Structural Funds : Success Or Failure?

Cormac Halpin - Junior Sophister

Can the EU Structural Funds help to cement a 'new Europe' with low regional disparities? Or are they merely smoothing over fundamental cracks in the face of Europe? Cormac Halpin assesses this question and finds the system at best faulty.

The Development of Structural Funding

The European Union's (EU) Structural Funds are now clearly established as a key tenet of European level policy initiatives. The Funds consist of four separate funds, namely the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Guarantee and Guidance Fund (EAGGF)- though only the guidance section comes under the ambit of the Structural Funds - and the Fishery Guidance Finance Instrument. In this essay, a brief outline of the development and rationale for Structural Funding will be given. Then one will proceed to examine the effects of the funds, detrimental and beneficial. Finally one will conclude that while the Structural Funds were intended to reduce integration-engendered socio-economic disparities, various problems have hindered their effective implementation, and to this end they must be considered at best a very limited success.

The Rome Treaty, being mainly a statement of economic efficiency intent, placed no great emphasis on the disparity issue. The document propounded 'harmonious development' in the proposed community, and laid out embryonic plans for a Social Fund, but explicit proposals for comprehensive disparity-reducing funds were absent. Between 1955 and 1972, regional policy was discussed within the Council of Ministers, but concrete legislation was not forthcoming. The Guidance section of the EAGGF, aimed at restructuring agriculture, was developed over this period, but was a pale shadow of the Guarantee section, and largely inconsequential. Social policy was still seen as a side issue in a mainly economic community, though tentative moves were made in the 1968 Hague Summit towards increasing workers' occupational and geographical mobility. 1975 saw the creation of the ERDF, subsequently the most important component of the Structural Funds. It was created at Britain's behest, as a mechanism to compensate the United Kingdom for its significant budget contributions. Between 1972 and 1983, the Social Fund was allocated 1500 million ECU, with emphasis on redistribution to disadvantaged groups throughout the community. The moves towards the Single European Market (SEM), gave the three main Structural Funds new life. The Single European Act (SEA) of 1985 codified the Community's commitment to reducing the regional and social imbalances which either existed or would be occasioned by the opening up of the markets. The ERDF was earmarked to invest in economic infrastructure in disadvantaged regions, the Social Fund was targeted at youth and long-term unemployment reduction, and the guarantee fund of the EAGGF, took up the role allocated to it in the Mansholt Plan of the late 1960's, namely the modernisation and restructuring of farm practices. 1989 saw the three funds bound together officially under the ambit of the 'Structural Funds'. The three funds were allocated 10,000 million ECU per annum between 1989 and 1994, and five objectives were designated to them, alongside a new integrated approach to their implementation. The Maastricht Treaty in 1991 further underlined the EU's commitment to the Funds, with 25,000 million ECU per annum allocated to the Funds' objectives between 1994 and 1999. This sizeable increase was mainly due to the feared disintegrative effects of Economic and Monetary Union.

The Structural Funds, as stated, are aimed at reducing regional and social disparities in the EU. A cursory examination of figures justifies this. In 1990, the 25 best off regions in the EU had an unemployment level average of 3.1%, whereas the 25 worst off regions had an average of 17.8 %.(El-Agraa), given an EU average GDP per capita of 100%, GDP per capita in Luxembourg in 1990 was 123.7%, while it was 47.1% in Greece.Among the theoretical rationale proposed for the distribution of the Funds includes the moral issue of such discrepancies, the inability of some states (e.g. Ireland and Greece) to correct their own internal economic imbalances for financial reasons, and the fact that EU level funding would be far more co-ordinated and organised than fifteen separately operating national structural funds. Furthermore, it has been suggested that the integrative process of the SEM and EMU will engender further disparities (though neo-classical theorists debate this point), through the incidence of economies of scale, agglomeration and localisation of economic activity and selective migration of labour from poorer to core areas. The EU wishing to maintain cohesion and confidence in its own progress, therefore, sees the Structural Funds as diminishing differences and heterogeneity in the community, and thereby enhancing the efficient economic allocation of the integrative process.

The Effects of Structural Funds

The effects of the Structural Funds belie the 'noble' intentions behind them. There are several criticisms which may be levied against them, and this discussion will firstly examine the level of funding allocated to the programmes. As already stated, the three main Structural Funds were essentially of secondary importance in the incipiency of the EU. Regional and Social policy came under the national aegis, and overall economic improvement was the Community's aspiration. The Community instigated the funding as it became apparent in the 1960's that the completed Customs Union was prohibiting member states from protecting their regions, and labour was beginning to migrate away from poorer areas, followed by capital migration. Up to the early 1970's, the funding was very small scale and, as will be examined, was allocated in an inefficient way. The first major injection into Structural Funding came in 1975, when approximately 1,000 million ECU per annum was allocated between the three funds, and this amount was maintained up until 1984. However, an examination of the Community's 1985 budget shows that the ERDF, the largest of the Structural Funds comprised a meagre 0.08 % of EU GDP. This was mainly because the Community was plagued by the problem of spiralling Common Agricultural Policy funding, with the Guarantee Fund eating into expenditure, and leaving little to be allocated to other programmes. As part of the SEA restructuring of the funds, it was decided to increase their allocation to 5,000 million ECU per annum. While this represents a large proportional increase on the previous few years' funding, it was still a trivial sum given the CAP expenditure, and the methods in which it was dispensed.

The 1989 reforms of the Structural Funds outlined five objectives upon which the Funds would be targeted. The Objective regions were defined as structurally backward areas, which had a GDP per capita of less than 75% of the Community average. These were to be allocated 38,300 million ECU until 1993, which comprised 70 % of the ERDF's allocation. This sum represented a sizeable increase in funding and was one notable success of the Structural Funds. Objective regions came to rely heavily on the funding, and in some cases like Ireland, the increased funds represented a substantial augmentation of National Income. Significant funding-level problems can be seen in examining the Social Fund's operation, however. While its allocation increased from 2% of 1977 expenditure, to an estimated 8% between 1994 and 1999, this is clearly insufficient to withstand the tide of unemployment in the Community. The Social Fund's allocation of resources is not high enough to allow the authorities to tackle the underlying causes of unemployment. The Social Fund has been targeted at training and education and limited job creation, but fails to address the rigidities and barriers in wage markets and labour mobility. The fund's sheer lack of financial clout has entailed that it has failed to redress the fact that there are currently 20 million people unemployed in the EU, with 10 million of these classed as 'long-term unemployed'. An even more scathing criticism of the lack of funding provided comes in the revelation that, of the several targeted Objective 3 and 4 areas which target youth and long-term unemployment, by 1993, only two had seen employment growth substantially above the EU average.

While the dearth of funding to the Structural Funds is a cause of their relative deficiency, perhaps the key inadequacy has been the area of allocating, organising and implementing the funds. Up until 1989, the Funds were essentially seen as a welcome supplement to national policies on regional and social programmes, and in many cases seen as a substitute for national governmental funding. This attitude is perhaps best epitomised in the stance of the British government at the 1973 Paris Summit, in demanding the establishment of the ERDF to compensate Britain for it's expected huge outlay on CAP. Britain saw the ERDF not as an instrument to aid in the rectification of its regional imbalances, but as a flow back into the exchequer to replace 'loaned-out' sterling. The problem of 'additionality' was one that plagued the EU for years until the mid-1980's. Fundamentally, this problem stemmed from member states' view that Structural Funds were a EU handout, to be dispensed as national governments saw fit. Until 1979, the ERDF was allocated on a strictly state-per-state quota system, with each country given a fixed proportion of that year's regional funding. This allowed national governments to do as they wished with the money, safe in the knowledge that the following year, it would once more receive its 'dues'. The EU espoused the hope that the funds would be spent on enhancing, or adding to regional and social integration, but governments often would replace national assistance for regions with European funds, or even devote the European granted funds to another area of the economy altogether.

The mid-1980's and the advent of the SEA saw the Community attempt a revision of the planning and implementation of the Structural Funds. Previously, funding had been allocated to member states on a mainly quota basis. The non-quota aspect was enlarged progressively throughout the 1980's and, in 1985, a decision was taken to allocate non-quota funds on a project-by-project approach to ensure the funds went to their intended targets. The EU required the members to submit proposals for the funds' usage and dispensed the money to the most viable plans. One bulwark of structural policy of the mid-1980's was the Integrated Mediterranean Packages (IMP's), which epitomised the new, non-quota, project approach. In what is termed the 'IMP debacle' , glaring failures of the funds and their implementation are apparent. Two thousand five hundred million ECU were envisaged for the IMP's to Greece, Spain and Italy, but planning defects minimised their effectiveness. The official EU review cites a minimal co-ordination between instruments and actions as the main reason for the limitations of the IMP's. As with other structurally funded projects, there was simply too little interaction between the European level dispensation of the funds, and the regional level implementation. Plans went awry as local governments misused the funding and designated projects failed to benefit from the money. Another key deficiency cited was the overlap of the Funds. The ERDF, Social Fund and EAGGF at times overlapped with the IMP funding, a clear planning inefficiency leading to a malappropriation of funds. The local governments in the Mediterranean areas also bewailed the lack of input they had in designing the plans, which ultimately led to the chasm between EU design and actual implementation. Delegation of responsibility was vital in these plans, but the EU's insistence on engaging in the complexities of each stage, thoroughly frustrated the plans. In an attempt to rectify this situation, the European Committee of Regions was established in the late 1980's to help regional level orientation of the funds.

The main problems of additionality and fund-overlap were addressed in a 1989 reform of the three funds. To signify the new unified, complementary nature of the funds, they were collectively dubbed the 'Structural Funds', along with the aforementioned Fisheries Guidance Finance Instrument. As already indicated, funding was increased to the programmes, and new planning initiatives were pursued. Amongst these were so called Operational Programmes (OP's), co-ordinated packages of several goals and projects, and Community Initiatives (CI's), programmes for several members. The EU stressed the involvement of national, regional and local government in the Structural Fund's allocation, and introduced the concept of 'matching funds'. The 'matching funds' concept was intended to counter the additionality problem, the EU only willing to co-fund programmes for which national governments were already providing at least 50% funding. Five 'Objectives' were designated, incorporating regionally backward, industrially declining and agriculturally over-dependent areas as well as seeking to reduce long term and youth unemployment. A prominent MEP, John Hume, once claimed that the 'Regional Fund operated on a red-cross basis', and this was the main catalyst behind the 1989 rethink. Funding was to be targeted at stimulating economic activity directly, and not through solely investment in the economic infrastructure. Ten thousand million ECU were allocated to the funds yearly from 1989 to 1993, and monitoring agencies were to be established to ensure the effective implementation of the Funds. To this end, the supranational nature of the EU was very beneficial. Again, however, the good intentions of the reform have been severely limited by the actual funding level, by 1992, only 3% of EU GDP going to the Funds. The benefits of the new funding system have, however been crucial to several regions. Increased industrial activity, improved infrastructure, better farm structures and training of unemployed labour have all boosted regional economies around Europe.

One final drawback of the Structural Funds has already been alluded to. This is the notion that the Funds are 'swimming against the tide' of other EU policies, and thus doomed to failure. The Guarantee section of the CAP tends to concentrate farming activity in the areas of efficient, wealthy farms, clearly against the dispersion aspiration of the Structural Funds, and given the huge commitment of funds to the Guarantee section of the CAP, the Structural Funds have clearly an uphill task to dislodge the concentration tendencies. EU industrial policy, though not as fully developed as the CAP, is another significant barrier to the Structural Funds' goals. Policies such as ESPRIT serve to increase economic activity by processes such as funded industrial research and development, and this tends to concentrate economic activity in core areas.


A cursory glance at the raw data proves that the Structural Funds have not combated the problems they were created to tackle to a significant level. As has been stated 'Various elements of this stage of European Social Policy have drawn mostly unfavourable critiques' , and 'Regional Policy measures do not seem to affect the spatial distribution of economic activities in a big way'. Twenty million people are still unemployed in the EU, and in 1990, GDP per capita in Ireland, Greece and Portugal was still 50-60% of the EU average. While it is true that many worthwhile and indeed vital projects have been developed by the Structural Funds, the overall impact on the EU has been mitigated by a combination of planning, implementation and lack of funding difficulties. The Structural Funds were designed to reduce the tendencies towards divergence in the EU, but these largely remain, and in the absence of an ameliorated financial and developmental basis, the Structural Funds will continually fail to address their targets.


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