The distribution of financial assistance to regions of the European Union, judged in monetary terms, is one of the Union’s most important policy areas. Nowadays it takes a bigger share of the EU’s spending than the Common Agricultural Policy: €347 billion, 42% of the EU’s total spending for 2007-13, can be placed under the heading of ‘regional policy’.

But under that heading lie various competing policy objectives. One objective is to foster economic cohesion between different parts of the European Union: the poorer member states and the poorer regions are given EU money to encourage them to ‘catch up’ with the average.

This redistribution of money from the richer states to the poorer is complicated by a perceived need to ‘give something back’ to the richer states, so as to maintain the support of taxpayers for the European Union.

And whether in rich countries or in poorer member states, it is the regional policies that serve as the EU’s financial instruments for general economic development, providing investment in infrastructure and training. The principal tools available to the EU to pursue the goal of encouraging jobs and growth, as identified in the Europe 2020 strategy, are the regional policy funds.

But that throws up its own policy contradictions, because the European Commission, which disburses the money, does not, centrally, have the freedom to use the money as it sees best. It distributes funds through regional and national governments, which work up programmes and projects that are supposed to meet the Commission’s criteria.

In practice, the money is used to varying effect and with varying degrees of success across the Union. The quality of controls on the spending also varies and the Commission is fighting a constant battle to get member states to comply with the (often complicated) rules on funding. In its most recent report on EU spending, the European Court of Auditors identified regional policy as the area with the highest rate of errors.

Budget constraints

The future of the EU’s regional policy is now up for discussion at a most unfavourable moment. The EU is embarking on what will be fractious negotiations over the level of spending for the period after 2013.

Those negotiations will be launched when the Commission makes its proposal for the multiannual financial framework (the successor regime for 2007-13) in June, to which the European Parliament and the member states will respond.

Although the economic crisis has made the creation of jobs and growth particularly important, many national governments are reluctant to expand spending on regional policy. On the national level, they are forcing through unpopular cuts in public spending as they try to reduce swollen budget deficits.

France, Germany, the Netherlands and Finland are among the ‘net contributors’ to the EU – ie, those that pay in more than they get back in regional aid, farm subsidies or research grants – that have backed a call by the UK to limit the EU’s budget after 2013 to the current levels of spending, with a below-inflation increase.

France has stated that regional policy’s share of overall spending should be reduced after 2013. Although France is traditionally a strong supporter of regional policy, Nicolas Sarkozy, its president, will be seeking re-election in 2012 and he knows that agreeing to a significant reduction in farm-support payments, the second major area of EU spending, would be electoral suicide, so he is looking instead to regional policy to provide savings. The UK government wants the lowest possible level of spending and would settle for a cut in the regional policy allocation as a means of achieving it.

Meanwhile, Germany, still the largest net contributor to the EU budget in absolute terms, wants the policy to be maintained because it provides funding for the poorer regions in eastern Germany. Germany, along with the countries of central and eastern Europe, which are the biggest net beneficiaries of regional spending, will therefore seek to protect regional policy against deep cuts.

In this financially constrained context, the latent tensions in the EU’s policy will be tested. On the one hand, the Commission has been trying to direct funding to the most successful programmes and to countries and regions that can demonstrate that they spend regional funds effectively and with proper controls.

Focused on results

Johannes Hahn, the European commissioner for regional policy, wants regional policy to be more focused on results in the future. He has proposed creating “performance reserves”, by which a certain amount of the overall funding would be kept back and used to reward regions with a record of completing successful projects.

But at the same time, ensuring widespread political support in the European Council for defending regional policy’s share of EU spending requires spreading the benefits around to as many member states and regions as possible. Hahn is trying to maintain support from national leaders by creating a category of transition regions (see Page 15). Hahn will also be arguing that regional policy has a major part to play in helping the EU achieve the policy goals identified by the Europe 2020 strategy to boost growth and competitiveness. “We have been able to make it clear that it’s not an old-fashioned policy. It’s the policy we need for the future,” the commissioner says.

Whatever the merits of these arguments, the reality is that the shape of regional policy will be determined by the outcome of negotiations on the EU’s next financial framework. These could easily take until 2013 to complete, which would leave Hahn with less than a year to match the future of regional policy to the funding levels. This will not make for the best planning and the best thought-out programmes, but it is in the tradition of EU regional policy.

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