Third Report on economic and social cohesion: proposals for regional policy after 2006

For the first time since the Europe-wide debate began in 2001, the Third Report on economic and social cohesion makes concrete proposals on the future of the regional policy after 2006. It bases its analysis on an evaluation of the impact of Community and national policies on cohesion and updates the available data on the socio-economic situation of the European Union (EU).

ACT

Commission Communication - Third Report on economic and social cohesion [COM(2004) 107 final - Not published in the Official Journal].

SUMMARY

The policy on economic and social cohesion has positive effects on the areas of the EU in difficulty but major socio-economic disparities between the Member States and between the regions persist. These gaps in wealth and dynamism arise from structural deficiencies in certain key factors for competitiveness such as investment in physical infrastructure, innovation and human resources. The Member States and the regions therefore require support from the Community policies to overcome their handicaps, build on their comparative advantages and make better progress in an increasingly competitive environment.

PROPOSALS FOR A REFORMED COHESION POLICY

On 10 February 2004, the Commission adopted a budget proposal for the European Union enlarged to 27 Member States (the 15, the 10 new Member States, Bulgaria and Romania) for 2007-2013. In this communication on the financial perspective, it argues that the cohesion policy should have a single budget line with increased resources. The Third Report on cohesion follows this approach, noting the challenge which enlargement represents for cohesion policy. For the first time, the Commission makes concrete proposals derived from the debate on the future of the regional policy after 2006. In financial terms, it proposes a budget for 2007-2013 equivalent to 0.41 % of the Gross Domestic Product (GDP) of the Union of 27, or 336.3 billion for that period. The Commission is basing its proposals on the socio-economic situation of the Union and the study of the impact of the regional policy, the other European policies and national policies.

Enlargement completely changes the Union's socio-economic situation

Enlargement on 1 May 2004 will increase the population of the European Union by 20 % and its area by about a quarter but GDP by only 5 %. Regional disparities will double. Per capita wealth in a Union of 25 will fall by about 12.5 % and the proportion of the population living in regions whose development is lagging behind will increase from 20 % to 25 %. At the same time, the disadvantaged regions of the present Union will not disappear and will require continuing support.

The European Union has entered a phase of economic restructuring as a result of the globalisation of trade, the introduction of the knowledge economy and an aging population. Furthermore, the economic situation has deteriorated over the last three years and unemployment has increased.

In March 2000, the Lisbon European Council set the European Union the goal of becoming the most competitive and dynamic area of the world. A strong knowledge-based economy will stimulate job creation and promote social and environmental policies offering sustainable development and social cohesion. The European Councils in Nice and Göteborg applied this across-the-board objective through sectoral strategies in the fields of social integration and sustainable development respectively. In addition, cohesion policy helps achieve the Lisbon objective. The reform of this policy should continue this process.

What Community support for the new Member States between 2004 and 2006?

The ten new Member States will receive Community support as soon as they join. Between 2000 and 2006, they will receive 3 billion in structural assistance under the pre-accession financial instruments ISPA (transport and the environment) and SAPARD (agriculture and rural development) and the Phare programme (improving administrative capacity). Following their accession, the new Member States together with Bulgaria and Romania will receive 1.6 billion per year in aid through Phare until 2006.

For the new Member States, 2004-06 will be a transitional period which will allow them to become accustomed to managing the Structural Funds in accordance with the current rules. They will receive support from those Funds totalling 21.8 billion. The measures will concentrate on a limited number of priorities: infrastructure, human resources and productive investment.

A revised cohesion policy for 2006-2013

The future regional policy will have a limited number of key topics: innovation and the knowledge economy, the environment and risk prevention, access and public services. To achieve them there will be three Community priorities replacing the current breakdown among Objective 1, Objective 2 and Objective 3:

• The "convergence" Objective will support growth and job-creation in regions whose development is lagging behind.It will concern NUTS II regions whose per capita GDP is less than 75 % of the average in the Union of 25. It will receive about 78 % of the budget for the future regional policy and until 2013 will also provide transitional support to the regions currently eligible but which will no longer satisfy this criterion for purely statistical reasons. Since the GDP of the Union of 25 will be lower than that of the Union of 15, some regions currently eligible under Objective 1 will no longer meet this eligibility criterion.The European Regional Development Fund (ERDF) will part-finance the modernisation of basic infrastructure (transport, telecommunications and energy), the economic diversification of territories and the protection of the environment (treatment of water and waste, prevention of natural and technological hazards). The European Social Fund (ESF) will expand its role as the main Community financial instrument for the European Employment Strategy (EES) which helps the Member States to reform their labour markets.Only those Member States with a GDP of less than 90 % of that of the Community will also be able to benefit under the Cohesion Fund for investment in transport and the environment. The relative weight of this Fund will increase because it will distribute one third of the aid for the ten new Member States.
• The "Regional competitiveness and employment" Objective will help make the economic fabric more dynamic in accordance with the Lisbon and Nice objectives.The Commission is proposing a twin-track approach, at both regional and national level. Regional programmes will help anticipate economic change better. Supported exclusively by the ERDF, they will concern the regions currently eligible under Objective 1 and which will naturally cease to be so eligible and the regions which do not come under the convergence programmes.National programmes will improve implementation of the EES. Supported exclusively by the ESF, they will concentrate on three priorities: the adjustment of the working population to changes in work (life-long learning), promoting employment and combating early departure from the labour market (active aging, greater participation by women), employment of categories in difficulty (the disabled, ethnic minorities).This Objective will have some 18 % of total funding, divided equally between the ERDF and the ESF. The funding will be divided among the Member States using economic, social and territorial criteria fixed at European level.
• Territorial cooperation will promote the balanced development of the territory.Based on the acknowledged experience of the INTERREG III Initiative, the Commission is proposing a new Objective for cross-border, transnational and interregional cooperation which will receive 4 % of the funding for the future regional policy.All the NUTS III regions on internal and external frontiers, whether on land or sea, will be able to cooperate with their neighbours, particularly on the key topics of the Lisbon and Göteborg agenda.The Commission wants to set up two new legal instruments for cooperation: the "cross-border regional collectivity" on internal frontiers and a "new neighbourhood instrument" on the Union's external frontiers. These instruments will cope with the legal and administrative problems which this type of cooperation poses.

Natural handicaps exacerbate development problems. The future cohesion policy will therefore pay particular attention to certain areas. Measures for urban areas will be fully incorporated into the regional programmes so that more towns and cities can receive support than did under the URBAN II Community Initiative. Under the future "Convergence" Objective, the Commission will set up a specific programme for the seven outermost regions (Guadeloupe, Martinique, French Guiana, Réunion, the Canary Islands, the Azores and Madeira). Many islands, mountain areas and thinly populated regions suffer from particularly severe access problems, of which account will be taken in the allocation of resources to the "Regional competitiveness and employment" Objective through the determination of regional criteria and an increase in the maximum rate of Community finance. In addition, the instruments providing aid for rural development and fisheries will be simplified and clarified. The LEADER+ Initiative, which supports innovative development strategies in rural areas, will be fully incorporated into general programming.

The complementarity of regional policy with the other Community policies is a key factor in economic and social cohesion. The innovation policy, education and training, equal opportunities for men and women and public procurement all have a territorial impact and coherence between competition and cohesion is a vital element. Regions whose development is lagging behind will remain eligible for state aid, as will the outermost regions for a transitional period. For the other regional programmes, the Commission is proposing to scrap the current system with its detailed map of areas eligible at sub-regional level. There will be consistency at the level of the priorities to be financed.

Reforming the management of the Structural Funds

The procedures for managing regional policy affect its efficiency. They impose uniform and tough rules. Programming, the partnership, part-financing and evaluation will remain the general principles of the future regional policy. Possible improvements to increase the utilisation of appropriations include:

• A strategy increasingly based on the Union's priority objectives.This strategy will be based entirely on the objectives set at Lisbon, Nice and Göteborg. It will also increase consistency with the main thrusts of economic policy (BEPG 2003). Each year, the European institutions will consider the progress made on the basis of a report from the Commission.
• Simplified management increasingly based on subsidiarity.In programming terms, each Member States will prepare a policy document on its development strategy to serve as a basis for the adoption of the regional and national programmes. The programme complement and management by measures will disappear. The number of Funds is limited to three (ERDF, ESF and the Cohesion Fund) and each programme will be financed by one Fund only. For investments in the fields of transport and the environment, a single programming system will link the ERDF and the Cohesion Fund.Expenditure will be governed by rules on eligibility. Payments will be made at the level of each priority and not at the level of the measures. The system of payments on account and reimbursements will continue, as will automatic decommitment under the "N+2 rule", which requires appropriations to be used within two years of programming.The extent to which the Commission is involved in inspections will depend on the Community part-financing. Under certain thresholds, the national system will suffice. However, to discharge its responsibilities for the implementation of the budget, the Commission will apply the closure of accounts procedures and financial correction mechanisms. There will also be heavier penalties and more rapid recovery of funds in the event of irregularities or fraud.The principle of additionality, under which Community resources must be over and above national resources, remains one of the key principles of the cohesion policy. The Commission will ensure that it is applied to programmes under the "Convergence" Objective.Finally, improved cooperation among the Member States, the local authorities, the social partners and civil society will consolidate the partnership. A greater role for the European Investment Bank (EIB) will improve the mobilisation of modern forms of financing, such as venture capital.
• The concentration of resources will benefit the poorest Member States and regions, particularly in the new Member States.The Commission is proposing to abandon the present system of micro-zoning. For the "Regional competitiveness and employment" Objective, concentration will be at the levels of financial intensity through the introduction of minimum thresholds and of the three priorities announced: innovation and the knowledge economy, access and public services, preservation of the environment and hazard prevention.
• Higher priority for results and quality.Evaluation before, during and after programmes is a vital element of their quality. The Commission is also proposing a Community performance reserve to reward the best performing Member States and regions. It hopes that the Member States will do likewise in order to cope rapidly with sectoral or local crises.The communication on the financial perspective proposes the establishment of a special instrument, the growth adjustment fund to permit a rapid reaction to economic recessions and trade crises. The Commission is proposing resources of 1 billion for this instrument from appropriations left unused by the ERDF and the ESF.

The Commission is basing its proposals on the socio-economic situation of the Union and the study of the impact of the regional policy, the other Community policies and the national policies. See the relevant SCADPlus factsheet.

For further information, consult the INFOREGIO website of the Directorate-general for regional policy:

• the whole of the Third Report on economic and social cohesion;

RELATED ACTS

Second progress report on economic and social cohesion [COM(2003) 34 final - Not published in the Official Journal].

See the relevant SCADPlus factsheet

First progress report on economic and social cohesion [COM(2003) 46 final - Not published in the Official Journal].

See the relevant SCADPlus factsheet

"Unity, solidarity, diversity for Europe, its peoples and its territory" - Second Report on economic and social cohesion [COM(2001) 24 final - Not published in the Official Journal].

See the relevant SCADPlus factsheets: progress and assessment; conclusions and recommendations; 10 questions for discussion.

Last updated: 20.04.2004