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European Commission

Johannes Hahn

Commissioner for Regional Policy

Transforming Regional Economies: The Power of Research and Innovation Strategies for Smart Specialisation

Regions for Economic Change conference 2012/Brussels

15 June 2012

Ladies and Gentlemen, dear participants,

Good morning and welcome also from my side.

It is a nice tradition by now that we meet once a year in the framework of this conference to reflect how regions can shape and drive economic change.

The RegioStars winners are a shining example on how to shape and drive economic change in a positive way.

Europe now sees many Member States undertaking major structural reforms to fight the crisis and economic stagnation.

In the last months it has however become clearer that austerity and stricter financial discipline alone will not get us out of the crisis. Since the beginning of my mandate, I have been stressing that we cannot have stability without growth and of course we cannot have growth without stability.

Cohesion Policy plays an important part in that endeavour. It represents today a very significant (and probably the most stable) part of the investment capacity in the Member States.

Cohesion policy mobilises on average 65 billion EUR of investments each year (EU and national co-financing combined), which corresponds to more than 50% of total public investment in many MS.

And even in the countries which receive relatively less money, the policy acts as a catalyst of public and private resources on key domains of EU interest (energy efficiency and renewables, research and innovation, SME support, inclusive labour market policies, education and training).

The results of cohesion policy are very clear. You can see them all across the Union, in your country, in the transformation of so many regions.

For instance, GDP per head in all convergence regions grew between 2000 and 2008 by 10% compared to the EU 27 average. This is an impressive degree of convergence in just eight years.

This transformational power of cohesion means that this policy is not a luxury of the European Union.

Cohesion policy is the essence of the European Union.

For this important task, smart specialisation, which is the subject of the conference today, is indispensable.

I will later explain why this is the case, but let me first come back to our current efforts to address the crisis.

Cohesion Policy proved to be a very powerful tool to cushion the crisis. That means that without Cohesion Policy the consequences would have been much worse.

We have already reprogrammed 17 billion EUR since the beginning of the crisis to shift attention to research and innovation, SMEs, labour market policies for vulnerable people, e-services, EU infrastructures in the Trans-European Networks, and energy efficiency.

Between 5 and 8 billion EUR are in the process of being reprogrammed as a follow-up to the President's initiative on youth unemployment and for SMEs. It mobilised the redirection of EUR 7.3 billion and will support more than 170 000 SMEs and create and secure at minimum 450 000 jobs.

For Greece alone, a total value of about € 11 billion is being reprogrammed and an action plan with 180 vital projects is being implemented creating estimated 100,000 jobs.

For Italy a similar operation is underway, notably for the South, for a total value of € 3.6 bn. Smaller reprogramming exercises are taking place in other Member States, like Portugal.

Together with the EIB we are also setting up a risk-sharing mechanism, to use Structural Funds for providing financial guarantees for important infrastructure projects.

These swift and bold actions during the crisis have not only led to an image change of Cohesion Policy in the public perception. It also shifted this policy more and more at the centre of political attention.

It is therefore no coincidence that cohesion policy has a prominent role in the country specific recommendations – a key document for the EU when it comes to economic policy.

The main reason for it is that we are focusing our efforts increasingly on SMEs and on meeting their short-term and long-term needs.

Why is the focus on SME so important? Let me illustrate that on an example. Currently we have 24 million unemployed people in Europe and 23 million small and medium sized companies. If every SME could create one to two additional jobs the problem would be solved. If we shift this burden to 500 biggest companies in Europe they would have to create 46000 jobs, which is a rather unrealistic figure. I think this simple example illustrates why SMEs are the engine for employment and the so called backbone of our economy.

However, a lot of SMEs suffer from the credit crunch entailed by the crisis.

That is why we provided easier access to finance for SMEs for all their life-cycle via financial instruments.

Together with the EIB and some other Member States we are working to setting up the financial infrastructure to provide working capital for SMEs.

In Spain, for instance, such a fund has just been introduced primarily for innovative businesses as part of the Commission's youth initiative.

But it is not just working capital for SMEs that is needed in the current climate.

Getting a loan to start a new business in the present may be even harder, which means that the problems become circular and self-perpetuating, further damaging our economies.

We are tackling the root causes to break this vicious circle.

At the end of 2010, an estimated EUR 8.1 billion had been allocated to more than 300 equity, guarantee and loan instruments to support SMEs throughout the EU.

Thanks to this support an estimated number of 90.000 jobs were created or saved in SMEs.

We will, therefore, facilitate and incentivise the use of financial instruments in all sectors.

Member States will have the possibility to continue with existing financial instruments or to set up new ones, also using "off-the shelf" standardised instruments.

However, ladies and gentlemen, financing of SMEs is an important part but it is only one side of the same coin.

Small and medium-sized companies are playing an ever-increasing role in innovation, driven by changes in technologies and markets. Whilst some spin-offs and high growth firms are having remarkable success, however, the broad bulk of small firms are not capitalising on their advantages.

This is exactly where smart specialisation comes in. Smart specialisation will help create an innovation friendly environment for SMEs and to identify knowledge-based challenges and opportunities for each region.

In our legislative proposals we have included earmarking obligations that will ensure that a substantial share of funding will flow in that direction.

It is now up to the Member States and regions to endorse these measures.

Phil McCann will provide you with a comprehensive overview and compelling story on what smart specialisation is and you will later discuss how to apply it through the EU Structural Funds at Member State and regional level.

I will, therefore, limit my remarks on smart specialisation to just a few elements that I think are most crucial.

First of all, empirical research and evaluations show us that those Member states that have invested in innovation have been stronger in the crisis and are showing signs of faster recovery.

So, we need to make full use of innovation as the driver for structural change and economic transformation and mobilise all regions to become fit for this challenge.

For regions to succeed in this game, they must not copy others but harness their own mix of assets, skills and ideas to compete in a global market and develop unused potential.

Secondly, when speaking about innovation we are not just talking about high-tech regions.

On the contrary: To embrace a culture of innovation it is even more important for peripheral regions with more traditional industries.

They need to attract modern technology and management methods to help their transformation towards knowledge-intensive products and services.

To be able to do so they will also have to implement structural reforms.

Investments without structural reform or structural reform without investments do not ensure the effectiveness of our policy.

Thirdly, smart specialisation challenges us to invest only in areas where we can develop a competitive edge, where we see realistic opportunities.

It warns us against stand-alone investment into science and research, building cathedrals in the desert, that are not embedded into the local fabric or that do not have any clear link and use for local industry.

And it also asks us to not only focus on a portfolio of clusters or economic activities but on the entire framework, the business environment, the regulatory environment and the quality of the institutions and their interactions with the innovation actors.

This needs to be a well-developed framework that enables the emergence of economic opportunity. Therefore, it is important to involve businesses very closely in the design of smart specialisation strategies.

Fourthly, smart specialisation is not just about science and technology: There is in fact a lot of innovation happening that has little to do with R&D in a narrow sense but rather with new, innovative approaches, services, platforms, solutions, experiences, processes, organisations and supply chains. This needs to be considered too.

Finally, I would like to highlight that smart specialisation is a process that requires institutional capacity. There is no sort of instant solution or quick fix.

It is a process where you need to work across administrative and departmental boundaries and where you need to engage in an open process with regional innovation stakeholders from business and academia.

In fact, smart specialisation often requires a change of governance and of mindsets.

We see this challenge in many regions and countries and we have openly reflected on the shortcomings that need to be overcome.

Things like administrative silos, the lack of interaction between levels of governance and departments, a lack of strategy, a lack of focus, a lack of synergies and a lack of partnership, particularly with the private sector, in programme development and implementation.

Commission services are already working jointly with some of you in the Managing Authorities to prepare the future period. The Smart Specialisation Platform is advising a group of others on the development of their innovation strategies for smart specialisation.

For all the other regions that have not yet started this process, I can only recommend to get started! Smart specialisation strategies will play a crucial role in the negotiations for the partnership contract and next operational programmes.

In that sense I sincerely hope that you take this conference as an inspiration. Smart specialisation will help make best use of your money.

I wish you a fruitful conference and that you return energised and convinced ready to make the maximum of the power of innovation strategies for smart specialisation to transform your economies.

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