The various EU funds from which assistance can be sought have come to be regarded as a key driver for economic development and regeneration in the poorest-performing regions of the UK. The EU’s various regional programmes now account for more than a third of the institution’s total budget.

As with most aspects of the EU, regional programmes have assumed mind-boggling complexity. In essence, the EU identifies a number of key objectives and initiatives, under which assistance can be applied for from several separate funds.

In the case of UK regions this means drawing on the European Regional Development Fund (ERDF) and the European Social Fund (ESF).

The EU’s regional policies are based on the premise that, in order to stimulate economic activity in poorer regions, private-sector investment needs to be supplemented by public support.

The bulk of this has to come from the Member States themselves, although the EU believes that the problems are big enough to warrant its involvement in a combined effort to ensure that all regions can take full advantage of the single market and of Economic and Monetary Union.

The admission of 12 new members from central and Eastern Europe and the Mediterranean in 2004 and 2007 presents a stiff challenge to achieve economic and social cohesion across the Union, given the considerable development lag compared to the other 15 member states.

Enlargement has increased the Union's diversity, posing problems of adjustment for both regions and sectors. The EU’s richest regions (London, Brussels, and Hamburg) have a GDP per head that is nine times larger than the poorest regions, which are in Romania.

Funds for regional assistance are allocated over budgeting periods of six or seven years.

During the previous round, which ran from 2000 to 2006, there were three key objectives, of which ‘Objective 1’ was by far the most important, as it made funds available to entire regions whose GDP per head was less than 75% of the EU average.

In the UK, Objective 1 funds were available to Cornwall and the Isles of Scilly, West Wales and the Valleys, Merseyside, and South Yorkshire. In the 1990s, the Highlands and Islands and Northern Ireland also benefited.

Table 13.7: Allocation of EU funds by objective 2007-13

For the 2007-13 budgeting period, three objectives were specified:

• convergence,
• competitiveness and employment, and
• inter-territorial co-operation.

The ‘convergence’ objective, which replaces Objective 1 and 2 as per the 2000-06 budgeting period, is by far the most important, accounting for over 80% of all regional funds.

Convergence assistance is currently available to all of Bulgaria, Cyprus, Estonia, Latvia, Lithuania, Malta, Poland, Romania, and Slovenia; to large parts of the Czech Republic, Greece, Hungary, Portugal, and Slovakia; and to smaller portions of Germany (most of the former East Germany), Spain, France (only four overseas territories), Italy (areas in the south), and the UK.

No areas qualify in Austria, Belgium, Denmark, Finland, Ireland, Luxembourg, the Netherlands, and Sweden.

In the UK, Cornwall and the Isles of Scilly, West Wales and the Valleys, and the Highlands and Islands qualify although the latter receive phasing out funding rather than full funding.

Their combined allocation for the 2007-13 funding round has been set at €2.6 billion. The largest slice will go to West Wales and the Valleys followed by Cornwall and the Isles of Scilly.

Other parts of the country are able to apply for support under the competitiveness and employment objective, with the total allocation amounting to €6.2 billion.

A further €600 million is available for projects under the territorial co-operation objectives, which helps foster inter-regional links, such as between south-east England and northern France, and west Wales and south-east Ireland.

In general, the amount of funding available to regions of the UK from EU funds has been markedly reduced in the current funding round, as more support has been channelled to the new members of eastern and central Europe.

Across the board, the UK is facing a funding cut of around 50%.

Given the huge sums which the EU transfers under its various regional assistance programmes, it is fair to question whether these policies are being successful in reducing regional inequalities.

For...

Proponents of the present funding regime point to the rapid growth achieved by Ireland in the past 20 years, and the undoubted progress made by Spain and Portugal since they joined the EU in the 1980s.

Against...

Others argue that these successes have had more to do with the free movement of labour and capital – allowing markets to work – rather than the inflow of large subsidies from Brussels.

The Mezogiorni region of Italy provides an example of large sums of money being poured in over many years with no apparent positive impact.

In similar vein, a recent study by the Cardiff Business School questioned the effectiveness of the Objective 1 funding programmes in West Wales and the Valleys, which have so far made no difference to its relative position in terms of GVA per head.

EU/US comparison

There is an interesting contrast between the experiences of the EU and the US in relation to regional inequalities. Over the last 50 years or so, the divergence between the states of the US has diminished, and in particular the country’s north-south divide has faded. In the EU, on the other hand, the differences have become greater.

Such international comparisons are not entirely fair, since the NUTS2 regions, as defined by the EU, are a good deal smaller than the average American State.

America also has a much longer history as a unified entity in which the various states have felt the influence of federal policies. Most of the poorer regions of the EU have only been part of the Union for 20 years or less.

Yet it is unarguable that regional inequalities in the EU have become wider, despite the operation of national and EU assistance programmes.

EU enlargement

The EU’s enlargement raises some thorny questions about the purpose of regional assistance. It has become an accepted tenet of EU policy that candidate countries and new members should receive large amounts of aid.

If such aid will not, of itself, help to improve economic performance, then why does it continue to be offered on such a generous scale? If it is viewed as nothing more than a political bribe, then why are such inducements necessary to persuade countries to join a free trade area with a population of about 400 million?