EU Cohesion policy L3 European economics and policy

1. EU CohesionpolicyL3 Europeaneconomics and policy Sophie Brana

2. Course Contents Chapter 1. The economic, social and territorial dimension of cohesion Chapter 2. The convergence process Chapter 3. The European cohesion policies

3. The European cohesion policies (Topics) • The Lisbon strategy and Europe 2020 strategy (March 4) • The European budgetary system (March 4) • The ”services of general economic interest”(March 18) • The Common agricultural policy (March 18) • The European industrial strategy (March 25) • Policies for sustainable development (March 25)

4. The Lisbon strategy • Was set out by the European council in Lisbon in March 2000 • It was a development plan for the Economy of the EU between 2000 and 2010 • Very ambitious objectives. Its aim was to make the EU ”the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater cohesion”

5. The Lisbon strategy • By the mid term in 2005, it was already clear that the results were disappointing • An evaluation of the Lisbon strategy was launched in 2004 : the Kok report. • It concluded that the EU was very unlikely to meet its 2010 goals chiefly due to a lack of determined political action. • It highlighted an overload agenda, poor coordination and conflicting priorities.

6. The Lisbon strategy • In February 2005, European commission President José Manuel Barroso announced the relaunch of the Lisbon Strategy as a “Partnership for growth and Jobs”, simplifying targets and reporting procedures, with a single NRP (national reform programme) for each country. • The Lisbon strategy has been a failure. By 2010, most of its goals were not achieved.

7. The Lisbon strategy • A key issue has been the lack of determined political action. The goals were unrealistic. • The non-binding character of the Lisbon Strategy contributed to the failure. • The guidelines address practically all macro and structural policy areas of a member state. Experience shows that too many priorities may be easily transformed into no priority at all.

8. The Lisbon strategy • The guidelines are the same for all the member states, even through they have different levels of socio-economic development. • Deficiencies in governance have remained the weakest point of the Lisbon strategy. The commission has relatively limited power to force a member state to design and implement structural reform.

9. The Europe 2020 Strategy • On march 2010, the European Commission has launched the Europe 2020 Strategy, to go out of the crisis and prepare EU economy for the next decade. • The strategy is focused on five ambitious goals in the areas of employment, innovation, education, poverty reduction and climate/energy. • To ensure that the Europe 2020 strategy delivers, a system of economic governance has been set up to coordinate policy actions between the EU and national levels.

10. The Europe 2020 Strategy • The 5 targets for the EU in 2020 • 1. Employment • 75% of the 20-64 year-olds to be employed • 2. R&D  • 3% of the EU's GDP to be invested in R&D • 3. Climate change and energy sustainability • greenhouse gas emissions 20% (or even 30%, if the conditions are right) lower than 1990 • 20% of energy from renewables • 20% increase in energy efficiency • 4. Education • Reducing the rates of early school leaving below 10% • at least 40% of 30-34–year-olds completing third level education • 5. Fighting poverty and social exclusion • at least 20 million fewer people in or at risk of poverty and social exclusion

11. The European Budgetary system • The EU budget was around € 140 billion in 2011 which is very small compared to the sum of national budget (budget of all 27 EU member states : more than € 6300 billions) • The EU own resources are very low. The EU budget should rely less on member states contributions. • The question of EU funding priorities is always overshadowed by debate on ‘net contributors’ or ‘juste retour’.

12. The European Budgetary system • There is also a need to end the rebate system and the marathon of negotiation session • The European commission has proposed a list of potential methods: • A separate EU-wide VAT • A financial sector tax • A share of profits from auctioned greenhouse gas emission allowances • An EU charge related to air transport • An EU energy tax.

13. The European Budgetary system • However, some member States (the UK among other) think that self-funding powers could lead to an overly-independent set of EU institutions. • Finally, the EU budget focuses more on added value expenses. The idea is that the EU budget should be a key instrument for stimulating economic recovery in Europe (investment in research, education, green technologies). Two trends: to cut the budget and to have a more productive use of funds.

14. The ”services of general economic interest” • Transport, Energy, Postal services, waste and water services, Healthcare, Telecom • Why were these sectors usually public ? • Network industries. Industries where the fixed cost of the capital good is so high that it is not profitable for a lot of firm to enter the market. • Network industries often provides necessities. • Social and private benefits are very different (because of externalities): important for economic and social cohesion

15. The ”services of general economic interest” • The mixed results of past program of privatization • Example of the reform of UK railways • Fragmentation of the rail sector with 25 train operating companies • Railtrack was the owner of the railway infrastructure. • Results • Traffic increased • But the quality of service deteriorate considerably

16. The ”services of general economic interest” • Results • The railway infrastructure has been poorly maintained and managed. • Railtrack was placed in administration on November 2001. • Rail fares are the highest in Europe • No reduction of subsidies • Another failure is safety : some serious accidents have occured

17. The Common Agricultural Policy • Of all economic sectors, community integration has been most promoted in the agricultural sector. It is almost the only real European policy. • It very quickly succeeded in reaching its main goals: • It has guaranteed food self-sufficiency in the EU • It has guaranteed farmers’ income • It has encouraged modernization of farms • As a result, The EU agriculture has become internationally competitive.

18. The Common Agricultural Policy • However, the CAP has become a victim of its own success • Surpluses occurred in several sectors • The productivist model encouraged by the CAP had harmful environmental effects • Subsidies to European producers were criticized by the WTO • concentration of aid: 20% of farmers receive 80% of the aid. • Several member states, particularly Great Britain, question the amount of the budget granted to the CAP

19. The Common Agricultural Policy • Some substantial reforms • The link between subsidies and production was cut. Direct subsidies were introduced by the 1992 reform. It aimed to give farmers a guaranted minimum income independent of the quantity produced. • Financial incentives that encourages farmers to choose production methods that are respectful to the environment (30% of subsidies) • Aid ceiling (€300 000) • Now 90% of direct payment are classed by the WTO as non-trade-distorting

20. The Common Agricultural Policy • The CAP three new main aims • Viable food production • Sustainable management of natural resources • Balanced development of the EU’s territory (over 77% of the EU’s territory is classified as rural: 47% is farm land and 30% forest) and is home to around half its population. • These new aims justify the budget allocated to the CAP

21. The Industrial Policy • In France, in 1982, industrial output represented, 28% of GDP. Today, this has fallen to 13,6% (Eurostat). • Over the same period, the number of people employed in the industrial sector dropped from 5,575,000 to 3,300,000. • While the share of manufacturing industry represents, on average, 22.4% in the Euro zone, it accounts for 30% in Germany, 23.1% in Italy and only 10% in France. • It is for this reason that the debate on industrial policy has come back into the fore since the beginning of the decade

22. The Industrial Policy • One out of four jobs in the private sector in the European Union is in manufacturing industry, and at least another one out of four is in associated services that depend on industry as a supplier or as a client. • 80% of all private sector research and development efforts are undertaken in industry – it is a driver of innovation • The financial and economic crisis has refocused attention on the central importance of a strong, competitive and diversified industrial manufacturing value chain for the EU’s competitivenessand job-creationpotential.

23. The Industrial Policy • European industry faces more and more challenges: • since 1995, productivity growth in European manufacturing has been decelerating and has fallen behind the US (pb of competitiveness) • the R&D intensity of EU lags behind its major competitors, particularly the US and Japan. • the structure of EU manufacturing industry shows obvious unadaptations. As for high tech industries, EU missed “the first train” in the development of information and biology technology, and lagged behind the US and Japan. Concerning the traditional industries, EU is facing strong competition from the emergingcountries

24. The Industrial Policy • The supranational industrial policy of the EU can be traced back to the framework of the European Coal and Steel Community; • However, the purpose of the policy at that time was much more political-oriented than to promote the development of coal and steel sectors. • Until now, there is no common industrial policy at the EU level.

25. The Industrial Policy • The European industrial policy is recent. The first formal Communication of industrial policy of the EU was issued in 1990, and it could be seen as the beginning of this policy. • EU industrial policy is a market-oriented one aiming to create favorable environment for the competitiveness of manufacturing industry, • It prevent sector intervention; the policy is different from traditional industrialpolicy. It isnot one of the EU common policies, like, for instance, the Common Agriculture Policy.

26. The Industrial Policy • The guiding principles for the Community industrial policy are “openness”, “horizontal” and “subsidiarity”. • The openness of markets can guarantee the proper functioning of market competition inside and outside the Community. • Emphasizing a horizontal approach was to abandon sectoralpolicies. • The principle of subsidiarity meant that the Community only tackles those tasks that cannot be done better at the national level.

27. The Industrial Policy • Horizontal policy • Until now, the core and main content of EU industrial policy is horizontal policy: non selective policy aimed at improving the environment of all firms. • It includes promoting the competition environment for manufacturing, supporting research and innovation, making it easier for SMEs to access credit, helping to improve labor skills to adapt to structural changes… • Vertical approach : it focuses on one industry.

28. The Industrial Policy • Since 2005, industrial policy has been more sector-oriented. The idea is that horizontal policies should be combined with the concrete features towards different sectors. • However “sectoral policies” here are still different from the traditional interventionist policies. Sectoralpolicy are the application of horizontal policies tailored to the needs of each sector. It also aims to create more favorable framework conditions for certain sectors.