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The European Union

The European Union. Economics & Policies Regional and Social Policy. European Regional Policy. 1996 GDP per capita 10 richest regions 3.1 times the higher then the bottom 10 This is twice the level found in the US 1997 Unemployment 10 best regions: on average 3.6%

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The European Union

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  1. The European Union Economics & Policies Regional and Social Policy

  2. European Regional Policy • 1996 GDP per capita • 10 richest regions 3.1 times the higher then the bottom 10 • This is twice the level found in the US • 1997 Unemployment • 10 best regions: on average 3.6% • 10 worst performing regions: 28,1% Tom Verbeke

  3. Tom Verbeke

  4. Tom Verbeke

  5. European Regional Policy • The regional problems are extremely divers • 1994-9: 4 main types of problems • Lagging regions • GDP < 75% of EU Average • Objective 1 • Declining industrial areas: objective 2 • Certain rural areas: objective 5b • Sub-artic regions (objective 6) Tom Verbeke

  6. European Regional Policy • Core-pheriphery pattern • A high percentage of more prosperous regions lie at the geographical center • The golden triangle • The centralizing is probably the outcome of two sets of countervailing forces: • One set tends to cause convergence • The other divergence Tom Verbeke

  7. European Regional Policy • Convergence: a series of automatic equilibrating processes which occur in a freely functioning market • Free trade in goods and services will lead to regions specialising in the production and the export of goods and services in which they have a comparative advantage • These effects are reinforced by the free movement of factors of production Tom Verbeke

  8. European Regional Policy • Divergence forces • Economies of scale: conentration of production at larger plants can lead to great efficiency gains • Localization and agglomeration economies • Localization economies: firms in the same industry locate close to one another • Agglomeration economies: firms from different industries locate close to one another (transport or financial facilities) • Intra-industry trade and dominant market positions: modern trade theory questions the ability of regions to share equally in the growth associated with freer trade. Intra-industry trade has shown the most rapid growth among more prosperous regions. Tom Verbeke

  9. European Regional Policy • Lack of competitiveness in peripherical regions due to poor location, weak infrastructure, low-skill labour forces, local tax, ... • Selective labour migration: • the freeing of labour mobility stimulates migration from peripherical regions towards the core • Migration is selective: the yound and skilled • Currency: nations with peripherical regions could realign exchange rates but as those realignments became less frequent, peripherical regions were especially hurt Tom Verbeke

  10. European Regional Policy • Evidence from the US: • Long term integration is associated with convergence of regional disparities rather than divergence • Convergence forces eventually come to predominate • BUT: US has a larger central budget Tom Verbeke

  11. European Regional Policy Tom Verbeke

  12. European Regional Policy • Structural Funds • European Regional Development Fund • European Social Fund • EAGGF-Guidance • Financial Instrument for Fisheries Guidance Tom Verbeke

  13. European Regional Policy • Structural funds were given the task collectively to attain six priority objectives: • Objective 1: ERDF, ESF, EAGGF and FIFG • Objective 2: ERDF and ESF • Objective 3 • Long term unemployment • Facilitating the integration of young people • ESF Tom Verbeke

  14. European Regional Policy • Objective 4: • Facilitating the adaptation of workers to industrial changes and to changes in production systems • ESF • Objective 5: • (a) adjustment of agricultural structures (EAGGF and FIFG) • (b) development and structural adjustment (ERDF, ESF and EFGGF) • Objective 6: extremely low population density (ERDF, ESF, EAGGF and FIFG) Tom Verbeke

  15. European Regional Policy Tom Verbeke

  16. European Regional Policy • Community initiatives have been wide ranging and included: designed to tackle specific problems • RECHAR (coal mining areas) • RESIDER (iron and steel areas) • PESCA (fishing communities) • INTERREG (cross-border initiatives) • ... Tom Verbeke

  17. European Regional Policy • Cohesion Fund • Assist NATIONS with a GDP of less then 90% of average EUROPEAN GDP • Greece, Ireland, Portugal and Spain • 3 billion EURO’s in 1999 Tom Verbeke

  18. European Regional Policy • 4 principles of EU Regional Policy • Multi-annual programs • Partnership • Subsidiarity • Additionality Tom Verbeke

  19. European Regional Policy • Assistance through multi-annual programmes • Key to the development of each programme is the drawing up of a Single Programming Document (SPD) or Community Support Framework (CSF) • Strategic plans • Responsibility of the regional and local organisations • Contains an analysis of the strenghts and weaknesses of the region together with a development strategy and an analysis of how it should be financed • Typically a group of projects Tom Verbeke

  20. European Regional Policy • Partnership • The EU is committed to the maximum devolution of power (subsidiarity) • Strong dialogues between all partners at all levels • Additionality • Some governments have been accused of responding to EU funding with cutting back own expenditure Tom Verbeke

  21. European Regional Policy • ERP and the future • Enlargement: • Challenge to the structural funds: • Virtually all of the CEEC countries are eligible for the highest rates of the structural funds (only two regions had GDP per capital in excess of 75% of EU average: Prague and Bratislava) • Challenge to the CAP • Countries such as Poland and Hungary have large agricultural activities in those areas with high intervention prices Tom Verbeke

  22. European Regional Policy • Estimated extra costs for the structural funds: 13 billion ECU per annum • Financial perspective 2000-6 (Berlin) • Pre-accession aid: 3.12 billion EURO untill 2006 • Post-accession allocations • Start at billion 6.45 billion EURO per annum • Rise to 16.78 billion EURO by 2006 Tom Verbeke

  23. European Regional Policy • Changes to the current system • Reduction in the areas eligible for assistance • The 6 priority objectives have been cut back to three • New Objective 1: Lagging regions • Old Objective 1 • Objective 6 • Coverage has dropped from 25% to 20% of the population of EU15 Tom Verbeke

  24. European Regional Policy • New Objective 2: Economic and social conversion of Regions in Structural crisis • Coverage is reduced from 25% to 18% of the population of the EU15 • New Objective 3: Human resources • Objective 3 and 4 • Regions not covered by objective 1 and 2 • Community initiatives have been reduced from 13 to 3 and their budget from 9% to 5% Tom Verbeke

  25. European Regional Policy • EMU: • Convergence criteria • Edinburgh Summit: increase structural funding • Add Cohesion Fund • 2000-... • Structural funds will have to cope with regional impacts of eastern enlargement as well as with the impact of the new strains imposed by the full monetary union Tom Verbeke

  26. European Regional Policy • The issue of under-funding • Structural funds are small: 0,46% of European GDP • No redistributive transfers • Australia, Canada, Switserland or the US: about 40% of regional income differentials are eliminated through regional transfers • Equalisation of disparities of equal opportunities • Given the issue of under-funding what should the primary task of European Regional Policy be: • A policy designed to prop up depressed areas • A policy designed to allow depressed areas to compete on an equal footing with other areas Tom Verbeke

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