EU's Regional Funds Won't Cure Economies

Regional policy currently accounts for the biggest slice of the general EU budget, but these funds alone are not enough to tackle the effects of the recession across the EU, experts say.

The total money available for regional policy between 2007 and the end of 2013 is €347 billion, with over 80 percent of this earmarked for the EU's poorer regions. The rest is aimed at boosting competitiveness and innovation in the bloc's wealthier countries.

The main objective of regional funding is to reduce the economic and social gap for regions below 75 percent of the bloc's average GDP. This objective, called "convergence," applies to virtually the whole territory of eastern Europe with a few exceptions, such as Prague or Budapest.

Portugal, southern Italy, most of Greece, four regions in Spain and two in England, Malta, as well as the French overseas territories are also included.

Poland will receive the biggest amount of the seven-year regional funding - €67.2 billion. Most of the money is aimed at improving the country's infrastructure, for instance by tripling the length of highways and rail tracks, increasing the share of renewables from 2.9 percent in 2005 to 8.5 percent in 2013, as well as creating 3.5 million jobs.

The poorest EU member states, Bulgaria and Romania, also put their main priorities in building much needed roads and "basic infrastructure" such as sewage systems and water treatment plants.

Yet the targets set out by the national governments were drafted well before the current economic crisis hit.

In response to the crisis, the EU commission had to relax some of the funding rules earlier this year, in order to give cash-strapped member states more flexibility and upfront payments.

Last month, the EU executive also suggested member states should allow projects aimed at tackling unemployment – funded from the EU's "social fund" worth some €10 billion a year – to be fully reimbursed in the coming two years. Up to now, member states were obliged to pay between 15-50 percent of the grants themselves.

But the amounts made available for social issues remain far too small to make a difference in the current economic crisis, experts say.

"The reform of structural funds was done when there was no crisis and when they had to meet other priorities," Monika Mura, an expert on regional policy from the University of Bristol, told this website.

"Now with the crisis the priorities should shift more towards unemployment. The EU commission is not going to save Europe from the recession, there are many other institutions – national governments, the European Central Bank, countries like the US – which will contribute to the recovery. But correcting the funds could offer some help. If the funds were bigger, it would be even better," she said.

Ms Mura said regional policy was initially drafted on the assumption that geographical distance from more developed regions can become a handicap for the less developed ones. "It is now time to shift the paradigm from infrastructure to unemployment, but also social issues in general," she concluded.

A spokesman with the EU commission said that EU's regional policy was "flexible, decentralised and responsive" and that the broad priorities set out in 2007 – job creation, innovation and competitiveness "remain the right priorities."

If a country wants to change its so-called operational programmes – the broad frameworks under which concrete projects were financed - it must get the approval of the commission first, he added.Errors and irregularities

Regional projects financed in the previous seven-year budget of the EU (2000-2006) were marred by errors and irregularities. The Court of Auditors estimated in its last report that "at least 11 percent of the total amount reimbursed (in 2007) should not have been reimbursed."

Misspent money is claimed back from member states, last year the EU commission almost tripling the amount retrieved from bad regional projects. Almost €900 million was claimed back in 2008, compared to €287 million in 2007.

The most common errors made by member state authorities include awarding contracts without a proper tender or with insufficient supporting documentation, or overestimating payment claims.

The EU executive has strengthened the rules and now requests each member state to pre-audit their "operational programmes" and authorities dealing with the EU funds.National legislation hampers Polish projects

In the biggest recipient, Poland, current delays in EU-funded infrastructure projects are mainly due to national legislation issues, Mariusz Mielczarek, representing the Polish region of Lodz in Brussels told EUobserver.

"In all Polish regions we find the biggest difficulties arising from state aid rules and environmental law. The procedures are time consuming, national regulations were not in line with European ones, now some adjustments have been made, but it still takes time to prepare applications which comply with both environmental law and state aid rules – basically all infrastructure projects need that," he explained.

Referring to the simplification of EU funding rules introduced last November, Mr Mielczarek said that "not all ideas that came from Brussels are already operational on the regional level."

In the years 2007-2013, the region of Lodz is set to receive over €1 billion from the structural funds for transport infrastructure, geothermal energy projects and an urban facelift of Lodz' centre.

Almost 30 percent of the total amount is dedicated to investments in innovation and small and medium enterprises. In addition, some €500 million is to go to programmes financed by the Social Fund, plus national grants for universities or regional projects amounting to some €500 million.

Clean coal technology was of particular interest to his region, he said, since it hosted the biggest coal-fuelled power plant in Poland. The region was promised €180 million for CO2 capture and storage from the EU recovery package, worth a total of €5 billion.

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