Cause and Effect in European Politics and Law

Quick Growth Is Most Important For the New EU Member States

Ralitsa Kovacheva, January 24, 2012

The EU budget for the next 7 years will be in 2012 too a very important topic. The first debates on the issue will start in the end of the week at the General Affairs Council in Brussels. Late last year the Polish EU Presidency organised numerous public debates in various formats. There was a discussion in Bulgaria too, organised by the Polish Embassy with the assistance of the European Commission representation in Sofia and co-organised by the Centre for Economic Development, a Bulgarian economic think-tank. euinside was invited to take part as a moderator of the first panel.

During the conference, titled "The EU Multiannual Financial Framework 2014-2020 in Times of Crisis," Mr Bartlomiej Rokicki with the Warsaw University presented the topic “Smart, Sustainable and Inclusive Growth: The Role of Cohesion Policy in Delivering welfare” with a particular emphasis on the Europe 2020 strategy for growth and jobs. He made some very worth studying notions that actually everyone is focusing on quantity not on quality. He stated that for the new member states the most important priority was the Quick Growth. So if in the next MFF cohesion funds are directed to the European Social Fund (ESF) activities and not in infrastructure investment, it would have a weaker impact on growth and employment in the new member states. The previous speakers were H.E. Leszek Hensel, Ambassador of Poland in Bulgaria and Ms Bisserka Benisheva with the Ministry of Foreign Affairs, Marcin Kwasowski with the Polish Ministry of Foreign Affairs, Wayne Diamond from the British Embassy, Ms Iren Roussinova, Bulgarian Ministry of Finance, Mr Pawel Tokarski with the Polish Institute for International Relations.

Full text of the statement:

Maria Prohaska: And finally I will give the floor to my colleague Bartłomiej Rokicki with the Warsaw University to present the topic “Smart, Sustainable and Inclusive Growth: The Role of Cohesion Policy in Delivering Welfare", a little bit more specific topic to conclude the work of the conference.

Bartlomiej Rokicki: Thank you very much. I was advised that it should be a short presentation so I will shortly present a macroeconomic point of view on this topic. And I will particularly focus on the new member states here. In that case I just wanted to apologise if maybe some arguments may seem not too profound but I hope I will be able to make my point anyway. So my colleagues have already discussed certain details of the EU 2020 and its assumptions. Still if we look at the whole strategy we have got three main streams: we talk about smart growth, sustainable growth and inclusive growth. And here the cohesion policy is supposed to be an important tool to raise this strategy, this is an assumption of the Europe 2020.

It follows that in the recent proposals of the Commission on the reform of the cohesion policy there are certain measures that should match somehow with this EU 2020 assumptions. For example, from macroeconomic point of view what is important here is to set minimum allocations for a number of priority areas, which means that at least 50% of the ERDF [European Regional Development Fund] spending would be earmarked somehow. So here member states would lose somehow the possibility of spending the money the way they want. This is the first thing. Than we’ve got another point already raised by my colleagues that 20% of the ESF spending will be also earmarked for poverty investments. Then, at least 5% of ERDF spending will be earmarked for European integrated actions and finally the whole ESF's role will be reinforced, its budget is going to be raised with almost 15% as compared to the current financial perspective.

I just wanted to raise quickly three questions. The first question: what priorities of EU 2020 are really the most important for the new member states; which one of the three priorities, which kind of growth - sustainable growth, smart growth or the second covered the third one, is really important for our countries. Second question is what are the investment preferences of the new member states, I will show the numbers for the current financial perspective. And then third and crucial question is what would be the impact of the next financial perspective from the point of view of the cohesion policy on growth and employment in the new member states.

So I think that there is no doubt that for the new member states (most of them and even all of them) the most important thing is a quick economic growth. It is maybe not politically correct to say that but we do not really care about energy targets or education goals in terms of the numbers. Because education goals are set in the Europe 2020 strategy in numbers - we are talking about lowering the early school leavers' rate or increasing the share of young population with tertiary education. If we look at the statistics, for example in the education, in fact these are new member states the countries with the lowest early school leavers' share and in fact if we look at young people aged 25-34, already in 6 states out of 12 the share of people with tertiary education is above 30%, which means that maybe this is not the most important goal for us. I would say more important is the quality of the education but not the quantity here. From this point of view I would say this is clear for us that we should care about quick growth but not the other issues in the strategy. This is not politically correct maybe to say that but I think this is true, basically.

Here we can see the investment preferences, this is a distribution of EU funding among different categories of spending in the current financial perspective, this data was taken, I elaborated them myself, from the operation programmes for each country. So if we take a quick look, it becomes clear that most of the spending, about 50%, goes for hard infrastructure, either transport or environmental infrastructure. Which is not surprising. But even though if we take into account that also here we've got the money from the cohesion funds, still there is a lot of money from the ERDF spent on transport infrastructure and environmental infrastructure.

So the question is whether the countries in the region do it just because they just think it’s right or they really know this is right. And I believe the answer is, they know it is right. I mean, at our stage of economic development this is the best thing to do if you want to grow quickly. In fact, we made formally econometric analysis for Poland, for example, and the result was clear that the factor that has the mainly impact on both employment and growth is the infrastructure. Human capital not so much. And another problem with human capital, what we were saying about the increase of the ESF spending, is that I am pretty sure that a lot of money that goes to the ESF is unfortunately waste.

I’ve participated in many many evaluations of the ESF in Poland and the problem is that the monitoring, evaluation system (not only in Poland but in all member states) is totally inefficient. What does it mean? It is clearly oriented towards quantity, so we are counting how many people we are training, how many people are participating in ‘life long learning’ activities for example, but we do not care about the quality. As a matter of fact, if you look at the 2020 strategy the European commission says proudly that 20 million people have participated in the ESF activities but there is nothing about the results of such participation. So I am pretty sure that these activities, although I am not against the activities directed to increase human capital obviously, but this kind of activities do not increase human capital, at least not efficiently.

The final conclusion will be that from my point of view I would expect as a result of such a reform of cohesion policy a weaker impact of cohesion policy programmes in the future financial perspective both on growth and employment than in the current financial perspective Why? First because we would reduce our spending on hard infrastructure and second, because we would increase the spending on ESF activities. Thank you.

Maria Prohaska: I would like to thank our Polish colleague for this analysis. I think it is a good basis and will raise questions also from Bulgarian point of view because the issues raised are relevant to Bulgaria, although we lag a little bit behind and we don’t have yet so many studies on the topic. But as far as I know, the first Bulgarian analysis to assess the effects of the funds spent under the operation programmes, the same econometric model, has already been ready but to my knowledge, the results are not publicly known. So let's move to the discussion – you have the floor for questions and comments.