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Industrial policy: the missing link in the new EU cohesion package

The EU is currently discussing the new deal on the shape and the priorities of the EU Budget for the next programming period running from 2014 to 2020. Negotiations are expected to be finalised by the end of 2012. As part of this larger deal, the legislative package on the new EU cohesion policy defines […]

By: Date: April 26, 2012 Topic: Macroeconomic policy

The EU is currently discussing the new deal on the shape and the priorities of the EU Budget for the next programming period running from 2014 to 2020. Negotiations are expected to be finalised by the end of 2012.

As part of this larger deal, the legislative package on the new EU cohesion policy defines the principles behind the allocation and management of Structural and Cohesion Funds over the next seven years.

So far the debate on the future EU cohesion policy has not been as visible as others. And yet, Structural and Cohesion funds have played an important role in the European crisis and must be put to use to address current challenges from youth unemployment to the credit constraints facing Small and Medium Enterprises (SME) and rising national and regional disparities (see).

The legislative package on EU cohesion policy that the European Commission proposed on 6 October 2011 and now under the scrutiny of the General Affairs Council builds on a number of new principles:

  • Thematic concentration
  • Ex ante (regulatory) conditions for the allocation of funds
  • Macroeconomic conditionality
  • Performance-oriented EU cohesion policy
  • Greater flexibility in the design of funded programmes

In a nutshell, the principles above imply that EU countries need to focus on a limited number of priorities; that the allocation of EU funds is subject to the existence of a number of conditions pertaining to the regulatory framework (for example, the appropriate transposition of EU laws on public procurement) but also the macroeconomic environment (namely, absence of excessive deficits and/or excessive macroeconomic imbalances); and finally that there will be a greater focus on performance including rewards for those that meet the agreed targets and the revision of programmes half-way through if they appear not to be effective.

The renewal of governance and the integrated approach are very much appropriate considering that the impact of EU funds on economic growth and cohesion is mostly a function of the way in which the funds are actually delivered. But there is still a gap to fill between the national and the European level.

The thematic-concentration approach forces recipient countries to pick a number of priorities from a list of eleven objectives. The priorities need to fit into a so-called Common Strategic Framework to makes sure they are consistent with each other and their interaction delivers the strongest possible impact. It sounds like common sense. However, because in an integrated market transnational spill-overs are as important as national ones, concentration makes full sense only if there is coordination at the European level (and not only at the national level), so that neighbouring regions maximise gains from, for example, international production value chains or investment in projects that produce important externalities (eg energy).

One such form of EU coordination could well take the form of a European industrial policy. Philippe Aghion has already advocated a rethinking of industrial policy in Europe. The argument is that targeted state intervention to support the most competitive sectors, possibly also using EU funds, can have important growth-enhancing effects (see the policy brief Rethinking industrial policy)

The European Commission has here a great role to play. It can take advantage of the new European Semester process. The Semester is an exercise in economic policy coordination for which EU member states submit their fiscal and structural reform plans early on in the year and at the same time to show that the framing of fiscal policy is consistent with other structural interventions including the use of EU funds to support long-term investment. That way internal consistency across policy areas is guaranteed. It is important that the same consistency exists across national reform plans. A European industrial policy strategy is what would contribute to enhanced coordination across countries.


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