Trends of territorial development in Europe beyond 2020 Roberta Capello

1. Trends of territorial development in Europe beyond 2020Roberta Capello Interreg Annual Meeting 2016 Bruxelles, 6-7 June 2016 In cooperation with Roberto Camagni, Andrea Caragliu, Ugo Fratesi Politecnico di Milano and PastPresident of RSAI

2. Aim of the presentation • To present scenarios for European territory in the future (2030) under alternative assumptions on specific driving forces of change. • Scenarios are neither forecasts nor foresights. • Scenarios have been built in the ESPON ET2050 project and in the FP7 GRINCOH project.

3. Methodology for building scenarios: a sketch • The methodology for building scenarios is made on the following steps: • starting from a ‘seminal idea’ about the driving forces believed to characterize future economic-territorial development (assumptions), • the basic characteristics of a scenario are built, together with the relevant conditional elements, the most likely bifurcations in the driving forces (qualitative assumptions); • these conditional elements are plugged into the econometric model, as assumed values of the independent variables of the model (quantitative assumptions: levers of the model); • identifying the magnitude of the most likely effects on European regions through a simulation procedure (scenarios). The simulationperiodruns from 2013 through 2030.

4. Conditional elements: integrated scenarios • A scenario is an integrated vision of the different driving forces that are expected to have effects on future trajectories. Therefore: • individual driving forces must be related to each other, and cross feed-back effects must be underlined, i.e. the assumptions have to be highly consistent: this overall coherence has to be reflected in the label given to the scenario; • one has to assume an “if.... then..” logic, keeping assumptions carefully separated from effects; • the assumptions on the driving forces should be as differentiated as possible, sometimes even opposite to each other, so as to yield differentiated images.

5. Assumptions of the Baseline Scenario (2030) • - the socio-economic and demographic trends of the past will continue, and no major change (beyond the crisis) will alter the EU economy; • economic policies will remain the present ones (stable budget for SFs); • a general slow economic recovery will start in 2016; • a slight increase in competitiveness of European countries is assumed in 2030; • interest rates on bonds will return back to lower, pre-crisis values, thanks to the end of strong financial speculation; • the stability pact remains the same, imposing highly restrictive fiscal policies. • n.b. These assumptions were agreed in December 2011, and revisited after Draghi’s interventions in July/September 2012, which stopped the speculations on the euro. The final conditional quantitative foresights have been run in early 2013.

6. RESULTS FOR THE • BASELINE SCENARIO • (2030)

7. Aggregate results of the Baseline scenario 1. The New12 countries grow a little more than the Western countries. 2. New12 countries increase employment in services more than in manufacturing, entering a new stage of development. 3. Western countries show a balanced growth between manufacturing and services.

8. Aggregate results of the Baseline scenario for border regions A baseline scenario is more of detriment for border regions (both land and maritine) than for non-border ones.

9. Baseline: annual average GDP growth rate Two speed Europe; Southern peripheral countries grow less than Northern countries. Southern European countries discount the difficult present conditions on their future evolutionary trajectories. Eastern European countries still grow more than the EU 15, but this is not enough to catch up the GDP per capita levels of the Western countries in 2030. Overall intra-national regional disparities increase.

10. Theil index in the Baseline scenario (2030) Total regional disparities Between country disparities Within country disparities

11. Theil index in the Baseline scenario (2030)Border vs. non-border regions

12. EXPLORATORY SCENARIOS • (2030)

13. Summary of assumptions for the exploratory scenarios • “Megas” scenario • Market driven scenario; welfare system fully privatized; financial debt repaid in 2030; budget reduced for cohesion policies; concentration of investments in European large cities. • “Cities” scenario • Public policies mostly at national level; actual welfare system reinforced through increased taxation; financial debt fully repaid in 2050; budget maintained for cohesion policies; concentration of investments in second rank cities. • “Regions” scenario • Social policies; strong public welfare system paid through debts; financial debt not repaid in 2050; budget significantly increased for cohesion policies; concentration of investments in rural and cohesion areas.

14. Aggregate GDP growth results for the exploratory scenarios 1. The “Cities scenario” is the most expansionary: territorial capital and the urban system are better exploited than in the other scenarios. 2. This holds also for New 12 countries, even if to a more limited degree 3. New 12 countries are those that gain in the regions scenario with respect to the baseline.

15. Aggregate results of the Baseline scenario for border regions 1. A city scenario is the most expansionary especially for border regions. 2. This is particularly true for maritime border regions. 3. Land border regions are particularly affected by a regions scenario with respect to non-land border.

16. GDP growth rates in the Megas scenario: differences with respect to the baseline • In Western countries: • strong advantages to rich and centralregions; • ruralareas of richregions gain relativelyless; • relativelypoorcountries (likeGreece) take advantage of a general increase in demand. • In Easterncountries: • - relatively more diffusedgrowth, thanks to a general recovery of the EU economy.

17. GDP growth rates in the Cities scenario: differences with respect to the baseline • In Western countries: • more widespread and diffusedgrowthatintranationallevel; • Lower increase in strong countrieslike Germany, the Netherlands, Austria, than in Southern countries (catching-up). • In Easterncountries: • diffusedadvantages, relativelylesspronouncedthan in Western; • similarincrease in growththan in the megas scenario.

18. GDP growth rates in the Regions scenario: differences with respect to the baseline Central/core regions grow less than in the baseline scenario. Rural or peripheral areas gain relatively more than in the baseline scenario. This holds for both Western and Eastern countries.

19. Theilindex by scenario: totalregionaldisparities The “Cities” scenario is also the most cohesive! (disparities increase less)

20. Theilindex by scenario: between country disparities The “Cities” scenario is the most cohesive! (disparities shrink more)

21. Theilindex by scenario: within country disparities In this case, the “Regions” scenario is the most cohesive (et pour cause!)

22. Theilindex by scenario: betweenborderregions The “Regions” scenario is the most cohesive also between border and non-border regions, even if this component has a limited weight on total disparities.

23. Theilindex by scenario: withinborderregions The “Regions” scenario is the most cohesive also within border regions: strongest border regions grow similarly than weakest border regions.

24. Conclusions: Designing new cohesion policy: competitiveness vs. cohesion? • The (supposed) trade-off between two goals, efficiency and equity, has always characterized the European policy debate and the suggested strategies: • a “competitiveness” strategy, favoring highest returns on investments on core areas, the “champions”, so to achieve higher aggregate growth rates and obtain higher fiscal revenues on which redistributive policies can rely; • vs. • - a “cohesion” strategy oriented towards the support of weaker and peripheral regions, favoring equity rather than competitiveness goals.

25. Competitiveness vs. cohesion: beyond the trade-off (1) • Recently the very existence of this efficiency/equity trade-off was questioned (OECD, 2001; Camagni, 2001; Camagni, Capello, 2015) emphasizing: • - the aggregate development effects of sound spatial development policies (wider utilization of territorial capital), on the one hand, and • the economic and social costs of a spatially concentrated development process on the other (inflationary pressures in particular). • Our impression is that the trade-off idea appears as a misleading, short-term (and old) approach to territorial policies. •  A selection of the most appropriate places inside lagging areas on which to concentrate public investment and support could be a sound intermediate choice, merging the advantages of concentration strategies and the virtues of place-based approaches.

26. Competitiveness vs. cohesion: beyond the trade-off (2) • Modern territorial development policies should be designed so as to maximize the returns to public investments (“do more with less”). • This goal is achieved through the capability of single policies to: • - intervene bottom-up through local actors, depositaries of relevant local information; • act on the specificities of each single area, • push local actors to “tap” and mobilize previously “untapped” assets of territorial capital. • the aggregate development effects will be maximized, and at the same time the economic and social costs of an unbalanced development process will be kept under control.

27. THANK YOU VERY MUCH FOR YOUR ATTENTION! • Roberta CapelloDepartment ABC - Politecnico di MilanoPiazza Leonardo da Vinci 32 - 20133 MILANOtel: +39 02 2399.2744  - 2399.2751fax: +39 02 2399.9477roberta.capello@polimi.it