Although the European Union is one of the richest parts of the world, there are striking internal disparities of income and opportunity between its regions. The entry of 10 new member countries in May 2004, whose incomes are well below the EU average, has widened these gaps. Regional policy transfers resources from affluent to poorer regions. It is both an instrument of financial solidarity and a powerful force for economic integration.
The two words, solidarity and cohesion, sum up the values behind regional policy in the EU:
- solidarity because the policy aims to benefit citizens and regions that are economically and socially deprived compared to EU averages.
- cohesion because there are positive benefits for all in narrowing the gaps of income and wealth between the poorer countries and regions and those which are better off.
Big differences in prosperity levels exist both between and within member states. Even before enlargement, the ten most dynamic regions of the EU had a level of prosperity, measured by GDP per capita, which was nearly three times higher than the ten least developed regions. The most prosperous regions are all urban - London, Hamburg and Brussels.
The dynamic effects of EU membership, coupled with a vigorous and targeted regional policy, can bring results. The gap between richest and poorest regions has narrowed over the years. The case of Ireland is particularly heartening. Its GDP, which was 64% of the EU average when it joined 30 years ago, is now one of the highest in the Union.
One of the current priorities is to bring living standards in the new member states closer to the EU average as quickly as possible.
Inequalities have various causes. They may result from longstanding handicaps imposed by geographic remoteness or by more recent social and economic change, or a combination of both. The impact of these disadvantages is frequently evident in social deprivation, poor quality schools, higher unemployment and inadequate infrastructures.
The Regional Fund helps finance the Athens metro. The EU policy to reduce regional disparities is built on four structural funds:
- the European Regional Development Fund;
- the European Social Fund;
- the section of the EU’s common agricultural fund devoted to rural development;
- financial support for fishing communities as part of the common fisheries policy (CFP).
These funds will pay out about €213 billion, or roughly one third of total EU spending, between 2000 and 2006.
A further €18 billion is allocated to the Cohesion Fund, set up in 1993 to finance transport and environment infrastructure in member states with a GDP less than 90% of the Union average at the time (Greece, Ireland, Spain and Portugal).
With enlargement, the area and population of the Union has expanded by 20% while GDP has increased by less than 5%. The GDP of the newcomers varies from about 72% of Union average in Cyprus to about 35-40% in the Baltic States (Estonia, Latvia and Lithuania). The Union has created tailor-made financial programmes for the period 2000-2006 to help the newcomers adjust to membership and to start narrowing the income gap with the rest of the Union.
These programmes are worth about €22 billion in all, with further funding now available for the post-entry period. The components are:
- ISPA (the Instrument for Structural Policies for Pre-accession) finances environment and transport projects with a budget of €7.28 billion;
- Sapard (Special Accession Programme for Agriculture and Rural Development) concentrates on agricultural development with a €3.64 billion budget.
They are additional to the older Phare programme whose budget for 2000-2006 is €10.92 billion and whose priorities are to:
- strengthen the administrative and institutional capacity of new members. This accounts for 30% of its budget.
- finance investment projects - which absorb the remaining 70%.
To supplement these programmes, the Union has set aside a further €23 billion from the structural and cohesion funds to be spent in the new member states in the period 2004-2006.
The European Commission has already (in July 2004) published its proposals for a new-look and more integrated regional policy for the period 2007-2013 after present programmes run out. Procedures will be simplified and funding concentrated on the most needy regions of the 25 member states. For the new period, the Commission proposes a regional policy budget of €336 billion, still the equivalent of one third of the total EU budget.
The idea is to divide the spending into three categories. Of the total amount, 79% would go on reducing the gap between poor and richer regions while 17% would be spent on increasing the competitiveness of poor regions and creating local jobs there. The remaining 4% would focus on cross-border cooperation between frontier regions.