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EU: Eastern Candidates Facing Long-Term Income Gap

A report recently issued by the European Union's executive Commission estimates it could take generations for incomes in the Central and Eastern European candidate countries to catch up with those of the present 15 EU member states. The report, dealing with economic and social cohesion in the EU, is the first on this subject to take into account the Eastern states which are expected to start joining the union by 2004. It details the increased complexity facing the union on the issue of special funding for poorer regions, and asks how the billions of dollars involved should be shared out in the future. RFE/RL correspondent Breffni O'Rourke examines the report.

Prague, 7 February 2001 (RFE/RL) -- The European Union's regional policy commissioner, Michel Barnier, says in a preface to the Commission's report that assembling 500 million people in a united -- but not uniform -- Europe represents a tremendous opportunity.

But he says in order to do this the union needs a policy capable of maintaining economic and social cohesion among all the member states, new and old. He says that requires a fresh look at the issue of regional aid plus a new sense of direction. Barnier says the latest report is meant to launch debate on this subject.

The phrase "cohesion policy" is a euphemism for efforts to improve economic and social prospects for people living in the EU's poorest regions.

Looking at the present union of 15 members, the report says there is a clear gap in incomes between the poorest states -- Spain, Greece and Portugal -- and the 12 others. The three poorer countries have been major recipients of so-called "cohesion" aid during the last decade, and the overall gap in their gross domestic product --or GDP -- compared to the Union average has been reduced by one third.

But the report, issued a week ago (31 January), says that even at present rates of convergence, it will take another 20 to 30 years for these differences to be eliminated completely. Still, stronger growth could cut that time span. For instance, only a decade ago Ireland was also in the poorer group. But now known as the "Celtic Tiger," it has a per capita GDP that is 14 percent above the union average.

The report then looks at the EU's coming eastward expansion to a full 27 members. Barnier's spokeswoman Kirstin Jorna explains:

"What the report shows is that the differences between regions, the differences in wealth, the differences in development will be even greater than they are in the union of 15 today, and we will have to find the appropriate instruments to bridge these differences and to allow for development in the regions most concerned."

The report says that, based on current figures, a full enlargement to 27 member states means that 174 million people would be living in regions qualifying -- under present rules -- for cohesion aid. At the same time, many of the established EU regions now receiving most of the aid would no longer be eligible -- a delicate political point for the countries affected.

The challenge of maintaining cohesion is therefore much greater under conditions of enlargement -- and is likely to last a long time.

The report says that even if the new Eastern European members have the same rate of growth as the present aid recipients had over the past decade, their present level of per capita GDP "implies a convergence process lasting for at least two generations."

It also says that even with phenomenal growth like that of Ireland, it would take 20 years before the Easterners reached a GDP level approximately as high as today's EU average.

Noting that it is up to national governments to administer the regional aid received from Brussels, the report says a complicating factor is whether the Eastern countries have the administrative skills to handle that task. It says that a regional development policy implies decentralization, and that by contrast the Easterners have a tradition of centralized planning. So, during the accession negotiations, the Commission will closely examine the ability of candidates to meet the conditions required for them to receive funds.

Spokeswoman Jorna comments:

"This is an aspect which we have to bear in mind, which is part of the negotiation process, [namely] institution building, having institutions which can apply the [EU's] 'aquis communautaire' [that is, all of its accumulated rules and regulations]. This is a general problem, and the candidate states are making progress in that area."

Certainly the financial stakes are high. The EU has allocated some $27 billion a year for regional development aid up to 2006. The amount to be allocated for the period after 2006 is impossible to foresee, but will presumably not be lower.

The presence in the union of the first wave of Eastern members will, however, imply a massive refocusing of the aid effort. The report throws open to debate the question of how that refocusing is to be achieved. It suggests four options. These range from keeping the same aid threshold terms, which would eliminate many regions in the old EU members, to setting two thresholds of eligibility, one for old EU members, and another for new.

The Commission says it is organizing what it calls a two-day "cohesion forum" in Brussels in three months (21-22 May) to provide a chance for all parties, including the candidate countries, to exchange ideas on future cohesion policy. Jorna says:

"The report is the starting point for a new debate, because the current financial perspectives are from 2002 to 2006, and the Union will have to discuss and adopt new perspectives for after that, and we need a debate leading to that decision. [So] the purpose of the report is to launch the debate on what form of regional policy we need beyond 2006."

The Commission will later set out proposals which will be sent to the European Parliament and the Council of Ministers for a new cohesion policy to take affect from the start of 2007.