Regional aid within the European Union - Business Environment

In addition to any funding provided by the national government, businesses in the member states of the European Union can also benefit from grant aid under agreedEuropean program that have been designed to tackle national and regional disparities within the EU. The majority of this aid is provided from EuropeanStructural Funds which are used to assist those areas that compare unfavourablywith the EU’s average levels of prosperity. The EU’s four structural instruments are:

  1. The European Regional Development Fund (ERDF).
  2. The European Social Fund (ESF).
  3. The European Agricultural Guidance and Guarantee Fund (EAGGF).
  4. The Financial Instrument for Fisheries Guidance (FIFG).

For the period 2000–2006 it has been estimated that around €195 billion will be spent by these four sources of funding, with a further €18 billion provided through the Cohesion Fund. There is also an additional allocation for new Member States from 2004.

Under new Structural Fund Regulations which came into effect on 1 January 2000, the EU has identified three priorities or ‘objectives’ for grant aid. These are:

  • Objective 1 promoting the development and structural adjustment of regions whose development is lagging behind.
  • Objective 2 supporting the economic and social conversion of industrial, rural, urban and fisheries areas facing structural difficulties.
  • Objective 3 supporting the adaptation and modernization of policies, systems of education, training and employment.

In the period 2000-2006 it has been estimated that Objective 1 areas will cover around 22 per cent of the EU population and will probably command around 70 per cent of the designated funding, with 11.5 per cent going to Objective 2 Areas and 12.3 per cent to support Objective 3 in areas not accorded Objective 1 status. In the UK, Tier 1 and Objective 1 Areas currently coincide, though changes are likely after 2006. The main aims and focus of funding in the three areas is shown in Table. Alongside the three key objectives, the EU has also designated a number of community initiatives which focus on finding common solutions to specific problems and which will account for around 5 per cent of spending from the Structural Funds over the same period. Interreg III, for example, focuses on cross-border, transnational and international co-operation and is funded under the ERDF. UrbanII seeks to promote sustainable development in the troubled urban districts of theEU through the design and implementation of innovative models of development for economic and social regeneration, again funded under the ERDF. Leader+ promotesrural development through local initiatives using funds from the EAGGF.

European-Structural funds

Objective-areas and funding

Smaller amounts of funding are also provided under schemes to promote innovative actions and for the adjustment of fisheries structures outside the Objective regions, with the former designed to encourage the testing of new ideas and practices that might not be funded under the traditional program of the Structural Funds.

With the enlargement of the EU in May 2004, the issue of further reform of EU regional policy has become increasingly important and a variety of schemes is currently under discussion. These include the UK government’s expressed preference for a ‘devolved policy framework’ under which regional funding for the more prosperous member states would become a matter for national governments, while EU Structural Funds would be focused on the new, less prosperous member countries. The UK is also pushing for reform of the EU budget as a whole, including a reduction in the amount given to support farmers under the Common Agricultural Policy.

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