Distribution of fund in the european union with 25 members

Autor:Tibor Palankai
Cargo del Autor:Director European Studies and Education Centre Corvinus University of Budapest.

1. Theoretical frameworks - 2. Financing of integration of new


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1. Theoretical frameworks

The convergence of economic development levéis and stractures involves substantial development requirements. This demands financing. Similarly, the unequal distribution of trade advantages raises the question of compensation of weaker members and losers. Tensions and disturbances due to differences in growth are not in the interest of the more developed partners either, therefore in the various kinds of integration grouping solidarity and compensation were from the very outset on the agenda. Since most integration organizations proclaimed the achievement of equalisation as a political aim and commitment, the question could not be ignored. The instruments of convergence can be of a commercial and financial nature.

Since there were no substantial structural and developmental differences among the six founding countries of the EEC, at the beginning there was no need to discuss financing criteria of integration. More precisely, to the extent that such differences existed, and they did, attempts were made to compénsate for them. This was the aim of the introduction of the common agricultural policy in the 1960s, which sought to compénsate France and Italy, with their predominantly agricultural structure, in comparison with more industrialized Germany. In practice, this compensation began simultaneously with the creation of the customs unión and the common market in the sector. In view of the relative backwardness of agriculture in the abovementioned countries, internal agricultural free trade (the common market) was supplemented by relatively large income transfers and strong protectionism.

It is another question, when there are greater differences in development, financing aspects should be considered in connection with free trade greements or with the customs unión in general as well. Later, as a result of enlargement, this is precisely what happened, when with increasing differences in development, the question of regional subsidies carne to the fore. Such subsidies were earlier received mainly by southern Italy, but with fur-Page 296ther enlargements they had to be extended. The creation of the European Regional Development Fund from 1975 was partly due to the accession of

Ireland and the UK, which brought more backward áreas into the Community. With Mediterranean enlargement the problem became more marked. The single market, and later economic and monetary unión have tended to increase the need for regional compensations.

With eastward enlargement, as a result of which the diversity of the future Union increased significantly, with regard to both economic development levéis and structures, the question of financing and financiability of integration has become one of the critical enlargement issues.

* Availability of domestic sources of capital. To what extent is the given economy able to produce resources for its own development and for expanded reproduction? This among other things raises the question of the interdependence of national capital accumulation and efficiency. With out-dated economic structures and loss-making sectors, internal possibilities for saving were reduced.

* The existence of functioning capital markets capable of mobilizing internal and external resources (in centrally-planned economies there was a significant amount of irrational thesauration and allocation of resources). To what extent is the economy capable of minimizing capital losses (devaluation of savings resulting from high inflation, freezing of resources through thesauration, prestige consumption, capital flight abroad)?

* The state of the economies of the new member countries, their ability to achieve and maintain budgetary equilibrium, while financing the costs relating to accession.

* The capital-absorption capacity of the given country, with regard to both external prívate capital investments (the existence of skilled manpower, and the necessary infrastructure), and reception of budgetary transfers.

At the same time, financing ability features also as a membership crite-rion on the EU's part, and was formulated not concretely but indirectly in the Copenhagen criteria (in relation to the "absorption capacity" of the Union). It is not a question of whether the EU is capable of financing eastward enlargement, but rather how much willingness there is, politically, to do it, on the part of governments and especially taxpayers. The planned budget transfers of about 0.15% of GDP in Aganda2000 are of marginal, Page 297and particularly in view of their considerable degree of recycling they would not really be a burden on the economies of the present member countries but rather could have positive repercussions. Thus financing serves the purposes of both economic stability and convergence. As regards external resources, the ability of CEE countries to catch up in terms of development is of course basically dependent on foreign prívate capital investment. We can assume that integration will be accompanied by improved allocation of resources.

On the whole for successful integration, the new members need resources for several reasons:

- The basic requirement is to improve and safeguard the competitiveness of their economy. In the case of CEE countries, the modernization and restructuring of the economy is based to a large extent on foreign prívate investments, and therefore the encouraging of these plays a major role. Of course, local prívate and state sources are equally important.

- Development of the infrastructure for integration. This is where substantial Union resources can be expected, but on the whole the bulk of the burden falls on the new members (beyond co-financing, nationally initiated and implemented projects).

- Building institutions, meeting requirements (environment), harmonization of laws and regulations.

- Compensation for losses...

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