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The European Union was created with the aim of contributing economic growth and development of European countries through establishing a common currency and a single market. According to economics, breaking down existing barriers will cause the escalation of positive economic effects through efficiency and redirection of resources to cost-effective investments.
However, equal distribution of profits among the members in freely competing markets is not possible. Newly entering member states having different conditions received different end results from the integration. This uneven distribution within the integration may be hindered by cohesion thus a need for regional policy.
The European Union regional policy covers all European regions and consists of three objectives: employment and regional competitiveness, convergence as well as territorial cooperation (Cini, 2003). The regional policy environment has however become very complex and regional policy makers at the national and EU levels are facing the key challenge of globalization.
The increasing internalization of economy, the removal of trade barriers within the EU, technological change and the shift towards knowledge-based economy has been actively restructuring the competitive advantage of regions and countries (Boldrin & Canova, 2001).
Arguments for EU regional Policy
The main argument for the EU regional policy is the presence of large income disparities within the EU. In the Treaty of Rome signed in 1957, the goal of the EU regional policy was aimed at strengthening the economic units of the community as well as ensuring their harmonic development according to Steinen (1991).
In any economic unit, there will always be stronger and weaker territorial units in terms of dynamism and economic performance. It has been seen that regions in relative ascendancy and decline can be found in all member states.
These disparities are not temporary aberrations but have persisted over long periods. National policies have been under heavy pressure from the effects of globalizations and have mainly focused on increasing competitiveness in areas where different countries can afford and handle.
In the EU, uneven economic performance can be limited through a top-down approach in which the EU policy takes responsibility (Krugman & Venables, 1999). Justification of a common EU policy has been provided on the grounds of solidarity. EU regional policy seeks to find spatial balance in economic development so as to ensure that all economies achieve their full potential.
The EU regional policy also presses for cohesion within the member states and in the community as a whole. Cities such as London and Paris can be able to deal with any problems of deprivation in their worst affected territories while others such as Portugal and Greece have for a long time been unable to deal with regional disparities. Argument for a common EU policy can thus be made on an institutional capacity as well as in a political capacity.
Some member states have been unable to institute internal cohesion policy or to develop proper priorities for such a policy. The EU on the other hand has developed a cohesion policy that relies on two basic measures: unemployment rates which is social cohesion and GDP per head that is economic cohesion (Midelfart-Knarvik & Overman, 2002). Policy development and spending in the EU is based on a well researched model that seeks to improve weak areas so as they conform to the whole EU requirements.
Regional policy at the national level has also been unable to adapt sufficiently to the ever changing economic environment. International competitive pressures have been slowly increasing with some countries unable to keep up.
In many EU member states, the past few years have been described by rising numbers of unemployment, public expenditure constraints, structural change and productivity as well as concerns on international competitiveness (Wallace & Wallace, 2000). Antagonism towards movement intervention has supported a market-led approach to economic development.
Internalization of the economic environment has resulted in countries being unable to make sustainable long term planning and has rendered more regions susceptible to the rapid changes resulting from global market shifts. The EU structural funds have mainly concentrated on solving most of these issues according to Ehlermann (1995). Traditional policy instruments have been overhauled and a new direction has been developed.
The focus on large-scale business aid and infrastructural aid has been abandoned in favor of softer policy measures. Financial aid has however proven to be a more durable policy instrument capable of bringing policy makers and developing industries together in a positive policy environment.
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Another main problem is that spatial problems have become more complex and localized. Regions of urban decline described by social exclusion dominate parts of many cities in the member states. Focus on interpersonal and interregional disparities in prosperity is not always straight forward.
At a spatial level, national policies have proven ineffective and EU regional policy instruments have proven to be better equipped in dealing with this issue (Cini, 2003). Regional policy objectives were created in terms of minimizing spatial disparities in economic growth, infrastructural provision and employment issues.
Over the past 20 years, regional policy goals have been increasingly directed towards optimizing the contribution of regional resources to the establishment of economic growth through promoting entrepreneurship and competitiveness. Spatial problems have been seen to be best solved through education, welfare and social measures. The EU policy focus is on wealth creation at the local level through Small Market Enterprises (SME) formation, skills formation, employment and innovation (Wilson, 2002).
National regional problems have always been an obstacle to the cohesion of the community. There are wide disparities between the individual members of the community each having its own set of policies.
In order to enable cohesion and reduce disparities, the Structural Funds were put in place and designed in a manner that those different classes of regions and member states were treated appropriately. Most of the money in the fund is targeted at low GDP regions matching the convergence objective. Fewer fiscal resources are available domestically for the low GDP countries in the region (Cini, 2003).
These regions also have lesser institutional capacity and while it can be assumed that low GDP member states can profit from rapid growth while they strive to catch-up with the other richer states, this process has resulted in regional inequalities in GDP per head. Although the cohesion policy was created to ensure that economic development is balanced within the member states, there is a need for an EU regional policy that curbs the widening disparities (Ehlermann, 1995).
The total Hungarian or Polish growth that attains the optimum catch-up path may be best supported by concentration of activity in the more developed parts of those countries with trickle down being expected to influence the other parts of the country. Such an approach however, may result in an enduring special imbalance that is evident in Italy (Wilson, 2000).
The growing interest in decentralization of government is changing attitudes to regional disparities and problems. National policies have been unable to keep up with the pressures of devolution and deconcentration in many member countries. These pressures resulted from a mix of social political, economic and cultural factors, and from reshaping the structure of governance (Cini, 2003).
Due to the EU, there has been a significant shift of powers to lower government levels. However, this shift often takes place without the corresponding allocation of additional resources and devolution of revenue-raising powers.
Intervention was required in economic development both in respect to the instruments required to address regional problems as well as the broader issues related to fiscal transfer systems. The EU policy debates have been dominated by changes in modes of governance (Boldrin & Canova, 2001).
The EU policy has been able to foster balance and ensure equity in economic development. In the UK, Italy and France, recent decisions reveal a more decentralized approach to regional policy making. A more coordinated approach to the EU policy both within the regions and centrally can be witnessed.
The growing concern with political and economic consequences of regional inequality is also an issue that necessitates an EU regional policy. Due to the community, some countries feel that national political stability is under threat. In the 1990s, most countries sidelined questions about regional development (Krugman & Venables, 1999). The relationship between sectoral and regional issues has not been fully established resulting in several problems.
Member countries face pressures from major problems, such as dynamics of growth, external economic relations, macro-economic stability, and balance of payment. In most member states, concerns of regional differences and the marginalization of certain territories are still considered minor problems.
The EU competition policy has however introduced a new powerful shift between EU regional policies and national policies. The original treaty documents developed provisions for control of the state aid policies of member countries under the competition policies. The EU began to have an impact on the use of state aids as instruments of the regional policy in the early 60s, as soon as the treaty was developed (Steinen, 1991).
Many scholars have argued that an effective cohesion policy can only result from a strict control of state aid. The EU competition policy has thus not only created a means to prevent the growth of regional inequality but has helped in shaping the coverage of other policies especially those under the realm of the structural funds.
The EU community has been plagued by political squabbles and bureaucracy problems (Cini, 2003). A driver for change from reliance of national policies to EU regional policy has been the bureaucracy associated with Structural Fund implementation.
It has been generally accepted that the implementation of funds carries with it a heavy administrative burden and substantial investment in institutional capacities at different levels. The negotiation of the Structural Funds regulation has made it clear the power of precedent in the European Community regional policymaking.
According to different objectives, the EU regional policy has been able to quell differences in Structural Funds allocation and cut down on the bureaucracy involved in the process (Midelfart-Knarvik & Overman, 2002). The EU policy has also influenced the allocation of EU funding within the national policy delivery system in most member countries.
Some countries such as Spain, Germany and Austria have effectively included EU structural funding within their own national funding mechanisms while others such as UK and Sweden have set up different delivery systems for administering the funds and delivering programmes. Despite the mode of delivery, considerable policy transfers from the EU to the national regional policies can be seen.
The EU is an integration initiative that has proven to be very effective and structured. There are however many different national policies that can affect the overall effectiveness of the EU cohesion objectives. It can be seen that national territorial policies can hinder the effectiveness of the EU regional policy.
The thrust to achieve cohesion can lead to internal disparities as countries neglect some areas in order to succeed in others. The EU regional policy is concerned with overall development, reduction of poverty and increase in the GDP of member countries. Some urban policies in member states can steer resources to favored regions neglecting other areas.
Another problem is the employment measures taken by member states that fail to contribute to the regional convergence of the community. The EU strives for the promotion of entrepreneurship and creation of SME’s within the member states in order to improve international competitiveness and economic stability.
Apart from this, national policies have been unable to deal with the decentralization of power required for the EU to prosper and the promotion of convergence.
National policies have been unable to meet the main objectives set out during the formation of the EU. The main problem however has been that national policies hinder cohesion within the EU. There is a greater need for a comprehensive policy that understands and conforms to the needs of the EU and fosters convergences of the member states without fostering regional disparities.
Boldrin, M. & Canova, F. 2001. Inequality and convergence in Europe’s regions: Reconsidering European regional policies. Economic Policy, 32, 207-245.
Cini, M. 2003. European Union Politics. London: Oxford University Press.
Ehlermann, C. 1995. State Aid Control in the European Union: Success or Failure? Fordham International Law Journal 184, 1212-1229.
Krugman, P.R., & Venables, A. 1999. The Spatial Economy: Cities. Regions and International Trade. Cambridge MA: MIT Press.
Midelfart-Knarvik, K. & Overman, H. G. 2002. Delocation and European Integration: is Structural Spending Justified? Economic Policy, 35(10):323-359.
Steinen, M. 1991. State Aid, Regional Policy and Locational Competition in the European Union. European Urban and Regional Studies, 41(1):19-31.
Wallace, H. & Wallace, W. 2000. Policy Making in the European Union. London: Oxford University Press.
Wilson, T. 2000. Obstacles to European Union regional policy in the Northern Ireland borderlands. Human Organization, 122, 33-38.