EU Regional Policy: Objectives, Instruments, and Impact

Posted on Jan 15, 2025 in Business Administration and Management (BAM)

EU Regional Policy and Cohesion

Objectives of European Regional Policy

The traditional European regional policy, since 1975, has aimed to coordinate regional policy objectives of member states and correct imbalances between European regions. The new regional policy for 2007-2013 sought to further strengthen the competitiveness of all regions to meet increasing global competition. To achieve this, three objectives were proposed.

Instruments of European Regional Policy

  • The ERDF (European Regional Development Fund) finances investments to reduce regional imbalances. It provides funding to regions of convergence, competitiveness, employment, and interregional cooperation.
  • The ESF (European Social Fund) funds actions to develop human resources, prevent and combat unemployment, improve access to employment, and combat discrimination. It provides funding to regions of convergence and competitiveness.
  • The Cohesion Fund finances public investment in the environment and trans-European transport networks in countries with a GDP per head below 90% of the EU average.

Impact of European Regional Policy

It has led to a transfer of sovereignty to the EU. Aid has encouraged the convergence of some countries with Europe. It has reduced inter-territorial imbalances by focusing on the most disadvantaged regions.

State of Regional Policy

The Spanish Constitution establishes that the state should ensure balance between regions and implement the principle of solidarity.

Objectives of State Regional Policy

The objectives of Spanish regional policy are to achieve balanced regional development by empowering the most disadvantaged regions and promoting endogenous potential.

The strategies to achieve these objectives are:

  • Consolidate growth of the most dynamic areas.
  • Halt the decline of the Cantabrian coast.
  • Drive the southern Mediterranean axis.
  • Support other regions.

Instruments of State Regional Policy

To achieve these goals, the state must promote the economy of disadvantaged areas and address special economic difficulties.

The tools for this are regional incentives and the Territorial Compensation Fund.

Regional Incentives

EU competition rules prohibit state aid. However, they are permitted when intended to promote the economic development of regions with a low standard of living or serious under-employment. Guidelines of the new European regional policy from 1907 to 1913 have influenced the Spanish policy of regional incentives. According to these, areas are established for the implementation of incentives, sectors, and projects to promote.

A) Application areas of the incentives:

Regions with a GDP per capita below 75% of the EU average receive the highest rates of aid. Convergence regions receive rates between 30% and 40%. Convergence regions with a “statistical effect” receive a maximum grant of 30%. Regions with a GDP per capita higher than 75% of the EU average receive support at lower rates.

B) Sectors promotions:

These are particularly extractive industries and processing of advanced technology.

C) Projects to promote:

These involve the creation of new establishments, expansion, or modernization of facilities.

The Inter-territorial Compensation Fund

To alleviate regional imbalances and implement the principle of solidarity, the Inter-territorial Compensation Fund was created in the 1980s. It has undergone several reforms since then.