Examination of Witness (Questions 100-116)
Professor John Bachtler
29 JANUARY 2008
Q100 Chairman: Professor Bachtler, it is good
of you to come. May I say by way of introduction that the discussion
is on the record. We are being recorded for webcast. You will
receive a transcript of whatever is said during the session and
you will have an opportunity to correct it. Thank you very much
for coming. Would you prefer that we just started asking questions
or is there a general opening statement you would like to make?
Professor Bachtler: I am happy for you to start asking
questions.
Q101 Chairman: With the Chairman's
prerogative, I will have the first warm-up question. What do you
see as the major differences between the 2006-2013 and the earlier
Structural Funds programmes in the areas of the allocation and
disbursement of funds and the aims and objectives of Cohesion
policy?
Professor Bachtler: In short, the geographical
distribution of funding has shifted eastwards, and the thematic
orientation of funding is apparently focusing much more on areas
of research and development and entrepreneurship. Perhaps I could
explain each of those in turn. Firstly, in terms of the spatial
distribution of funding, clearly with the accession of much poorer
Member States, the focus of the funds has moved very significantly
to central and eastern European countries, although more than
half of the funding is still being allocated to the old Member
States, the EU-15. What has essentially happened is that the funding
in the old Member States has gone down on average by about one-third.
The degree of change varies from country to country. Ireland and
Spain took very significant cut-backs, but overall the EU-15 change
is just over one-third of a reduction. In the new Member States
obviously the reverse has happened. There are very significant
increases, a doubling of funding allocations overall, but again
it has varied from country to country. Poland is of course the
key country where over €60 billion is being spent; something
like one-fifth of the whole Cohesion policy budget is going to
Poland. A lot depends on what happens there. The way in which
funding was allocated used the same formula as was used in 1999;
it is called the Berlin formula, which essentially gives more
money to the poorer countries, so there is an inverse relationship
between allocation levels and GDP per head. However, that formula
only applied in practice in the old Member States. If the Berlin
formula had applied in the new Member States, then the Cohesion
policy budget would not have been sufficient in order to provide
the scale of allocations that the formula would have given those
countries. What effectively happened was that a limit of just
under 4 per cent of GNI [Gross National Income], as a measure
of absorption capacity, as it was called, was used to limit the
allocations to the new Member States. The reasoning there, apart
from the cost, was that it would be difficult—
Q102 Lord Moser: That is 4 per cent
of what?
Professor Bachtler: The figure of 4 per cent
of national GNI, basically of national income, was the ceiling.
The amount of money that was allocated in terms of Structural
Cohesion funds to the new Member States in each country could
not exceed just under 4 per cent of GNI because that was felt
to be the maximum that these countries could absorb in terms of
their institutional capacity and systems. As a result there were
somewhat perverse outcomes in the sense that the richer countries
like the Czech Republic received more per head in terms of funding
and countries like Latvia received less. That was the main change
in terms of the spatial allocation of funding. As in 1999 for
the 2000-06 period, most of the funding was allocated to the poorest
regions, those with a GDP per head of less than 75 per cent of
the EU average. Whereas in the 2000-06 period, only selected regions
outside the poorest parts of the EU were eligible for funding—those
with higher unemployment rates for example—in the 2007-13
period the whole of the EU is eligible for funding, so not just
the poorest regions but also areas outside the poorer parts of
the EU. Outside the poorest regions, it is for national governments
to decide where they want to focus the money in geographical terms.
The second aspect of the changes in the allocation of funding
relates to the thematic focus. The EU has tried to ensure that
more funding is being allocated to what is called the Lisbon Agenda
(basically the growth and jobs or competitiveness agenda of the
EU). The way this has been done is to use rather a crude instrument
or mechanism whereby a specified percentage of expenditure under
the various Structural Fund programmes has to go to certain categories
of spending, particularly areas such as research and development,
the information society, entrepreneurship, these sorts of so-called
competitive-oriented areas of funding. It is difficult at this
stage to be precise as to what the implications of this so-called
"earmarking" mechanism are. According to European Commission
figures, what is happening in the 2007-13 period is that the amount
of money being spent on these so-called "Lisbon categories"
is trebling; in other words, there is a three-fold increase in
spending in areas like entrepreneurship, R&D and the information
society, on the basis that these should be the priorities for
the EU. In other words, to reinvigorate the EU economy, it is
believed there is a need to focus on these areas. However, this
statement carries a health warning because the European Commission
is basing their estimate of spending allocations on what the Member
States are saying in their programmes. The figures are effectively
forecasts of where the Member States and regions are going to
commit or spend the money. We cannot be certain of that spending
until after the programme period is over. To a certain extent,
there has been a bit of, shall we say, presentational classification
of expenditure so that if Member States wanted to do what they
were doing before, maybe focusing on certain areas of infrastructure
or certain generic categories of business aid, they perhaps presented
it as being more competitiveness-oriented. So there is a health
warning there. Those are the main changes in terms of where the
money is going.
Q103 Lord Woolmer of Leeds: Could
you tell us how you think the Cohesion policy in the Union has
worked to date? Has it been successful with regard to the Member
States? It has now been going for quite a few years, about 20
years. What is your view about that?
Professor Bachtler: One of the problems with
Cohesion policy is that it is so difficult to be definitive about
what the successes or failures have been, at least in quantitative
terms. If one looks at the evidence from evaluation and other
research, one can see very mixed results. When the Commission
presents its periodic reports on the effectiveness of the funding,
it relies quite heavily on macro-economic models which have been
used to project the impact of funding over the time. The Commission
also uses ex post evaluations undertaken after the programme
period is complete. Essentially, the Commission argues that if
one looks back over the last 15 to 20 years one can see that there
has been a narrowing of disparities between the poorest countries
and the rest of the EU, and between the poorest regions and the
rest of the EU. On the other hand, it is very difficult to be
definitive as to what the contribution of Cohesion policy has
been to that narrowing because there is a whole series of other
factors, such as increased openness to trade and so on, that could
play a part. If one goes down to the level of individual projects,
if one goes out into the regions and one does evaluations on individual
projects, reports show that there is a high degree of what is
called additionality; in other words, that the EU funding has
led to genuinely new things happening—additional employment
being created and projects going ahead in a faster timescale or
at a larger scale. The problem is aggregating up from the experience
of individual programmes to the Member State level or to the EU
level. If one tries to generalise across the research that has
been undertaken, some of the assessments of the totality of research
have concluded that Structural Funds have perhaps contributed
an additional 0.5 per cent of GDP growth per year in the poorest
parts of the EU and maybe between one and two million jobs during
the 1990s. There is a big difference between one million and two
million jobs, and again these are generalisations. There has also
been a fair amount of criticism in the research that has been
conducted. Indeed, some studies have found it very difficult to
find clear evidence of impact. There are three factors which come
through from all the research that has been undertaken as to the
problems that there have been and the difficulty in being definitive.
The first problem is that there has been an excessive focus on
infrastructure, particularly during the 1990s, with insufficient
attention being given to things like education and human capital;
in other words, a focus on building the infrastructure but not
necessarily giving enough attention to the demand side or those
parts of the economy which would benefit from using infrastructure
that is put in place. Secondly, a lot of emphasis has been put
on attracting inward investment or attracting economic activity
into the poorer regions and it has not always been the right sort
of inward investment. Thirdly, and perhaps the most important
factor, there has been insufficient attention given to what is
called institutional capacity; in other words, having the administrative
organisations and systems in place to be able to make best use
of the money: to plan, to draw up good strategies, to ensure that
the money is being spent in the right way, and also to ensure
that the Structural Fund's spending is accompanied by other measures
such as labour market reform or aspects of deregulation. Unfortunately,
therefore it is very difficult to give a definitive answer to
your question. One other difficulty is that a lot of the research
relates to experience of Cohesion policy in the 1990s and it is
only now that the European Commission is undertaking a major evaluation
of the last period, 2000 to 2006. The experience of the most recent
period may well change this somewhat mixed assessment that we
are talking about. I have also been talking solely about the quantitative
impacts. I can say a bit more about the added value, if necessary.
Q104 Chairman: It was occurring to
me as you spoke whether you would support the use of funds to
improve administrative capacity; ie to fund improvements in the
public sector?
Professor Bachtler: Yes, I think that is absolutely
critical. That is one of the key lessons that have been learnt
from the last programme periods. Much more attention is being
given to administrative capacity in the new Member States in this
new period. One of the reasons it is so important is because a
potential area of added value of the policy is improving governance.
We can see that very clearly happening in countries like Poland
right now, that the requirements of Cohesion policy in terms of
audit, financial management, control, monitoring, public procurement,
state aids, as well as environmental sustainability, gender quality
and everything else, are actually forcing changes to domestic
systems of policy, its design and governance; ie changes are going
beyond Structural Funds to more general aspects of reform of public
management and the way institutions operate.
Q105 Lord Moser: It is quite difficult.
Structural Funds have so many purposes. It would be good to hear
from you what you regard as the central focus objectives of the
funds. It is a basic question and linked to that how things can
be improved so that they can help Member States and regions to
do even better. Then there is a question that you were beginning
to touch on, I think: the way they are delivered, where they can
be perhaps more performance-related, more friendly, et cetera.
It is a basic question of what they are for and how they work.
It is really back to basics.
Professor Bachtler: Historically, the central
objective of Cohesion policy in the European jargon has been economic
and social cohesion, by which is meant the reduction of economic
and social disparities between regions. That has been pursued
partly on the grounds of equity and on the grounds of solidarity,
in particular because it has been recognised that the process
of European integration has an unequal distribution of benefits
and costs. Cohesion policy is partly trying to compensate for
the costs of measures being taken for example to implement the
single market programme to provide for the free movement of labour,
capital and so on, or to compensate for the effect of competition
policy restrictions on state aid. In the UK for, instance, we
are much more constrained these days in terms of what we can provide
in regard to our own domestic regional aid to firms in the poorer
parts of the country. Cohesion policy has partly been seen as
compensating for that, but its core purpose has been the reduction
of socio-economic disparities. Looking at the way things are changing
now and the way things are possibly going to change in the future,
this reduction of disparities will continue to remain an important
objective, particularly because of the big development gap between
the EU-15, (the old Member States) and many of the new Member
States, in particular countries like Latvia. One can see signs
that the objectives of Cohesion policy are becoming more varied.
In the Lisbon Treaty, alongside economic and social cohesion,
there is now reference to territorial cohesion. This is a term
which is much less clear and the term "territorial cohesion"
is used in very different ways by different people, by different
governments and different interest groups. Essentially what the
European Commission and some Member States have argued is that
the challenge of convergence, the challenge of economic development,
is not restricted to economic and social issues. There is a whole
variety of policy challenges in terms of spatial differences in
educational opportunities, environment, transport, R&D and
so on. Those challenges do not always lend themselves to policy
action at the regional scale. Sometimes you need to work intra-regionally;
sometimes you need to work locally. This is where the term territorial
comes from because it is less specific to regions than the former
objectives have been. What that broadening of the remit or objective
may mean in practice is that the role of Cohesion policy becomes
much more diffuse. The policy may become involved in a variety
of policy areas, such as the ones that I outlined. One can see
that already happening now whereby the current Cohesion policy
is linked very much to the Lisbon Agenda which is very much about
promoting growth and competitiveness across the whole of the EU.
In its recent consultation exercise, the Commission has also proposed
that Cohesion policy should have a role in addressing future challenges
such as climate change or demographic issues, such as ageing or
migration, energy security, these kinds of issues.
Q106 Lord Moser: The broad objective
sounds a little bit like the way our politicians talk and I wrote
down some of the words—the broad vision, solidarity, lessening
disparity. That is all great, is it not, but you then you went
on really to explain that now almost anything fits.
Professor Bachtler: Of course in political terms
part of the rationale for this shift is to try to safeguard the
future of Cohesion policy by making it more relevant to the core
ambitions of the European Union, the core policy areas, those
which are seen as important and to prevent it Cohesion policy
only being seen as something for the poor. The aim is to ensure
that Cohesion policy is not just of interest to central and eastern
Europe, a sort of welfare policy, but that it is a policy that
is relevant also for countries like the UK, the Netherlands, Sweden,
Finland and so on and the other parts of the EU. This is part
of the thinking, but there is also a policy logic behind it, because
increasingly economic development challenges are very complex.
If you are trying to address issues like innovation or productivity
or sustainable development, you have to try to bring together
a whole variety of policy areas to work together. The European
Commission and some Member States see Cohesion policy as having
a role here to try to make these different policy areas work together
for the benefit of regions.
Q107 Lord Moser: Looked at from the
point of view of the Member States and the regions, if you were
the dictator in charge of it all, how could you make it more effective
from the bottom up rather than from Brussels?
Professor Bachtler: Maybe I could answer that
in two parts, firstly by saying what I think is wrong or what
needs to change in terms of delivery system and then how it might
be improved. Firstly, in terms of what needs to change one aspect
is that there needs to be a far greater recognition of the diversity
of economic development situations across the EU. The kinds of
issues that are being addressed in countries like Poland and other
new Member States are different from those in southern Europe,
which are different in turn from those development challenges
that we are addressing. Also, the way in which we go about regional
development in countries like the UK is now quite different from
when Structural Funds were first introduced and that needs to
be recognised if one wants to find ways for the EU to create added
value. Secondly, the system needs to have more flexibility. The
seven-year planning periods for Cohesion policy provide predictability
in terms of funding for regions of the Member States but they
do also lock in regions and countries to plans that were designed
at the start of the period. An example of that is the following.
The 2000-2006 programmes were designed in 1998-99. In the early
2000s, there was an economic downturn. Many of the programmes
had quite ambitious targets for promoting business investment,
R&D and so on and they found it a real struggle to adapt their
programmes to a new situation because the economic environment
had changed. There needs to be more flexibility within the seven-year
programme period to adapt. Thirdly, there needs to be less prescription.
On the one hand, the top-down specification of EU objectives and
themes helps to set an agenda—it provides focus, it can
encourage changes in thinking among those new Member States and
regions—but the way in which challenges like climate change
in the future, demographic ageing, migration and so on are going
to affect regions is very varied and unpredictable. There needs
to be more scope for flexibility here. Lastly, in terms of what
needs to change, I think much more emphasis needs to be placed
on what one might call policy additionality or innovation; in
other words, the EU funding being used to do something different
or do something extra. Often it seems to me that in countries
like the UK, Finland, the Netherlands, Sweden and so on—outside
the poorest regions—the money is being recycled to a certain
extent. Effectively EU money is being used to do much the same
thing as national funding, providing bigger budgets or safeguarding
budgets from being cut back. Essentially it is doing rather similar
things. I think we need to find incentives for innovation, not
just innovation in terms of R&D but innovation in doing something
different in policy terms so that Cohesion policy can really bring
added value. In terms of how one might go about that, one could
say we need a smarter Cohesion policy, a smarter way of managing
the policy; not just thinking about where the money goes and controlling
where the money goes but providing almost a toolkit of policy
support. This means having much clearer strategies at EU and Member
State levels. To a certain extent, that is now happening with
the national strategic reference frameworks. Of course financial
resources are important but, as you said, Chairman, more emphasis
needs to be placed on institutional development and the development
of human capacity; in other words, support for systems and for
people, help with designing better strategies, designing better
programmes, managing expenditure and evaluating interventions.
We also need to place much greater emphasis on knowledge transfer;
in other words, the European Commission having a role to encourage
an exchange of experience and learning about the kinds of policies
and interventions that work and those that do not work. Particularly,
as we try to deal with these challenges of encouraging innovation,
productivity, responding to climate change and so on, there could
be a far stronger role for the European Commission to improve
the flows of knowledge across borders. Lastly, there is a need
for Cohesion policy to promote co-ordination. At the moment we
have different funds: we have the European Regional Development
Fund and the European Social Fund as the main Structural Funds.
We then have a Rural Development Fund, but that is under the heading
of the Common Agricultural Policy. There are then other policy
areas that also have spatially-oriented or regionally-oriented
programmes, such as under R&D policy. There is a real need
to co-ordinate these instruments and policy areas much more. In
improving policy management we need more strategic vision; of
course we need financial resources but we need institution building,
human capacity development, knowledge transfer and co-ordination.
Those are the areas for improving effectiveness in my view.
Chairman: That is just for a start! I would now like
to switch track and ask Lord Trimble to ask you about subsidiarity.
Q108 Lord Trimble: That comes up
when thinking about what you were saying on territorial cohesion,
taking the funds in a different direction. Do the funds, particularly
with regard to that, meet the principle of subsidiarity?
Professor Bachtler: That is a good question.
The starting point is whether you believe or not that the European
Union has a valid role in the field of regional policy. If that
is accepted, then I would say that in many respects Cohesion policy
is one of the most decentralised policies that the European Union
has. The European Union uses the term "shared management",
meaning that Cohesion policy is a shared responsibility between
the European level, Member State level and sub-national level.
There is a range of partnership approaches. The degree to which
certain functions ought to be exercised at European level or Member
State level is really at the heart of your question. The problem
is that the European Commission has responsibilities that it needs
to discharge to the Council the European Parliament and the Court
of Auditors in terms of accounting for how Cohesion policy money
is spent, whereas a lot of the decisions about how the money is
spent and used are taken at Member State level. If one looks back
at the last 15 to 20 years, there has been a constant struggle
between the European and Member State level with Member States
saying that far too many decisions are being taken in Brussels,
that there are far too many constraints and we need more subsidiarity;
on the other hand, the Commission says that it has to have some
mechanism to ensure that the decisions taken at European level,
and the objectives set for the policy, are met. The trend over
the recent period has been in the direction of more subsidiarity;
in fact, the Commission probably has less influence now than it
has had since the reform of the Structural Funds in 1988. Now,
the Commission role is focused on laying down strategic guidelines.
Member States have drawn up national strategic reference frameworks
as to how those guidelines are going to be translated, and then
the operational programmes are being implemented. That framework
may be appropriate for a country like the UK with very well developed
regional policies and other institutional systems of policy management
and implementation. I would question whether subsidiarity has
gone too far in the case of a country like Poland because there,
if you talk to European and Commission officials who are responsible
for overseeing the way in which €60 billion (£40 billion)
is being spent, they have really quite limited information to
be able to determine whether that money is being spent effectively
or not because the accountability requirements in terms of the
strategic decisions are much less in this period. The main mechanism
by which the European Commission can hold Member States to account
is through the monitoring system, through the financial control
and audit system, which is not particularly satisfactory because
a lot of the controls are effectively after the event. The degree
to which there is too much or too little subsidiary varies depending
which Member State one is talking about.
Q109 Lord Trimble: If over the last
number of years the emphasis has shifted more from the Commission
level to Member State level that then raises a question which
some people have put to us by saying that what should really happen
is that these funds should be repatriated to the Member States
or the distribution of these funds should be repatriated to Member
States. What are your views on that?
Professor Bachtler: Repatriation is a term I
have some difficulty with. It sounds fine in principle but if
one assumes that there is a rationale for a Cohesion policy at
the European level and one wants those Cohesion policy objectives
followed through, not just in countries like Poland but in countries
like the UK and Finland, and one then gives the funding or one
allocates the funding to the Member State level to spend, the
question is: what guarantees does one have that that funding is
going to be spent on EU objectives rather than national objectives,
or even on national regional policy objectives as opposed to any
other national objectives? There is a question of how one ensures
that if one does repatriate, if you like, the funding, then EU
objectives which have been agreed by Member States are met. Having
said that, I think one could imagine quite a different system
from one at the moment whereby instead of the European Union effectively
determining funding for regions, essentially the system were to
be simplified. You could allocate the funding to Member States
based on some formula, say based on GDP per head, and then it
would be the responsibility of the Member State to implement programmes
or funding through its own strategies. If one were to go down
that route the key issue would be to build in some sort of mechanism
whereby there was accountability to the European Union; for example,
some sort of contract between the Member State and the European
Union defining certain outcomes that the Member State would aim
to meet in terms of aspects of innovation or employment.
Q110 Lord Trimble: In view of what
you were saying in reply to earlier questions about the way in
which there are different problems in different areas and problems
about governance in eastern Europe and a different set of problems
in southern Europe, would it not then make sense to move in the
way that you have suggested? What you then have is not just an
allocation of money to that Member State but also, as it were,
a negotiation between the Member State and the Union generally
as to what should be the priorities for that Member State in terms
of the things it is going to tackle, whether it is questions of
governance or human capital or economic competitiveness or whatever,
rather than to operate in the present regime? That is the direction
your mind is going in, I take it.
Professor Bachtler: I would say that is certainly
a valid argument because, as you say, there are these big differences.
What would be possibly a more effective route would be to say
that the task of the Cohesion policy is to strengthen support
to national regional policies; in other words, to assist the national
regional policies to work better. If you go back to that toolkit
that I was talking about earlier, in different countries you have
different combinations of money, institution building, human capital
development, co-ordination, knowledge transfer and so on. Therefore,
you could adapt the mix of support mechanisms from the European
level to suit each country's particular needs. One important benefit
of that is that it would almost "liberate" the European
Commission from one of its current problems, which is that the
Directorate-General for Regional Policy is horrendously overloaded
and under-staffed in order to deal with the task of supervising
and monitoring this enormous number of programmes and is essentially
focusing very heavily on the monitoring of expenditure—in
other words, how the money is being spent—rather than how
well is the money being spent. Having a different system focusing
on the Member State level would allow it also to deploy the available
resources to make a more substantive policy input to regional
policies.
Q111 Lord Trimble: One other thing
comes to my mind on subsidiarity. We have been talking about subsidiarity
as between Commission level and national government level. There
is then the question of regions within Member States. Is there
not a problem in that, particularly with some of the new Member
States, they are so small that they are effectively just regions
themselves, like Latvia which you have mentioned, whereas Poland
will presumably have regions within it and then the larger existing
Member States will have regions within them? Is this a problem?
What do you think about that?
Professor Bachtler: It is not a huge problem
but it varies from Member State to Member State. As you say, Poland
in fact is the only central and eastern European country that
actually has regions in terms of having an elected regional level
of government. The other Member States, the larger ones like the
Czech Republic, Hungary and Slovak Republic, have regions but
essentially, a bit like in England, they have regional development
agencies which are accountable to central government or regional
councils made up of local authority representatives and so on.
The regions over which Structural Funds operate in, say, the Czech
Republic, do not accord with the natural regional sub-divisions
of the country, so there is an element of artificiality in terms
of the way in which regional policy is being allocated. You are
quite right that in countries like Latvia or Slovenia the country
is a region, if you like, on the "map of Europe". I
think it is a valid objective of Cohesion policy now and in the
future to promote the involvement of sub-national partners in
the Cohesion policy process but in a way that suits each particular
country. In the UK (and not just in the UK because I think the
same would apply to countries like Finland, Sweden, France to
a certain extent, the Netherlands and Italy) Cohesion policy has
played an important role in encouraging the development of a local
or regional level of competence and in encouraging the development
of regional institutions that are able to take a strategic approach
to regional needs. One can see that the way in which regionalisation
has developed in the United Kingdom, particularly in England,
is partly a consequence of the role of the Cohesion policy.
Q112 Lord Woolmer of Leeds: Before
I turn to the question of the proportion of the Budget allocated
to Structural Funds, in his evidence to us the Minister for Competitiveness
in the Department of Business Enterprise and Regulatory Reform
said a couple of things. One of them is in paragraph 10, which
you will not have but I will tell you what he said. "The
Integrated Guidelines for Jobs and growth and National Reform
Programmes", agreed at EU level, "set out the key challenges
that the EU, Member States and regions ... There is no need for
a separate set of challenges to be identified for Cohesion policy.
Instead, the task is to identify how Cohesion policy can support
Member States' polices ... . Where money is needed to achieve
Cohesion policy objectives it should mainly come from national,
regional and local sources. EU funding support for Cohesion policy
needs to be better focussed on the poorer Member States ... "
Is that not effectively saying that at EU level policy needs to
stick to doing something about real inequalities between Member
States and that the other issues are really things that all the
Member States should be getting on with and the agreed policies
and so on across the EU really are not the purpose or substance
of Cohesion policies. Effectively, in terms of additionality and
added value and so on, it is saying that there is a danger that
the EU may be getting into things that they should not be getting
into.
Professor Bachtler: As you say, I have not seen
the letter. It seems to me that what is happening in the current
period is, to a certain extent, what the Minister is advocating
because the current Cohesion policy objectives—in the way
that they are set out in the Commission's Integrated Guidelines
and thus in national strategic reference frameworks—flow
pretty much directly from the integrated strategy on growth and
jobs the so-called Lisbon Agenda, or at least that is the way
it has been designed, and not just in the area of Cohesion Policy;
the Guidelines for rural development and fisheries and other areas
as well also flow from there. Secondly, I agree very much that
the focus should be on regional inequalities. Something like 80
per cent of Cohesion policy funding is going to the poorest countries
and the poorest regions. Of course the problem with the UK line
from the EU perspective—and this is something that the new
Member States are very aware of and alive to—is that if
you say that Cohesion policy is essentially a policy for the poor,
it becomes a sort of welfare policy. What happens is that the
richer countries are not going to have an interest in that policy
area, apart from cutting down the size of the bill; in other words,
the share of the EU budgetary cake allocated to Cohesion policy.
What the European Commission, supported by quite a number of Member
States, has sought to do is to ensure that Cohesion policy is
not just for the poor; although 80 per cent of the funding is
going to the poor, the rest is going to other Member States and
other regions in order to ensure that they continue to have an
interest in the policy and thus safeguard it in the longer term.
The European Commission of course—in its arguments or its
initial thinking about the future of the policy—is trying
to continue to link what Cohesion policy does in future to the
coming major challenges that the EU is going to have to address,
such as (currently) growth and jobs, but in the future possibly
climate change, demographic issues and other challenges. I can
understand where the UK is coming from on this.
Q113 Lord Woolmer of Leeds: Before
I move on to the question of the proportion of the Budget, I must
say that that is the first time I have heard argued that policy
should not simply concentrate on reducing the inequalities between
Member States because the rich Member States would regard that
as just helping the poor and then they might not want to do it,
if I summarise what you have said. I have never heard that argued.
Therefore, even rich Member States have got to have some because
then they will take an interest. That is effectively, again paraphrasing
what you think, what some people would argue. I have to say that
I have not heard that argument but other members of the committee
might have done. Can I turn finally to the question of the criteria
to guide decisions on the proportion of the Budget to be allocated
to Structural Funds, and again this is a quote by the Minister
in his letter to us. He said: "The priority is to ensure
that the review of the EU Budget provides the basis for a more
effective and efficient Budget, including a significant increase
in the percentage of Structural and Cohesion funds spent on poorer
Member States." The Minister told us that was an issue, and
I do not argue about the proportion which is all right but it
is not just an issue about proportion; it is the fact that money
should really go where it is most needed. What do you think about
the guidelines on the proportion of the Budget? Is that not related
to what the money is being used for? We could hardly argue for
a bigger proportion if it is going to go to rich countries.
Professor Bachtler: No. The argument that I
put forward or the way I outlined the European Commission's thinking
is essentially a political argument. A few months ago The Economist
had a very nice way of putting the point that you made in quite
blunt terms. However, although it is a political argument the
approach to Cohesion policy is not unique. The way that the German
national regional policy system works is not dissimilar; it is
basically to try and keep all parts of the country in the regional
policy system. Ultimately, the development of the policy, the
amount of money that is spent in the EU Budget and the sub-division
within the Budget among different policy areas is a political
decision. At the moment Cohesion policy has an important role
to play in the equation because it is the mechanism by which countries
are able to determine how much money they are going to get back
out of the EU Budget. Of course for the UK that is not unimportant
and similarly that is true for other countries. It is of course
entirely valid for the UK to push a line which will ensure that
its interests are maximised. It is very difficult to say how things
are going to develop in the future. The European Commission's
budget review is quite clear, at least in its ambitions. It wants
to ensure that there is a real added value in the policies and
the spending that it has in the future, and its review of policy
areas has been undertaken with that in mind. With increasing priority
being given to competitiveness issues at European and national
levels, there must be a strong likelihood of a strengthening so-called
competitiveness policies: spending on R&D, trans-European
networks, life and learning, these sorts of things, will increase
as a share of the Budget in the future. There will be strong pressures
for agricultural spending to go down, partly because of pressures
from the WTO in terms of the coming negotiations there. There
will be huge resistance, and not just from France which is generally
portrayed as the defender of the Common Agricultural Policy, but
it is very likely that agricultural spending will fall and that
Cohesion policy will continue to be the "adjustment variable",
in the future budgetary debate—unless it is possible somehow
to disconnect the debate on the Budget from the debate on policy,
which is quite difficult to perceive at the moment. As I have
said a couple of times, Cohesion policy is trying to reinvent
itself in the way that it operates in order to try to command
the support of the richer Member States.
Q114 Chairman: As a supplementary
to that, and you have mentioned climate change a couple of times,
I suppose I have really given up thinking that Cohesion policy
had really anything to do with climate change because it cannot;
it is too big. Can I press you a little on that or do you think
this is all part of making Cohesion policy more acceptable to
put an emphasis on climate change?
Professor Bachtler: That is quite a difficult
one. As a starting point, one would ask what regional policy has
to do with climate change. There are other policies which one
would imagine are more relevant. However, if one thinks what the
consequences of climate change are likely to be, they are going
to be territorially quite different across the European Union.
The effect of rising temperatures is going to bring real problems
for agriculture in southern Europe, and for other parts of the
EU there may be more turbulent weather conditions: concentrated
rainfall and storms. We have already seen over the last year the
problems that flooding has brought to parts of the UK. There is
a whole new challenge of risk management associated with rising
sea levels and weather patterns. One could see different ways
in which the EU might respond under the heading of Cohesion policy.
The classic response would be to have a climate change programme
for countries and regions and to design strategies and so on to
respond to that. However, if one thinks about it in a different
way, one could say that climate change will have territorially
quite different impacts, but climate change is just one of a whole
series of challenges which is going to affect regions over the
coming years. So maybe what Cohesion policy should be doing is
trying to strengthen the capacity of regions to deal with economic
development challenges of a whole variety of types in areas like
building up and helping institutional capacity, providing targeted
funding perhaps where it is needed—essentially taking a
bottom-up approach. It is interesting that a number of English
regions have started to develop regional climate change strategies.
Essentially they are asking what the consequences are going to
be for, say, the East Midlands or for East Anglia as a result
of climate change, such as a rise in temperatures or variability
of climatic events, and what it is that they need to be doing.
It is when you get down to that very specific level of what the
impact is going to be on one or other region and what it is that
is needed in terms of policy support, then one can think about
what it is that the European Union could usefully do, if anything,
to support national efforts in this area. In my view, that is
the line of argument that one should be taking.
Q115 Lord Trimble: I ask your view
of the current tests for the eligibility of regions to receive
support under Structural Funds and do you think they should remain
in place the way they are?
Professor Bachtler: The main eligibility test
is of course gross domestic product per head, GDP per capita.
It is a relatively crude instrument and its measurement has a
whole variety of problems. A bit like democracy, it is the least
worst option. There has been a lot of discussion about using other
criteria, but GDP does encapsulate a lot of what one is trying
to do through regional policy and through Cohesion policy. In
practical terms, the issue is two-fold. Looking to the future
at the European level, one can continue to say that we should
have this cut-off point or threshold, for defining poor regions;
as now, where a region has less than 75 per cent of the EU average
of GDP per head then it is defined as a poor region and it should
receive support. However when the current eligibility map for
2000-06 was drawn up, it was on the basis of an EU 25, excluding
Bulgaria and Romania. If one factors in Bulgaria and Romania now
and one thinks about what a map of an EU 27 would look like, straight
away it starts to shift the relative eligibility position of individual
regions. Similarly if one factors in relative growth rates and
looks at the regional trajectories in terms of GDP in the future.
If the eligibility decision on the next period is being made in
2010 or 2011 (enlargement is probably not going to be an issue
apart from Croatia but let us take that as a scenario), one would
find that virtually all the eligible regions would be in central
and eastern Europe, some in Portugal and a few in other parts
of the EU-15, (the old Member States). Cohesion policy would become
pretty much de facto something that is of interest to the
new Member States and not to the old Member States and that straight
away changes the political configuration of countries that would
have an interest or not in the policy.
Q116 Lord Trimble: The present criteria,
as you say, are essentially economic. A lot of discussion earlier
on added value was looking at things which were not directly economic
in terms of governance and human capacity. Are there any criteria
that can reflect those or other things which would be regarded
as significant added value or would bringing in a weighting for
that just accelerate the tendency to focus on central and eastern
Europe?
Professor Bachtler: What happens at the moment
is that there are two levels of calculation for allocating funding.
The first stage is to decide the regions that are eligible through
the 75 per cent GDP per head criterion. The second stage is then
to decide how much money should go to each of those eligible regions.
At the moment that is principally based on GDP per head but it
also factors in criteria like national unemployment rates and
then, as part of the political bargaining, a whole series of other
little adjustments are made in order that the countries get the
level of support they want. The problem, if one goes beyond GDP
at an EU level, is that one does not have comparable data that
are reliable enough at a sub-national level in order to be able
to factor it in to the eligibility calculations. You have regional
unemployment rates or regional employment trends which one could
factor in, and they are taken into account to a certain extent.
Unless somebody does come up with something imaginative, one probably
will continue to use a criterion which has now lasted for 20 years—it
is probably one of the only things that all Member States have
actually agreed on. If one then finds that the regions that one
wants to designate for the provision of aid do not fall into the
category of eligibility, one would need to make adjustments, for
example by building in some transitional support for regions between
75 and 85 per cent or 75 and 100 per cent (of average EU GDP per
head). Having defined those regions (or if one allocated funding
at a national level, defined the aid that is going to the Member
State), then within the country or region, one would look at where
it is that we should be spending our money and to what extent
we should be putting it into institutional capacity development
as well as into areas like infrastructure, business aid and so
on.
Chairman: Thank you very much, Mr Bachtler. We have
kept you rather longer than I meant to but we have found your
evidence most illuminating. Thank you very much indeed for coming.
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