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ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2007. No 1
PROBLEMS AND DILEMMAS OF EU REGIONAL POLICY
Krystyna Gawlikowska-Hueckel
University of Gdańsk
The Faculty of Economics
Abstract
The aim of the EU regional policy is to increase the level of social and economic cohesion of the
Community. The effectiveness of this policy is not unanimously agreed upon. There are regions in Europe
which took maximum advantage of the Structural Funds and considerably decreased the gap between
them and the average EU level (Lisboa e Vale Do Tejo), or even went beyond it (Ireland). However, there
are also regions that, despite huge transfers from the EU budget, are stagnant (southern Italy)
The negative examples are exploited by the opponents of the current policy. According to them, the
policy’s achievement in its current shape is too expensive for the entire Union (too high opportunity cost).
The same transfers used to support innovativeness in the well-developed regions would lead to an
increased innovativeness and modernization of the Member States’ economies in general.
The article’s aim is an attempt to answer the question about the policy’s future shape. It will depend
on many factors (social and economic situation in the entire Europe, catch-up processes, political
situation, etc). A different shape of regional policy could, however, mean a return to the idea of two-speed
Europe, which would not be advantageous to the new Member States.
Key words:
Regional Policy, Social and Economic Cohesion, effectiveness of the Regional Policy, catch-up
processes, two-speed Europe
The aim of regional policy is to reduce regional
disparities. It is worthwhile to stress the particular
character of this policy, whose instruments (Structural
Funds) are used to finance investment in peripheral
regions. Regional transfers contravene the
fundamental premise of liberalism, which was a
driving force behind the creation of the common
market and the elimination of barriers hindering
economic integration. Still, there is an important
argument justifying regional intervention – namely,
market failures. This ineffectiveness manifests itself at
several levels. For one thing, there still exit a
segmentation of the common market, trade barriers
and state intervention-induced competition distortion.
Secondly, another market failure is related to
allocation and localisation ineffectiveness. Thirdly,
there are different living and employment standards as
well as different social-policy safety nets1. Finally,
unequal distribution of wealth amongst countries and
regions plays a part, too. Each of these imperfections
is corrected by means of different instruments which
operate within the framework of competition, trade,
industrial, social and regional policies.
1 This manifest itself in social exclusion and labour market
discrimination (mainly against women).
Intervening in the market mechanism is
controversial per se. The fundamental question that
arises in this context is whether intervention actually
help to eliminate market failure or whether in the long
run it entrenches ineffectiveness. This question is
particularly relevant to regional policy due to its
specific character. This is because regional policy
involves money transfers, has a substantial scope (it is
second in terms of budget expenditure) and is difficult
to unequivocally assess. The aim of the paper is to
answer the following questions: what will the possible
direction of the evolution of regional policy be?; will
the current character of regional policy not be changed
in the future?
Modifications of this policy may have a
particluarly big impact on the interests of countries
from Central and Eastern Europe that joined the Eu in
2004 and 2007. This is not a new problem as it
resurfaces whenever EU member fees are set in each
new budget perspective. In 2005, controversies over
this issue were particularly manifest and hence it was
very difficult to reach a compromise.
That is why – and it has to be stressed – debate
over the model of regional policy is of critical
importance since, on the one hand, it highlights
ceratin threats (on the part of the richest memebers) to
the principle of cohesion and, on the other, it sends a
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signal to the least properous regions that the regional-
policy rationale might change and that opportunities
risk being missed.
At first, it is essential to refer to theory that
focuses on regional economic growth, regional
competition enhancement and regional policy. The
literature of the subject is very rich. Contributors
include researchers representing classic approach,
Keynesianism, neoliberalism, stage development, new
growth theories and new trade theories. Insights from
urban growth theory, new institutional economics,
business strategy economics, new Schumpeter
approach or economic geography also taken into
account by researchers (Martin R., 2004), (Reid,
2003). The fact that the above theories have different
premises and that different factors are seen as critical
to growth determines the attitude towards regional
policy and to its character (its instruments and areas of
influence). It is impossible to refer to all these
concepts, so only two of them are discussed.
Stage development theories highlight that core
regions – thanks to their advantages – constitute
engines of growth of peripheral regions, but regional
policy should support economically weak regions,
allowing for their actual stage of development. It is
also important to reinforce spread effects by, among
much else, promoting direct investment and
development funds. New growth theories regard
technological progress as a source of dynamic growth,
which, however, does not constitute manna from
heaven. There are centres that are predestined to
fostering technological progress and differences in
regional development are a result of regions’
technological potential and human capital. It follows
that investment in R&D and improvement in human
capital are a driving force behind development. So
potential intervention should support such investment.
Even in view of these two theories it is possible to
present dilemmas about the choice of regional policy.
Should it have a disparity-reducing character or a
polarisation-inducing one? (Bachtler, 1996).
Proponents of the former advocate state
intervention, which should be addressed to the poorest
regions. The aim of intervention is the restructuring of
the economy, which should accelerate growth and
trigger the catching-up process. The arguments
adduced by advocates of the disparity-reducing theory
are typical of neo-Keynesianism. They include: the
aforesaid market failures, imperfect information, price
and wage deformation.
Proponents of the latter reckon that any
intervention affects the market mechanism, which is
the most effective, and hence they argue in favour of
giving up state intervention in regional developmental
processes. They claim that any intervention does not
help poor regions and is a cause of their
underdevelopment (Levison, 1992). What character
should EU regional policy have? If – in line with new
growth theories – it is investment in R&D and human
capital improvement that condition development,
there is no doubt that economically strong regions
(and metropolitan areas) are predestined to carry out
such investment because they have critical mass
(research institutes, universities, skilled human
resources able to innovate and communities capable
of absorbing it) to start it (Reid, 2003), (Sepic. D.).
This approach holds that spread effects initiated by
these centres will cause disadvantaged regions to
develop and all society will benefit from economic
growth. In this context two questions arise. For one
thing, is there any guarantee that its current character
will be preserved? Secondly, what can cause its
modifications?
As mentioned above, the aim of regional policy is
to increase EU socio-economic cohesion. With the
processes of deepening and expanding integration
gathering momentum, this objective has undergone
evolution. In the literature of the subject regional
policy is presented in stages, delineated from the
perspective of its aims, which changed in line with
new integration tasks2. The most noteworthy event
during the first two stages was the establishment in
1972 of European Regional Development Fund (it
started functioning in 1975). Regional policy got a
boost in 1986-1992 and this was caused by:
1. The establishment of the common market
(since 1 January 1993, but the preparations
for its introduction had been under way since
the Single European Act);
2. The accession of Spain and Portugal in 1986;
3. The UK-led emphasis on such a distribution
of transfers from the EU budget that all
Member States would participate in them in a
more equitable way.
The Single European Act introduced to the EU
Treaty the title Economic and Social Cohesion and the
earlier statements from the Treaty of Rome were
replaced by the phrase stating that:
In order to promote its overall harmonious
development, the Community shall develop and
pursue its actions leading to the strengthening of its
economic and social cohesion. In particular, the
Community shall aim at reducing disparities between
the levels of development of the various regions and
the backwardness of the least favoured regions,
inlands, including rural areas (The EU Treaty).
The change of regional policy status prompted
reform of the Structural Funds3 in 1988, which were
meant to operate in a more co-ordinated fashion on
2 The following years mark the consecutive stages of regional
policy: 1958-1974, 1975-1987, 1986-1992, 1993-1999, 2000-
2006, 2007-2013.
3 European Social Fund, European Regional Development Fund,
European Fund for Agriculture Guarantee and Orientation.
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the basis of uniform rules (Pietrzyk, 2000). This was
supposed to enhance the effectiveness of the use of
financial resources (OJ, 1988). A decision was also
made that regional policy would be programmed on a
six-year basis. The first programming period
concerned the years 1988-1993. This means that
programming stages coincide with EU financial
frameworks4.
The reason for introducing such deep
modifications was the establishment of the common
market. This programme caused less developed
Member States to raise concern as to whether the
existence of four basic freedoms would not affect
negatively the EU’s economically weakest regions.
Richer members – at a cost of accepting the processes
of integration deepening – were inclined to devote
more financial resources which would contribute to
enhancing their competitiveness (El-Agraa, 1990).
The period of 1992-1999 constitutes the next
stage of significant changes. The modifications of
regional policy were then caused by:
1. The signing of (1992) and the introduction of
The Maastricht Treaty (1993), which laid the
legal foundations of the monetary union;
2. The lobbying carried out by less prosperous
members which feared the effects of the
monetary union5;
3. The accession of Austria, Finland and
Sweden6
The most important reason for changing regional
policy was the decision to establish the monetary
union. The implementation of this most advanced
stage of integration could have negative implications
for less developed regions. The Committee of Regions
warned against such a possibility, arguing that the
participation in the monetary union could lead to the
intensification of competition amongst regions, which
would necessitate mitigating the negative
consequences for disadvantaged regions. Poorer
members had reason to fear that more discipline in
public finances and the need to keep down interest
rates and inflation would result in slower economic
growth and higher unemployment.
To ally these fears, the Maastricht Treaty
included a statement (Maastricht Treaty) about setting
4 Since 1988 the Commission and the Parliament, while working
out yearly budgets, use financial plans for several years. The first
financial prognosis concerned the period of 1988-1992 (so-called
first Delors packet), the second one concerned the period of 1993-
1999 (second Delors packet), the third one is envisaged for the
period of 2000-2006 (concluded in the Agenda 2000).
5 Spain’s lobbying is seen as particularly effective; Spain agreed to
support the monetary union in exchange for doubling aid for the
poorest regions. This compromise was included in the Cohesion
Protocol, which was added to the Maastricht Treaty.
6 The accession of Finland and Sweden prompted the
establishment of a new objective of regional policy: aid was
earmarked for regions with population density of less than 8
people per square kilometre.
up the Cohesion Fund7, within the framework of
which financial resources were to be used to co-
finance investment in less developed regions
particularly vulnerable to the negative effects of the
participation in the monetary union8. The criterion for
receiving aid was a GDP per capita lower than 90% of
the EU average. Greece, Ireland, Spain and Portugal
became cohesion countries9.
Next changes to regional policy (2000-2006)
were the effect of the accession of 8 ex-communist
countries from central and eastern Europe together
with Malta and Cyprus. The proposed set of reforms
was a compromise allowing for the interests of
candidate countries and constituted an effort to depart
from regarding regional policy in terms of
expenditure. It is worth noting that a heated debate
preceded the Berlin Summit (at which the Agenda
2000 was approved). This debate revealed diverging
interests of members: some of them highlighted that in
the long run they were bound to bear the brunt of
financing Cohesion Policy, being so-called net payers
(Germany, the Netherlands, Sweden and Austria);
France refused to accept cuts in aid for framers, while
Greece and Portugal accentuated the need to
restructure their economies. In 2000-2006 regional
policy objectives were reconstructed and their number
was reduced to there.
The main premises of the 2007-2013 stage were
finally approved at the Brussels Summit in December
2006. The compromise was reached after the fiasco of
the June Summit, during which some members
blocked an agreement on the budget for the next
budgetary perspective. The bone of contention was
related to the question of whether – if outlays were to
be reduced – this reduction would include in equal
proportion all the expenditure items or some
categories would be maintained at the same level. It
has to be said that at this stage the parties reached the
consensus on one thing: there would be no cuts in
spending on the increase of the EU economy’s
competitiveness.
This accent on competitiveness is connected with
the abortive attempts to catch up with America within
the framework of the Lisbon strategy. Its main aim
was to transform the EU into the most competitive
economy in the world. As we know, this task has
proved too ambitious. One of the reasons for this was
the failure to set into motion a knowledge-based
economy and to capitalise on information and
7 This is despite the fact that the Cohesion Fund did not finance
initiatives strictly related to regional problems.
8 Financial resources from this Fund were used to finance
investment in railway and road infrastructure, environment
protection and development of trans-European communications
networks.
9Likewise, proportions of quotas for cohesion countries were set
as follows: 16-20% for Greece, 16-20% for Portugal, 7-10% for
Ireland and 52-58% for Spain.
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communications technology (ICT). This does not
mean, however, renunciation of the strategy. In 2005
the European Council decided to modify certain
aspects and to revive the reformist efforts. It was
agreed that “the EU must mobilise all its existing
national and European resources, including those with
Cohesion Policy(COM (2005(24). A communiqué on
joint efforts to promote growth and employment
highlights the necessity of more active involvement in
the Lisbon Strategy on the part of regions, in
particular local and regional entities, and social
partners. This is especially important in such domains
as innovation, a knowledge-based economy,
employment, human capital, support fro small and
medium-sized enterprises and access to venture
capital. At the same time, it was decided that
Cohesion Policy should focus on three priority areas:
1. Improvement in the attractiveness of Member
States, regions and cities by means of
enhanced access, better-quality services and
environment protection;
2. Support for innovation, entrepreneurship, a
knowledge-based economy through
increasing the potential of R&D and ICT;
3. Creation of more better-quality jobs.
It follows that in the priorities of Cohesion Policy
for the period of 2007-2013 accent is placed on
encouraging innovation. This confirms an assumption
that the improvement of the EU’s position in the area
of R&D and the creation of a knowledge-based
economy has become an integral part of Cohesion
Policy. This is also borne out by the earlier initiatives
of the European Commission aiming to stimulate
endogenous growth of regions through increasing
innovation levels (the co-financing from the ERDF of
Regional Innovation Strategies within the framework
of Innovative Actions). Special attention needs to be
paid to two EU programmes currently carried out with
a view to promoting innovation activity: the Seventh
Framework Programme in the area of R&D and
technological progress and the Framework
Programme for supporting competitiveness and
innovation. Their implementation should ensure “the
synergy effects between Cohesion Policy and those
instruments; national and regional development
strategy must show how this can be attained”
(COM(2005)02/99).
Programming documents clearly state that the
strategy to improve innovativeness of European
economies should allow for the specificity of the
R&D sector, which necessitates interactions between
all the agents involved in creating poles of growth. It
is indispensable to create critical mass enabling the
generation and implementation of innovation. This
sort of concentration guarantees improvements in
competitiveness; that is why “R&D in Member States
and less favoured regions should be developed around
the existing poles of excellence. By contrast,
excessive dispersion of resources should be avoided”.
The sum – 2.1 billion euro – earmarked for enhancing
innovation and competitiveness within the framework
of the Lisbon Strategy confirms the weight the
European Commission attaches to this issue10. It is
called more money for progress11.
This drive for improving EU competitiveness
found its reflection also in new objectives of regional
policy for the period of 2007-201312.
1. Convergence;
2. Regional Competitiveness and employment;
3. European Territorial Community13 .
It is worth underscoring that within Objective 1
financial resources are used to carry out investment in
human capital and equipment, development of
innovation, information society. All this is connected
with enhancing competitiveness. Objective
Convergence has been maintained (which is
guaranteed by the Treaty), but the emphasis on
improving competitiveness is more conspicuous.
Is such a strategy bound to be continued during
the next budgetary perspective? It seams that much
depends on the pace of growth of regions falling
under Objective Convergence and the acceleration of
catching-up processes. Now doubts are being cast
over the effectiveness of Structural Funds transfers14.
Some highlight that, despite allocating substantial
resources for Greece and southern Italy, the pace of
growth has not been increased. Bradley questions the
effectiveness of Structural Funds transfers15. He points
out that this sort of aid is not sufficient to stimulate
growth in less developed regions and its impact on
development can vary from region to region (de Vet et
al, 2004), Sepic, 2005).
To summarise, the debate on regional policy
leads one to ask the following question: is it really
reasonable to carry out its disparities-reducing
variant? Is its opportunity cost not too great? Would
regions not develop faster if money transfers were
directed to economically strong regions and
earmarked for increasing innovation?
The current direction of regional policy is
guaranteed by the Treaty’s provisions. However,
dilemmas related to regional policy come to the fore
10 Available at: http://europa.eu.int/comm/regional_policy
11 The biggest part of financial resources will be devoted to
distance learning. Additionally 700m euro was earmarked for
increasing competitiveness, innovativeness and R&D.
12 Beside the modification of objectives, regional-policy financial
instruments were changed.
13 The Regulation of the European Council no 1083/2006,
establishing general regulations on the ERDF, ESF and the
Cohesion Fund and annulling the decree 1260/1999.
14 Models Beutel, Hermin and Quest are used to make assessment.
15 Bradley J., The Impact of Community Support Frameworks on
Objective 1 Countries: Greece Ireland, Portugal and Spain 1989-
2006, Dublin, 2000.
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whenever a new budgetary perspective is worked out.
The intensification of the debate is likely to be
accompanied by the next rounds of accession of
poorer countries. The accession of Bulgaria, Romania,
and later Croatia and Turkey (?) may dramatically
increase budgetary tensions. This is even more so,
given that there are not many net payers and they are
increasingly less willing to finance cohesion policy16.
That is why the concern is that Cohesion Policy
might be radically modified. Different variants are
being considered: from variable geometry, two-speed
Europe and concentrated approach that would allow
Community intervention only when the action by a
Member State would be insufficient17 to the horizontal
option that would engage national authorities to
pursue the aims of Cohesion Policy 18.
The option of two-speed Europe (variable
geometry) has certain merits (an increase in
competitiveness?). This means division of the current
regional policy into two variants: the structural option
applied to the EU-15 and the disparities-reducing one
applied to countries from central and eastern Europe.
It seems that setting different priorities for “New” and
“Old” Europe would result in new divisions and
would be detrimental to “New” Europe.
Hence new Member States should demand that
the „Convergence” Objective – which will ensure
Structural Funds transfers to the poorest regions – be
maintained. One has to remember that the most
convincing argument in favour of the levelling-up
option of regional policy is the occurrence of catch-up
processes and the reduction of distance between the
least affluent regions and the EU average. That is
why it is imperative to make best possible use of the
current programming period as the effective
utilization of financial resources might determine
whether the premises of the current financial
perspective will be kept up in the following
prorgamming period or whether they will turn out to
be a “not-to-be-missed” opportunity.
References
A.M. El-Agraa (1990), Economics of the European
Community, New York, London, Toronto, p.
336
16 This is confirmed by the last debate on the budgetary
perspective for 2007-2013.
17 Community intervention would be directed only at those
countries with GDP per capita of less 90% of the EU average.
18 Bachtler J., Wishlade F., Yuill D., Regional Policy In Europe
after Enlargement, EPRC, Glasgow, p. 23-26.
J. Bachtler et.al. (1996), Longer Term Perspectives on
Regional Policy in Europe, Glasgow p. 23-26.
Bachtler J., Wishlade F., Yuill D., Regional Policy In
Europe after Enlargement, EPRC, Glasgow, p.
23-26
De Vet M., et al. (2004), The Competitiveness of
Places and Spaces, Ecorys, Rotterdam
Levison M. (1992), Nie tylko wolny rynek.
Odradzanie się polityki gospodarczej, Warszawa
Martin R. (2004), A Study on the Factors of regional
Competitiveness. A draft final report for the EC,
Ecorys-Nei
Pietrzyk I. (2000), Polityka regionalna Unii
Europejskiej i regiony w państwach
członkowskich, PWE, Warszawa
Reid D.M., De Martino R. (2003), The
Internationalization of a High-tech Cluster: an
Investigation from three Theoretical
Perspectives, paper presented at the conference
of the European International Business Academy,
Copenhagen
Sepic D. (2005), The regional competitiveness: some
notions, Moscow
The EU Treaty, Art. 158 (130a).
OJ /1988, Framework Regulation 2052/88(OJ L
185/9/1988), „Coordination” Regulation
4253/88 (OJ L 374/1/88, and the Regulation
concerning the three Structural Funds (ERDF,
ESF, EAGGF), OJ L 374/1988.
COM(2005)24
COM(2005)02/99.
http://europa.eu.int/comm/regional_policy
The regulation of the European Council no
1083/2006, establishing general rules on the
ERDF, ESF and the Cohesion Fund and
annulling the decree 1260/1999.
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