Sustained welfare funding seen as cohesion aid to EU

Why do we help those less fortunate than ourselves? Pity? Moral duty? Or is it because we know that in helping them we also, ultimately, help ourselves?

The emergence in western societies of redistributive welfare states was very much a result of the spread of democratic rights and consequent political power to those who would benefit from such policies. Elsewhere there were revolutions. As one British politician put it bluntly in the 1930s, "welfare is the price we pay for the security we enjoy". Yet how is such a redistributive policy to be sustained in a political entity where power does not rely on a direct mandate, where the breath of the poor is not felt directly on the political necks of their rulers, in a political entity like the EU where member-states, not directly elected politicians, are the primary actors?

The answer is "with difficulty", as the four Cohesion countries are discovering in defending the budget for the EU's main redistributive instruments, structural and cohesion funds.

Essentially, the trick consists of answering two challenges: wielding a veto without overplaying one's hand, and convincing net contributors that their best interests are also being served.

A seminar in Madrid last weekend, organised by the Notre Europe research group of the former president of the Commission, Mr Jacques Delors, brought together senior politicians with EU officials and regional leaders from the Cohesion countries to discuss how the concept can be sustained as a central value of the EU.

The former Portuguese prime minister, Mr Annibal Cavaco Silva, introducing the seminar, argued that Cohesion was not an inevitable or natural phenomenon of industrial societies and that disparities will tend to increase unless specifically addressed.

Polls showed that 80 per cent of EU citizens regard the struggle against poverty and social exclusion as a key priority, he argued, and the reality still is that the richest region in the EU, Hamburg, has a per capita wealth four to five times that of the poorest. Cohesion policy is an important instrument for legitimising the EU, he maintained.

The average per capita income of the 10 poorest EU regions is just 30 per cent of the richest 10, but there is new evidence to show that the EU's Cohesion policies are working.

The poorest 10 regions have increased from 44 to 49 per cent of average EU GDP in the last 10 years, while the poorest 25 regions have gone from 52 to 58 per cent of the EU average. The per capita incomes of the four Cohesion countries - Ireland, Spain, Portugal, and Greece - have risen from 66 per cent of the EU average GDP in 1983 to 82 per cent in 1999.

Cohesion and structural funding has risen dramatically from 17.6 per cent of the EU budget in 1988 to 27.8 in 1992 to 36 in 1999, but it still represents only about one third of 1 per cent of EU GDP and is threatened by a real cut if current attempts by net contributors to freeze the EU budget are successful.

Continued support for Cohesion funding, Mr Cavaco Silva argued, can be sustained on three grounds: the moral case for equity, the need to create an efficient economic level playing field, and the need to avoid the social and political tensions that inevitably arise from inequality.

In making the case to the net contributors it is important to stress not the welfare nature of the transfer payments but the value of cohesion to the whole community, he argued. Estimates show that some 30 to 40 per cent of funding to poorest states flows back to richer ones in the form of know-how and capital equipment purchases. For every £20 spent by France on the four Cohesion states it receives £5 in extra export orders.

The danger lies in seeing such funding simply as a means of enticing the poorer countries to open their markets to the rich, a paper from Mr Delors warns. "Has Cohesion become an economic means and lost its status as a political objective?" it says.

The EU is faced with the choice "between, on the one hand, a minimalist approach where Cohesion is interpreted as a convenient payoff in a national-level bargaining process, and on the other a strategy for maximising the economic and political benefits of the Union for all its member-states, constituent regions and individual citizens. In making the choice Europe will define its future," the paper argues.

The Greek Finance Minister, Mr Yannos Papantoniou, warned that large disparities of income would undermine the stability of the single currency, a point taken up by the Labour leader, Mr Ruairi Quinn, who described the potential social consequences of EMU as "the dark side of the moon".

The head of the Italian Treasury Cohesion policy unit, Mr Fabrizio Barca, spoke of a tension between the two justifications for cohesion, equity and economic efficiency. As a concept it was less acceptable to the net contributors as a simple welfare mechanism, he argued. It was perhaps necessary to elaborate a formula for funding eligibility which would rely less on relative absolute wealth and more on relative growth rates, or dynamic inequality.

The Fine Gael spokeswoman on employment, Mrs Nora Owen, warned of the danger of three or four tiers of EU membership when the EU enlarged. We do not want integration "a mile wide but only an inch deep", she said.

Yet it is difficult to see how a sustained defence of the Cohesion principle is possible in advance of greater political integration, when the power of its population will really be felt by EU institutions. The reality today is that the plight of the poor of southern Spain matters not a lot to the vote-seeking politicians of Europe's North.