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Marek Tiits, Imre Mürk, Tarmo Kalvet (IBS), Judit Kalman (IEHAS), Sandor Richter (WIIW)

Coordinated policies and cohesion policies, their relationship and impact on the Member States in 2000-2010. Marek Tiits, Imre Mürk, Tarmo Kalvet (IBS), Judit Kalman (IEHAS), Sandor Richter (WIIW) Paper prepared under GRINCOH FP7 project funding. Research question.

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Marek Tiits, Imre Mürk, Tarmo Kalvet (IBS), Judit Kalman (IEHAS), Sandor Richter (WIIW)

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  1. Coordinated policies and cohesion policies, their relationship and impact on the Member States in 2000-2010 MarekTiits, Imre Mürk, Tarmo Kalvet (IBS),Judit Kalman (IEHAS), Sandor Richter (WIIW) Paperpreparedunder GRINCOH FP7 project funding

  2. Research question Open method of co-ordination Real funding,relevant primarily to cohesionregions Policy results Institute of Economics, Hungarian Academy of Sciences

  3. Lisbon strategy • Make EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” by 2010 • Targets: • employment rate 70%; • GERD 3% of GDP • vast number of specific targets when initially launched; • with the re-launch in 2005, emphasis on action plan rather than specific targets Institute of Economics, Hungarian Academy of Sciences

  4. Lisbon policy and beyond Even if progress has been made it must be said that the Lisbon Agenda has been a failure (mixed priorities, poorcordination, lack of politicalresolve, too top-down, etc,) Key targets of the Lisbon strategy were nonetheless reinstated in EU2020 How likely is EU2020 to succeed? What needs to be done differently? Institute of Economics, Hungarian Academy of Sciences

  5. Europe 2020 • We want EU to become a smart, sustainable and inclusive economy • Targets: • employment 75% of 20-64 yr olds • GERD 3% of GDP • reduce greenhouse gas emissions by at least 20%, increase the share of renewable energy in final energy consumption to 20%, and achieve a 20% increase in energy efficiency • share of early school leavers 10% • reduce the number of Europeans living below national poverty lines by 25% Institute of Economics, Hungarian Academy of Sciences

  6. Link between co-ordinated and cohesion policy • Initially, cohesion policy was not assigned explicit role in achieving Lisbon objectives • Cohesion policy has been operationalised to follow the objectives of Lisbon Strategy and Europe 2020 only from 2006+ onwards • strategic planning: Community Strategic Guidelines +NSRF : explicit „Lisbonization” • earmarking of SF (60%and 75%) • strategic reporting on achievement of obj. (new ‘Lisbon type’ indicators; earmarking codes incorporated into monitoring, link with NRP annual reports Institute of Economics, Hungarian Academy of Sciences

  7. Effectiveness of European cohesion policy • Barca report (2009):”The state of the empirical evidence on the performance of cohesion policy is very unsatisfactory” • Earlier econometric studies inconclusive on effectiveness of policy • A deficit of strategic planning and in policy concept • Lack of focus on priorities (convergenceitself is not a proxy for policy objectives!) • Failure to focus on results; problems with indicators • ineffectiveinvestment mix ( toomuchfocusoninfra+business) • Focus on absorption, lack of real policy debate Institute of Economics, Hungarian Academy of Sciences

  8. Cohesion gap remains even decade(s) after EU accession Regional gross domestic product PPS per inhabitant, % of EU28,NUTS2, PPS, 2011 (Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  9. Cohesion gap in income terms Disposable income of privatehouseholds, NUTS2, PPS, 2011 (Eurostat 2014)

  10. Rapid catching up on-going? Gross manufacturingvalue added per employee in KEUR, 2011 (Eurostat 2014)

  11. Erosion of cost competitiveness the EU in periphery Real effective exchange rate index 2000-2012 (Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  12. Unemployment rate is now higher in many MS than in 2000 Unemployment rate, 2013 (Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  13. Domestic and international equilibrium • Keynes-Nurkse (1947) effect • Germany highly cost competitive in exporting manufactured goods, trade surplus highest ever • Cohesion countries that runthe highest external imbalances prior to the crisis, export their unemployedworkforce • Change of working age population LV -18%, LT -9%, BG -4%, EE & PL -3% between 2008 and 2013. Institute of Economics, Hungarian Academy of Sciences

  14. Risk of poverty or social exclusion has increased People at risk of poverty or social exclusion, 2012 in comparison with 2010(Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  15. Stronger knowledge intensive industry needed! (Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  16. YET: Early school leaversaged 18-24 Distance to nationalEU 2020 targetEurostat, DG Regio

  17. Broader EU policy mix, macro conditions and cross-border financial flows played clearly greater role in gearing the growth in cohesion countries than the EU cohesion policyitself in 2000s uncontrolled flows of foreign financing increased trade imbalances, less so in case of floating exchange rate rapid increase of unit labour costs,labourproductivitygapand erosion of cost competitiveness despite of R&DI and enterprise policies increase of unemployment despite active labour market policies Suchcyclical and structuralimbalancesdidnotgetsufficientattentionfromother EU policy domains (Lisbongoalsunmet) roleforCohesion (linked to EU2020)! Cohesion policy is NOTthe driving force for growth - but can help! Institute of Economics, Hungarian Academy of Sciences

  18. EU has become major source of public investment after crisis in CEE Share of ERDF, ESF and Cohesion Fund allocations andnational co-financing in total public investment, average 2011-2013 (Eurostat 2014) Institute of Economics, Hungarian Academy of Sciences

  19. Lisbon vs Cohesion: Policy coordination failure • Lisbon Strategy more of a vision, a political engine, than true policy process • Voluntary compliance with Lisbon goals did not work • OMC as a soft mechanism of policy learningbeneficial, butfailedtoachieve an overall EU focusoncompetitivenessand employment • Cohesion Policy: longtraditions, impactunclear • decreased MS co-financingabilityafterthecrisisReprogramming • Effectivenessdependsoninstitutionalenvironment! • Recent reform (performance contracts ) hopefullyimprovesituationfor 2014-2020 Two different loosely connected policy and governance systems Institute of Economics, Hungarian Academy of Sciences

  20. Programming and implementationissues Lisbon objectives contradictory or unfeasible; several would not have been met even without crisis (Reinfeldt 2009) ‘Lisbonisation’ of cohesion policy by earmarking did not really help(‘toolittletoolate’): huge differences between MS in Lisbon earmarked allocations (exemption for CEEs, HU:46.8% and EE:54.1% among least Administrativelydemanding Emphasisonspending(absorptionof ESIF) instead of outcomes (willseehowitchangesin 2014-2020) Yetitwas a precedence of top-down governance(EUMS) – sametendencyfor 2014-2020 with more specificspendingcategories Institute of Economics, Hungarian Academy of Sciences

  21. Quality of governance continues to be a major obstacle EU28 average absorption:68% 6th Cohesion Report,2014

  22. Institute of Economics, Hungarian Academy of Sciences

  23. Economiccohesion has been a mixed success so far asymmetrical integration within EU28,withgains & losses A number of blind spots in the EU economic policy framework in 2000s Governance and institutionalproblems EU needs a more effective policy mechanismforco-ordination of production and employmentlevelsacross EU MS ( challengingduetomulti-levelgovernancesystemwithseveralprincipals and agents– yetto be seenhowthenew and more stringent conditionalities for 2014-2020 willworkinreality) Reinforcement of EU2020 strategy, clearer and actionablevision, identifying lead marketsforemerging IT,green etc. technologies + development of an industrialrevivalstrategy + fosterupgradingbye.g. specializedinvestmentfunds(role of EIB! notonlyCohesion) Conclusions & Recommendations Institute of Economics, Hungarian Academy of Sciences

  24. Proper operationalisation of EU2020 headline indicators into meaningful policies remains a major challenge in cohesion countries(institutionalweaknesses, rentseeking, distortions) gettingincentives right in EU governance is crucial  Capacity building (regul., admin, institutional) Alongtheselinesbetterdefinition of policy actions + a more carefulselection of performance indicators(Headline EU2020 / cohesion policyindicatorsoftenstilltooabstract – ‘One size does not fit all’, successivestages of development, natl. averages ‘blur’ importantissues, etc.) Institute of Economics, Hungarian Academy of Sciences

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