The reforms of the EU structural policy Essay

Critically review and discuss the pressures that have emerged from the recent enlargement rounds for the reforms of the EU structural policy.

The creation of the European Union was to form a group of nation states who would forge close economic, political and social interests together. However, with this in mind, the idea of a EU can only really be considered feasible if the member states are able to maintain a sufficient level of economic and social cohesion. (Hannequart:1992:p1)

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As such, the Structural Policy was created with the intentions of lessening the gap in economic development and standards of living between member states. Furthermore, the European Social Fund measures other cohesion policies which were then introduced over the years, each with a specific aim. The European Community created the European Agricultural Guidance and Guarantee Fund to help financially support the Common Agricultural Policy, the European Regional Development Fund and the Financial Instrument for Fisheries Guidance. (Hannequart:1992:p1)

In this essay I will be discussing the European Unions Structural Policy and the reasons behind why it was set up. Moving on from this I will look at the Funds available to member states of the EU, for example the European Regional Development Fund and the European Social Fund. I will also discuss the EU’s three objectives of the Structural Policy.

In the second part of my essay, I will look at how enlargement has posed a severe challenge for the EU structural and cohesion policies, before assessing how the European Union has prepared itself for this through its set up of Agenda 2000. Finally, I will assess whether Agenda 2000 and the reforms set up by the EU have been a success in reforming the EU structural policy from enlargement. By the end of this essay it should be evident that enlargement has expanded the scale of disparities between member states.

The accession of Central and Eastern European Countries has widened the gap between the richer and poorer states in the EU. The sheer diversity across the enlarged EU has raised corresponding challenges for the EU to reform the Structural Policy. Agenda 2000 did prepare the EU for enlargement, perhaps now that enlargement has occurred a re think of Structural Policy and its operation should happen.

Alongside the Structural Funds, a Cohesion Fund has likewise existed since 1993. It finances transport and environment infrastructure in the Member States whose gross domestic product (GDP) per capita is less than 90% of the Union average there were previously when it was first created four member states who were in this category; Greece, Ireland, Spain and Portugal.

Today however, with the accession of Central and Eastern European Countries, currently, Portugal, Spain, Greece ,Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia are all eligible, thus placing a big strain on this fund.

The Single European Act in 1987 introduced the concept of Social Cohesion and since the Treaty of Maastricht it has become one of the EU’s three pillars. Cohesion is still a priority today, and this is reflected in the budget, because structural policy is the second most heavily funded sector in the Union after the Common Agricultural Policy. (Hannequart:1992:p1)

The European Unions structural policy umbrella’s the four structural funds and the one cohesion fund. Its two main purposes are; to support the poorest of EU regions and secondly, to support the integration European infrastructure in particular transport. The current Structural programme started in 2007 and is anticipated to end December 2013, and is estimated to have spent 195 billion Euros for the structural funds and 20 billion Euros for the Cohesion fund; using 35.7% of the total Unions budget.(Warleigh:2003:p103)

The European Regional Development Fund is under the EU’s structural policy and was created to reduce regional imbalances in the EU. This fund, grants financial assistance to the development of the less favoured regions. In terms of financial resources, the ERDF is by far the most important Structural Fund. (Hannequart:1992:p78)

The European Social Fund is the Community’s primary social policy instrument. It funds training, vocational retraining and job creation measures. The emphasis will henceforth be put on improving the way labour markets operate and on getting the unemployed back into jobs. It contributes to all three Objectives but its primary target is the new Objective 3. (Hannequart:1992:p78)

The European Agricultural Guidance and Guarantee Fund is composed of two sections; the Guidance and Guarantee sections. Within the EU’s structural funds the EAGGF supports rural development as well as the improvement of agricultural structures. The EAGGF aims to also invest in agricultural holdings for example modernisation, or the reduction in production costs, or to improve product quality, whilst also ensuring protection of the environment,. Finally, it also aims to provide aid for the setting up of young farmers and vocational training and to provide aid for early retirement. (Hannequart:1992:p77)

The Financial Instruments for Fisheries Guidance (FIFG) aims to contribute a sustainable balance between fishery resources and their exploitation. Its second aim is to increase the competitiveness of the fisheries sector and the development of areas that rely on it. A few of the FIFG’s priorities include; the development of aquaculture, the protection of marine areas protecting the standards of fishing port facilities and finally modernisation of fleets. (Hannequart:1992:p77)

The first of three Structural Fund objectives, “Convergence” covers regions who have a GDP per capita less than 75% of the EU average, this objective aims to accelerate their economic development. It focuses on capital; both human and physical, innovation environment and knowledge society. This objective, the most costly of the three was allocated 283 billion Euros.

The second objective “Regional Competitiveness” is for the regions who do not fulfil the Convergence Objective criteria. It aims to reinforce their competitiveness and employment through innovation, promoting entrepreneurship and finally the attractiveness of the regions through environmental protection.

The final objective aims to promote the cooperation between all regions . This is done through three strands; cross-border co-operation, trans-national cooperation and finally interregional cooperation. (Hannequart:1992:p79)

The Cohesion Funds aim to help member states reduce their social and economic disparities and to stabilise their economies; this has been occurring since 1994. The finds are in place for member states whose GNP is less than 90% of the EU average. The Cohesion Fund finances up to 85 % of eligible expenditure of major projects involving the environment and transport infrastructure. This strengthens cohesion and solidarity within the EU. Currently, Portugal, Spain, Greece ,Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia are all eligible.

15.9 billion Euros are included in the 2004 to 2006 budget. More than 50% of the funding was reserved or the new member states from Central and Eastern Europe.

The Structural Funds and Cohesion Funds have resulted in the European Union’s four poorest member states economies improving impressively. The clearest example is Ireland, who’s GDP increased from 63% in 1983 to 90% in 1995 to 118% in 2001.

Enlargement has posed a severe challenge for the EU structural and cohesion policies . The European Commission itself has acknowledged that the challenge from the EU 27 could be said to be “twice as widespread and twice as large as at present.” (Commission of the European Communities:2001:p9).

Arnell and Wincott further claim that “if the rate of regional convergence in the applicant countries were to be similar estimated to that across the EU15 over the past decade or so, it would take at least two generations for the increased regional income gap created by enlargement to be halved.” (Arnell and Wincott: 2002:p361)

This is because it was necessary to assess what the current states economically and socially the new member states of the EU are in and as such, whether the EU27 has differed from the EU15. Not only do the new member states of the EU differ hugely in their economies and social cohesiveness but the EU almost doubled its members, causing huge strains on the budget, not only for pre accession assistance but also to then continue to aid the new member states once having joined the EU.

Despite the growth rates in the Central Eastern European Countries being above the EU15 average, economic convergence has been low. The most positive macro economic indications are from Poland, Slovenia, Hungry and the Czech and Slovak Republics, there have still been labour market changes have occurred because of economic restructuring, liberalisation and privatisation. Examples include a decline in industrial employment whilst service sector employment rose. Income levels and the Standard of Living has fallen whilst poverty has spread vastly. Rapid industrialisation, inefficient raw material extraction and a lack of environmental controls have left the environment degraded and pollution levels so high the cost of the clean up is evident.

In the 1990’s, Central and Eastern European Countries were able to redirect their exports towards the EU and away from former COMECON members. As such trade volume has increased significantly, and the EU has become the most significant economic trade partner for the CEEC’s, whilst from the EU’s point of view, they are not so important, due to geography being an important factor in determining bilateral trade flows.

Border regions are most affected by enlargement as internal disparities are accentuated within regions. Competitiveness enterprises, sectors and areas will gain from new markets being opened and the supply of a wider choice of inputs . However, less competitiveness businesses will suffer negatively from increased competition. The EU-CEEC border the impact will be highest on the Eastern Austrian border, not necessarily negative, but the pressure to adjust will be highest there.

With the pressure of reform as a result of enlargement in mind the Structural Policy provisions set out under the Agenda 2000 had the intention of successfully meeting two challenges. The first challenge was to improve the effectiveness of the Structural Policy instruments so that any political, economic or social cohesion that were to occur could be achieved. The second challenge aimed to ensure that structural policy continued to play a continuing role in the EU’s future enlargement prospects from countries in Central and Eastern Europe.

Agenda 2000 was actionned to reform the Common Agricultural Policy and Structural Policy and to establish a new framework financially between 2000 and 2006 with the intention of successfully preparing the Structural policy in time for European Union enlargement from the Eastern and Central European Countries. (Garc�a, Clayton, Hobley: 2004 :p270)

The first challenge was to improve the effectiveness of the Structural Policy instruments so that any political, economic or social cohesion that were to occur could be achieved. The second challenge aimed to ensure that structural policy continued to play a continuing role in the EU’s future enlargement prospects from countries in Central and Eastern Europe.

Agenda 2000 was outlined and published by the Commission in 1997; Reforms were finally agreed by the 15 EU countries at the European Council meeting in Berlin in March 1999. The Commission stated it had three main aims; to update the European Model of Agriculture. Secondly, to narrow the gaps in wealth and economic prospects between regions and finally to honour priorities whilst enjoying only very modest increases in budget income until 2006. (Garc�a, Clayton, Hobley: 2004 :p270)

The Agenda 2000 had a number of aims;

Simplifying the “objectives of the funds” was a main aim. Objectives would be reduce from the current six (3.5of which are spatial, 2 were social and 0.5 were sectoral) to just three who would help lagging regions, provide support for other regions and to develop labour market initiatives. (Iain Begg:p6)

Reducing the number of areas who were eligible for support was lowered from the previous 51% of the population to 35-40%. This was because the criteria became stricter and inevitably, some recipients lost their right of entitlement.(Iain Begg:p6)

Finally, anticipating the enlargement of the EU was also achieved. The potential candidates who intended to join the EU were all less prosperous than the EU15 so that under current rules they would all be entitled to Objective 1 which had a number of consequences; pre accession aid would be available to all Central and Eastern European countries whilst negotiations were in place. As a result of this all new entrants were eligible for Structural Funds but this would be capped on their net recipients at 4% of their GDP.

Finally, transfers to existing recipients would diminish so that the total cost of the Structural remained at 0.46% of EU GDP. (Iain Begg:p7)

The European Unions enlargement raised serious issues if social and economic cohesion were to continue because of the vast lag in the new member states regions compared to the current fifteen member states. As such, adequate preparation was required, because enlargement would increase the EU’s diversity, posing some problems of adjustment for both regions and sectors. Moreover, if the Structural Policy is to cope efficiently then several conditions need to be met if this is to work. In order to achieve this, candidate countries need time in order to adjust and adapt to the working requirements of the Structural Policy.

The pre aces session had to be strengthened so that pre accession assistance was available from 2000 onwards; the Phare programme helped the countries of Central and Eastern Europe underwent a radical change and now its budget is 10.92 billion for pre accession assistance from 2000 to 2006. The Instrument for Structural Policies for Pre Accession (ISPA) finances projects in the environment and transport sector and has a budget of 7.28 billion Euros. Finally, Sapard, the financial instrument for agriculture has 3.64 billion Euros in its budget.

After accession, the Structural Funds programmes and the Cohesion Fund projects will replace pre-accession assistance, due regard being taken to each country’s capacity to absorb this funding. (Europa website: Structural Policy Reform)

The Cohesion Fund; maintained in order to help the reforms of the Structural Policy continues to cover environment and the transport infrastructure.

The conditions member states had to meet in order to qualify from the Cohesion Fund have been amended slightly under the macroeconomic criteria. Hence if the public deficit criteria has not been achieved funding unlike previously will not be suspended.

Furthermore, the new provisions on financing the project encourage the use of private funding and the principle of the “polluter pays” has been an added principle

Finally, halfway through the next period (2003) eligibility will be rechecked against the 90% of GNP criterion. Should a Member State no longer be eligible, the funds allocated to the Cohesion Fund will be reduced accordingly.(Europa website: Structural Policy Reform)

In conclusion, enlargement has expanded the scale of disparities regionally within the EU. The accession of Central and Eastern European Countries has widened the gap between the richer and poorer states in the EU.

The sheer diversity politically, economically and socially in the member states across the enlarged EU ha raised corresponding challenges for the EU to reform the Structural Policy. Agenda 2000, although not a brilliant success did prepare, up to a certain extent the EU for enlargement and the EU was more prepared for the accession of member states as a result, perhaps now that enlargement has occurred a re think of Structural Policy and its operation should happen.

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