Download The Leverage effect of Structural Funds

SPEECH/07/190
Danuta Hübner
Member of the European Commission responsible for Regional
Policy
The Leverage
Funds
Committee of Regions
Rome, 23 March 2007
effect
of
Structural
Mr President, Ladies and Gentlemen,
Let me start by thanking the Committee of the Regions and Mr Chaves González in
particular for this Outlook Opinion we are debating today. It comes at an appropriate
time, as we are on the eve of the adoption of Fourth Cohesion Report. It provides
also a valuable input into the forthcoming wider debate on the Community budget
review in 2008/2009.
The concept of leverage has been often identified with financial dimension. In short,
this is the investment – public or private - induced by the cohesion policy. However,
as your study clearly points out, the concept of leverage should be extended beyond
this purely financial meaning, in order to grasp the importance of cohesion policy's
value added. In this meaning we can say that European cohesion policy fosters
multi-faceted partnership between different layers of the public administration and
the private sector. These interactions link regional, national and European levels
and contribute to economic development and better governance.
During my intervention I will address these both aspects of leverage effects. I will
start with some words on the financial side.
As your opinion recalls, according to our estimates, between 2000 and 2006 every
Euro invested by cohesion policy leads to further expenditure in Objective 1 (now
the «Convergence» objective) regions averaging 0.9 euros. In the former Objective
2 regions (now the objective «Regional Competitiveness and Employment») this
induced expenditure can go as high as 3 times the amount initially invested.
We should not consider this lightly. Take public investment for instance. One of the
major obstacles to achieve Lisbon targets is a declining public investment in key
strategy areas. Indeed, public investment in EU15 both as a percentage of GDP and
as a share of total primary expenditure has fallen considerably since 1993. At that
time, public investment in terms of GDP amounted to around 2.9 %. Thirteen years
later public investment outlays have shrunk to 2.4 %. This is 0.2 % below the
corresponding level in the US whereas in 1993 Europe was 0.4 % above the US
figure.
This trend was already signalled in the Kok Report of 2003. There was one
important exception, however. GDP shares of public investment in the four cohesion
countries largely exceeded those of the remaining 11 Member States. Total public
investment (without the support of the cohesion policy) has clearly increased in
Ireland (+66%), Greece (+24%) and in Portugal (+18%) in the two last programming
periods. These higher levels can be clearly linked to the investment done and
induced by European Cohesion Policy. It is so because it does not substitute but
adds to the investment effort of the Member States and regions. In addition, the
requirement to provide national co-financing has “protected” expenditure for
economic development from budgetary pressures.
For 2007-2013 the Commission adopted new rules fostering public private
partnership and introduced earmarking – which channels predominant part of policy
resources into key Lisbon areas. Therefore we can legitimately expect even greater
contribution of the cohesion policy to the reversal of the decline in public investment
in the Union. And reverse it we must if we are to deliver on growth and jobs agenda.
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What about leverage effects of cohesion policy in terms of private investment?
They take a variety of forms. Some of them can be traced to the general impact of
cohesion policy on regions and Member States. The underlying philosophy of the
policy is that economic growth is dependent on investment in physical and in human
capital. Assisted regions and cities are more capable of diversifying with capital
widening into new activities, with infrastructures more readily available, increased
accessibility and development of networks. This policy investment creates an
environment attracting new companies and fostering innovation and creativity.
One example of such a project is the Eastside – Masshouse Redevelopment,
implemented with ERDF participation in the United Kingdom. Eastside project is a
key component in Birmingham's renaissance, preparing the city for the future by
encouraging investment and job creation as well as economic and cultural growth in
the area. The Masshouse part of the project creates space for private investment. In
particular it addresses the gap between the forecast growth sectors of business
services, distribution and leisure tourism in the Birmingham area, and the lack of
high quality business centres and office stock close to the City Centre.
In other cases, the participation of cohesion policy in a given project catalyzes
private investment because it lends credibility to the whole venture. Together with
the involvement of EU financial institutions, such as European Investment Bank, it
acts as a powerful magnet for private investors. It reassures them about the project
quality and offers them an implicit guaranty of steady financial support over a long
period of time. This is particularly important when large projects are considered.
The third type of leverage effects relates to the expansion of Public-PrivatePartnerships, which we observe in recent years in public finance in general and in
the cohesion policy in particular. The reasons behind it are multiple. Thematic and
geographical concentration of cohesion policy has helped regions and Member
States achieve the critical mass of investment and thus increased their capacity to
attract more investment with lower administrative costs. Distinct market features of
projects (for instance, quantitative returns on the investment made) motivate private
investors to spend money and participate in PPPs. Moreover, cohesion policy
introduced an increasing variety of financing instruments available for public and
private investors such as risk-capital and guarantee funds.
Let me illustrate this on the example of the Marche Region in Italy where the Societá
Regionale di Garanzia provides guarantees for investments of SMEs operating in
the sector of industries, handicraft, cooperatives and production-oriented services.
The guarantee amounts to 50 % of the total loan released by intermediary banks to
support investment by SMEs. For this purpose, the regional society obtains counterguarantees from the European Investment Fund. This project has effectively
changed the financial system in the region and has established a new relation
between public and private actors and financial institutions.
One other aspect of Public-Private Partnerships – which takes me to the the second
part of my intervention – is their impact on public authorities and contribution to
better quality of projects. Through the intervention of private investors, armed with a
collection of well tested management and analysis tools, the design of programmes
and projects can be greatly improved.
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Let me now elaborate on other non-financial aspects of leverage. Your opinion
groups them under three mains themes: Strategic Policy Orientation; Capacity
building; and Greater Cohesion of the European Union. All these issues are
extremely important and I should say a few words on each of them.
Cohesion policy has introduced in Member States a programming approach which
requires rigour and perseverance in medium term strategic planning done by policy
beneficiaries. Moreover, these development plans, in comparison with annual
planning for national budgets, reduce the potential risks due to economic instability
and introduce greater assurance as to the availability of financial resources. In this
way they help national, regional and local actors involved in the programming focus
on high-quality public investment undertaken within the framework of integrated
development strategy. At the same time, the seven year financial perspective gives
regions and Member States opportunities to launch pilot and experimental projects
which otherwise would have been difficult to implement due to budgetary
constraints.
You also rightly point out that European Cohesion Policy contributed to the
modernisation of public services in Member States. It improved their management
and control systems and harmonised their procedures in a European context. For
my part, I would like to underline the policy role in shifting responsibility for the
implementation of public investment from national to regional and local authorities.
This seems to me a very significant consequence of our policy, which is not only
important in terms of greater legitimacy in the decision making process but also in
terms of economic efficiency. Regional and local authorities simply know better and
their involvement in key economic decisions and policies maximises economic
growth.
We can see this new phenomenon in the increase in public spending by European
local and regional governments. Between 2000 and 2005 it increased at a rate of
3,6% per year, more rapidly than GDP (1,7%) or total public spending (2,4%). As a
result the share of local and regional level in total public spending grew in the EU
from 25,4 to 26,8%. This of course varies across the EU but it provides a clear proof
that sub-national public authorities have been increasingly involved in shaping our
response to emerging challenges.
The last element we often tend to forget is that cohesion policy makes the Union
visible to citizens, enterprises and local authorities. Simply put, people who find a
new job, use a better transport system or live in a cleaner natural environment, feel
that the Community action match their expectations. In turn, through the
participation in the cohesion policy design and making, they also feel empowered
and capable of contributing to the Union's future. This is of fundamental importance
in the period when the reigning attitude in our societies much too often seems to be
that of apathy and doubt. This is not the feeling I find when travelling to European
regions and cities; there I see creativity, energy and enthusiasm. And this is also
what the cohesion policy is about, the policy for which your Outlook Opinion makes
a very good case. Once again, let me thank you for this.
Thank you for your attention.
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