Trends

Supporting Data

24 September 2019

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Currently, three of the four Visegrad countries have already passed, or are very close to passing the cohesion threshold. Only Hungary is still at 70 per cent of the EU average although some time ago it had a higher income than Poland or the Slovak Republic.

Although the national averages of the V4 countries are above or close to the cohesion threshold, they will continue to benefit from cohesion spending as most of their regions remain below the threshold. The relative success of the V4 countries is illustrated in the figure below, which shows a jump of 20 percentage points (from 55 to 75 per cent of the EU GDP per capita average) made by these countries since 2000.

The support for infrastructure has been massive.

In the V4 countries the EU has financed around one half of all public spending on infrastructure under cohesion funding. In Poland, this ratio was even somewhat above  60 per cent, for the Czech Republic it is still above 40 (although one has to keep in mind that these figures also contain a fraction that is co-financed by country itself). Most of New Europe has benefited considerably; but they are not the only ones, as the highest relative contribution to public sector infrastructure is in Portugal.

The effectiveness of EU cohesion spending to foster growth in lagging regions was for a long time a hotly contested issue, at least among the EU-15. Many regions in the old member states have received Structural Funds for a long time, but have not converged. This is particularly the case in countries, which have experienced an overall crisis, like Greece, which has fallen back from a GDP per capita of over 85 per cent of the EU average to about 67 per cent today. Portugal has also fallen back, but by a much smaller amount. By contrast, all of New Europe has achieved some degree of success at approaching the European average.

At the present speed of convergence, most of New Europe (and all of the V4) would enter the transitional regime (between 75 and 100 per cent of the EU average) during the next MFF based on their national averages. But some of their regions and a number of regions in old member states seem set to continue to qualify for support for a number of lagging regions.

Individual concerns

Brexit, however it finally materialises, has already exacerbated the funding issues with the MFF. It is reminiscent of Rahm Emanuel’s oft-quoted witticism, “you never want a serious crisis to go to waste”, and Brexit has sparked fundamental questions over how funding is deployed within the bloc, and who exactly deserves – or needs – to benefit over the next cycle.

Though the Commission President and Budget Commissioner want to promote an MFF which can actively target areas of social concern in line with EU policy, the “frugal four” (Austria, the Netherlands, Denmark and Sweden) are loath to agree, considering a smaller EU as automatically resulting in a smaller budget. The V4, meanwhile, think member states should contribute more.

Initially inconspicuous tensions are beginning to come to the surface in this season’s budget: in July, it was reported that southern EU nations wanted to prioritise stabilisation in the MFF, whereas their northern counterparts saw structural reform as its central tenet.

As ever, the EU has to negotiate the national interests of each individual member – which is always a daunting task.

This was only amplified with a French push for a eurozone budget within the MFF – a situation made even worse when the EU introduced a fiscal policy bearing more than a passing resemblance to Macron’s dream, a “budgetary instrument for convergence and competitiveness for the euro area”. Of course, this threatens to isolate those countries which have not adopted the single currency, though soft loans are a suggestion to ameliorate segregation.

And, as commentators have noted, it is the contributions of and impact for individual nations, rather than any bloc-based spending, which leaches from public dialogue. The MFF may be, realistically, a supple groundwork to EU strategy in the coming years, posing only 1 per cent of GDP across member states and leaving much of the scaffolding of financial decision-making to national governments, but it certainly has tangible effects. For the previous MFF, policies were actually put in place to enable further flexibility for budgeting, allowing finances to be moved to critical areas.

R&D

One of the major priorities for increased funding in the upcoming MFF is Research and Development (R&D). The darling of European R&D is the Horizon 2020 programme, which intends to close the “innovation gap” by supporting innovative development – it constituted 7 per cent of the seven-year budget framework over the last cycle. Part of its work, the European Research Council, found last year that nearly one in five funded projects resulted in a scientific breakthrough.

But other pioneering work in R&D across the EU is also being supported by the MFF – with the adjunct that, as funding is EU-wide, competition between different projects within the bloc is fostered. National funding, by contrast, consists of smaller amounts; constrained to domestic projects and institutions, a developing European – and global – research scene is unsupported. With the EU looking towards selecting valuable projects to invest a potentially smaller sum of funding towards, R&D offers bountiful opportunities: some even argue that the EU should be seeking more risky enterprises, in order to make headway with international-level development.

This, however, raises an obvious question: where would the EU place a risky portfolio? If the European Research Council’s progress is anything to go by, a high risk usually equates to a high return, with only 10 per cent of the aforementioned breakthrough projects having a low risk, and that more than 50 per cent of projects also boasted a social impact. This may be a reason behind experts’ calls for MMF budgeting to support scientific interconnection across Europe.

R&D cannot be limited to domestic growth – it, of course, requires qualified scientists. As, across the EU, there is a disparity between prioritising university education or more vocational careers, and with convergence in education levels still incomplete, the need to develop global R&D connections is vital. Investment to encourage high-quality researchers to come to less-developed areas may catalyse technology improvements and collaborative opportunities, which in turn spurs domestic R&D climates. One prominent EU scheme promoting such international networks is the Erasmus programme – which supports the EU’s policy to achieve 20 per cent student mobility by 2020.

Yet generalised schemes are sometimes not as lucrative as they first appear. Though national governments may support these networking initiatives, difficulties – particularly across the V4 – on a social or governmental level threaten to disrupt the progress instigated by EU investment, and include the imminent consequences of an ageing population and low rates of continued education. Poland, for example, may have risen through the ranks of the Global Innovation Index in previous years, ranking 39th in 2019, but still fails to taste the success and reputation which are the norm for countries like first-place Switzerland.

Lacking technological know-how or even basic skills, boasting few incentives and little capital, and with an impenetrable bureaucracy, it will take many years for the Polish – or even Visegrad – economy to feel the impacts of improved R&D, even if more funding is tapped towards those nations in the next cycle.

Administrative concerns aside, schemes like Horizon 2020 are beneficial because they do not pre-allocate spending to countries or regions, but if more money is propelled into struggling countries, it often only impacts cities or capital cities. Last year, human resources in science and technology in Poland’s Mazowieckie district had a 52.2 per cent share of the economically active population, considerably higher than any other Polish region; whilst Hungary’s central region displayed R&D researcher statistics at a 1.3 per cent share of the total number of persons employed, over double the statistics from any other area. Though regional variants occur across Europe – and across the world – the V4 countries are additionally impacted by the country-wide levels of lower socio-economic development, and political consternation over regional inequality is increasing.

Though recipient countries can redirect some of the EU funds they receive towards their own institutes of higher education or research, this frequently translates into spending on new buildings, rather than investing in regional support or supporting a network of talent. When cohesion funds are used to expand curricula, progress is too slow. Poland has two universities in the Academic Ranking of World Universities; whilst the Czech Republic has one. Hungary and Slovakia possess zero. Statistics also show that university openness and student satisfaction correlate with research potential – and for the V4, results are disappointing.

Over the last five years the share of EU spending on Research and Development going to the V4 has been only around 3 per cent of the total, while these countries account for over 6 per cent of the GDP of the EU (and thus 6 per cent of the contributions to the EU budget) and of course a much higher share of the population of the EU.

The chart below shows also that there is a considerable variation in the relative performance of the individual V4 countries. For Poland the share in EU Research funding is only 0.6 per cent, less than one fourth of its contribution to the EU economy. By contrast, Hungary is the only one among the V4 where the relative success in EU Research funding (1.27 per cent of the total) is higher than the share in the EU economy (and budgetary contributions).

Securing borders, securing identities

Another EU priority – heavily connected with R&D development – is that of modern security, particularly in the digital realm. Though the MFF budget, this time round, has already been successful in planning funding for sectoral programmes including Digital Europe, which will be launched in 2021 to support the digitalisation of communities across the bloc, discussions are still being held as to whether Digital Europe can support an increased focus on cyber security and digital protection. A recent report from CEPS notes the current EU cyber defence set-up is limited through fragmentation and infrequent active work.

With polls showing that terrorism and immigration are now European citizens’ most pressing concerns, an emphasis on border security is an urgent issue for the MFF. Migrants may offer benefits to EU economies, with social mobility allowing for cheaper salaries, but this is tied in with political fears of foreign intervention, as well as concerns on a social or human level regarding subjugation and exploitation.

Delays in past defence strategies have meant savings with security are hard to come by; an issue which again finds itself divided along geographical lines, with large companies having a monopoly over defence production, and smaller states, like the V4, losing out.

One of the most pressing concerns, however, are sea “borders”: as the recent refugee crisis demonstrated, sea boundaries are often difficult to police – of course with the parallel threat of tragedy for any refugees who attempt the crossing. The EU has poured additional funding into its European Border and Coast Guard Agency, or Frontex, based in Warsaw – but it remains to be seen what impact this these additional resources will have as well as which other strategies might be put in place on national or European levels.

Disasters and decisions

The EU is contending with one of the largest challenges in history and is often perceived as a threat beyond human proportions: climate change. With eco-friendly living sweeping across Europe, one might imagine that the MFF would face a smooth road to investing in and committing to reducing emissions and scaling back the danger of a climate emergency.

Politically, however, it is a different story. In June, an EU-wide zero carbon goal was advised by various western EU leaders, pushed back to 2050 in an attempt to quell Central European scepticism about climate change. Poland, Hungary and Czechia still vetoed the suggestion. Some of their more activist western counterparts also rejected the idea, citing claims it was too vague to enact real change.

Climate change may be becoming increasingly evident across the continent and the world, but Europe is certainly not posing a united front against future damage. Convergence funds may have been redirected towards the goal of 2050 zero carbon emissions, with suggestions that 25 per cent of the upcoming budget should sponsor projects fighting climate change, but some nations are reluctant. Just as R&D and the growth of infrastructure straddled a fine line between individual domestic policy and general EU strategy, environmental policy also highlights internal divisions, split along two fronts.

The centralised European Emission Trading System (ETS) covers the power sector and industry and includes around 40 per cent of all emissions, with EU-wide annual goals. Then there are national policies about climate change, and tensions between EU policies and individual nations go even deeper. For countries like Poland, for example, whose reliance on the coal industry is a matter of heritage and legacy, it is not merely a matter of costs – probably larger than cohesion funds could cover – which discourage changes to be put in place. Industry representatives have estimated that it would take years for coal mines to be closed down fully, with restructuring of local industry needed to plug the gap; family or community ties to the mines also mean that it would be a difficult choice for many to allow the mines to disappear. Poland perceives the coal threat in remarkably more compassionate terms than in the West.

The Common Agricultural Policy is the largest element of the EU budget, though spending is set to decrease in this cycle.

New plans have been aired, offering national governments increased control of agricultural policy, with the Commission having the ultimate say to avoid, for example, environmental damage – but this threatens to catalyse in-fighting between different EU nations, all of whom will be pushing for their farmers’ success alone.

In addition, there are legal queries regarding who exactly would be officialising policy, and whether the environment could be satisfactorily protected. Competition and innovation are important for driving the European economy, but the EU may still wield authority over areas in which changes must be implemented. Even with appropriate levels of funding in this cycle, the traditional pastures of EU agricultural policy make up a long-term commitment, which funding must consistently – and comprehensively – support. Only cohesive agricultural strategies enable the internal market to benefit.

In terms of targeting climate concerns more explicitly, there is still hope: experts have concluded that sustainable energy leads to economic growth, particularly in the case of currently high-emission countries, which will ultimately face low costs of reducing emissions.

These trends – real and EU-cultivated – are difficult to ignore. Though they threaten to burn through the ties holding the bloc together, if tackled correctly, they could be the very bonds that maintain the EU for years to come.