Over 75%, your ticket is no longer valid. From Galicia to Warsaw, some 20 European regions will lose convergence aid in 2014 if regional policy rules apply mechanically. Their GDP per capita is more than 75% of the EU average, the convergence eligibility threshold (see map on page 16). Billions of euro are at stake for these regions, which are pushing for a transition mechanism for 2014-2020. What scope could be given to such a device? Who would its beneficiaries be? The cohesion report to be presented by the European Commission in November will outline the terms of the debate. The member states will get their bearings at the Cohesion Forum in January 2011, in the run-up to the new financial perspectives. The battle is just beginning.

STATE OF PLAY

The current regional framework policy (2007-2013) establishes a transition mechanism for different categories of regions. The first concerns those whose GDP is more than 75% of the EU25 average, but would not have reached the 75% mark in the Europe of 15. In 2005, 16 regions were identified as victims of this ‘statistical effect’ of enlargement. They are presently in the phasing-out category, which allows them to continue to receive successively lower amounts of convergence aid. A second category, known as phasing-in, concerns regions that exceed the EU15 75% mark, but have not attained the EU average. They are allocated a higher volume of financing under the competitiveness and employment objective. The idea is to keep these regions from falling off the cliff: aid intensity varies from one to nine between the competitiveness objective (ex-Objective 2) and the convergence objective (ex-Objective 1).

PUNISHED FOR SUCCEEDING?

The future transition regions maintain that a sudden withdrawal of convergence aid would endanger ongoing projects and that they need to be able to plan on a long-term basis. Without a transition mechanism, current aid for Saxony-Anhalt (Germany), for example, would be slashed by two thirds. Galicia (Spain) would lose a billion euro, notes Ana Ramos, director of Galicia Europa Foundation in Brussels. “The region would be punished so to speak for having used the funds wisely to manage its transformation,” she says.

The cut-off of convergence funds could lead to a recession for Mazovia, which still lacks major infrastructure requiring massive investment, notes Adam Struzik, marshall of the region that includes Warsaw. There is not yet a single motorway around Warsaw, a regional airport is needed and the waste treatment system requires modernisation, he observes.

20, 30 OR 100 TRANSITIONS?

According to Eurostat figures for 2007, some 20 regions currently under the convergence objective exceed the EU27 75% threshold (see box). Some are in ‘old’ member states: Eastern Germany, Spain and the United Kingdom in particular. Yet ‘new’ member states are also concerned for the first time: Malta as a whole and the capital regions of other states: Warsaw in Poland, Ljubljana in Slovenia and Bucharest in Romania.

The results will not be the same if the ‘statistical effect’ is calculated on 25 states rather than 27. If the reference is the EU15, current phasing-out or phasing-in regions or those experiencing economic decline (like Abruzzo in Italy) could hope to remain in or enter a transition category. The question is whether the phasing-out mechanism will be phased out, ie whether the regions already in transition will still receive extra help.

A study by the European Policies Research Centre notes that this phenomenon “raises the curious prospect of the capitals of Poland, Romania and Slovenia losing eligibility completely (except for phasing-in, assuming the designations were the same), while some regions of richer member states (Belgium, Italy, UK) gain or regain phasing-out status”. An automatic mechanism could therefore create inequalities, as borne out with the case of Mazovia (Poland). According to 2007 statistics, this region’s GDP per capita amounted to 87.1% of the EU27 average. As a result, it would in principle no longer be eligible under the convergence objective after 2013. The problem is that the region’s wealth is patchy, Struzik says. It includes Warsaw, whose GDP stands at around 150% of the EU average, but also areas where GDP is closer to 50% of the average. In parallel, unemployment is 3% in Warsaw, compared to 30% elsewhere in the region. Access to education, health care, internet and the like also need to be taken into account.

“The use of overall GDP as the sole phasing-in criterion is not a reflection of reality,” Struzik notes. “This is not about having more funds in the next financial perspectives, but about more targeted aid in areas that need it.” He hopes to see more flexibility in the analysis of convergence thresholds and in the distribution of aid for regions like his.

Which regions should be considered in transition? Should GDP be calculated on the basis of the 15, 25 or 27? What about regions that fall between 75% and 100% of the European average? Can phasing-out regions hope for further transition assistance? These billion-euro questions are up in the air. In the run-up to the financial perspectives, member states and regions are counting their troops.

OPPOSING FORCES

The regions directly concerned are trying to join forces. Saxony-Anhalt, which in late 2009 had taken a leading role, ended up throwing in the towel after failing to identify converging interests among all the transition regions (phasing out, phasing-in, under the 90% GDP mark, etc). Galicia Europa Foundation has launched an initiative to speak for the 20 regions becoming ineligible for convergence for the first time, baptised ‘Convergence regions on the way to cohesion’ (CROWC).

“This is a question of fairness: the regions that for the first time no longer meet the convergence criteria must be eligible for the same support as those currently in phasing-out,” argues Ramos. The CROWC points out that the case of regions currently in phasing-out status should not be confused with that of the potentially new ineligible regions. This position seems to be gaining ground. An opinion of the Committee of the Regions states that “in any case, irrespective of the future structure and aims of regional policy, financial help should be guaranteed for those regions which, for the first time, are no longer eligible under the convergence objective”.

In contrast with what happened during discussions on the present period, the Länder and the German government have already got their story straight. They are calling for the creation of a new specific transition objective and for keeping to convergence regions. The opinion of the Committee of the Regions presented by the representative of Saxony-Anhalt, Michael Schneider, states that for the regions no longer eligible for maximum aid, “including those regions affected by the so-called ‘statistical effect’, appropriate and fair transitional arrangements must be put in place under the convergence objective”. For Schneider, 30 to 40 regions would be in transition under Objective 1. “By enlarging the concept of transition to cover all regions whose GDP lies between 75% and 100% of the average, we would reach around 100 regions, which is financially unsustainable,” he explains. The Germans and Spaniards seem willing to defend common interests on this question.

The French are not all on the same wavelength at this stage. The presidents of the regions adopted last June a position in support of “phasing-out and phasing-in mechanisms for the regions that will no longer be eligible for convergence and mechanisms to vary aid intensity in terms of the level of development for regions already eligible under the regional competitiveness and employment objective”. The government is “extremely cautious,” according to sources in Paris. The overseas regions barely exceed the 75% mark and already receive other forms of EU aid. On the other hand, several French Objective 2 regions have a GDP between 75% and 100%. “If the GDP criterion is not called into question it must be applied objectively. This is a question of fairness between the regions,” notes a French source. At the same time, the “cost of phasing out is significant and must be related to what will become of the other important budget item: the Common Agricultural Policy”.

The governments of the Netherlands, Sweden and the UK traditionally defend the concentration of Structural Funds on the poorest states. Iain Begg, of the London School of Economics, points out in his analysis entitled ‘The future of cohesion policy in richer regions’: “In the 2007-2013 programming period, around a quarter of cohesion spending has been allocated to convergence regions in member states with GDP per capita above the EU27 average – principally to regions in Spain, Italy and Germany”. Some observers are already announcing an epic battle at the European Council in summer 2012 that will seal the deal.

“The use of overall GDP as the sole phasing-in criterion is not a reflection of reality”  

Background

REGIONS BECOMING INELIGIBLE FOR CONVERGENCE FOR THE FIRST TIME (GDP > 75% in 2007)

Germany: Brandenburg-Nordost (76.1%), Mecklenburg-Vorpommern (81.1%), Chemnitz (82.6%), Dresden (87.7%), Thüringen (83.0%)

Slovenia: Zahodna Slovenija (106.7%)

Spain: Andalucia (81.2%), Castilla-la Mancha (81.5%), Galicia (88.8%),

France: Guadeloupe (76.3%), Martinique (75.1%)

Greece: Peloponnisos (75.7%), Kriti (83.7%)

Malta: Malta (76.4%)

Poland: Mazowieckie (87.1%)

Portugal: Algarve (79.6%)

United Kingdom: Cornwall & Isles of Scilly (75.2%)

Czech Republic: Strední Cechy (75.2%)

Romania: Bucharest (92.2%)

REGIONS CURRENTLY IN CONVERGENCE TRANSITION (phasing out – GDP > 75% of EU25)

Belgium: Province of Hainaut

Germany: Brandenburg-Südwest, Lüneburg, Leipzig, Halle

Greece: Kentriki Makedonia, Dytiki Makedonia, Attiki

Spain: Ciudad Autónoma de Ceuta, Ciudad Autónoma de Melilla, Principado de Asturias, Murcia

Austria: Burgenland

Portugal: Algarve

Italy: Basilicata

United Kingdom: Highlands and Islands

REGIONS CURRENTLY IN COMPETITIVENESS TRANSITION (phasing in - GDP >75% of EU15)

Ireland: Border, Midland and Western

Greece: Sterea Ellada, Notio Aigaio

Spain: Canarias, Castilla y León, Comunidad Valenciana

Italy: Sardegna

Cyprus: entire territory

Hungary: Közép-Magyarország

Portugal: Região Autónoma da Madeira

Finland: Itä-Suomi

United Kingdom: Merseyside, South Yorkshire