EU enlargement weighs heavy on regional budget

Date: 18/07/1996

REGIONAL Affairs Commissioner Monika Wulf-Mathies insists that extending EU regional policies to the struggling economies of Central and Eastern Europe need not involve any increase in budget contributions from the current member states.

Stung into action by speculation about the potentially crippling costs of taking in as many as 12 hard-up new member states, she has finally begun to provide some estimates to back up her brave assertions.

This will come as a relief to EU governments increasingly unwilling to commit any more of their taxpayers' money to the Union's budget and alarmed by estimates that enlargement would push spending on both regional development policies and agriculture through the roof.

It is perhaps telling that Wulf-Mathies chose the German Bundestag as the forum to present the Commission's latest thinking. Although the champion of eastwards expansion, Germany is at the same time increasingly concerned with keeping a tight rein on EU spending - and yet it continues to lobby hard for extra money to support the changes in its eastern Länder.

Wulf-Mathies claimed that financing for the structural and cohesion funds could be expected to rise from 28 billion to 37 billion ecu a year from the turn of the century without raising member states' individual contributions to the budget.

But she admitted that the Union could not take in new members for free and could expect a 30% increase in support for poorer regions over the first seven years of the next century.

The Commissioner insisted adequate scope would remain for continuing special support to the four cohesion countries - Spain, Portugal, Greece and Ireland - stressing that enlargement was "not conceivable" economically or politically without guarantees to the Union's existing poorest regions.

But she was brave enough to admit that several regions in existing member states would no longer qualify for EU money in an enlarged Union - particularly parts of Spain, Portugal, Italy and Ireland.

Although being struck off the list of deserving regions should be a sign that the Structural Funds have worked, the unwillingness of a number of governments to allow their Objective 2 funding to be cut during the current review of eligible areas is a portent for the future.

Clearly, Wulf-Mathies faces a major problem to persuade the current recipients of EU regional aid that they will not suffer from the Union's political commitment to take in its brethren to the east.

One thing is certain. The 'Santer I' financing package for the beginning of the next century will not boost regional spending in the same way as the 'Delors II' package did in the early 1990s.

Instead, the Commission and member states will have to find ways of making better use of what money is available.

Things are made yet more complex because Santer I will have to be put together soon after the end of the Intergovernmental Conference, coinciding with the preparation of negotiating mandates for enlargement.

The need to ensure the best possible value for money, particularly in this era of stringent financial control, is the main driving force behind the Commission's current thinking.

Wulf-Mathies is at pains to stress that reform of the Structural Funds will be driven as much by internal pressures as by the prospect of enlargement.

The current review of Objective 2 spending (for areas suffering sharp industrial decline) has allowed the Commission to flag up the idea of increased 'concentration' of funding.

Rejecting the current 'watering can' principle, which sees funding spread rather thinly over 51% of the EU's population, the Commission is looking in the medium term to reduce coverage to about 35%, convinced that greater concentration will bring more concrete results.

The timing of such changes remains uncertain, but serious pointers for the future are expected in the so-called Cohesion Report, originally promised for this summer but now unlikely to appear before November. This will look at the effects of regional funding on each member state and all EU policy areas, and particularly the decision to double the financial package from 1993. "Some would argue that pouring money into some regions has actually retarded development by holding back economic dynamism," argues one member state official.

Likewise, next spring's mid-term review of Objective 1 funding (for areas whose per capita GDP is less than 75% of the Union average) will provide the Commission with an opportunity to reappraise the distribution of regional aid, which now accounts for about a third of the EU budget.

The Commission also realises that changes are crucial if regional aid is to be put to better use and meet the biggest challenge currently facing the Union - the fight against unemployment.

Wulf-Mathies' Cabinet stresses with some pride that of the myriad of measures which make up Commission President Jacques Santer's 'confidence pact', it was those on the use of the Structural Funds which found the greatest resonance at last month's Florence summit.

Member states sound a note of caution, however, admitting they are far from happy with the idea of 'territorial employment pacts', which they see as a back-door way of paying EU money directly to regional authorities and thus by-passing national governments.

In practical terms, member states and regions have long recognised the usefulness of employing structural fund money as a motor for jobs. Recent research on the use of Objective 1 money in seven member states showed that 800,000 jobs were dependent on EU financing.

In recently published guidelines for structural measures in the new member states, the Commission put the emphasis on promoting the information society and helping small and medium-sized enterprises - accepted as providing the best vehicles for creating new jobs.

Perhaps the most immediate effect of Wulf-Mathies' arrival at the helm of Directorate-General XVI (regional policy), however, has been to shift the balance towards tougher environmental goals.

The Commission is aiming to ensure, by the end of this year, that 50% of Cohesion Fund money is directed towards environmental projects in the four countries covered, rather than giving priority to transport infrastructure as in the past.

Concerned with catching up with their EU neighbours, cohesion countries are not enthusiastic. "I cannot deny that this policy is still having to be pushed through in the face of energetic resistance from certain countries," Wulf-Mathies told the European Parliament's environment committee.

Environmental considerations have also shifted the spotlight on to another area where internal reform is regarded as a necessity. It took considerable pressure from Green groups, led by Portugal's LPN and the World Wide Fund for Nature, to persuade the Commission that the construction of the Tagus Bridge,

part-financed from the Cohesion Fund, could be breaking environmental rules.

Wulf-Mathies is now optimistic of a satisfactory conclusion to the Portuguese case, but it has highlighted the need to improve spending controls in these days of increasing anti-fraud initiatives.

The Commissioner has stressed that sanctions for wrongdoing could include the suspension and even clawing back of regional funding. As yet, there are no firm plans for an extension of the exhaustive annual spending review carried out in the agricultural sector under the 'clearance of accounts' procedure, but all future projects costing over 50 million ecu will be subject to special investigations into their potential environmental effects.

The Commission will also rely on Article 24, requiring member states to provide detailed additional data on the use of funding if any doubts are raised.

As is so often the case, officials stress that their hands are tied largely because financial control remains the responsibility of the member states. Wulf-Mathies has, however, pledged to redouble her efforts to streamline the tortuous administrative procedure used to decide on the division of the money.

Some, notably the French, have raised the notion of adding a new element to the qualification requirements for EU funding, linking awards to set economic criteria.

So far, the Commission has reacted coolly to the idea. Although this type of 'conditionality' clause already applies to Cohesion Fund money, the Commission decided last month that neither Ireland, Greece, Spain or Portugal should have their funding blocked for having excessive budget deficits during 1995.

Aware of the huge internal and external pressures she faces, Wulf-Mathies is very gradually revealing her hand, looking to the Cohesion Report to point the way ahead.

In the meantime, she is pressing for majority voting on regional policy questions and co-decision powers for the Parliament. Unanimity, she claims, "makes the Union vulnerable to blackmail attempts and often stands in the way of sensible compromises".