Dividing the State into rich and poor areas for EU structural funding is the only way to guarantee balanced industrial development in the Border, west and midland regions, the Tanaiste has told the Government.
The Minister for Enterprise and Employment has submitted a memo to Cabinet saying there would be a dramatic increase in the level of both industrial State aid for such regions, along with higher EU investment, if they were allowed to retain Objective 1 EU grant status for the period 2000-2006.
The Government will consider regionalisation proposals made by the Minister for Finance, Mr McCreevy, in the light of Ms Harney's memo, tomorrow.
Because the State, as a single economic unit, has exceeded the income levels required to qualify for Objective 1 status, the EU Commission has offered a transitional arrangement, with a gradual reduction in all grant levels for the years 2000-2006. Rather than accept this arrangement, the Government is proposing to divide the State into rich and poor areas in order to secure extra EU funding and to produce more balanced economic development.
In recent years the IDA and other State agencies have found it increasingly difficult to attract foreign investment to the three most deprived regions, because of poor levels of infrastructure and their distance from ports and airports.
The official view is that, even with higher grant levels, such regions will still find it extremely difficult to compete with the more developed regions of the east and south for incoming industry.
The reality is that most foreign industrialists will not touch those areas, and will insist on going to regions that are already doing well.
"There is a clear imbalance in favour of Dublin, Cork and Limerick and the more developed regions," said a spokesman for Ms Harney, "and the Minister for Enterprise and Employment would favour a regional development approach, with a better balance between the various parts of the country".
The Minister for Finance, Mr McCreevy, is committed to dividing the State into two economic regions, which would allow Cos Donegal, Leitrim, Sligo, Cavan, Monaghan, Louth, Mayo, Galway, Roscommon, Longford, Westmeath, Offaly and Laois to benefit from full Objective 1 status during the next six-year tranche of EU funding, from 2000 to 2006.
They would also benefit from transitional status for the following six years. The Government would continue to pay maximum State aid, for industrial and other purposes, to those regions.
Fianna Fail TDs and senators from many of the wealthier counties objected strenuously to such a development at last Wednesday's meeting of their parliamentary party on the grounds that all regions should be treated equally. Dublin TDs, in particular, spoke of the need to address urban deprivation and unemployment blackspots in the major cities. They sought reassurances that extra Exchequer funding would be made available for these purposes.
In the absence of Mr McCreevy, they were assured the Minister would explain the situation fully to them at Wednesday's meeting and give the required commitments. Considerable pressure is, however, being exerted by Brussels for the Government to reach an early decision.
The EU Commissioner for Regional Affairs, Ms Monika Wulf-Mathies, has objected to any attempt by the Government to engage in what she described as "subsidy shopping", by dividing the country into economic regions in order to secure a higher overall level of EU aid.
She has insisted that if the Government embarks on a regionalisation programme, it must also engage in a process of decentralisation and devolve real decision-making powers to the new Objective 1 regions.
Irish officials have argued against the need for major change in regard to the devolution of power. And, given the Government's proposal to divide the State into two economic areas, with the poorest three regions in one and the five more developed regions in the other, it is difficult to see what kind of local democratic structures would be involved in regulating the new areas.