In 2017, the White Paper on the Future of Europe made a powerful statement about the current precarious state of European integration and its uncertain future. The continuing effects of the financial, economic and migration crises are associated with reduced confidence and trust in democratic institutions and politicians, as well as a rise in populism, threatening the unity of the EU. As the European Commission recognised in subsequent âreflections papersâ and (to a certain extent) its proposals for the EU budget in 2021â2027, the fundamental cause is the highly unequal impact of globalisation and technological change on different parts of the EU. Many regions have been able to exploit the opportunities of structural change, but equally there are regions and social groups that have been left behind. The challenge for the EU is not only to accelerate growth but also to resume convergence to ensure that all parts of the EU are able to exploit the growing globalisation of trade and technological change. Growth needs to be sustainable, cohesive and inclusive: it should deliver prosperity for the whole of Europe.
In the context of the debate on the future of the EU, and specifically the EU policy and budgetary priorities after 2020, this book makes the case for a new approach to structural transformation, growth and cohesion in the EU. Drawing on recent research by international bodies (EC, OECD and World Bank) and from academic studies, the book explores the opportunities and challenges from globalisation and technological change, the widening differences in productivity between leading and lagging regions, and the need for a new EU policy framework capable of delivering inclusive growth.
1.1 POLITICAL POLARISATION AND INEQUALITY
According to Eurobarometer data for the past decade, the trust of citizens in the EU is only slowly recovering; the 2018 data indicate that only 42 percent of EU citizens have trust in the EU, an increase on the low point of 31 percent between 2012 and 2014, but still well below the high point of 57 percent in 2007 (European Commission 2016a, 2018a). Further, the EU28 figure encompasses a wide range of opinion at Member State level, with very low levels of trust in Greece (27 percent), France (34 percent), Italy (36 percent) and Czech Republic (37 percent) â all of which were countries where trust in the EU was between 50 and 65 percent in the early 2000s (European Commission 2005a, 2016a). There has also been an unprecedented upsurge in support for Eurosceptic parties across the EU, most clearly in the 2014 European Parliament elections (Treib 2014) and deep territorial divisions in voting patterns in elections and referenda over the past five years.
While the factors at play are complex and contested, it is clear that the eurozone and migration crises have politicised the EU in public debates, diminished confidence in EU institutions and boosted support for Eurosceptic political parties (Hobolt and de Vries 2016; Hobolt and Tilley 2016; Hooghe and Marks 2017). The key factors explaining defection from mainstream pro-European to Eurosceptic parties are the degree to which individuals were negatively affected by the crisis and their discontent with the EUâs response to the crisis (Hobolt and de Vries 2016). Identity politics associated with community, cohesion and solidarity have been at the core of Eurosceptic party narratives and electoral gains (Borzel and Risse 2017). The principle of EU solidarity across Member States has been challenged by the euro crisis and the politics surrounding bailouts, while the migration/refugee crisis has led to reactions against the core principle of freedom of movement and the liberal foundations of the European project in favour of exclusionary and nationalist agendas.
An important factor is perceptions of an unequal Europe. Eurobarometer survey research indicates that just over half of citizens surveyed do not agree that everyone in their country has a chance to succeed in life. In the view of citizens, social equality, solidarity and comparable living standards across the EU are regarded as most important for the future of the EU (European Commission 2016a, 2016d). Various studies have shown that economic factors impact on political support for the EU. Poor economic performance at the national level (in terms of GDP/GNI and unemployment change) or negative subjective perceptions among citizens about globalisation and their economic future reduce political support for the EU (Hooghe and Marks 2004; Henjak et al. 2012; Chalmers and Dellmuth 2015; Lastra-Anadón and Mñniz 2017) and encourage support for more radical parties on both the right and the left (Beaudonnet and Gomez 2016; Rooduijn et al. 2017).
Initial research on the patterns of voting behaviour in the United Kingdomâs EU referendum in June 2016 found that inequality, associated with the negative effects of integration and globalisation, was one explanatory factor; those areas with lower median wages, low levels of skills, lack of opportunities and higher levels of poverty were significantly more likely to vote Leave (Bell and Machin 2016; Darvas and Wolff 2016; Goodwin and Heath 2016; Clarke et al. 2017). This is part of a broader pattern, as RodrĂguez-Pose (2017: 189) argues:
Persistent poverty, economic decay and lack of opportunities are at the root of considerable discontent in declining and lagging-behind areas the world over. Poor development prospects and an increasing belief that these places have âno futureâ â as economic dynamism has been posited to be increasingly dependent on agglomeration economies â have led many of these so-called âplaces that donât matterâ to revolt against the status quo.
Evidence from EU countries shows that fears about globalisation influences are greatest among less educated, less affluent and older people, who have a greater propensity to support populist and anti-EU parties (De Vries and Hoffman 2016). Income inequality in the EU has also been found to undermine support for democracy and trust in politicians and parliaments (SchÀfer 2012). A recent study, using European Election Study data from 2009, shows that citizens who have greater levels of concern about inequality and favour more redistribution tend to have lower political support for the EU as it is now, but are relatively more favourable to further European integration (Simpson and Loveless 2016).
EU policymakers increasingly recognise that growth and integration have failed to give sufficient attention to solidarity and cohesion (Buti and Pichelman 2017):
âWhile the deepening globalisation and integration process has generated overall income gain ⊠[it has created] ⊠winners (take it all) and losers in an age of massive transformation ⊠In this context, EU Institutional settings and policies have been increasingly perceived as pro-market biased, paying little attention if any to its social impact, and undermining cohesion, solidarity, autonomy and governability at the national, regional and local level.â
1.2 NEW OPPORTUNITIES AND CHALLENGES
The question facing the EU is how to respond. The long-term convergence of structurally weaker countries and regions with the rest of the EU was exacerbated by the financial and economic crises, with rising disparities within and between countries (European Commission 2014a). All Member States were affected by the crisis, but with strong national and regional variations in the scale and timing of impact, and in the pace and degree of recovery (Crescenzi et al. 2016a). In 11 EU Member States, GDP in 2015 remained lower than in 2007 (at constant prices). Most EU countries have seen positive economic growth since at least 2014, and for the first time since the crisis, all EU economies expanded in 2017 â but rates of growth and job creation remain muted in some countries (European Commission 2016c, 2018b). Among the less-developed regions, different patterns can be discerned between low-growth and low-income regions, linked to different trajectories of regional economic restructuring and the quality of governance (European Commission 2017a). Low-income regions improved their productivity and growth even during the crisis, while low-growth regions did not become more productive and lost pre-2008 employment gains. Macroeconomic imbalances played a role in this latter group in exacerbating the effects of the crisis.
Further, there is the prospect of massive structural transformation over the coming decades that will create major new opportunities for the EU but also huge challenges in providing EU citizens with secure and well-paid employment. Different parts of the EU are better placed than others to respond: the productivity gap between the frontier regions and the lagging regions is widening.
Policy responses need to recognise that current and future opportunities and challenges for economic growth and development in the EU are spatially highly uneven. The ability of the EU to exploit opportunities and overcome challenges is place-specific, contingent on factors such as historical legacies, resources and institutions (Iammarino et al. 2017). Regional and other spatial policies are sometimes judged less optimal than spatially blind policy responses. Yet, no policy is spatially neutral or blind; any form of government intervention has spatial consequences, and many sectoral policies implicitly or explicitly favour growth in certain areas.
The EUâs main instrument for responding to uneven development is Cohesion Policy, which has an increasingly strong track record of performance. During the 1990s, critics rightly highlighted ineffective EU spending, typified by examples of investment in underused infrastructure. Such criticisms were valid in the 1990s, but successive reforms during the 2000s (most notably in 2013) have mobilised a major shift in Cohesion Policy spending towards Europe 2020 priorities and a focus on performance, with increasingly convincing research evidence on the effectiveness of the policy (Bachtler et al. 2017; Davies 2017). During the economic crisis, the policy also demonstrated its value as a stabilising and spatially targeted response to economic shocks; it sustained public investment in the face of enforced national austerity policies and fiscal retrenchment (McGregor et al. 2014).
The White Paper on the Future of Europe set out different budgetary and policy options for the future of Cohesion Policy: sustain and enhance (increased budget and new momentum); maintain and support (less funding but little change); prioritise and improve (focused support and spatial coverage); refresh and restart (radical change in direction and architecture); and reduction of priorities (sectoral refocus). Of these, the proposals put forward by the European Commission in May 2018 is closest to âmaintain and supportâ with less funding specifically for Cohesion Policy within the âCohesion and Valuesâ heading and more thematic concentration â especially innovation and conditionalities (European Commission 2018c).
As the negotiations within the Council and European Parliament progress, this book makes the case for a substantial ârefreshâ and âenhancementâ of the EUâs approach to Cohesion Policy but set within a broader EU strategy towards growth and cohesion that responds to the opportunities and challenges of structural transformation â in effect, a âCohesion Policy 4.0â.1 If EU integration is to deliver opportunity and prosperity to all EU citizens, including those left behind in the so-called developed regions of the EU, it needs to re-assess how it meets its Treaty objectives of economic, social and territorial cohesion. This needs to be considered in the wider context of structural transformation. Due to the next production revolution, the EU will need to restructure its policy approach. Member States and EU institutions need to work together to integrate both growth and cohesion objectives into EU, national, regional and local policies in a consistent, efficient and targeted fashion.
1.3 FUTURE EU POLICIES FOR STRUCTURAL TRANSFORMATION AND COHESION
The next chapters begin by outlining the challenge of economic change for Europe, in terms of both the implications of continuing globalisation and technological change and the opportunities for the EU from the renewal of economic competitiveness (Chapter 2) â requiring important changes to the current policy and institutional approach.
The book argues that renewing the successful European economic growth model depends on its ability to reduce the increasing productivity gap between âfrontier regionsâ and other parts of the EU, in particular, the rate at which the diffusion of innovation and structural change takes place (Chapter 3). Importantly, inequalities in economic growth and development across the EU are now accounted for by differences within rather than between countries. With many frontier regions being capital cities or other major urban areas, there is a real danger of increasing economic and social disconnection between the flourishing âmotorsâ of EU growth and the remainder of the EU. That said, frontier regions are also faced with a number of challenges, some of which should also be addressed within the EU policy framework.
The challenge for EU and Member State policymakers is to develop or adapt policy frameworks and strategies that will stimulate growth, but in a manner, that also ensures greater inclusiveness (Chapter 4), especially in access to employment opportunities and capacity for entrepreneurship. This demands a more granular approach to structural policy, which is better tailored to the specific conditions of the different types of cities and regions across the EU and with greater consideration of governance requirements.
The starting point for a European policy response is that existing strategies â from Lisbon/Gothenburg to Europe 2020 â have been only partially successful, with limited results in relation to the scale of the challenge (Chapter 5). Notwithstanding certain achievements, strategies have been over-ambitious in relation to the resources available, the deficits in governance (especially on coherence and the coordination of policies) and the performance of interventions. On the one hand, those policy levers that are directly managed by the EU are insufficiently discriminating towards the different development situations and institutional contexts in different parts of the EU; and in some cases there remain important questions about their additionality and effectiveness. On the other hand, the main EU policy that is regionally discriminatory â Cohesion Policy â is demonstrating evidence of increasing effectiveness, but its performance is constrained by the quality of government, especially the need for structural reforms and deficits in institutional and administrative capacity (Charron et al. 2014; Surubaru 2017). Both sets of EU policies need better coordination with Member State policies with a more effective system of economic governance (Chapter 6).
Looking forward, if the EU is to exploit the potential of the new production revolution in ways that benefit all EU citizens, it needs a structural transformation agenda that recognises more consistently â across all relevant policies â the different potentials of regions in Europe and includes a commitment to sustainable, inclusive and cohesive growth (Chapter 7).
