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European Commissioner responsible for Regional Policy

"Regional challenges at 2020 horizon"

Informal meeting of ministers in charge of cohesion policy - Session on future of cohesion policy
Marseille, 26 November 2008

Dear Ministers,

Ladies and gentlemen,

Our reflection on the future of cohesion policy takes place in the broader framework of the EU budget review. In this debate the Commission identified four new policy challenges which could have a significant impact on where the Union will direct its policies and its spending priorities in the future: adapting to globalisation, demographic change, climate change and the energy challenge.

For policymakers responsible for cohesion this raises the following question: what is the policy's role in responding to the new challenges and what is the place of European regions in this context?

My services have carried out a prospective analysis to explore the regional effects of the four challenges in the medium perspective of 2020. The objective is to get a better understanding of the degree of vulnerability of European regions to these four challenges and to examine the potential patterns of territorial disparities that these challenges will generate.

Let me briefly share with you some conclusions of our work:

Slide n°1: GDP

First of all, it is indisputable that the main challenge for cohesion will remain unchanged – improving the competitiveness of all regions with a strong focus on supporting the catching-up process of the poorest areas of the Union. In spite of impressive GDP growth rates in the new Member States in recent years, regional disparities in economic output and income in the European Union are still more extreme than in similar economies, such as the US or Japan. We can clearly observe that the primary dimension of regional income disparities in the EU remains East-West, with a weaker North-South dynamic and core-periphery pattern at both EU and national levels.

Slide n°2: Globalisation

(NB: the darker the more vulnerable, the lighter the less vulnerable)

The issue of competitiveness is clear when we examine the regional impact of globalisation on the 2020 horizon, when we see a considerable degree of vulnerability across the Union.

We see that some of the strongest challenges are to be felt in convergence regions, but many equally outside these areas many regions are exposed to the challenge of globalisation. This vulnerability is often due to a relatively large share of low value added activities in these regions and weaknesses in workforce qualifications, which may lead to difficulties in attracting investment and creating or maintaining jobs. Many regions located in the Southern and Eastern parts of the Union stretching from Latvia, Eastern Slovakia, Hungary, Bulgaria and Romania to Greece, Italy, Spain and Portugal appear to be in such a position.

This underlines that we made the right decision when we decided to focus cohesion policy on they key objectives of the Lisbon agenda, i.e. increasing investments in innovation, business support and human resources development. But it also calls for a consolidation of this approach in the years to come.

Slide n°3: Demographic change

As regards the challenge of demographic change, we don't see any clear geographical pattern across Europe in the medium term. However, what we do see is a strong regional dimension to this challenge.

Around a third of European regions are projected to experience population decline in the period 2005-2020. Most of these regions will be located in Central Europe, Eastern Germany, Southern Italy and Northern Spain with some of them facing a population decline exceeding 10%.

Regions in demographic decline are often characterised by relatively low income levels, high unemployment and a large proportion of the workforce employed in declining economic sectors. They often have a low growth potential due to the shrinking labour force which may intensify disparities in income. And many of them face difficulties in financing essential public goods and services, such as health and long-term care, housing and infrastructure, in a sustainable manner in order to avoid increasing social polarisation and poverty.

Against this background and the strong regional dimension, we have to ask ourselves whether and how the demographic challenge should be stronger integrated into framework of cohesion policy.

Slide n°4: Climate Change

The impact of climate change will have a strong regional dimension across Europe.

More than one third of the EU population live in the regions most affected by climate change, with a total population of 170 million. Regions under highest pressure are generally located in the south and east of Europe (Spain, Italy, Greece, Bulgaria, Cyprus, Malta and Hungary, as well as most of Romania and southern parts of France), which is due mostly to changes in precipitation and an increase in temperature.

Northern and Western, on the other hand, will be exposed to costal erosion, extreme weather events such as storms as well as sea level rise.

Climate change will pose serious challenges to human well-being and many sectors of the economy such as agriculture, forestry, fisheries, energy production and tourism.

Mitigation and adaptation to climate change will require significant investments with a strong regional dimension such as coastal defence or defence against river floods, water management and water provision services.

Through our cohesion programmes we are already assisting regions and Member States in tackling these issues in 2007-2013. But the question is whether we should do even more in the future and what other policies can do for our regions?

Slide n°4: Energy

The regional dimension of the energy challenge is strongly determined by national choices regarding energy mix and energy policy. Future developments will depend on the EU's capacity to develop a common policy on energy ensuring the functioning of the internal market and security of energy supply in order to share risks and pool advantages.

Still, rising and fluctuating energy prices will affect some European regions more than others depending on the carbon content of their energy mix, transport dependency, energy intensiveness of industries and energy efficiency.

In this regard, our analysis shows a slight core periphery relationship favouring core economies (such as France or UK) with a relatively high degree of energy production, a low carbon footprint and lower external and partly internal security of supply issues. On the other hand, low energy productivity and a high carbon intensity is often found in low income regions in Southern and Eastern Europe. In a carbon constrained world this could hinder convergence and decrease competitiveness.

To support the development of energy efficient regions throughout the Union and thus creating win-win situations, both economically and environmentally, major investments are needed in increasing energy efficiency in local services, in improving public transport and other sustainable urban transport as well as the production of renewable energies in rural or coastal areas.

We need to reflect how cohesion policy can best contribute to carrying this agenda forward.

Slide n°5: Intensity of multiple risks for European Regions

This last map combines the challenges into a single index. Together, the four key challenges which Europe will face in the years ahead clearly display strong sub-national variations. All European regions will be affected by them, but their impact will vary significantly across Europe. This will consolidate existing patterns of territorial disparities and create new ones. Some regions will even experience combined challenges, which will create complex problems at regional level.

Development challenges will therefore vary at regional level both in terms of size and nature emphasizing the need for tailor made responses to turn these challenges into opportunities.

The problems arising from new challenges will often result in losses of competitiveness, employment and social cohesion. Against this background it is important to support all regions – both lagging and non lagging – so that they can fully exploit their endogenous growth potential. Community support – even if it is financially limited – provides a real added value to national and regional policies and financing, due to a greater concentration on the promotion of new approaches and the reorientation of public and private investment towards priorities of community interest.

Cohesion policy is an excellent instrument at our disposal to help Europe face these new challenges along side sectoral EU policies. It is the only Community policy which operates through an integrated approach. This allows public authorities to exploit synergies and control for possible conflict between interventions. In addition, through our system of multi-level governance, investments are designed and implemented by those who know local strengths and weaknesses best. Both aspects are crucial in a globalised world where economic development depends on the complex coordination of different policies which requires geographical proximity among actors involved.

This analysis of the challenges facing our regions raises many questions, but I hope you agree that they are the right questions. This work is a first step. It is my intention to launch a follow-up study to address the questions in further detail. We would very much welcome your comments and suggestions.

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