Karin Kondor-Tabun Karsten Staehr Eesti Panga ülevaadete esitlus 9.5.2014

1. 114EUfunds-show1.ppt 1
Eesti Panga ülevaadete esitlus
9. mai 2014, 11:00-12:30
EU Cohesion Policy Funding in Estonia:
Background, Trends and Challenges
Karin Kondor-Tabun
Karsten Staehr
All opinions are personal!

2. 22
1.1 Introduction
10 years of EU membership
EU cohesion policy  “to enhance economic, social
and territorial cohesion”
 Support regions, income convergence, social issues
 EU “regional policy”

3. 33
1.2 Introduction
Next 18½ minutes  EU cohesion policy funding
 Background, trends and challenges

4. 44
2.1 The EU cohesion policy
 Treaty of Rome (1957)
 1957  European Social Fund (ESF)
– Employment, education, mobility
 1975  European Regional Development Fund
(ERDF)
– Infrastructure, innovation, small businesses

5. 55
2.2 The EU cohesion policy
 1988  reform after introduction of single market
– “Objectives”
– Multi-annual programming
– Increased resources
 1992  Cohesion Fund (CF) / Ühtekuuluvusfond
– Transnational transport networks, environment
EU cohesion policy funding = ESF + ERDF + CF
Structural funds

6. 66
2.3 The EU cohesion policy
Allocation of funding
 7-years programming periods  total allocation
decided before
Recent programming periods
 2000-2006  + 10 new Member States
 2007-2013  + Bulgaria and Romania
 2014-2020  + Croatia
– Focus on growth  support Europe 2020 growth strategy

7. 77
2.4 The EU cohesion policy
 Eligibility
– Different objectives vs. different funds
– Main  Convergence objective funded by ESF and ERDF
 “Less developed regions”  GDP per capita < 75% of EU average
 “Transition regions”  GDP per capita = 75-90% of EU average
 Allocation
– Complicated calculations (GDP, unemployment, etc.)
– Ceilings and floors
– Final political decision

8. 88
3.1 Foreign aid
Starting point  1st theorem of welfare economics
 Market equilibrium efficient  no resources wasted
But…
 Spillovers  externalities
– Positive (transport), negative (pollution)
 Solidarity  distributional concerns
– Compensation to losers of reforms
 Compensation to gain support for reforms

9. 99
3.2 Foreign aid
Conditionality
 Funding conditional on… (e.g. roads, trains, training)
 Most foreign aid (including EU cohesion policy
funding)
– If spillover motive 
– If solidarity motive ?

10. 1010
3.3 Foreign aid
Challenges
 Efficiency of aid
– Projects with most highest social return per $
 Growth potential…
 Substitution = lack of “additionality”
– Even if conditionality
 Aid dependence
– Policymakers, bureaucracy, businesses
– Transfer effect  real appreciation crowding out export
 Macroeconomic management
– Aid useful during recessions… but may fuel booms!

11. 1111
4.2 Empircal studies from EU15
Empirical studies of substitution (few)
 Ederveen et al. (2003)  EU funding ↑ 1 € 
domestic funding ↓ 0.17 €
 Wostner & Slander (2009)  substantial substitution
in countries with EU cohesion policy funding > 2.3%
of GDP

12. 1212
4.2 Empircal studies from EU15
Empirical studies of growth effects
 Many  rely on meta-analyses (not CEE countries)
 Simulation models  investment ↑
– Generally large effect 
 Econometric studies  different cohesion policy
funding to different regions
– Generally no effect 
– Large variation across time, regions and methods 
 Ederveen et al. (2006)  background important
(openness, institutions)
 Marzinotto (2012)  implementation important

13. 1313
4.2 Empircal studies from EU15
NBs
 Different results for different methods…
 Maybe only effects in very long term
 Other objectives than growth (social, environment)
 Still improve welfare even if no growth effect

14. 1414
5.1 Cohesion policy funding in Estonia
 Pre-accession funding from EU
 May 2004 – 2006
– Weight on environment  satisfy EU directives on
drinking water, sewage, waste
 2007-2013 (participated in negotiations)
– Initially most weight on infrastructure, less on
social policy
 2014-2020
– Operational programme approved on 25 Feb. 2014
– Focused spending priorities + long-term impact

15. 15
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May 2004 - 2006 2007 - 2013 2014 - 2020
Cohesion Fund
European Social Fund
European Regional
Development Fund
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5.2 Cohesion policy funding in Estonia
Estonian cohesion policy funds, different programming periods,
million current EUR and % of GDP
2.4%
3.0%
?%

16. 1616
5.3 Cohesion policy funding in Estonia
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Cohesion policy funding allocated to 10 CEE countries, 2007-
2013, % of GDP

17. 1717
5.4 Cohesion policy funding in Estonia
Payment of EU cohesion policy funding to beneficiaries in
Estonia, mill. EUR
0
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Programming period 2007-2013
Programming period 2004-2006

18. 1818
5.5 Cohesion policy funding in Estonia
Summing up
 EU cohesion policy funding  around 3% of GDP
 Rapid payment of 2007-2013 allocation
– Reduce risk of losing allocation due to deadline
– “Jump” in 2009

19. 1919
6.1 Experiences and challenges
Effect of EU cohesion policy funding
 Numerous projects funded 
– Specific project targets met
– … but challenges remain

20. 2020
6.2 Experiences and challenges
 Efficiency
 Mid-term review (CDP & RAKE, 2011)
– Lack of priorities, too dispersed  lack of synergies
– Lack of funding for subsequent operation
 Riigikontroll (2010)
– Adult education programmes lack management
 Riigikontroll (2012)
– Lack of analysis  users for schools and roads?

21. 2121
6.3 Experiences and challenges
 Cases of misallocation 
– But many and detailed analyses + controls...
 Detailed programming
 Detailed description of requirements
 Pre-selection requirements, incl. cost benefit analysis
 Monitoring and evaluation
 Co-financing
– Feedback to other areas of government spending 

22. 2222
6.4 Experiences and challenges
 Substitution (counter-factual not available )
 Cutbacks in 2009 eased by cohesion policy funding
 Additionality?

23. 2323
6.5 Experiences and challenges
 Aid dependency
 Varblane (2013, 2014)
 Cohesion policy funding in 2007-2013 programming
period
– ≈ 11.1% of total fixed investment
– ≈ 9.3% of government tax revenue (2007-2013)
 Funding secured for 2014-2020 
 Current rules  gradual phase out from EU cohesion
policy funding (“transition region”)

24. 2424
6.6 Experiences and challenges
 Macroeconomic management
 Relatively small payments during 2006-2007 boom
(≈ 1.5% of GDP) 
 Large payments during 2008-2010 crisis 
 Future challenges?

25. 2525
7.1 Conclusion
EU membership  cohesion policy funding 
… and potential for faster convergence
 Challenges
– Efficient use, substitution, dependence, macro economy
– How generate rapid, stable and sustainable economic
growth in Estonia?
 Will EU cohesion policy funding stimulate growth?
– Meet in 10 years…

26. 26
Karin Kondor-Tabun
karinkondor@yahoo.com
Karsten Staehr
karsten.staehr@ttu.ee
All opinions are personal!
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