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Eesti Panga ülevaadete esitlus9. mai 2014, 11:00-12:30

EU Cohesion Policy Funding in Estonia: Background, Trends and Challenges

Karin Kondor-TabunKarsten Staehr

All opinions are personal!

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1.1 Introduction10 years of EU membership

EU cohesion policy “to enhance economic, social and territorial cohesion” Support regions, income convergence, social issues EU “regional policy”

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1.2 IntroductionNext 18½ minutes EU cohesion policy funding Background, trends and challenges

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2.1 The EU cohesion policy Treaty of Rome (1957) 1957 European Social Fund (ESF)– Employment, education, mobility

1975 European Regional Development Fund (ERDF) – Infrastructure, innovation, small businesses

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2.2 The EU cohesion policy 1988 reform after introduction of single market– “Objectives”– Multi-annual programming – Increased resources

1992 Cohesion Fund (CF) / Ühtekuuluvusfond– Transnational transport networks, environment

EU cohesion policy funding = ESF + ERDF + CF

Structural funds

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2.3 The EU cohesion policyAllocation of funding 7-years programming periods total allocation

decided before

Recent programming periods 2000-2006 + 10 new Member States 2007-2013 + Bulgaria and Romania 2014-2020 + Croatia– Focus on growth support Europe 2020 growth strategy

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2.4 The EU cohesion policy Eligibility – Different objectives vs. different funds – Main Convergence objective funded by ESF and ERDF

“Less developed regions” GDP per capita < 75% of EU average “Transition regions” GDP per capita = 75-90% of EU average

Allocation– Complicated calculations (GDP, unemployment, etc.) – Ceilings and floors – Final political decision

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3.1 Foreign aidStarting point 1st theorem of welfare economics Market equilibrium efficient no resources wasted

But… Spillovers externalities– Positive (transport), negative (pollution)

Solidarity distributional concerns – Compensation to losers of reforms

Compensation to gain support for reforms

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3.2 Foreign aidConditionality Funding conditional on… (e.g. roads, trains, training) Most foreign aid (including EU cohesion policy

funding)– If spillover motive – If solidarity motive ?

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3.3 Foreign aidChallenges Efficiency of aid – Projects with most highest social return per $

Growth potential…

Substitution = lack of “additionality”– Even if conditionality

Aid dependence – Policymakers, bureaucracy, businesses – Transfer effect real appreciation crowding out export

Macroeconomic management– Aid useful during recessions… but may fuel booms!

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4.2 Empircal studies from EU15Empirical studies of substitution (few) Ederveen et al. (2003) EU funding ↑ 1 € domestic

funding ↓ 0.17 € Wostner & Slander (2009) substantial substitution

in countries with EU cohesion policy funding > 2.3% of GDP

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4.2 Empircal studies from EU15Empirical studies of growth effects Many rely on meta-analyses (not CEE countries) Simulation models investment ↑ – Generally large effect

Econometric studies different cohesion policy funding to different regions – Generally no effect – Large variation across time, regions and methods

Ederveen et al. (2006) background important (openness, institutions)

Marzinotto (2012) implementation important

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4.2 Empircal studies from EU15NBs Different results for different methods… Maybe only effects in very long term Other objectives than growth (social, environment) Still improve welfare even if no growth effect

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5.1 Cohesion policy funding in Estonia Pre-accession funding from EU May 2004 – 2006 –Weight on environment satisfy EU directives on

drinking water, sewage, waste 2007-2013 (participated in negotiations)– Initially most weight on infrastructure, less on

social policy 2014-2020 – Operational programme approved on 25 Feb. 2014– Focused spending priorities + long-term impact

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May 2004 - 2006 2007 - 2013 2014 - 20200

500

1000

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2000

2500

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3500

4000

0

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2000

2500

3000

3500

4000

Cohesion Fund

European Social Fund

European Regional Development Fund

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5.2 Cohesion policy funding in EstoniaEstonian cohesion policy funds, different programming periods,

million current EUR and % of GDP

2.4%

3.0%?%

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5.3 Cohesion policy funding in Estonia

Hunga

ry

Lithua

nia

Latvia

Estoni

a

Polan

d

Bulga

ria

Czech

Rep

.

Slova

kia

Roman

ia

Slove

nia

0

1

2

3

4

0

1

2

3

4

Cohesion policy funding allocated to 10 CEE countries, 2007-2013, % of GDP

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5.4 Cohesion policy funding in Estonia

Payment of EU cohesion policy funding to beneficiaries in Estonia, mill. EUR

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

100

200

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500

600

700

0

100

200

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500

600

700

Programming period 2007-2013

Programming period 2004-2006

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5.5 Cohesion policy funding in EstoniaSumming up EU cohesion policy funding around 3% of GDP Rapid payment of 2007-2013 allocation– Reduce risk of losing allocation due to deadline– “Jump” in 2009

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6.1 Experiences and challengesEffect of EU cohesion policy funding Numerous projects funded – Specific project targets met– … but challenges remain

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6.2 Experiences and challenges Efficiency Mid-term review (CDP & RAKE, 2011)– Lack of priorities, too dispersed lack of synergies– Lack of funding for subsequent operation

Riigikontroll (2010) – Adult education programmes lack management

Riigikontroll (2012) – Lack of analysis users for schools and roads?

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6.3 Experiences and challenges Cases of misallocation – But many and detailed analyses + controls...

Detailed programming Detailed description of requirements Pre-selection requirements, incl. cost benefit analysis Monitoring and evaluation Co-financing

– Feedback to other areas of government spending

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6.4 Experiences and challenges Substitution (counter-factual not available ) Cutbacks in 2009 eased by cohesion policy funding Additionality?

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6.5 Experiences and challenges Aid dependency Varblane (2013, 2014) Cohesion policy funding in 2007-2013 programming

period– ≈ 11.1% of total fixed investment– ≈ 9.3% of government tax revenue (2007-2013)

Funding secured for 2014-2020 Current rules gradual phase out from EU cohesion

policy funding (“transition region”)

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6.6 Experiences and challenges Macroeconomic management Relatively small payments during 2006-2007 boom

(≈ 1.5% of GDP) Large payments during 2008-2010 crisis Future challenges?

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7.1 ConclusionEU membership cohesion policy funding

… and potential for faster convergence Challenges– Efficient use, substitution, dependence, macro economy– How generate rapid, stable and sustainable economic

growth in Estonia?

Will EU cohesion policy funding stimulate growth?– Meet in 10 years…

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Karin Kondor-Tabun karinkondor@yahoo.com

Karsten Staehr karsten.staehr@ttu.ee

All opinions are personal!

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