Cohesion and Growth in the EU

The analysis of economic disparities within the European Union strongly depends on the regional level concerned. Whereas the economic gap between the member states of the EU15 has decreased over the last decades, regional disparities on the NUTS2-level have rather deepened. The reason for these contradictory findings can be found in the increasing disparities within many of the member states: Especially in growing economies the gap between the urban centres and the rural periphery tends to widen. The strong concentration of research and development, high skilled labour, infrastructure and foreign investment in the capitals will therefore supposably become a big challenge for the accession countries, which will have to face enhanced international competition. EU-policies act in the dichotomy between the conflicting goals of economic growth and cohesion. Since all of them have regional impacts by changing economic conditions for production it is of great political interest whether a certain measure fosters economic efficiency by favouring the highly developed centres or rather enhances convergence by promoting lagging regions. The answer is, however, not always trivial and needs closer examination: Measures encouraging regional cohesion on the European level can also increase disparities within a state or a region at the same time. This is the reason why the regional effects of EU-policies have to be analysed on different spatial levels. Dealing with the spatial impacts of different European Policies (Regional Policy, Trans-European Networks, Common Agricultural Policy, Research and Technological Development Policy) there is some evidence that these policies try to compensate the effects of enhanced competition in the common market by concentrating their efforts on urban growth poles within the underdeveloped countries. Doing that, the European Union comes up to the two conflicting goals of growth and cohesion by promoting efficient economic development in the member states on the one hand and regional convergence on the European level on the other. This approach is of course mainly directed at European objectives and brings about new problems for the member states: Referring to the principle of subsidiarity the growing divergence within the member states is, however, not a duty of the European Union but of the member staates themselves: Therefore national politics are still required to take on responsibility for these intranational problems by adopting their transport, regional and economic policies to the new challenge. Cohesion and growth as main goals of the European Union The European Union strives for the goal of cohesion and convergence as well as for economic competitiveness and growth. According to Article 2 of the Treaty establishing the European Community the Community aims at promoting “a high degree of competitiveness and convergence of economic performance”. Article 3 says that the activities of the Community shall include “the strengthening of economic and social cohesion” as well as “the strengthening of the competitiveness of Community industry” (European Communities 2002). Although these two goals are of equal importance, it is not easy to meet the requirements of both at the same time. Cohesion and growth might be conflicting and sometimes even contradictory goals, since measures in the economically lagging regions are normally less efficient than in highly developed areas. Assuming that productivity of public investment depends on qualification of labour, infrastructure supply and economic structures economic growth Cohesion and Growth in the EU Hans Kramar 2 can more easily be achieved by promoting projects in the urban agglomerations than by supporting measures in the lagging areas. This conflict of policy goals leads to the question whether the European funds should rather be used for fostering total economic growth or for the reduction of regional disparities. In this context this paper deals with the question, whether disparities have decreased over the last decades and in which way European policies could contribute to the goal of cohesion. The different changes of disparities between and within the member states are therefore examined both on a national and on a regional scale. The main findings are contrasted with the actual measures of the European Union in the fields of Regional Policy, Common Agricultural Policy, Research and Development and Transeuropean Networks, in order to find out to what extent they can be explained by European policies. Regional and national disparities in the European Union The analysis of economic disparities within the European Union strongly depends on the regional level concerned. Regarding the national differences in GDP per capita the gap between the rich and the poor member states of the EU15 has clearly decreased over the last decades. Between 1988 and 2001 the cohesion countries have significantly converged to the European average (see European Communities 2004): The GDP per capita in Portugal has increased from 58,9% to 70,7% of the EU15 average, Greece from 58,1% to 67,1%, Spain from 74,0% to 84,2% and Ireland has even become one of the richest countries almost doubling its economic performance in comparison to the EU15 from 65,9% to 117,6%. On the other hand the wealthier countries could maintain their competitive edge to a large extent without improving their privileged position. These different developments induce a reduction of national disparities, which is expressed by the reduction of standard deviation of national GDP per capita in PPS (see fig. 1). Whereas the economic gap between the member states of the EU15 has decreased over the last decades, regional disparities on the NUTS2-level have not significantly changed. The ratio between the richest and the poorest regions each accounting for 10% of the total population has slightly decreased from to 2.8 to 2.6 from 1988 to 1998, and has remained unchanged at 2.0 when covering 25% of the total population (see European Communities 2001). These findings are confirmed by the almost constant standard deviation of regional GDP per capita in PPS, even when eliminating the statistical effect resulting from the German Unification (see fig.1). The reason for these contradictory findings on different spatial levels can be found in the increasing disparities within several member states: Due to the strong concentration of research and development, high skilled labour, infrastructure and foreign investment the gap between urban centers and rural periphery tends to widen especially in growing economies. The high growth rates of Spain (3,7%) and Portugal (3,5%), which reduced the gap from the European average, were mainly caused by the capital regions of Madrid (4,2%) and Lissabon (4,1%), which developed more dynamically than most parts of the country (see European Communities 2004). The spatial concentration of economic development in a few national centres, however, is a dangerous threat for cohesion within economically lagging countries in their catching-up process: While regional disparities within most of the highly developed Central European countries have not significantly changed or have even declined over the last years (especially in Germany and Italy the gap could be reduced), the cohesion countries are confronted with growing inequalities: Figure 2 shows that contrary to most Central European countries, the standard deviation of GDP per capita of the NUTS3-regions has increased between 1995 and 2001 within each of the cohesion countries. 1 Average annual growth of GDP on the NUTS2-level 1995-2001 Fig. 1: Change of disparities on regional and national level Source: European Communities (2001) Cohesion and Growth in the EU Hans Kramar 3 Growing disparities are even more pronounced in the Middle and Eastern European accession countries that have joined the EU in 2004. As shown in the third diagram of figure 2 the standard deviation of GDP per capita has increased in all former socialist accession countries over the last years. With the exception of Poland, which is characterized by a rather polycentric settlement structure, these countries are economically dominated by their capital cities, which profit from their relative advantages of location to an increasing degree. Therefore economic growth in the capital regions distinctly exceeds the national average in most the lagging countries: Prague, for example, had an average growth rate of 4,4% between 1995 and 2001, while the economic output of the Czech Republic only increased 1,5% per year. The same is true for Hungary, where economic growth of 4% was largely determined by the development of the region Közép-Magyarország (+5,2%) and Slovakia, where GDP grew much faster in the capital region of Bratislavský (+5,7%) than in the whole country (+3,9%) (see European Communities 2004). The reason for increasing disparities within these growing economies are to be found in different production conditions between urban centers and rural periphery. In these countries only a few locations are able to cope with the new challenges of a European or even global competition of regions. Therefore research and development activities, education programs and infrastructure investments are increasingly concentrated in a few urban agglomerations, while large parts of the countries are largely neglected. This development improves the position of a small number of urban agglomerations characterized by skilled labour force, high quality of physical and social infrastructure (especially with regard to transport and communication networks) and innovative power. All these conditions are a crucial benefit for the firms located in the urban centres and make them more attractive for foreign investors. As shown in Table I spatial concentration of foreign direct investment (FDI) predominantly appears in the economically lagging countries. Although in Germany and Italy FDI significantly concentrates on the higher developed (Western respectively Northern) parts of the country, a reasonable part of the provinces profit from foreign investment, whereas in Spain more than 80% of all FDI concentrate on the two dominating cities of Madrid and Barcelona. Tab. I: Concentration of Foreign direct investment in selected EU15 and accession countries Source: European Commission (2004) As expected the concentration of foreign investment is much more pronounced in the accession countries where it has become a serious problem for a balanced economic development. As shown in the bottom of table 1 the position of the national capitals in the Czech Republic, Hungary and Slovakia is so dominant, that they attract half or even two thirds of all FDI, which goes far beyond their population share. Germany 1998-2000 Spain 1999-2001 Italy 2000 Nordrhein-Westfalen 37,5 Madrid 69,5 Lombardia 43,5 Hessen 21,6 Cataluña 13,5 Piemonte 14,9 Baden-Württemberg 11,7 País Vasco 5,5 Lazio 8,4 Bayern 9,0 Com. Valenciana 2,7 Emilia-Romagna 7,8 Czech Republic 2001 Hungary 2001 Slovakia 2001 Praha 49,3 Közép-Magyarország 67,7 Bratislavský 63,2 Støední Cechy 10,7 Közép-Dunántúl 9,4 Východné Slovensko 18,8 Jihozápad 7,6 Nyugat-Dunántúl 7,5 Západné Slovensko 10,3 Severozápad 8,2 Észak-Magyarország 6,2 Stredné Slovensko 7,7 Fig. 2: Change of disparities within selected developed, cohesion and accession countries 20 25 30 35 40 45 5