have allowed it to prepare only one proposal – a Single Planning Document (SPD) – rather than a Community Support Framework (CSF) that then had to be translated into different national and regional operational programmes. It had also proposed that the responsibilities for administrating the SPD be allocated to the Ministry of Finance and to five regions at the NUTS 3 level, but it did not clarify who would work in these regions and who would assume the responsibility for supervising the implementation of the projects. In Lithuania the first draft of the National Development Plan30 for 2001–2003 that was supposed to inform the investment programme financed by the EU with pre-accession funds was, according to the Commission, unsatisfactory due to “a series of structural weaknesses” related to an insufficient coordination among ministries and the participation of local, regional, economic and social partners. The Lithuanian NDP also lacked a satisfactory institutional and financial framework that would permit a smooth operationalization of the priorities and measures indicated in the preliminary draft.31 The Commission also expressed concern for the lack of expertise on the part of the administrative staff and the procedures adopted for the financial management of the European Social Fund in Slovakia. The existing procedures and the availability of qualified personnel to conduct the monitoring and evaluation of the programmes were considered to be unsatisfactory. Slovenia on its part was considered to be less than forthcoming in changing its administrative structure for the management of the Funds. In 2002 it still had to decide on how to organize at the sub-national level the planning and implementation of cohesion policies. In the larger states the Commission had to constantly emphasize the need to reorganize national institutions and personnel and not to ignore the importance of the role played by institutions at the local level. In negotiations with the Czech Republic it did not take long to arrive at an agreement on the NUTS classification at the sub-national level: fourteen NUTS 3 and eight NUTS 2 regions. For statistical purposes the classification became operative in January 2000 and a year later it was implemented through national framework legislation that incorporated the new sub-national structure in the planning and implementation of cohesion policies. Hungary also made rapid progress in the definition of its regional statistical units and organizational structure. The structure had already been approved in 1997, and since then became the basis for the collection and reporting of data. During the last few years Hungary has clarified its management structure for the Funds and undertaken to train the personnel that was to assume responsibility for the programmes. In 2001 Hungary began to prepare its National Development Plan according to the procedures indicated by the Structured Funds regulations. Immediately thereafter, an interministerial committee was created


to coordinate the National Plan and to create a Task Force to operationalize the Plan. The Task Force was composed of five working groups that followed various aspects of the Plan: i.e., regional development, economic development, agricultural and rural development, infrastructure and development of human resources. In Hungary advances were also made in satisfying the principle of partnership through the institutionalization of the participation of interest groups and presidents of the regional development councils. Poland did not move as quickly or efficiently as the Czech Republic and Hungary in creating NUTS 2 regions. By the end of 2001 NUTS 3 level units were already in place but not much progress was made in preparing acceptable proposals in creating NUTS 2 regions. At the national level the responsibility for the administration of the Funds continued to be shifted from one ministry to another while at the regional level it became clear that the regional administrator appointed by the central government would assume the responsibility of administrating the Funds to finance regional programmes and that the locally elected officials would be marginalized in the process.32 In order to respond in part to the tight time schedule that was available for countries to prepare proper development programmes for the remaining 2004–2006 period and to adopt a common position for all accession states, the Commission recommended that each country adopt a SPD33 at the moment of signing the Treaty of Accession (16 April 2003) and that the document contain only a few priority infrastructure programmes. Through the negotiations the Commission had learned that it had to abandon its ambitious objective of encouraging larger countries to create regional bodies capable of administrating cohesion policy programmes. It had to instead settle for the project approach already experimented through the implementation of the ISPA programme and accept the fact that the centralized administrative structures would have to assume the primary responsibility for the implementation of the programmes. It was also decided in 2003 that the adoption of a full-fledged Community Support Framework document that underpinned Objective 1 programmes in the Western countries and the creation of a full multi-level governance of the cohesion policy had to be postponed until the beginning of the next cycle of CSFs in 2007.

6.6

The pre-accession programmes

Once the institutions became operative for the management of cohesion policies through the implementation of the SPDs, there was still the question of whether the ten new member states would be able to spend their allocations effectively, coordinate their interventions at the national and local levels, stick to their programmatic priorities, and implement the


projects according to the existing rules and procedures. The negotiations with the Commission did not provide complete information on the capacity of the new members to plan, manage and spend EU resources in an efficient and effective manner. During the negotiations the emphasis was on the capacity of candidate states to satisfy the formal requirements in terms of governmental legislation and procedures. In the past, EU programmes such as PHARE, paid more attention on the training of administrators and the reorganization of administrative systems than on undertaking practical experiments in implementing development programmes. The implementation of ISPA projects was very much carried out under Commission supervision by the EU office in the national capital rather than by national administrative structures operating on their own in each candidate country. The PHARE programme began in 1989 in order to help Poland and Hungary to restructure their economies and institutional structures, and then it was extended in 1994 to other central and eastern European countries. After that it became the most important EU programme in providing technical and financial assistance to CEE candidate countries in developing their “regulatory framework” and the adoption of Community norms and standards in restructuring their enterprises and main infrastructure. PHARE financed the adoption of testing and measuring equipment for the use in operating the internal market and setting up of laboratories and purchasing control equipment for the propose of providing consumer protection. In 1998 PHARE was extended to include Cyprus and Malta. An important innovation was added to the programme in 1994: a cross-border component (PHARE-CBC) to promote cooperation between the candidate states and member states sharing common borders.34 Within each candidate state PHARE was treated as a national programme funded on an annual basis. The annual nature of the funding made it difficult to use the funds to promote multi-annual programming and projects focused on developing institutional capacity at the national and regional level or in financing multi-year cross-border projects. In 2000 a considerable amount of the PHARE budget was freed from involvement in rural development and infrastructure and the environment through the creation of SAPARD and ISPA.35 After 2003 it was possible to assess the ability of the new member states to operate within the confines of EU regulations with regard to infrastructure and environment projects and agriculture. In 2004 the former candidate countries were switched from ISPA to operating fully under the Cohesion Fund criteria and the same applied to SAPARD. Projects financed by the latter were brought under full compliance of the CAP regulations.36 The evaluation of the 2000–2003 ISPA programme carried out by the Commission focused on large infrastructure investments – water supply, wastewater treatment and waste management, inter-connection with


future Trans-European transport networks, and the capacity of national institutions in drafting environmental legislation and ensuring the application of EU standards. Beginning with an allocation of 7,030 Meuro, ISPA succeeded in committing 4,339 Meuro and spending 1,014 MEuro by the end of 2003.37 From the seventy-five projects initially accepted during the first year, ISPA had by 2003 approved 324 projects. No further projects were accepted within ISPA after the 1st of January 2004 given that the management of the projects was transferred from ISPA to the Cohesion Fund. However, the projects to which the Commission had committed finances were to be carried out until completion. The average cost of the projects financed by ISPA was 33 million euros, of which 65% was financed by ISPA, even if the percentage could have arrived up to 85% of the cost. The rest of the cost was allocated to national governments or to outside funding organizations. The mixed form of financing facilitated in the candidate states the acquisition of the EU methodology in preparing projects, tendering, and formulating the contracts in that international institutions as well as the EU had similar technical and legal requirements in making funding available. It was more difficult for the candidate countries to carry out an environmental impact study than to receive commitments to fund the projects. In other words, it was less difficult to find the funding for projects rather than to manage the projects according to Community rules and procedures. One of the management requirements was that each candidate country had to formulate an overall ISPA investment strategy, even if the document requested was not as detailed or comprehensive as would have been the case if a SPD or CSF had been required. In fact, ISPA was a programme that financed single projects rather than a complex programme of interventions. It did not operate on the basis of a grouping of projects, as was the case with integrated development programmes. The same principle applied to SAPARD projects. But even the simple documentation that had to accompany the proposal of infrastructure and environmental projects was not always easy for the candidate countries to assemble. Further learning needed to take place, especially in relation to the application of environmental standards and procedures. The SAPARD programme also emphasized the objective of reinforcing institutional capacity in the initial stages. Different from PHARE and ISPA, SAPARD adopted an approach that placed the burden of management squarely on the candidate state. The countries participating in the programme had to formulate a multi-annual programme to cover the period 2000–2006, conduct an ex-ante evaluation, organize a monitoring committee, create a national payment agency, ensure adequate controls over the disbursement of funds, create the institutions and procedures to report fraud to the Commission, and independently verify expenditures. The exigencies of the conditions set down by the Commission prevented any SAPARD money from


being allocated during the first year. In 2001 the “institutional structure” necessary for SAPARD to come into existence was created in all of the countries, but it took time for countries to request the available resources. One year later, in 2002, the candidate states took up approximately half of the amounts, 236 Meuro out of the 554 Meuro, available.38

6.7 The new member states and the accession budget, 2004–2006 After 1 January 2004 the new member states had access to the Structural Funds and to the Agricultural Fund as was set out in the decision of the Copenhagen Council in December 2002. The proposal discussed in Copenhagen was formulated by the Commission on the basis of the financial provisions made for accession at the 1999 Berlin Council meeting. The Berlin decision had made reference to six candidate countries – Cyprus, Czech Republic, Estonia, Hungary, Poland and Slovenia – and their eventual entry in 2002. This objective was not fulfilled due to the lack of agreement at the Nice summit in December 2000. The commitment to enlargement was reaffirmed at the December 2001 meeting in Laeken when the number of candidate states was raised to ten through the addition of Latvia, Lithuania, Slovakia and Malta, and the date for accession was pushed back to 2004. As has been stated above, the exclusion of Bulgaria, Romania and Turkey from immediate entry facilitated the agreement to enlarge. Otherwise, it would not have been possible to enlarge on the basis of the Berlin financial provisions. That agreement had foreseen the provision of financial resources for post-accession for the years 2002 and 2003, but it did not allow the transfer of the allocation for these two years to the period 2004–2006 if accession were delayed or if the number of candidate states were increased. The Berlin budgetary agreement also put other limits on financial commitments and expenditures. The theoretical limit for expenditures was 1.27% of EU GDP, but in reality the limit placed on EU expenditures was 1.01% of GDP. The Commission was instructed to prepare the accession budget on the basis of the financial resources allocated for the last three years of the seven-year, 2000–2006 budget. It succeeded in remaining inside of the budgetary parameters, as is indicated in the data in Table 6.7, by undertaking a drastic cut in Agricultural Fund expenditures. It succeeded in doing so by gradually introducing the price support mechanism to cover agricultural production in the new member states between 2004 and 2013 and by allocating 25% of the Agricultural budget for rural development programmes. The expectation is that the new member states will be brought fully into line with the current fifteen members in terms of agricultural expenditures under the price support mechanism by 2013.39


In contrast, the allocations with regard to cohesion policy will be brought into line with those of the other member states more quickly. At the present time they will receive approximately 75% of what they would have been entitled to up to 2006. From 2007 onward they will be placed on a par with the other EU countries. But they will have to operate within a new agreed limitation for all countries in which the Structural Fund allocations cannot go beyond 4% of GDP. In the past, countries such as Ireland and Portugal received resources that exceeded this level.40 In February 2004 the Commission presented the breakdown of the Structural Funds distribution for the ten new member states (see Table 6.8) for the period 2004–2006. The figures in the table illustrate the fact that the overall allocation for cohesion policy in the new member states is projected to reach 24,451 Meuro, with the bulk of the money 14,959 MEuro going for Objective 1 regions and 8,495 Meuro being allocated by the Cohesion Fund. Relatively low amounts have been allocated for Objective 2 (136 Meuro) and Objective 3 (125 Meuro) programmes given the scarcity of regions covered by these programmes within the new member states. The distribution of resources among the ten new member states sees 50% of the funds allocated to Poland (12,809 Meuro). At the present time Cyprus does not qualify for Objective 1 and the Czech Republic and Slovakia have Objective 2 rather than Objective 1 programmes for their national capitals (Prague and Bratislava). Finally, the Commission underlined that during the period between 2004 and 2006 the new member states must continue to pay particular attention to “internal policies”. The request requires the new members to draw down and shut the nuclear plants in Slovakia (Bohunice) and Table 6.7

2004–2006 budget for new member states (MEURO in 2002 prices)

Sector Agriculture Cohesion policies Internal policies Public administration Total commitments (Copenhagen 2002) Total commitments foreseen (Berlin 1999) Appropriations for enlargement Payments Appropriations for payments (Berlin 1999)

2004

2005

2006

1897 7095 1421 503 9952

3747 6940 1376 558 12657

4147 8812 1351 612 14958

11610

14200

16780

5686 8890

10493 11440

11840 14220

Source: European Commission “Communication from the Commission: Information Note, Common Financial Framework 2004–2006 for the Accession Negotiations, 30.1.02, SEC (2002) 102 p. 10 and “Conclusions of the Presidency-Copenhagen 12–13 December 2002, Annex 1.

170

Table 6.8

Structural Funds allocated for the ten new member states, 2004–2006 (MEURO in 2003 prices)

Country

Objective 1

Objective 2

Objective 3

Interreg

Equal

Cohesion fund (*)

Total

Czech Rep Estonia Cyprus (**) Latvia Lithuania Hungary Malta Poland Slovenia Slovakia Total

1,454.27 371.36 0.00 625.57 895.17 1995.72 63.19 8,275.81 237.51 1,041.04 14,959.64

71.30 0.00 28.02 0.00 0.00 0.00 0.00 0.00 0.00 37.17 136.49

58.79 0.00 21.95 0.00 0.00 0.00 0.00 0.00 0.00 44.94 125.68

68.68 10.60 4.30 15.26 22.49 68.68 2.37 221.36 23.65 41.47 478.86

32.10 4.07 1.81 8.03 11.87 30.29 1.24 133.93 6.44 22.27 252.05

936.05 309.03 53.94 515.43 608.17 1,112.67 21.94 4,178.60 188.71 570.50 8,495.04

2,621.19 695.06 113.44 1,164.29 1,537.70 3,207.36 88.74 12,809.70 456.31 1,757.39 24,451.18

(*) Average (**) Including the Financial Instrument for Fisheries Guidance (FIFG). Source: Inforegio Newsletter, January 2004.


Lithuania (RBMK) and to continue to invest in activities related to institutional capacity for the training of personnel and the strengthening of administrative structures. At the present time, these initiatives of institution building/institutional capacity are financed for up to 1 billion euros a year through the PHARE programme. This level of financial support will be maintained within the Structure Funds in order to achieve the objective of creating institutions capable of participating in the full and effective governance of cohesion policies.

6.8

Conclusions

The analysis contained in this chapter has moved from a consideration of the enlargement process in terms of what further enlargement means for the EU to what it means for those states that have been invited to join the EU. Enlargement is very important for the EU because it represents the first credible attempt to unify Europe on the basis of a common economic structure and institutional framework in the post-war period. For the previous member states, enlargement signified the realization of the commitment to create a stable and democratic Europe. For the former candidate countries in Central and Eastern Europe, joining the EU represents the “return to Europe” that they had dreamed of for over fifty years: from the moment that Europe was split into two parts by the Iron Curtain. This motto of the return to Europe is also applicable to the Commission’s commitment to finalize the contours of the new European system despite the previous difficulties and false starts. After the abrupt halt to the enlargement process registered at the 2000 Nice Summit, the momentum was regained in Laeken. With the Copenhagen Council and the Accession Accords signed in Athens on 16 April 2003 the objective of enlargement was finally achieved. For the Prodi Commission, enlargement assumed the role of a “raison d’etre” or the mission that defined its ambitions, values, and ultimate objectives over the last five years. That objective was achieved on the first of May 2004, and the Prodi Commission will go down in history as one of the most ambitious and successful in the EU’s history. In the same manner that the realization of the Single Market became the defining purpose of the Delor Commission, the success of enlargement will serve to define Prodi’s tenure as President and the overall achievement of his Commission. From the Commission’s documents and actions we can see that enlargement has also served to define the other issues on the EU agenda, such as the Convention, the future foreign and security policy, and justice and home affairs. The new form that Europe will take during the next decade was not fully resolved at the June 2004 European Council. That task still remains to be finalized. However, it is not difficult to predict that Europe will in the


future be much different from what we have known in the past; it will be much bigger and more ambitious that it ever dared to be in the past. Whether it will in fact become that “house on the hill” envisioned by Michael Rifkin – i.e., that democratic beacon for the world – is still too early to tell, but the process of enlargement has certainly changed the parameters of international discourse on trade, on political relations, and on the role of Europe in the world. In terms of the impact of the cohesion policy on enlargement, the entry of new member states has helped to focus attention on the issue of “what does cohesion mean for EU citizens and how can that be achieved” as well as the importance of the concepts of institution building and institutional capacity in preparing for an efficient and effective management of the policy. The Commission’s final report on compliance with the acquis reported that “for most areas of the acquis the administrative structures are in place, and in a few of them capacity has already reached a point where the structures are optimal for membership. However, most need strengthening in terms of human resources, training (including language training) and budget.”41 In the area of cohesion policy the Commission expressed concerns that full expenditures of Structural and Cohesion Funds could not take place immediately on 1 January 2004 because eight out of the ten new member states – Czech Republic, Estonia, Latvia, Hungary, Malta, Poland, Slovenia and Slovakia – had not fully complied with EU rules on public procurement, state aids, and environmental protection. Increased efforts need to be applied in bringing into full conformity the procedures and institutions responsible for the implementation of the cohesion policy. If the new member states do not comply fully, then the Commission through its power to “execute the budget” will block the release of funds and may refer the member state to the Court of Justice. Despite these important issues that still remain unresolved, accession of the ten new member states has gone rather smoothly given the increased need to comply with a much more detailed and extensive acquis than had been the case in previous enlargement exercises. Enlargement is not over yet. There is still the need to make certain that Bulgaria and Romania enter as expected in 2007, and negotiations need to be formally started with Turkey and Croatia. The former has increased its chances of beginning those negotiations in 2005 with the support it gave to the resolution of the division of Cyprus in February 2004 and the reform of its penal code. Those moves illustrated the essence of Turkey’s commitment to join the European Union: a country or a people have much more to lose in being kept out of the European Union than in coming in and, therefore, all resources need to be mustered in achieving that objective. The same logic applied to the opening up of negotiations for entry in relation to Croatia and other Balkan countries. Where enlargement will end is still difficult to establish, but it has already served to bring the borders of Europe to their natural historical extension.

7 Conclusions: The Constitutionalization of the European Union and the Future of Cohesion Policy

7.1

The State of the Union in 2004

The composition and structure of the European Union continues to evolve. As discussed in the previous chapter, the borders of the EU have expanded toward the east and south. Ten new member states entered the EU on 1 May 2004, and negotiations are continuing with two candidate states (Bulgaria and Romania) for possible entry within three years. Turkey, the quasiEuropean state, will start negotiations at the beginning of 2005. One of the most compelling questions concerning the overall composition of the EU is tied to what will happen to the Balkan states (Croatia, Serbia, Montenegro, Albania and Macedonia). Eventual membership on the part of the five Balkan states depends to a great extent on their ability to manage their internal ethnic conflicts and substitute them with democratic procedures capable of building social cohesion and promoting cooperation among the constituent religious and ethnic groups. At the present time, it is difficult for any of the five Balkan countries to be given the status of candidate state. Croatia has submitted its formal request to join, but the acceptance of Croatia’s candidacy is still in limbo. Negotiations could start in March 2005. In the meantime, the European Union is working on its policy of creating a “circle of friends” that shares with the Union “everything but institutions”.1 In this regard, the November 2003 Naples European Council meeting reconfirmed the goal of creating a free trade area covering the Mediterranean countries and Europe by 2010,2 and agreements are being finalized with the countries to the east of the present EU borders (i.e., the countries that emerged from the dissolution of the former Soviet Union: Russia, Ukraine, Moldova, Belarus, Georgia, etc.) for the creation of stronger economic and trade links. Through enlargement and the consolidation of the Single Market and Single Currency, Europe has become a major player on the world stage with regard to both economic and political issues. The 14 March 2004 election results in Spain have demonstrated how domestic member state political 173


developments can have a profound impact on politics within Europe and outside of Europe. The Spanish election results have had an impact on both internal considerations regarding the ratification of the draft of the European Constitution as well as in the role of European states in Iraq and Afghanistan, and they serve to demonstrate that if Europe is able to speak with one voice it has the opportunity to bring about change and influence important policy decisions at the international level. Support of this generalization is provided by the results of the 26 June 2004 US–EU summit in Ireland where George Bush praised the EU’s courage and commitment in completing enlargement according to schedule. One area where the victory of Zapatero had a major impact was the resolution of the deadlock on the European Constitution. In December 2003 under the Italian presidency the member states were not able to resolve the differences on voting weights attributed to Spain and Poland. The new Zapatero government quickly demonstrated its ability to resolve the impasse by signalling its acceptance of the EU Constitution, the rebalancing of voting weights, and the reaffirmation of Spain’s central role in the EU. Results of the June 2004 European parliamentary elections in Spain served to reconfirm the political primacy of the PSOE and, one week later, on 18 June 2004 the draft Constitution was accepted by all member states. In effect, the changes instituted by the Zapatero government in the Spanish position (and as a consequence in the Polish one) permitted Bertie Ahern, the Irish P.M., to successfully conclude the Irish Presidency with a full agreement on the draft of the European Constitution.3 The reason why the ramification of the European Convention and the constitutionalization of the European Union need to be analyzed in a book on cohesion policy goes back to the thesis presented in the introductory chapter of this volume – i.e., the cohesion policy basically represents one of the EU’s major “political” policies in the attempt to consolidate the Union and reduce internal disparities. It has been argued by Romano Prodi and other members of the Commission that the political dimension of the European Union is largely sustained by three EU policies: the single market, the common currency and cohesion policy. References to the political goals of the Single Currency have become common during the past five years given the decision on the part of the participating states to give up their national currencies, allocate monetary policy to the European Central Bank, and accept the discipline of the Stability Pact. The euro provides a daily symbol of a unified Europe, and it has served to extend the reach of EU level institutions over national budgetary and tax policies. One example of the explicit political ramifications of the common currency is the oversight of national budget deficits undertaken by the Commission as part of the Stability Pact. As the recent ruling of the European Court of Justice has suggested, EU institutions have a right to

Conclusions 175

object when member states ignore commitments taken under the Stability Pact to keep control of national deficits and national commitments not to overshoot annual deficit targets associated with the single currency programme and the financial stability of the euro-area economy. The political ramifications associated with the Single Market programme became explicit from the beginning of 1993. In the Single European Act member states accepted that the functioning of the unified European market was to be managed by a European decision-making process under control of the European Commission and not by single member states. This shift in the locus of decision on internal market policies has had a significant impact on subsequent commercial flows, competition policy, and trading standards. The focus of these decisions is no longer national but rather European in nature. The third policy area that up until now remained more implicit rather than explicit in its political objectives has been the EU’s cohesion policy. We would argue that this ambiguity concerning the political objectives of the cohesion policy was clarified in the conclusions to the Third Cohesion Report and in the draft of the Constitution.4 In the new Constitution the importance of the cohesion policy is reiterated and reinforced and in a parallel fashion the Third Cohesion Report emphasized the role of cohesion policy as the main instrument for the socio-economic solidarity in the European Union. Among the most notable changes to the definition of cohesion policy undertaken by the Constitution is to be found in Article III-116. The article appears in the section defining the “Policies and Functioning of the Union”. In the text that emerged from the Convention in July 2003 the article stipulated: “In order to promote its overall harmonious development, the Union shall develop and pursue its action leading to the strengthening of its economic, social and territorial cohesion. In particular, the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas”. The IGC’s revised text eliminated any mention of island and rural areas in the second sentence but added another paragraph stating: “Among the regions concerned, particular attention shall be paid to rural areas, areas affected by industrial transition, and areas which suffer from severe and permanent natural or demographic handicaps such as the northernmost regions with very low population density, and island, cross-border and mountain areas.” 5 The articles covering economic, social and territorial cohesion serve to reaffirm the importance of the concept and the political commitment to the principle of cohesion in the new Constitution and the fact that all of the member states and EU institutions are committed to the pursuit of the policy in preparation of the new budget and regulations.


Accordingly, the Constitution serves to reinforce the political dimension of these three policy areas and carries the potential of bringing other policy sectors under the EU umbrella by providing the EU institutions with a legal standing based on the definition of a European political community that is firmly rooted in democratic procedures. Therefore, it is useful to look at the debate on the Constitution to understand how it has set out to institutionalize the nature of the political community that is, on the one had, assumed and on the other, nurtured by EU’s three political policy sectors.

7.2 The European Convention and the drafting of the European Constitution On 26 February 2002 the inaugural meeting of the European Convention took place in Brussels. In his opening address to the Convention, the Chairman – former French president Valery Giscard d’Estaing – stated that the Convention had been called upon to write a new chapter in the history of Europe. He described the responsibility of the Convention as one of preparing a new strategic blueprint for the future of the Union. As stated in the preface to the draft document presented in June 2003, the strategic blueprint presented proposals on three crucial subjects: – “how to bring citizens closer to the European design and European Institutions”; – “how to organise politics and the European political area in an enlarged Union”; and – “how to develop the Union into a stabilising factor and a model in the new world order”. 6 The preface to the draft Constitution stated that the deliberations of the Convention and its final report had to feed into the subsequent Intergovernmental Conference (IGC) convened by the Italian Presidency on 4 October 2003. Prior to the initiation of the IGC, Michel Barnier, then Commissioner of DG Regio and subsequently French Foreign Minister, observed that: The Convention has succeeded where the EU has fallen short before. The Convention approach was a crucial and lasting innovation. A short and decisive Intergovernmental Conference needs to make the remaining improvements and clarifications.7 Deliberations within the IGC proved not to be as swift or harmonious as expected. The end of the Italian Presidency did not complete work on the final agreement. On the 13th of December 2003 all hope was abandoned in completing the negotiations on the new Constitution. The

Conclusions 177

Brussels European Council meeting had failed in achieving its objective. Responsibility for brokering a final agreement was passed on to the spring 2004 Irish Presidency. Given the failure of the Italian presidency, why did the member states insist on finding a common agreement on the proposed Constitution? The reasons for this insistence can be traced to the existing shortcomings in EU governance patterns. In our opinion there was a general acceptance among member states, the European Parliament and the Commission that the EU governance model needed to be updated in line with the new exigencies of strategic policy-making at the European level. The first reason is connected to the incessant increase in member states during the last two decades that has made the old rules of interaction difficult and ultimately unmanageable. The second reason is reflected in the rising profile of the European Union in international affairs. The third aspect that needs to be answered by the Constitution is the ramification of the “deepening” of European integration through the expansion of EU responsibilities into new policy areas. As expressed by Romano Prodi in a speech at the University of Bologna on 5 July 2003: Today’s Europe is setting itself explicitly political objectives and presenting itself as the answer to the need to act in foreign policy, security policy, immigration policy and so on, in other words in all those sectors where there is an increasing public perception of the need for stronger and more effective action than individual States can manage on their own.8 This principle of the EU providing for stronger and more effective action than member states can manage on an individual basis is clearly spelled out in the delineation of exclusive competences of the EU (Article 12), areas of shared competence (Article 13) and areas of supporting, coordinating or complementary action (Article 16). In Article 12 we find monetary policy, common commercial policy, customs union, and the common fisheries policy. Article 13, on the other hand, contains the internal market and cohesion policy but also other policy areas that have not yet been fully Europeanized. Article 16, instead, contains a list of policy areas, which have been only partially affected by the Europeanization process. Article 16 lists vocational training, which has been heavily Europeanized through Objective 1 and 3 programmes in addition to health, education, culture, and civil protection where the EU is relatively inactive. The rationalization of the EU policy process and reorganization of the institutions were originally the tasks allocated to the IGCs drafting the Nice Treaty, but that opportunity was missed due to internal wrangling among the member states and candidate states on the distribution of votes in the


Council and the number of representatives to be allocated to each member state in the European Parliament. Negotiations of the Nice Treaty helped to confirm the rule that there is no limit to how long decisions can be postponed unless a crisis sets in to make decisions imperative. That rule was reconfirmed once again during the 2003 IGC deliberations. It was first thought that December 2003 represented the last opportunity to make a decision on the Constitution, but subsequent events during the first half of 2004 demonstrated that the decision could finally be resolved by the end of the Irish Presidency, once the Spanish and Polish stumbling blocks were eliminated. On the 18th of June 2004 the decision was finally taken by the member states to adopt the Constitution and move to a new phase of European integration. The innovation represented by the European Constitution is not only tied to its contents but also to the method used to formulate the constitutional text. In launching the formulation of a European Constitution in 2002, a radical new approach in managing the IGCs was adopted. The new process involved not only member states but also a variety of institutional and political actors within the deliberations of a European Convention whose purpose was to produce a draft document that would become the basis for the subsequent deliberations by the IGC. The convening of the European Convention marked the first time since the 1955 Messina Conference that a gathering of representatives of national governments and parliaments met in a structured format to provide an input into the formulation of a draft treaty. Four previous IGCs have been convened to amend the Rome Treaty, and they produced the Single European Act (1986), the Maastricht Treaty (1992), the Amsterdam Treaty (1997) and the Nice Treaty (2000). The previous IGC’s had incarnated the closed and secretive inter-governmental process that had governed the change of Treaty provisions in the past. It was not clear at the beginning how binding the work of the European Convention would be on the final IGC. Pessimists feared that the Convention would end up representing a “talking shop” in which the final document would represent a mere “consultative” or non-binding contribution to be substantially changed during the IGC deliberations. Optimists, however, felt that the European Convention had the potential of tying the hands of the member states and forcing them to sign up to a draft constitution essentially produced outside of the IGC process. The final outcome showed that the new approach essentially served to cast the Convention into the role of a “constituent assembly” for the drafting of the European Constitution and constraining the member states to accept the draft produced by the Convention. With the Convention, the real debate on the contents of the new Constitution took place in full public view during the two years prior to the convening of the IGC. The Convention was able to agree, among others, on the insertion of the

Conclusions 179

Charter of Fundamental Rights into the Constitutional Treaty (Title II, Article 7). It provided the Union with a single legal personality (Article 6). Co-decision-making has become the norm, and a European Minister of Foreign Affairs, as Vice-President of the Commission, has been introduced in substitution of the former foreign policy spokesman for the European Council. Why did this change take place now and how was it made possible? The thesis of this chapter is that the change in procedure was necessary to achieve the political goals enshrined in the three heavily Europeanized policy areas. Such a document could not have been written prior to the Single European Act and Maastricht Treaty nor could the traditional IGC process in formulating the text of the Constitution been possible prior to the failure of the Nice IGC to change EU institutions and procedures. Based on the failure of Nice and the inter-governmental process to reform the founding treaty of the EU and the need to move toward a more democratic and efficient EU institutional structure, the Convention was able to introduce a new and more democratic instrument for the formulation of such an important political document.9 The comparison with the Constitutional Congress held in Philadelphia in 1789 to draft the American constitution may seem far-fetched, but it is clear that the latest IGC has not at all been conducted as previous ones were. The events leading up to the latest IGC do not compare with anything we have seen in Europe or elsewhere, aside from the events in Philadelphia two and a half centuries ago. The second fundamental point is that the content of the European Constitution represents an attempt to define the contours of the new European political community that has been under construction ever since the beginning of the European integration process. What the Constitution attempts to do is to define the areas where there is a fundamental political agreement among member states and the citizenry with regard to the principles, procedures, and content of the European project (Articles 7, 8 and 9). The content of the Constitution also highlights the fact that the existing structure of the EU has been unsatisfactory for a number of internal as well as external reasons. The shift of decision-making powers from the national to the European level in the realm of economic and monetary policy has produced significant returns to scale in terms of the internal rules and regulations for the organization of the market; the boost in intra-European trade and investments; the realization of the “four freedoms” associated with the free circulation within the EU of people, goods, services and capital; as well as with the significant convergence of socio-economic indicators as well as inflation and interest rates. However, other factors related to the internal market – such as the regulation of the securities market, the co-ordination of fiscal policies, maintaining tight control over governmental spending, implementation of common unemployment policies –


have largely been ignored by the member states in their formulation of domestic policies and have served to undermine the overall coherence of the internal market programme. Until now, the coordination of these policy areas has been conducted on the basis of inter-governmental agreements rather than on the “Community method” – i.e., by Europeanizing the responsibility for deciding and implementing the policy under consideration. Other examples of the use of the inter-governmental method are offered by the implementation method chosen for the Lisbon (employment) and Goteberg (environment) strategies as well as to the decision-making process associated with the deliberations of the ECOFIN-X with regard to national deficits. Though the intergovernmental policy approach have produced less than fully satisfactory outputs, it was not possible before 2002 to propose an overall rationalization of policy areas as took place within the deliberations of the EU Convention.

7.3

The building of a European political community

Analyzing the draft Constitution produced by the Convention, it can be argued that it represents the culmination of the piecemeal European integration process set into motion by Jean Monnet at the beginning of the 1950s and has been underwritten ever since by the member states with every amendment of the Rome Treaty. In other words, the draft Constitution should be viewed as the point of arrival (i.e., reconfirming existing objectives) rather than a point of departure (i.e., defining new objectives) of European integration. The former interpretation is coherent if we consider that the European Union represents the only example in the world of a highly integrated economic market with a single currency pursuing goals of economic and social cohesion not governed by parallel highly integrated institutions and political structures. In the EU political structures have always come after the creation of significant policy areas managed at the European level. This approach allowed for policy sectors to be attributed different decisionmaking rules until it was possible to accept the common Community method. Segmentation of policy areas and approaches has allowed policy areas to move from the inter-governmental to the Community sphere on the basis of treaty reforms as the need arose, but the process has also left considerable holes in Community competences.10 Another aspect that has been highlighted in the deliberations of the European Convention is the external implications of the EU’s internal achievements. The Convention set out to explicitly address the issues raised by the Commission and other EU bodies in managing relations with other countries within the WTO, IMF, World Bank and other important international organizations. Past treaties have never undertaken to sort out these incongruities. The same is the case with regard to the UN. As a result, the

Conclusions 181

European Union exists as an economic powerhouse at the world level, but its ability to politically project economic power has been severely limited. The consequence is that one of the world’s five great economic aggregations (U.S., Europe, China, India and Japan) is incapable of adequately transforming its economic power into the international political arena. This economic giant at the world level remains a midget when it comes to political considerations. Such a position is considered unsustainable and, in the long run, contrary to the interests of Europe as a whole. The European Convention sought to resolve this and other issues in its deliberations to build upon the past successes achieved by the Union. After fifty years of existence, the six original states (Belgium, Holland, France, Germany, Italy and Luxembourg) that first agreed to come together in 1951 into the European Coal and Steel Community have grown to twenty-five member states and have moved from the creation of the Customs Union to the Single Market and Single Currency to the initial formulation of the basis for political union. The competing aggregations of European nationstates – the European Free Trade Association (EFTA), COMECON, or Scandinavian Union – have all fallen by the wayside as their component elements have joined the EU in successive waves. The current model of the European Union was formulated to govern the interactions of six member states and was then subsequently modified in Nice at the margins to accommodate fifteen. However, the relationship among the EU institutions – Council, Commission, European Parliament, European Court of Justice, Court of Accounts and Committee of Regions – has not at all functioned satisfactorily. Also, the system of the three “pillars” – the single market, foreign and security policy and justice and home affairs – introduced by the Maastricht Treaty and then modified by the subsequent two treaties proved not to be satisfactory and was significantly eroded by subsequent decisions in Amsterdam and Nice. In his inaugural speech to the Convention, Giscard d’Estaing spelled out what were in his mind the chief objectives for subsequent deliberations: (1) defining the responsibilities of both the European and national levels in policy-making and implementation. Should these responsibilities be exclusive or shared by the various levels of government at the European, national and regional levels?, (2) how these responsibilities could be exercised in a manner that makes decision-making comprehensible to the common citizen? What should be the relationship between the European Parliament and national parliaments? Can power be shared between the two levels?, and (3) the re-enforcement of a European identity that goes beyond the mere realization of material returns and gains but instead is rooted in a particular approach to the organization of society, the economy, the political system, and civil and social rights and responsibilities. What is Europe’s contribution to the organization of civil society and the interactions between political institutions, individuals, and groups in


society? Is there a uniquely European view of social welfare that needs to be highlighted? Does Europe have an alternative definition of corporate responsibility to society and the role of the market in the generation of individual and collective goods? In providing the answers to these questions, Giscard d’Estaing proposed that the Convention operate in three phases. During the first phase of the deliberations the Convention would tackle the fundamental issues associated with the definition of the European Union in terms of what it was and where it was going. This phase required a rethinking of the idea of Europe, individual European institutions and how they could better carry out their attributed functions. Another important element during the first phase of deliberations was the issue of democratic legitimacy of EU institutions and how they could be brought closer to the everyday lives of citizens. The second phase was associated with the horizontal interactions among the European institutions and the vertical connections between the different levels of government that exist in Europe. This phase brought into question the whole issue of multi-level governance and the prospects of federalizing Europe into a more coherent governmental and political structure capable of guaranteeing the rights of its constituent elements and the relationships that should exist between national-European, nationalregional and regional-European levels of government. Once these two phases were completed, the Convention then proceeded to the formulation of its recommendations to the Inter-governmental Conference. Giscard d’Estaing succeeded in bringing the deliberations of the Convention to a close with a consensus report and not with two reports representing a majority and a minority opinion. The draft of the new European Constitution was presented to the member states on 18 July 2003.11 The reaction of the Commission to the Convention’s deliberation and initial drafts of the European Constitution were enthusiastic, though it did not stop from criticizing certain aspects that according to the Commission were left unresolved or were not ambitious enough in their formulation. The Commission’s President was particularly vocal in expressing his views on the Constitution, and he did not hesitate from making his full views known even if he did not have the full backing of his Commission. On 4 December 2002 Prodi presented his own contribution to the draft of the Constitution without the backing of the whole Commission.12 Some Commissioners felt that the EU’s executive body should not participate in making proposals to the Convention. However, the President of the Commission believed that the contents of the draft Constitution were too important in determining Europe’s future not to take the opportunity to make his views known and advancing the debate into new areas of policy-making and more ambitious institutional arrangements.13 In his February 2003 speech to the Convention delegates Romano Prodi emphasized the crucial role played by the Convention in defining

Conclusions 183

the political role of the European Union. He stated that the responsibility of the Convention was to lay the foundations for the formulation of a European Constitution that would lead to the creation of a European political space grounded on the basis of a union of people and of nationstates. 14 In Prodi’s opinion the principles that needed to underpin the Union were the separation of powers among the various branches of European government, majority decisions, the deliberation by the elected representatives of the people in passing legislation, and the attribution of taxing powers to the European Parliament. Prodi also emphasized the responsibility of the EU in exercising its duty as a world power in affirming its model of development, already reflected in the EU’s cohesion policy, that was sustainable and based on a commitment to mutual solidarity – i.e., a form of development that was “sustainable and solidarious in nature”. The Commission President then went on to discuss the interactions between the political objectives of the Union and the need to provide a clear system of governance for EU economic and monetary policies. According to Prodi, the introduction of the euro had permitted the participating states (and those others gravitating within the area of influence of the euro – i.e., the UK, Denmark and Sweden) to control inflation, reduce long term interest rates, improve the internal debt situation, and put into place policies favouring economic growth and employment. He acknowledged that the euro zone economies were now moving in unison, but he also acknowledged that there were significant problems of “free riding” in which individual states attempted to solve internal social and political problems through excessive spending and inflation rates by ignoring the commitments previously made to abide by the guidelines of the Stability Pact. However, the institutional arrangements set up for the launch of the euro had placed the responsibility of managing the single currency in the hands of the European Central Bank. The Commission’s role was marginal and so was that of the participating member states. The President proposed the creation of Ecofin-eurozone Council capable of making authoritative decisions binding on all participating states and with the clout to influence ECB deliberations. According to the Commission, these changes would become indispensable with enlargement as, in general, weaker economies will join the single market and eventually the single currency. For this purpose, the Commission proposed to: re-enforce the development of common economic policies, renew the commitment to the existing common policies by decentralizing their implementation and generalizing the use of qualified majority in the taking of decisions, reinforce the co-ordination of internal economic policies and guarantee a unified external representation of the euro zone. Here again, we have the expression of a recurrent theme that one finds consistently in the deliberations of the external representation of


the EU in the field of monetary policies as well as in foreign and security policy: the unified representation of collective needs vis-à-vis the outside world within the context of international organizations and deliberations with non-EU countries. Considering these objectives of the Commission, what were the chances that the representatives of the Convention would accept such proposals? The ideas that were discussed to reinforce the co-ordination of economic policies concentrated on the following items: • the harmonization of taxation on business profits, capital gains and energy and the reporting on deposits of nationals from other EU countries. Competition among the member states on taxation policies does not contribute to overall growth and prosperity but only serves to shift the location of firm headquarters from one tax haven to another; • a reconsideration of the Stability Pact and providing the Commission and Ecofin with real powers to sanction countries that do not observe its limitations. Each member state must be obliged to consult with the others and obtain their approval before taking any decision that would adversely affect the other Euro zone countries; • the strengthening of development policies within the EU with the objective of reducing territorial and social differences; and • greater co-operation in immigration policies given the impact of immigration on national and European employment and general asylum policies. It was not possible to find consensus on all of these economic issues as well as all of the other political and institutional issues that were generated by the deliberations of the Convention. The IGC was given the task of completing the text of the new Constitution, but that effort was initially blocked by the conflicts between some of the larger member states on voting procedures and voting weights that had little to do with the contents of the constitutional text. The deliberations of the Convention and the final report submitted to the European Council meeting in Thessalonica on 20 June 2003 fed into the preparatory work that was taken over by the Inter-governmental Conference (IGC) convened by the Italian Presidency on 4 October 2003. Deliberations within the IGC proved not to be swift or completely harmonious. The end of the Italian Presidency did not complete work on the final agreement in December 2003. On the 13th of December all hope was abandoned on completing the negotiations on the new Constitution. The Brussels European Council meeting had failed in achieving its objective, and therefore the task of brokering a final agreement was passed on to the 2004 Irish Presidency. Against all initial expectations, the Irish Presidency under the skilful coordination of Bertie Ahern did succeed

Conclusions 185

where Silvio Berlusconi had failed. On 18 June 2004 the twenty-five heads of state and government agreed to ratify the basic text for the European Constitution. The basic draft of the Constitution that was signed on the 18th was the one produced by the European Convention with only a minor number of modifications. What drastically changed the prospects of ratifying the Constitution was the internal politics of two member states. In the Spanish national parliamentary elections in March 2004 Jose Maria Aznar’s Popular Party was defeated and in Poland Lezek Miller, the Polish president, was forced to resign. These two changes opened up the way to a final agreement on the European Constitution just after the June 2004 European parliamentary elections. During the last two weeks of June 2004 it was possible to achieve an overall agreement on the Constitution and in nominating a new Commission President, the former Portuguese Prime Minister José Durao Barroso. Once the new President of the Commission assumed office in November 2004 he had to (1) bring to fruition the 2007–2013 budgetary proposal initially presented by the Prodi Commission to the European Parliament in February 2004 and (2) finalize the reform of the cohesion policy outlined in the conclusions of the Third Cohesion Report. The nomination of Danuta Huebner, the Polish Commissioner, as the new head of DG Regio made the reform of cohesion policy more likely along the lines outlined by the Commission rather than the minimalist position assumed by some member states.

7.4

The future of cohesion policy

On the 10th of February 2004 the Commission presented its proposed budget for 2007–2013 to the European Parliament. One of the surprising aspects of the speech made by the Commission’s President was the use of the concept of cohesion to underline the logic of the budgetary proposal. In his opening address, Romano Prodi referred to the principle of “solidarity between citizens and between Member States that sees resources transferred from the wealthier countries to the poorer countries and regions” as the chief justification sustaining the proposal.15 Prodi went on to stress that during the next planning and budgetary cycle, cohesion policy would be more clearly placed at the service of competitiveness and employment than was the case before, but the choice of emphasizing the role of cohesion policies in serving the common European interest represented the fundamental plank of the budgetary proposal. The three priorities that were to be served by the new budget were: the achievement of sustainable development, putting the idea of European citizenship into practice, and strengthening the role of the European Union as a “key player” in the international arena. To carry out these tasks the Commission reconfirmed to the European Parliament and the Member States the budgetary ceiling of 1.24%


of EU GDP that had been adopted in Berlin in 1999, but the proposal for actual expenditure during the 2007–2013 period was raised from the 1.0% of Berlin to 1.15% of GDP.16 The actual distribution of that 1.15% of GDP spending was spelled out in the Third Cohesion Report, which was issued a week later. In the Report the estimated amount of money going to finance cohesion policies during the 2007–2013 period for the EU’s 27 member states – i.e., including Romania and Bulgaria – was placed at 336.1 billion euros or 0.46% of EU GDP.17 It is clear from this initial calculation that cohesion represents one of the major winners of the battle over the future allocation of resources that took place within the Prodi Commission at the beginning of 2004 and that will continue to be supported by the Barroso Commission after 2004. The reason for its success can be attributed to a number of factors, which have already been discussed in Chapter 4 of this volume. In his speech to the EP Prodi cited the following reasons for such a significant allocations of financial resources for the future cohesion policy: (1) cohesion policy has been a success “from all points of view” in helping to foster convergence between regions at different levels of development, (2) it has allowed regions to play a proactive role in taking advantage of the opportunities presented by the Single Market, (3) it has had a crosscutting impact on other policy areas – e.g., social policy, urban policy, agricultural policy, etc., (4) it has contributed to the general prosperity of the Union, and (5) it has instilled in the Union a deep sense of mutual solidarity.18 To build on the past successes of the cohesion policy, the Commission proposed for the cohesion policy of 2007–2013 three basic new objectives: “convergence”, “regional competitiveness and employment”, and “European territorial cooperation.” Convergence is defined by the Commission as the primary objective for what were formally the Objective 1 regions – i.e., the regions with a GDP per capita below 75% of the EU average. In its 14 July 2004 (see Figure 7.1) memo on the structure of the new cohesion policy for 2007–2013 the Commission proposed to spend 78.5% of its budget on convergence in order to speed up the economic convergence of the less-developed regions, by means of: improving conditions for growth and employment by investing in human and physical capital; innovation and the development of the knowledge society; encouraging adaptability to economic and social change; protection of the environment; improving administrative efficiency19 What the convergence component of the new cohesion policy covers is the building of innovation and the knowledge economy – i.e., aid to investments, promotion of R&D, information society, tourism and cultural investment. Another priority of the new convergence policy is the provision of adequate

Conclusions 187 Cohesion policy 2007–13 (EUR 336.1 billion) Programmes and instruments

Eligibility

Priorities

Convergence objective including the special programme for the outermost regions Regions with per capita GDP 75% of EU-25 Member States with per capita GNI < 90% of Community average

78.5% (EUR 264 billion) Innovation Environment/risk prevention Accessibility Infrastructures Human resources Administrative capacity Transport networks (TEN-T) Sustainable transport Environment Renewable energy

Regional competitiveness and employment objective

Regional programmes (ERDF) and national programmes (ESF)

The Member States propose a list of regions (NUTS1 or NUTS2) 'Phasing in' regions covered by Objective 1 between 2000 and 2006 and not covered by the convergence objective

Border regions and large transnational cooperation regions

67.34% = EUR 177.8 billon

8.38% = EUR 22.14 billon

23.86% = EUR 62.99 billon

17.2% (EUR 57.9 billion)

Innovation Environment/ risk prevention Accessibility European employment strategy

European territorial cooperation objective

Cross-border and transnational programmes and networks (ERDF)

Allocations

83.44% = EUR 48.31 billion

16.56% = EUR 9.58 billion

3.94% (EUR 13.2 billion) Innovation Environment/risk prevention Accessibility Culture, education

35.61% cross-border cooperation 12.12% European neighbourhood and partnership instrument 47.73% transnational cooperation 4.54% networks

Figure 7.1 Proposed reform of cohesion policy, 2007–2013 Source: Inforegio 2004.

transport, telecommunications and energy networks and social infrastructures to the less developed regions. The third priority of convergence is the environment and risk prevention operationalized as the development and use of renewable energy, the prevention of natural and technological risks, the rehabilitation of derelict industrial sites, the integration of cleaner technologies and pollution prevention measures in small and medium sized enterprises, and investments in infrastructures contributing to sustainable economic development. Finally, the employment strand of convergence focuses on the strengthening of labour market policies, enhancing life-long learning strategies, increasing labour force participation of women, and measures to increase the employability of the disabled, migrants and ethnic minorities. One last objective of the employment strand is the adaptation of public administration to change through the building of administrative and institutional capacities on the part of national and regional/local institutional bodies involved in the administration of cohesion policies.


This aspect is quite new given that in previous formulations of cohesion policy institutional capacity was assumed and did not constitute a specific target of EU spending and intervention. The Commission’s attitude has changed due to the increasing evidence that the outputs of cohesion policy and their eventual impact on socio-economic structures depends to a great extent on a region’s and/or country’s capacity to efficiently and effectively manage public policies. Romano Prodi observed in a July 2003 address to the Committee of Regions: “experience shows that the regions with the highest growth are those that have developed their administrative and management capacity to take full advantage of the resources available. So your experience endorses the primacy of administrative capacity in the regions.”20 The financing of interventions aimed at accelerating regional convergence are to be undertaken by three funds: ERDF, Cohesion, and ESF (see Figure 7.2). However, each fund will be responsible for one of the convergence objectives discussed in Chapter 2: the ESF for the employment strand, the ERDF for the innovation and knowledge economy strand, and the Cohesion Fund for the infrastructure networks and environmental programmes. The proposal also quantified the amount (8.39% or 22.14 billion €) allocated to regions bounced out of the convergence objective by the statistical effect of enlargement – i.e., within the EU15 they would have been below the 75% GDP per capita threshold but in an EU of 25 their GDP scores have gone over the 75% limit. Another important innovation introduced by the proposal was to integrate the Cohesion Fund and the ERDF in terms of their rules and procedures.21 The second priority discussed in the 14th of July communiqué regards the redefinition of the former Objectives 2 and 3 into one general objective emphasizing “regional competitiveness and employment: anticipating and promoting change”. Regional competitiveness will redefine the old Objective 2 at the regional level and will no longer be limited to subregional micro zones particularly hit by unemployment and industrial decline but will be focussed on regional level responses. The regional employment objective, instead, will operate in substitution of the old Objective 3. Here, the regions will need to carefully coordinate their activities with the national governments’ employment initiatives and programmes that are part of the EU’s EES (European Employment Strategy). What the Report proposes is a 50–50 split between allocations for regional competitiveness (funded by the ERDF) and regional employment (funded by the ESF) that are supposed to represent 17.2% of the new cohesion policy budget. The ERDF will allocate 48.31 billion € while the ESF will finance 9.58 billion € of the expenditure. The final objective of the proposed 2007–2013 cohesion policy is to re-aggregate all of the former Community Initiatives (Urban, Leader, Equal and Interreg) into one “European territorial cooperation” programme,

Conclusions 189 Cohesion 2007–13: the objectives and instruments proposed by the Commission 2000–06

2007–13

Objectives

Financial instruments

Objectives

Financial instruments

Cohesion Fund

Cohesion Fund

Convergence

ERDF

Objective 1

ERDF

ESF

ESF

Cohesion Fund

EAGGF – Guarantee and Guidance FFG Objective 2

ERDF

Regional competitiveness and employment

ESF Objective 3

regional level

ERDF

national level:European employment strategy

ESF

ESF

Interreg

ERDF

URBAN

ERDF

EQUAL

ESF

Leader+

EAGGF – Guidance

European territorial cooperation

ERDF

3 objectives

3 instruments

Rural development and EAGGF – Guarantee restructuring of the fisheries FFG sector outside Objective 1 EAGGF – Guarantee 9 objectives

Figure 7.2 objectives

6 instruments

Comparison of 2000–2006 and 2007–2013 financial instruments and

Source: Inforegio, 2004.

which would receive the remaining 3.94% (13.2 billion €) of budgetary allocations. This third objective would be entirely financed by the ERDF. One of the most significant innovations to be introduced by the new European territorial cooperation programme would be the creation of crossborder management authorities – i.e., mixed trans-regional authorities having the responsibility of planning and managing programmes and spending the allocated budgets – to respond directly to the Commission rather than to national authorities. In other words, the former Community Initiative Programmes would exit from their experimental phase and now would enter into a new phase where they are to become an integral part of the EU’s cohesion policy. The conclusions to the Third Cohesion Report stressed once again the Commission’s commitment to the principles of partnership and coordination, additionality, financial controls, and the concentration of


intervention. However, it did introduce a novel suggestion that management performance and the quality of programmes would be assessed on an annual basis. Evaluation would assume an increasingly important role in the verification of the N+2 rule as well as in the distribution of a performance reserve, as has been the case in the 2000–2006 period. Now, the suggestion is that the Commission will have at its disposal an annual performance reserve to reward the Member States and regions which show the most significant progress towards the agreed objectives. All of these suggestions by the Commission on how to improve the management and impact of future cohesion policy need to be verified through consultations with the Council of Ministers and the European Parliament, but what is clear from the February 2004 budgetary proposal, the Third Cohesion Report, and the 14 July 2004 proposal is that cohesion policy continues to be seen by the Commission as the central European policy capable of addressing a variety of social, economic and political issues. The objectives and principles at stake for the EU with regard to cohesion policy are considered by the Commission as so important to the definition of the EU that it has pledged to continue the operation of the cohesion policy as one of the premier European policies in the mid to longterm future of the European Union.

Notes Chapter 1 Union

Cohesion and Regional Policies in the European

1. The legal basis for the cohesion policy is provided by the contents of the Treaties, and the formal rules and procedures for the conduct of the policy are stipulated in the Regulations governing the four Structural Funds and Cohesion Fund. See European Commission, Structural Funds and Cohesion Fund 1994–99: Regulations and commentary, Luxembourg, 1996 and Structural Actions 2000–2006: Commentary and Regulations, Luxembourg, 2000. 2. The four Structural Funds are: the European Regional Development Fund (ERDF), European Social Fund (ESF), Financial Instrument for Fisheries Guidance (FIFG) and European Agricultural Fund-Guidance section (EAGGF-Guidance). 3. For a description of the ERDF’s first three years of activity, see European Commission, The Regional Development Programmes, Brussels, May 1979. The report provides a summary of the general activities undertaken by each member state. For an account of each country’s strategy see the detailed, sector-by-sector review provided by the country reports. Two of the most interesting are the ones covering the regional development programme for the Mezzogiorno (1977–1980) and Ireland. For a discussion of the rationale for regional policy in the 1970s and 1980s see John Carney, Rad Hudson and Jim Lewis (eds), Regions in Crisis, London: Croom Helm, 1980; and Brian Ashcroft, The Evaluation of Regional Policy in Europe: A Survey and Critique, Glasgow: Centre for the Study of Public Policy, 1980. 4. The top-down nature of national regional policies was the rule in member states with the exception of West Germany given its federal institutional structure. In the latter case, regional policy was a responsibility of the laender. 5. The initiation of the cohesion policy did not mean that national regional policies were abandoned. Instead, national governments continued to fund their own policy while the Commission set out to activate a separate and distinct regional policy at the supranational level. See Fiona Wishlade “EU Cohesion Policy: Facts, Figures, and Issues” in Liesbet Hooghe, Cohesion Policy and European Integration, Oxford: Clarendon Press, 1996, pp. 27–58. 6. Commission, “First progress report on economic and social cohesion”, Brussels, 30.1.2002, COM (2002) 46 final, p. 21. 7. See Norbert Vanhove, Regional Policy: A European Approach, Aldershot: Ashgate, 1999; Jorgen Mortensen (ed.) Improving Economic and Social Cohesion in the European Community, London: Macmillan, 1994; Iain Begg and David Mayes, A New Strategy for Social and Economic Cohesion After 1992, European Parliament, Regional policy and transport series 19, 1991. 8. See Andres Rodriguez-Pose, Dynamics of Regional Growth in Europe, Oxford: Oxford University Press, 1998; Andres Rodriguez-Pose, The European Union: Economy, Society and Polity, Oxford: Oxford University Press, 2002; Ronald Hall, Alasdair Smith, and Loukas Tsoukalis (eds), Competitiveness and Cohesion in EU Policies, Oxford: Oxford University Press, 2001, and Christos C. Paraskevopoulos, Ricardo Grinspun and Theodore Georgakopoulos (eds), Economic Integration and Public Policy in the European Union, Cheltenham: Edward Elgar, 1996. 191

192 Notes 9. See Lisbet Hooghe (ed.), Cohesion Policies in the European Union, Oxford: Clarendon Press, 1996; Achille Hannequart (ed.) Economic and Social Cohesion in Europe, London: Routledge, 1992; Paul Furlong and Andrew Cox (eds), The European Union at the Crossroads, London: Earlsgate Press, 1995. and Michael Keating and John Laughlin (eds), The Political Economy of Regionalism, London: Frank Cass, 1997; and Christos J. Paraskevopoulos, Interpreting Convergence in the European Union, London: Palgrave, 2001. 10. See David Allen, “Cohesion and Structural Adjustment” in Helen Wallace and William Wallace (eds), Policy-Making in the European Union, Oxford: Oxford University Press, 2000, pp. 209–233 and Mark Pollack, “Regional Actors in an Intergovernmental Play: The Making and Implementation of EC Structural Policy” in C. Rhodes and S. Mazey (eds) The State of the European Union, Vol. 3, London, Longman, pp. 361–390. 11. Stuart Nagel, Public Policy: Goals, Means and Methods, New York: University Press of America, 1990. 12. Tommaso Padoa-Schioppa, Efficiency, Stability and Equity: A Strategy for the Evolution of the Economic System of the European Community, Oxford: Oxford University Press, pp. 5–6. 13. Norbert Vanhove, op. cit., p. 57. 14. We will argue in the later chapters that the evaluation of programmes was introduced in the implementation of cohesion policy to limit the level of policy drift or capture. 15. The importance of the territorial dimension is highlighted by Raffaella Nanetti in the chapter “EU Cohesion and Territorial Restructuring in the Member States” in Liesbet Hooghe (ed.), Cohesion Policies in the European Union, Oxford: Clarendon Press, 1996, pp. 59–88. 16. Maria-Angeles Diez, “Evaluating New Regional Policies: Reviewing the Theory and Practice”, Evaluation, Vol. 8, No. 2, 2000, pp. 285–305. 17. At the present time those countries which are defined as representing NUTS 2 regions are the small new member states: Cyprus, Estonia, Latvia, Lithuania and Slovenia. Ireland undertook to regionalize its institutional structure and NUTS 2 definitions in 1999. 18. Ireland insisted in 1988 in being treated as a NUTS 2 region not for the purposes of qualifying the whole country for entry into the cohesion policy (it already had secured that goal given its low GDP per capita scores in the 1985–88 period), but to make certain that the national ministries could operate as the policy management authorities and thus not requiring a devolution of the responsibility to sub-national level bodies. In Ireland the sub-national territorial entities constituted NUTS 3 rather than NUTS 2 levels. See Brigid Laffan, “Ireland: A Region Without Regions – The Odd Man Out?” in Liesbet Hooghe (ed.), Cohesion Policies in the European Union, Oxford: Clarendon Press, 1996, pp. 320–341. 19. In the case of the Marshall Plan the institutions (European Economic Cooperation and OECD) came into existence after the Plan was launched as an ad hoc arrangement to coordinate the effort. 20. Mike Manning, “The Politics of Structural Funding: Arenas and Agendas” in Fergus Carr and Andrew Massey (eds) Public Policy in the New Europe, Cheltenham: Edward Elgar, 1999, pp. 67–102. 21. In the Constitution, cohesion is defined as a policy area where the Union and member states have a concurrent authority to legislate. But member states can legislate as long as the Union has not exercised its prerogative or has decided to cease acting in the policy sector (Article I-11 [Categories of competences]). The

Notes 193

22. 23. 24.

25.

26. 27.

28.

29.

European Convention, Brussels, 12 June 2003, CONV 797/1/03. Text of Part 1 and Part 2 of the Constitution. European Commission, Third Cohesion Report, p. xxv. See the 14 July 2004 proposal by the Commission on the 2007–2013 regulations. The ten new member states are: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. The Greek part of Cyprus does not qualify for Objective 1 status (see the discussion in Chapter 6). In 2001 the Greek part of Cyprus had an average GDP per capita, as expressed in Purchasing Power Standards (PPS), of 77.8 of the EU-15 average and 85.4% of the EU-25 average. In our opinion the definition of governance (“the capacity of political institutions to articulate, through public policies and democratic representation, conflicting trends within the political process”) provided by Richard Balme in his chapter “Regional Policy and European Governance” in Michael Keating and John Loughlin (eds), The Political Economy of Regionalism, London: Frank Cass, 1997, pp. 63–76, is restrictive in that it focuses too much on the role of political institutions and emphasizes the resolution of political conflicts rather than on the participation of a broad range of actors in policy-making and implementation. The importance of the implementation side of public policy is highlighted by Michael Hill and Peter Hupe in Implementing Public Policy, London: Sage, 2002. Fritz Scharpf has argued that in a multi-level policy “complementary adjustments of the forms of governance” need to take place at both the Community level as well at the national level. We would argue that he has forgotten to mention the necessary adjustments that also need to be made at the regional and local levels where policies are rooted into the base of society. See his Community and Autonomy: Multi-Level Policy Making in the European Union, EUI Working Paper, RSC No. 94/1, 1994, p. 25. See European Commission, 2001, op. cit., Governance in the European Union, Luxembourg: Office of Official Publications, 2001, preface, p. 4. The territorialization of Community policies was significantly broadened after 2000 to cover other policy areas that previously did not have a territorial dimension or were not oriented toward the reduction of territorial disparities. Most noteworthy in this perspective has been the introduction of the rural development programmes financed by the EAGGF-Guarantee section. See Helen Caraveli, “Is the rural development policy a regional policy? An assessment of the EU’s Rural Development Regulation and its implications for the case of Greece”, Occasional Papers of the ESOCLAB, European Institute, LSE, 2002. Also of importance has been the insertion of territorial considerations in other policies pursued by the Commission in research and development, Trans-European networks (TENs), urban development and spatial planning. Social policies (i.e., the amelioration of differences between social classes) have significantly remained outside of the remit attributed to the European Commission unless these differences are territorially aggregated. This is one of the thrusts of the cohesion policy: to tackle the causes of territorial social differences in terms of regional concentrations of underdevelopment or poverty. Within the Urban Community Initiative the territorial concentration on pockets of poverty in large urban area have become a legitimate focus for policy interventions, but the objective of the policy is to alleviate the physical manifestations of poverty (e.g., derelict buildings, lack of basic services, provision of economic opportunity, vocational education, etc.) rather than to raise the

194 Notes

30.

31.

32.

33.

34.

35.

36.

37. 38.

consumption levels of families living in poverty through financial transfers. The nation-states have jeleously guarded their preeminence in the field of social policies which cut across class lines, such as those dealing with income transfers, pensions, community social services, health, and general education. See Maria Tofarides, The Urban Policy of the European Union, Aldershot: Ashgate, 2002. For an extensive discussion of multi-level governance in the European Union see Liesbet Hooghe and Gary Marks, Multi-Level Governance and European Integration, Oxford: Rowman & Littlefield Publishers, 2001. An interesting approach to multilevel governance in the EU is offered by the Committee of the Regions in its publication, The regional and local dimensions in establishing new forms of Governance in Europe, Luxembourg: Office of Official Publications, 2002. The Committee of Regions offers the view that the EU represents a “system of governance without government”. Lisbet Hooghe and Gary Marks “Unraveling the Central State, but How? Types of Multi-level Governance”, American Political Science Review, Volume 97, No. 2, May 2003, pp. 233–244. For a discussion of the encroaching federalization of EU multi-level interactions, see Vivien A. Schmidt, “European ‘Federalism’ and its Encroachments on National Institutions”, Publius, Volume 29, No. 1, Winter 1999, pp. 19–44. The distinction between “territorialized” and “non-territorialized” programmes is that the former are area-specific – i.e., they are specified for a particular territory (a NUTS 2 region for Objective 1 and a NUTS 3 area [province, department, or county] for Objectives 2 and 5b in the 1989–1999 period and Objective 6 in 1995–99 for the Scandinavian countries with large artic areas). The latter, instead, referred to the entire country as covered by Objectives 3 and 4 in the 1989–99 period. In agriculture the distinction between territorialized and nonterritorialized policies would differentiate in the pre-2000 period EAGGF Guidance section (territorialized) and EAGGF Guarantee section (non-territorialized). In the post-2000 period the EAGGF Guidance section continued to be territorialized while the EAGGF Guarantee section began to finance with approximately 10% of its budget territorialized Rural Development Programmes while spending the rest of its budget on the non-territorialized agricultural price support system. See Caraveli, op. cit. Claudio M. Radaelli “The Europeanization of Public Policy” in K. Featherstone and C. Radealli (eds) The Politics of Europeanization, Oxford: Oxford University Press, 2003, pp. 27–56. See Ian Bache, The Politics of European Union Regional Policy, Sheffield: Sheffield Academic Press, 1998 and Chris Rumford, European Cohesion? Contradictions in EU Integration, London: Macmillan Press, 2000. For a detailed analysis of the literature and discussions that took place during the 1980s on the impact of the Single Market see Robert Leonardi, Convergence, Cohesion and Integration in the European Union, London: Macmillan, 1995, pp. 5–9. See Andrew Movravcsik, The Choice for Europe, Cornell: Cornell University Press, 1998. The origin of the IMPs seems to have followed a different logic. Rather than emphasizing the economic content of the policy (i.e., preparing the current Mediterranean member states for the entry of Spain and Portugal) politics played a much greater role in that the IMPs gave Greece the excuse to remain in the EEC despite the fact that the PASOK party led by Andreas Papandreu had campaigned in the 1980 national elections that if victorious it would take Greece out of the EEC. See the 1983 Greek Memorandum and its response from the Commission.

Notes 195 39. For a discussion of the period between 1986 and 1992 and the role of the IMPs in preparing the ground for the cohesion policy see Robert Leonardi (ed.), The Regions and the European Community: The Regional Response to the Single Market in the Underdeveloped Areas, London: Frank Cass, 1993. 40. The expectation, instead, was that national regional policies and the designation of areas within member states eligible for national financial support would be brought into line with the designation of objectives to be covered by the EU cohesion policy. This expectation was never fully realized. 41. This is the basis of the principle of “additionality” – i.e., that the provision of European funds are additional to the ones used by the national government to promote economic development in its less developed regions. 42. Contrary to expectations there is no evidence that the Structural Funds interventions have ever been coordinated in any way in a programmatic manner with national subsidies for depressed areas. One of the reasons for this lack of coordination was that national subsidies were automatic while Structure Funds were targeted to certain areas and sectors and had to be justified by a rigorous selection criteria. 43. The Nice Treaty provided that the vote on Structural Funds regulations will continue on the principle of unanimity until 2007. After, the decision will be taken on a qualified majority basis. 44. The only exception to this rule is the “British rebate” that Margaret Thatcher was able to obtain in 1981, but that allocation is not related to any particular policy area. 45. We would disagree with the conclusion reported by Lisbet Hooghe and Gary Marks, op. cit., 2001, pp. 105–118 that in the second cycle, 1994–1999, there was a substantial weakening of the Commission’s position in running cohesion policy vis-à-vis the resurgence of national government intervention. The justification of this position is usually based on the decline in the amount of funds allocated to Community Initiatives vis-à-vis CSF allocations. Such an argument places the emphasis on the responsibility for the management of financial resources rather than on the control of the “rules of the game” and “purse”. During the second CSF cycle those rules were tightened to give the Commission more oversight on expenditures and evaluation. Also, this argument ignores the role of Community Initiatives as experimental programmes. Once the experiment takes place and it has shown to be effective, the tendency is to bring the new approach directly into the management of the CSFs or other programmes. Such has been the case with, for example, URBAN, LEADER, and INTERREG. The source of this misunderstanding may be attributed to the inability to distinguish the designation of areas qualifying for Objective 1 and 2 which was carried out using the criteria supplied by the Commission and the areas qualifying for regional subsidies (referred in the literature as “state aids”) by the member states that was based on national criteria. Yes, the European Commission has tried in the past to coordinate these two designations, but it has not always been successful. But this lack of complete accord on state aids cannot be taken as the equivalent to the weakening of the Commission’s role in determining the selection of areas to be covered by the EU’s cohesion policy. For a detailed discussion of the Community-member state conflict over the designation of state aids areas, see F.G. Wishlade, “Achieving Cohesion in the European Community: Approaches to Area Designation”, Regional Studies, Vol. 28, No. 1, 1994, pp. 79–97. 46. The Commission reports in the Third Cohesion Report, Lusembourg: Office of Official Publications, 2004, p. xxii, an almost 100% of expenditures of Structural

196 Notes

47. 48.

49.

50.

51.

52.

53.

Fund allocations subject to the N+2 rule vis-à-vis past trends where expenditures were much slower. See European Commission, “A Report on the Performance Reserve and Mid Term Evaluation in Objective 1 and 2 Regions”, 6 May 2004. On the Portuguese continent the municipalities represent the only directly elected bodies operating at the sub-national level. See Raffaella Nanetti, Helen Rato and Miguel Rodrigues, “Institutional Capacity and Reluctant Decentralization in Portugal: Case-study of the Lisbon and Tagus Valley Region”, Regional and Federal Studie, August 2004. N. Rees, B. Quinn, and B. Connaughton, “Ireland’s Pragmatic Adaptation to Regionalisation: The Mid West Region”, Regional and Federal Studies, August 2004. This is one of the radical proposals that has been inserted in the allocation of funds during the next phase of the cohesion policy. See European Commission, Inforegio, July 2004. The Agricultural Fund spending has doubled from 15,785 Million ECUs in 1983 to 39,541 MECUs in 1999. It is theoretically and empirically possible under the current price support system for “poor” consumers to continue to bankroll “rich” farmers. No system of equity or transfer of resources from rich to poor areas or classes of citizens are foreseen. See the Commission Communication “Note d’information: Cadre financier commun 2004–2006 pour les negociations d’adhesion”, 30.1.02, SEC (2002) 102 final. The exclusion of the two European islands in the Atlantic – Canarias and Madeira – and most of Spain’s Mediterranean regions confirms that tourism can play a powerful role in spurring socio-economic development in Europe’s “peripheral” regions.

Chapter 2 The CSF Revolution: The Origins and Structure of EU Cohesion Policy 1. See D.F. Darwent, “Growth Poles and Growth Centers in Regional Planning: A Review” in John Firedmann and William Alonso (eds) Regional Policy: Readings in Theory and Applications, Cambridge: The MIT Press, 1975, pp. 539–565. 2. In 1991 Sir Donald MacDougall reported that in the first Community report on regional disparities, the 1968 MacDougall Report, the expectation was that 5 to 7% of Community GDP was necessary to make a real impact on reducing regional disparities, but he expressed the view that the current allocation, 1.27%, could in the medium term – given its “real, not just financial objectives” – was in a position to make real gains in achieving the original goal of reducing regional disparities. See his Foreword, pp. 5–6, in Iain Begg and David Mayes, A New Strategy for Social and Economic Cohesion After 1992, European Parliament, 1991. 3. The building into programmes of a greater bottom-up content is noticeable not only in cohesion policies. It can also be observed in the reforms undertaken in other policy areas, such as agriculture, research and the environment. 4. See Paolo Dardanelli, “The Connection between European Integration and Demands for Regional Self-Government: A Rational-Institutionalist, Comparative Analysis of Scotland, 1979 and 1997”, PhD thesis, Government Department, London School of Economics, 2002.

Notes 197 5. European Commission, The Regions of Europe: The First Periodic Report, Luxembourg: Office of Official Publications of the European Communities, 1981 and The Regions in the Enlarged Community: Third Periodic Report, Luxembourg: Office of Official Publications of the European Communities, 1987. 6. See European Commission, op. cit, 1981. 7. See Commission of the European Community, 1979. “Actions integrees”, Document SEC (79) 446 of 15.3.79, p. 3. and “Etude des effets regionaux de la Politique agricole commune”, Collection “etudes”, Serie politique regionale, No. 21, 1981. This turn of events demonstrates the importance that the considerations regarding the trend and nature of regional disparities highlighted by the Single Market programme were fundamental in changing the member states attitude toward the regionalization of ERDF allocations. See Patrick Ziltener “EC regional policy: monetary lubricant for economic integration?” in V. Bornschier, State-building in Europe: The Revitalization of Western European Integration, Cambridge University Press, 2000, pp. 122–151. 8. For an empirical evaluation of the IMPs, see G. Bianchi “The IMPs: A Missed Opportunity?” in R. Leonardi The Regions and the European Community: The Regional Response to the Single Market in Underdeveloped Areas, Frank Cass, 1993, pp. 47–70. 9. Measures represent groups of similar projects while actions constitute the individual projects. 10. See C. Buresti e G.E. Marciani “L’esperienza dei programmi integrati mediterranei”, Rivista economica del Mezzogiorno, 1991, N. 1. 11. The Padoa Schioppa Report forcefully made this position. See the table in Annex 1. 12. See CCE, The First Periodic Report (1981) op. cit. and the The Regions of Europe: The Second Periodic Report on the Social and Economic Situation and Development in the Regions of the Community, Luxemburg: Office of Official Publications of the European Communities, 1984. The purpose of the Periodic Reports was to monitor the course of regional disparities. 13. See CCE, The Report on Economic and Monetary Union in the European Community, Luxemburg: Office of the Official Publications of the European Communities, 1989 and Nicola Fielder “The origins of the Single Market” in V. Bornschier (ed.) State-building in Europe: The Revitalization of Western European Integration, Cambridge University Press, 2000, pp. 75–92. 14. For a first evaluation of the CSFs in Greece, Ireland, Italy, Portugal, Spain see R.Y. Nanetti, Coordination in Development Planning: An Evaluation of the Initial Implementation of the Community Support Framework, Brussels, CEC, 1992. 15. See SVIMEZ, Rapporto 1995 sull’economia del Mezzogiorno, Bologna: Il Mulino, 1995. 16. The Commission has inserted the provision for regions to be able to contact the Commission but that became possible in many member states only after the Maastricht Treaty permitted the creation of the Committee of Regions and the participation of regions in the deliberations of the EU on a consultative basis. 17. These were the only exceptions to the rule, which meant that the vast bulk of Objective 1 funds were still allocated on the basis of the original NUTS 2 criteria initially proposed by the Commission in 1988. In the third CSF cycle, 2000–2006, these three areas were placed in “phasing out” and no other exception to the NUTS 2 rule was allowed.

198 Notes 18. For a discussion of the difficulty in mobilizing co-financing from the public sector and accepting private financing of projects in the U.K., see Shari Garmise, “Institutional Networks and Industrial Restructuring: Local Initiatives toward the Textile Industry in Nottingham and Prato”, PhD thesis, London School of Economics, 1995. 19. The activities of Monica Wolf-Mathies in favour of the regions was particularly important in making certain that there was no backtracking on cohesion policies and in enhancing the role of sub-national authorities as strategic partners. During her tenure as Commissioner responsible for regional policy the role of the regions and local authorities was significantly enhanced. 20. As of September 2004 there were 242 offices of regions and localities present in Brussels. Data supplied by the Committee of Regions. 21. See the Ex-post Evaluation of the Interreg II Community Initiative (1994–99) conducted by LRDP Ltd for the Commission, 2003. 22. The European Council in Nice (December 2000) did not provide a precise date for enlargement but it did undertake some significant reforms on how to redistribute votes within the Council of Ministers, the allocation of MEPs per country, and a significant reduction of policy areas still requiring a unanimous vote to take decisions. 23. At the following year’s European Council in Laeken (December 2001) the number of candidate countries capable of entering on a short-term basis was reduced from twelve to ten. Romania and Bulgaria still had a long ways to go in adopting the aquis in regional and other policy areas. See Chapter 6 for a thorough discussion of enlargement. 24. On the amount of convergence that has been realized within the EU, see Chapter 4. 25. The expression used in the regulations is: “The need to protect the environment has to be integrated in the definition and implementation of Community actions […], in particular in the perspective of promoting sustainable development”, EuroPass, ottobre 2000, p. 12. 26. CCE, Agenda 2000, Supplement 5/97to the Official Journal of the European Union, Luxemburg, 1997. 27. For objective 1 regions rural development programmes are part of the agricultural sub-programme of the overall operational programme and are funded by the EAGGF-Guidance section. In non Objective 1 regions, the Rural Development Programme is a separate document and is funded by the EAGGF-Guarantee section. 28. For a complete discussion of the new regulations, see CCE, Structural Actions 2000–2006: Commentary and Regulations, Luxemburg: Office of Official Publications of the European Communities, 2000. 29. In Italy Molise joined Abruzzo as an ex-Objective 1 region, thus reducing the country’s number of Objective 1 regions from the original eight to the current six. 30. In Ireland two of the eastern (Dublin and Mid-East) along with two southern (South-East and South-West) and one western (Mid-West) counties were transferred out of Objective 1 status. 31. The allocation of the 4% reserve was calculated and distributed within the confines of each member state. 32. See the Commission’s 6 May 2004 “A Report on the Performance Reserve and Mid Term Evaluation of Objective 1 and 2 Regions”. www.europa.int/commission/dgregio/reports

Notes 199

Chapter 3 Cohesion Policy as Learning: The Planning Process and Administrative Responses 1. See the discussion by Liesbet Hooghe, “EU Cohesion Policy and Competing Models of European Capitalism”, Journal of Common Market Studies, Vol. 36, No. 4, December 1998, pp. 457–477 of the two different socio-economic models in contention with the implementation of the EU’s cohesion policy. 2. See Eneko Landaburu, “The reform of the Structural Funds: the first year of implementation” in Achille Hannequart (ed.), Economic and Social Cohesion in Europe, London: Routledge, 1992, pp. 77–86 and Elvira Urzainqui and Rosario de Andres, “The implementation of the reform of the Structural Funds in the lagging regions of the Community” in Achille Hannequart, Ibid., pp. 87–98. 3. Guy Peters, Institutional Theory in Political Science, London: Pinter Publishers, 1999, p. 33. 4. Where these institutions do not exist we have seen that the consultation process is much less extensive and involves fewer actors. This is abundantly clear in the discussion presented by John Sutcliffe, “Subnational Influence on the Structural Funds: The Highlands and Islands of Scotland”, Regional and Federal Studies, Vol. 12, No. 3, Autumn 2003, pp. 102–127 who describes the shift of policymaking and implementation from the Scottish Office to the Scottish regional executive once devolution had taken place. This is also the result arrived at in the ADAPT project (see special issue of Regional and Federal Studies, August 2004) which looked at the consultative process and institutional networks involved in the formulation and implementation of cohesion policies in Ireland, Portugal and Greece. Institutions do matter, and they matter particularly in structuring the policy process. Therefore, centralized governmental systems tend to produce centralized network patterns of consultation and implementation. 5. The regulations governing the use and therefore the implementation of the Structural Funds are usually passed one year before the new CSF cycle begins. However, in 1996 a new regulation governing the use of ERDF funds was adopted to tighten the rules and make the use of funds more transparent. These objectives were later reinforced by the 1999 Regulation. See European Commission, Structural Actions 2000–2006, Commentary and Regulations, Luxembourg, Office of Official Publications of the European Communities, 2000. 6. See Suttcliffe, op. cit. 7. The acronym refers to the “strengths-weaknesses-opportunities-treats” of a territorial context in terms of the internal and external variables that need to be taken into account in formulating programmes designed to effectively change the socio-economic status quo. 8. See the Valutazione del Quadro Comunitario di Sostegno, Obiettivo 1, Italia, 2000–2006, ESOCLAB, London School of Economics and Vision & Value, January 2004. 9. Edward A. Parson et al., “Understanding Climatic Impacts, Vulnerabilities and Adaptation in the United States”, Climatic Change, Vol. 57, 2003, pp. 9–42. 10. During the 1994–99 period a mid-term evaluation was also conducted, but in most cases it took place after the fact and had little impact on systematically changing programme procedures or objectives. 11. The first ex-post evaluation of Objective 1 programs for the 1994–99 period was completed in 2002. See ECOTEC, “Synthesis Report of 1994–1999 Objective 1 Programmes”, DG Regio, 11 November 2002.

200 Notes 12. See Maria-Angeles Diez, “Evaluating New Regional Policies: Reviewing the Theory and Practice”, Evaluation, Vol. 8, No. 3, 2000, pp. 285–305. The practice of the EU’s cohesion policy during the first two stages – 1989/93 and 1994/99 – have shown that member states have not been capable of fully spending their initial allotments of Structural Funds. 13. See Eiko Thielmann, “The Price of Europeanization: Why European Regional Initiatives Are a Mixed Blessing”, Regional and Federal Studies, Vol. 12, No. 1, Spring 2002, pp. 43–65. 14. See Mark Scott, “Building Institutional Capacity in Rural Northern Ireland: The Role of Partnership Governance in the Leader II Programme”, Journal of Rural Studies, Vol. 20, 2004, pp. 49–59. 15. For Objective 1 areas, the first region to exit was Abruzzo in the second, 1994–99, programming period. In the third cycle of Objective 1 programmes many more regions exited from the programme. For the 2000–2006 period the following regions are in phasing out from Objective 1: Italy, Molise; Spain, Cantabria; Portugal, Lisbon-Tagus Valley; UK, Scottish Highlands and Islands and Northern Ireland; Ireland, Dublin and South-east Ireland; France, Corsica and Valenciennes; Belgium, Heinault; Holland, Flevoland; and Germany, East Berlin. 16. For a first analysis of the CSFs in the four cohesion countries – Greece, Ireland, Portugal and Spain – see Raffaella Nanetti, Coordination in Development Planning: An Evaluation of the Initial Implementation of the Community Support Framework, Brussels, DG XXII, 1992. 17. When the Europeanization of a policy takes place there is no guarantee that governments at any level will automatically comply. That process usually takes time. 18. As of March 2003 112 million € still had to be spent of the 1989–93 programmes. For the 1994–99 period the figure is much higher, 12,040 million (or 8.7%) of the initial budget. See European Parliament, “Working Document on Budget execution of the Structural Funds (Objectives 1, 2 and 3)”, Committee on Budgets, Rapporteurs: Jan Mulder and Giovanni Pitella, 20 March 2003. 19. If the expenditure of the allocated funds is taken as an indicator of success in implementation, then we must conclude that the learning process was slower among the more economically developed countries. The five countries that still have more than 10% of their initial 1994–99 allocation to spend are: Luxembourg (21.0%), Netherlands (17.9%), Sweden (17.5%), Great Britain (14.4%) and Italy (14.0%), Ibid., p. 5. 20. Tanja Borzel and Thomas Risse, “Conceptualizing the Domestic Impact of Europe”, in Kevin Featherstone and Claudio Radaelli (eds) The Politics of Europeanization, Oxford: Oxford University Press, 2003, pp. 57–79. 21. See Tanja Borzel, “Pace-Setting, Foot-Dragging, and “Fence-Sitting: Member State Responses to Europeanization”, Journal of Common Market Studies, Vol. 40, No. 2, pp. 193–214. 22. Our three categories – learning, adaptation, and negation – are similar to Borzel’s pace-setting, fence-sitting, and foot-dragging and to Radaelli’s transformation, absorption and inertia. 23. Our “negation” response is similar to what in the literature on operational management is called “resistance to change”. See Antonio Giangreco, Resistance to change of middle managers, Milan, Franco Angeli, 2001, pp. 122–123. 24. Another way of not spending the money for the programme is to try to spend it on traditional policies using established national procedures. Such a response may meet the immediate needs to spend the funds allocated, but in the medium

Notes 201

25.

26.

27.

28. 29.

30.

31.

to long-term it runs into the obstacle of oversight and evaluation that make this response difficult to sustain over time. See Giuliano Bianchi, “The IMPs: A Missed Opportunity? An Appraisal of the Design and Implementation of the Integrated Mediterranean Programs” in R. Leonardi (ed.) The Regions and the European Community: The Response to the Single Market in the Underdeveloped Areas, London: Frank Cass, 1993, pp. 47–70 and Roberto Fanfani and Cristina Brasili, “La politica di sviluppo rurale e la sua applicazione in Italia”, in Le istituzioni del federalismo, March–April 2001, p. 517. A large part of the problem in programme start-up during the second and third planning cycles was created by the overlap with the previous periods. Given the inability of all member states to fully complete expenditures within the proscribed planning period, the Commission has always agreed to provide two to three year extensions to complete expenditures. These extensions are very helpful in permitting the expenditures of the previous planning cycles to be completed, but they are equally harmful to the quick and efficient start-up of the subsequent programming cycle. The role of the private sector was much more prominent in Objective 2 programmes where the funding was less but where private intervention was significant, sometimes four times the level of the public contribution. See Fabrizio Barca, “Il ruolo del Dipartimento per le Politiche di Sviluppo e di Coesione-DPS” Le istituzioni del federalismo, 2001, March–April, pp. 419–446. See Sergio Fabbrini and Marco Brunazzo, “Federalizing Italy: The Convergent Effects of Europeanization and Domestic Mobilization”, Regional and Federal Studies, Vol. 13, No. 1, Spring 2003, pp. 100–120. See the ex-post evaluation of all of the Objective 1 programmes undertaken during the 1994–1999 period conducted by ECOTEC, “Synthesis Report of 1994–1999 Objective 1 Programmes” and the individual country reports, DG Regio, 11 November 2002. See Heather Grabbe, “Europeanization Goes East: Power and Uncertainty in the EU Accession Process”, in Keven Featherstone and Claudio Radaelli (eds) The Politics of Europeanization, Oxford: Oxford University Press, 2003, pp. 302–327.

Chapter 4 Have Regions Converged? Sigma and Beta Convergence in Objective 1 and Other EU Regions between 1988 and 1999 1. See S.F. Overturf, The Economic Principles of European Integration, New York, Praeger, 1986. 2. For a discussion of these positive factors, see R. Leonardi, Convergence, Cohesion and Integration in the European Union, London: Macmillan, 1996, Chapter 2. 3. For a discussion of the weighing of the positive and negative factors in the realization of the Single Market, see J. Delors, “Regional Implications of Economic and Monetary Integration” in CEC, Report of Economic and Monetary Union in the European Community, Luxembourg: Office of Official Publications of the European Community, pp. 81–89. 4. See W. Molle, B. von Holst, and G. Smith, Regional Disparity and Economic Development in the European Community, Wstmead, Saxon House, 1980. Molle et al. used GDP per capita expressed in US $ to compare levels of economic wellbeing at three points in time: 1950, 1960 and 1970. Norbet Vanhove also presents a good overview of the different levels in activity rates, employment,

202 Notes

5.

6.

7.

8.

9. 10.

11. 12. 13. 14.

15.

16. 17.

unemployment and regional income in his volume, Regional Policy: A European Approach, Aldershot: Ashgate, 1999, pp. 64–122. A discussion of the problem areas in the European Union is also presented in Ronald Hall, Alasdair Smith and Loukas Tsoukalis (eds), Competitiveness and Cohesion in EU Policies, Oxford: Oxford University Press, 2001. The Commission has financed the production of the six Periodic Reports (1981, 1984, 1987, 1991, 1994, 1999) and the three Cohesion Reports (1996, 2001, 2004). The EIB has published a special issue of the EIB Papers on regional disparities (No. 2, 2000). Here the list is long, but the most recent and interesting contributions have been provided by: M. Boldrin and F. Canova “Inequality and Convergence: Reconsidering European Regional Policies”, CEPR Discussion Paper No. 3744, February 2003,www.cepr.org/pubs/dps/DP3744.asp, and Juan Cuadrardo “Regional convergence in the European Union. From hypothesis to the actual trends”, Annals of Regional Science, Vol. 35, 2001, pp. 333–356 and Angel de la Fuente “Convergence across countries and regions: Theory and empirics”, EIB Papers, No. 2, 2000, pp. 25–46. Others have come to conclusions confirming the status quo – i.e., that nothing new has manifested itself in the European regions. See Andres Rodriguez-Pose, Dynamics of Regional Growth in Europe: Social and Political Factors, Oxford: Clarendon Press, 1998. See a more detailed discussion of the impact of changes in the definition of the units of analysis in Robert Leonardi, Convergence, Cohesion and Integration in the European Union, London: Macmillan, 1995, pp. 75–80. See Harvey Armstrong, “Convergence Among Regions of the EU, 1950–1990”, Papers in Regional Science, April 1995, pp. 143–152. It was never clear whether the ERDF transfer were effectively used to finance national regional programs or for general national budgetary purposes. Great Britain, for one, conceived and used these transfers as a simple rebate of its overall contribution to the Community budget. In fact, the UK had abolished its national regional policy by 1979. See Javier Sala-i-Martin, “The classical approach to convergence analysis”, The Economic Journal, 106, 1996, p. 1020. For an introduction of the basic concepts of economic growth, see N.G. Mankiw, Macroeconomics, chaps. 4 and 5, New York: Worth Publishers, 2000. See Javier Sala-i-Martin, “The classical approach to convergence analysis”, The Economic Journal, 106, 1996, p. 1020. For a discussion of the various scenarios that may produce convergence or divergence see Robert Leonardi, Convergence, Cohesion and Integration in the European Union, London, Macmillan, 1996, pp. 65–74; and Danny Quah “Regional Cohesion from Local Isolated Actions: Conditioning” in European Commission, The socio-economic impact of projects financed by the Cohesion Fund, Lussemburgo, 1999, Vol. 2, 1999 pp. 165–219. See Angel De la Fuente, “The empirics of growth and convergence: a selective review,” Journal of Economic Dynamics and Control, Vol. 21, Amsterdam, 1997, p. 36. Harvey Armstrong and P. Taylor, Regional Economics and Policy, 3rd Edition, Oxford, Blackwell Publishers, 2000. The project concentrated on four countries (Greece, Ireland, Portugal and Spain) that at the beginning of the 1990s had a GDP below 90% of the European average and therefore were covered from December 1993 onward by the Cohesion Fund in financing public infrastructure and environmental projects.

Notes 203 18. Danny Quah, “Regional Cohesion from Local Isolated Actions: Historical Outcomes” in European Commission, The socio-economic impact of projects financed by the Cohesion Fund, Vol. 2, p. 97. 19. In this case the number of regions analyzed diverges from those analyzed for convergence given that data are completely missing for five regions. 20. Barro and Sala-i-Martin use the model: ⎛ y i,t −T ⎞ ⎛ 1 − e − ␤ *T ⎞ 1 log⎜ ⎟ = a−⎜ ⎟ log y i,t + ui t T y T ⎝ ⎠ ⎝ i,t ⎠

( )

0

0

0 0

,t 0 + T

0

For a discussion of the model see Barro, Sala-i-Martin 1992. 21. See Danny Quah, 1996a, “Empirics for economic growth and convergence”, European Economic Review 40, Elsevier, pp. 1356–1357. 22. See Xavier Sala-i-Martin, 1996, “Regional cohesion: evidence and theories of regional growth and convergence”, European Economic Review 40. 23. Our calculation of the beta coefficient for the pervious period, 1981–88, shows that future Objective 1 regions were already converging, though at a lower rate, prior to the initiation of the Structural Funds policy in 1989. For the 1981–88 period the beta score is 2.9%. 24. See Mark Pollack, “Regional Actors in an Intergovernmental Play: The Making and Implementation of EC Structural Policy” in C. Rhodes and S. Mazey (eds) The State of the European Union, Vol. 3, London: Longman, pp. 361–390. 25. See Mario Badii, “Elementi di analisi della trasformazione del mercato del lavoro della Toscana nel periodo” 1993–2001, Mimeo, Brussels Office of the Regione Toscana, March 2002.

Chapter 5 Is the Italian Mezzogiorno in Line with Other Objective 1 Regions in Europe? 1. The regions that are considered parts of the Italian Mezzogiorno are: Abruzzo, Molise, Campania, Calabria, Basilicata, Puglia, Sicily and Sardinia. 2. Capital expenditures in the South fell between 1991 and 1993 from 8 to 6.4% of southern GDP. ISMERI-EUROPA, “Ex-post Evaluation of the Objective 1, 1994–1999, National Report-Italy”, November 1992 and remained at that level during the following decade. 3. See R. Paci and A. Saba, “The empirics of regional economic growth in Italy, 1951–1993”, Crenos, 97/1, 1997, pp. 1–49. 4. They are called “cohesion” countries because they are the ones that benefited since 1993 from the Cohesion Fund and had in 1990 a GDP per capita below 90% of the EU average. In 2000 Ireland exited from the Cohesion Fund. By 1999 three of the four cohesion countries (Ireland, Spain and Portugal) had a national GDP per capita average above 75% of the European mean whereas at the beginning of the 1980s their national average registered at 60% or below the European average. See European Commission, “The Future of Cohesion Policy”, November 2003, p. 19. 5. The second industrial revolution refers to the development of the diffused form of small and medium sized enterprises that have been organized through the creation of specialized industrial districts. See Michael Piore and Charles Sable, The Second Industrial Divide, MIT Press. The first industrial revolution in Italy refers to the development of large industry in the “industrial triangle” covering three of the four northwest regions: Piedmont, Lombardy and Liguria. 6. See Table 5.4 below.

204 Notes 7. One of the perverse impacts of past and present public subsidization of investment in the South may be the “crowding out” of private investment – i.e., the predictability of public investment subsidies make it unnecessary for private investors to use their own funds to invest in new productive activities. 8. Major industrial pollution hazards have been identified at both the Bagnoli and Taranto steel plants as well as in the Brindisi and Gela chemical plants. 9. The question has always been whether the small-scale entrepreneurs have ever existed or were ever favoured by national industrial policy. A case in point is offered by the small artisan shops (referred to as “back-street shops”) that were common in the neighbourhoods of Naples. These artisans never received any encouragement from national legislation, which continued to distribute large sums to big but non-competitive industrial enterprises on the outskirts of the city. See Robert Leonardi, “Naples and the Rediscovery of the Sea”, paper presented to the City Futures Conference, University of Illinois at Chicago, 6–9 July 2004. 10. See Robert Leonardi and Raffaella Nanetti (eds), Regional Development in a Modern European Economy: The Case of Tuscany, London: Pinter Publishers, 1998 and Robert D. Putnam with Robert Leonardi and Raffaella Nanetti, Making Democracy Work: Civic Traditions in Modern Italy, Princeton: Princeton University Press, 1993. 11. The term is used commonly throughout the world (in Albania, Russia, China or Colombia) to refer to criminal organization. In Italy the generic term covers the Sicilian Mafia, the Calabrese Ndrangheta, the Neopolitan Camorra, and the Puglian Sacra Corona Unita. 12. See Diego Gambetta, The Sicilian Mafia: The Business of Private Protection, Cambridge, Mass: Harvard University Press, 1993. 13. See Mario Centorino (Bari: 2004). 14. For a discussion of the economics of Mafia activity, see Stefano Zamagni (ed.), Mercati illegali e mafie: L’economia del crimine organizzato, Bologna: Il Mulino, 1993 and Mario Centorrino and Guido Signorino (eds), Macroeconomia della mafia, Rome: La Nuova Italia Scientifica, 1997. 15. Stefano Zamagni observers that where the mafia is in a position to control social interactions it becomes the object of social trust. People trust the mafia and distrust the state as the representative of an external force. 16. Today it is generally accepted that the allocation of public works was in the past not free but was extensively controlled in some Italian regions, such as Sicily and Campania, by a thick web of criminal organizations that split the proceeds from public contracts with local politicians. Everything was prearranged in terms of who got what and what the final cost of the contract would be. Thus, as the judicial investigations showed at time it was the bargaining among the parties that determined the cost of the contract and not the work to be carried out. Under these arrangements the laws of the market simply did not apply. See Giovanni Falcone, Men of Honour, London: The Fourth Estate Limited, 1992. 17. In the past, but even today, one hears the affirmation that “the mafia creates jobs”. The mafia can create temporary jobs with the recruitment of enforcers or even technicians, but in the medium to long term the mafia destroys the fundamentals of a sound economy and its supporting social norms by forcing out of the market entrepreneurs who do not accept the rules of organized crime and making it difficult for others to enter.

Notes 205 18. See the ISMERI-EUROPA (2002) ex-post evaluation of Objective 1 programmes in the South during the 1994–99 period. 19. See Robert Leonardi, Coesione, convergenza ed integrazione nell’Unione Europea (Bologna: Il Mulino, 1998), p. 204, Table 6.5. 20. See Robert D. Putnam, Robert Leonardi and Raffaella Nanetti, La Pianta e Le Radici: L’istituzionalizzazione delle regioni nel sistema politico italiano, Bologna: Il Mulino, 1985 and Robert Leonardi, Robert D. Putnam and Raffaella Nanetti, Il Caso Basilicata: L’effetto regione dal 1970 al 1986, Bologna: Il Mulino, 1987. 21. The composition of the institutional performance indexes is described in Putnam, Leonardi and Nanetti (1985), op. cit., pp. 127–172 and in Putnam, Leonardi and Nanetti (1993), op. cit. pp. 63–82. 22. Simona Piattoni has studied two of these southern regions – Abruzzo and Puglia – to compare their institutional outputs, and she concludes that a clientelistic form of politics characterized both regions. However, she distinguishes the clienteles in Abruzzo created by Remo Gaspari as a form of clientelism aimed at producing “common goods” – infrastructure, attracting industrial investment from outside of the region and country, financing social services versus the Puglian clientelism that was more oriented toward the procurement of individual goods (jobs, favours, and subsidies). She argues that the former promoted economic development while the latter supported individual levels of consumption. See Simona Piattoni, “Transforming Local Culture: Territorial Governance in the Italian South” in Jeanie Bukowski, Simona Piattoni and Marc Smyrl (eds), Between Europeanization and Local Societies, Lanham MD: Rowman & Littlefield, 2003, pp. 47–66. 23. See ISMERI-EUROPA, “Ex-Post Evaluation of the Objective 1, 1994–99”, National Report, Italy, November 2002, pp. 22–28. 24. Fanfani and C. Brasile, “Le politica di sviluppo rurale e la sua applicazione in Italia”, Le istituzioni del federalismo, March–April 2001, pp. 514–518. 25. ESOCLAB-LSE data on Structural Fund expenditures. The two-step process associated with the expenditure of EU funds is that, first, it is necessary to commit the funds to specific expenditures associated with individual projects or set of projects. Once that is done, then expenditures can take place to pay for the realization of the projects. 26. In the past the major part of “private” investment in the Mezzogiorno was associated with large semi-public firms such as Telecom Italia, the railroad holding company, FF.SS, and the highway authority, Società Autostrade. In 1998 the Prodi government was able to attract into the south private capital from the North to co-finance initiatives associated with the territorial pacts of Manfredonia, Crotone and other southern areas. 27. The extension afforded the Italian Objective 1 regions to complete the expenditures of the 1994–99 allocation also applied to all other Objective 1 regions in the EU. 28. The part of this section discussing the model of social capital is partially based on my article, “Regional Development in Italy: Social Capital and the Mezzogiorno”, Oxford Review of Economic Policy, Vol. 11, No. 2, pp. 165–179. The model is highly relevant to the discussion of the two approaches to the explanatory frameworks of institutional performance in relation to the implementation of Structural Funds programmes. 29. Social capital is defined for this inquiry focussing on economic development as: the norms (identity, trust, reciprocity) that enable communities to engage in collective action (join informal and formal voluntary groups and associations,

206 Notes

30.

31.

32. 33. 34.

establish networks to facilitate interaction, undertake action to achieve the socio-economic objectives of economic growth and well-being) for the production of common goods that serve as the essential bases for socio-economic growth and development. For a recent treatment of the issue of the relationship between social capital and economic development, see Guido de Blasio and Giorgio Nuzzo, “Putnam’s Social Capital and the Italian Regions: An Empirical Investigation”, Bank of Italy, 2004. Banfield defined amoral familism as “the inability of the villagers to act together for their common good or, indeed, for any end transcending the immediate, material interest of the nuclear family” (p. 10). He also went on to write that the factors, which impeded association for economic ends, also impeded it for political ends. It is interesting to note here that the village where Banfield did his work was in Basilicata. See Edward Banfield, The Moral Basis of a Backward Society, New York: Free Press, 1958. So, for our work what is important is not where the amoral familism behaviour took place but what kind of general outlook and behaviour it reflected. Political events between 1970 and 2003 suggest that the predominance of amoral familism in Basilicata may have begun to recede. See Filippo Sabetti, The Search for Good Government, Montreal: McGill University Press, 2000, pp. 191–211. See Leonardi, Putnam and Nanetti, op. cit. ESOCLAB, LSE “La valutazione intermedia del programma operativo Pianura”, City Government of Naples, March 2003. ESOCLAB, LSE “La valutazione intermedia del POP Sicilia, 1994–99”, Sicilian Regional Government, June 2003.

Chapter 6 The Challenge of Enlargement and Cohesion in the Ten New Member States 1. The most recent accession has brought the total number of member states to twenty-five. The incorporation of all of the candidate countries (including Bulgaria, Romania, Turkey and Croatia) would bring the total to twentynine. For a discussion of the enlargement process and views from different perspectives, see Jackie Gowerand and John Redmond (eds), Enlarging the European Union, Aldershot: Ashgate, 2000 and the special issue of Regional and Federal Studies, Vol. 12, No. 2, Summer 2002. 2. Such an expansion would leave out of the European Union the two largest European states, i.e., Russia and the Ukraine, and the remaining smaller Balkan states (Serbia-Montenegro, Macedonia, Bosnia-Herzegovina, and Albania) and individual states in western Europe: Switzerland, Norway and Iceland. All of the other countries have become members of the European Union. The candidacy of Croatia has been brought forward to balance the opening of negotiations with Turkey. 3. There are those who question the reason for enlargement. For an analytical approach into the reasons why expansion was undertaken, see Helene Siursen, “Why Expand? The Question of Legitimacy and Justification in the EU’s Enlargement Policy”, Journal of Common Market Studies, Vol. 40, No. 3, pp. 491–513. 4. The official title for PHARE is Poland and Hungary: Action for the Restructuring of the Economy.

Notes 207 5. See European Commission, “The Phare Programme: Phare’s principal focus” in www.europa.eu.int/comm/enlargement/pas/phare/focus.htm. 6. Ibid. 7. David Bailey and Lisa De Propris, “A Bridge Too Phare? EU Pre-Accession Aid and Capacity-Building in the Candidate Countries”, Journal of Common Market Studies, Vol. 42, No. 1, pp. 77–98. 8. The negotiation between the EU and the candidate countries was carried out on an individual basis. Each country had to satisfy the conditions for accession, and the final decision to admit the country to the EU was taken on an individual country basis even if the negotiations were undertaken simultaneously with other candidate countries during the same period of time. The negotiations with Cyprus, Estonia, Poland, Czech Republic, Slovenia, and Hungary started in 1998 while those with Bulgaria, Latvia, Lithuania, Malta, Romania and Slovakia were initiated in 2000. 9. It should be noted that in 1989 no advanced preparation took place in the management of the first round of CSFs. Only Greece, Italy and France through the management of the Integrated Mediterranean Programmes had a preview of how to operationalize the new rules and approaches to the cohesion policy. See Chapter 2 for a detailed discussion of the rules and procedures that lay behind the new cohesion policy. 10. See the article prepared by the authors for the European Investment Bank on Europe’s crisis regions: Christopher Hurst, Jeacques-Francois Thisse, and Patrick Vanhoudt, “What diagnosis for Europe’s ailing regions”, EIB Papers, Vol. 5, No. 1, 2000, pp. 9–29. 11. See the discussion on the “appropriateness” of the rules to transition economies as formulated in the 2001 Cohesion Forum. 12. This has been amply illustrated by the changes in the Turkish penal code undertaken by the Erdogan government in September 2004 as a prerequisite for beginning negotiations to become a member. 13. Agriculture has represented a major difficulty, especially in financial terms, in completing the negotiations with the candidate states in Copenhagen. 14. In 1998 the Portuguese government proposed to create elected bodies at the regional level, but the proposal was struck down in a referendum because the regions proposed were not those that had been brought into existence for the purposes of administrating cohesion policies. The government proposed to create 10 regions that would have cut up many of the existing administrative regions, which had already begun to root themselves into the popular political consciousness. 15. Charlie Jeffrey has presented a theoretical model by which the constitutional allocation of power of regions can be measured vis-à-vis their level of influence in policy-making across countries. See his article “Sub-National Mobilization and European Integration: Does it Make Any Difference?”, Journal of Common Market Studies, Vol. 38, No. 1, pp. 1–23. 16. Christian Weise et al., The Impact of Enlargement on Cohesion, German Institute for Economic Research and European Policies Research Centre, March 2001, p. 136. 17. See: Commission of the European Communities, “Information Note on Common Financial Framework 2004–2006 for the Accession Negotiations”, Brussels, 30.1.02, SEC (2002) 102. 18. European Commission, Unity, solidarity, diversity for Europe, its people and its territory: Second report on Economic and Social Cohesion, Luxembourg: Commission of the European Community, 2001.

208 Notes 19. See the Commission’s proposal of 27.10.2003 for a Council Decision adapting the Act of Accession following the reform of the CAP. COM (2003) 643 final. 20. See Isabel Calleja, “The Role of External Players in Democratization in Southern Europe: A Colonial Model of Transition. The Case of Malta and Cyprus” Ph.D, University of London, 2005. 21. On the Cyprus situation, see Neill Nugent, “EU Enlargement and ‘the Cyprus Problem’”, Journal of Common Market Studies, Vol. 38, No. 1, pp. 131–150. The results of the referendum on whether Cyprus was to join as a united country have meant that the Greek part of Cyprus has become an Objective 2 rather than Objective 1 region and the Turkish part of Cyprus has remained outside of the EU. 22. If Romania and Bulgaria were to enter the Union prior to 2007 the statistical effect on the determination of Objective 1 regions for the next CSF planning cycle, 2007–2013 would be significant and would serve to generate a strong “statistical effect” that would oust other Western European regions from Objective 1 status. See Table 6.7 in this chapter. 23. In 2001 Latvia was still at 75% of its 1989 economic base while Estonia and Lithuania were at, respectively, 90% and 72% of where they were in 1989. Bulgaria and Romania are also at the level at 80% and 84% of their 1989 economic base. All of the other countries have succeeded in going beyond where they were in 1989. See Debra Johnson, “Developments in the Economies of the Applicant Countries”, Journal of Common Market Studies, Vol. 41, Annual Review, pp. 191–206. 24. Johnson, Ibid., p. 192. During the last six years the growth of the CEE countries has been higher than the one registered in the fifteen Member States. See: Jarko Pasanen, “The GDP of the Candidate Countries” in Eurostat, Statistics in Focus, 42/2001. 25. Spain is the only case with a two-digit rate. 26. Eurostat, Comext. 27. Eurostat, European Union Direct Investment Yearbook, 1999. 28. European Commission, “Comprehensive monitoring report on the state of preparedness for EU membership of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia”, December 2003, p. 3. 29. The separation of the negotiations over enlargement and institutional reform had to be undertaken in order not to fall into the “dual decision-making trap” in which the prospects for enlargement would have become hostage to the disagreements on institutional reform. In this context the decision to convene the Constitutional Convention in 2002 effectively separated the two processes. 30. The formulation of the National Development Plan was one of the activities financed by the PHARE programme in helping to build institutional capacity in the transition to the use of Structural Funds. 31. See the discussion regarding the negotiations on Chapter 21 in 2001 in the Report on Lithuania in http://europa.eu.int/comm/enlargement/lithuania/ index.htm, p. 81. Similar reports on all of the countries are also available on the Commission website. 32. For a discussion of the regional development policies in Poland, see George Blazyca, Krystian Hoffman and Ewa Helilnska-Hughes, “Poland – Can Regional Policy Meet the Challenges of Regional Problems”, European Urban and Regional Studies, Vol. 9, No. 3, July 2002, pp. 263–276.

Notes 209 33. The SPD incorporates both the general programme as well as the operational ones for different sectors. 34. See the special issue of Regional and Federal Studies on cross-border experiments, Vol. 12, No. 4, Winter 2002. 35. The acronym ISPA stands for Instrument for Structural Policies for Pre-Accession. ISPA was created in 1999 with Regulation 1267/1999 to finance infrastructure and environmental projects in the candidate states of central and eastern Europe. The programme was not operative in Malta and Cyprus. In 2000 the ISPA budget was established at 3.12 billion euros a year for six years. SAPARD stands for Special Accession Programme for Agriculture and Rural Development. The programme helps candidate states to restructure their agricultural sectors in preparation for entering into the Common Agricultural Policy. 36. De facto no real differences should be expected given that both programmes were administered by the DGs that would eventually formally take over once full membership was achieved. In the case of ISPA it was the Cohesion Fund (DG Regio) and in the case of SAPARD it was the Agricultural Fund (DG Agriculture). What changed in 2004 was that the EU delegation in the former candidate states no longer had a role in project management or in the authorization of payments. That responsibility was transferred directly to the national government authorities responsible for the programmes. 37. The total cost of the investments accepted by the Commission for the ISPA programme was 10,785 Meuro. In these cases the EU covered 65% of the total cost of projects with the rest coming from other international or national financial sources. European Commission, “The mini ISPA Report 2000–2003”, February 2004, p. 10. 38. See European Commission, SAPARD Annual Report, Year 2002, Brussels, 7.10.2003, COM (2003) 582 final, p. 18. 39. This prospect has been incorporated in the budget proposal made by the Commission for the 2007–2013 programming period. See the Commission’s 10 February 2004 proposal in Press Release, IP/04/189, “Building our common future: Financial and political outlook for the enlarged Union, 2007–2013.” 40. See A. Mairate, “L’esperienza delle politiche strutturali in Europa: una valutazione d’insieme”, in Le istituzioni del federalismo, March–April 2001, pp. 361–392. 41. Commission, op. cit., 27.10.2003, p. 8.

Chapter 7 Conclusions: The Constitutionalization of the European Union and the Future of Cohesion Policy 1. These are the terms used by Romano Prodi in his public lecture at the London School of Economics on 19 January 2004. These terms were subsequently operationalized by the Commission and referred to in the Third Cohesion Report as the basis for the New Neighbourhood Instrument (NNI) to finance cooperation among the EU regions and their neighbours along the EU’s external borders (p. xxxi). 2. See Filippos Pierros, Jacob Meunier and Stan Abrams (eds) Bridges and Barriers: The European Union’s Mediterranean Policy, 1961–1998, Aldershot: Ashgate, 1998; Fulvio Attina’ and Stelios Stavridis (eds), The Barcelona Process and EuroMediterranean Issues from Stuttgart to Marseille, Milan: Giuffre’ Editore, 2001; and Annette Junemann (ed.) Euro-Mediterranean Relations After September 11, London: Frank Cass, 2004.

210 Notes 3. The CIG 85/04, 18 June 2004 represents the modifications of the texts of the Constitution, CIG 50/03, and its addendums and corrigendums. The document explicitly states “They constitute the outcome of the Intergovernmental Conference”. p. 1. 4. Other EU policies (e.g., agriculture, transport, competition, etc) have not had such an explicit political dimension. Instead, their focus has been more sectorial in nature and more neutral in their political objectives. The Constitution explicitly lists in Article 3 as one of the Union’s main objectives: “It shall promote economic, social and territorial cohesion, and solidarity among Member States” in The European Convention, Draft Treaty Establishing a Constitution for Europe, 13 July 2003, p. 11. 5. CIG 85/04, p. 23. 6. European Convention, Draft Treaty Establishing a Constitution for Europe, Luxembourg: Office of Official Publications of the European Communities, 2003, “Preface”. 7. European Commission, “Commission adopts opinion on the European Constitution”, IP/03/1261, 17 September 2003, p. 2. 8. Romano Prodi, “Europe and the Constitution: letting the people have their say”, University of Bologna, Conference on “The European Constitution and the Italian Presidency of the EU: from the Convention to the Intergovernmental Conference”, 5 July 2003, speech/03/346. 9. The inter-governmental approach was not completely abandoned and made its return during the final stages of the negotiations process leading to the June 18th agreement, but at that point the bulk of the Constitution had already been confirmed. 10. It should be noted that the European Commission has argued that future changes in the Constitution with regard to policy areas (i.e., part III) in contrast to changes in decision-making procedures or basic principles (parts I and II) should be taken on a five-sixth rather than unanimity basis. On 17 September 2003 the Commission adopted an opinion on the European Constitution that stated: “The European Council should therefore be able to amend part III of the Constitution by a 5/6 majority, following the European Parliament’s approval and the Commission’s favourable opinion. Amendments should be prepared by a Convention with representatives of national parliaments, governments and the EU institutions. In contrast, unanimous agreement and subsequent national ratification must continue to apply to all other parts of the Constitution, including the Charter of Fundamental Rights; the division of powers between the EU and the Member States; the institutions; and fundamental principles and objectives.” IP/03/1261, p. 1. 11. The draft constitution is available on the Commission’s web site, www.cec.eu.int, in all of the Community languages. 12. See European Commission, “Feasibility Study, Contribution to a Preliminary Draft, Constitution of the European Union, Working Document”, 04/12/2002. 13. Prodi had commissioned a study by the European University Institute on “A basic treaty for the European Union” that was completed on 15 May 2000. 14. In the text of the Commission’s position presented to the Convention, the Commission stated that it hoped “…that the Convention will present a text that is really constitutional in nature and in which the citizens of Europe can recognize their project and their common will”, European Commission, Brussels, 22 May 2002, COM (2002) 247 def., “Comunicazione della Commissione, Un progetto per l’Unione Europea.”

Notes 211 15. Romano Prodi, “Building our future together”, European Parliament, 10 February 2004, speech/04/67, p. 4. 16. For a discussion of the Commission’s budget proposal, see Iain Begg, “The EU Budget: Common Future or Stuck in the Past?”, Centre for European Reform briefing note, February 2004. 17. European Commission, Third Cohesion Report on Economic and Social Cohesion. A new partnership for cohesion: convergence, competitiveness, cooperation, Luxembourg: Office of Official Publications of the European Communities, 2004, p. xxxviii. 18. See Romano Prodi, “A new cohesion policy for Europe’s regions”, Conference on “Cohesion and Constitution: The Roles and Responsibilities of the Regions”, Brussels, 8 July 2003, speech 03-351. 19. European Commission, Inforegio, “Cohesion Policy: the 2007 watershed”, p. 2. 20. Romano Prodi, op. cit., 8 July 2003, p. 4. 21. For a draft of the new Regulations for the Cohesion Fund and ERDF respectively, see COM (2004) 494 final and COM (2004) 495 final.

Index 4% performance reserve

64–5, 199

acquis communautaire 25, 68, 141, 148, 172 additionality, principle of 54, 56, 72, 195 administrative capacity 30 Agency for the South (Agensud) (Italy) 108, 109 Agenda 2000 21, 61, 62, 149 Agricultural Fund 26–7, 196, 209 agricultural policy see Common Agricultural Policy (CAP) Ahern, Bertie 174, 184–5 amoral familism 135, 137, 138, 206 Amsterdam Treaty (1997) 8, 61, 178, 181 Arlacchi, Pino 125 Armstrong, H. 93, 96, 100, 106 Aznar, Jose Maria 185 Azores (Portugal) 24, 147 Bailey, David 142 Balkan states 140, 173, 206 Banfield, Edward 135 Barnier, Michel 60, 176 Barro, Robert 93, 95, 96, 99 Barroso Commission 186 Barroso, José Durao 185 Bassolino, Antonio 137–8 Belgium 36 Berlusconi, Silvio 185 beta convergence 94, 95–8, 106 measurement 99–102 Borsellino, Paolo 125, 126 Borzel, Tanja 79 Bulgaria 149, 151, 172, 208 annual GDP growth rates 152 inflation rates 154 public finances 158 unemployment rates 155 Bush, George W. 174 Casmez 107–8, 109 Cecchini Report 48 Central and Eastern European Countries (CEECs) 31 annual GDP growth rates 152 economic conditions 150–1, 153, 159

foreign trade and investment 153, 156–7 inflation rates 154 institutional capacity 163–5 institutional learning 148–9 public finances 158, 159 unemployment rates 153, 155 cohesion countries 23, 29, 203 annual GDP growth 28 GDP per capita 109 structural funding 50, 52 Cohesion Fund 23, 27, 58, 60, 188, 209 cohesion policy 1, 2–3, 4, 6, 66, 67, 192–3 and governance 15–17, 143 budget 20–1 budget (2007–2013) 185–6 comparative expenditure 26 concept of 8–9, 10, 11–13 decision-making process 69–71 evaluation 73–4, 200 formulation 18–19, 19–20 impact on Italy 114–16 impact on policy-making 31, 86–8, 105–6 implementation 72–3 institutional and administrative response 67–8 legal basis 191 political ramifications 175 territorial dimension 6–8, 15–17, 62 cohesion policy (2007–2013) 185–7 Committee of Regions (COR) 60 Common Agricultural Policy (CAP) 40, 90, 166 and cohesion policy 26–7 Community Support Framework (CSF) 36, 53, 71–2, 93–4, 105, 195 first cycle (1989–93) 54–6, 76–7 Italy 131–3 second cycle (1994–99) 56–61, 77–8, 86 third cycle (2000–6) 61–5, 78–9 convergence 9, 10–11, 30, 106, 144, 186–8 measurement 90–2

212

Index 213 regional analysis 98–102 studies 92–8 Customs Union 34 Cyprus 148, 151 annual GDP growth rates 152 foreign investments 157 inflation rates 154 public finances 158, 159 unemployment rates 155 De la Fuente, Angel 96 Delor Commission 171 DePropris, Lisa 142 DG V (Social Policy) 45 DG XVI (Regional Policy) 1, 45, 60 Diez, Maria-Angeles 7, 74 Economic and Social Cohesion Laboratory (ESOCLAB) 32, 98, 205 euro see Single Currency European Agricultural Guarantee and Guidance Fund (EAGGF) Guidance section 27, 35, 40, 45, 62, 194 European Commission 210 responsibilities 68 views on initial drafts of constitution 182–3 European constitution 31, 174, 175–6 Article III-116 175 Article 12 177 Article 13 177 Article 16 177 drafting 176–180, 182–3 ratification 185 European Convention 31, 176–8, 180, 181–2, 184, 210 European Council Meeting (1988: Hanover) 36, 52 European Council Meeting (1999: Berlin) 29, 62, 168 European Council Meeting (2000: Nice) 163, 168, 171, 181, 198 European Council Meeting (2001: Laeken) 149, 168 European Council Meeting (2002: Brussels) 176–7, 184 European Council Meeting (2003: Naples) 173 European Council Meeting (2003: Thessalonica) 184 European Court of Justice 68, 174 European Employment Strategy (EES) 188 European Investment Bank (EIB) 33, 41

Europeanization 17, 19, 21–2, 35–6, 200 responses 79–80 adaptation 82, 84–5, 87 learning 82–3 negation 80, 82, 84, 201 European Monetary Union (EMU) 8, 61 European Regional Development Fund (ERDF) 1, 6, 34, 35, 37, 42, 45, 49–50, 90, 188, 189, 202 allocations 42–4 reforms 44 European Regional Development Fund (ERDF) regulation (1988) 19 European Social Fund (ESF) 33, 35, 40–1, 41–2, 45, 188 European territorial cooperation programme 188–9 European Union activity rates 104 budget 36 composition and structure 173–4 economic and monetary policies 183–4 employment 102–3 foreign investments 156–7 enlargements 140–1, 171–2, 206–7 accession budget (2004–2006) 168–71 earlier 145–7 economic aspects 150–1 impact 27–9 institutional structure negotiations 160–5 institutional differentiation 147–8 Objective 1 regions 27–9, 50, 72, 87, 104, 143, 198, 200, 205 plans 53 peripheral areas 89–90 political role 180–1 regional analysis 98–104 Falcone, Giovanni 125, 126 formal public policy 4, 5 France 36 GDP per capita 90 comparative analysis 110–11, 113 Greece 112–13 Italy 109, 112, 113 Germany Objective 1 regions 29 Structural Funds allocation 52 Giolitti, Antonio 18 Giscard d’Estaing, Valery 176, 181, 182

214 Index governance 13–14, 193 and cohesion policy 15–17, 143 see also multi-level governance Grabbe, Heather 88 Greece annual GDP growth rates 152 Community Support Framework (CSF) 53 GDP per capita 112–13 Integrated Mediterranean Programmes (IMPs) 46 Objective 1 regions 29 growth pole theory 34 Hooghe, Liesbet 15 Huebner, Danuta 185 Hurst, Christopher 143 Iervolino, Rosa Russo 137 industrialization Italy 121–2 informal public policy 5 institutional capacity 30, 83, 141–2, 163 Italy 129–34 institution building 9, 30, 83, 141–2, 172 Integrated Development Operations (IDOs) 6, 45 Integrated Development Programmes (IDPs) 45 Integrated Mediterranean Programmes (IMPs) 6, 18, 35, 45–8, 83, 194–5, 207 integrated planning 52–3 integration 9–10, 11 Intergovernmental Conference (IGC) (2003) 175, 176, 178–9, 184 Ireland 192, 198 annual GDP growth rates 152 EU presidency 177, 184–5 multi-level governance 24 Instrument for Structural Policies for Pre-Accession (ISPA) 62, 142, 166–7, 209 Italy 31, 198 duality in economy 121–4 economic growth rate 134 EU presidency 176–7 GDP per capita 109, 112, 113 industrialization 121–2 investment rate 116–18 national development policy 107–9 Objective I regions 29 impact of cohesion policy 114–16 regional policy 22–3

regional policy implementation 83 social capital 135–8 unemployment rate 118–21 see also Mezzogiorno (Italy) learning loops

54,

74–6, 85

Maastricht Treaty (1992) 7, 35, 60–1, 66, 89, 178 MacDougall Report 196 MacDougall, Sir Donald 196 Madeira (Portugal) 24, 147 Malta 148, 151 annual GDP growth rates 152 foreign investments 157 inflation rates 154 public finances 158, 159 unemployment rates 155 Manning, Mike 8 Marks, Gary 15 Marshall Plan 7, 192 Messina Conference (1955) 178 Mezzogiorno (Italy) 31, 107–9, 138–9, 203 economic impact of organized crime 124–9, 204–5 institutional performance 129–34 Miller, Lezek 185 Monnet, Jean 180 multi-level governance 3, 14–15, 23–4, 25, 30 Ireland 24 of cohesion policy 69–71, 85 Portugal 24 type II 15 United Kingdom 24 Nagel, Stuart 3 National Development Plan 164, 208 Nice Treaty (2000) 8, 177, 178, 195 N+2 rule 22, 64, 78, 133, 190, 196 Padoa-Schioppa Report 48 Padoa-Schioppa, Tommaso 4 Parson, Edward 73 Perroux, François 34 Peters, Guy 68 PHARE cross-border component (PHARE-CBC) 166 PHARE programme 141, 142, 166, 207 Pollak, Mark 105 Portugal annual GDP growth rates 152 multi-level governance 24 private investment 58, 205

Index 215 Prodi Commission 171, 185, 186 Prodi, Romano 174, 177, 182–3, 185, 186, 188, 209 public policy 3–5 dual aspects 17–18 Purchasing Power Standards (PPS) per capita 91–2 Quah, Danny

98, 105

Radaelli, Claudio 17, 79 regional competitiveness and employment 188 regional policy 1–2, 3–4, 6, 33–4, 90, 191 Europeanization 17, 19, 21–2, 35–6, 79 evolution 34–5, 37–40, 65–6 integrated approach 44–8 objectives 4–5 sectoral to territorial approach 40–4 Rifkin, Michael 172 Risse, Thomas 79 Romania 149, 151, 172, 208 annual GDP growth rates 152 inflation rates 154 public finances 158 unemployment rates 155 Sala-i-Martin, Xavier 93, 95, 96, 99 Scotland 24, 36, 147 sigma convergence 94, 95, 96–8 Single Currency 83 political ramifications 174–5 Single European Act (SEA) (1986) 2, 6–7, 8, 35, 36, 66, 89, 90, 98, 175 reforms mandated by 49–50 Single Market 4, 19, 48 political ramifications 175 Single Programme Documents (SPDs) 53, 62, 72, 164, 209 Slovenia economic conditions 160 social capital 206 Italy 135–8 social policy 41, 193–4

Solow, Robert 94 Spain 196 annual GDP growth rates 152 elections (2004) 173–4 Special Accession Programme for Agriculture and Rural Development (SAPARD) 62, 142, 166, 167–8, 209 Structural Funds 49–50, 65, 87, 191, 195, 199 allocations 50–2, 63, 125, 170 Italy 54, 131 reforms 52–3, 54 sub-national institutions 2, 34–5, 36 subsidiarity, principle of 60–1 Taylor, J. 96 Thatcher, Margaret 195 Third Cohesion Report 9, 31, 175, 186, 189–90, 209 Thisse, Jeacques-Francois 143 Treaty of Rome (1957) 33–4, 37, 40, 41, 145, 180 Turkey 31, 151, 159 twinning initiative 142 unemployment 92, 102 Central and Eastern European Countries 153, 155 Italy 118–21 levels 103 United Kingdom (UK) 36–7 multi-level governance 24 Objective 1 regions 29 Vanhoudt, Patrick 143 Vanhove, Norbet 4 Varfis, Gregorios 18 Vignon, Jerome 14 Wales 24, 37, 147 Weise, Christian 148 White Paper on Single Market (1985) Wolf-Mathies, Monica 60, 198 Zapatero, Jose Luis Rodriguez

174

48

Cohesion Policy in the European Union: The Building of Europe

Climate change policy in the European Union

Policy-Making in the European Union

Economic Policy in the European Union

Fiscal Policy in the European Union

Telecommunications Policy-making in the European Union

Policy-making in the European Union

Central Europe and the European Union: The Meaning of Europe

Behind the Myth of European Union: Prospects for Cohesion

Federalism and European Union: Building of Europe 1950-2000

Rethinking European Union Foreign Policy (Europe in Change)

Drug Policy Harmonization and the European Union

European Cohesion Policy (Regions and Cities)

The European Union and National Industrial Policy

Visa Policy within the European Union Structure

Europe as Empire: The Nature of the Enlarged European Union

The Idea of Europe: From Antiquity to the European Union

Europe As Empire: The Nature of the Enlarged European Union

Integration, Growth, and Cohesion in an Enlarged European Union

Regionalism in the European Union

Finland in the European Union

Theory and Reform in the European Union (Europe in Change)

Governance in the European Union

State-building in Europe: The Revitalization of Western European Integration

Diversity in the European Union

European Union: Power and Policy-Making (European Public Policy)

Health Systems Governance in Europe: The Role of European Union Law and Policy

The European Union Decides

The European Union Decides

Economic Citizenship in the European Union: Employment Relations in the New Europe (Routledge Research in European Public Policy, 8)

The European Union

Cohesion Policy in the European Union: The Building of Europe

Climate change policy in the European Union

Policy-Making in the European Union

Economic Policy in the European Union

Fiscal Policy in the European Union

Telecommunications Policy-making in the European Union

Policy-making in the European Union

Central Europe and the European Union: The Meaning of Europe

Behind the Myth of European Union: Prospects for Cohesion

Federalism and European Union: Building of Europe 1950-2000

Rethinking European Union Foreign Policy (Europe in Change)

Drug Policy Harmonization and the European Union

European Cohesion Policy (Regions and Cities)

The European Union and National Industrial Policy

Visa Policy within the European Union Structure

Europe as Empire: The Nature of the Enlarged European Union

The Idea of Europe: From Antiquity to the European Union

Europe As Empire: The Nature of the Enlarged European Union

Integration, Growth, and Cohesion in an Enlarged European Union

Regionalism in the European Union

Finland in the European Union

Theory and Reform in the European Union (Europe in Change)

Governance in the European Union

State-building in Europe: The Revitalization of Western European Integration

Diversity in the European Union

European Union: Power and Policy-Making (European Public Policy)

Health Systems Governance in Europe: The Role of European Union Law and Policy

The European Union Decides

The European Union Decides

Economic Citizenship in the European Union: Employment Relations in the New Europe (Routledge Research in European Public Policy, 8)

The European Union

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