EU Regional Policy Essay Example

allocated to regional spending, amounting to an expenditure of 350 billion Euros.

This effort is always focused on three main objectives: competitiveness, convergence and cooperation, which make up what is now known as Cohesion Policy.

The goals of the EU regional policy

The EU, which extends beyond a common market, relies on policies and values agreed upon by its member states for the benefit of its people (Schout ; Jordan 2007, 841). Achieving regional fairness in the distribution of income and wealth is one of the primary objectives outlined in the European Commission Treaty. This objective is pursued through the attainment of economic and social cohesion, a measure that has significantly reduced disparities between regions.

Only 14% of the EU regions, including Hamburg, London, Munich, Paris, and Milan, generate 43% of the economic output. These particular regions also accommodate about a third of the union’s population. The allocation of funds for regional policy always involves the utilization of three instruments under the cohesion policy: the Cohesion Fund, European Regional Development Fund, and European Social Fund. The EU cohesion policy offers significant added value.

The cohesion policy supports investments in human resources, infrastructure, diversification, and modernization of regional economies. It also promotes job creation and economic growth in impoverished member states and regions. These areas experience above-average economic growth and employment rates, enabling them to catch up to the average EU GDP level more quickly. Such progress would be challenging without the investments made through the regional policy. Additionally, the cohesion policy simplifies and ensures compliance with other EU policies related to the environment, state aid, the information society, and innovation support.

Furthermore, the regional policy enhances transparency and improves

all public administrations, fostering good governance within member states and regions. Historically, this policy has been crucial in promoting development beyond the EU's average in poorer member states. In the future, it is expected that the regional policy will continue to generate success stories from the economic development trends of new union members. Additionally, the regional policy effectively converts emerging challenges into opportunities (Prange 2008, p.).

46). Globalization, population ageing, and climate change pose challenges that affect local and regional communities to varying degrees. These challenges go beyond institutional, national, and policy borders and have a direct impact. Europe's competitiveness cannot solely rely on the policies of individual states and regions.

The European Union prioritizes economic success through close cooperation and involving people in designing and implementing regional development strategies. This ensures that only viable local projects of significance receive funding from the cohesion policy, benefitting Europe as a whole. The regional policy primarily focuses on East and Central European members, as well as other regions with special needs in all EU states. Between 2007 and 2013, fifty one percent of the Union's regional spending will be allocated to the twelve member states that joined after 2004.

The commitment by the policy's implementers to bridge the gap between the rich and poor EU member states is emphasized by the fact that this represents only a quarter of the total EU's population. A majority of regional spending is always allocated to regions with a GDP below 75% of the EU's average, with the objective of improving their infrastructures and developing their human and economic potential (Orbie 2008, p. 87).

This category of funding applies to 17 out of

the 27 EU member countries, while all 27 countries are eligible for funding to support innovation and research, job training, and sustainable development. Each country identifies its less developed areas and allocates funds accordingly. Some of the regional policy fund is utilized for inter-regional and cross-border cooperation projects.

The EU regional policy contributes to the creation of growth and jobs in various ways.

One way to encourage investments in regions and countries is by enhancing accessibility, preserving the environment, and providing high-quality services. Moreover, there is a focus on building a knowledge-based economy, promoting innovation and entrepreneurship, and leveraging effective information technologies for driving growth and job creation. This approach leads to the development of better employment opportunities and higher employment rates while also improving workers' adaptability and increasing investment in human capital.

Efforts to attract investors

The European Union's cohesion policy has played a crucial role in boosting regional economies through its support for small and medium-sized enterprises (SMEs) as well as attracting external investment (Puga 2008, p.).

The EU aims to attract investors in order to increase the productive capacity of various regions and help less prosperous areas catch up with more affluent neighboring regions. As a result, around 1.2 million enterprises are established annually (380).

The total number of businesses in the European Union has risen by 10%, but only half of them manage to stay afloat for five years. Moreover, there are notable variations between different regions within the EU. Spain, Italy, and the United Kingdom exhibit a higher rate of new small and medium enterprise (SME) establishment compared to the average rate across the EU. Additionally, in member states emphasizing 'convergence',

the foreign policy of the EU has been vital as it contributes up to 20% of their overall gross fixed capital.

The primary objective of cohesion and structural funds is to provide assistance for the development and upgrading of small and medium-sized enterprises (SMEs). This encompasses a particular focus on SMEs with less than 250 employees and an annual turnover below 50 million Euros. SMEs are recognized as the key driver of the EU economy, comprising 99% of all businesses in the region. Furthermore, two-thirds of private-sector employment is generated by SMEs. In certain countries such as Italy and Poland, job opportunities mainly revolve around businesses employing fewer than 10 individuals.

Small and medium-sized enterprises (SMEs) face challenges in obtaining capital, knowledge, and experience (Becker 2008, p. 16). The EU regional policy aims to address these difficulties by implementing various measures. These measures include both 'soft' approaches such as training services and 'hard' approaches like direct investment. Additionally, the regional policy incorporates other 'soft' methods such as providing business support services, using financial engineering techniques, promoting innovation, and establishing clusters and networks. It is important to note that EU member countries, especially those that joined the union in 2004, have been successful in attracting foreign investors.

The performance of foreign direct investment (FDI) differs between countries. Bulgaria and the Czech Republic both had FDI amounting to 9% of their GDP, whereas Estonia, Latvia, and Slovenia had FDI rates of 11%, 4%, and 2% respectively. Moreover, FDI tends to concentrate in major cities and nearby regions, worsening regional disparities instead of mitigating them. When making investment decisions, factors like proximity to the investor's home country, a shared language, labor

costs, and corporate taxes are taken into account.

Despite not being able to control all these factors, regional policy can have a significant impact on improving the appeal of a region. This appeal is achieved through initiatives such as workforce education, improved accessibility, and advancements in information technology. Furthermore, there is increased investment in research and innovation. To accomplish this, cohesion policy programs are implemented through a specially designated budget, with funding divided into three areas: direct investment in firms, entrepreneurship, and human capital. The allocation of funding dedicates twelve percent to direct investment in firms, prioritizing those that have connections to research and innovation, environmentally-friendly production, and technology transfer.

In the field of entrepreneurship, 13% of the overall funding is allocated for integrating information and communication technologies for workers, entrepreneurs, and enterprises. Additionally, 14% of the total budget is devoted to initiatives that improve the skill levels of the local and regional workforce.

The European Regional Development Fund (ERDF), The European Social Fund (ESF), and The Cohesion Fund are the three main instruments of EU regional policy.

The ERDF, ESF, and Cohesion Fund are all EU programs with different focuses. The ERDF provides funding for innovation, general infrastructure, and investments in economically disadvantaged regions. In contrast, the ESF supports vocational training projects, employment assistance programs, and job creation initiatives for all member states of the EU. Meanwhile, the Cohesion Fund concentrates on transportation and environmental infrastructure projects as well as promoting renewable energy.

Only countries with less than 90% of the union’s average qualify for this funding. This means that all the 12 newcomers plus Greece and Portugal, which benefited from the operations of the Cohesion Fund,

are excluded from this source of funding. The instruments aim to provide assistance that complements national action, including policy interventions at local and regional levels. The European Commission, along with member states, must ensure that assistance from these Funds aligns with the policies, activities, and priorities of respective communities.

In order for the instruments to function adequately, the activities must complement other community-based financial instruments. The strategic approach regulation outlines how regional policies should be implemented to achieve regional development goals. In this respect, every member state must regularly present a ‘national strategic reference framework’ for use in planning the allocation of funds for various programs. This guarantees that the assistance received through these funds aligns with the union’s strategic guidelines. Numerous additional measures have been implemented to ensure that the regional policy instruments effectively address regional economic imbalances.

The European Employment Strategy (EES) and Broad Economic Policy Guidelines are essential for ensuring that the strategic guidelines are properly implemented. The efficient functioning of EU regional policy instruments is detailed in various operational programs. Each EU member state must create an operational program that covers the period from January 1, 2007, to December 31, 2013. These programs focus on one of the three set objectives and receive funding from one of the three EU regional policy instruments (Funds). The European Commission evaluates each program to determine if it contributes to regional development. The objectives of Convergence and Regional Competitiveness and Employment are typically emphasized when drafting related operational programs.

Some of the objectives of the 2007-2013 programme include a financial plan, a justification for the priorities, and a list of major related projects. Another important objective is

to provide information on priority areas and their specific objectives. Unlike the 2000-2006 programme, the 2007-2013 programme has been simplified both at the policy level and at the operational level. At the policy level, each member state must create a document based on the Community strategic guidelines approved by the European Commission’s council. This document serves as the framework for other programs.

The Commission at the operational level is responsible for approving programs based on the national strategic reference framework. Other important aspects of EU regional policy include financial management and technical assistance. Financial management involves creating operational programs for each Fund and objective annually, with the first budget made prior to approval from the European Commission. Technical assistance involves using the Funds to finance preparations, administrative tasks, monitoring and technical support, audit, evaluation, and inspections needed for regional development implementation.

Conclusion

The EU Regional Policy is an effective way to integrate new EU member states into the European market. It successfully achieves equity in income and wealth distribution, contributing to economic and social cohesion. The '2007-2013 programme' specifically targets the imbalances in development between capital cities and surrounding areas, as well as rural areas. This program has been particularly beneficial for poorer countries like Greece, Turkey, and Bulgaria, attracting foreign direct investment.

Furthermore, the growth of SMEs has resulted in the expansion of job opportunities and the achievement of the EU's average GDP.