Structural policy reform

The building of Europe is creating a group of States that are forging close economic links and regulating issues of common interest together. However, the concept of European Union integration can only be considered credible if these States maintain a sufficient level of economic and social cohesion.

With this in mind, the structural policy provisions of the Agenda 2000 package aim to meet successfully two challenges:

• firstly, to improve the effectiveness of the structural policy instruments so that economic and social cohesion can be achieved;
• secondly, to ensure that structural policy plays a continuing role in the Union's future enlargement, bringing in the countries of central and eastern Europe.

Harmonious development has been one of the objectives of the European Economic Community since 1957. In the beginning, the common market was established to ensure the development of the Member States and to overcome the development gaps between certain regions. The Treaty provided for the creation of a European Social Fund (ESF), intended to promote employment and encourage worker mobility within the Community. Given the strong growth and low unemployment in the 1950s and 60s, the Fund had a limited role at the time.

The economic shock of 1973 and the economic restructuring that led from it highlighted development gaps between some Member States. These regional disparities increased significantly with the accession of the United Kingdom and Ireland, then Greece, Spain and Portugal.

The introduction of a genuine structural policy to lessen the gaps in development and living standards became a necessity. In addition to the European Social Fund measures, other "Structural" Funds were introduced over the years, each one with a specific target. Thus, the Community created the European Agricultural Guidance and Guarantee Fund (EAGGF) to finance the common agricultural policy, the European Regional Development Fund (ERDF), assistance from which relates specifically to the regions whose development is lagging behind, and the Financial Instrument for Fisheries Guidance (FIFG).

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 (Greece, Ireland, Spain and Portugal)

The concept of economic cohesion was introduced in the Single European Act (1986), and since the Treaty on European Union (1992) it constitutes one of the three pillars of the European Community, alongside the single market and European economic union. Cohesion is still a priority today, and this is reflected in the budget: structural policy is the second most heavily funded sector in the Union after the common agricultural policy.

The structural measures and the adoption of national macroeconomic programmes to fulfil the criteria laid down for Economic and Monetary Union have resulted in the clear convergence of the Member States' economies for close on ten years now. Thus, the Union's four poorest countries (Greece, Ireland, Spain and Portugal) have improved economically, the most impressive example being undoubtedly Ireland, which has seen its per capita GDP increase from 64 % of the Community average in 1983 to nearly 90 % in 1995 and 118 % in 2001. Such success at national level should not blind us however to the persistence, and indeed exacerbation in some cases, of disparities in living standards between some regions of the Union.

While continuing the current elements of structural policy, the 1999 reform aims:

• to improve the effectiveness of the structural instruments by strengthening concentration through a reduction in both the structural policy objectives and the Community Initiatives, by improving management and by clarifying the share-out of responsibilities between the various parties involved (A);
• to maintain the budget for economic and social cohesion (B);
• to extend efforts on regional cohesion to the future Member States (C).

IMPROVING THE EFFECTIVENESS OF THE STRUCTURAL POLICY INSTRUMENTS

The Structural Funds

The rules governing the Structural Funds are to be found in a Regulation laying down general provisions on the Structural Funds, added to which there are specific Regulations for each Fund.

In general terms, the 1999 reform has increased the concentration of assistance, but has also moved towards the simplification and decentralisation of its management. On the other hand, the reform introduces a clearer division of responsibilities and stricter application of the principle of subsidiarity.

Concentration has been increased by reducing the number of Objectives from 7 to 3 priority Objectives:

• Objective 1 promotes the development and structural adjustment of regions whose development is lagging behind, i.e. whose average per capita GDP is below 75 % of the European Union average. The new Objective also covers the most remote regions (the French overseas départements, the Azores, Madeira and the Canary Islands) as well as the areas eligible under the former Objective 6 created pursuant to the Act of Accession of Austria, Finland and Sweden. As was previously the case, two thirds of the Structural Fund operations come under Objective 1. Almost 20 % of the Union's total population should benefit from the measures taken under this Objective;
• Objective 2 contributes to the economic and social conversion of regions in structural difficulties other than those eligible for the new Objective 1. This Objective brings together the former Objectives 2 and 5(b) and other areas facing the need for economic diversification: overall it will cover areas undergoing economic change, declining rural areas, depressed areas dependent on fisheries and urban areas in difficulty. No more than 18 % of the Union's population will be covered by this Objective;
• Objective 3 gathers together all the measures for human resource development outside the regions eligible for Objective 1. This Objective carries over the former Objectives 3 and 4. It is the reference framework for all the measures taken under the new Title on employment in the Treaty of Amsterdam and under the European Employment Strategy.

Transitional arrangements were introduced for the regions which were eligible for Objectives 1, 2 or 5(b) between 1994 and 1999 but which will not be eligible for Objectives 1 and 2 in the period 2000-06.

Furthermore, the new Regulations provide for a reduction in the number of Community Initiatives from 13 to 4. The new Initiatives are:

• INTERREG III, which aims to stimulate cross-border, trans-national and inter-regional cooperation;
• LEADER+, which promotes rural development through the initiatives of local action groups;
• EQUAL, which provides for the development of new ways of combating all forms of discrimination and inequality as regards access to the labour market;
• URBAN II, which encourages the economic and social regeneration of towns, cities and suburbs in crisis.

Within this definition of the Objectives and Community Initiatives, each of the four Structural Funds fulfils a specific role.

The ERDF is intended to reduce the regional imbalances in the Community. The Fund grants financial assistance for the development of the less-favoured regions. To this end, it contributes to the new Objectives 1 and 2 and to the INTERREG and Urban Community Initiatives. In terms of financial resources, the ERDF is by far the most important Structural Fund.

The ESF 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. It also funds the Equal Initiative. In addition, the new Regulation strengthens the ESF's role in the Community's social policy through its participation in action undertaken in the context of the European Employment Strategy and the guidelines for employment policies.

The 1999 reform maintains the FIFG 's dual contribution to regional development policy and the common fisheries policy. The structural measures in the fisheries sector fall within the common fisheries policy, or are even considered a sectoral policy instrument.

The EAGGF is divided into two Sections:

• the Guarantee Section's main purpose is to fund expenditure arising from the common organisation of the markets and agricultural prices, rural development measures accompanying market support and rural measures outside Objective 1 regions, expenditure on certain veterinary measures and information measures relating to the CAP;
• the Guidance Section funds other rural development expenditure not funded by the Guarantee Section, including the LEADER+ Initiative.

The new regulations rationalise and simplify rural development policy as regards:

• the eligible rural development measures (accompanying measures such as agro-environmental measures, early retirement assistance for farmers, modernisation and diversification of farm holdings through such things as farm investment, the installation of young farmers, additional aid for forestry, etc.);
• programming in the context of the measures under Objectives 1 and 2, and the new rural development programmes;
• the source of funding, which is either the EAGGF Guidance Section or the Guarantee Section, depending on the regional context in which the measure is set.

The Cohesion Fund

This Fund has been maintained as part of the reform of the Community's structural policy; it continues to cover environment and transport infrastructure. Some changes have been made, however, to simplify its operation and to strengthen the Member States' role in its financial control.

The conditions for assistance from the Cohesion Fund, whereby macroeconomic criteria have to be met, have been amended slightly. Henceforth, if the public deficit criterion is not met, funding will not be suspended, as used to be the case.

Moreover, the new provisions on project financing encourage the use of additional private funding and better application of the "polluter pays" principle.

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.

CONTINUING THE FUNDING EFFORT ON ECONOMIC AND SOCIAL COHESION

To maintain economic and social cohesion as one of the Union's priority objectives, the Interinstitutional Agreement between the European Parliament, the Council and the Commission of 6 May 1999 on budget discipline and improvement of the budget procedure for the 2000-06 financial perspective maintains the funding for economic and social cohesion at 0.46 % of the Union's GNP for the period 2000-06 (as was already the case in the period 1993-99).

The total appropriation for the Structural Funds and the Cohesion Fund stands at EUR 213 billion, broken down by year as follows:

(in million euro, 1999 prices)

Structural Funds appropriation

The total appropriation for the Structural Funds, including transitional assistance, the Community Initiatives and innovative actions amounts to EUR 195 billion.

The breakdown between the three Objectives is as follows:

• 69.7 % of the total allocation goes to Objective 1, i.e. EUR 135.9 billion;
• 11.5 % of the total goes to Objective 2, i.e. EUR 22.5 billion;
• 12.3 % of the total goes to Objective 3, i.e. EUR 24.05 billion;
• 0.5 % of the total goes to the FIFG outside Objective 1, i.e. EUR 1.1 billion.

The balance is earmarked for the Community Initiatives (5.35 %), for innovative actions and for technical assistance (0.65 %).

Cohesion Fund appropriation

The total available funding for commitments under the Cohesion Fund amounts to EUR 18 billion for the period 2000-06.

EXTENDING THE STRUCTURAL POLICY TO THE FUTURE MEMBER STATES

The Union's enlargement to include several central and eastern European countries as well as Cyprus will raise very serious problems for economic and social cohesion, given the considerable development lag in their regions compared to the current 15 Member States. Enlargement will increase the Union's diversity, posing some problems of adjustment for both regions and sectors; this will require adequate preparation.

Several conditions need to met if the structural policy is to cope efficiently with enlargement. To achieve this, the candidate countries must have time to adjust to the workings of the structural measures. The pre-accession strategy must therefore be strengthened so that, from 2000 on, pre-accession assistance is available.

Various instruments will contribute to this aim. Firstly, the Phare programme, which aids the countries of central and eastern Europe, recently underwent a policy change and has a budget from now on of EUR 10.92 billion for pre-accession assistance between 2000 and 2006. ISPA (the Instrument for Structural Policies for Pre-accession), finances projects in the environment and transport sectors and has a budget of EUR 7.28 billion. Sapard another financial instrument for agriculture has EUR 3.64 billion.

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.

RELATED ACTS

Commission Communication to the European Parliament and Council of 6 September 2004 on the respective responsibilities of Member States and the Commission in the shared management of the Structural Funds and the Cohesion Fund. Current situation and outlook for the new programming period after 2006. [COM(2004) 580 final - Not published in the Official Journal]. This communication fulfils the commitment given by the Commission in its "Summary of Annual Activity Reports 2002 of DGs and Services" to perform a legal analysis of its responsibilities and those of the Member States in jointly managing the EU budget and clarify the procedures through which, in cooperation with the Member States, it can discharge its general responsibility for implementing the budget.

In the first part (Section II), the Commission sets out its interpretation of the current rules governing the Structural Funds and the Cohesion Fund in order to clarify the shared management responsibilities of each party. In its view, these rules allow its obligations regarding budget implementation to be reconciled with the specific features of the Union's cohesion policy and its management system. Under this system, according to the Council Regulations, the Member States are responsible in the first instance for managing, monitoring and day-to-day financial control of the resources disbursed by the Funds. The existing structure includes arrangements which allow the Commission to discharge its general responsibility by ensuring that the required management and control systems actually exist and operate properly. If subsequent Commission audits detect any deficiencies in these systems, it determines the likely amounts of ineligible expenditure that were financed and applies suitable financial corrections. This communication sets out the measures taken by the Commission to comply with these provisions.

The second purpose of the communication (Section III) is to set out the general guidelines followed by the Commission in drawing up the legislative proposals it adopted on 14 July 2004 for the 2007-13 period. These proposals were designed to make the overall structure of the implementation system more consistent, complementary and efficient, and included clarifying the obligations on Member States to cooperate and the consequences for them of infringing the rules.

Proposal for a Council Regulation of 14 July 2004 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund [COM(2004) 492 final - Not published in the Official Journal]. In July 2004, the Commission presented a package of proposals for reforming regional policy after 1 January 2007. The basis of the reform is set out in the general provisions given in this document, which accompanies the other specific documents for the two Structural Funds (ERDF and ESF), the Cohesion Fund and the new European grouping of cross-border cooperation.

The Commission proposes focussing funding on a limited number of Community priorities that reflect the Lisbon (employment) and Gothenburg (environment) agendas. For operational programmes, a limited list of key themes has been drawn up: innovation and the knowledge economy, environment and risk prevention, accessibility and services of general economic interest. The key principles remain programming, partnership, part-financing and evaluation.

The aim is to promote balanced and sustainable economic and social development throughout the Community. Community action seeks to meet the challenges posed by economic, social and spatial disparities, accelerating economic restructuring and ageing populations.

The main change is that objectives 1, 2 and 3 have been replaced by three new priorities: "Convergence", "Regional competitiveness and employment" and "Territorial cooperation".

Last updated: 19.07.2005