ENLARGEMENT
98. Enlargement, when
it takes place, will bring into the EU countries with an average
GDP per capita well below that of the poorest present Member
State. To assess the impact of enlargement on the structural
policies of the EU a number of questions need to be considered:
when will the first wave of enlargement take place; which countries
will be involved; what will be their economic and social needs
in terms of reducing disparities in line with the EU's treaty
commitments to cohesion policies; what funding will this require;
at what rate can funding be absorbed by the new entrant countries;
what will be the impact on the funds available for structural
purposes in the existing EU15?
99. The evidence we
received on these large topics seemed to be based on widely differing
assumptions. One was that the cohesion needs of the new Member
States could be met only by a substantial reduction of the monies
devoted to the CAP. Another attitude-a sub-text rather than an
assumption-was that there should be no reduction in funds flowing
to the present recipients. Another discernible sub-text in some
memoranda was that there should be a significant increase in the
size of the EC Budget. We do not think it profitable to pursue
many of these speculations. We propose to concentrate on what
we take to be the best informed views that we have encountered:
these come from the Commissioner with a particular responsibility
for structural issues, Mrs Wulf-Mathies. We were surprised that
a speech she made on 19 June 1996 to the EU Committee of
the German Bundestag did not appear to have received greater attention
and analysis in this country.
100. The key financial
elements of Commissioner Wulf-Mathies' speech[23]
were as follows. In 1999 0.46 per cent of the EU's GDP will be
available for use by the Structural Funds and the Cohesion Fund.
If this percentage were adopted for the next programming period,
2000-2006, around 37 billion ecu a year would be available compared
to the present period 1994-99 when there has been about 28 billion
ecu a year. Two consequences follow: first, the present own resources
ceiling of 1.27 per cent of GDP for the EC Budget would be maintained;
and second, there would be a 30 per cent increase in the funds
available for structural policy, without an increased burden on
the tax payer.
101. In her speech Commissioner
Wulf-Mathies went on to suggest that this money could be used
to give a substantial (sevenfold) increase in the EU support now
given to the CEECs, presently through the Phare programme[24].
This could, she said, lead to a marked pick-up in their economic
growth. There would still be scope for continuing the cohesion
policy of the EU15: support to regions with per capita
GDP of less than 75 per cent of the EC average could be maintained
in full. Some of the present Objective 1 regions would no longer
qualify under this criterion because of the improvement in their
percentage average GDP: this might apply to parts of Spain, Portugal,
Ireland and Italy but, she thought, the new German Länder
would still be likely to qualify as Objective 1 regions.
Opinion: enlargement and EMU
102. We expect enlargement
to take place not as a big bang but at various times determined
by the readiness of the incoming countries. As a first approximation
it might be estimated that the first wave, which might not take
place before 2002, would comprise the four Visegrad countries
(the Czech Republic, Hungary, Poland and Slovakia) and Slovenia.
Other accessions could follow later. According to Mrs Wulf-Mathies'
calculations the newly admitted countries and those CEECs still
pursuing their pre-accession strategies could receive substantially
increased aid for cohesion purposes without reducing the total
amount of the structural funds going to the 15 Member States which
now form the Union. We recommend that the assumptions underlying
these calculations be fully explained by the Commission so that
their validity and the credibility of their message about the
financial implications of enlargement for cohesion policy can
be tested in open public discussion.
103. Our approach
to the post-1999 period is to look first at the political realities.
On the one hand there are forces against an increase in the structural
funds. After 1999 the disciplines of sustainable convergence,
whether or not EMU goes ahead on schedule, will still be required
throughout the EU. There will be strong incentives for the Member
States which are net contributors to resist any increase in the
size of the EC Budget. The advent of EMU may, in the short term,
lead some Member States to seek to increase their domestic income
transfer payments to adversely affected regions. If this situation
were to arise, it would not, in our view, be a justification for
an increase in EU funds provided for investment in structural
development, although we can foresee that the contrary might be
argued on the grounds that EMU has made structural change more
urgent[25].
On the other hand, enlargement will increase the disparities
of development within the enlarged EU thereby creating pressures
for more spending on cohesion policy in the new Member States.
The level of funding that could successfully be absorbed by these
countries without distorting their economies is a crucial consideration.
Observation of the operation of the structural funds within the
EU15 and the operation of the Phare[26]
programme within the CEECs convinces us that recipient countries
do not have an unlimited capacity either to handle and absorb
net inflows of investment funds without damaging economic distortions
or to produce the co-financing required. We are not in a position
to form a firm view on what that absorption ceiling would be for
any individual country, but we should be surprised if it were
to exceed 4 per cent of GDP for even the best performing economies
among the CEECs.
104. Our conclusion,
based on our assessment of what is politically realistic, is that
the best assumption for planning purposes is that the EC Budget
ceiling of 1.27 per cent of EU GDP will not be increased after
1999. We also believe that the proportion of the EC Budget devoted
to cohesion policies should be increased beyond the present one
third only to the extent that the proportion going to support
the CAP is reduced.
Opinion: distribution of funds
within the EU after 1999
105. We assume, for
the reasons set out in the immediately preceding paragraphs, that
after 1999 about one third of the EC Budget will be available
for structural policies. What this will amount to in absolute
terms depends on the growth rates achieved by the EU but it seems
that these are unlikely to be significantly different from those
currently achieved. The prospect of a modest increase in the
funds available each year in the period after 1999 is no justification
for not putting in hand the radical reform of the funds which
we recommend. We now consider in more detail the new arrangements
as we think they might be after a reform based on the principles
and processes set out in paragraphs 90-92 above.
106. We do not propose
a blue-print for the reformed funds, but we make some suggestions
for further consideration by national governments and the European
Institutions. Geographical concentration is imperative. Commissioner
Wulf-Mathies' figure for population coverage of 35 per cent (see
paragraph 51 above) is, we assume, an aspiration rather than the
result of aggregating the populations of the regions of greatest
need assessed by objective economic indicators. The first questions
which we think deserve further study are what indicators should
be used and within what geographic boundaries should measurements
be averaged in endeavouring to assess economic and social cohesion.
Average GDP per capita, the criterion for Objective 1
status, and the unemployment rate, the criterion for Objective
2 status, are crude measures which do not fully reflect such relevant
factors such as the age structure of the population, the existing
capital infrastructure and the state of the labour market.
107. As to the spatial
boundaries of areas for individual measurement we see the need
to balance conflicting factors: on the one hand, the region defined
should be large enough to have a degree of economic coherence
but, on the other hand, it should be small enough to permit the
identification of pockets of deprivation within generally more
prosperous areas. In some of the wealthiest cities extremes of
poverty can be found: London and Edinburgh are no exceptions.
108. We see a need
for substantial concentration, or pruning, of themes or eligible
objectives. We formed the impression, particularly on our visits
that, at times, the potential recipients of EU funding were casting
about for ways to spend money rather than fitting deserving projects
into a properly considered strategy. Again, we do not attempt
to prescribe detail, but we recommend that the over-riding considerations
when determining eligibility criteria for projects within the
more concentrated geographical areas, which we recommended in
the preceding paragraph, should be: increasing competitiveness,
increasing sustainable employment, and adjusting skills to meet
changing labour market needs.
109. We have considered
whether the Cohesion Fund should continue as a separate instrument
after 1999. Its overtly proclaimed purpose is to assist convergence
towards the criteria for entry to EMU. At first sight, therefore,
any Member State which joins EMU no longer requires assistance
from the Cohesion Fund. However, in accordance with the principle
of continuity on which reform should be based (see paragraph 92
above), we recommend that, when one of the Cohesion countries
joins EMU, Cohesion Fund assistance to that country should be
tapered off. Others of the Four remaining outside EMU should
continue to receive assistance from the Cohesion Fund if their
GDP per capita remains below 90 per cent of the EU15 average:
we say EU15, despite the possibility of enlargement, because it
provides the basis for continuity.
110. As to the form
in which assistance should be given for cohesion purposes to the
CEECs, we think there are two rather different sets of circumstances.
The first concerns CEECs in the pre-accession period. The Phare[27]
programme is already helping them adapt to democratic market economies.
We suggest that consideration should be given to adding to the
Phare programme for each CEEC an element particularly addressed
to achieving balanced regional development within that country.
In the post-accession period we assume that new Member States
will enjoy various derogations for transitional periods extending
over several years. In this transitional period it seems to us
to be prudent to apply the EU's cohesion policies and the financial
instruments which support them with a ceiling so that the total
in-flow of EU funds should be no more than 4 per cent of the recipient
country's GDP. Our reasons for supporting such a "cap"
on net in-flows were set out above, in paragraph 103. In the transitional
period we assume that the fund for the new Member States would,
by analogy with the Cohesion Fund, have no requirement for additionality.
23
The text considered was the summary of the speech published by
the Commission in InfoRegio, August 1996. Back
24
The Phare programme was set up by the EC in 1989 following the
collapse of the communist regimes in central and eastern Europe.
The acronym "Phare" is derived from the French "Pologne/Hongrie:
Assistance à la Restructuration Economique". The programme
was soon extended to cover Bulgaria, the Czech Republic, Romania
and the Slovak Republic and later to include Albania, Estonia,
Latvia, Lithuania, Slovenia and Croatia. The programme is intended
to help the recipient countries transform their economies and
strengthen the democratic basis of their economies. For the countries
applying to join the EU the programme is intended to help them
create the conditions required for future membership of the EU.
The programme covers a wide range of sectoral activities including
infrastructure development (energy, transport and telecommunications),
education, health, training, research, private sector development
and enterprise support and environmental development and protection.
For 1997 the Draft general Budget of the EC provides appropriations
for the Phare programme of about 1 billion ecu. Back
25
See paragraph 134 of An EMU of `Ins' and `Outs', Session
1995-96, 11th Report, HL Paper 86. Back
26
See footnote 24. Back
27
See footnote 24. Back
