Second progress report on economic and social cohesion

1) OBJECTIVE

To update the data on economic and social cohesion presented in the first progress report of January 2002, to give a summary of the debate concerning the future of regional policy after 2006 and to indicate how the Structural Funds will support the future Member States as from their accession.

2) ACT

Commission Communication of 30 January 2003 - Second progress report on economic and social cohesion [COM(2003) 34 final - Not published in the Official Journal].

3) SUMMARY

1. Every three years, the Commission produces a "report on the progress made towards achieving economic and social cohesion" and on the manner in which the Community policies have contributed to it (Article 159 of the Treaty establishing the European Community). The second report on economic and social cohesion, published in January 2001, had two objectives:

• to analyse the development of economic and social cohesion in a Union of 27 Member States;
• to start a debate on the future of European cohesion policy.

2. Since then, the European Commission has published, in January 2002, a first progress report which updates the data collected in the Second Cohesion Report for a Europe of 25 and gives an initial assessment of the debate. In January 2003, the Commission presented a second progress report. Taking account of the most recent data on the gross domestic product (GDP) and the unemployment rate, this report deals again with the two topics discussed in the previous reports. Moreover, it indicates how the Structural Funds will intervene during the two-year-period following enlargement (2004) and the end of the current programming period (2006).

SITUATION AND TRENDS

3. Despite the fact that economic growth slowed down significantly in 2001, the general trend towards economic convergence is confirmed in the current European Union. The "cohesion countries" (Spain, Greece, Portugal and Ireland, which are eligible for the Cohesion Fund) continue to catch up with their the other Member States. The GDP of Ireland has risen from 64 % of the Community average in 1988 to 118 % in 2001. While regional disparities remain unchanged on the European level, they have grown within the Member States. Moreover, statistics show that the economic catching up is a long-term process.

4. In terms of employment, a slower growth in 2001 within the Europe of 15 combined with a constant decrease in employment for five years in the candidate countries is causing a widening of regional disparities. Three million new jobs will be needed if the average level of employment in the future Member States is to be aligned on that of the EU of 15. The level of education will rise in the enlarged Union. Employment is going to increase in the agricultural sector, stagnate in industry and decrease in services.

5. In a Union of 25, three groups of countries can be distinguished:

• the eight poorest future Member States whose per capita GDP is approximately 40 % of the average in the Community of 25: Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Czech Republic, Slovakia;
• an intermediate group involves countries between 71 % and 92 % of the Community's average GDP: Cyprus, Spain, Greece, Portugal, Slovenia;
• the rest of the existing Member States with an average per capita GDP close to 115 % of the average EU.

6. With enlargement, the regional disparities will nearly double. Forty-eight regions in the existing Member States (18 % of the total population, i.e. 68 million inhabitants) have a per capita income less than 75 % of the Community average. In a Union of 25, the number of such regions will be 67 (25 % of the population, i. e. 116 million persons), two-thirds of which are situated in the new Member States. Only 30 regions in the current Member States (12 % of the population, i.e. 47 million) would remain under the threshold of 75 % and would thus be considered as "less-favoured areas". According to the figures of 2000, the 18 regions which would lose their status by simple "statistical effect" are the following: Brandenburg, Mecklenburg-Vorpommern, Dresden, Halle, Magdeburg and Thüringen (Germany); Burgenland (Austria); Itä-Suomi (Finland); Asturias, Murcia and Ceuta y Melilla (Spain); Basilicata (Italy); Madeira (Portugal); Hainaut, Namur (Belgium); Merseyside, West Wales, South Yorkshire (United Kingdom). Nevertheless, the data to be used in 2006 are not yet available and this list has a merely indicative character.

New indicators and studies carried out

7. New indicators on technological progress confirm that southern European countries are lagging behind in terms of technological innovation. Finland, Sweden and Germany file double the number of patents per million inhabitants than the European average, whereas in Ireland, Italy, Spain, Greece and Portugal it is fewer than half the European average. Disparities are even more serious in the leading-edge technologies sector: expenditure related to research and development exceeds the threshold of 3 % of the GDP in 17 regions, out of which ten in Germany, two in Finland, two in France, and one each in the United Kingdom, Austria and Sweden. Among the candidate countries, the highest investment in this field is in the Czech Republic and Slovenia.

8. The results of the Commission study (pdf) on the economic impact of Objective 1 between 2000 and 2006 are encouraging. The allocated funding steps up significantly the economic growth of the regions receiving assistance, but it also has a "knock-on effect", with one quarter of the expenditure benefiting other areas in the European Union.

9. Other studies deal with the territorial and human factors of cohesion: two of them give an overview on the situation of island and mountain areas, two others analyse the role of individuals in regional development and the emergence of a knowledge and know-how based economy. The first results of the study on islands are as follows: 10 million Europeans live in 286 European islands, out of which 9,5 million in the Mediterranean (Sicily, Crete, the Balearics and Corsica); 87 % of the EU island population is covered by Objective 1; islands with the smallest population (less than 5000 inhabitants) face most difficulties.

DEBATE ON THE FUTURE OF COHESION POLICY

The issues most widely discussed

10. The main discussion topics concerning the future of the regional policy are the following:

• priority to the least developped regions;To define these regions, it is widely accepted to use the criterion of 75 % of the Community's average GDP applied at NUTS II level given its transparency and simplicity of calculation. Additional criteria may apply together with the inclusion of specific areas (islands, outermost regions, very sparsely populated regions) in this category.For the 18 regions concerned by the "statistical effect", a fair arrangement is necessary.
• aid outside regions whose development is lagging behind should continue;A thematic approach could be applied throughout the territory. A territorial approach could focus on areas suffering from special handicaps (urban areas, rural areas, areas dependent on fishing or cross-border areas). Zoning no longer seems to be appropriate.
• the exchange of experience and cooperation has a beneficial impact;At cross-border level, a legal instrument may be necessary.
• the simplification of procedures for policy implementation is broadly agreed upon;
• a greater contribution from other Community policies to economic and social cohesion is desirable.

Within the institutions

11. The Council welcomed the first progress report on economic and social cohesion. The delegations of Member States felt that aid to the least developed regions should remain a priority, but the eligibility criteria of this assistance as well as its use should be discussed. Community assistance in other regions remains necessary and should concentrate on measures offering high Community value added. In terms of financial effort for the future cohesion policy, the Spanish presidency (1st half of 2002) thought the threshold of 0,45 % of Community GDP to be a good reference point, other delegations, on the other hand, will take position on the issue at a later stage. Furthermore, voices calling for a certain "renationalisation" of the regional policy do not seem to have gained ground.

12. During their meeting of 7 October 2002, the Ministers responsible for regional policy expressed their wish for a greater simplification and decentralisation of responsibilities as regards all aspects of financial management and control of European programmes. Enlargement will aggravate tensions between the double need for a more decentralised implementation, on the one hand, and the need for more effective control of financial flows on the other. This development must be carried out in the light of Article 274 of the EC Treaty which gives the Commission responsibility for budgetary execution.

13. On 6 November 2002, the European Parliament adopted an opinion on the first progress report. It supports the Commission's position on the following points: the maintenance of a strong cohesion policy based on partnership, the threshold of minimum financial effort (0,45 % of the Community GDP), aid to areas with specific handicaps and greater cross-border cooperation. It also refers to the need to take account of other indicators (than per capita income) to determine the eligibility under the Structural Funds, to simplify the procedures and to strengthen the administrative capacity of the candidate countries. It asks the Commission to set out a time frame to ensure that programming for the period 2007-13 can be implemented from 1 January 2007 and to make concrete proposals on the future of Objective 2 and the Community Initiatives.

14. The European Economic and Social Committee has issued two opinions in favour of maintaining a strong regional policy after 2006 ["EU's Economic and Social Cohesion Strategy" - Official Journal C 241, 07.10.2002]. In agreement with the Parliament, the Committee is in favour of raising the threshold, which is set at 0,45 % and adopting an open method of coordination to deal with the economic and social problems which the Objective 2 regions are encountering.

15. In its opinion of 10 October 2002 on the first progress report [Not published in the Official Journal], the Committee of the Regions underlines as well the importance of assistance for less-developed regions, the coordination of Community policies and the simplification of procedures. It stresses the need to introduce a transitional support period for regions affected by the "statistical effect" of enlargement.

At the seminars of the Commission

16. The seminar on the Community added value of regional policy took place on 27 and 28 May 2002. It brought together more than 600 participants from the Member States and candidate countries. Priority to regions whose development is lagging behind, maintenance of aid outside these regions, simplification of procedures and the importance of cross-border cooperation were widely agreed upon. In the perspective of a regional policy within an enlarged Union, the role and responsibility of the Commission would have to be clarified, in particular through the elaboration of tripartite contracts between the Commission, the Member States and the regions.

17. Six hundred people involved in the URBAN II programme gathered in London on 8 and 9 July 2002 and noted the important contribution of this Community Initiative to urban development. It encourages a high degree of partnership and constant learning through visible interventions in the field. Local parties underlined the need to continue and step up assistance to cities, in particular in the following fields: housing, exchange of experience and networking.

18. Within the framework of the International Year of the mountains, a seminar on "Community policies and the mountain areas", held on 17 and 18 October 2002 in Brussels, brought together 500 participants from the Member States, candidate countries and elsewhere. The seminar reiterated the need for specific projects and the added value of cross-border cooperation.

2004-2006: PREPARATION FOR ENLARGEMENT

19. The Copenhagen European Council concluded the accession negotiations, thus paving the way to the accession of ten new Member States from 1 May 2004. The successful integration of these States into the enlarged Union is from now on an a key political priority. The Fifteen have thus allocated EUR 21,7 billion as additional resources for 2004-2006, though this amount is still inferior to the ceiling fixed in 1999 at the European Council in Berlin under Agenda 2000.

20. As identified in the regular reports of October 2002 on the preparation of the candidate countries, the most important problems concern the administrative capacity to absorb the funds provided and the implementation of financial control procedures. A final overall assessment of the preparation of the 10 future Member States is to take place six months before the actual enlargement. From now on, the future Member States have to overcome their weaknesses and finalise the programmes that they will implement from the first day of accession under the Structural and Cohesion Funds. They are also going to participate in the Community Initiatives INTERREG III and EQUAL.

21. Conscious of the challenge of enlargement concerning regional policy, the Commission will elaborate, taking account of the proposals emerging from the debate, its overall proposals together with a draft of financial perspective for a cohesion policy after 2006. These will be included in the Third Cohesion Report foreseen for the last quarter of 2003.

22. For more information on the Cohesion Reports consult:

• SCADplus factsheet on the second report on economic and social cohesion;
• SCADplus factsheet on the first progress report on economic and social cohesion;
• SCADplus factsheets on the third report on economic and social cohesion: the socio-economic situation of the Union and the impact of European and national policies, proposals for regional policy after 2006.

Last updated: 20.10.2004