Funding from EU could be down by half by 2006


The draft regulations on the structural and cohesion funds regime contain few surprises. While the Council of Ministers and European Parliament will amend the Commission's proposals in the course of what will be very tough negotiations for Ireland, the Government now knows the broad priorities, procedures and guidelines that will dictate EU funding after 1999.

Setting Priorities

Ireland's national development plans will have to be in Brussels for scrutiny by the Commission no later than three months after the regulations are formally adopted, probably early next year.

The plan will have to set out strategic priorities for an investment programme covering infrastructure, employment, enterprise support and social measures. As EU funding could be down by as much as half by the end of the next programming period - the seven years from January 2000 to the end of 2006 - tough choices will have to be made about the continuation, scaling down or abolition of the 160 measures that are now co-financed by the Commission. The ESRI's mid-term review of current spending gives an indication as to where the axe may fall.

Divide The Country?

The most generous level of funding and two-thirds of the budget will be provided, as at present, to regions whose per capita GDP is less than 75 per cent of the EU average. This is calculated on the basis of EU figures for the last three years available (1994-1996). In theory at least, some sub-regions of Ireland could remain classified as an Objective 1 region if they fell below this threshold. The latest CSO statistics for sub-regional wealth distribution, which are due out soon, will be crucial. However, even if the Government decided to split the country, it is known that the Commission is not in favour of this option.

Objective 1 regions in transition - those classified as Objective 1 but which fail the 75 per cent GDP test after 1999 - will benefit from a transitional arrangement for six years to the end of 2005, if the region does not meet the eligibility criteria for Objective 2. Ireland falls into this category.


Some ú190 billion will be available over the seven years to 2006 (at 1997 prices), including ú17 billion from the Cohesion Fund. Some 5 per cent will be allocated to community initiatives and 1.5 per cent to innovative measures and technical assistance.

It is proposed that an efficiency reserve of 9 per cent be allocated on foot of the mid-term review of spending that is envisaged for 2003, and a further 1 per cent held for contingencies.

On the adoption of the necessary regulations, each member-state will be given an indicative breakdown of its total allocation. The Irish Government will be informed by the Commission, no later than six months after the Irish plan is presented, about the total and annual contribution from each of the four funds. It would appear that Ireland's reduced allocation will be back-loaded over the last years of the next financial period.

The EU will contribute to Irish projects and programmes by means of non-repayable direct assistance, repayable assistance, interest-rate subsidies, a guarantee, the taking of a holding, and a risk-capital holding or other forms of finance.

At first sight this might mean that EU co-financing could be used in project financing for public-private partnerships. The rates of co-financing have been reduced.

Eligible Projects

The broad categories of expenditure that the European Regional Development Fund (ERDF) and the European Social Fund (ESF) will be able to co-finance remain largely unchanged.

A higher priority will be attached to programmes that have a strong EU dimension. For example, the ESF will co-finances measures to be identified in the Government's national plan for employment that is being prepared. These will include the strategic "pillars" of entrepreneurship, employability, adaptability and equal opportunities.

The ESF will be able to assist individuals; structures; support systems; and flanking measures. At least 1 per cent of funding will go to local groups.

Cohesion Fund

The fund will continue to co-finance transport and environmental projects. The Commission wants private investment with a view to maximising the leverage of Community financing. A higher priority will be attached to the "polluter pays" principle, hence the recent controversy about the introduction of water rates and other charges in Ireland.

A review of countries' eligibility will take place in 2003. If Ireland's growth performance continues at or above current levels, then it is probable that Ireland will not be deemed eligible after this date. Ireland's share-out of the fund, currently between 7 per cent to 10 per cent, will have to be negotiated as part of the package on the overall budget allocation.

Regional Aid

Last December, the Commission adopted strict guidelines on regional aid. As nearly 75 per cent of what Ireland's industrial development agencies disburse by way of grant aid is categorised as regional aid, the Commission's new rules are of fundamental importance to the Government's enterprise policy.

This is for two reasons. The Government will have to present maps to the Commission by next March that divide the country into regions that can, and cannot, receive the maximum amount of permissible regional aid. The criteria to be used in delineating these maps are not dissimilar to the Structural Funds rules. The second factor is that the level of permissible grant aid will be sharply reduced. Over time, the level of grant aid support for the enterprise sector will fall. Again, tough choices will have to be made.

From an Irish perspective, the new draft regulations would appear to pose few problems. Projects now eligible for EU co-financing will remain valid after next year. Who gets what and how much will be a matter for the Irish Government to decide. Power and control of expenditure at operational level will transfer to Ireland. How much Ireland gets will be decided independently of the adoption of the regulations.

Work on Ireland's development plan for the seven-year period after 1999 can now begin in earnest. As it is almost certain that the flows of funds will drop more sharply from 2002, the Government should announce its policy on private investment in public infrastructure projects at the earliest possible opportunity.

Sympathy in EU circles for special pleadings by the Celtic Tiger is not too high at present. That said, a political "soft landing" has been promised. Thus the Government, as a consequence, should be able to secure a satisfactory outcome to what will be the most complex, comprehensive and difficult set of negotiations for many years for Irish negotiators.

Peter Brennan is director of the Irish Business Bureau, the Brussels office of IBEC and the Chambers of Commerce of Ireland