Provisional Report Mr Soares

- 1 -

Brussels, 6 April 2011

- 1 -

1. Economic, social and territorial cohesion – A conceptual approach

1.1 The term "economic cohesion" implies the cross-regional convergence of specific economic indicators, especially those relating to per capita GDP. A competitive economy requires a high level of efficiency and effectiveness paving the way for a genuine capacity to create jobs and to pay for economic factors, i.e. a capacity to improve the average standard of living in a sustainable manner.

1.2 The concept of social cohesion means everyone enjoying equal access to the benefits of economic progress and is associated with the convergence criteria found in regional structural policy objectives, whilst seeking to ensure a more balanced distribution of the fruits of development. In principle, 'social cohesion' means the system of social protection and social welfare that forms part of the European social model.

1.3 The concept of territorial cohesion values the “territory” as the key area for integrating behaviours, focussing on the ability of a territory (country, region) to strike a balance between developing processes to create a competitive economy and a cohesive society. In the context of European integration, territorial cohesion therefore means optimising coordination between sectoral and regional policies, both in terms of providing resources and infrastructure and of promoting territorial factors for competitiveness.

2. Economic, social and territorial cohesion in the European Treaties

2.1 Back in 1957, the Treaty of Rome set the objective of "reducing the differences existing between the various regions and the backwardness of the less-favoured regions".

2.2 Article 174 of Title XVIII of the Lisbon Treaty, on economic, social and territorial cohesion, adopted in 2009, states that 'in order to promote its overall harmonious development, the Union shall develop and pursue its actions leading to the strengthening of its economic, social and territorial cohesion. In particular, the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions.'

2.3 Article 175 of the Treaty stipulates that 'Member States shall conduct their economic policies and shall coordinate them in such a way as, in addition, to attain the objectives set out in Article 174. The formulation and implementation of the Community's policies and actions and the implementation of the internal market shall take into account the objectives set out in Article 174 and shall contribute to their achievement.'

3. Lessons to be learnt from the Treaty

3.1 Under the provisions of the Treaty, the Member States and the Union must also consider the economic and social cohesion factor before making any decisions relating to any Community policies and activities. In other words, the need to bolster economic and social cohesion is not just limited to specific Community policies and activities, but permeates all of them.

3.2 Another conclusion can therefore be drawn: that economic cohesion does not have priority over social cohesion, and all Community policies must pursue both in parallel and concurrently.

4. Financial instruments as tools for cohesion

4.1 The Union's main financial instruments for pursuing economic, social and territorial cohesion are the so-called Structural Funds: the European Agricultural Guidance and Guarantee Fund, "Guidance" Section, the European Social Fund, the Cohesion Fund and the European Regional Development Fund. Also involved are the European Investment Bank and other EU financial instruments.

4.2 European Social Fund (ESF) – The ESF is the EU's main instrument serving the European Employment Strategy, aimed at reducing the disparities between the living standards of the Union's citizens and regions. The ESF mainly focuses on the individual support which the citizens require in order to become more 'employable', but it can also be used to help to improve systems and structures that make the labour market function more effectively.

4.3 European Regional Development Fund (ERDF) – Aimed at reducing the disparities between the levels of development of the European regions and the backwardness of the least developed regions. Its contribution is to support the development and structural adjustment of regional economies, including the conversion of declining industrial regions.

4.4 Cohesion Fund – Contributes to the funding of actions in the field of the environment and the trans-European transport networks in the ten new Member States and in Spain, Greece and Portugal. This fund is aimed at strengthening the economic and social cohesion of the European Union in the interests of promoting sustainable development.

4.5 The funds are applied according to a regulation setting 3 priority objectives: Objective 1, which aims to promote development and structural adjustment for regions lagging behind in development; Objective 2, which supports the economic and social conversion of areas facing structural difficulties and Objective 3, which supports the adaptation of policies and systems of education, training and employment for regions not covered by Objective 1.

4.5.1 Objective 1 – Eligible areas are those with per capita GDP less than 75% of the EU average, i.e. the 'cohesion' countries, that is, those with gross national income less than 90% of the EU average and to which 78% of the cohesion policy budget is allocated (as envisaged by the Financial Perspective for 2007 2013). Support is provided via the ERDF, the ESF and the Cohesion Fund. The ERDF supports the development at local levels of content, applications and services, the environment, tourism, energy, direct financing of investment by SMEs contributing to job protection and job creation; the ESF is aimed at enhancing the adaptability of companies and employees, stimulating investment in human capital; the Cohesion Fund supports trans-European transport networks, environmental protection, activities which are conducive to sustainable development and have an environmental dimension.

4.5.2 Objective 2 – dedicated to regional competitiveness and employment. Eligible regions are all those which are not covered by Objective 1 and to which 18% of the cohesion policy budget is allocated. There are two priorities for intervention: regional competitiveness, through regional programmes funded solely by the ERDF, aimed at tackling problems rural and urban areas face because of economic restructuring and the difficulties of regions with natural and structural handicaps, especially islands and sparsely populated areas and employment, through national programmes which are solely funded by the ESF. Here, the emphasis is on supporting policies aimed at ensuring full employment, quality and productivity and social inclusion.

4.5.3 Objective 3 – dedicated to interregional and European cooperation and allocated 4% of the cohesion policy budget. Covers the whole of EU territory and programmes are determined according to proposals from the Member States and decided upon in partnership with the Commission. The relevant fund is the ERDF and the intention is to support cross-border cooperation (development of entrepreneurship, SMEs and tourism, overcoming isolation through better access to services and transport, information and communication networks), transnational cooperation (improving accessibility, supporting technological development and R&D) and interregional cooperation networks (innovation and the knowledge-based economy, the environment and risk prevention, the urban dimension).

4.5.4 The Financial Perspective for 2007-2013 will allocate EUR 347 billion for investment, of which EUR 86 billion will be for research and innovation; EUR 15 billion for services and infrastructure; EUR 27 billion for support for SMEs; EUR 26 billion for education and training and EUR 102 billion for the environment and sustainable development.

5. The impact of structural policies

5.1 It is now widely agreed that cohesion should not be understood solely in terms of GDP. There should be a 'more representative indication of cohesion [which should include] in addition to GDP, parameters such as employment and unemployment levels, the extent of social protection, the level of access to general interest services etc.'

5.2 The Structural and Cohesion Funds have had an impact in many dimensions: growth, cohesion, more and better jobs, environmental sustainability. They have helped consolidate the European social model.

5.3 The Funds have had an undoubted impact, helping the least favoured countries/regions to catch up in terms of employment, growth and infrastructure; they have created a leverage effect and helped to impose discipline on local authorities and to raise the EU's profile.

5.4 Structural policy has also bolstered the internal market by means of the trade and jobs generated from the conception and implementation of Structural Fund-based projects which, moreover, would often never have come about without the catalyst effect of EU intervention.

5.5 Between 1994 and 2001, growth of per capita GDP in the cohesion countries was 1% a year above the EU average (3% as against 2%), and the proportion of working-age population in employment in all apart from Greece increased by much more than the average. In Greece, on the other hand, as in Ireland, growth of labour productivity was over twice the EU average over this period and it was also well above average in Portugal.

5.6 In Spain, GDP in 1999 is estimated to have been some 1.5% higher than it would have been without intervention, in Greece, over 2% higher, in Ireland, almost 3% higher and in Portugal, over 4.5% higher. In addition, GDP in the new German Länder is estimated to have been increased by around 4% as a result of intervention.

5.7 Between 2000 and 2006, the policy contributed to increasing GDP by 2.8% in Greece and 2.0% in Portugal; preliminary estimates suggest that over the period 2007-2013, the policy will contribute to increase the GDP of Lithuania, Latvia, and Czech Republic by around 8.5%, of Poland by around 5.5%, and of Greece by around 3.5%. It has annually co-financed the training of nine million people, more than half of whom are women, leading to better working conditions and greater productivity. In six countries, between 2000 and 2005, more than 450 000 gross jobs were created, corresponding to 2/3 of the funding of Objective 2.

5.8 Each euro spent at the EU level by cohesion policy leads to further expenditure, averaging EUR 0.9 in less developed regions (Objective 1) and EUR 3 in regions undergoing restructuring (Objective 2).

5.9 It should be stressed that, on average, around a quarter of structural expenditure returns to the rest of the Union in the form of increased imports, especially of machinery and equipment. This 'leakage' is particularly large in the case of Greece (42% of expenditure) and Portugal (35%). We can therefore conclude that whilst the least favoured regions benefit from the funds, the more developed regions also benefit.

6. Two challenges (amongst many others)

6.1 Overcoming the economic and social crisis – The Financial Perspective for 2007-2013 have not and could not have taken account of the serious economic and social crisis resulting from the financial collapse of 2008, which has had an impact on the social indicators for the majority of EU countries. The deterioration in the social situation requires new measures to prevent the countries facing greatest difficulties from straying further from the European average.

6.2 Given the international financial crisis and its ongoing consequences, the moment has come to carry out a thorough review of the mechanisms governing the use of resources earmarked for cohesion policy, in order to make them more consonant with growth and a reinvigorated European economic policy. It is also necessary to put social policy at the heart of cohesion policy as one of its main objectives. This is all the more necessary at a time when the economic and social crisis that has followed on from the financial crisis is having a severe impact on the most vulnerable sections of the population.

6.3 Declining populations and major cities – Eighty-six of the Union's regions will have to face the challenge of declining populations, while seventy-six others will only be able to maintain their growth by means of their immigrant populations. In much of Spain, Italy and Greece, just two people are in work per one retired person, while the European average is three people per retired person.

6.4 Furthermore, technological progress, globalisation and mobility are leading to an increasing number of city-regions and metropolitan areas throughout Europe which may, in the short term, be a factor for economic growth, but, in the long term, there is a risk that this phenomenon may damage the production potential of the weakest regions and reduce their ability to exploit their comparative advantages. For major cities, the excessive concentration of enterprise and population can create congestion and put great pressure on the environment, while in others it can cause decline and depopulation. Furthermore, all of this goes against the objective of sustainable development.

______