The possibility that EU member-states might divert resources from structural funds to agriculture in the Agenda 2000 negotiations has been denounced by the Regional Affairs Commissioner, Ms Monika Wulf-Mathies.

The Commissioner's strong defence of structural funds was boosted yesterday by the publication of a major Commission report* on their success in helping the poorer regions of the EU to catch up with the rest. But she warned that if, in the negotiations on EU reform, member-states "go below the Commission proposals for €240 billion (£190 billion) in structural spending, the progress that has been shown in the report would be put in jeopardy".

"I would not accept any position that left agriculture untouched and considered structural funding as a mere savings bank," Ms Wulf-Mathies said. With concerns being expressed that major saving in farm spending will not be possible without jeopardising the strategy of reducing prices to world market levels, many in the Commission have been expressing concern that the focus of member-states' cost-cutting may turn to the structural funds.

The new report will provide valuable ammunition for the fight-back.

The report shows that, between 1989 and 1996, GDP per head in the 10 regions where it was lowest increased from 41 per cent to 50 per cent of the EU average, while in the 25 poorest it rose from 52 per cent to 59 per cent. One fifth of the population of the EU is still, however, below 75 per cent of the EU average.

In the four Cohesion countries - Ireland, Spain, Portugal and Greece - the trend was similar with income per head rising from 65 to 76.5 per cent, and to a forecast 78 per cent of the EU average in 1999.

The success story is the Republic is illustrated by figures which show its average GDP per head soared from 60 per cent of the EU average in 1989 to 105 per cent today (although on a GNP basis the latter figure is a much more moderate 87 per cent).

About half of these changes has been produced by closer integration of the European economies, the report says, while half can be attributed directly to the effects of structural funding.

Of the Republic, the report says "much of the growth has been driven by inward investment and the development of multinational enterprises in specific sectors, and there are concerns about the extent of linkages into the local economy and spill-overs into other sectors. This has given rise to doubts about the durability of high growth rates".

The report notes a significant failure in EU policies with important implications for the next round of funding. While economic activity has increased in the Cohesion countries overall, the employment situation has not improved.

"The relative increase in Objective One regions between 1988 and 1996 was entirely due to a larger increase in productivity than in the rest of the Union rather than to more jobs being created," the report says.

Between 1988 and 1993, GDP per person employed in the regions that had Objective One status rose from 76 to 79 per cent of the EU average and since 1993 to 83 per cent. Yet the number in work in relation to population of working age declined slightly in the first period and remained unchanged in the second.

In the 25 regions most affected by unemployment, the average rates have climbed from 20 to 24 per cent. Within these regions, some 60 per cent of those unemployed have been out of work for more than a year, compared to 30 per cent in the 25 regions least affected by unemployment. "Objective One regions have proved much less successful at creating jobs and reducing unemployment than they have at raising productivity and increasing GDP per head," the report says.

Ireland bucks the trend in having both substantial productivity growth and employment growth - GDP per capita of those employed in the Republic rose from 17 per cent below the EU average to 5 per cent above in the eight years from 1988 to 1996. At the same time, the proportion of those of working age at work rose from 51 to 58 per cent.

The Republic, the report notes, is one of the few countries in the western world where manufacturing employment is still increasing although it warns of the continuing high levels of long-term unemployment.

With Irish productivity now above the EU average the main challenge, the report argues, is to focus on employment.

The report also notes that part of the Irish success story is attributable to significantly higher levels of research and development, driven by multinational investment - 1.4 per cent of GDP (in 1995) compared to Cohesion average of less than 1 per cent and an EU average of 2 per cent.

* Sixth Periodic Report on the Social and Economic Situation and Development of the Regions of the European Union, published by The European Commission