Fact of the day: ‘It’s all about the money; it’s all about the dum dum diddy dum dum’ – apologies to those who fail to recognise these edifying words immortalised in a late nineties pop song, but the fact of the matter is that no line rings truer.
The European Commission presented its third report on economic and social cohesion last week, setting out its vision for cohesion policy in an enlarged Union for the period 2007-2013. The proposals came on the back of proposals for the Union’s future budget, which included a €336 billion package for cohesion policy. The report contains recommendations on how these resources should be used in order to narrow the economic gaps between member states and regions, especially after enlargement, achieve faster growth and more sustainable development.
The report will endure some nit picking for a few months until the Commission adopts the final legislative packet in July. By the end of 2005, a decision will be taken by the European Council and Parliament, while 2006 will be spent preparing programmes for the period 2007-2013.
Under the current EU budget period 2000-2006, the EU commits to spending €108.5 billion per year, of which €37 billion is assigned for structural actions. Proposals for the new budget period aim to lift spending to €146.4 billion a year, with €48 billion going to structural funds (excluding rural development).
The need to increase the budget for cohesion policy is evident given the stark regional disparities between the ol d member states and new. However, the budget has to be voted in unanimously and the six main budget contributors (UK, France, Germany, Austria, Sweden, Netherlands) are not so easily convinced.
The idea is that the 10 new member states will receive ‘phasing in’ support during 2004-2006, and from 2007 will fully benefit from EU membership.
Currently, 90 per cent of the budget for cohesion policy goes to existing member states and 10 per cent to the acceding countries. From 2007, the budget will be split 50/50 between the old and the new. If the proposals are passed as they are, the EU will spend a total of €336 billion on cohesion policy (34 per cent of EU budget for 2007-2013). As you can see, that’s a lot of money (€168 billion) for Cyprus, Malta and the eight Eastern European countries.
The Commission book keepers seek to support economic growth and job creation in the poorer regions. Most new states have much lower income levels than existing states and crippling unemployment. So even the 50/50 split may seem a little tame, given that most of the poorer regions in the EU 15 have experienced growth. But let’s not bite the hand that feeds us just yet.
Either way, the EU calculates that there are limits to spending and absorbing money and therefore sets a cap on funds; a country cannot receive more than four per cent of its GDP.
How is the money shared out? Well, the EU puts different regions into different categories, depending on their GDP per capita. Around three quarters of the cohesion policy budget goes to the poorest regions under the Objective 1 category.
Regions with less than 75 per cent of the EU 25 average GDP/head are eligible for Objective 1 funds.
Cyprus currently stands at 78 per cent of the EU 15 average GDP, just out of reach of the Objective 1 level. After enlargement this will rise to about 85 per cent of the EU 25 average, given the entry of lower-income regions.
Just to highlight, the difference between Objective 1 and Objective 2 or 3 is huge. The EU gives about €40 per person per year in a region under Objective 2. But for Objective 1 regions, citizens get on average €220 per person per year. Also, schemes are much more accommodating for poorer regions, with funds available for more projects and taking a greater share of total costs.
How does Cyprus get some of this? The Commission has foreseen a possible settlement to the Cyprus problem and prepared for this in the 2004-2006 budget. Commissioner Gunter Verheugen pledged in his recent visit over €300 million for structural integration, around €250m of which would go to the north.
In order to be classified as an Objective 1 region, the reunified island’s GDP would have to come below 75 per cent of the average GDP for the new Union of 25. If it sits above that threshold, there is still hope. If the GDP of a united Cyprus is below 75 per cent of the average of the old states (15) but over that level for the whole Union of 25, it gets classified as a Statistical Effect Region and gets special attention.
Sorry for the complications but such is the nature of money, especially when you’re asking for it.
Finally, all of the above doesn’t tally if the member states fail to approve the latest Cohesion Report, or, if a united Cyprus fails to collect in time the information needed for the EU bookkeepers to bang out a new GDP for the island. That means getting accurate population figures and income levels from the occupied north.
