Ireland to pay price of economic success by cuts in its EU funding


Ireland's gain is Ireland's loss. During the 1990s, Ireland's national income per head has grown dramatically to the point where it is now above the EU average. The accompanying graph shows just how well we have performed compared with other EU states.

The drawback of that good performance was outlined in detail by the European Commission in Brussels yesterday. Having received ú1 billion per year from the EU since 1994 for infrastructural, training and development purposes on top of ú1.5 billion to subsidise agriculture, Ireland must prepare for a much less generous regime. Ireland is no longer one of the less well-off member-states and cannot expect to be treated as if it is.

The contribution of the EU to total Government spending has been substantial. Last year, for example, Government spending was some ú15 billion, of which some ú2.5 billion came from the EU. The funds were designed to prepare less developed parts of the EU to compete with more developed regions in the Single European Market.

From 2000, Ireland must adjust over a six-year period to getting used to receiving substantially less from Brussels. Structural funding - for regional development and training - will be cut to just 20 per cent of what it is now. Farmers will receive substantially less price supports. And Ireland's cohesion funding will be cut off completely in 2004.

The success

During the 1960s, Ireland's average GDP per capita was 60 per cent of the EU average. In the 1970s, this rose marginally to 62 per cent and during the 1980s rose marginally again to 66 per cent.

It was during the 1990s that the figure really began to shoot upwards: to 79 per cent in 1992, 88 per cent in 1994, rising above the average last year to 103 per cent and projected to be at 107 per cent of the EU average in 1999. (The accession of new members to the EU at various times did not make a dramatic difference to the EU average).

Ireland's figures mark by far the most spectacular reversal of fortunes in all of the EU. By contrast, for example, the UK GDP per capita during the 1960s was 113 per cent but was just 98 per cent last year, overtaken by Ireland. The success means that Ireland now faces the loss of EU funds designed to help less well-off EU regions. The good news in yesterday's package is that the Commission intends this to be a phased loss - a "soft landing" in EU-speak - rather than an abrupt turning off of the tap.

Structural funds

During 1994-99, Ireland has been receiving roughly ú800 million per year in EU structural funds, designed to fund regional development and training. Ireland's economic growth during that time, however, means that this cannot continue.

The high payments to Ireland are due to the "Objective One" status assigned to it for the last round of disbursement of EU funding. That status is for the EU's poorest regions - those with less than 75 per cent of the EU average per capita GDP.

However, during 1994-96 - the period used for assessing funding entitlements for the next round - Ireland's per capita GDP was around 90 per cent of the EU average longer entitled to be in this most favoured Objective One category.

Preparations for the "soft landing" start now. Ireland's ú800 million a year share of EU structural funds will be substantially preserved in the first two years of the next century. However, it will then face substantial annual cuts until the year 2006, when we will receive just 20 per cent of the ú800 million we receive now.

To offset the drop slightly, Ireland may benefit from the allocation after the mid-term review of a 10 per cent reserve designed to reward those countries which make good use of the funding.

However, in 2006 we are likely to fall into the "Objective Two" category - that for areas going through industrial restructuring or rural decline. Arrangements for funding after that will be negotiated another day, with the likelihood of what will then be new EU states, such as Poland, Estonia and Slovenia, taking a substantial proportion of funding.

Cohesion funds Cohesion funds of up to ú200 million per year since 1994 have been used for major infrastructural projects, such as roads, water projects and Dublin's light rail project - should it ever happen.

To complicate matters, the criteria for qualification for cohesion funds are different than those for Objective One structural funds. During 1994-99, states with under 90 per cent of average EU GNP per head qualified for cohesion funds.

Ireland will qualify by the skin of its teeth until the 2004 midterm review of the next round of EU funding. Fortunately for us, eligibility is based on the average GNP per head during 1995-97, during which Ireland's figure stood at 85.7 per cent of the EU average. It has since risen above the 90 per cent threshold so Irish access to cohesion funding will almost certainly be cut off in the mid-term review. Greece, Spain and Portugal are the other member-states qualifying and all have lower GNP per capita figures than Ireland.

Up to 2004, Ireland will receive 9 per cent of the total EU cohesion fund, which amounts to some ú220 million per annum. After that, this source of funds appears certain to be cut off completely.


The Commission proposals detailed yesterday also contain the widely predicted pain for Irish farmers. Guaranteed prices for beef will be cut by 20 per cent, for milk by 15 per cent and for cereals by 30 per cent. The beef and milk price cuts will be phased over four years. The cereal cut will be made in one go in 2000.

The changes are regarded as absolutely necessary to bring EU prices down to levels where they may compete again on world markets, thus enabling the EU to sell its surpluses rather than putting them into costly intervention. In addition, the Union needs to reduce subsidies before several million farmers from eastern European countries join the EU and claim the same privileges.

Some farm organisations said yesterday the fall in subsidies to Irish farmers would be up to ú300 million each year. Commission sources put the figure closer to ú100 million. It is estimated that the changes will save an average family ú80 a year in food bills. Farmers will receive part compensation for the fall in the guaranteed prices.

The next step

The Commission proposals will now be the subject of lengthy negotiations at political level, expected to continue until early next year.

It emerged last night that the Government has asked the Commission whether it would be possible to sub-divide the State into regions for the purpose of seeking to preserve Objective One status for at least part of the State. However, the Commission appears hostile to this idea, with Regional Policy Commissioner, Ms Monica Wulf-Mathies, indicating last night on RTE's Six One news programme that such a plan would require real regional administrations to be set up rather than simply drawing convenient lines on a map.

The advantages of such regionalisation appear limited as EU funds are allocated on the basis of population. So if, for example, the west of Ireland was designated as an Objective One region, it would still receive a relatively small amount of EU funding due to its low population. Commission sources say that regionalisation would not significantly affect the total national take from the EU's funds.

Ireland has been seen both as the most successful at garnering EU funds and the best at using them. Its task now is to find a means to continue infrastructural development funded largely from its own wealth.