Select Committee on European Communities Thirtieth Report


  9.    The Commission's proposals for the reform of the Structural Funds and the Cohesion Fund are set out in a series of documents. These are summarised in the following paragraphs.


  10.    The Commission's proposals aim to improve the future operation of the Funds and reform them to facilitate enlargement. To improve efficiency, this includes:

  • restricting the Community Initiatives from 14 to three (trans-national, cross-border and inter-regional co-operation; rural development; and trans-national co-operation to combat employment discrimination;
  • concentrating the Funds by reducing the coverage of the geographically targeted element of the Funds from about half of the EU15 population to around 35-40 per cent.

They also propose consistency in future between the Objective 1 and Objective 2 areas and the areas covered by Article 92(3)(a) EC in respect of national regional state aids.

  11.    For Objective 1 the Commission proposes:

  • strict application of the current eligibility criterion, which is that recipient regions should have a per capita GDP of below 75 per cent of the EU average;
  • the regions eligible under Objective 1 should account for no more than 20 per cent of the EU population, compared to the current figure of 25 per cent;
  • inclusion of the outermost regions (French overseas departments, Azores, Madeira and the Canary Islands) above this figure and current Objective 6 areas (in Sweden and Finland) which would not otherwise qualify for the new Objective 1;
  • Objective 1 areas should receive about two-thirds of the Structural Funds resources set aside for the EU15;

  12.    For Objective 2, the Commission plans:

  • to direct funding to industrial, rural, urban and fisheries areas facing restructuring and which meet certain criteria. This proposal would in effect replace the current Objectives 2 and 5b, and concentrate support on 18 per cent of the EU population, significantly less than at present. This could particularly affect the United Kingdom which has a significant proportion of its population covered by the current Objectives 2 and 5b;
  • a principal eligibility criterion of an unemployment rate above the EU average at NUTS level 3;[4]
  • a "safety net" would ensure a fair contribution to this concentration from Member States by limiting the reduction in population coverage (including the areas losing Objective 1 but eligible for Objective 2) to one-third of Objective 2 and 5b coverage in 1999;
  • transitional periods of four years for currently eligible Objective 2 or 5b areas which lost eligibility.

  13.    The Commission proposes that "the population covered by Objective 2 over the whole period 2000-2006 should be no more than 18 per cent of the Union figure."[5] The Commission specifies indicative allocations of the EU Objective 2 population coverage for industrial (10 per cent), rural (5 per cent), urban (2 per cent) and fishing areas (1 per cent), and that the combined population covered by the main industrial and rural criteria within each Member State should be at least half of the total eligible population for Objective 2, where this is possible. It is proposed that for each Member State the Commission would fix a population ceiling for Objective 2 based on the unemployment criterion, Member States would make proposals for areas based on suggested socio-economic criteria—levels of industrial employment, population density, levels of activity in agriculture and in the fishing industry, and social exclusion as well as criteria proposed by the Member State.

  14.    Objective 3 is a new Objective, to be part-funded by the European Social Fund. It would provide for human resources programmes in areas outside the new Objectives 1 and 2 and a general frame of reference for these policies throughout a Member State.

  15.    Proposed measures to improve the Funds administration are:

  • broadening partnerships within Member States;
  • decentralising the management of the Funds to Member States;
  • more stringent monitoring, evaluation and financial control within Member States.

The Commission also proposes holding back 10 per cent of the money to be allocated to Objectives 1, 2 and 3 so it can be used as a mid-term performance reserve, to be allocated to programmes which are judged to be performing "well or very well." The Commission also states that "programmes in Member States where undertakings with regard to additionality have not been respected will experience a reduction in favour of other programmes."[6]


  16.    The new ERDF implementing regulation proposes few changes but underlines some existing priorities in innovative business development and investment, local economic development, research and technological development and employment initiatives.

  17.    The ESF proposal builds on the Employment provisions to be introduced by the Amsterdam Treaty and includes the development of annual national action plans for employment. The Commission is looking for policy emphasis in five broad areas within the employment guidelines (social inclusion, lifelong learning to promote employability, active labour market policies to fight unemployment, anticipating and facilitating economic and social change, promoting equal opportunities in the labour market) rather than specific programmes with additionality criteria.

  18.    The fisheries Regulation also proposes the establishment of an affiliation between the common fisheries policy and economic and social cohesion policy. Under the latter the FIFG would contribute to programmes under the new Objectives 1 and 2. The EAGGF Guarantee Fund would provide structural measures outside Objective 1 and 2 areas[7], and support measures for the restructuring of fleets outside Objective 1 areas.

  19.    Proposed support for rural development from the EAGGF is set out in a draft rural development regulation under the CAP proposals (COM(98) 158).


  20.    This document proposes amendments to the existing Cohesion Fund regulation to:

  • enhance financial management provisions by greater use of private matched funding;
  • apply the polluter pays principle;
  • place greater responsibility on Member States for financial control.

  21.    The Commission proposes that, whether or not countries join the third stage of EMU, they should continue to be eligible for the Cohesion Fund, so long as their per capita GNP remains below 90 per cent of the EU average and they meet the criteria in Article 104c EC. This would be likely to have the effect of Spain, Portugal and Greece remaining eligible for support from the Cohesion Fund for the indefinite future, provided they met the deficit criterion.


  22.    If the Structural Funds and the Cohesion Fund were extended without reform to the new Member States, total costs could more than double. It is proposed that the budget for structural operations, as a proportion of EU GNP, be maintained at the 1999 level of 0.46 per cent, that is EUR 287 billion (1999 prices), of which EUR 40 billion would represent the costs of the Funds in the new Member States once they had joined, and forms the margin for enlargement.[8] In effect, the Commission has continued with the numbers in the July 1997 communication, inflating them by 4 per cent in the move from 1997 to 1999 prices.[9]

  23.    The current EU15 would have EUR 218.4 billion available for structural measures. The Commission's suggested commitments under the Structural Funds for the present EU15 suggests a decline from EUR 39 billion in 1999 to EUR 32 billion in 2006. This is to be achieved by a combination of strict application of the 75 per cent of EU per capita GDP for future Objective 1 regions and a reduction in the population coverage of Objective 2. This is likely to result in all or most existing Member States (including the United Kingdom) facing smaller gross allocations than in 1999, and thus either higher net contributions to, or lower net receipts from, the EU budget.

  24.    As yet the Commission has not published estimates of the consequences for individual Member States or regions and has said that the data will not be available until the autumn at the earliest.

  25.    The share proposed for the Cohesion Fund amounts to EUR 21 billion. For the Cohesion Fund the Commission is proposing a flat amount of EUR 3 billion in each year. This would mean a continuation of the Cohesion Fund at the 1999 level.


  26.    This Report was written at an early stage of what are likely to be long and complicated negotiations on the Commission's proposals. The European Summit in Cardiff on 15 and 16 June 1998 discussed the timetable for the whole of the Commission's "Agenda 2000" package of proposals for structural, budget and agricultural reforms. The European Council hoped that substantial progress would be forthcoming at the Vienna European Council in December 1998 in order to ensure that political agreement could be reached on all measures by March 1999, under the German Presidency. Much of the package of proposals is subject to the co-decision procedure with the European Parliament, for which elections will be held in June 1999. In practice, if agreement cannot be reached by April 1999, the process will be postponed until after the new Parliament convenes in the autumn.

3   Seven years is the full span of the period 2000-2006. Back

4   NUTS-the Nomenclature of Units for Territorial Statistics-provides a breakdown of the European Union's territory for producing regional statistics which are intended to be comparable across the Union. There are five hierarchical NUTS levels, built up from administrative units such as local government areas in the Member States. Further information is given in Appendix 4. Back

5   COM(98) 131 Final, p 15. Back

6   COM(98) 131 Final, p 27. Back

7   ie the current Objective 5a. Back

8   On 20 July the Financial Times published the closing mid point synthetic Euro exchange rate with the pound sterling as 0.681771. Back

9   Department of Trade and Industry Explanatory Memorandum on document COM(98) 131 Final, paragraphs 27-28. Back

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