What use of European development targets?

Guest author: Ksenija Banovac, University of Tours

In the light of new multi-polar global economy, and the emergence of new country-leaders (China) Europe is no longer the core continent and struggles to identify its new economic role. Yet, her internal functioning remains quite ambivalent and raises many questions.

Since the Treaty of Rome, signed in 1956, a common vision of the future of Europe has built on the values of diversity of places and socio-economic conditions. The so-called the “European project” was conceived by the leading European policy-makers as a process of gradual political integration to overcome the nationalistic conflicts and wars.

About fifty years later, by signing the Treaty of Lisbon, the EU established a single market with a goal to achieve a sustainable development based on balanced economic growth, a highly competitive social market economy, and environmental protection. Such development was designed for all European regions to be given the opportunity to achieve their full potential by reducing disparities and by respecting the equity of all its citizens.

Yet, in 2008, the economic and financial crisis emphasized the long-existing gap between the European regions, particularly economic decline, inefficient governance and underperformance of some European economies. It became evident that isolated, peripheral, socio-economically weak regions were strongly hit by the crisis unlike central, export-oriented regions with stronger adaptive capacity to react to external shocks. Likewise, the capital regions came out as “winners”, while rural and the Eastern border regions came out as “losers”.

Development targets drafted in the European couloirs

Many critics question the sustainability of the “European project” and raise their concerns regarding the contradictions in its functioning.

To give an example of paradox functioning, the European Commission adopted a key strategy for the period 2010-2020 which aims towards a smart, sustainable and inclusive growth. The strategy has been backed up by the cohesion and regional policies, and a series of initiatives which all together need to produce some very concrete results by the year 2020: e.g. 20/20/20 targets, 75% of the 20-64 year-old population employed, 3% of the EU’s GDP for R&D, 40% of 30-34 year-old population completing a university degree, etc.

Yet, each member state can establish its own national targets knowing that they might be very different and might not be enough to achieve the European goals by 2020. Likewise, in the middle of the period 2010-2020, the EU2020 strategy changed its course when the Commission discovered that some regions will not be able to achieve the goals. The Commission finally admitted that it would be neither realistic nor desirable that all regions reach the same goal.

Consequently, a failure of the EU2020 strategy raises questions about the purpose and the capacity (and legitimacy) of the European Commission to draw any future strategy for the entire European community.

Market under the European supervision

Territorial competition has been gradually developed over the years under strict rules and supervision of the European Commission. The Treaty of Rome, signed in 1957, set the first rules of a newly established European single market: a customs union, the progressive approximation of legislation between member states, the establishment of the four freedoms of movement for goods, services, capital and labor and a unified system of economic competition rules (Colomb and Santinha, 2014).

The Economic and Monetary Union, with the creation of the euro, took that process even further. Nowadays, competition is one of the few policy areas in which the European Union has an exclusive competence not shared with the member states. The EU competition policy comprises four key elements: anti-trust regulations, merger regulations, the regulation of aid provided by states and the liberalization of monopolies and state enterprises. They have a major influence on economic activity, investment flows, human mobility and the behavior of private and public actors in Europe (van Ravesteyn and Evers, 2004).

The regulation of state aid and regional aid for firms and territories, and the regulation of services of general interest are considered to be the critical issues for territorial competition in Europe. Firstly, the state and regional aid is a financial support for firms or specific economic sectors with the aim to attract economic activities to specific areas or to support existing industries facing difficulties. It can have different forms: tax exemptions, loans at preferential interest rates, direct subsidies, acquisition of land and buildings on favorable terms, etc.

What seems to be problematic is the fact that the aid creates a distortion of competition in the European single market by giving an advantage to less efficient firms that are nationally protected (Wishlade, 2003; Molle, 2007). Each member state must inform the European Commission of any plans to grant state aid and cannot implement those plans without its approval (Colomb and Santinha, 2014). Likewise, the regional aid that targets regional disparities is also regulated by the European Guidelines on regional State aid (CEC, 2013) which had identified the eligible regions, the aid types and authorized costs, the types of eligible firms and the maximum aid level (Wishlade, 2003; Molle, 2007).

As a consequence, the design of regional, urban and rural development by the national and regional governments has little “room for manoeuvre” and there are urban and rural areas “that are neither well placed to benefit from policies focused on innovation or other horizontal priorities, nor sufficiently disadvantaged to qualify for regional aid, either at the national or Community levels” (Wishlade, 2008, p. 763).

Secondly, in terms of services of general interest (SGI) such as transportation, postal services, telecommunications, and the supply of electricity, gas and water, which used to be protected from the market’s fluctuations and organized as monopolies, are forced to enter into competition (McGowan, 2000). The problematic issue is that competition may limit the pursuit of social and territorial cohesion. Consequently, because SGI are mostly developed in densely populated areas, and the providers are guided by market dynamics, the higher prices are set for SGI’s provision in less developed and remote areas (Molle, 2007).

So far, many trade unions, public service defense organizations and left-wing parties in the European Parliament have expressed their concerns about the implication of the European liberalization for the SGI and many have called for the adoption of a clear legal framework at the European level which would guarantee the protection of social services in the name of social and territorial cohesion (Colomb and Santinha, 2014).

So far, no major changes in these areas have been made.

References:

CEC (Commission of the European Communities) (2013), Guidelines on regional State aid for 2014-2020, Official Journal C209, 23.07.2013.

Colomb, C. and G. Santinha (2014), European Union Competition Policy and the European Territorial Cohesion Agenda: an Impossible Reconciliation? State Aid Rules and Public Service Liberalization through the European Spatial Planning Lens, European Planning Studies, vol. 22, n. 3, pp. 459-480.

McGowan, R. (2000), “Competition policy: the limits of the European regulatory state”, in W. Wallace and H. Wallace (eds.), Policy-making in the European Union, pp. 115-147, Oxford University Press, Oxford.

Molle, W. (2007), European Cohesion Policy, Routhledge, London.

Van Ravesteyn, N. and D. Evers (2004), Unseen Europe: A Survey of EU politics and its Impact on Spatial Development in the Netherlands, NAI Publisher, Rotterdam.

Wishlade, F. (2008), Competition and cohesion – coherence or conflict? European Union regional state aid reform post-2006, Regional Studies, vol. 42, n. 5, pp. 753-765.

World Bank (2008), Reshaping Economic Geography, World Development Report.

Ksenija Banovac earned a PhD in urban and regional planning at the University of Tours. Her research focused on a network approach to the analysis of regional urban systems. Currently she works as spatial planning and business analyst at the Regional Chamber of Commerce and Industry.