THE EU NEW COHESION POLICY AND ITS DECENTRALIZED IMPLEMENTATION SYSTEM IN POLAND BEYOND 2006

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1 AARHUS SCHOOL OF BUSINESS M.Sc. IN EU BUSINESS AND LAW MASTER THESIS AUTUMN 2005 THE EU NEW COHESION POLICY AND ITS DECENTRALIZED IMPLEMENTATION SYSTEM IN POLAND BEYOND 2006 SUPERVISOR: AUTHOR: ERIK STRØJER MADSEN DOMINIKA CHROSZCZ DEPARTMENT OF ECONOMICS STUDENT ID:

2 "Europe must review the basis of its competitiveness, increase its growth potential and its productivity and strengthen social cohesion ( ). To achieve these objectives, the Union must mobilise all the appropriate national and Community resources - including the cohesion policy" 2

3 INTRODUCTION 5 Chapter I 8 1. THE EU STRUCTURAL POLICY History background of the EU regional policy Primary legislation Secondary legislation Structural Policy Objectives Objective Objective Objective Community Initiatives Innovative Actions and Technical Assistance Structural Fund Principles Subsidiarity Principle Concentration Principle Multi-annual programming Principle Partnership Principle Additionality Principle The EU Structural Policy Instruments The European Regional Development Fund (ERDF) The European Agricultural Guidance and Guarantee Fund (EAGGF) The Financial Instrument for Fisheries Guidance (FIFG) The European Social Fund (ESF) Cohesion Fund Financial resources dedicated to the EU structural policy Priority Objectives and Funds Member States New Member States Structural Funds Chapter II THE FUTURE OF THE EU COHESION POLICY BEYOND Political and Economic Developments Implications of EU enlargement Growth and competitiveness Institutional changes Financial perspective European Commission standpoint European Parliament input European Council contribution EC Proposal for Cohesion Policy Financial Framework Territorial Characteristics A new architecture of Community priorities Convergence Regional competitiveness and employment European territorial cooperation A reformed delivery system Strategic approach Programming Partnership and co-ordination A stronger emphasis on performance and quality The new legislative package and indicative timetable The European Regional Development Fund (ERDF) The European Social Fund (ESF) Cohesion Fund

4 2.3.4 European grouping of cross-border co-operation (EGCC) Financial Allocation Convergence Priority Competitiveness and Employment Territorial co-operation Chapter III THE NEW COHESION POLICY PROPOSALS AND ITS IMPLICATIONS FOR POLAND Regional policy system in Poland. Critical overview Negotiating framework Legal base Programming measures Financial management Institutional framework Poland s standpoint on the EU New Cohesion Policy in Importance of the Regional Policy in the European Community Lisbon Strategy incorporation A new architecture of the Regional Policy Programming framework Simplified implementation procedure Performance outline Cohesion Policy budget Stimulating impact of structural assistance on Poland s Economic Development Macroeconomic impact Convergence of Polish regions Chapter IV POSSIBILITIES OF A DECENTRALIZED IMPLEMENTATION SYSTEM IN POLAND BEYOND Initial assumptions Two possible management scenarios A continuity scenario A further decentralisation scenario Programming conditions of the implementation system National Strategy for Regional Development National Development Plan Organizational conditions of the implementation system Sixteen Operational Programmes governmental programme Voivoidship contracts reconstruction Voivode s role Financial framework VAT eligibility Monofund implications CONCLUSION 103 ANNEX 106 BIBLIOGRAPHY 114 4

5 INTRODUCTION The regional policy has provided a considerable assistance to the economic development of countries addressing the areas in difficulty where major socioeconomic disparities between the Member States and the regions persist. It is worth emphasizing that cohesion policy - one of the pillars of the European construction together with the single market and the monetary union - is the only policy that explicitly addresses economic and social inequalities. The cohesion policy is financed by the EU budget and co-financed by the Member States, territorial self-governments and private individuals. It is not a charity policy, since it does not consist exclusively of redistributing resources. On contrary, it seeks primarily to generate new ones. One of the aspects underlying the necessity to reform EU cohesion policy is the implication of EU enlargement that took place on 1 May 2004 welcoming ten new Member States being a historic opportunity and a real challenge to face the growing tasks emerging from economic globalization. The debate on the new cohesion policy is conditioned by the framework of the budget cycle The choice to be made on the next financial perspective and, in particular, on the cohesion policy is not just about money. It is a question of political direction: do we want more coherent Union, able to develop faster or rather Union with greater disparities and poor regions slowing down the process of economic and political integration? This choice will determine the economic future of the EU and will affect its political perspective. Poland having joint the European Union has become eligible for support from the EU structural funds 1 and Cohesion Fund involving a significant financial assistance. It is estimated that in the years Poland might be able to receive as much as 63 billion euro, out of which, 54 billion may account to the cohesion policy. The aim of this paper is to examine the key questions associated with the EU new cohesion policy reform and its decentralized implementation system in Poland beyond The paper reviews the main events of the past year having an influence on the reform debate and outlines the Commission s proposals. It then discusses the 1 Upon the accession, all the polish regions have been covered by Objective 1 of the Structural Funds 5

6 eligibility criteria and represents the financial allocation. The standpoint of Poland on the reform debate is also included. Finally, the paper attempts to identify the conditions to be fulfilled so that a decentralized implementation system in Poland in the new programming period could be put into effect. This paper was inspired by the author s work as the assistant to Jan OLBRYCHT, Vice Chairman of the Regional Development Committee, Member of the Parliament since 2004, and his participation in the debates on the EU new cohesion policy taking place mainly in the REGI Committee as well as in the Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union within the European Parliament. Therefore, the EP s role in the legislative process was emphasized in this paper and many Parliamentary sources highlighted, especially those devoted to the new legal instrument on the cross-border cooperation (EGCC) and to the financial perspective, on which the author has been working since a year. The European dimension of this paper was also enriched by the close cooperation with Hanna JAHNS, Head of the Regional and Cohesion Policy Section Permanent Representation of Poland to the EU and Agnieszka BARTOL, Council of the European Union in charge of Cohesion Policy. On the other hand, the Polish dimension was inspired by the author s thesis coordinator, prof. Erik STRØJER MADSEN and turned out to be a real challenge, taking into consideration a demanding debate on the political scene in Poland. What kind of organizational and legislative changes must be executed so that the future implementation system of the regional system could be conducted effectively? The first chapter introduces the current Objectives and rules governing regional policy in the EU, supplemented with its instruments included mainly in the existing legislative package devoted to the regional development. It turned out inevitable to draw a history outline showing the path of the structural policy until today so that the existing and the future proposals of the EU new cohesion policy could be easily understood. The debate on the new cohesion policy was presented in chapter two, comprising a mix of wide-ranging political and economic developments as well as specific budgetary proposals. Furthermore, outline of the European Commission s 6

7 proposals for future cohesion policy based on the EC s legislative package, was analysed. The new legal instrument on the cross-border cooperation (EGCC) was treated by the author with particular importance, emphasizing the role of the Polish rapporteur on this issue, Jan Olbrycht, in the Community legislative process. In chapter three, the author has made an effort to asses the stimulating impact of the latest EC s proposal on Poland. Evaluation of the current regional development system in Poland was perceived worthwhile, though highly criticized by the author, to enrich and better understand the Polish government position on the new cohesion policy and eventually, so that a better regional policy implementation proposal in the last chapter of this paper could be evoked. The possibility of a decentralized implementation system in Poland is the final chapter of this paper, suggesting potential execution scenarios. However, based on many conditions and fully coordinated with the Strategy for Regional Development and within the framework of the successive development plan. A vital aspect, if not a decisive one, influencing a possible decentralized system in Poland, is the general framework of the regional policy at the European level and the chosen implementation system by the European Commission in this area. In this paper very crucial Polish strategic documents have been analyzed like the current and the successive National Development Plan as well as regional development outlines. Moreover, inspiring articles from the Institute of Public Affairs turned out to be very valuable, while analyzing the framework of the future implementation system of the regional policy in Poland. Even though the author chose a descriptive method for this paper, it turned out to be very empirical paper work based on the author s work experience gathered during the last year in the European Parliament and the consultation process conducted with the representatives from other European Institutions enriching the paper and enhancing its value added. 7

8 Chapter I 1. THE EU STRUCTURAL POLICY The policy of economic and social cohesion of the European Union (also known as the regional or structural policy 2 ) has evolved from support to structural transformation in the economies of Member States throughout the 50 years of European integration. Its main objective is to reduce the gaps in development among the regions and disparities among the citizens in terms of welfare. The Union seeks to use the policy to help lagging regions to catch up, restructure declining industrial regions, expand the economies of rural areas with declining agriculture and revitalize declining neighbourhoods in the cities. In brief, it seeks to strengthen the economic, social and territorial cohesion of the Union. 1.1 History background of the EU regional policy At the beginning of the European Communities existence, idea of the policy reducing the regional disparities was taken into account. The report of Paul-Henri Spaak, Belgian foreign minister conducting the work of Intergovernmental Committee preparing the Treaty of Rome, was one of the crucial documents emphasizing the need for regional plans coordination of the Member States and recommending the establishment of investment fund essential for sustainable development. 3 There were three vital issues mentioned in this report like: Introducing the competition conditions trough abolishment of protectionism and tax barriers; 4 Establishing the competition rules and procedures; 5 Increasing the resources through progress in the less-favoured regions and utilitization of unemployed workforce; 6 Since the establishment of European Economic Community in 1958, Member States realized that big differences between its regions are destructive factors for future of 2 Szlachta J., Europejski Fundusz Rozwoju Regionalnego szansa dla Polski, Warszawa 2002, s Pietrzyk I., Polityka Regionalna Unii Europejskiej i regiony w państwach członkowskich, Warszawa 2001, p Spaak P.H., Rapport des chefs de délégation aux ministres des affaires etrangères, Bruxelles, 21 avril 1956, p Ibidem, p Pietrzyk I., op.cit., p

9 Community. The Treaty of Rome refers in its preamble to the need to strengthen the unity of their economies and to ensure their harmonious development by, reducing the differences between the various regions and the backwardness of the less-favoured regions. Those commitments weren t precise enough to influence the whole economic body activity albeit it was just directed to respective policies of the Member States. 7 The only common institution launched by the Treaty of Rome and focused on the regional development was the European Investment Bank. 8 Its activity was aimed at financing projects for less-developed regions and also providing loans and guarantees for projects in such regions, modernizing or converting undertakings and finally carrying out many projects of common interest to several Member States. 9 During the following years, both the European Commission and the European Parliament prepared numerous reports expressing the need for the existence of the regional policy 10, which ended up with Regional Directorate-General (DG XVI) creation within the European Commission. Its foundation gave the possibility for the Member States to coordinate national policies within the regional development framework. 11 Another important step towards active regional policy was the establishment of European Social Fund (ESF), which should help improve employment opportunities in the internal market and contribute thereby to raise the standard of living and also strengthening economic and social cohesion. It was to support mobility of labour force mainly through requalification. 12 European Agricultural Guidance and Guarantee Fund (EAGGF) called for tendency to increase living standards in agricultural regions was another sign of increasing role of regional policy in the Community. Unfortunately its Guidance section operated within very few per cent of total budget for agricultural policy. Also the Common Agricultural Policy (CAP) was formed to increase living 7 Kawecka Wyrzykowska E., Sauer A., Kulesza M., Polityka regionalna Unii Europejskiej a instrumenty wspierania rozwoju regionalnego w Polsce, Warszawa 2000, p Pietrzyk I., op. cit., p Treaty Establishing the European Community as Amended by Subsequent Treaties, Rome, 25 March, 1957, Art. 198e (a), (b), (c) &(d) 10 E.g Motte s Report (1960) proposing establishment of the regional consultative committee; Birkelbach s Report (1963) demanding financial resources to be managed by the European Commission devoted to the regional policy; Rossi s Report (1964) emphasizing the necessity of redirecting the Member State s regional policy perception to more european, focused on spatial planning and defining each region needs, in:.pietrzyk I., Ibidem, p Pietrzyk I., op. cit, p Ibidem, Art

10 standards in agricultural regions. 13 The Treaty also gave the right to the European Commission to monitor regional policies of Member States. 14 The further evolution of interest in supra-national regional policy came in 70s with first enlargement of the Community in Three new Members - United Kingdom, Ireland and Denmark brought serious regional problems within the EC. 15 Member states admitted necessity for regional policy in terms of strengthening social and economic cohesion. This was followed by agreement to establish European Regional Development Fund (ERDF) to redistribute part of the Member States budget contributions to the poorest regions, to promote economic and social cohesion by correcting the main regional imbalances and participate in the development and conversion of regions. The aim of ERDF was not to replace national regional policies of Member States, but to financially support these national programs. In first years the Fund operated with only small amount of money and distributed its aid between Member States through fixed quotas by four following criteria: Support for countries with GDP per head below average of Community Support for countries with regions highly dependant on agriculture or industries in decline Support for countries with regions with high rate of unemployment and/or emigration from such regions 16 At this time, the support from ERDF was coming automatically. Member State just had to present its regional projects to the Commission. The Community reacted on initiatives of Member States. Each Member State could then distribute this aid between its regions in their own way. Less than 5 per cent of the Community s budget was initially devoted to this Fund. The main emphasis was, however, on infrastructural investment (about 80 per cent of total expenditures for projects). Little change came in 1979, when 5 per cent of total expenditures were set apart as a non-quota element, allocated at the discretion of the Commission Ibidem, Art. 39 (b) 14 Ibidem, Art. 103 (3) 15 Kawecka Wyrzykowska E., Sauer A., Kulesza M., op. cit, p Pietrzyk I., op. cit., p Ibidem, p

11 Nevertheless, the ERDF was deeply criticized and that is why another reform was necessary to come. That was in 1984 when quotas were replaced with initiative ranges for each country s allocation of funds. Intermediate changes in terms of country allocation were introduced in 1981 and 1986 as a result of second and third enlargement. From that time on, all financial sources were counted for 3-year period. The Fund was covering up to 55 per cent of national expenditures on regional projects 18 Another aim of this reform was to coordinate regional policy of Member States with other Community s policies effecting regions and their development (environment, agriculture, etc.). The reform of the Structural Funds started with the agreement of European Council in February 1988 with doubling resources of European Regional Development Fund, European Social Fund and European Agricultural Guidance and Guarantee Fund (its Guidance section). This decision was part of a package of measures known as Delors Package, including the reform of Common Agricultural Policy and the EC budget. It was a radical change for future development of regional policy. Its main aim was to increase its effectiveness through coordination of operation of Structural Funds, European Investment Bank and other financial instruments (Council Regulation (EEC) No. 2052/88 of 24 June 1988). Four basic principles were set out in the new regulation governing the Structural Funds like Concentration, Programming, Partnership and Additionality. The decision to establish the internal market (1992) signed in Single European Act (SEA) in 1986 was a catalyst for main reform of Structural Funds in The ERDF was given Treaty status with the foundation of the SEA, which included a new title on Economic and Social Cohesion proving that the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas. 19 SEA also calls for coordination and rationalization of Structural Funds. The reform was influenced by accession of Spain and Portugal in 1986 with their economy levels far lower than Union s average and so the gap between the richest and poorest regions 18 Evans A. The EU Structural Funds, OXFORD University Press, 1999, p Treaty Establishing the European Community as Amended by Subsequent Treaties, Rome, op.cit., Art. 130a 11

12 even expanded. Another ground for the reform was bad economic environment in the 80s with high rates of unemployment basically all around the Community but mainly in regions with high concentration of traditional industries like steel, textile or coal mining. 20 Further changes were implemented through The Treaty on European Union signed in Maastricht on February 1992 (coming in force on November 1993). It promoted economic and social cohesion as one of Union s tasks within the context of the accomplishment of the internal market and of reinforced cohesion and environmental protection. The Union committed itself to concentrate mainly on reducing disparities between its regions with great accent to less developed regions including agricultural areas. We should bear in mind that The Treaty on European Union added also two other elements to the institutional system of EU, which are very coherent with regional policy. First, the Committee of Regions was formed to enable regional and local bodies to participate in decision-making process of the European Union. The function of the Committee is purely advisory. The second component was much more important. Another amendment in TEU established the Cohesion Fund to provide a financial contribution to projects in the fields of environment and trans- European networks in the area of transport infrastructure. 21 However, two conditions must be fulfilled: first, the GDP per head of Member State must be less than 90 per cent of the Union average; second, there must be a programme leading to the fulfilment of the conditions of economic convergence, as set out in Article 104c of the Treaty. In effect, the Fund was designed to assist Ireland, Portugal, Spain, and Greece in meeting the economic convergence requirements for participation in the third stage of monetary union. 22 The Second Delors package was introduced by the Commission with the idea to agree on the main budgetary guidelines for the next five years. It called for more flexibility in the planning and implementation stages, more decentralization towards the regional level, additional money for Community Initiatives, higher EC participation rates, especially in cases of budgetary constraints linked to the 20 Tsoukalis L., The New European Economy. The Politics and Economics of Integration., Second revised edition. Oxford University Press, 1993, p Treaty Establishing the European Community as Amended by Subsequent Treaties, Rome, op.cit., Art. 130d 22 Pietrzyk I., Polityka Regionalna Unii Europejskiej i regiony w państwach członkowskich, Warszawa 2001, p

13 convergence effort undertaken by member countries, and the extension of EC action into new areas, such as health and education. 23 In general, minor changes were implemented, in comparison with the First Delors package. One of the newest changes was creation of sixth eligibility Objective to support regions with extremely low population density, unfavourable climate, and peripherality. Another one was the additive help for fishing areas Financial Instrument for Fisheries Guidance (FIFG). It is not a Structural Fund as such, but finances structural actions in the fisheries sector within the framework of Structural Fund programme. The regulations for reform covered the period In this six yearperiod, around 51 per cent of the EU population lived in a region eligible for European regional support (whether under Objectives 1, 2, 5b, or 6). Total amount of 141,471 billions ECU (in 1992 prices) was provided for structural instruments for this period compared to 43,8 billions ECU from 1988 to Even though several changes have been made in the area of structural funds during the Second Delors package, the fundamental principles for the implementation of EU regional policy dating from 1988, have been left unchanged and present as following: The submission of plans by the Member States under priority objectives The implementation of partnership between competent authorities at national, regional and local levels The additionality of Community measures The compatibility of structural policy with other Community policies The concentration of resources, with particular emphasis on the leastprosperous regions The co-ordination and combination of different Community instruments Primary legislation Community law is an independent legal system which takes precedence over national legal provisions. EU law is composed of three different but interdependent 23 Tsoukalis L., op.cit. p Bachtler J., The coherence of EU regional policy : contrasting perspectives on the structural funds, London, 1997, p Bachtler J., op. cit., p

14 types of legislation like primary legislation (Treaties and other agreements), secondary legislation (regulations, decisions, recommendations, opinions and directives) 26 and case law. The latest important EU Treaties are the Treaty on European Union (Maastricht 1992), the Treaty of Amsterdam (1997) and the Treaty of Nice (2000). The first elements of regional policy appeared in the Treaty Establishing the European Community, emphasizing the solidarity role of the policy designed to provide the Community-level assistance to help the most disadvantaged regions overcome their handicaps. Regional policy is also tangible according to Article 2 and 3 of the Treaty, its results can be clearly seen by Europe s citizens, who themselves benefit directly from assistance in the form of help to find work and adapt to the changing job market, trough training in particular. 27 The increased European competence for economic and social measures was also manifested by the insertion of the Title XVII : Economic and Social Cohesion in the EC Treaty 28 (Article ) stating that In order to promote its overall harmonious development, the Community shall develop and pursue its actions leading to the strengthening of its economic and social cohesion. In particular, the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas According to Article 159, the achievement of the above mentioned objectives by the Community, shall be supported by the Structural Funds actions (European Agricultural Guidance and Guarantee Fund, Guidance Section; European Social Fund; European Regional Development Fund), the European Investment Bank and the other existing Financial Instruments. In relation to the same Article, The Commission shall submit a report to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions every three years on the progress made towards achieving economic and social cohesion. 26 Treaty Establishing the European Community, (EC Treaty), Amsterdam 1997, Article 249 (ex Article 189) 27 Treaty Establishing the European Community as Amended by Subsequent Treaties, Rome, op.cit., Art. 2 &3 28 European Single Act in the form of Title V of the EC Treaty specifically provides for reform of the structure and operational rules of the Structural Funds on a Commission proposal, by unanimous decision of the Council after consulting Parliament. The implementing measures of the reform are drawn up on a proposal from the Commission, by qualified majority of the Council. The Amsterdam Treaty, implementing decision subject to the co-decision procedure. The Commission must report to the Council and Parliament every 3 years on the progress. in: European Parliament, Vademecum on EU Regional and Cohesion Policy, Brussels, 2004, p. 5 14

15 The EC Treaty points out the vital role of the European Regional Fund, being described in the separate Article 160. The ERDF role is to help to redress the main regional imbalances in the Community through participation in the development and structural adjustment of regions whose development is lagging behind and in the conversion of declining industrial regions. The further Articles and 162 concern the tasks, priority objectives and the organisation of the Structural Funds and general rules applicable to them to ensure their effectiveness and the coordination of the Funds with one another and with the other existing Financial Instruments, being defined by the Council. In accordance with the same procedure, the Cohesion Fund is set up by the Council which shall provide a financial contribution to projects in the fields of environment and trans-european networks in the area of transport infrastructure Secondary legislation In the scope of regional policy, the European Union has reached a significant secondary legislation assemblage. 30 The current structural policy regulations are the result of the agreement reached during the Berlin European Council (24 and 25 March 1999) and the approval of the European Parliament (6 May 1999). The Berlin Summit took into consideration all the propositions included in the document Agenda 2000, which also sets new priorities of economic and social cohesion. It consists of a series of complementary reforms responding to the challenges associated mainly with the enlargement that took place the 1 st May On 21 June 1999 the Council formally adopted the new Structural Funds Regulations for the period that are binding since the 1 st January In order to be able to conduct an analysis of the new cohesion policy ( ), it is necessary to go through the current regional policy regulations which are as following: Regulation (EC) No 1783/1999 of the European Parliament and of the Council of 12 July 1999 on the European Regional Development Fund 29 Article amended by the Treaty of Nice 30 Kawecka Wyrzykowska E., Sauer A., Kulesza M, op. cit. p

16 Regulation (EC) No 1784/1999 of the European Parliament and of the Council of 12 July 1999 on the European Social Fund Council Regulation (EC) No 1263/1999 of 21 June 1999 on the Financial Instrument for Fisheries Guidance Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) Council Regulation (EC) No 1264/1999 of 21 June 1999 amending Regulation (EC) No 1164/94 establishing a Cohesion Fund However, the fundamental Regulation during the programming period is the Council Regulation (EC) No 1260/99 of 21 June 1999 laying down general provisions on the Structural Funds Structural Policy Objectives The third and current programming period started in 2000 and runs through The main difference between this period and the previous two is the restructuring of the objectives. The six previous objectives were reorganized into three broader priority objectives: Objective 1: promoting the development and structural adjustment of regions whose development is lagging behind Objective 2: supporting the economic and social conversion of areas facing structural difficulties Objective 3: supporting the adaptation and modernization of policies and systems of education, training and employment None of the Polish regions is even approaching the threshold of a per capita GDP of 75 percent of the Community average 32 (GDP per capita measured in purchasing power parities 33 ). Therefore, since joining the EU in May 2004, the whole Polish territory is covered by Objective 1 during the period. As far as the 31 Ogólne zasady wdrażania funduszy strukturalnych w Polsce. Podręcznik dla Instytucji Zarządzających, Pośredniczących i potencjalnych Beneficjentów końcowych programów realizowanych z udziałem funduszy strukturalnych, Ministerstwo Gospodarki, Pracy i Polityki Społecznej, Ministerstwo Finansów, Warszawa 2003, p see Table 1 33 EC Regulation No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds, L 161/8 Art. 3 (1) 16

17 Objectives 2 and 3 are concerned, they won t find the application in Poland during the above mentioned phase. TABLE 1. GDP per capita in the poorest EU regions after the enlargement (EU25) REGION PKB PER CAPITA EU 25=100 REGION LUBELSKIE (PL) 29.4 SLASKIE (PL) 47.1 PODKARPACKIE (PL) 30.5 STREDNÍ MORAVA 49.6 (CZ) PODLASKIE (PL) 31.8 SEVEROZÁPAD (CZ) 50.5 WARMINSKO-MAZURSKIE 31.9 MORAVSKOSLEZSKO 51.4 (PL) (CZ) SWIETOKRZYSKIE (PL) 33.5 STREDNÍ CECHY (CZ) 51.8 LATVIJA (LV) 34.0 IPEIROS (EL) 51.9 ÉSZAK-ALFÖLD (HU) 34.7 SEVEROVÝCHOD (CZ) 53.0 ÉSZAK-MAGYARORSZÁG 35.4 JIHOVÝCHOD (CZ) 53.9 (HU) OPOLSKIE (PL) 36.6 KÖZÉP-DUNÁNTÚL 55.0 (HU) LÓDZKIE (PL) 38.0 RÉUNION (F) 55.6 MALOPOLSKIE (PL) 38.2 DYTIKI ELLADA (EL) 56.3 KUJAWSKO-POMORSKIE 38.4 AÇORES (P) 57.0 (PL) LUBUSKIE (PL) 38.4 JIHOZÁPAD (CZ) 57.7 VÝCHODNÉ SLOVENSKO (SK) 39.1 EXTREMADURA (E) 58.4 LIETUVA (LT) 39.3 GUYANE (F) 59.2 DÉL-ALFÖLD (HU) 39.4 CENTRO (P) (P) 59.7 DÉL-DUNÁNTÚL (HU) 41.0 ALENTEJO (P) 60.0 ZACHODNIOPOMORSKIE 42.3 ANATOLIKI 60.2 (PL) MAKEDONIA, THRAKI (EL) STREDNÉ SLOVENSKO (SK) 42.6 MALTA (MT) 60.7 POMORSKIE (PL) 43.1 NORTE (P) 61.7 EESTI (EE) 44.2 NYUGAT-DUNÁNTÚL 62.4 (HU) DOLNOSLASKIE (PL) 44.3 GUADELOUPE (F) 63.5 WIELKOPOLSKIE (PL) 45.7 PELOPONNISOS (EL) 63.6 ZÁPADNÉ SLOVENSKO (SK) 47.0 MAZOWIECKIE (PL) 64.9 PKB PER CAPITA EU 25=100 Jankowska A.,Kierzkowski Knopik T., Fundusze pomocowe dla Polski po akcesji fundusze strukturalne i fundusz spójności, Polska Agencja rozwoju przedsiębiorczości Warszawa 2003, p Objective 1 Objective 1 is "teritorial", meaning that it applies to designated NUTS level II areas in the Nomenclature of Territorial Units for Statistics developed by Eurostat. 34 It promotes the development and structural adjustment of regions whose development is lagging behind, i.e. whose average per capita GDP is less than 75% of the European Union average. This Objective also covers the most remote regions (the French overseas departments, the Azores, Madeira and the Canary Islands) as well as the areas eligible under the former Objective 6 (areas where population density is no more than 8 persons per square kilometre) created by the Act of Accession of Austria, Finland 34 See Annex 1 17

18 and Sweden. As before, two thirds of Structural Fund operations concentrate on Objective 1 (69,7%) and almost 20% of the Union's total population is affected by measures taken under this Objective. Moreover, regions already covered by Objective 1 can neither be covered by objectives 2 nor 3. The programming documents within Objective 1 are concentrated on three major areas of assistance - infrastructure, human resources and productive investment. 35 The Structural Funds play also distinctive role in the framework of environmental protection which accounts for over 10% of the total allocated for Objective It should be mentioned here that all the Structural Funds :the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF) Guidance Section and Financial Instrument for Fisheries Guidance (FIFG) contribute to financing Objective 1 during the period Objective 2 Another teritorial objective is Objective 2, combining the regions with structural problems whose socio-economic conversion is to be supported 38 (areas undergoing socio-economic change in the industrial and service sectors, declining rural areas, urban areas in difficulty and depressed areas dependent on fisheries) 39 The Commission and the Member States shall seek to ensure that assistance is genuinely concentrated on the areas most deeply affected the population of the areas referred to in paragraph 1 shall not exceed 18% of the total population of the Community. 40 Currently, all the Member States are covered by Objective 2 apart from Greece, Ireland, and Portugal which are designated to Objective See Annex 2 36 Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - The results of the programming of the Structural Funds for (Objective 1), Brussels, EC Regulation No 1260/1999 of 21 June 1999 op.cit., L 161/7 Art. 2 (2a) 38 EC Regulation No 1260/op.cit., L 161/7 Art. 1(2) 39 Ibidem, Art. 4(1) 40 Ibidem, Art. 4(2) 41 Ogólne zasady op.cit., p

19 Financial support for the areas suffering the economic and social conversion amounts to almost 12% of the total budget allocated for the Structural Funds. In the framework of Objective 2, the areas undergoing socio-economic change must represent NUTS level III territorial unit and fulfil the following criteria in order to be eligible for the Community aid: (a) an average rate of unemployment over the last three years above the Community average; (b) a percentage share of industrial employment in total employment equal to or greater than the Community average in any reference year from 1985 onwards; (c) an observable fall in industrial employment compared with the reference year chosen in accordance with (b). Both the European Regional Development Fund (ERDF), and the European Social Fund (ESF) serve the attainment of Objective Objective 3 Objective 3 is horizontal, supporting the adaptation and modernisation of policies and systems of education, training and employment. 43 Around 12,3% of the Structural Funds is allocated to the Objective 3 programmes, with the contribution of European Social Fund (ESF). The areas eligible for financing under Objective 3 shall be those not covered by Objective 1. The idea of Objective 3 is to deliver a policy frame to promote human resources in a national territory without prejudice to the specific features of each region and is mainly based on the European Employment Strategy. During the years all the Polish regions whose average per capita GDP is less than 75% of the European Union average, which means the whole territory, is to be liable under Objective 1. Both Objective 2 and 3 are not in force during a period of see & EC Regulation No 1260/1999 op.cit., L 161/7 Art.1(3) 19

20 1.3. Community Initiatives The European Union has also devised four special programmes, known as Community Initiatives in order to find common solutions to problems affecting the whole European Community. During the programming period the following Community Initiatives are implemented: INTERREG III, URBAN II, LEADER + and. EQUAL. These four programmes absorb 5.35% 44 of the budget of the Structural Funds. Each Initiative is financed by only one Fund. Interreg III promotes cross-border, transnational and interregional cooperation, i.e. the creation of partnerships across borders to encourage the balanced development of multi-regional areas (financed by the ERDF). Urban II concentrates its support on innovative strategies to regenerate cities and declining urban areas (financed by the ERDF). Leader+ aims to bring together those active in rural societies and economies to look at new local strategies for sustainable development (financed by the EAGGF Guidance Section). Equal seeks to eliminate the factors leading to inequalities and discrimination in the labour market (financed by the ESF). In the programming period Poland is involved both in EQUAL and INTERREG III initiative Innovative Actions and Technical Assistance The Innovative actions as well as the technical assistance are conducted at the initiative of the European Commission. Such innovative actions shall contribute to the preparation of innovative methods and practices designed to improve the quality of 44 Ibidem, Art. 7(6) 45 Zasady wdrażania funduszy strukturalnych w Polsce. Podręcznik dla Instytucji Zarządzających, Pośredniczących i potencjalnych Beneficjentów końcowych programów realizowanych z udziałem funduszy strukturalnych, Ministerstwo Gospodarki, Pracy i Polityki Społecznej, Ministerstwo Finansów, Warszawa 2003, p

21 field. 47 The innovative actions and technical assistance are subject to a ceiling of 0, 5% assistance in the framework of achieving the Structural Policy Objectives. Each field of action for pilot projects shall be financed by one fund only. 46 Accordingly, the technical assistance combines: studies, measures of technical assistance, the exchange of experience and information aimed at the partners, operation and interconnection of computerised systems for management and finally improvements in evaluation methods and exchange of information on practices in this of the total budget allocated for the Structural Funds Structural Fund Principles The Structural Funds undergo core principles which are mainly the outcome of the European Commission experiences, in the framework of the regional policy reforms starting as from Further structural reforms were just intending to increase impact and effectiveness of the vital Structural Fund principles. The efficiency of the Community activity devoted to economic and social cohesion depends on the principle s enforcement. 49 In the programming period , the EU regional policy is based on basic following principles: subsidiarity, concentration, multi-annual programming, partnership and finally, additionality principle Subsidiarity Principle The subsidiarity principle is one of the main constitutional rules governing the European Union. The Edinburgh European Council of December 1992 defined the basic principles underlying subsidiarity and laid down guidelines for interpreting Article 5 (former Article 3b), which preserves subsidiarity in the EU Treaty EC Regulation No 1260/1999 op.cit., L 161/7 Art Ibidem, Art European Commission (2000), Structural Actions Commentary and Regulations, Office for Official Publications of the European Communities, 2000, p Pietrzyk I., op. cit. p

22 The subsidiariy principle is intended to ensure that decisions are taken as closely as possible to the citizen. Therefore, the constant checks are made so that the action at Community level could be justified in the light of the possibilities available at national, regional or local level. In particular, it is the principle whereby the Union does not take action (except in the areas which fall within its exclusive competence) unless it is more effective than action taken at national, regional or local level. The regional policy is not in the framework of the sole Community competences; therefore it may represent perfectly the subsidiarity principle. The regional difficulties are mainly treated in the Member States, however, the Community organs are exercised to overcome them while delivering additional assistance. The Community Regulations ( ) reinforced the subsidiarity principle throughout the Commission entitlement to strategic objective definition and local authorities empowerment in the project management Concentration Principle The concentration principle means focusing of regional policy on those parts of the EU which are in greatest need for structural support, through defining the eligibility of areas under the objectives for the Structural Funds. It is one of the guiding principles of the EU structural policy being of pivotal meaning for the social and economic cohesion of the whole Community. There were two main reasons that drove to increase of its meaning through cease of automatic assistance from the European structural funds as it was before the 88 reform took place. First of all, the definition of eligible regions on a European level was to avoid the vague national eligibility coverage of the Member States aiming at maximization of European structural support. Secondly, a definition of regional problem perceived in a European rather than national perspective is much more useful for a policy driving to reduction of socio-economic disparities Pietrzyk I., op. cit. p Reiner M., Regional Policy in the European Union, Economic Foundations and Reality, Centre for European Policy Studies, Brussels 1998, p

23 1.5.3 Multi-annual programming Principle Programming means the organising, decision making and financing process carried out in a number of stages to implement on a multi - annual basis the joint action of the Community and the Member States (see Table 2) to attain the Objectives already mentioned. 53 Under the current programming period ( ) the stages of the multiannual programming are as following: The competent authorities designated by the Member State at national, regional and other level shall submit a development plan 54 to the Commission. Secondly, the Member States submit programming documents to the Commission following its general guidelines. Programming documents can take the form of: Community support frameworks (CSFs) translated into operational programmes (OPs): documents approved by the Commission in agreement with the Member State concerned, which contain both the Member State's and the Funds' strategy and priorities for action, their specific objectives, the contribution from the Funds and the other financial resources; single programming documents (SPDs) comprising a single document, approved by the Commission and combining the data contained in a Community support framework and operational programme 55 The programming documents for Objective 1 are generally CSFs translated into OPs, although SPDs can be used to programme amounts of less than EUR 1 billion. All the programming documents for Objective 2 are SPDs. By contrast, the choice of what form programming documents for Objective 3 will take is left to the regions and Member States, however, in line with the National Action Plan for Employment; Both in case of OPs and SPDs a programme complement 56 is drawn up by the Member State or managing authority and sent to the Commission for information; 53 EC Regulation No 1260/1999 of op.cit., L 161/12 Art. 9, point (a) 54 These plans are based on national and regional priorities and include(1)a precise description of the current situation in the region (disparities, lags, development potential), (2)a description of the most appropriate strategy for achieving the stated objectives, (3) indications as to the use and form of the contribution from the Funds w: op. cit. EC Regulation 1260/1999, Art EC Regulation No 1260/1999 op.cit., L 161/12 Art. 9, point (g) 23

24 Finally, the Commission negotiates with the Member States on the basis of their programming documents and makes an indicative allocation from the Funds to each form of assistance for each Member State. Table 2 The Structural Funds programming Development plans CSFs Member States / regions Submit Commission Appraises The Commission draws up the CSFs in agreement with the MS and it finally adopts a decision POs/SPDs PCs Major projects (> 50 M ) The MS submit the OPs and the Commission adopts a decision in agreement with the MS Adopt with the agreement of the monitoring committee Inform Is informed Confirms the co-financing rate Operations Select and manage Annual report Submit (after approval by Accepts the monitoring committee) Source: DG Regio, as of Partnership Principle Partnership is another key principle of the Structural Funds, linked to the programming approach. It involves a close co-operation between the Commission and the Member State, together with the authorities and bodies designated by the Member State within the framework of its national rules and current practices, namely: 57 the regional and local authorities and other competent public authorities, the economic and social partners, any other relevant competent bodies within this framework. It is rather obvious that the partnership principle remains rather vaguely defined in the Regulation which resulted in a variety of interpretations and of its application in practice. 58 Nevertheless, regional and local authorities as well as different interest groups have generally become closely involved in the better preparation and implementation of the Structural Funds and have vitally improved direct links with the European Commission. 56 Ibidem., L 161/13 Art. 9, point (m) 57 Ibidem, Art. 8 (1) & (2) 58 Pietrzyk I., op. cit. p

25 1.5.5 Additionality Principle This principle constitutes that in order to achieve a genuine economic impact, the appropriations of the Funds may not replace public or other equivalent structural expenditure by the Member State. As a general rule, the level of expenditure shall be at least equal to the amount of average annual expenditure in real terms achieved in the previous programming period and shall be determined in the light of the general macroeconomic circumstances in which the funding takes place. 59 Under the current programming period ( ) the principle of additionality has been simplified as far as the geographic level is concerned. In the case of Objective 1, this means the totality of eligible regions, and for Objectives 2 and 3 combined, the entire country. Furthermore, the Member States shall provide the Commission with the necessary information when the programmes are submitted as well as when the mid term and at the end of the period verification are made. 1.6 The EU Structural Policy Instruments According the General Regulation No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds, the fundamental financial instruments contributing to the achievement of the general objectives set out in Articles 158 and 160 of the Treaty are the Structural Funds as following 60 : The European Regional Development Fund (ERDF) the European Social Fund ( ESF) the European Agricultural Guidance and Guarantee Fund ( EAGGF ) the Financial Instrument for Fisheries Guidance ( FIFG) The European Regional Development Fund (ERDF) Pursuant to Article 160 of the Treaty and Regulation (EC) No 1783/1999, the European Regional Development Fund (ERDF) shall contribute towards the financing 59 EC Regulation No 1260/1999 op.cit., L 161/14 Art Apart from the Structural Funds there is a Cohesion Fund financing projects within the fields of the environment and trans- European transport infrastructure networks.the Cohesion Fund was established in 1993 through a provision of the Maastricht Treaty on European Union, and was designed to assist the least prosperous Member States in their preparation for Economic and Monetary Union. It is separate from the Structural Funds, and has its own set of principles governing eligibility of expenditures. 25

26 of assistance to promote economic and social cohesion by correcting the main regional imbalances and participating in the development and conversion of regions. As part of its tasks, the ERDF shall finance the following measures: Productive investment to create and safeguard sustainable jobs; Investment in infrastructure which contributes, in regions covered by Objective 1, to development, structural adjustment and creation and maintenance of sustainable jobs, Development of the endogenous potential by measures which support local development and employment initiatives and the activities of small and medium-sized enterprises; Investment in education and health (only in the context of Objective 1). As part of the ERDF assistance is the expenditure in respect of major projects, i.e. those whose total cost taken into account in determining the contribution of the Funds exceeds EUR 50 million. 61 Those projects are directly consulted with the Commission (if necessary, with the European Investment Bank) appraising the project and being in charge of confirming the level of Community assistance as well The European Agricultural Guidance and Guarantee Fund (EAGGF) The European Agricultural Guidance and Guarantee Fund (EAGGF, set up in 1964 in order to deliver support for sustainable rural development and adjustment of the rural feature of the regions lagging behind. The EAAGF is divided into two sections, however, just the Guidance section is used to finance structural policy measures. Its legal framework shall entail: 63 Support for investment in agricultural holdings; Setting-up aid to facilitate the establishment of young farmers; Support for vocational training; Support for early retirement from farming; Support for less-favoured areas and areas with environmental restrictions; 61 EC Regulation No 1260/1999 op.cit., L 161/22 Art Ogólne zasady op.cit., p EC Regulation No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regulations 26

27 Improvement and rationalisation of processing and marketing of agricultural products; Support to be granted for measures, relating to farming activities and their conversion and to rural activities; The Financial Instrument for Fisheries Guidance (FIFG) The Financial Instrument for Fisheries Guidance (FIFG) was established in 1993 so as to contribute to a sustainable balance between fisheries resources and their exploitation as well as to increase the competitiveness of structures and the development of viable enterprises in the sector. The current EC Regulation No 1263/1999 grants support from the FIFG to the following to further its overall objectives: 64 fleet renewal and modernisation of fishing vessels adjustment of fishing capacities; small-scale coastal fisheries; socio-economic measures; protection of marine resources; fishing port facilities; processing and marketing of fishery and aquaculture products; The European Social Fund (ESF) The European Social Fund (ESF) is the main financial tool through which the European Union translates its strategic employment policy aims into action. Already set up by Treaty of Rome, it is the longest established Structural Fund which, for over 40 years, has invested, in partnership with the Member States, in programmes to develop people's skills and their potential for work. The ESF's remit is to support measures which aim to prevent and combat unemployment, develop human resources and foster social integration in the labour market, so as to promote a high level of employment, equal opportunities for men and women, sustainable development and economic and social cohesion. In particular, it must assist the measures taken in line 64 EC Regulation No 1263/1999 of 21 June 1999 on the Financial Instrument for Fisheries Guidance, L 161/53 Art. 2 (3) 27

28 with the European strategy and guidelines on employment. 65 encompasses three horizontal issues: Moreover, the ESF promotion of local employment initiatives (including territorial pacts for employment); the social dimension and employment in the information society; equal opportunities for men and women (as part of the drive for mainstreaming equal opportunities policies Cohesion Fund The Cohesion Fund is a structural instrument that helps Member States to reduce economic and social disparities and to stabilise their economies since The Cohesion Fund finances expenditure of major projects involving the environment and transport infrastructure. This strengthens cohesion and solidarity within the EU. Eligible are the least prosperous member states of the Union whose gross national product (GNP) per capita is below 90% of the EU-average. 66 For the Cohesion Funds EUR 15.9 billion 67 are available for the years More than half of the funding (EUR 8.49 billion) is reserved for the new Member States. 68 Eligibility is restricted to Member States whose per capita gross national product (GNP) is less than 90% of the Community average and which have a programme designed to achieve the conditions of economic convergence as set out in Article 104c (avoidance of excessive government deficits) of the Treaty establishing the European Community. 69 Four Member States: Spain, Greece, Portugal and Ireland were eligible under the Cohesion Fund from 1 January The Commission s midterm review of 2003 deemed Ireland (GNP average of 101 %) as ineligible under the Cohesion Fund as of 1 January On 1 May 2004 with the EU enlargement, all new Member States (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia) were qualified for the Cohesion Fund EC Regulation No 1784/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance 66 since 1/5/2004 Greece, Portugal, Spain, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, in: in 2004 prices in: Working for the regions, DG Regio, Office for Official Publications of the European Communities, Luxembourg EC Regulation No 1164/1994 of 16 May 1994 establishing a Cohesion Fund, Art. 2 (1)

29 1.7 Financial resources dedicated to the EU structural policy Priority Objectives and Funds Table 3 Objectives Objective 1 Promoting the development and structural adjustment of regions whose development is lagging behind Objective 2 Supporting the economic and social conversion of areas facing structural difficulties Objective 3 Supporting the adaptation and modernisation of policies and systems of eduaction, training and employment Community Initiatives, Innovative Actions and Technical Assistance, Fisheries Support outside Objective 1. Structural Funds ERDF, ESF, FIFG, EAGGF- Guidance Section % of Structural Funds budget 69,7 ERDF, ESF 11,5 ESF 12,3 ERDF, ESF, FIFG, 0,5 EAGGF- Guidance Section Source: (1) European Commission (2000), Structural Actions Commentary and Regulations, Office for Official Publications of the European Communities, 2000, p. 19 (2) Bollen F., Managing EU Structural Funds. Effective Capacity for Implementation as a Prerequisite European Institute of Public Administration, Maastricht 2001, p. 35 * The remaining share is dedicated to Community Initiatives ** The EAGGF and FIFG funds also finance certain other types of actions outside objective 1 regions. 29

30 1.7.2 Member States Indicative funding allocations per Member State in the period. (1999 prices, EUR million) Table 4 Member State Obj. 1 Transitional assistance for former Objective 1 Regions Obj.2 Transitional assistance for former Objective 2 and 5(b) areas Obj. 3 Instrument for fisheries (outside Objective 1 regions) Total Austria Belgium Denmark Finland France Greece Spain Netherlands Ireland Luksemburg Germany Portugal Sweden UK Italy UE Source: European Commission Structural Actions Commentary and Regulations, Office for Official Publications of the European Communities, 2000, p.19 30

31 1.7.3 New Member States Indicative funding allocations per New Member State in the period. (1999 prices, EUR million) Table 5 New Member States Obj. 1 Obj. 2 Obj. 3 Fisheries Assistance (outside Objective 1 regions) EQUAL INTERREG Total Czech Republic 1.286,4 63,3 52,2 0 28,4 60, ,2 Cyprus 0 24,9 19,5 3,0 1,6 3,8 52,8 Estonia 328, ,6 9,4 341,6 Latvia 792, ,5 19,9 822,5 Lithuania 554, ,1 13,5 574,8 Malta 55, ,1 2,1 59,1 Poland 7.320, ,5 196, ,3 Slovenia 210, ,7 21,0 236,8 Slovakia 920,9 33,0 39,9 0 19,7 36, ,3 Hungary 1.765, ,8 60, ,1 Total ,3 121,2 111,6 3,0 223,0 424, ,5 Source: Ogólne zasady wdrażania funduszy strukturalnych w Polsce. Podręcznik dla Instytucji Zarządzających, Pośredniczących i potencjalnych Beneficjentów końcowych programów realizowanych z udziałem funduszy strukturalnych, Ministerstwo Gospodarki, Pracy i Polityki Społecznej, Ministerstwo Finansów, Warszawa 2003, p

32 1.7.4 Structural Funds Map 1 Areas eligible under Objective 1 and 2 Source: A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, Commission of the European Communities, Brussels, February 2004, p

33 Chapter II 2. THE FUTURE OF THE EU COHESION POLICY BEYOND 2006 After a prolonged period of public debate and research, the European Commission put forward on 10 February 2004 its budgetary proposals of the enlarged European Union 71 of 27 Member States for the period , emphasizing an ambitious cohesion policy as essential element of the total package. The decision reflected the work that has been carried on since the publication of the Second Cohesion Report in 2001 which launched the debate on the future of cohesion policy in the enlarged Union for the period beyond The conclusions of the Third Cohesion Report constitute a detailed proposal for the priorities and delivery system for the new generation programmes under cohesion policy in conformity with the broad guidelines set out in the financial perspective. Moreover, in July 2004, the Commission also submitted its formal legislative proposals, starting an intensive process of negotiation within the committees of the Council and of the European Parliament. 2.1 Political and Economic Developments The framework of the ongoing debate on reforming EU cohesion policy comprises a mix of wide-ranging political and economic developments as well as specific budgetary proposals. Three issues are of particular importance: EU enlargement, growth and competitiveness of the EU and the Constitutional Treaty and finally the financial perspective Implications of EU enlargement First of the aspects underlying the necessity to reform EU cohesion policy is the implication of EU enlargement for economic and social cohesion of the EU. The accession of 10 New Member States to the EU on 1 May 2004 represents an unprecedented challenge as regards the socio-economic cohesion. It will lead to both 71 European Commission, Building our common future: policy challenges and budgetary means of the enlarged Union, COM(2004)101 33

34 the aggravation of discrepancies between the well and poorly developed regions and the growth in the number of the latter. 72 The long-term nature of the cohesion challenge was clearly presented in the Third Cohesion Report 73 according to EC estimates, many new Member States will have to achieve sustained economic growth of 2.5 percent above the EU15 average for years in order to reach a GDP per capita level of 75 percent of the EU15. Table 6 The key difficulties arise as far as necessary administrative capacity in the new members is concerned. Furthermore, there are other vital issues like their integration into the Lisbon Strategy, the Schengen acquis, economic policy coordination, the Stability and Growth Pact and the eurozone. 74 The foreseen enlargement by even poorer countries taking into consideration Bulgaria and Romania in January 2007 will increase the challenges. Following Croatia s application for membership, the Council has decided that Croatia is a candidate country and that the accession process should be launched. The implementation of a pre-accession strategy of Turkey is underway, but the EU is 72 Olbrycht J., Poland and the new cohesion Policy. Recommendations for the regional policy in Poland after 2006, Institue of Public Affairs, Warsaw 2004, p A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, Commission of the European Communities, Brussels, February Bachtler J., Wishlade F., Searching for Consensus:The Debate on Reforming EU Cohesion Policy, European Policy Research Paper, No 55, November 2004, European Policy Research Centre, University of Strathclyde, Glasgow, p. 5 34

35 politically divided on Turkish membership even though the accession negotiations recommended on October , accession cannot take place before Growth and competitiveness The debate on the new cohesion policy in enlarged Europe is influenced by another extremely important discussion which the slow progress of the EU in meeting the goals of the Lisbon Agenda. In order to improve the performance of the EU economy, the Heads of State and of Government of the Union meeting in Lisbon in March 2000 established a strategy designed to make Europe the most successful and competitive knowledge based economy in the world by However, couple of years later, the extent of the undertaking facing the EU was criticised by the high-level expert group chaired by Wim Kok 77 as follows: At Lisbon and at subsequent Spring European Councils a series of ambitious targets were established to support the development of a world-beating European economy. But halfway to 2010 the overall picture is very mixed and much needs to be done in order to prevent Lisbon from becoming a synonym for missed objectives and failed promises. We should bear in mind that cohesion policy in all its dimensions as an integral part of the Lisbon strategy, even if today, as the Commission pointed out in the financial perspective, the policy design underlying Lisbon needs to be completed and updated. In other words, cohesion policy needs to incorporate the Lisbon objectives and to become a key vehicle for their realisation via the national and regional development programmes Communication of 6 October 2004 from the Commission to the Council and the European Parliament: Recommendation of the European Commission on Turkey's progress towards accession COM(2004) 656 final - Not published in the Official Journal 76 Presidency Conclusions of the Lisbon European Council, March Facing the challenge The Lisbon strategy for growth and employment Report from the High Level Group chaired by Wim Kok, November 2004, p A new partnership for cohesion: convergence, competitiveness, cooperation op.cit., p.26 35

36 2.1.3 Institutional changes Consequent major aspect of developments concerns the institutional changes taking place. The European Council agreed on the EU's first-ever Constitutional Treaty on 18 June The Constitutional Treaty was signed on 29 October 2004, under the Dutch EU Presidency. In principle, the member states had two years to ratify the Treaty with the ratification process varying from member state to member state depending upon whether direct democracy (via a popular referendum) or parliamentary democracy is favoured. Although the importance of the Treaty is based on in its revision of the legal and institutional frameworks of the EU, it also makes some policy changes, including cohesion policy. Under the Constitution, Article III-116 modifies the goal of economic and social cohesion to include the objective of territorial cohesion. It should also be mentioned that Article III emphasizes the role of the Member States in conducting and coordinating their economic policies in such a way so that they achieved the objectives leading to the economic, social and territorial cohesion. Even though, significant efforts have been made to ratify the EU Constitution, due to failure of the referenda both in France and the Netherlands 80, the EU summit decided that the referenda would be put on hold in countries that had chosen to put the ratification of the treaty to a public vote. The Constitution can take effect only if all 25 member states ratify it either in a parliamentary vote or by referendum. To date, thirteen nations have ratified the document: Austria, Cyprus, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Slovenia and Spain Financial perspective Currently, the financial perspective is foreseen neither by the Treaty nor by Community legislation. They are formalised by an interinstitutional agreement sui generis between the Parliament, the Council and the Commission which reflects a consensus between them and hence gives legitimacy to the mechanism (soft law). The 79 Draft Treaty Establishing a Constitution for Europe, 18 July In a referendum held on 29 May 2005, French voters rejected the terms of the treaty with a 'no' vote of 55.6%. Dutch voters followed suit in a consultative vote on 1 June, with 61.8% of the turnout voting against the treaty, in:

37 final decision is subject to the agreement of EP and Council, who express their common will for budgetary discipline in the Interinstitutional Agreement European Commission standpoint Taking into consideration the recent developments, the EC put forward its proposals for the EU Financial Framework for the period in February The Commission envisages keeping the current own resources ceiling of 1.24 percent of the EU s Gross National Income (GNI), with appropriations for payments averaging 1.14 percent over the period. As a consequence, the EU would commit an average of 146 billion per year over the period. 84 This compares with a figure of 120 bn for the final year of the current period (2006), and would represent an increase of 31 percent in planned EU spending from 2006 to In view of the components of the EU budget, the EC has rationalised the budget into five political priorities. 85 These are as following: Heading I - Sustainable growth (including competitiveness and cohesion); Heading II - Conservation and management of natural resources; Heading III - Citizenship, freedom, security and justice; Heading IV - External policies: The EU as a global partner Heading V Administration; The financial resources available to the cohesion policy (Structural and Cohesion Funds) would comprise bn over the period, representing around 0.41 percent of GNI in an EU A supplementary 0.05 percent of GNI would be devoted to rural and fisheries instruments under the CAP Boege R., Draft Report on Policy Challenges and Budgetary Means of the enlarged Union (2004/2209(INI)), March 2005, European Parliament p.4 83 Communication from the Commission to the Council and the European Parliament Building our common future: Policy challenges and budgetary means of the enlarged Union , COM(2004) 101 final, Brussels, , op.cit See Annex 3 86 Taking into account anticipated expenditure in Bulgaria and Romania from the date of their accession to A new partnership for cohesion: convergence, competitiveness, cooperation, op.cit., p. xxxviii 37

38 European Parliament input The Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union was established by the European Parliament on 15 September Reimer Boege 88 was nominated as a Rapporteur on the financial perspectives defining the Parliament's political priorities for the future both in legislative and budgetary terms. In other words, this committee prepared and identified the political agenda and challenges of the European Union for the next period. The voting within the Committee took place during the plenary session in May The report endorsed position on the main issues favoured by the Rapporteur and turned out to obtain the support of a significant majority of the political groups. Five year duration of the financial perspectives gained the support (until 2011 or 2016), improving democratic legitimation through greater coherence with the mandate of the Commission and the EP while ensuring compatibility with the duration of multi-annual programmes which last longer than the financial perspectives. Furthermore, reduction of the Commission proposal by 47.5 billion including a reduction of the margin under competitiveness by 4.7 billion was voted: billion for administrative expenditure, 7.9 billion for direct aid payments linked to Rumania and Bulgaria; 21.8 billion for the EDF, reductions due to the newly created reserves 90 leading to 1.18 % of GNI in commitments and 1.07% in payments. The final vote on the Financial Perspectives came about during the plenary session in June 2005 and fully confirmed the above mentioned amounts, however, introduced one crucial change its duration of 7 years as it was proposed by the Commission. 88 Member of the European Parliament representing the EPP-ED Group 89 See Annex 4 90 Creation of flexibility reserves (24.2 billion) outside the ceiling of the financial framework, covering the reserves for: competitiveness (7 billion), cohesion (3 billion), Emergency Aid (1.5 billion), the Solidarity Fund (6.2 billion), guarantee loans (3 billion), flexibility (3,5 billion); 38

39 Table 7 Commitment appropriations Sustainable growth 1a. Competitiveness for growth and employment 1b. Cohesion for growth and employment 2. Preservation and management of natural resources of which: Agriculture - Market related expenditure and direct payments 3. Citizenship, freedom, Total security and 4. The EU as a global partner Administration Compensations TOTAL appropriations for commitments Commitment appropriations 1,17% 1,18% 1,19% 1,18% 1,18% 1,18% over GNI Ceiling Administrative expenditure of the Commission Ceiling Agencies (estimation) TOTAL appropriations for payments Payments over GNI 1,04% 1,04% 1,05% 1,05% 1,07% 1,07% Source: Results of the vote, 10 May 2005, The Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union , European Parliament, p.2 As far as the cohesion policy is concerned, the European Parliament considered it as an indispensable tool for promoting social, economic and territorial cohesion, permitting the Union to undertake actions to reduce regional disparities, with a view to fostering the harmonious development of the Union. 91 What is most important, the amount of 0.41% of the Union's GNI and 4% absorption limit of national GDP of the new Member States was perceived as adequate and fully in line with the Commission proposal European Council contribution An ad hoc Group on Financial Perspectives was established by the Irish Presidency 92 and composed of representatives of the General Affairs Council used to be in charge of preparing the work for COREPER and coordinating the examination of 91 Boege R., Draft Report on Policy Challenges and Budgetary Means of the enlarged Union op.cit., p.4 92 From 1 of January to 31 of May

40 the specific aspects for the specialized councils. Under the Dutch Presidency 93, the ad hoc group continued the examination of the different proposals through a more in depth analysis of the various headings, aiming to portray the general range of Member States' positions in building blocks. In June 2005 the agreement was expected to be reached, however, the EU leaders failed to accomplish a deal on the budget framework for Luxemburg Prime minister and EU President Juncker admitted Europe to be in "a deep crisis". The breaking factor in the negotiations was the British rebate and its connection to the funding of the EU's common agriculture policy (CAP). The UK insisted that its rebate is fully justified as long as other countries 94 are not willing to give in to a fundamental review of CAP expenditure. CAP funding now represents around 40% of the EU budget although these funds only go to about 5% of European citizens, was the argument most heard from the UK delegation. Under these circumstances, reducing the necessary financial means to fund innovation, research and jobs policy 95 seems to have been hard to accept for the UK and others. The conflict over the UK rebate and CAP symbolises a deeper division based on different conceptions of where the EU should go at the beginning of the new Millennium. With the enlargement to the 10 new member states and the challenges of globalisation, the EU faces a fundamental choice, which it was reluctant to discuss during the Convention on the future of Europe. It seems as if choices will have to be made this time and need to be made as soon as possible under the British Presidency 96 so that the Member States and regions will have new Cohesion policy programmes ready to come into operation at the start of EC Proposal for Cohesion Policy In view of the political and economic developments mentioned above, the European Commission published an outline of its proposals for the future of EU cohesion policy in the Third Cohesion Report. 98 The submission of the Commission s 93 From 1 July to 31 December especially France 95 the Lisbon Agenda 96 From 1 July 2005 to 31 December Speech by Commissioner Danuta Hübner at the Plenary Session of the European Parliament, Strasbourg, 5 July A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, op.cit 40

41 formal legislative proposals in July 2004 turned out to serve as a starting point for debate and negotiation. The Commission is proposing to change EU cohesion policy in quite a few important respects like a considerably increased budget; a broader rationale; a new architecture of Community priorities and a different implementation system; Financial Framework The financial resources dedicated to cohesion policy should reflect the aspiration of an enlarged Union to promote growth and job creation in its less favoured areas. The Commission proposed in the financial perspectives that a sum equivalent to 0.41% of the GNI of the EU27 (which equates to 0.46% before the transfers to the proposed single rural and fisheries instruments) in support of the three priorities of the reformed cohesion policy for the period The Structural and Cohesion Funds would be allocated billion, of which 81 percent would be allocated to ERDF and ESF and almost 19 percent to the Cohesion Fund. Table 8 million, 2004 prices % Structural Funds and Cohesion Fund, of which: 336, Structural Funds 273, Cohesion Fund 62, Transfer to rural and 37,706.0 fisheries instruments Total 373,900.0 Source: European Commission, Proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund,COM (2004)492 final, 14 July 2004, Brussels, p The comparison with the current programming period is influenced by enlargement and by the new structure of the financial perspective. Nevertheless, it is clear that the Commission s proposals involve a considerable increase in cohesion policy funding. It is also important that, for the period, a proportion of the total allocated to the Cohesion Fund was raised. 99 See Annex 5 41

42 Table 9 Structural Funds budget (EU 25) million, 1999 prices % Structural Funds 235, Cohesion Fund 25, Total* 260, Source: own calculations based on: Working for the regions, DG Regio, Office for Official Publications of the European Communities, Luxembourg 2004, p.13 *including Community Initiatives and the Fisheries Instrument Territorial Characteristics In the Third Cohesion Report, the Commission calls for a greater focus on the iniquity of regional economic and social disparities as a justification for EU cohesion policy. The EC is keen to broaden the framework of the new EU cohesion policy beyond spatial imbalances in income and employment to address issues such as: (1) the cities and towns, and medium-sized towns in particular, whose role in on regional development will be boosted with aid for urban regeneration drawing the experience of the URBAN Community initiative; (2) rural areas and areas dependent on fisheries, which will be the subject of actions to encourage a more diverse economy financed by the Structural Funds on the basis of complementary and consistency with the new European Agricultural Fund for Rural Development (EAFRD) and the European Fund for Fisheries (EFF); (3) the outermost regions, regions with a natural handicap (islands, mountains), sparsely or very sparsely populated areas;. One of the key characteristics of an effective cohesion policy lies in its adaptability to specific needs and characteristics of territories 100 what is evidently showed by the recent EC proposal leading EU cohesion policy to become a permanent, horizontal policy pursuing the purpose of balanced territorial development. 100 A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, op.cit., p. xxxi 42

43 2.2.3 A new architecture of Community priorities The Commission proposes that actions supported by cohesion policy should focus on a limited number of Community priorities, reflecting the Lisbon and Gothenburg 101 agendas, where Community intervention can be expected to bring about a leverage effect and significant added value. 102 Therefore, the future regional programmes would be targeted on a limited number of key themes as follows: innovation and the knowledge economy; accessibility and services of general economic interest; environment and risk prevention; These themes would be complemented by employment programmes focusing on the areas like productivity at work and social inclusion in line with the guidelines and recommendations under the European Employment Strategy (EES). The Objectives 1, 2 and 3 of the current programming 103 period would be replaced by three new Community priorities: Convergence: supporting growth and job creation in the least developed Member States and regions; Regional competitiveness and employment: anticipating and promoting change; European territorial cooperation: promoting the harmonious and balanced development of the Union territory; 101 The strategy of sustainable development was adopted on the EU summit in Gothenburg, during the Swedish presidency in June It was to ensure that the economic development objectives would comply with the care for natural environment and social issues. 102 Ibidem, p

44 The use of financial instruments and the allocation of the cohesion policy budget to these priorities would be as shown in Table below: Table 10 Priority Financial instruments Budget (%) ( bnl) Convergence ERDF, ESF, Cohesion Fund Regional competitiveness & employment Regional competitiveness programmes National employment programmes ERDF ESF European territorial cooperation ERDF Source: Cohesion policy: the 2007 watershed Legislative proposals by the European Commission for the reform of cohesion policy ( period), DG Regio, 2004 According to the Commission proposal, the Community Initiatives (INTERREG, URBAN, EQUAL, LEADER+) would be integrated into the mainstream programmes. The Commission also proposes to simplify and to clarify the role of the different instruments in support of rural development and the fisheries sector. Under the EC proposals, the current instruments devoted to rural development policy (EAGGF Guidance Section, FIFG) would be grouped in one single instrument under the Common Agricultural Policy (CAP) Convergence The main purpose of the convergence objective is to speed up the economic convergence of the less-developed regions. (Close to the present Objective 1). The convergence objective will play a particularly fundamental role in the new Member States whose accession faces the Union with unprecedented development gaps. As far as the new Regulation on the Structural Funds and Cohesion Fund 104 concerned, the Convergence priority would encompass four elements: (1) The convergence objective will concern first and primary those regions whose per capita gross domestic product (GDP) is less than 75 % of the average for the enlarged EU, calculated on the figures available for the three years prior to adopting the regulation. As until that time, these regions will be strictly defined at the NUTS II is 104 Proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, COM(2004)492 final, Brussels

45 level and, on the basis of current data, would encompass about 27 percent of the EU25 population most of the new Member States 105 and considerable parts of Greece, Portugal, Spain, Italy and eastern Germany. (2) Statistical effect regions, which would qualify for Objective status in an EU15, however, due to the statistical effect of enlargement, would not qualify in an EU25. Encompassing about three percent of the EU-15 population, this provision would apply mainly to regions in Germany, the UK and Spain. The support provided is regarded as transitional, to enable the regions concerned to adapt to the loss of full Objective 1 eligibility. The transitional support proposed would be provided until 2013 period on a digressive basis. (3) Outermost regions (RUP) 106, no matter if they qualify for aid under the convergence objective will benefit from specific aid under the ERDF as a means of allowing for their specific constraints in integrating into the internal market. (4) Support under the Cohesion Fund for countries the convergence objective will cover in Member States whose gross national income (GNI) is below 90 % of the EU25 average and that is aimed at helping them to fulfil the Union s conditions for economic and monetary convergence. This would include all of the new Member States as well as Portugal and Greece. There is no recognition of a statistical effect to compensate for loss of Cohesion Fund status (Spain). 107 It needs to be beard in mind that the list of regions or Member States that fulfil these conditions will be published by the Commission immediately following the entry into force of the regulation. 105 except some capital cities 106 Azores, Madeira, Canary Islands and French overseas departments 107 It has been very visible within the European Parliament how the Spaniards have been trying to figure out any kind of transitional mechanism so that a loss of Cohesion Fund could be compensated, see Amendments to the Draft Report on the Proposal for a Council Regulation establishing a Cohesion Fund (COM(2004) /0166(AVC)), European Parliament,

46 Table 11 Convergence objective including a special programme for outermost regions Regional and national Regions with a GDP/head <75% of average EU25 - innovation; - environment/risk prevention; programmes ERDF Statistical effect: Regions with a GDP/head - accessibility; - infrastructure; ESF <75% of EU15 - human resources; and >75% in EU25 - administrative capacity Cohesion Fund Source : DG Regio, Member States GNI/head <90% EU25 average - transport (TENs); - sustainable transport; - environment; - renewable energy Regional competitiveness and employment While interventions in the less developed Member States and regions remain the priority of cohesion policy, there are significant challenges that concern all EU Member States where the Union must have a vital role to play. For cohesion policy outside the least developed Member States and regions, the Commission proposes a two-fold approach: Firstly, through regional programmes financed by the ERDF, cohesion policy will help regions and the regional authorities to anticipate and promote economic change in industrial, urban and rural areas. This would cover: (a) phasing in regions current Objective 1 regions which would become ineligible for Objective 1 status even in an EU15 because of their economic growth; (b) the regions 108 of the Union covered neither by the convergence programmes nor by the phasing in support described above; Secondly, through national programmes, financed by the ESF, cohesion policy will help people to anticipate and to adapt to economic change, by supporting policies aiming at full employment, quality and productivity at work, and social inclusion in line with the objectives and guidelines of the European Employment Strategy (EES). 108 Defined at NUTS I or NUTS II depending on the institutional system of each Member State 46

47 Table 12 Regional competitiveness and employment objective Regional programmes (ERDF) and national programmes (ESF) Member States propose a list of regions (NUTS I or II) "Phasing-in" Regions covered by objective 1 in period and not covered by the convergence objective - Innovation - environment/risk prevention - accessibility - European employment strategy Source : DG Regio, European territorial cooperation The purpose of the third priority, inspired by the experience of the Interreg Community initiative, is to strengthen cooperation at cross-border, transnational and interregional levels. In this way, the cooperation priority will encourage a balanced, harmonious and sustainable development of the EU area. The priority will be funded by ERDF with two elements: Cross-border cooperation along external and internal borders, including where appropriate maritime borders to promote joint solutions to common economic problems. A New Neighbourhood Instrument (NNI) and Instrument for preaccession (IPA) 109 will be created to facilitate more effective actions on the external borders of the enlarged Union; Transnational cooperation, operating on number of zones to be agreed between the EC and Member States, to support strategic priorities with a transnational character such as R&D, information society, the environment, risk prevention and integrated water management; 110 The third element of the existing Interreg initiative inter-regional cooperation will, under the Commission s proposals, be integrated within the mainstream regional programmes which would be expected to dedicate a certain amount of resources to exchanges, cooperation and networking. 109 IPA will replace the present Phare, Tacis, MEDA, CARDS, ISPA and Sapard programmes in the new programming period A new partnership for cohesion: convergence, competitiveness, op.cit, p. xxxi 47

48 Table 13 European territorial co-operation objective Cross-border and transnational programmes and networking (ERDF) Source : DG Regio, Border regions and greater regions of transnational cooperation - innovation; - environment/risk prevention; - accessibility - culture, education Taking into consideration the context of the above dimensions of territorial cooperation, the EC proposed a new legal instrument for Cross-border cooperation 111 The Commission proposal aims to reduce the obstacles and difficulties encountered in managing actions of cross-border, transnational or interregional cooperation within the framework of differing national laws and procedures by creating a cooperation instrument at Community level to allow the setting-up on Community territory of cooperative groupings invested with legal personality to be known as European groupings of cross-border cooperation (EGCC) A reformed delivery system The reform proposal maintains the key principles of structural actions: multiannual programming offering a Community guarantee of sufficient duration and concentration, integrated development strategies, partnership, co-financing and concentration. However, at the same time, it aims to enhance the efficiency of the policy by introducing a number of reforms designed, firstly, to encourage a more strategic approach to programming, secondly, to introduce further decentralisation of responsibilities to partnerships on the ground in the Member States, regions and local authorities, thirdly, to strengthen the performance and quality of programmes cofinanced through a reinforced, more transparent partnership and clear and more rigorous monitoring mechanisms, and fourthly, to simplify the management system by introducing more transparency, differentiation and proportionality while ensuring sound financial management Proposal for a Regulation of the European Parliament and of the Council establishing a European grouping of cross-border cooperation (EGCC), COM(2004) 496 final, Brussels, Ibidem., Recital 2 & 7, Article Proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, COM(2004)492 final, Brussels

49 Strategic approach In line with the new delivery system, the Commission proposed an overall strategic document for cohesion policy on which should be adopted by the Council, with an opinion of the Parliament, in advance of the new programming period, defining clear priorities for Member States and regions. As the Commissioner Hübner said: The Community Strategic Guidelines are an essential aspect of the Commission s efforts to align cohesion policy closely with the Lisbon agenda for growth and jobs. The Guidelines are the missing link between our legal regulations and regional programmes on the ground. By adopting this Communication, the Commission has shown its determination to press on with our strategic priorities, despite the delay in reaching agreement on the future finances of the EU. 115 Adoption of this Communication is just in time, especially taking into account a huge disappointment with the June European Council to reach an agreement on the new financial perspectives The Guidelines will be decided by the Council on the basis of unanimity, after the adoption of the regulations (following an agreement on the Financial Perspectives ) 116 and on the basis of a Commission proposal. They will form the basis for preparing National Strategic Reference Frameworks and the resulting operational programmes to be adopted by the Commission. 114 Communication from the Commission, Cohesion Policy in Support of Growth and Jobs: Community Strategic Guidelines, COM(2005) 0299 Brussels, Communiqués de presse, La Commission européenne présente les nouvelles orientations stratégiques communautaires pour la cohésion, la croissance et l emploi, DG Regio, Bruxelles, le forseen to be reached in December 2005, in: EC Press Release, , Brussels 49

50 Programming The new programming system will be simplified both at the political level as well as well at the operational level. At the political level. Each Member State shall prepare a national strategic reference framework which ensures that Community structural aid is consistent with the Community strategic guidelines and which identifies the link between Community priorities, on the one hand, and national and regional priorities in order to promote sustainable development, and the national action plan on employment, on the other hand. 117 The national framework document shall be negotiated with the Commission and constitute the framework for preparing the thematic and regional programmes. However, not having the role as the current Community Support Framework (CSF) of a management instrument; At the operational level: On the basis of national strategic reference framework, the Commission would adopt national and regional programmes for each Member State. The programmes would be defined at an aggregate or priority level only 118 highlighting the most important operations. Additional aspect, reflected today in the so-called programme complement 119 would be left out as well as the management by measure. For the next period, the Commission proposed to further simplify the system trough limiting the number of financial instruments to three (ERDF, ESF and Cohesion Fund) compared to the current six. 117 COM(2004)492 final, op.cit. Art Ibidem., p see p

51 Table Objectives Financial Instruments Objectives Financial Instruments Cohesion Fund Cohesion Fund Convergence Cohesion Fund Objective 1 ERDF ESF EAGGF ERDF ESF Guidance Objective 2 ERDF Regional ESF competitiveness and employment Objective 3 ESF ERDF regional level ESF national level: European employment strategy Interreg ERDF European ERDF URBAN ERDF territorial EQUAL ESF cooperation Leader+ EAGGF Guidance Rural development and restructuring of the fisheries EAGGF Guarantee FIFG sector outside Objective 1 EAGGF Guarantee 9 objectives 6 instruments 3 objectives 3 instruments Source: A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, Commission of the European Communities, Brussels, February 2004, p.xiii As opposed to current multi-fund programmes, future ERDF and ESF interventions would aim at operating with only one fund per programme. The solution put forward by the Commission is cross-financing i.e. allowing each Structural Fund within a ceiling of 5% to finance the type of actions usually funded by the other Fund. 120 Funding of the activities would be limited and directly linked to the main domains of interventions of each Fund. According to the Commission, it would allow both for a simplification and increased effectiveness of programming. The only exception to the mono-fund system concerns Member States receiving support from the Cohesion Fund. In this case, the ERDF and the Cohesion Fund shall jointly provide 120 COM(2004)492 final, op.cit. Art

52 assistance for operational programmes on transport infrastructure and the environment, including major projects. It is inevitable to mention the rule of cross-financing causing vital doubts in the context of VAT eligibility for the European Regional Development Fund and European Social Fund. It would mean a situation, in which within a particular project/group of projects, the ERDF would finance actions of a complementary nature which are eligible for support by the ESF, when VAT was not eligible. 121 On the contrary, if the actions were financed as a separate project from resources of the ESF, VAT costs would be considered eligible. It may lead to the use of various rules of eligibility for the same types of actions, depending on, if they were realized within cross-financing, or within separate projects Partnership and co-ordination Assistance from the Funds shall be decided by the Commission within the framework of close cooperation, hereinafter "partnership", between the Commission and a Member State that shall ensure broad and effective involvement of all the appropriate bodies. 122 The principle of partnership for the new programming period shall be enhanced by strengthening the cooperation between Member States, regions and local authorities both at the programming and implementation levels. In this view, according to its institutional arrangements, each Member State should endeavour to find to organise the coordination between the different levels of government through tripartite agreements. 123 Generally, there is a visible emphasis on social partners and representatives from civil society involvement so that better governance could be promoted. These introduced changes should bring greater transparency to the operation of the cohesion policy and facilitate the access of citizens and companies so that the number of projects coming forward could be increased. 121 according to the draft regulation on ERDF 122 Ibidem., Art A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, op. cit, p. xxxvi 52

53 A stronger emphasis on performance and quality In order to conduct an effective cohesion policy, a greater impact and performance of the policy should be highlighted. The rules for evaluation before, during and after the end of the programmes would remain indispensable to the overall effort to maintain quality. One of the key points of financial performance in cohesion policy is the application of the N rule. According to the Commission s proposal the system of payments (advances and reimbursement) as well as the essential principle of automatic de-commitment (the N+2 rule) would be maintained and also extended over the Cohesion Fund. Moreover, the Commission proposed to set up a Community performance reserve 125 whose main objective would be to remunerate the Member States and regions which prove the most distinctive progress towards the agreed objectives. To conclude, the Commission proposed as well that Member State create within their national allocation a national contingency reserve 126 to cover unforeseen local or sectoral crises linked to economic and social restructuring or to the consequences of trade opening. This little reserve 127 shall be used for providing supplementary support to affected workers and to the diversification of the economy in the areas concerned, acting as a complement to the national and regional programmes which should represent the principal instrument for restructuring in expectation of economic change The new legislative package and indicative timetable On 14 July 2004, the European Commission adopted its legislative proposals on cohesion policy reform. The new framework introduced a more targeted and simplified approach for the implementation of the next generation of European national and 124 The Commission automatically decommits any part of a commitment which has not been settled by the payment on the account or for which it has not received an acceptable payment application, by the end of the second year following the year of commitment or, where appropriate and for the amounts concerned, following the date of a subsequent Commission decision necessary in order to authorise a measure or an operation or by the end of the deadline for the transmission of the final report, see EC Regulation No 1260/1999 of 21 June 1999, Art. 31(2) 125 COM(2004)492 final, op.cit. Art Ibidem., Art, an amount of 1% of the Structural Fund annual contribution for the Convergence objective and 3% of the Structural Fund annual contribution for the Regional competitiveness and employment objective 128 A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, op. cit, p. xxxviii 53

54 regional development programmes. In line with the policy proposals adopted last February 129, the fundamental goal of the programmes will be to boost competitiveness and growth in the enlarged European Union, with a proposed allocation amounting billion over seven years, around one-third of the budgetary plans for the next programming period. The legislative package in support of these priorities consists of five new regulations: (1) Proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, 130 establishing the principles, rules and standards for the implementation of the new system with a focus on simplification and decentralization; (2) Proposal for a Regulation of the European Parliament and of the Council on the European Regional Development Fund 131, to fund projects on research, innovation, environment, risk prevention, infrastructure in the least developed regions (3) Proposal for a Regulation of the European Parliament and of the Council on the European Social Fund 132 encompassing projects for employment, quality and productivity at work and social inclusion; (4) Proposal for a Council Regulation establishing a Cohesion Fund 133 to invest in environmental projects and trans-european networks in the ten new member states, plus Greece and Portugal; (5) Proposal for a Regulation of the European Parliament and of the Council establishing a European grouping of cross-border cooperation (EGCC) 134, a new legal instrument for cross-border, transnational and interregional projects ; Due to failure on the budget framework for in June 2005, it turned out impossible for the European Parliament and the Council to agree on the new regulations. As soon as the new General Regulation 135 is adopted, at the latest three 129 Construire notre avenir commun: défis politiques et moyens budgétaires de l Union élargie, COM(2004)101 and A new parnership for cohesion : convergence, competitiveness, co-operation op.cit. 130 COM(2004)492 final, op.cit. 131 COM(2004) 495 final 132 COM(2004) 493 final 133 COM(2004) 494 final 134 COM(2004)496 final, op.cit. 135 COM(2004)492 final, op.cit 54

55 months after, the Community strategic guidelines are adopted 136 on the basis of which the Member States and the regions will draw up National strategic reference frameworks. It will then be possible to draw up the new generation of operational programmes 137 during The aim is to start up actions from the beginning of Table 15 Proposed TIMETABLE July 2005 Commission proposal on Strategic Guidelines; launch of public consultation Autumn 2005 Preparation for National Reference Frameworks Decision by Council on Financial Perspectives (?) 2006 Preparation of programmes for period Jan 2007 Implementation begins Source: DG Regio, Brussels, The European Regional Development Fund (ERDF) 138 The recent enlargement has increased regional disparities within the EU, due to a distinctive amount of regions accepted whose development is lagging behind. With GDP per head ranging from 30% to 75% 139 of the community average, the European Union is faced with a genuine challenge of achieving convergence. At the same time, enlargement has increased on the whole number of EU borders. Therefore, greater territorial co-operation is expected, based on joint projects for local development under cross border cooperation, actions contributing to transnational development, and finally networks of development and exchange. The disparities in the level of regional development within the Community require not only budgetary but also thematic concentration. Even though, the ERDF actions are differentiated depending upon the beneficiary region, however, remaining focused on the Union s priorities, as defined in Lisbon and Gothenburg agendas. Under the convergence objective 140, in addition to strengthening infrastructures - transport, environment, energy, education, health - and aid for SMEs, new stress is placed on research and innovation as well as on risk prevention. 136 Ibidem., Art document submitted by the Member State and adopted by the Commission as part of the strategic reference framework setting out a development strategy using a coherent set of priorities in: COM(2004)492 final, op.cit Art. 2(1) 138 COM(2004) 495 final 139 Eurostat, News release, 25 January COM(2004)492 final, op.cit., Art.4 55

56 The regional competitiveness and employment objective 141 is constructed around a three divided menu of themes: innovation and the knowledge economy, the environment and risk prevention and access - outside urban centres - to transport and telecommunication services of general economic interest. A new objective is dedicated to territorial co-operation 142, which is organised around cross border and trans-national and interregional dimension, to encourage entrepreneurship, joint management of the environment and the sharing of infrastructures. Transnational programmes will include water conservation and management, access to major networks and the interoperability of systems. As far as the inter-regional dimension is concerned, support for the development of networks of exchange, analysis and study between regions and local authorities will be provided. It is also worth mentioning that the ERDF regulation takes account of the particular situation of urban 143, rural areas 144, and areas with natural handicaps 145. Also, the financing of the additional costs brought about by the peripheral location of the outermost regions is allowed for The European Social Fund (ESF) In the future programming period, there is a need to reinforce the links between the Community financial instrument and the Union's policy framework period to better contribute to the employment objectives and targets of the Lisbon strategy. In particular, the European Social Fund shall support action in line with the guidelines and recommendations adopted under the European Employment Strategy and the agreed objectives of the Union in relation to social inclusion and education and training. The draft ESF Regulation for constitutes a focused framework for ESF interventions within the Community. Under both the Convergence and the Regional Competitiveness and Employment objectives, the ESF will provide support 141 Ibidem., Art Ibidem., Art Ibidem., Art Ibidem, Art Ibidem, Art COM(2004)492 final, op.cit. Art

57 with a view to anticipating and managing economic and social change. In line with those objectives, the ESF shall support action under the key following priorities: 147 increasing adaptability or workers and enterprises; enhancing access to employment of job seekers and inactive people, preventing unemployment; reinforcing social inclusion of people at a disadvantage and combating discrimination; promoting partnership for reform in the fields of employment and inclusion. Furthermore, the proposal takes into consideration the promotion of good governance and partnership. 148 The managing authority of each operational programme shall encourage sufficient participation and access social partners and as well as non-governmental organisations to the funded activities, in the domain of social inclusion and equality between women and men. Finally, the promotion of innovative activities 149 and trans-national cooperation 150 will be fully integrated in the scope of the ESF, and mainstreamed within the national and regional operational programmes. Under both the Convergence and the Regional Competitiveness and Employment objectives, the ESF will give priority to funding trans-national cooperation, including exchanges of experiences and best practices across the Union and joint actions, ensuring where appropriate, coherence and complementarity with other trans-national Community programmes Cohesion Fund The latest proposal for a Council Regulation 151 lays down general provisions for the functioning of the structural funds and for the Cohesion Fund for the future programming period It foresees that the Cohesion Fund contributes to the convergence of less developed Member States and regions through financial participation in the operational programmes of this convergence objective. Due to the reform of the implementation system of cohesion policy, Cohesion Fund interventions 147 COM(2004) 493 final, op.cit., Art Ibidem., Art Ibidem., Art Ibidem., Art COM(2004)492 final, op.cit 57

58 are integrated into the multi-annual programming of the structural funds, including major projects 152. The assistance of the Cohesion Fund in the area of trans-european transport networks must go after the guidelines for these networks, which were adopted by the Council in revised decision (EC) 1692/96. Cohesion Fund can also finance actions in support of sustainable development, where these have a clear environmental dimension, such as energy efficiency or renewable energy. Beyond the trans-european transport networks, this also permits to finance the rail, clean urban transport, and communal transport. This broader framework of the interventions is in accordance with the corresponding provisions in the treaty, and is in line with the priorities included both in Lisbon as well as in Gothenburg agenda. There is another crucial issue on the Cohesion Fund to be emphasized. Each Member State benefiting from the Cohesion Fund must conform to the conditions set out in the treaty regarding convergence programmes. However, those regarding excessive deficits for the Member States participating in economic and monetary union may end up with a conditional assistance under the Cohesion Fund. 153 If the Council decides, on the basis of a Commission proposal, that an excessive deficit exists and that the Member State concerned has not taken a necessary corrective action, the payment will be suspended, effective from January 1 of the following year 154. The suspension ceases, when the Council decides, on the same basis, that the Member State concerned has taken the measures necessary to allow a return to a situation that is in accordance with the Treaty and with the Council decisions European grouping of cross-border co-operation (EGCC) In order to accomplish the new objective of European territorial cooperation, the Commission proposed a co-operation instrument, which allows the creation of cooperative groupings in the community territory, invested with legal personality, called European groupings of cross-border co-operation (EGCC). Another reason why a new legal instrument was proposed is that Member States and regional and local 152 Ibidem., Art COM(2004) 494 final op.cit., Art Ibidem., Art.4 58

59 authorities have experienced important difficulties in carrying out and managing actions of cross-border, trans-national and inter-regional co-operation, within the framework of differing national laws and procedures. 155 This calls for appropriate measures at the community level with the intention of reducing these difficulties. According to the EC proposal, the EGCC is invested with the capacity to act on behalf of its members, notably Member States, the regional and local authorities of whom it is composed. The tasks delegated to it must be defined by its members, in a convention of European cross-border co-operation. Recourse to the EGCC should be optional 156. The EGCC must be able to act, either for implementing programmes of crossborder cooperation co-financed by the Community, notably by the structural funds, as well as transnational and inter-regional co-operation programmes, or for carrying out cross-border cooperation programmes which are at the sole initiative of the Member States and their regional and local authorities, without financial contribution by the Community. 157 This particular feature mirrors the legal basis of EGCC, established by the Treaty to allow specific actions to be taken outside the funds 158 in order to achieve the objective of greater economic and social cohesion laid down in Article 158 of the Treaty. The establishment of the EGCC is announced in the Official Journal of the European Union. As of that instant, the legal capacity of the EGCC is recognised in each Member State. 159 The discussed legislative EC proposal turned out to be the most controversial within the European Council as well as within European Parliament, where Jan OLBRYCHT (EPP-ED) 160 Vice - Chairman of the regional development committee was appointed a Rapporteur on this new challenging legal instrument. On 6 July 2005, European Parliament adopted with an overwhelming majority (622 in favour) the report drafted by Jan Olbrycht in the first reading of the co-decision procedure. The 155 COM(2004)492 final, op.cit, Recital 2 & 7, Article Ibidem., Recital Ibidem., Recital EC Treaty, Art. 159 third paragraph. 159 Ibidem., Art European People s Party (Christian Democrats) European Democrats. Since July 1999, the EPP-ED Group has been the largest political Group, currently 267 Members of the European Parliament (MEPs) sit in the EPP-ED Group, representing around 37 per cent of the total (732 MEPs). 59

60 European Parliament agreed to the general line put forward by the Rapporteur introducing vital both organisational as well as legislative proposals: The new instrument shall be known as the "European grouping of territorial cohesion (EGTC)" rather than as the "European grouping of cross-border cooperation (EGCC)" as proposed by the Commission. The Rapporteur argued that the new name would better reflect the three aspects of the new European territorial cooperation objective proposed by the Commission for the period : cross-border, transnational and interregional; The EGTC shall be subject to the law governing the operation of associations of the State designated by its members; 161 In addition to Member States and/or local public bodies, the EGTC may be made up of other bodies acting on a not-for-profit basis, in which regional/local authorities and Member States participate; Agreements 162 on border, interregional or supranational cooperation between Member States and/or regional and local authorities may continue to be applied; Finally, Rapporteur considers that once the EGCC has been invested with legal personality in accordance with the applicable national law in the Member State concerned, the statutes setting up the EGCC should be published in the Official Journal of the European Union; 163 As the Rapporteur Olbrycht added after the vote: The final adoption of this new instrument will mean that we have made yet another step in the territorial integration of the Community. This new initiative is a substantial organisational and financial feasibility to all actions of territorial co-operation. As the Parliament has expressed its strong support today, I hope that the same will come from the Member States" Ibidem., Amendment such as the Karlsruhe agreements. 163 Ibidem., Amendment EPP ED Press Service, European Parliament, EP adopts report on European groupings of cross-border cooperation. Jan Olbrycht MEP, Strasbourg

61 2.4 Financial Allocation Under the convergence priority the distribution of the financial resources among Member States is based on the method devoted to objective criteria used at the time of the Berlin Council (1999), taking into account the need for fairness regarding the regions affected by the statistical effect of enlargement. 165 The core idea in the method for calculating the financial allocations is that the level of assistance should be related to the degree of the regional development disparity in relation to the Community average, whilst taking account of national prosperity and levels of unemployment. 166 As far as the resources for the objective regional competitiveness and employment are concerned, they shall be allocated by the Commission between Member States on the basis of Community economic, social and territorial criteria. Lastly, the size of the population living in the relevant regions and relative socio-economic conditions would guide the allocation of resources under the European territorial cooperation objective. Source: Cohesion policy: the 2007 watershed Legislative proposals by the European Commission for the reform of cohesion policy ( period), DG Regio, 2004, p A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, op. cit, p. xxxix. 166 Searching for Consensus: The Debate on Reforming EU Cohesion Policy, op.cit., p.26 61

62 2.4.1 Convergence Priority The proposed overall resources for the Convergence priority amount to 264 billion for , with the emphasis on the twelve new Member States, broken down as set out in table below. It should be, however, kept in mind that the absorption limit ( capping ) for financial transfers to any given Member State under cohesion policy will be maintained at its current 4% of national GDP, taking into account amounts included under the rural development and fishery instruments. 167 Table 16 Convergence priority resources billion % Regional convergence and employment (ex-objective 1) National convergence (Cohesion Fund) Statistical effect (phasing-out) Outermost regions (OMRs) Total Source: COM(2004)492 final, op.cit., Art. 16 & DG Regio Competitiveness and Employment The indicative overall budget for the Competitiveness priority is around 58 billion for the next programming period (see Table 14). This is divided into on the one hand, regions which have finished to be eligible for what was formerly Objective 1 due to economic growth and, on the other, the Regional competitiveness and employment priority, which largely replaces Objective 2. Table 17 Regional competitivness resources billion % Phasing in Regional competitiveness and employment Total 57.9 Source: COM(2004)492 final, op.cit., Art. 17 & DG Regio 167 COM(2004)492 final, op.cit., Art

63 2.4.3 Territorial co-operation Finally, the EU allocation devoted to the territorial co-operation accounts for 13 billion for and its indicative division of this amount is presented in the table below. Table 18 Territorial co-operation resources billion % Cross-border co-operation ENPI and IPA* Transnational co-operation Co-operation networks and exchange of experience Total * European Neighbourhood and Partnership Instrument and Instrument for Pre-Accession Source: own calculations based on COM(2004)492 final, op.cit., Art. 18 & DG Regio 63

64 Map 2 Convergence and competitiveness objectives Source: Towards a new partnership for growth, jobs and cohesion, Third progress report on cohesion, Commission of the European Communities, Brussels 17 May 2005, p.27 64

65 Chapter III 3. THE NEW COHESION POLICY PROPOSALS AND ITS IMPLICATIONS FOR POLAND 3.1 Regional policy system in Poland. Critical overview. Due to the distinctive reforms that took place in the 90 s, Poland is putting a greater emphasis on strategic planning and decentralised modes of regional policy implementation 168. Accessing to the European Union on 1 May 2004 Poland has become in full scope the member and beneficiary of the common European market, subsequently became eligible for support from the EU structural funds and Cohesion Fund. From then on, our country faces extreme development opportunities which, however, will be allowed on the condition that economic growth is sped up and trends to strengthen social, economic and spatial cohesion with the other EU countries and regions is continued Therefore, further reform, clarifying the regional policy responsibilities of actors both at national and regional levels, making the funding and implementation of regional policy more transparent and enhancing the role of the region, is of crucial importance for Poland during the forthcoming years Negotiating framework Poland s negotiation position in the area of regional policy and coordination of structural instruments was established on 6th April The institutional part of the chapter was closed on 1 st October 2002, however, the financial part on 13 th December The negotiating framework covered promotion of harmonious development and actions leading to the strengthening economic and social cohesion. Reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, (including rural areas) tuned out to be crucial area as well. Institutional framework mentioned above was of vital importance so that Poland would be able to become the Structural Funds and Cohesion Fund beneficiary as of 1 May Territorial organisation as well as financial aspect and division of 168 Ferry M. Regional Policy in Poland on the eve of EU membership: regional empowerment or central control? European Policies Research Centre Nr 53, March 2004, p

66 resources within Structural funds and Cohesion Funds constituted a decisive argument to be fulfilled in order that cohesion policy objectives could be attained. Poland accepted and declared full implementation of the acquis communautaire 169 in the area of regional policy and coordination of structural instruments without transition periods or derogations in this area. Polish government expressed its will to participate in the social and economic cohesion policy of the Community under the same rules as those applied to other Member States from the date of the accession. In view of negotiation process, the total amount of 11368,6 million of the Community s contribution 7635,3 million (67,2%) will come from the structural funds resources (ERDF, ESF, EAGGF, FIFG), additional 3733,3 million will be utilised from the Cohesion Fund. The breakdown to individual funds, in years will be as follows: Table 16 Structural Funds and Cohesion Fund, of which: Structural Funds ERDF ESF EAGGF FIFG million, 1999 prices % 7, ,8 1748,9 1055,0 178, ,9 22,9 13,8 2,4 Cohesion Fund 3, Total 11, Source:. Narodowy Plan Rozwoju , dokument przyjęty przez Radę Ministrów w dniu 14 stycznia 2003 r. Warszawa 2003, p. 140 Due to short programming period, the years , Poland is covered just by EQUAL and INTERREG Community Initiatives, however, URBAN and LEADER initiatives will be implemented in the next programming period in the form of the mainstream programming. As far as the territorial organization is concerned, Poland was obliged to agree with the Commission a provisional NUTS (Nomenclature of Units for Territorial 169 The Community acquis is the body of common rights and obligations which bind all the Member States together within the European Union. It comprises not only Community law in the strict sense, but also all acts adopted under the second and third pillars of the European Union and the common objectives laid down in the Treaties. In order to integrate into the European Union, applicant countries will have to transpose the acquis into their national legislation and implement it from the moment of their accession in:

67 Statistics) classification for the implementation of Structural Funds. Since the 1st of January 1999 there has been functioning in Poland a three level model of public authority, with an independent, and elected, legislating and governing authority on the local, regional, and national level. The recently introduced territorial organization of the state combines features of a unitary state with a decentralized model of the public authority. There are following units involved: whole Poland s territory (NUTS I); 16 big voivodships (provinces) (NUTS II regions); 45 subregions, comprising several poviats, (NUTS III) 315 (as of 19th of April 2002) poviats (districts), and 65 cities with the poviat status (NUTS IV units); 2489 communes (basic territorial government units corresponding to NUTS V). Upon the accession, all the polish regions have been covered by Objective 1 of the Structural Funds. Table 17 NUTS level UNIT NUMER OF UNITS (as of 19 th April 2002) I State 1 II Voivodships 16 III Subregions 45 IV Poviats and Cities with the poviat status V Communes 2489 Source:.Raport na temat rezultatu negocjacji o członkostwo Rzeczpospolitej Polskiej w UE, Rada Ministrów, Warszawa 2002, p. 32 Poland wishing to take advantage of the regional policy must develop a compatible model of conducting regional policy. There is an urgent need for the improvement of the administrative structures as well as implementing procedures so that effective Structural Funds and Cohesion Fund performance took place Legal base Harmonisation of polish law with the Community Law in the framework of structural policy demands only very few improvements so that regional policy could be conducted effectively. 67

68 There are several legal acts in existence in Poland which directly or indirectly regulate operations of each element of the cohesion policy. Those recently adopted acts reflect regulations relating to the functioning of the Structural Funds and the Cohesion Fund and include 170 : The Act of 12 May, 2000 on the principles supporting regional development 171 The Act of 26 November 1998 on public finances 172 together with the subsequent changes (approved by the Council of Ministers on 14 May 2002 and adopted by the Parliament on 17th of July 2002) The Act of 5 June 1998 on regional self-government 173, The Act of 26 November 1998 on revenues of local self government units 174, One should absolutely bear in mind the act on the principles supporting regional development representing the first act of this kind, addressing a flexible system of conducting the regional and structural policy in Poland. It contains the principles and forms of regional development support where guidelines for the cooperation of the Council of Ministers and the public administration with the local governments and economic and social partners are included. The act establishes those institutions which support regional development. Moreover, provides a framework for programming and managing authorities. Finally, the legal act outlines principles for agreeing and implementing contracts between the central government and the voivoidships. This legislative acts introduced above constitute principles designed to respond to the weaknesses in regional development policy. These principles could be grouped into three basic themes: programming measures, financial management and finally institutional framework Programming measures Nowadays, Poland has 16 regions matching the NUTS II level. Responsibility for the preparation and implementation of regional development programmes, 170 Poland s negotiation position in the area of regional policy and coordination of Structural Instruments.Chapter 21. Adopted by the Council of Ministers of the Republic of Poland, 23 November 1999, p Dz.U No 48, poz Dz.U 1998 No 155, poz with subsequent amendments. 173 Dz.U 1998 No 91, poz Dz.U No 150, poz. 983 with subsequent amendments. 68

69 including the management of current EU regional assistance programmes and future Structural Funds, is currently allocated to one central government ministry i.e. the Regional Development Programming Department in the Ministry of the Economy. The Department was responsible for the preparation of two vital programming documents for regional development like The National Strategy for Regional Development ( the current version covers the years ) as well as National Development Plan (at present implemented encompasses the years ). The National Strategy for Regional Development was adopted by the Council of Ministers on the 28th of December It addresses the following main issues 175 : Regional differentiation trends in Poland against trends in other EU countries; Medium-term social and economic policy for Poland; Strategy of regional development; General principles of financing regional development; Implementation and monitoring of regional development projects; Following the guidelines issued by the Commission on 14 January , the Polish Authorities were also obliged to prepare a National Development Plan for the period on the basis, which was adopted by the Council of Ministers on 14 January and submitted to the Commission on 19 February 2003.The National Development Plan defines objectives, priority actions as well as institutional and financial framework for the structural assistance. It is to foster the development of the competitive knowledge and entrepreneurship-based economy 178, which is most desirable direction for the Polish economy. However, a detailed analysis of the NDP reveals that nearly 60% of all expenditures will be spent on the development of the basic infrastructure, mainly on the road systems and environmental protection. Financial support for entrepreneurship will amount to less than 20% of all funds, of which just 9% will be allocated towards new technologies. 179 It is evident that the NPR Community Support Framework, Promoting economic growth an environment for job creation, Brussels-Warsaw, December Ogólne zasady op.cit., p Poland. National Development Plan Adopted op.cit., p Grosse T.G., Ocena projektu Narodowego Planu Rozwoju na lata , Instytut Spraw Publicznych, Analyses & Opinions Nr 31,

70 programme is in particular focused on facility of spending the funds than on the effectiveness of their allocation. Yet, as shown by experience gained all over the world, the economic impact of such investments is rather poor. An investment based on high technology, being far more effective, brings definitely better results. National Development Plan served as a basis for elaboration of the Community Support Framework for Poland, determining the amounts and directions of support from structural funds under the execution of the development plan. CSF is being implemented through (see picture below): Five mono-funded sectoral operational programmes One multi-funded Integrated Regional Operational Programme IROP (covering 16 Voivodships) One Technical Assistance operational programme, providing assistance in implementation of the structural funds. The Sectoral Operational programmes and the IROP are defined in Programme Complements being a document implementing the assistance strategy and priorities and containing detailed elements at measure level (including the definition of the types of final beneficiary and the financial plan by measure). It is drawn up by the Member States or managing authority and sent to the Commission for information. 180 It is worth mentioning that Integrated Regional Operational Programme, as the chief operational instrument and compared to other programmes, is to be executed with the strongest participation of local self-governments. Nevertheless, the Ministry of Economy will continue to play a crucial role. However, the effectiveness of fund spending may be decreased because of complicated organisational structure which needs to be simplified before the next programming period. Unfortunately also in this case, the overwhelming share of IROP expenditures will be spent on local and technical infrastructure. (over 73% of all IROP financial resources 181 ). Very hard to admit, though, the discussed document neglects support for regional entrepreneurship and has nothing to do with the improvement of the competitiveness of the Polish regional economy. 180 See Art. 18 (3) of the General Provisions on the Structural Funds, EC Regulation 1260/1999 of 21 June 1999 op.cit. 181 Grosse T.G., Evaluation of the regional policy system in Poland. Challenges and threats emerging from participation in the new cohesion policy: theory and practice, Institute of Public Affairs, Edited by T.G Grosse, Warsaw 2004, p

71 Another vital feature of the programming system in Poland is the Regional Development Strategy being prepared by the s self-government authorities. The Strategy constitutes a framework for the Operational Programmes preparation introduced by the marshal s office which is and further incorporated into the Integrated Regional Operation Programme (IROP) in the National Development Plan. Even though, the new regional units have finally come out to play a more active role in the economic development on their own territory as part of a more integrated approach to regional policy-making in the country, this system is still far too complex and role of the self-governments not strong enough either. According to Jan Olbrycht 182 Regional self-governments hope and believe that their increasing knowledge and experience of dealing with EU funds will mean that, by the time the next programming period comes around, there will be 16 separate ROPs. In this situation, the role of regional self-governments in developing more detailed, regionspecific programmes and introducing detailed criteria for the selection of appropriate regional development projects will be boosted. We need to bear in mind that a choice between decentralized or centralized system belongs to the European Commission, who may decide on the latter due to its good functioning in the current programming period In this case, the status of the regions and the political importance of the self-government units would be seriously diminished. 182 former Marshal of Slaskie region, currently Vice-chairman of the Regional Development Committee in the European Parliament, in: Ferry M., op.cit., p

72 Chart 1 Regional policy programming in Poland (with Slaskie region as an example) Source: Ferry M., Regional Policy in Poland on the eve of EU membership: regional empowerment or central control? European Policies Research Centre Nr 53, March Financial management. In order to benefit from EU assistance, there is a need to act in accordance with the specific control provisions applicable to the Structural Funds and Cohesion Fund. Therefore, each Member State must provide information on their co-financing capacity as well as on the level of their public or equivalent expenditure for structural actions. 72

73 The current organization of the Polish system of public finances 183 defines the acceptable allocation of public expenditure to co-financing of programmes implemented with the support of foreign grants. The act constitutes that as of the end of the budgetary year, the unspent funds allocated to the co-financing of programmes implemented with the use of those funds do not expire. In the process of financing the measures co-financed by the Structural Funds and the Cohesion Fund Poland applies for the highest allowed co-financing rates of support as defined for the areas of Objective 1, at the same time ensuring their differentiation in proportion to budget capacity, extent of structural problems and importance of those measures from both the regional and national point of view. Apparently, the recent public finance reform hinders the long term planning of the structural fund commitments and expenditures as well as domestic co-financing of projects. 184 The need for legislative changes is urgent, since the system of public finances does not even guarantee that the planned resources will be actually allocated to the attainment of the objectives included in the National Development Plan during the following years. In order to facilitate the implementation for the regional policy and the absorption of the EU funds, a reform on public finances should be carried out, emphasising how to monitor, asses and report on programmes co-financed by the Community. A special role in the right functioning of the co-financing is also reserved for the act on principles supporting regional development as well as for the act on revenues of local self government units involving the enhanced financing possibilities for the local authorities Institutional framework System of implementing European Union structural assistance for areas covered by Objective 1 was prepared in accordance with the Community rules defined in the Council Regulation of 21 June 1999 No 1260/ It encompasses functions of authorities engaged in managing and implementation of Community Support 183 Dz.U 1998 No 155, poz with subsequent amendments op.cit 184 Grosse T. G., Olbrycht J., Preparing for the absorption of the Structural Funds in Poland. Critical overview and recommendations, Analysis & Opinions, No 5, The Institute of Public Affairs, Warssaw 2003, p Poland. National Development Plan Adopted by the Council of Ministers on th 14th of January

74 Framework namely CSF Managing Authority, operational programmes Managing Authorities, Paying Authority and final beneficiaries including implementation and monitoring institutions. The implementation system in Poland was prepared and adopted within the framework of the National Development System/Community Support Framework including settlements concerning the role of the above entities while implementing the structural funds within operational programmes and programme complements. The institutional system responsible for spending the Structural Funds resources in Poland is over-centralised, since around 70% of these funds is managed by the individual ministries 186. Moreover, six of seven operating programs are handled by government administration during its whole planning and implementation process. In the future, centralizing management procedures will not definitely enhance the effectives of the EU fund spending what may seriously hinder the establishment of the 16 Operational Programmes (OPs) of the regional development in the period In Poland has an opportunity to receive around 11 billion within the framework of the Structural funds and the Cohesion Fund support. There is a huge challenge on spending the resources in a sensible way contributing to the economic development of Poland at the same time. A critical diagnosis of Polish regional policy system is far from being optimistic. However, effective Structural Funds implementation in Poland is conditioned by simplified and decentralized management system (including 16 operating programmes), followed by appropriate legal changes to be implemented so that Poland would be able to face the new cohesion policy beyond 2006 and utilise the EU funds granted for this period in the most effective way. 186 Grosse T. G., Olbrycht J., op.cit., p. 4 74

75 3.2 Poland s standpoint on the EU New Cohesion Policy in The debate on the future of EU Cohesion Policy was initiated in 2001 together with the presentation by the European Commission of its Second Report on economic and social cohesion. On the 18th of February 2004 the Commission adopted its Third Report on economic and social cohesion entitled A partnership for cohesion: convergence, competitiveness and cooperation 187 in which it presented the guidelines for the reform of the EU cohesion policy in the next period The conclusion was clear, there is an urgent need for the policy to undergo important adjustments in order to better respond to the challenges of EU recent enlargement as well as the objectives of enhancing the overall competitiveness of the EU linked with the Lisbon and Gothenburg agendas. Another important step in the debate was the Communication launched by the Commission on the new financial perspective 188 constituting the objectives and budgetary resources for the European Union for the period Further consultations of the Commission s proposals (i.e. At the Third Cohesion Forum in May 2004) led to the elaboration in July 2004 of the first draft of EU legislation on post-2006 structural funds principles. The whole process of negotiations is foreseen to be finished with the adoption by the EU Council of the policy framework including the budgetary means and appropriate legal acts till the end of As of 1 May 2004, Poland became a vital important EU funds beneficiary, participating actively in the debate. The position on the future of EU cohesion policy was adopted in October 2003 in which Poland fully expressed the maintenance of a high profile of the cohesion policy as essential for the European Community Importance of the Regional Policy in the European Community The cohesion policy as one of the pillars of European integration that has never been questioned, it is the only instrument that addresses the problems of social and economic discrepancies. Nevertheless, some of the participants in the debate on the new cohesion policy insisted that the EU cohesion policy should be restricted to a 187 Commission of the European Communities, Brussels, February 2004, op.cit. 188 COM(2004) 101 final, Brussels, , op.cit. 75

76 certain extent, shifting the regional policy from the Community to the national regional policies. For example, the British introduced a proposal of partial renationalisation of the regional policy, reducing in particular the EU assistance in those regions where the GDP per capita does not go above 90% of the EU average. It seems that from the ideological point of view, the renationalisation infringes the idea of the solidarity principle as well as the character of the European Community as a whole. 189 As far as the financial point of view is concerned, the Community expenditures disbursed would be vitally decreased and the particular Member States would become responsible for fighting the gap between the poorest and the richest regions within a country area. The standpoint of the Great Britain was highly unfavourable both in ideological as well as financial framework. Therefore, Polish government was fighting similar tendencies. There was also another issue raised in the discussion concerning the policy orientation towards new member states only or Community-oriented continuation. Poland standpoint fully supported the favourable vision included in the Third Cohesion Report, bringing benefits to all Member States trough faster economic growth, increased competitiveness and improvement of the situation on labour market Lisbon Strategy incorporation The creation in Europe most competitive economy in the world up to 2010, being a very ambitious objective, was another important point in the discussion on the new cohesion policy in the enlarged Europe. However, there was a crucial question to be answered how to define the relationship of the two different methods discussed above. The Lisbon Agenda is based on a method of open co-ordination, known also as soft means of meeting common targets by EU member states. 190 On the other hand cohesion policy and its decision-making process which is completely different and based on the method of 189 Olbrycht J., Poland and the new cohesion policy. Recommendations for the regional policy in Poland after Institute of the Public Affairs, Edited by T.G.Grosse, Warsaw 2004, p Kuklinski A., Pawlowski K., EUROPE-The global challenges, Article by Olbrycht J., Cohesion and/or growth policy, Recifer Eurofutures Publication Series REUPUS, Nowy Sącz 2005, p

77 multilevel management where certain institutions are responsible for structural funds implementation. Fortunately, the proposals made in the Third Cohesion Report assume that there is a direct relation between cohesion and economic growth, aiming at strengthening each other. Moreover, the Report constitutes that cohesion policy must be treated as integral part of the Lisbon Agenda. Poland supports the direction of allocating financial measures within the cohesion policy towards implementation of the Lisbon Strategy priorities which will significantly contribute to the attainment of the objective of making the European Community the most competitive economy in the world. Nevertheless, Polish government should oppose if the new architecture of the regional policy objectives encompassing Polish regions under Convergence objective, will exclude them from Objective 2 improving the competitiveness, innovation and informational society development. The prospective Objective 2 should serve horizontally and be allowed for all the EU regions A new architecture of the Regional Policy In the course of the European debate of 2004 resulting in draft legislative framework, the fundamental assumptions of the new regional policy objectives entering into life after 2006 were accepted. 191 Having joint the European Union, Poland, as one of the poorest member states, will be encompassed by the future Convergence objective aimed at economic convergence and fight against unemployment. However, within future Objective 1, areas of so called statistical effect regions related to the enlargement will be eligible as well. There is also an on-going debate, whether a special phasing-out instrument for the regions 192 bound to be left out from the Objective 1 should be applied. It is evident for the Polish government to support the proposals of the statistical effect regions allowing them to stay within the area of support, or to help them phase-out progressively, since comparable case may emerge shortly in the Polish 191 see page i.e. Greek, Spanish or Portugese. 77

78 regions as well. Taking into account recent analysis conducted by socio-economic department in Poland, mazowieckie voivodeship will become statistically stronger already in 2007, followed by małopolskie and dolnośląskie in 2015, as the subsequent stages of EU enlargement involving Bulgaria and Romania.(see Table 18) A separate issue constitutes the Polish standpoint on the phasing out regions, which is rather sceptical for the time being. There is a hidden threat behind this particular subject, since per capita allocation level should be controlled in order to prevent a situation when regions eligible for phasing out support obtain a far greater per capita allocation, in euro terms, then the poorest Objective 1 regions. Therefore, possibly uniform phasing out rules, if to be established, should be applied by the European Commission. 78

79 Table 18 GDP per capita in the EU Voivodeship GDP, 2000, (Mio. PPS) GDP per capita, 2000, (PPS) Populati on, (Mio.) GDP increas e per year GDP per capita 2006 GDP per capita 2007 GDP per capita 2008 GDP per capita 2009 POLSKA ,646 4,3% 43% 47% 48% 49% 49% 50% 51% 52% 53% 54% 55% 56% 57% 58% 60% 1 DOLNOŚLĄSKIE ,9751 7,6% 46% 51% 54% 57% 60% 63% 66% 69% 73% 77% 81% 85% 89% 93% 98% KUJAWSKO-POMORSKIE ,1012 0,7% 37% 39% 38% 38% 37% 37% 36% 35% 35% 34% 34% 33% 33% 32% 32% LUBELSKIE ,2331 4,8% 30% 32% 33% 34% 35% 36% 36% 37% 38% 39% 40% 41% 42% 43% 44% LUBUSKIE ,0239 5,2% 39% 43% 44% 45% 46% 48% 49% 50% 52% 53% 55% 56% 58% 59% 61% ŁÓDZKIE ,6478 2,9% 38% 40% 41% 41% 41% 41% 41% 42% 42% 42% 42% 43% 43% 43% 43% MAŁOPOLSKIE ,2267 9,4% 40% 46% 49% 52% 56% 60% 64% 68% 73% 78% 84% 89% 95% 102% 109% MAZOWIECKIE ,0685 8,5% 68% 77% 81% 86% 91% 97% 103% 109% 115% 122% 130% 137% 145% 154% 163% OPOLSKIE ,0866 1,3% 36% 38% 37% 37% 37% 36% 36% 35% 35% 35% 34% 34% 34% 33% 33% PODKARPACKIE ,1277 4,8% 31% 34% 34% 35% 36% 37% 38% 39% 40% 41% 42% 42% 43% 44% 45% PODLASKIE ,2220 3,9% 32% 34% 35% 36% 36% 37% 37% 38% 38% 39% 39% 40% 41% 41% 42% POMORSKIE ,1946 3,2% 43% 46% 46% 47% 47% 48% 48% 48% 49% 49% 50% 50% 50% 51% 51% ŚLĄSKIE ,8581 2,0% 46% 49% 49% 49% 49% 49% 48% 48% 48% 48% 48% 47% 47% 47% 47% ŚWIĘTOKRZYSKIE ,3238 1,4% 33% 35% 34% 34% 34% 33% 33% 33% 32% 32% 32% 31% 31% 31% 31% WARMINSKO ,4662 3,0% 32% 34% 34% 34% 35% 35% 35% 35% 36% 36% 36% 36% 36% 37% 37% MAZURSKIE WIELKOPOLSKIE ,3577 4,7% 46% 50% 51% 53% 54% 55% 56% 58% 59% 60% 62% 63% 64% 66% 67% ZACHODNIOPOMORSKI E ,7334 4,9% 43% 47% 48% 49% 50% 51% 53% 54% 55% 57% 58% 60% 61% 63% 64% Source: unpublished analysis of Socio-economic departament, Office of the Committee for European Integration, September 2004 GDP per capita 2010 GDP per capita 2011 GDP per capita 2012 GDP per capita 2013 GDP per capita 2014 GDP per capita 2015 GDP per capita 2016 GDP per capita 2017 GDP per capita 2018 GDP per capita 2019 GDP per capita 2020 Assumptions: Average GDP increase in the Polish regions - 4%; Reference year ; Bulgaria and Romania enlargement in 2007; decrease of the GDP per capita in PPS (Purchasing Power Standards) from in 2006 to in 2007; a seven - year programming period assumed until 2013, followed by five year programming period; 79

80 level. 193 Moreover, a crucial innovation under the new programming system constitutes Programming framework During the succeeding programming period, the structural assistance is anticipated to be strategic-orientated towards the EU priorities. The modifications will be introduced in the programming system both at the political as well as operational the obligation of the Commission to present annual reports 194 on the utilisation of structural funds, and the commitment on the part of the beneficiary state to consider the recommendations contained therein and consequently introduce suitable amendments. Poland expressed its concern 195 that process of annual reporting would contribute to excessive financial burden administration services and in general complicate the whole programming process. Nevertheless, there is a positive attitude towards the concept of programming on the basis of the overall strategic document for cohesion policy. Polish government even turned out to be over-zealous and prepared a National Development Plan , adopted in June Plans are the programming documents according to the existing legislative framework representing a cohesive blueprint indicating strategic objectives for a particular member state. Unfortunately, NDP introduced for the future financial framework is neither necessary nor strategic but strictly dependant on EU investments. In order to respond to the European Proposals, Poland will be urged to tackle a distinctive programming potential throughout the years , therefore all the indispensable modifications must be introduced as soon as possible. 193 See p COM(2004)492 final, op.cit. Art. 27 & Memorandum, Future of the Cohesion Policy of the European Union, Republic of Poland, April Poland. National Development Plan Adopted by the Council of Ministers in June

81 3.2.5 Simplified implementation procedure The European Commission has been striving for simplification of the implementation system since a long time due to pressure from the member states. One of the simplification features of the current EC proposal for the programming period states that all Operational Programmes should be mono-fund i.e. be financed by one single Fund. The only exception to this rule would be OPs financing environment and transport where the Cohesion Fund and the ERDF could be used simultaneously. Poland undoubtedly supports the Commission s objective of simplification. The mono-fund proposal, however, seems, in many respects to confuse, rather than simplify matters. Especially, it does not seem to take sufficient account of the development needs of cohesion countries in e.g. education, training, or health, where investments into human capital and infrastructural measures are equally indispensable. According to Polish government if approach from the multi-fund to mono-fund is indispensable, this could be done without unfavourable effect on efficiency and administrative burden on the condition that the overall cross-financing level would be increased up to at least 25% 197 in comparison with a ceiling of 5% as a general rule 198 introduced Performance outline A new instrument has been proposed, so as to guarantee enhanced efficiency, in the form of a special reserve to be allocated to states and regions which have achieved the most distinctive result in structural funds implementation. With regard to Community reserve for quality and performance 199 as well as National contingency reserve 200, Poland s government disapproves the general idea, however, would have nothing against if optional treatment on the national level could be introduced. 197 Unpublished, Non Paper of the new cohesion countries on EU cohesion policy , European Council December COM(2004)492 final, op.cit 199 Ibidem., Art Ibidem., Art

82 The proposals of the European Commission for the period also involve maintaining the N+2 rule and encompassing Cohesion Fund. Poland believes that the rigidity of the N+2 rule experienced in the present period should be alleviated, therefore greater flexibility envisaged. Nevertheless, the application of the N+2 rule for the Cohesion Fund cannot at any case be accepted and therefore, the present rules regarding the Cohesion Fund should be further applied and strengthened Cohesion Policy budget The debate on the new cohesion is conditioned on the budget allocations available. The level of 0.41% of the EU GNI was introduced for period not including transfers for rural and fisheries instruments 201. According to the European Commission, this level of financing is indispensable for maintaining a high profile of the cohesion policy and facing the challenges of the EU of the enlargement. Polish government is emphasising the need to assign at least a level of 0, 41% of the EU GNI for the future cohesion policy, out of which 50% 202 for the areas encompassed by future Objective 1 (Convergence).Otherwise, a process of catching up in Poland, having a peculiar development problems resulting from communist legacy, will be threatened and extended seriously. Moreover, endangering a transfer of larger allocations for Poland in subsequent programming periods that is, after Another issue directly related to the sum of money gotten out of the budget for the cohesion policy is the absorption limit ( capping ) for financial transfers to any given Member State which will be maintained at its current level - 4% of national GDP, however, taking into account amounts included under the rural development and fishery instruments. According to those rules, the average annual transfer to Poland under the cohesion policy in the next programming period may reach 54 billion. 203 The latest Negotiating Box on the Financial Perspectives 204 issued by the European Council, reduces the maximum level 201 see p Olbrycht J., op.cit., p Poland. National Development Plan Adopted by the Council of Ministers in June 2005, p European Council, Non Paper, Financial Perspective , Negotiating Box, Brussels, 2 June

83 of transfer by 0,1 percentage point of GDP for each increment of 5 percentage points of average per capita GNI (PPS) as compared to the EU-25 average. 205 Consequently, decreasing the maximum level of transfer for Poland to 3,9% of its GDP which is highly unfavourable while preventing a large proportion of the structural assistance to be allocated in Poland, therefore such a differentiation should be rejected and the capping should maintained at its current level of 4% of national GDP. 3.3 Stimulating impact of structural assistance on Poland s Economic Development The structural assistance plays a crucial role in improving the social and economic cohesion of the EU. Taking into account extent of the EU financial support, the competent authorities of the Member States shall evaluate, according to the Proposal for a Council Regulation laying down general provisions on the Structural Funds and the Cohesion Fund 206, the macroeconomic consequences constituting an element of ex-ante as well as ex-post appraisal, so that the Community assistance could be gauged effectively. The instrument considered in the European Union to have the best diagnostic capacity is the HERMIN model 207, constructed by scientists from the Economic and Social Research Institute in Ireland. 208 The analyses entail, among other issues, the influence of the structural funds and Cohesion Fund on GDP and the labour market (unemployment) mainly at the national level, since the socio-economic impact on the regional economies has not been developed to the same degree, like in Poland nowadays. 205 Ibidem., p COM(2004)492 final, Brussels , op.cit., Art see Annex Szlachta J., The role of the structural funds and Cohesion Fund in the Stimulation of Sustained economic growth in Poland., TIGER Working paper series, No. 69, Warsaw November

84 3.3.1 Macroeconomic impact In order to conduct a macroeconomic analysis showing potential impact of the structural funds and Cohesion Fund on the Polish economy, the adaptation of the HERMIN model was prepared and became an integral element of the current NDP. 209 According to the European Commission the macroeconomic impact 210 of the structural funds and the Cohesion Fund, estimated ex ante using the HERMIN model, will be probably weaker than assumed by National Development Plan It is a consequence of different measures introduced within CSF, being less developmentoriented in comparison with NDP proposals. For the time being, it is difficult to foresee the macroeconomic effects of the structural assistance of the future programming period since it will be conditioned on the effective implementation including EU co-financing and Poland s own resources. Hence, there is an urgent need to start working on the new version of the HERMIN model investigating the results of structural assistance in the period , preferably regionally-oriented. Some indication of the hypothetical development plan s influence on the country s GDP and on the unemployment rate, made until 2015, was provided by the simulation included in the National Development Plan The assumptions were based on the hypothesis of the average annual transfers of EU funds to Poland in at the fixed level of 3% of national GDP. Table 19 Year GDP UR ,00 0, ,22-0, ,13-0, ,51-1, ,31-2, ,70-3, ,46-3, ,15-3, ,86-3, ,61-3, ,38-3, ,78-3, ,02-3,29 The simulation completed constitutes that the resources allocated to Poland during and should contribute to the GDP growth above 1% per year. As far as the labour market is concerned, the long-term drop is expected to arrive at 3,29% in 2015, however, reaching the highest fall in years GDP, UR - percentage change over baseline year.simulation entails both Community's as well as Poland s own resources. Source: Poland. National Development Plan , op.cit., Poland. National Development Plan , op.cit., GDP increase by ca. 2,5% and drop of unemployment rate by ca. 1,5% by the end of Ibidem., p.51 84

85 3.3.1 Convergence of Polish regions Taking into account the above macroeconomic impact of the future EU assistance, a vital question arises, if the next programming period will increase convergence of Polish regions. Unfortunately, existing HERMIN model in Poland does not treat regional aspect, therefore a clear answer won t be delivered. Macroeconomic modelling on the regional level is a vital challenge for Poland where progressive decentralisation of the macro-economic politics is being observed. A diagnosis of Polish regions is far from being optimistic. During the last several years the ongoing increase of regional development disparities in Poland can be observed, leading to a real divergence. 211 The regional disparities between the east and the rest of the country have been increasing. The reason for the maintenance of low GDP per head in these areas in comparison to the country average is the highest share of employment in agriculture and the loss of the former economic base caused by restructuring processes. According to the new edition of National Strategy for Regional Development, three basic groups of reasons for economic disparities in Poland can be observed. 212 The first one concerns the disparities between agglomerations and the rest of the country. After recession resulting from the transformation period, the dynamic growth was concentrated in the metropolitan areas, especially in Warsaw. The regions with the highest GDP were developing much faster than the regions lagging behind. The second group of reasons for spatial disparities concerns the difficulties of areas strongly dependent on the industries embedded in the pre-transition years (of the Polish Peoples s Republic PRL). Openness of the Polish economy to the European and global competitiveness has intensified problems of areas with the high concentration of sectors that lost their competitiveness. These sectors include first of all: light industry, the biggest cluster of which is located in Łódź agglomeration; coal mining concentrated in Upper Silesia; steel industry, of which the biggest plants are located in Upper Silesia; 211 see Annex Projekt Narodowej Strategii Rozwoju Regionalnego na lata , MGiP, Warszawa sierpień 2005, p

86 The third group of reasons for regional disparities is deeply rooted in the history of Poland and this part of Europe. It is connected with disparities shaped at least as long ago as in the period of Poland s partitions, when the so called Kongresówka belonging to the Russian partition (today central and eastern parts of Poland), developed much slower than other partitions due to restrictive policy of tsar. 213 The regional policy of the state should not only reduce effects of disparities described above, but also contribute to improvement of economic competitiveness of Polish regions and the whole country in the European and global perspective. The above mentioned trends prove main problems of the Polish regions characterized by low development rate and high unemployment rate, leading to deepening divergence within Polish territory. Accordingly, it would be highly recommendable to prepare a new HERMIN model predicting the consequences of structural assistance among 16 Polish provinces for the next programming period, serving as a supplementary one to the national model. 214 There is an urgent need to create such a macroeconomic model so that not only structural assistance implications could be measured but also economic forecast on the regional level could be analysed. Operating within regional macroeconomic models like HERMIN would definitely enable Poland to better conduct the ex ante and ex-post evaluation of the regional OPs. Hopefully, the future HERMIN mode will work on reduction of disparities, taking into account a distinctive amount of money allocated to Poland for future programming period, and contribution to improvement of economic competitiveness of Polish regions and the whole country in the European and global perspective. Moreover, the improved HERMIN model would become a vital advantage during a discussion with the Commission on the possibilities for a future decentralized implementation model, proving a good preparation and readiness for 16 regional development programmes rather than only one. 213 Assumptions of the National Strategy for Regional Development , Warsaw, 30 April, p Zaleski J., Warunki urzeczywistnienia 16 regionalnych programów operacyjnych w Polsce w okresie programowania wsparcia wspólnoty , Ekspertyza wykonana na zlecenie Departamentu Koordynacji Polityki Strukturalnej w MGPiPS, Warsaw 2004, p.27 86

87 Chapter IV 4. POSSIBILITIES OF A DECENTRALIZED IMPLEMENTATION SYSTEM IN POLAND BEYOND 2006 Poland is currently at a crucial moment of drawing up strategic blueprints for the development of Poland in the following years. The government has been working on the second edition of the National Development Plan since the beginning of The first edition covered the period , the successive Polish Development Plan encompasses the period The National Strategy for Regional Development constitutes another vital strategic document focused on finding solutions to Poland s fundamental economic problems, fully coordinated with framework of the National Development Plan. Being aware of the weakness of the Polish administration to transform the Strategic objectives into operating programmes as well as knowing a complicated implementing structure, it turns out to be inevitable to establish the suitable institutional system so that allocation of the EU funds could be guided efficiently. However, the key challenge for the Polish government will be the negotiating part with the European Commission on the future implementation system guaranteeing the attainment of the NDP objectives adapted to the evolving EU cohesion policy, nevertheless stem from consideration given to Polish strategic interests. 4.1 Initial assumptions The National Development Plan for is a structural policy programme aimed at rapid growth of the domestic economy, which is necessary to catch up with the EU Members States, improving economic competitiveness, enhanced employment and finally higher level of economic, social and territorial cohesion. 215 In the future programming period the Polish regional policy will be conducted on the both horizontal as well as regional level. 216 The crucial assumption of the future programming period is a process of moving from a sectoral policy to a horizontal one, implying a natural increase of regional policy importance. 215 Narodowy Plan Rozwoju. Wstępny projekt , Warszawa styczeń 2005, p Ibidem., p

88 Another visible change in the attitude towards State economic policy is assumed trough strengthening the instruments influencing the structural regional assistance 217. Providing small and medium sized with capital as well as supporting the development of the financial intermediate institutions was proposed, especially those rooted regionally and locally, so that new economic undertakings could be created. According to the Assumptions of the National Development Plan for , a regional character of labour market shall be initiated, constituting a derivative of dynamic development of small or country towns and influencing in a positive way the rural areas of Poland. Within the framework of the regional development strategy the pressure should be also put on strengthening an economically sustainable development of rural areas co-financed by the European Regional Development Plan and future European Agricultural Fund for Rural Development (EAFRD) 218. Many other government documents 219 recommend the regional approach and move away from sectoral approach in the preparations for the next programming period According to the Polish authorities, there should be 16 regional operating programmes (OPs), which a right political direction to undertake. However, urgent institutional adjustment and reform of public finances should be followed so that a further process of decentralisation could be continued. Unfortunately, there is always the European Commission s standpoint to be taken into account. Up to date, there has not been any official statement established on the implementation system in Poland after We should be aware of the fact that according to the future proposals on the cohesion policy, a mono-fund principles are to be introduced i.e. operating programs, regional ones in particularly, would be financed out of a single fund with a ceiling of 5% on the resources from another fund. 220 This proposal may seriously impede the possibility of bringing 16 regional operating programmes into practice, since from Polish perspective it would imply putting in 217 Assumptions of the National Development Plan for , Warsaw, 30 April 2004, p Proposal for a Council Regulations on support for rural development by the European Agricultural Fund for Rural Development (EAFRD), COM(2004)490 final, Brussels Ex. Informacja o stanie prac nad Narodowym Planem Rozwoju na lata , przyjęta przez RM 30 listopada 2004, Warszawa 2004, p COM(2004)492 final, op.cit., Art

89 place at least OPs (16 for infrastructure and 16 for social development). Moreover, in some voivodeships, additional trans-border operational programmes would be functioning. Consequently, managing so many regional programmes would be very problematic and may influence the Commission s decision in favour of one integrated programme system as it is practiced in Poland nowadays (IROP). Another vital problem may be caused by the result of disentangling rural development from the EU new cohesion policy. In case of regionalisation of the rural areas, mostly preferred by the Polish government, further 16 rural development areas would be established. It is another reason why it would be difficult to convince the European Commission to conduct management of the rural programs on the voivoidship level, in reality probably transferred to the sectored framework. Due to the fact that there is a dominance of European money foreseen so as to attain the future NDP objectives prioritising EU objectives over the domestic ones, it may end up with very serious organisational and planning results influencing a centralised or decentralised model of the regional policy Poland in the following years Two possible management scenarios 222 Although serious efforts have been made at the beginning of the 90 s, introducing a package of reforms designed to revitalise regional administrative capacity, there is still an insufficient administrative system in Poland nowadays so that a distinctive added-value could be reached in the process of the future strategic blueprint implementation. Even National Development Plan indicates the Polish inability of bringing into play the local and regional aptitude these days Grosse T.G., Ocena projektu Narodowego Planu Rozwoju na lata , Instytut Spraw Publicznych, Analizy i Opinie Nr 31, 2005, p Grosse T.G., Analiza możliwości wprowadzenia regionalnego systemu zarządzania funduszami strukturalnymi UE w Polsce w latach , Instytut Spraw Publicznych, Warszawa, czerwiec 2005, p Narodowy Plan Rozwoju. Wstępny projekt , op.cit., p

90 A continuity scenario 224 The continuity scenario would constitute conducting a regional policy similar to the current system. The pessimistic version of continuity scenario would be based on very few mono-fund Operational Programmes co-financed by the EU funds and managed centrally. Additionally, trans-border operating programmes would be functioning, however, partially aimed at voivodship s programming and implementation. The voivoidship contracts would be of a very limited extent, mainly playing a role co-financing the EU funds. The regional and local authorities would be sectorally-oriented, though without the participation in the programme management. The execution of the continuity scenario might be a result of tough negotiations with the European Commission on the decentralized management system as far as the National Strategic Framework is concerned for and also due to the severe problems of a challenging public finances reform implementation A further decentralisation scenario A deep decentralisation of the development plan would be recommended if the further decentralisation scenario was implemented. It would imply the establishment of 16 operational programmes, being prepared and amended by voivoidship selfgovernment, together with the trans-border programmes conducted simultaneously. A vital instrument of this scenario would be the voivoidship contract carried out on the basis of an agreement between the central government and local and regional government. Within a framework of those contracts some of government programmes would be conducted and managed by chosen local or regional voivodship s governments. In order to put the decentralisation into effect, a profound public finance reform would be of highest importance to be implemented, followed by increased resources targeted at voivoidship self-governments enhancing their self-dependence in running the activities of the regional programmes, currently conducted by the government departments. 224 Grosse T.G., Analiza op.cit., p. 77 Olbrycht J., Status regionów a programowanie na poziomie regionalnym, Ekspertyza wykonana na zlecenie Departamentu Koordynacji Polityki Strukturalnej w MGPiPS, Warsaw 2004, p

91 A further progress towards a deeper decentralisation system in Poland will be faced with the Commission administration, reluctant to the decentralized system. Secondly, the Polish administration concurrently co-operating with the regional authorities of the voivoidship, stays not without influence, therefore a political will of the future government to create regional development programmes shall be also taken into account. 4.2 Programming conditions of the implementation system According to the National Development Plan , the Polish government foresees to regionalise the management of the EU resources between national and regional development activities in a proportion 50% to 50%. 225 Such a proposition would imply inevitable changes in the public administration and challenging negotiations with the European Commission. There would be also a necessity to regionalise the activities currently performed by the sectoral programmes as well as government administration structure. Nevertheless, closer analysis indicates that the estimated amount of resources allocated to regional programmes does not equals 50% of all available funds, but around 36% 226, representing a more humble framework than in the previous government assumptions. Consequently, a vital question arises, what kind of activities of the sectoral policy could be regionalised and so the management of the programmes could be entrusted to the voivoidship governments? National Strategy for Regional Development According to the initial project of the National Strategy for Regional Development ,the objectives of the regional policy of the State may be formulated in three basic directions: (1) development of economic competitiveness of Polish regions; (2) support to flexible diversification of objectives and use of regional endogenous potential; (3) equalising development opportunities of voivoidships; 225 Narodowy Plan Rozwoju. Wstępny projekt , op.cit., p Ibidem., p Projekt Narodowej Strategii Rozwoju Regionalnego na lata , MGiP, Warszawa sierpień 2005, p

92 In comparison with the previous edition of the NSRR, new edition ( ) assumes the regional development implementation through realisation of the regional policy of the State and regional (voivoidship) development policies. The National Strategy for Regional Development is excessively focused on EU funds, which influences the choice of the priorities. Moreover, it has many structural flaws rendering the application of the government regional policy. Finally, the current NSRR is neither territorially oriented nor targeted at particular voivoidships, it complies with neither the national economic objectives nor the priorities of the national plan for spatial development, nor even the economic and social characteristics of a particular voivoidship. 228 The initial project of NSRR for is taking spatial differentiation of the regional policy into consideration in particular within the second objective, which is also mirrored in the choice of priorities and activities targeted at the chosen groups of voivoidship. Adoption of the new regional policy objectives, included in the new edition of NSRR, indicates in practice efforts to create a decentralised management system, since some of the activities have been conducted on the centralized level so far. Simultaneously, it calls for an appropriate coordination between the sector, regional and State policy within a chosen framework, so that the main EU new cohesion policy assumptions could be fulfilled, leading to a higher convergence within the Polish provinces National Development Plan In the years , the 16 operational programmes will be an important instrument of the state s regional policy as it is indicated in the National Development Plan. 229 There has been some activities proposed, being conducted within sectoral operational programmes nowadays. The support of the following priorities is foreseen: Improving of basic regional and local infrastructure (roads, railways, regional airports, regional harbours, urban transport) Revitalising of towns - especially smaller ones and acceleration of the country s urbanisation process; 228 Grosse T.G., Evaluation. op.cit., Warsaw 2004, p Narodowy Plan Rozwoju. Wstępny projekt , op.cit., p

93 Developing of telecommunication infrastructure and knowledge-based society towards for achieving the Lisbon Strategy goals; Promoting and strengthening of entrepreneurship and increasing the innovative potential of Polish companies - development of entrepreneurship of domestic companies is a necessary condition for further productivity growth; Developing tourism; Aiming at better access to culture; Improving the quality of human capital through adequate, adapted to demographic, social and economic challenges, fighting unemployment and social exclusion; Unfortunately, a closer analysis of the new edition of the National Development Plan reveals that there are too many priorities and tasks which overlap causing disorder and demonstrate lack of fundamental vision of development and incapability of strategic thinking. The future National Development Plan foresees to introduce the 17th governmental regional programme Cohesion and competitiveness of the regions, aimed at solving particular spatial - beyond regional problems. 230 Its activities are partially covered by the current Integrated Regional Operating Development Programme (IRODP), however, encompassing other new areas like: Public transport in agglomerations; Development and deep revitalisation of towns; Preservation and protection of cultural heritage, culture development of national and global significance; Investments in economic revitalisation of post-industrial areas and deserted post-military grounds of beyond regional importance; Decrease of growing deficit of flats conducive for increasing mobility of the labour force; Complex regional development and restructurisation programmes of beyond regional significance; 230 Ibidem., p

94 Selected activities supplementing sector programmes and being conducted on the regional level within the framework rural areas, transport, tourism and fight against social exclusion; Involvement of some of the sector programmes into the structural policy included in the last activity, seem to play a vital role for regional development policy in Poland. Consequently, urges for a coordination and management mechanism devoted to the future Minister responsible for regional development. Therefore, it is still an open question how the coordination of such activities should be organised on the regional level, and to what extent regional governments should be involved in the programming and management processes within the programmes Organizational conditions of the implementation system According to the new edition of the National Strategy for Regional Development (NSRD) there are vital legal and financial instruments of the State regional policy to perform the strategy like voivoidship contracts and sixteen regional operational programmes co-financed by the EU funds. 232 The strategic document proposes also a regionalisation, namely preparation in cooperation with regional governments containing activities adapted to specific regional conditions, of some of sectoral and horizontal government programmes so that new instruments of governmental structural policy could be established. As a result, we could assume that the regional policy in Poland for a period will be conducted within the regional government programmes aiming at endogenous potential of the regions (objective 2 of the future NSRR) 233 whereas regional voivoidship programmes would be to achieve the objective 1 and 3 of the successive national strategy for regional development Sixteen Operational Programmes The implementation of the sixteen operational programmes is of key importance to the decentralisation of the state s regional policy system in Poland. This refers both to the fact that probably the state budgetary funds will be allocated for co-financing of 231 Assumptions of the National Strategy for Regional Development , op.cit., p Ibidem., p see p

95 investment implemented within the programmes, and to some significant functions in terms of monitoring, control and coordination that would be the responsibility of the central government administration. 234 In case of blocking such a possibility (in particular, by the European Commission) a serious system implications would be imposed ending up with even a strengthened centralised system without a balancing opportunity for the regional programmes execution. Within a decentralised system the function of the managing authority for the 16 operational programmes shall be assigned to the voivoidship governments. As a result, there would be a necessity to transfer the competence to regions regarding financial management, monitoring and evaluation of the programmes, and carry out the consultation with the officials of the European Commission to monitor the structural assistance. The voivoidship governments will be obliged to prepare their regional operational programmes in compliance with strategic documents like the latest version of National Strategy for Regional Development ( ), followed by a consultation process with a majority of its local and regional partners. It is evident that the regional operation programmes are to conform to the European policies, since cofinanced by the Community. In order to prepare the regional development programmes, efforts should be taken by the regional governments to organise partnership on the regional and local level. While receiving European funds directly from the Ministry of Finance for cofinancing projects, they should be authorised to sign contracts with beneficiaries and establish bank transfers for beneficiaries 235, at the same time diminishing a voivode s role of a financial intermediary. It is inevitable that considerable legislative changes, as far as the public finance system is concerned, would be imposed. Implementation of projects in a particular voivoidship should be conducted by distinct regional development agency, subordinate to and controlled by the regional government. In this case, the programming stage being the responsibility of Marshall Offices could be separated from the implementation of regional operational programme. Simultaneously, functioning of monitoring and steering committees for 234 Assumptions of the National Strategy for Regional Development , op.cit., p Ibidem., p

96 regional programmes in a region should be combined into one body operating under the supervision of the Marshall. As a result, the role of the Voivod within EU regional programmes would be significantly reduced to general controlling functions governmental programme The level of anticipated decentralisation within management of the regional development programmes is a real challenge for Poland nowadays. A vital question arises, how certain programmes shall be executed by the voivoidship s government? In line with the National Development Plan ( ), the 17th governmental regional programme cohesion and competitiveness of the regions is to be the main instrument for implementation of the NSRR ( ) second objective. 236 However, there is one serious disadvantage of this programme, i.e centralised management and overtaking of the EU funds designated to the voivoidship selfgovernments. On the other hand, the advantageous aspect of this programme is a better coordination of some sectoral programmes implemented in regions, including those under sectoral operational programmes co - financed with EU resources. In general, establishment of such a programme would allow for better coordination of development activities, as regards the government s perspective, being considerable for more than one voivoidship. In order to avoid conflicts of competence within the programme management, voivoidship contracts and regionalised activities implemented within or supplementing sectoral and horizontal governmental programmes shall continue to be the essential instruments for implementing the state s regional policy and be targeted at the cooperation between central and regional governments. Otherwise, there would be a serious threat of creating another sectoral programme to become an instrument for centralising the management of regional activities. 236 see p

97 4.3.3 Voivoidship contracts reconstruction Taking into consideration all the previous suggestions, it seems to be sensible to introduce a further evolution of legal regulations in the area of regional policy so that the voivoidship contract could become a major instrument for the state s regional policy implementation. The major issue will be to guarantee that appropriate mechanism is established for financing investment at the central government and voivoidships level. 237 Therefore, the prospective voivoidship contracts should be of multiannual thematic and financial perspective, being negotiated on the regional basis 238 and aimed at implementation of the agreed goals, arising from strategic planning documents. It should be emphasized that it will be the basic document allowing for linking the regional development programmes with the National Regional Development Strategy and a Conceptual Plan for Spatial Management of the Country. 239 In view of complexity of the Polish administration, the voivoidship contracts should be structured in a much simpler system ensuring suitable control and monitoring both from the Marshal and the Voivoidship Office perspective. Effectiveness of the information system on governmental sectoral operations in the region should be also enhanced trough the Voivode s role based on gathering information and transferring it to regional and local level as well as devoting himself to the negotiating process between the central and regional authorities. Consequently, a profound reconstruction of the public finance system should be imposed, increasing the revenues of both voivoidship self-governments and central authorities, so that sufficient resources could be guaranteed. The dominance of EU funds over domestic ones implies marginalising the instrument of voivoidship contracts as a mechanism of bringing regional development priorities into effect. Therefore, strengthening the shape of the voivoidship contracts beyond 2006 is of highest importance for proper regional development programming in Poland. Otherwise, the contracts concluded with voivoidship would lead to limiting 237 Assumptions of the National Strategy for Regional Development , op.cit., p between the Marshall (the province governor) and the Voivod, being a representative of the central government. 239 Assumptions of the National Development Plan for ,op.cit., p

98 their role based on transferring the money from the state budget to territorial government for the reason of co-financing European projects only Voivode s role The role of the Voivode in the European regional programmes should be vitally limited to the controlling function as well as participation in the steering committee. 240 In the future programming period, the Voivode should, in particular, take care of the financial system functionality and of public tenders, within the government s regional policy. He could also become an adviser to the future Ministry of Regional Development on the activities conducted by the voivoidship self-governments, being the subject of the negotiations between the government and the voivoidship selfgovernment. Moreover, he should be aware of the sectoral activities being conducted within the voivoidship area and having a direct impact on the regional development. However, the Voivode s role must not duplicate the voivoidship selfgovernment s competencies within the framework of the regional development policy, therefore a strict differentiation of the both programming systems should be precised. First of all, the activities conducted by the voivodes within the government s regional policy shall be a consequence of the general policy guidelines formulated by the given Ministry of the Regional Development and shall take into consideration all the crucial regional development problems treated of highest importance to the government. Furthermore, preparation by the Voivode s of the state s regional development assumptions within a given voivoidship shall relate to the sectoral policy and to the government s administration organized on the voivoidship area. It should be stressed that the Voivode should not engage himself in the regional partnership devoted to the voivodeship development with local and regional partners. However, some exceptions could be made as regards the multi-annual co-financing and backing the voivoidship self-government s own activities from the state budget. In order to develop a compatible model of conducting Polish regional policy, there should be made a clear division of the competencies between the voivoidship 240 Grosse T.G., Analiza op.cit., p

99 self-governments and the voivodes aimed at a strengthened tendency of transferring the Voivod s competencies, beyond controlling and administrative management, towards the voivoidship self-governments followed by inevitable organisational and legal changes. 4.4 Financial framework The European resources will be the principal source of financing the NDP for years Preliminary estimates presented in its draft prove that vast share of domestic resources will be allocated to co-financing of the European programmes. It is also foreseen, that the government anticipates around 14% (see Table 20) of the total NDP funding to be granted for the domestic initiatives, however, in practice in may be seriously reduced due to couple of reasons. First of all, without a wide-ranging reform of government spending, the domestically funded investment projects won t be financed properly due to insufficient resources. The capabilities of the Polish regional policy must be boosted trough greater decentralization of the financing system. Consequently, change of the central government budget structure followed by lower spending on social programmes and administrative system. A real threat lies in marginalizing the role of the voivoidship contracts as the main instrument of the state s regional policy and using it as a money transferring instrument from the government budget to the local authorities for financing the EU projects. 241 Ibidem., p

100 Table 20 EU resources for NDP implementation million % % Structural Funds ERDF ESF 30,0 9,4 53,5 34,5 Cohesion Fund 23,7 32,2 20,8 Common Agriculture Policy EAFRD* 6,8 8,2 6,0 Fisheries Policy EFF* 1,1 1,5 1,0 Objective 1 a programmes NFP* 2,6 3,5 2,3 Total EU public resources 73, Domestic resources input 24,5-21,5 Domestic initiatives financed by the public resources 16, Total public resources 40,5 - - Total EU and domestic resources 114,1-100 Private resources 28,0 - - Source: Narodowy Plan Rozwoju. Wstępny projekt , Warszawa January 2005, p. 69 * EAFRD European Agricultural Fund for Rural Development * EFF European Fund for Fisheries * NFP New Financial Perspective Secondly, a distinctive increase in the amount of structural assistance allocated to Poland beyond 2006 in comparison with the first years of the membership 242 may have difficulties with supplementary financial resources for domestic development projects. The estimated amount available for jointly financed EU projects may arrive at 24, 5 million Euros in total VAT eligibility There is a further factor, influencing the increase of the Polish share within the EU co-financing like changing the rules for the VAT eligibility for the new programming period According to the European Commission proposal, VAT is ineligible for financing from the ERDF and the Cohesion Fund in all cases, notwithstanding, whether it is reimbursable or not, whereas the provisions on eligibility of VAT for financing from the ESF remain unchanged. The reason for this apparent incoherence has not been thoroughly explained by the Commission. In case of Poland, the share of domestic money would rise from 33,3% of the European contribution to 62,7%. As far as the Cohesion Fund is concerned, an

101 increase from 17, 6% to 43, 5% would be expected. 243 From a point of view of a nontaxable beneficiary, VAT is a part of the price charged for goods or services and therefore is treated in the same way as other ordinary costs. Consequently, if the new eligibility rules on VAT enter into force, the actual support rate would be reduced by the VAT rate applied, which effectively means that the level of national co-financing would increase, while at the same time the Commission questions the ability to absorb more than 4 % of GDP by a Member State because of the difficulties to come up with sufficient national resources. Municipalities would be the ones to mostly bear this negative outcome but in fact all final beneficiaries will suffer from it and the result is less public investment and lower economic growth rates. The new VAT eligibility rules may cause serious problems with respect to entities being VAT payers, in case when VAT calculated will be lower than VAT due. A further transfer from richer countries to poorer would be implied 244 in case when services associated with European funds to be provided by the enterprises established in the latter. Poland s standpoint is to maintain the current rules on eligibility of VAT for the next programming period. The eligibility conditions should not be made less favourable while the development disparities in the EU are increasing. The VAT, which is non-reimbursable, should therefore remain eligible for the ERDF and the Cohesion Fund contributions as for the European Social Fund. It is very important that the rules for all the Funds stay coherent. It is hard to understand why when ten new Member States join the EU with relatively less capacity to raise public matching funds, the Commission proposes to change traditional rules - in force for decades leading to the reduction of their absorption capacity. It is clear that such a step could only be acceptable if it was accompanied by an increase of the rates of assistance - this would be the only way to give to the new Member States the treatment all the others have experienced since the creation of the Funds. 243 Narodowy Plan Rozwoju. Wstępny projekt , op.cit., p Ibidem., p

102 4.4.2 Monofund implications We should be aware of the latest proposal of the European Commission for the programming period stating that all OPs should be mono-fund i.e. be financed by one single Fund 245 and hindering the establishment of the 16 regional operating programmes. In case of Poland, according to the mono-fund rule, there would have to be launched, in each voivoidship, two operational programmes (separate for each structural fund) within the new cohesion policy. Taking into account actions concerning agriculture and rural areas being realized outside cohesion policy, coordination of various EU policies implementation on the regional level would turn out to be more difficult. 246 Therefore, it seems to be plausible that the administration of the European Commission will be reasonably opposing the Polish proposal for 16 operating programmes. Additionally, trans-border programmes will be functioning in some of the voivoidships. Consequently, if the mono-fund rule was implemented, Poland would be urged either to give up regional development programmes or to implement couple of government or sectoral regional development programmes next to the 16 operational programmes, conducting the regional activities. 247 The possible multiplication of OPs especially in the light of an eventual introduction of regional operational programmes or the setting up OPs with several priority axes to compensate for the more fragmented programming method resulting from the monofund approach mean more administration for Poland. This has to be financed by the Member State, not to mention the increased difficulty of co-ordinating related ERDF and ESF interventions With regard to the above mentioned Poland calls for maintaining the multi-fund programming rules in the future programming period Neither the solution proposed by the Commission (5% cross-financing) nor the first reaction of Polish government to widen the scope even to 25% is an alternative for an integrated approach to programming and implementation of the new cohesion framework. 245 see p interview with Hanna JAHNS, Head of the Regional and Cohesion Policy Section by the Permanent Representation of Poland to the EU in Brussels 247 Grosse T.G., Analiza op.cit., p

103 CONCLUSION This paper was established in order to explore the EC latest proposal on the EU new cohesion policy with regard to its decentralized implementation possibilities in Poland beyond The paper provides a detailed response to very important questions concerning the future vision of the cohesion policy and its possible impact on the Poland s economic development. The future of the regional policy holds many challenges as a result of the major increase in the EU s social and economic disparities following enlargement. The divergence in regional income is to grow significantly. According to the Third Report on the social and economic cohesion, the average GDP per head in the EU of 25 Member States is around 12.5% less than in the EU of 15. To meet this challenge, the application of the Lisbon and Göteborg strategies for competitiveness and sustainable development must continue to be the priority of long-term and balanced development across the Community. In the course of this debate, the author emphasizes that the efforts in the future will be concentrated, as it is currently, on helping the poorest parts of the Union to catch up, especially in the new Member States. The Commission also proposes that the serious difficulties facing other parts of the Union should be addressed, involving those resulting from economic change, urban decline or permanent natural handicaps. The new framework of the EU cohesion policy is to be implemented trough more simplified and decentralized management system. Only by bringing all on board, and by mobilizing resources of all the regions and citizens, Europe can succeed. According to the author, the on - going debate on the future of the EU cohesion policy, relates to the overall size of the EU budget, the share allocated to cohesion policy and the financial split between the three objectives and categories of eligible regions. The financial resources dedicated to cohesion policy should reflect the aspiration of an enlarged Union to promote growth and job creation in its less favoured areas. Therefore, the broad financial issues have been considered within the Financial Perspective ad hoc group under the Irish, Dutch and finally Luxembourg Presidency but it is widely anticipated that achieving a political basis for agreement on the 103

104 budgetary issues will take considerable time. In parallel, the role the European Parliament have been emphasized as well, treating the future regional policy as an indispensable tool for promoting social, economic and territorial cohesion. On the eve of the new programming period beyond 2006, a new, challenging stage in the evolution of the Polish regional policy system is just about to begin. This paper was written to provide answers to questions being of prime importance to Poland. Is the new structural assistance to increase the convergence of the Polish regions? Will the new cohesion policy result in a stimulating impact on the Poland s economic development? What are the conditions to be fulfilled so that a decentralized implementation system in Poland could be put into effect beyond 2006? Poland is fully supporting the general direction of the new EU cohesion policy. However, there are some issues of crucial importance to Poland, being in opposition to the EC latest proposal like the application of the N+2 rule to Cohesion Fund, monofund programming, new rules on VAT eligibility and finally flexibility concerning the 4% absorption limit. In view of the macroeconomic effects resulting from the utilization of the Structural Funds and Cohesion Fund, the author admitted that is pretty hard to predict them nowadays. It will mainly depend on the structure and effectiveness of the priorities and measures adopted in Poland using both Community and national resources, supported by the new HERMIN model including the region s perspective. However, some indication of the hypothetical development plan s influence on the country s GDP and on the unemployment rate, made until 2015, was provided by the simulation included in the National Development Plan The assumptions were based on the hypothesis of the average annual transfers of EU funds to Poland in at the fixed level of 3% of national GDP. It turned out, that the resources foreseen for Poland during period should contribute to an additional GDP growth exceeding, on average, one percentage point a year. As far as the labour market is concerned, the long term drop in unemployment rate could be expected to reach up to three percentage points. In order to examine the possibilities of a decentralized implementation system in Poland, the author analysed all the programming, organizational and financial 104

105 conditions and perceived the further decentralization scenario 248 to be inevitable for the state regional policy beyond It is worth recalling that Poland is at different development stage than the other EU Member States, having specific conditions and development problems, part of which emerged in the communist period and another caused by the incomplete economic transformation. Therefore, it is crucial for the strategic programming documents to take into account the above factors, otherwise they will serve as nothing else but the procedural documents inevitable for the acquisition of the structural assistance of the EU. A vital aspect influencing a possible decentralized system in Poland is the general framework of the regional policy at the European level, in particular, organizational and programming decisions taken by the European Commission in this area. Apart form the European perspective, the decisions taken at the national level may influence the possibility of a decentralized system as well. Therefore, there is an urgent need to convince Polish politicians about the accuracy of the decentralized system. All theses efforts should be aimed at the introduction of sixteen voivoidship regional development programmes beyond 2006, the preparation of which should become the responsibility of voivoidship self-governance according to their development strategies. The voivoidship self-governments should start playing a leading role in this regard and have the right to obtain EU funds for the financing of projects so that effective and successful implementation of national and voivoidship regional policy could be performed. 248 see p

106 ANNEX 1. The NUTS classification ANNEX Level Minimum population Maximum population NUTS 1 3 million 7 million NUTS million NUTS Source: Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 on the establishment of a common classification of Territorial Units for Statistics (NUTS) [Official Journal L 154 of ]. ANNEX 2. Breakdown of Structural Fund allocation in Objective 1 regions: all Member States,

107 ANNEX 3. Overview of the New Financial Framework Commitment appropriations Sustainable growth 1a. Competitiveness for growth and employment 1b. Cohesion for growth and employment 2. Preservation and management of natural resources of which: Agriculture - Market related expenditure and direct payments 3. Citizenship, freedom, security and 4. The EU as a global partner Administration Compensations - Appropriations for payments 1,15% 1,23% 1,12% 1,08% 1,11% 1,14% 1,15% as percentage of GNI Own resources ceiling as a percentage of GNI 1,24% 1,24% 1,24% 1,24% 1,24% 1,24% 1,24% Source: Communication from the Commission to the Council and the European Parliament Building our common future: Policy challenges and budgetary means of the enlarged Union , COM(2004) 101 final, Brussels, , p

108 ANNEX 4 (a) Financial Framework RESULTS OF THE VOTE 10 May 2005 and comparison with Commission proposal Million at 2004 prices Commitment appropriations Sustainable growth 1a. Competitiveness for growth and employment 1b. Cohesion for growth and employment 2. Preservation and management of natural resources of which: Agriculture - Market related expenditure and direct payments 3. Citizenship, freedom, Total Total security and 4. The EU as a global partner Administration Compensations TOTAL appropriations for commitments Commitment appropriations over GNI Total reduction compared to COM proposal ,17% 1,18% 1,19% 1,18% 1,18% 1,18% 1,19% 1,19% 1,18%

109 Commitment appropriations Total Tota Ceiling Administrative expenditure of the Commission Ceiling Agencies (estimation) TOTAL appropriations for payments Payments over GNI 1,04% 1,04% 1,05% 1,05% 1,07% 1,07% 1,07% 1,08% 1,07% Flexibility outside the Financial Framework maximum Reserve for competitivness Reserve for cohesion Reserve for Emergency aid Reserve for Solidarity Fund Reserve for flexibility Total Source: Results of the vote, 10 May 2005, The Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union , European Parliament, p.3 109

110 ANNEX 4 (b) Evolution Commitments and Payments over the period Updated GNI sec(2005)494 RESULTS OF THE VOTE 10 May 2005 Source: Results of the vote, 10 May 2005, The Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union , European Parliament, p.4 *position of the six : The six major net payer member states insist on a smaller EU budget: it should not exceed 1% of the EU GNI in commitment terms (about 0.9% in payments) 110

111 ANNEX 5. Expenditure on cohesion policy, Source: A new partnership for cohesion: convergence, competitiveness, cooperation Third report on economic and social cohesion, Commission of the European Communities, Brussels, February 2004, p