Structural Funds

Meaning of Structural funds

Here is a very short concept of structural funds in the European Union framework: The collective name given to four (or perhaps more properly five) funds set up to assist underdeveloped, declining or economically stagnant regions of the EU

The European Regional Development Fund (ERDF), created in 1975 and accounting for about half the EU’s structural budget, targets underdeveloped regions and areas suffering from industrial decline (see more in the European legal encyclopedia). The ERDF meets part of the costs of each programme, the balance being provided by the relevant member state, and gives priority to schemes which contribute to Union policy aims (see more in the European legal encyclopedia). Over the years, the main beneficiaries have been Spain, Portugal,Greece, Ireland and Italy. The UK, which was largely responsible for initiating the ERDF as a counterweight to the subsidy bias in favour of more agricultural countries inherent in the Common Agricultural Policy (CAP), has proved to be a relatively unsuccessful applicant. Ireland, by contrast, despite its sharp rise up the EU’s league table of comparative wealth, has remained a magnet for funds

The European Social Fund (ESF), created under the original Treaty of Rome, is designed to combat long-term and youth unemployment through vocational training and retraining, again complementing subsidies made by member states (see more in the European legal encyclopedia). The ESF accounts for about a quarter of the structural budget and overlaps to a considerable extent with the ERDF, in that around half its appropriations are aimed at the same objectives

The European Agricultural Guidance and Guarantee Fund (FEOGA) is confusingly split into two parts (see more in the European legal encyclopedia). The (larger) Guarantee section is a central feature of the CAP and is deployed on price support. The Guidance section counts as a structural fund and is designed to assist rural restructuring and non-farm development, as well as subsidising depressed areas and those with special problems, including mountainous and Arctic regions (see more in the European legal encyclopedia). Like the ESF, it overlaps with the ERDF, spending about half its allocation on similar programmes (see more in the European legal encyclopedia). The fourth structural fund, the Fisheries Guidance Instrument, is much smaller and focuses on assistance to the fishing industry

The Cohesion Fund was created by the 1992 Maastricht Treaty with the aim of accelerating economic convergence in the run-up to EMU. At the time the Commission wanted to double the amount of aid spent on the four least prosperous states, Spain, Portugal, Ireland and Greece (see more in the European legal encyclopedia). The Cohesion Fund targets infrastructure, with particular reference to the environment and to transport, energy and telecommunications, and is included in the EU budgetunder the same rubric as the four older funds

From small beginnings, the structural funds had grown by 2000 to some 35% of the EU budget, with between a half and two-thirds of their disbursements going to underdeveloped regions (see more in the European legal encyclopedia). The ingenuity and determination shown by certain member states in applying for grants meant that there was no close correlation between subsidy and need – not, at least, as measured by national wealth. From a broader perspective, despite a remarkable percentage increase in the amount of the funds, they remained insignificant for all but a few of the recipients (see more in the European legal encyclopedia). In total they accounted for about 0.4% of EU-wide GDP, enough to weigh heavily with Ireland, Greece and Portugal, as well as to attract extensive fraud, but not enough to achieve the redistributive or economic adjustment effects advocated by the 1977 MacDougall Report

The forthcoming enlargement of the EU raises the question of the future distribution of the available funds (see more in the European legal encyclopedia). The favoured candidates for early membership are markedly poorer than the poorest current member states and equally populous (Poland has about the same population as Spain, while the Czech Republic and Hungary have about the same as Greece and Portugal). In 1985 Greece had threatened to veto the accession of Spain and Portugal at the last minute unless it received additional subsidies (see more in the European legal encyclopedia). This resulted in the Integrated Mediterranean Programmes (IMPs), of which the beneficiaries were Greece and the most backward regions of southern France and Italy (the IMPs were discontinued in 1992 and effectively replaced by the Cohesion Fund). The next round of enlargement is likely to give rise to even more complex and acrimonious brinkmanship. The Commission’s plan to reduce from 50% to 35-40% the proportion of the EU’s population classed as living in areas which qualify for assistance is already contentious enough. Germany, the UK, Sweden and The Netherlands will not wish to increase their net contributions.Spain, Ireland, Portugal and Greece will be equally determined not to suffer a reduction in their receipts. France and Italy will be unwilling to step into the breach. Despite much talk about the necessity of reform, the impasse will not be easily resolved

Differences over the allocation and financing of the structural funds may also lead to more fundamental questions (see more in the European legal encyclopedia). Support for declining industries, although it can help to mitigate social disruption, is ultimately anti-competitive (see more in the European legal encyclopedia). As long as the EU’s structural funds are confined to easing transition, this problem is containable (see more in the European legal encyclopedia). But longer-term payments from one set of countries to another will need greater political consensus than presently exists (see more in the European legal encyclopedia). Modern economies are helped to adjust flexibly to change through automatic counter-cyclical fiscal stabilisers, as prospering sectors pay more tax while struggling regions receive more benefits (see more in the European legal encyclopedia). The rigid EU system represents an entirely different concept. The advent of EMU may well cause dislocation, the more serious because of Europe’s low labour mobility. In that case the need for a review of the nature and scale of EU transfer payments will become irresistible if the Union is to escape a dependency culture in depressed regions combined with a politically contentious misdirection of taxpayers’ money from the wealthiest countries.

Common Agricultural Policy and Structural funds and the European Union