Cohesive Europe

By Guest Contributor
November 23, 2011

By Konrad Niklewicz, Spokesman for the Polish Presidency of the EU. The opinions expressed are on behalf of the organisation he represents.

How should the EU distribute €370 billion? The new cohesion policy rules proposed by the European Commission provide a good basis for further debate, but some of their components are clearly questionable.

The philosophy behind the application of European funds is known. Heads of state and governments of the EU, debating on 23 October in Brussels, confirmed it: in the context of the crisis, funds must be directed at accelerating economic growth, competitiveness and employment. The European Commission has respected this political message. In recent weeks, it presented specific pieces of the puzzle which together constitute the “new” cohesion policy for the years 2014-2020.

Changes

The Commission forecasts a total budget for cohesion policy of €336 billion, representing a theoretical reduction compared to the previous five-year framework’s €354.8 billion.  But the total amount will in fact increase if we take account of the newest idea from the Commission, the Connecting Europe Facility, representing a separate fund worth €50 billion, of which €10 billion would come from the Cohesion Fund. Under the new Cohesion Fund, 57 per cent of the funds would be spent in the least developed regions of the European Union, but if we also take into account the Connecting Europe Facility, it turns out that expenditure for the poorer regions is proportionally less advantageous than the previous budget.

The second key change proposed by the Commission includes a significant reduction of the maximum ceiling of the funds transferred to the Member States. This “absorption threshold”, as it is called in a binding terminology, is to fall to 2.5 per cent of the Gross National Income (GNI), from the current level of 3.15 per cent. Such an absorption threshold will have profound influence on calculating national cohesion policy envelopes. Let’s be frank: for some countries this will mean a reduction of their national envelope. Especially for those countries which suffered from recession in the years 2008-2011.

The Commission also wants to increase the share of cohesion expenditure allocated to the European Social Fund (ESF): the ESF would represent 25 per cent of allocations in the poorest regions, 40 percent in transitional regions and as much as 52 per cent in the richest regions. This is an enormous change: in Poland the ESF currently represents 14 percent. The Commission also proposes a hike in the share of loan and guarantee funds (at the cost of non-refundable grants).

Another Commission proposal is really revolutionary: extending so-called macroeconomic conditionality to apply to the whole cohesion policy – i.e. structural, cohesion, rural development and fisheries development funds. The new rule would provide the Commission (on the basis of the Council’s decision) the right to partially or entirely suspend payments for countries that do not either reduce their deficit or diminish macroeconomic imbalance.

Doubts

This macroeconomic conditionality rule is significant and potentially very dangerous change. If applied today, this rule would mean a suspension of payments for countries that need them the most – precisely because they are in the middle of a severe economic crisis. The proposal is even more surprising given that the Commission is saying that an increase and acceleration of payments should be one of the key crisis remedies for some of the EU countries. A few weeks ago, the Polish Presidency worked out an agreement within the Council (which must still be accepted by the EP) which allows for an increase of the investment financing ceiling up to 95%.

This is not the only question mark regarding the European Commission’s proposal. How does the declared aim to increase the competitiveness of the European economy relate to the decision to significantly limit big enterprises’ chances of receiving a grant? Isn’t this, rather than an economic calculation, really about eliminating the political fall-out caused by using European funds to transfer big Western European companies’ production and research centres to the East?

The Connecting Europe Facility – whose aim to increase cohesion through better infrastructure and cross-border links across the board, even in high income countries – seems to be right, but doubts remain on the details. Are Member States ready to use the new fund? Do they have proper institutional resources? We are talking about creating another European agency – will that not lead to increased administrative burdens? Do we have sufficient staff at the European level?  How does this relate to the declared goal of “less red tape”?!

Experiences from Poland

Poland can serve as an example that the old rules proved effective, on the condition that they are used well: in 2010 additional economic growth, generated thanks to cohesion funding, amounted to around 0.6-1.0 percentage points. A Polish Ministry of Regional Development analysis found that the 15 countries of the “old” European Union will receive back €37.8 billion between 2004 and 2015 in additional commissions for goods and services as a result of the cohesion policy extending to Poland.

The new rules thus require an honest discussion. The coming informal meeting of the EU ministers responsible for regional development (Poznań, 24-25 November) will offer a perfect opportunity.

Comments are closed.

  •