Examination of Witnesses (Questions 120-139)
Mr Keith Boyfield, Ms Florenica Ahumada Segura and
Dr Robert Leonardi
19 FEBRUARY 2008
Q120 Chairman: Your point is really
that as well as the 81 per cent of people whose GDP is less than
75 per cent of the EU national average, that even people in the
regions with GDP above that level regard these funds as very important?
Dr Leonardi: Yes.
Q121 Chairman: Because they are secure,
cannot be taken away and are generally European.
Dr Leonardi: Yes.
Mr Boyfield: Could I just add something there?
Q122 Chairman: Of course.
Mr Boyfield: I suppose they would hardly refuse
this largesse from Brussels. I entirely take into account what
Robert has been saying about how you can leverage this funding
with private sector funding, and this might well be a very good
thing, but it strikes me that the picture is mixed. If I might
just quote a couple of sentences from the OECD Economic Survey
of the EU—and you might well have seen this already—it
came out in September 2007, they say of the regional development
cohesion policy: "Its record so far has been patchy: regional
disparities are not falling ... "—I would be interested
to hear what Robert has to say about that—" ... "or
at best are declining very slowly. The budget is too small to
make a real dent in income gaps, so the challenge is to get the
maximum benefit from the available funds by making sure Member
States focus on activities that will spark sustainable growth,
such as education, research and important infrastructure projects."
In many ways that entirely concurs with my view. Go ahead, Robert,
because I would be most interested to hear what you say.
Dr Leonardi: I have just come back from a trip
to the United States where I went to the World Bank on Thursday
and the Inter-American Development Bank and Harvard University
and this issue came up and that is completely wrong; it is false.
That is, in the EU regional disparities have fallen at a much
faster rate than we have ever seen historically in any single
Member State. If you take the United States, if you take Germany,
if you take Japan, large Member States that have a lot of national
funding, the disparities between developed and under-developed
areas have fallen at a much slower rate than has taken place in
the EU during the last 20 years. Remember that Ireland was an
Objective 1 region in 1988; it had an average GDP of 66 per cent
of the EU average. Now it has 147 per cent. Athens in 2005 had
an average GDP of 131 per cent of the EU average—Athens,
Greece. Greece as a country by 2008 is going to surpass Italy
in terms of average GDP, and so on. Spain has already surpassed
105 per cent, so we have this massive change in regional disparities,
and what we are seeing in Central and Eastern Europe is higher
than average growth rates in all Central and Eastern Europe states.
Therefore, if you look at the GDP data, you see certain turning
points or certain points of acceleration, and the Central and
Eastern European countries have experienced a fast acceleration
in 2004 when they came in and they will probably now have another
acceleration in 2007/2008 because of the amount of money being
made available. Latvia, Estonia and Lithuania are now growing
like Ireland used to grow in the 1990s—they have double
digit growth rates.
Q123 Chairman: Could one, however,
put all this down to the benign influence of structural funds?
Surely not? It has to do with trade—
Dr Leonardi: Absolutely not. But that is why
we have the important element of two things: the single market
coming into that, which changes completely entrepreneurial strategies
because you can go to Estonia and set up a plant there and serve
450 million people and not just the Estonian population. That
completely changes the strategies of entrepreneurs.
Chairman: Can I bring in Lord Maclennan?
Q124 Lord Maclennan of Rogart: We
have heard two very fascinating and contrasting views; indeed,
I might even venture to say conflicting views. You will understand,
Mr Boyfield, that you did say that you were not going to trouble
us with statistics, but I think when making such bold statements
as you have about lack of impact I would be greatly assisted by
any statistics—
Mr Boyfield: I am glad I did my preparation
in that case and I hate to fall out at such an early stage with
my friend from the LSE, as it is my old Alma Mater.
Q125 Lord Maclennan of Rogart: Just
before you do, may I complete my question? Speaking as someone
who represented the Highlands of Scotland or a large part of it
in the House of Commons for 35 years, I certainly have witnessed
statistical change in the relationship of that economy to the
rest of Scotland. At the beginning of that period of a structural
assistance we saw that that area came within Objective 1 of the
European Union structural funding and at the end of it it no longer
qualified. So in the words of the then Secretary of State for
Scotland in the middle 1960s, "The Highlander had been the
man on Scotland's conscience," but by the end of that period
it was no longer true, and the points that have been made seriously
by Dr Leonardi about leverage and about convergence within one
country seem to me to be entirely borne out by that little microcosmic
example. Where am I wrong in that discussion?
Mr Boyfield: Let me make these points to you.
I am not saying that they have no impact; I am just trying to
take it in context. First of all, The Economist magazine
suggests that EU development aid raised annual GDP growth in Ireland
in the 1990s by perhaps half a point, and they based that estimate
on what they describe as authoritative studies when I looked at
the magazine. Other factors such as favourable demographics, the
opening up of EU markets after the 1992 reforms, and fiscal policy,
were more important drivers of growth. Also, we looked at a speech
given by Commissioner Hubner in Brasilia on 29 November 2007,
looking at the impact of cohesion policy, and she argues that
Greece has closed the previous gap with the EU average in terms
of GDP. Allowing for the new accession countries it appears to
have climbed from 74 per cent of average GDP in 1995, when the
EU was of course 15 Member States, to reach 88 per cent. That
is in 2005. What I was confused about was whether those statistics
were based on the 25 Member States of the EU or the EU15. She
talks about Spain climbing from 91 per cent to 102 per cent over
the same time period. Interestingly, Ireland, which had already
got to 102 per cent of average GDP, has risen to 145 per cent.
I was wondering how far that was attributable to Ireland's success
in receiving CAP grants and adopting a more entrepreneurial, friendly
fiscal policy? The last point I would make is that Open Europe—and
I gather you have already taken evidence from them and had a candid
exchange of views—point out that in 1989, when Objective
1 status came in, of the 44 regions that were designated, as I
understand it, as Objective 1, 43 were still eligible for such
funding in 2003, which basically suggests that the poor regions
are still poor. The last point I would make, refers to an excellent
paper by Tim Leunig, which I have been reading over the last few
days. I heard him at the Institute of Economic Affairs a couple
of weeks ago—he is an academic at the London School of Economics—and
he came out last year with a paper called Cities Limited—
Q126 Lord Renton of Mount Harry:
Chairman, is it possible to get back to our questions; we are
just having speeches, which, personally, I find rather irritating.
Mr Boyfield: That basically says that regional
development policy is not working.
Lord Renton of Mount Harry: We have a lot of
questions to ask.
Chairman: If I may, I will now try to get through
our list of questions. Lord Woolmer.
Q127 Lord Woolmer of Leeds: The lead-in
question is what should be the objectives of the EU Structural
Funds? I would like, before we finish, to come back to some of
that conversation, but if I can start on that question that would
be very helpful.
Dr Leonardi: In terms of the Treaty, the single
European market, which has been repeated in other Treaties in
the preamble, is the reduction of regional disparities. Therefore,
the reduction of regional disparity means to reduce the gap between
developed areas or core areas and peripheral or undeveloped areas.
That has remained as the primary objective.
Q128 Lord Woolmer of Leeds: Mr Boyfield
may want to comment as well, but given that it seems very straightforward
clearly individual Member States are also concerned about regional
disparities.
Dr Leonardi: Absolutely.
Q129 Lord Woolmer of Leeds: One of
the important questions is, first of all, which is the most effective
way to address regional disparities—is it through policies
within Member States? Is there actually a role at an EU level?
Is that because Member State policies fail in some way and there
is a failure of the policy of Member States? So given the objective
is to reduce the disparities why do that at an EU-wide level?
Is that not what Member State government polices are concerned
about?
Dr Leonardi: What happened in the 1980s was
that most Member States went away or closed down the regional
policy—in the UK it was closed down in 1979, in other countries
it was closed down in the 1980s—because national regional
policies had not produced any impact whatsoever and therefore
what national regional policies did was to create a culture of
dependence on the government handouts because they tended to be
without significant controls and therefore they created a culture
of trying to capture these funds, keeping the funds and then repeating
them over time. Therefore, there was no evaluation, there was
no exit from the policy and the areas remained under-developed
and that is why they were closed down. Secondly, and one of the
reasons why the policy then was closed down in Spain and in Greece,
which happened, is that they had difficulty in just meeting the
requirements of co-financing. That is, the EU funds do not cover
100 per cent of the programmes; they cover either 50 per cent
in the UK, Italy, France, Germany cases, or 75 per cent of the
cost in the case of the cohesion countries, Greece, Portugal,
Spain and Ireland. Even though the national governments had to
come up with only 25 per cent they had difficulty in doing
that. Therefore, that is why national regional policy was closed
down because they just did not have any extra funds to do it.
The other element that is important is that national regional
policy looked at the national market—the focus point was
the national market. So when you moved to the European market
then your entrepreneurial choices, strategic choices differed
significantly. What we have seen in Europe is that with the creation
of the single market and the coming into fruition of the cohesion
policy countries and regions were able to restructure within a
European context, within a wider market context, and this is the
important element. We have to remember that we have moved in many
cases from very small national markets to a huge European market.
Mr Boyfield: Can I make a short point? It strikes
me that there might be an argument for the European Commission
having a role in regional development policies, particularly amongst
the accession countries and the smaller countries such as Cyprus,
Malta and so on, if it can be shown that they add value and they
are a repository of expertise and experience. That is one of the
things we are seeking to look at in our study. I think that there
is an argument that for the richer countries—and this is
something that I gather Britain was spearheading in 2005 -regional
policy might be "nationalised", I think that is the
phrase that is used, and go back to those Member countries. And
there seems to be support from other countries, including Germany,
France and Sweden for that view.
Q130 Lord Woolmer of Leeds: So the
answer to the question that I will pose, which is if regional
funds are used to help reduce the disparities, Dr Leonardi's answer
to that is that historically Member countries did not do a very
good job at regional policy and EU policy is a lot better. So
it is not a question of the regional funds and cohesion funds
being more effective in supporting public policy Member States,
in Dr Leonardi's view but actually substituted for ineffective
policy in Member States, if I understand that, which is an extremely
bold statement and certainly one to which we can devote an awful
lot of time. Does that remain the current position? Is it the
case that Member States, despite the desire of some Member States
to repatriate or bring back to home base regional policies, is
it your view, both of you, that that is quite wrong? That at the
EU level things can be done to reduce regional disparities that
Member States would not do? I find that a bold statement but that
is certainly the burden of Dr Leonardi's evidence. Would you both
have that view?
Mr Boyfield: No, I am rather sceptical about
that. I have yet to be convinced that they are doing things which
could not be done, particularly in the wealthier Member States.
But then I am pretty negative and sceptical, particularly having
read this Policy Exchange study, on the impact that regional policy
has in this country.
Chairman: We seem to be now clearly in the area of
subsidiarity and I would like to hand over to Lord Maclennan.
Q131 Lord Maclennan of Rogart: I
am grateful, Mr Boyfield, for your evidence. You mention in your
written evidence that there could be a problem in the present
situation of regional funding by the EU, flowing from differences
and tensions, as you put it, between regions and Member State
governments. Is that a hypothetical concern or an actual historical
fact because I am not aware of the skewing of the problem sufficiently
to make it something of which we need to take much account?
Mr Boyfield: That is my hunch, it is my candid
view.
Q132 Lord Maclennan of Rogart: A
hunch but is there any evidence?
Mr Boyfield: We all start off with hunches but—
Q133 Lord Maclennan of Rogart: You
cannot have a hunch without having some basis of evidence—
Mr Boyfield: Material I have read, including
the report from Open Europe, points out that the priorities set
by Brussels may well differ not only from national governments'
priorities for regional development but also for regions' priorities
for local development. You might take the view that Brussels'
priorities are better than the others but there is obvious tension
there, it strikes me, and that is something we are going to be
looking at.
Q134 Lord Maclennan of Rogart: What
you seem to be saying is that some national governments may not
satisfy their regions, but that does not necessarily mean that
the regions are not on the right track and have a higher aspiration
for regional policy than the national government which—
Mr Boyfield: I entirely endorse that; I concur
with that.
Q135 Lord Maclennan of Rogart: What
is wrong, in that case, with the regions looking to Brussels to
give them something of a leg up?
Mr Boyfield: Nothing at all.
Q136 Lord Maclennan of Rogart: Good.
Mr Boyfield: And that is the interesting thing,
from my point of view. As I heard Lord Trimble say when you took
evidence from Open Europe, Ulster got a much more sympathetic
ear in Brussels than they did from HM Treasury.
Q137 Lord Maclennan of Rogart: So
we do not need to be too concerned in that case about differences
and tensions, as you put it, between national and regions. In
fact, it seems to me that you are now turning your written argument
on its head and that if what we are interested in is regional
development that we should be ready to look to the Union—
Mr Boyfield: No, the question, which I am still
looking at as we have only just begun this study, is how far are
the priorities set by Brussels, Member State governments and regions
identical? And I would have thought, inevitably, that they are
going to differ across 27 Member States.
Q138 Chairman: Can I pose a question
arising? The thing we are rather struggling with is the whole
question of repatriation of structural funds, whereby the rich
countries would fundamentally turn themselves into a position
where they were contributors rather than recipients. I think perhaps
the way to focus this question is to ask you both whether you
would actually support a position whereby the richer States made
only a net contribution to the budget and spent what money they
would have received in their own countries as they were going
to. Dr Leonardi?
Dr Leonardi: Just to pick up the last point.
When you look at the formulation of the policy, because the policy
then is formulated in terms of a community support framework or
a national strategic reference framework, then it is divided into
national operational programmes and regional operational programmes.
So therefore at the EU level they establish parameters of the
policy; they do not dictate what the money should be spent on.
They say that money should not be spent in only one sector; therefore,
they say infrastructure, vocational education, capital investments,
etcetera. But then the weight is determined by the national government
and national operational programmes and the regions in regional
operational programmes. So therefore Brussels is not dictating.
The regional and the national governments are able to emphasise
their priority if they want to put more on infrastructure, more
on vocational education or whatever; so therefore that is up to
the various national governments. To your point about the repatriation,
I would be very much against this because on the one hand we have
to look at the reasons why regional policy was closed down in
the first place at the national level; secondly, we have to look
at the important elements that have come out of the EU cohesion
policy, and that is the semester reporting, the unification, the
standardisation of the reporting, the creation of evaluation,
which was not present in the national regional policy; and then
the creation of the three management units, so the management
authority responsible for day to day, and therefore there is a
person, staff, building, telephone, email, whatever. There is
a payment authority that has the responsibility of paying the
invoices. And then a certification authority, so that the invoices
are checked with the physical progress of the projects. Therefore,
all these three elements have significantly reduced the space
for misuse, corruption or whatever. Therefore, these things were
not present in national regional policy. In Germany they are still
not present in national regional policy. Therefore, I would be
very, very reluctant because at the national level we do not have
the safeguards in place.
Q139 Chairman: Thank you very much,
Dr Leonardi. Mr Boyfield, we are trying to decide whether we are
in favour of repatriation of funds or not.
Mr Boyfield: I think I am in favour of repatriation
of funds to the richer countries. I think there might well be
an argument, as Robert was saying, that you should concentrate
funding on the accession countries, the poorer countries; and
it is also quite noticeable that Brussels seems to be tightening
up its monitoring and reviews. I think there is an important question
about how far the Court of Auditors' recommendations are really
being picked up by the European Parliament. There has been a weakness
there, but they do seem to be tightening up, as was evidenced
in the Financial Times article last week about the Dutch
refusing to sign off the accounts.
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