The European Union's regional aid grants will have only a slight effect on the Irish economy during the period 2000-2006, according to a report published yesterday. From Tim King in Brussels
The study of the effects of the EU's grants to Objective 1 regions concludes that economic growth in Ireland is no longer dependent on EU actions.
"From a macroeconomic point of view, Ireland has made it," says the report, written by Prof Jörg Beutel of Konstanz University, and commissioned and published by the European Commission's department for regional policies.
The report is a double-edged sword for Ireland: on the one hand, it reinforces the impression that Ireland has used EU money to good effect; on the other, it makes clear that EU funding will be phased out because the Irish economy is now in such good health.
Objective 1 funding is supposed to help the poorer regions of the EU catch up with wealthier regions. It has been granted to those regions with a gross domestic product less than 75 per cent of the EU average. For the period 2000-2006, the region of Border, Midland and Western qualified outright for Objective One funding of €1.3 billion. The region of Southern and Eastern was too wealthy to qualify but instead was given out phasing-out funding of €1.7 billion euros, but only because it used to have Objective 1 status.
Previous allocations of structural funds, in 1989-93 and 1994-99, have, Prof Beutel writes, "been so successful that Ireland in the future can dispense with Objective 1 interventions on a national scaleCommunity grants for objective 1 interventions in Ireland will be re-evaluated and gradually phased out."
Prof Beutel credits the EU's regional funding with having a significant effect on the Irish economy in the past. In the period 1989-1999, Ireland received the highest allocation of grants per inhabitant. "Today Ireland \ a nation whose welfare is well above the European average. This achievement can be attributed to a great extent to a successful European regional policy," he says.
But the EU could not garner the credit indefinitely. According to Prof Beutel, "economic growth in Ireland is not anymore dependent on Community actions".
In the period 2000-2006, the Irish economy was, according to the Commission' s autumn 2001 forecast, predicted to grow at an average annual rate of 5.94 per cent.
According to Prof Beutel's analysis, if there were no Objective 1 grants, then the growth rate would be slightly lower, at 5.88 per cent per year. The Objective 1 grants are made up of EU money, national money and private funding. If only the EU money were withdrawn, then GDP growth would be reduced only to 5.91per cent.
By contrast, the study argues that the Objective 1 programmes are much more important for other parts of the euro-zone.
The report argues that total levels of GDP in the period 2000-2006 would be 3.5 per cent lower in Portugal without EU funding for Objective 1 and 2.4 per cent lower in Greece. In Ireland, the difference would be only 0.4 per cent.
The EU has already cut back on its regional aid to Ireland. EU funding for Objective 1 projects in Ireland in the period 2000-2006 is €3 billion, which is less than 5 per cent of the National Development Plan's total of €57.1 billion investment.
Prof Beutel estimates that 13,000 of the employed population are dependent on EU grants for Objective 1 projects, around 0.8 per cent of the employed population. Withdrawing all Objective 1 funding, whether from EU, national, or private sources, would cut about 26,000 jobs, he estimates.
The Beutel study does not include analysis of the effects of the money that Ireland will receive from the EU's Cohesion Fund, which was established to assist in the early 1990s to assist the then four poorest EU countries: Greece, Portugal, Spain and Ireland. In the period 2000-2006, Ireland will receive between 2 and 6 per cent of the Cohesion Fund's €18 billion, making a maximum of €1.08 billion.
The future of the Cohesion Fund after 2006 is still unclear.
For structural funds, there is already a consensus that Objective 1 funding should continue but no agreement on how to set the criteria for qualification, which are complicated by enlargement and the admission of poorer regions. The European Commission will make proposals at the end of next year.