Marek Tiits, Imre Mürk, Tarmo Kalvet (IBS), Judit Kalman (IEHAS), Sandor Richter (WIIW) Paper prepared under GRINCOH FP7 project funding Coordinated policies

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

Paper prepared under GRINCOH FP7 project fundingPaper prepared under GRINCOH FP7 project funding

Coordinated policies and cohesion Coordinated policies and cohesion policies, their relationship and impact policies, their relationship and impact on the Member States in 2000-2010 on the Member States in 2000-2010

Judit Kalman

Research questionResearch question

Policy results

Open method of co-ordination

Real funding,relevant primarily

to cohesionregions

Institute of Economics, Hungarian Academy of SciencesInstitute of Economics, Hungarian Academy of Sciences 22

Judit Kalman

Lisbon strategy Lisbon strategy • Make EU “the most competitive and dynamic Make EU “the most competitive and dynamic

knowledge-based economy in the world capable of knowledge-based economy in the world capable of sustainable economic growth with more and better sustainable economic growth with more and better jobs and greater social cohesion” by 2010jobs and greater social cohesion” by 2010

• Targets:Targets:• employment rate 70%; employment rate 70%; • GERD 3% of GDPGERD 3% of GDP• vast number of specific targets when initially launched;vast number of specific targets when initially launched;• with the re-launch in 2005, ewith the re-launch in 2005, emphasis on action plan rather than mphasis on action plan rather than

specific targetsspecific targets


Judit Kalman

Lisbon policy and beyond• Even if progress has been made it must be said that the Even if progress has been made it must be said that the

Lisbon Agenda has been a failureLisbon Agenda has been a failure• (mixed priorities, poor cordination, lack of political (mixed priorities, poor cordination, lack of political

resolve, too top-down, etc,)resolve, too top-down, etc,)• Key targets of the Lisbon strategy were nonetheless Key targets of the Lisbon strategy were nonetheless

reinstated in EU2020reinstated in EU2020• How likely is EU2020 to succeed?How likely is EU2020 to succeed?• What needs to be done differently?What needs to be done differently?

Institute of Economics, Hungarian Academy of Sciences44

Judit Kalman

Europe 2020Europe 2020• We want EU to become a smart, sustainable and We want EU to become a smart, sustainable and

inclusive economyinclusive economy• Targets:Targets:

– employment 75% of 20-64 yr oldsemployment 75% of 20-64 yr olds– GERD 3% of GDPGERD 3% of GDP– reduce greenhouse gas emissions by at least 20%, increase the share of reduce greenhouse gas emissions by at least 20%, increase the share of

renewable energy in final energy consumption to 20%, and achieve a renewable energy in final energy consumption to 20%, and achieve a 20% increase in energy efficiency20% increase in energy efficiency

– share of early school leavers 10%share of early school leavers 10%– reduce the number of Europeans living below national poverty lines by reduce the number of Europeans living below national poverty lines by

25%25%


Judit Kalman

Link between co-ordinated and Link between co-ordinated and cohesion policycohesion policy

• Initially, cohesion policy was not assigned explicit role Initially, cohesion policy was not assigned explicit role in achieving Lisbon objectivesin achieving Lisbon objectives

• Cohesion policy has been operationalised to follow Cohesion policy has been operationalised to follow the objectives of Lisbon Strategy and Europe 2020 the objectives of Lisbon Strategy and Europe 2020 only from 2006+ onwards only from 2006+ onwards

• strategic planningstrategic planning: Community Strategic Guidelines +NSRF : explicit : Community Strategic Guidelines +NSRF : explicit „Lisbonization”„Lisbonization”

• earmarking earmarking of SF (60%and 75%)of SF (60%and 75%)• strategic strategic reportingreporting on achievement of obj. (new ‘Lisbon type’ on achievement of obj. (new ‘Lisbon type’

indicators; earmarking codes incorporated into monitoring, link indicators; earmarking codes incorporated into monitoring, link with NRP annual reportswith NRP annual reports


Judit Kalman

Effectiveness of Effectiveness of European cohesion policyEuropean cohesion policy

• Barca report (2009):Barca report (2009):””The state of the empirical The state of the empirical evidence on the performance of cohesion policy is evidence on the performance of cohesion policy is very unsatisfactoryvery unsatisfactory””• Earlier econometric studies inconclusive on effectiveness of Earlier econometric studies inconclusive on effectiveness of

policypolicy• A deficit of strategic planning and in policy conceptA deficit of strategic planning and in policy concept• Lack of focus on prioritiesLack of focus on priorities (convergence itself is not a proxy for (convergence itself is not a proxy for

policy objectives!)policy objectives!)• Failure to focus on results; problems with indicatorsFailure to focus on results; problems with indicators• ineffective investment mix ( too much focus on infra+business)ineffective investment mix ( too much focus on infra+business)• Focus on absorption, lack of real policy debateFocus on absorption, lack of real policy debate


Judit Kalman

Cohesion gap remains even Cohesion gap remains even decade(s) after EU accessiondecade(s) after EU accession

Regional gross domestic product PPS per inhabitant, % of EU28,NUTS2, PPS, 2011(Eurostat 2014)


Judit Kalman

Cohesion gap in income termsCohesion gap in income terms

Disposable income of privatehouseholds, NUTS2, PPS, 2011(Eurostat 2014)

1111

Judit Kalman

Rapid catching up on-going?Rapid catching up on-going?

Gross manufacturingvalue added per employee in KEUR, 2011(Eurostat 2014) 1313

Judit Kalman

Erosion of cost competitiveness Erosion of cost competitiveness the EU in peripherythe EU in periphery

Real effective exchange rate index 2000-2012(Eurostat 2014)


Judit Kalman

Unemployment rate is now higher Unemployment rate is now higher in many MS than in 2000in many MS than in 2000

Unemployment rate, 2013(Eurostat 2014)


Judit Kalman

Domestic and international Domestic and international equilibriumequilibrium

• Keynes-Nurkse (1947) effectKeynes-Nurkse (1947) effect• Germany highly cost competitive in Germany highly cost competitive in exporting exporting

manufactured goodsmanufactured goods, trade surplus highest ever, trade surplus highest ever• Cohesion countries Cohesion countries that runthat run the highest external the highest external

imbalances prior to the crisis, imbalances prior to the crisis, export their export their unemployedunemployed workforce workforce

– Change of working age population Change of working age population LV -18%, LT -9%, BG -4%, EE & PL -3% between 2008 and LV -18%, LT -9%, BG -4%, EE & PL -3% between 2008 and 2013. 2013.


Judit Kalman

Risk of poverty or Risk of poverty or social exclusion has increasedsocial exclusion has increased

People at risk of poverty or social exclusion, 2012 in comparison with 2010(Eurostat 2014)


Judit Kalman

Stronger Stronger knowledge intensive knowledge intensive industry needed! industry needed!

(Eurostat 2014)


Judit Kalman

YET: YET: Early school leaversEarly school leavers aged 18-24aged 18-24Distance to nationalEU 2020 targetEurostat, DG Regio

2323

Judit Kalman

• Broader Broader EU policy mix, macro conditions EU policy mix, macro conditions and cross-border and cross-border financial financial flows played clearly greater role flows played clearly greater role in gearing the growth in cohesion in gearing the growth in cohesion countries than the EU cohesion policycountries than the EU cohesion policy itself itself in 2000s in 2000s • uncontrolled flows of foreign financing increased uncontrolled flows of foreign financing increased trade imbalancestrade imbalances, ,

less so in case of floating exchange rateless so in case of floating exchange rate• rapid increase of unit labour costs,rapid increase of unit labour costs, labour productivity gaplabour productivity gap and and

erosion of cost competitiveness erosion of cost competitiveness despite of R&DI and enterprise despite of R&DI and enterprise policiespolicies

• increase of unemployment increase of unemployment despite active labour market policiesdespite active labour market policies• Such cyclical and structural imbalances did not get sufficient Such cyclical and structural imbalances did not get sufficient

attention from other EU policy domains (attention from other EU policy domains (Lisbon goals unmetLisbon goals unmet) ) role role for Cohesion (linked to EU2020)!for Cohesion (linked to EU2020)!

Cohesion policy is NOT the driving force for growth - but can help!

2525Institute of Economics, Hungarian Academy of Sciences

Judit Kalman

EU has become major source of EU has become major source of public investment after crisis in CEEpublic 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)


Judit Kalman

Lisbon vs Cohesion: Policy coordination failure

• Lisbon Strategy more of a Lisbon Strategy more of a visionvision, a political engine, , a political engine, than true policy processthan true policy process

• Voluntary compliance with Voluntary compliance with Lisbon goals did not workLisbon goals did not work

• OMC OMC as a soft mechanismas a soft mechanism of policy learning of policy learning beneficial, but beneficial, but failed to failed to achieve an overall EU achieve an overall EU focus on competitiveness focus on competitiveness and employmentand employment

o Cohesion Policy: Cohesion Policy: long traditionslong traditions, , impact unclearimpact unclear

o decreased MS co-financing ability decreased MS co-financing ability after the crisis after the crisis Reprogramming Reprogramming

o Effectiveness depends on Effectiveness depends on institutional environmentinstitutional environment!!

o Recent reform (performance Recent reform (performance contracts ) hopefully improve contracts ) hopefully improve situation for 2014-2020situation for 2014-2020

Two different loosely connected policy and governance systems


Judit Kalman

Programming and implementation issuesProgramming and implementation issues • Lisbon objectivesLisbon objectives c contradictory or unfeasible; ontradictory or unfeasible; several would several would

not have been met even without crisisnot have been met even without crisis (Reinfeldt 2009) (Reinfeldt 2009)• ‘ ‘Lisbonisation’ of cohesion policy Lisbonisation’ of cohesion policy by by earmarking did not earmarking did not

really helpreally help (‘too little too late’)(‘too little too late’): : • huge differences between MS in Lisbon earmarked allocations huge differences between MS in Lisbon earmarked allocations

(exemption (exemption forfor CEEs CEEs,, HU:46.8% and EE:54.1% among least HU:46.8% and EE:54.1% among least • Administratively demandingAdministratively demanding• Emphasis on spending Emphasis on spending ((aabsorption bsorption of of ESIF) ESIF) instead of outcomesinstead of outcomes

(will see how it changes in 2014-2020)(will see how it changes in 2014-2020)• Yet it was a precedence of Yet it was a precedence of top-down governance top-down governance (EU(EUMS) MS)

– same tendency for 2014-2020 with more specific spending – same tendency for 2014-2020 with more specific spending categoriescategories


Judit Kalman

Quality of governance continues to be Quality of governance continues to be a major obstaclea major obstacle

EU28 average absorption:68%6th Cohesion Report,2014

2929

Judit Kalman


Judit Kalman

EconomicEconomic cohesion has been a mixed success cohesion has been a mixed success so farso far• asymmetrical integration asymmetrical integration within EU28,within EU28, withwith gains & losses gains & losses• A number of blind spots in the EU economic policy framework in A number of blind spots in the EU economic policy framework in

2000s2000s • Governance and institutional problems Governance and institutional problems EU needs a more effective policy mechanism for co-ordination of EU needs a more effective policy mechanism for co-ordination of

production and employment levels across EU MSproduction and employment levels across EU MS( challenging due to multi-level governance system with several principals ( challenging due to multi-level governance system with several principals

and agents and agents – – yet to be seen how the new and more stringent yet to be seen how the new and more stringent conditionalities for 2014-2020 will work in realityconditionalities for 2014-2020 will work in reality) )

Reinforcement of EU2020 strategy, Reinforcement of EU2020 strategy, clearer and actionable vision, clearer and actionable vision, identifying lead markets for emerging IT,green etc. technologies + identifying lead markets for emerging IT,green etc. technologies + development of an development of an industrial revival industrial revival strategy + foster upgrading by e.g. strategy + foster upgrading by e.g. specialized investment funds specialized investment funds (role of EIB! not only Cohesion)(role of EIB! not only Cohesion)

Conclusions & Recommendations


Judit Kalman

– Proper operationalisation of Proper operationalisation of EU2020 EU2020 headline headline

indicators into meaningful policies indicators into meaningful policies remains a remains a major challenge major challenge in in cohesion countriescohesion countries ((institutional weaknessesinstitutional weaknesses, rent seeking, distortions), rent seeking, distortions)

getting incentives right in EU governance getting incentives right in EU governance is crucialis crucial

Capacity building Capacity building (regul., admin, institutional)(regul., admin, institutional)– Along these lines Along these lines better definition of policy actions + a better definition of policy actions + a

more careful selection of performance indicators more careful selection of performance indicators ((Headline Headline EU2020 / cohesion policyEU2020 / cohesion policy indicatorsindicators often still too abstract often still too abstract – ‘– ‘One size does not fit allOne size does not fit all’, successive stages of development, natl. ’, successive stages of development, natl. averages ‘blur’ important issues, etc.) averages ‘blur’ important issues, etc.)


Documents

Marek Tiits, Imre Mürk, Tarmo Kalvet (IBS), Judit Kalman (IEHAS), Sandor Richter (WIIW) Paper prepared under GRINCOH FP7 project funding Coordinated policies