Central and Eastern Europe is preparing itself for Membership to the European Union. This challenge is historic, not because it is a new phenomenon, but because of the differences in development trajectories between Western Europe on the one hand and Central and Eastern Europe on the other hand. Fifty years of socialism have left behind both tangible and intangible infrastructures, which are not easy to eradicate. Never before has the European Union invited such a large group of countries which has had such a remarkably different social and economic system. This challenge will be especially large in the field of Structural Funds, the mechanism of the European Union that aims to achieve economic and social cohesion across the European territory.

Much emphasis in both academic and policy circles is now being put on the lessons that Central and Eastern European countries need to learn in order to qualify for the use of these Structural Funds. A recent initiative was the international conference on EU Accession and Regional Development, held in Tartu, Estonia. As became apparent during this conference, much progress still needs to be made in the fields of training, policy making, and above all institution building across the region. Governments and practitioners in Central and Eastern Europe are now aware of these challenges, and fully engaged in the necessary preparations for handling these Structural Funds. The European Commission, the executive body of the 15 Member states, has presented the guidelines, regulations and principles to which the candidate Member states will need to adhere. In addition, the European Commission has created support structures that aim to accelerate the learning curve. The Phare programme is the best known of these, while the Special Programme for Preparation to the EU Structural Funds (SPP) is the latest and most comprehensive initiative in this field.

But EU enlargement and preaccession should not be a one-way process, at least not in regional development policy. History shows that the joining of new Members has always coincided with adjustments and revisions of the Structural Funds, in order to suit the needs of the candidate Member states. The claim of this paper is therefore that EU enlargement and preaccession in the field of regional policy should be a two-sided adjustment process: not only the candidate Members should change, but also the Structural Funds themselves should adjust in order to achieve economic and social cohesion, the ultimate goal of all these common efforts.

This argument is being built up by a historic overview and a prospect of the Structural Funds, in which the impact of new Member states on the revision of the Structural Funds will be highlighted (Chapter 2). A short review will then be given about the current issues which are being faced by three selected countries, which are frontrunners in the EU Membership negotiations: Hungary, the Czech Republic and Estonia (Chapter 3). Common dilemmas will then be assessed (Chapter 4), followed by conclusions and some proposals (Chapter 5).

This contribution has taken into account the outcomes of the International Conference on ’EU Accession and Regional Development’, which was held in Tartu, Estonia on 15 and 16 June 1998.


2. Brief History and Prospects of Structural Funds

2.1 Brief History

Enlargement of the European Union is not a new phenomenon, and its consequences have always had a profound impact on the functioning of the Structural Funds. It can be quite constructive to see how the current system has emerged from consecutive interventions by various Member countries.

The beginning of a European-wide regional policy can be traced to the year 1958, when the six original Member countries (France, Germany, Italy and the Benelux) signed the Treaty of Rome. On request of Italy, the Treaty stated that considerable disparities of wealth existed between the different regions (Article 130), which was one reason for the establishment of the European Investment Bank, that could already be seen as an instrument of regional policy.

It was not before the Membership negotiations of Denmark, Ireland and the UK in 1973 that a European-wide regional policy became visible. Both Denmark and Ireland were facing the problems of lagging rural areas, and they succeeded in the establishment of a European-wide Less Favoured Area Directive, which allowed Member states to favour mountain areas, depopulated areas and other less favoured areas over other regions. But such an emphasis on rural areas was not in the interest of the United Kingdom, which started to face industrial restructuring problems in its central and northern coal mining and steel regions. This type of problems was not much different from those in the heavily industrialised coalfield regions of Lorraine in France, southern Belgium and the Ruhr in Germany (Williams, p.69). After several attempts, the European Regional Development Fund (ERDF) was established in 1975. The ERDF aimed to correct the principal imbalances in the Community resulting from agricultural preponderance, industrial change and structural unemployment. Obviously, the heavily industrialised coalfields, such as those within the UK, were among the primary target regions. Right after its accession, the UK became the second beneficiary of the ERDF, after Italy but far ahead of France and Germany. Promotion of innovation and the development of infrastructures were the main instruments of the ERDF at the time.

The enlargement with Greece (1981), Portugal and Spain (1986) widened the regional differences within the Union substantially. The size of the ERDF therefore had to be increased considerably as well, and regional policy was included as a formal competence of the EU as part of the passing of the Single European Act (Article 18). But the increased size of the Structural Funds rapidly made the management of the numerous individual projects problematic. This encouraged the preparation of programmes, the use of funds on the basis of properly thought-through strategies for regional economic development and multi-annual plans. During the 1980s, and following the innovative examples from the UK and notably Scotland, regional development strategies and plans were prepared as a basis for EU-programmes across Europe.

Quickly after Membership of the Mediterranean countries and as part of the preparations of the Single European Act (‘project 1992’), the debate about winners and losers within the EU intensified. The preparations of a single European market with free movement of goods, services, capital and labour made clear that weaker regions and groups were considered at risk. One policy response to this threat was the co-ordination of various Structural Funds. The European Commission proposed a framework regulation for the reform of these Funds, in such a way that the Regional Development Fund (ERDF), the Social Fund (ESF) and the Guidance Section of the Agricultural Guidance and Guarantee Fund (EAGGF) would be co-ordinated and integrated. The regulations, approved in 1988, resulted in a five-year operating period (1989-1993) in which five overall objectives were established. Objectives 1,2 and 5b were explicitly regional in nature and addressed lagging regions, areas coping with industrial restructuring and rural areas. The three Funds were combined through Community Support Frameworks (CSFs), Operational Programmes (OPs) and Single Programming Documents (SPDs).

But the poorer Member states in the periphery of Europe, notably in the South, were not satisfied with the increased redistribution efforts of the EU. To the contrary, the preparations for the Treaty on the European Union, better known as the Maastricht Treaty, paved the way for a monetary union - the next phase of the integration process. Richer and more centrally located countries were considered to be in a better position to benefit from monetary union than the poorer and more peripheral countries. In order to balance the spatial outcome of a monetary union, these peripheral Member states negotiated for further steps towards so-called economic and social cohesion. As a result, the Treaty on the European Union included such a commitment in Article 130a, stating that “the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions, including regional areas”. At the same time (Article 130d), a Cohesion Fund was announced, providing funding which contributes to economic development through transport and environmental improvement projects, allowing all Member states to join the final phase of economic and monetary union. The regulations for Structural Funds were revised once more for the programming period 1994-1999, and so were the lists of eligible regions.

In their efforts to influence the Structural Funds, the Nordic countries would soon join Southern European countries. In the beginning of the 1990s, Sweden, Finland, Norway as well as Austria started with their own preparations for EU Membership. Even though Norway finally decided not to enter the Union, it still influenced the negotiation process. Unlike previous enlargements, this enlargement round would not widen the regional differences within the EU. But the Nordic countries realised that regional and structural problems would continue within their nations, especially within the most peripheral and northern regions. As the negotiations occurred in the middle of a programming period, the Nordic countries also realised that it would not be possible to directly change the system. However, it was possible to create especially for Finland and Sweden a new approach for specific Nordic problems: Objective 6, which has as criteria sparse population, peripherality and rurality (Tienari, 1998).


Table 1. Breakdown of Structural Funds by country over time (period 1975-77 compared to 1994-99), in percentages

1. Includes only ERDF
2. Including all Objectives and Community Initiatives, excluding Cohesion Fund

As a result of the various enlargements over time, a relatively high percentage of the EU population (51%) is now covered by Structural Funds support. Over the years, individual or groups of Member countries have had considerable success in adjusting the Structural Funds to their own advantage and in obtaining their shares from the Funds (see Table 1). As an outcome, the overall Structural Funds mechanism is showing some major deficiencies that will need to be addressed in the near future.


2.2 Prospects

The experiences gained with the Structural Funds suggest that shortcomings do not relate so much to the effectiveness as well as to the lack of efficiency. One reason lies in the fact that the European Commission has to deal with a lot of detailed matters that should rather be left to national and regional bodies. Another reason is that large amounts of money are being spent in richer member states, which leads to the ‘pumping around’ of money (Molle 1998b).

To improve its efficiency, the European Union is currently preparing new regulations for the Structural Funds, as part of the Agenda 2000. In historical perspective, it is interesting to see that EU enlargement and reform of Structural Policies are again linked to each other.

Although the new regulations aims to prepare for accession of candidate Member states from Central and Eastern Europe, there are several reasons to doubt whether the new regulations will indeed suit the particular needs of these candidate Member countries. Some of these reasons are:

1. The process: the discussions on reform and on further enlargement have been separated so far. With respect to economic and social cohesion, the debate on the reform of the Structural Funds is predominantly an internal EU debate between the net payers and the recipients of the Funds. The candidates Members are not participating in this debate. Instead, they are focused on accession and on the adoption of the existing regulations, which will be outdated at the time of accession. This process has been named “shooting at a moving target” (Tienari, 1998).
2. Resources: the expenditures on Structural Operations will be fixed for the period 2000-2006, and the ceilings for candidate Member states are settled without their immediate involvement. To avoid major problems with regard to absorption, the level of annual aid should increase gradually, subject to the general limit of 4% of national GDP, which would apply to the Structural Funds and the Cohesion Fund together (CEC 1998). As a result, the resources for the candidate Member states would be about ECU 45 billion for the Structural Funds and the Cohesion Fund. This amount (out of ECU 275 bln. for the EU as a whole) may be justifiable for several reasons (De Vet et al., 1998), but there is no guarantee that this ceiling necessarily serves the interests of Central and Eastern Europe best.
3. Concentration: the gradual diminishing of funds for existing (richer) Member states is partially an effect of the strive for concentration of resources on areas facing the most severe problems. This trend is certainly positive for Central and Eastern Europe, but that is not necessarily the case with the reduction of the number of priorities, from the current seven to three Objectives. Like the Nordic countries, the specific problems of Central and Eastern Europe could well lead to the need for the establishment of specific Objective-areas, which can not yet be foreseen.
4. Decentralisation: in the future, the European Commission will focus its attention on strategic choices and leave a large portion of the implementation to the Member states. But recent experiences show that even advanced and experienced administrations in a wealthy country (such as Austria) have their problems to cope with European wide regulations (Schicker, 1998). It is therefore unlikely that the national and regional governments of Central and Eastern Europe will be fully prepared to deal with these challenges.

In conclusion, there is little proof that the future Structural Funds will be fully adapted to the needs of the candidate Member countries from Central and Eastern Europe. The following chapter will deal with the needs that are now emerging in the formulation of EU-based regional development policies across the region.


3. Current Issues in Selected Countries

In the Spring of 1998, and following the proposals from the European Commission, the European Union agreed with the start of Membership negotiations with five Central European countries, namely the Czech Republic, Estonia, Hungary, Poland and Slovenia. This chapter will highlight some of the issues that three of these more advanced countries are currently facing in the preparations for Structural Funds and the formulation of EU-based regional development policies.


3.1 Hungary

Hungary is among the most advanced of the new Central European countries. Preparations for the formulation of EU-based regional development policies started as early as 1993 and resulted in the adoption of the Act on Regional Development and Physical Planning in 1996, the first one of its sort in Central and Eastern Europe. The Act has set objectives for regional development and identified scopes of authority for Parliament and Government, including the National Regional Development Council. At the same time, the responsibilities of municipalities, county and regional development councils have been formally established, although these have not yet been fully worked out at all levels. For instance, the tasks of the regional development councils, acting at the NUTS II level, are rather vague and minimal. Recently, responsibilities at the national level have shifted after abolishing the Ministry for Environment and Regional Planning.

Hungary has prepared a National Regional Development Concept, and its Resolution has passed Parliament. Although the Concept makes some priorities and choices, a lack of long-term planning is still being felt, while the Concept does not provide a strategy for implementing these policies either.

The Hungarian regional development policy aims to support prioritised regions on the basis of county GDP. This indicator will be used for the measurement of regional differences and the identification and classification of priority areas. As a consequence, the number of beneficiaries has increased significantly. The implementation of the classification system, however, was delayed due to the late Parliamentary approval (Szalo, 1998).

It has so far been difficult for the Hungarian actors to live up to the expectations of the partnership principle. A recent study concluded that limited co-operation at the different levels of regional development has led to intransparency. The insufficient co-ordination of tasks can lead to unintentional overlap of work, which reduces the efficiency of regional development policy in Hungary (Rave 1998).

The institutions of regional development are not yet fully in place, and only limited experience has been built up so far. Although substantial responsibilities have been given to both counties and macro-regions on paper, a lot of decisions are still being made at central levels. Besides, some competition between the different regional levels can be expected. One problem relates to the difference between developmental regions (counties) and statistical regions (NUTS II). The co-ordination among ministries and between ministries and regional/local organisations is considered to be unsatisfactory (CEC 1997). The effectiveness of the National Regional Development Council has been limited so far (Rave 1998).

Hungary has not yet been able to organise co-financing in such a way that it matches EU Structural Funds. The European Commission’s opinion in this matter is that it has not yet become clear how the resources of regional development in Hungary can be matched to EU Structural Funds, so that the co-financing capability of Hungary cannot be correctly assessed. Furthermore, the funds earmarked for regional development are rather limited (CEC 1997). One obstacle lies in the contradiction between the annual budgetary planning and the requirement of a multi-annual commitment, flowing from the EU-based programming approach.

Overall, it can be concluded that Hungary is advanced in the formulation of an EU-based regional development policy. However, it has serious problems in the implementation of this policy, despite the fact that crucial parts have successfully passed Parliament.


3.2 Czech Republic

Until recently, the main goal of transformation in the Czech Republic was to decrease radically the participation of the state in the economy and to transform state ownership into private ownership and to reduce financial redistribution among regions, industries and companies. Yet, during these years the geographic discrepancies seem to have widened. The capital Prague has reinforced its role as the economic engine of the country. At the same time, two larger areas of economic and social difficulties have appeared, namely the old industrial regions of North Bohemia and North Moravia (Vozáb, 1998).

It was only in 1996 that, due to political changes, regional development policy was given new attention by the creation of the Ministry for Regional Development. Since then, Czech regional development policy has strongly focused on the preparations for EU accession. In a bid to prepare the Czech Republic for the implementation of the Objective 1 programme, which will probably cover the territory of the whole country, work has already been launched on three pilot programmes for the Structural Funds in selected ‘micro-regions’, largely co-inciding with the above-mentioned industrial regions (Most, Chomutov, Teplice/North Bohemia (Linek 1998).

Despite these efforts, the Czech Republic still lacks a national regional development policy. It is not clear whether the state sees regional development as an instrument for national economic development, or whether it is now committed to support the problem regions, which have emerged throughout the transition process. There is not yet a regional development strategy or concept in which priorities are established, and progress in this field has been rather limited so far. The government would also need to establish a legal, administrative and budgetary framework for an integrated regional development policy (CEC 1997).

Institutional problems are serious and the preconditions for decentralisation have not yet been met. The regional layer of administration is weakly developed. At district level, 77 bodies of state administration exist with general competencies. This weak regional level is the more problematic as the number of municipalities is excessively large (over 6 000), which leads to a large gap between national and local authorities and a limited potential for decentralisation.

Due to the above reasons, the Czech Republic’s ability to finance regional development initiatives is limited and the share of total public expenditure which could be used for co-financing EU Structural Policy cannot yet be determined (CEC 1997).


3.3 Estonia

Following re-independence in 1991, the transformation process in Estonia has been rapid and economic growth has been significant. Yet, the benefits of transition are unequally spread across the territory, favouring the capital region of Tallinn and hampering the developments elsewhere, especially in the rural South-East and the industrial North-East.

Regional policy has been based on the Concept for Regional Policy, approved by Government (but not by Parliament) in 1994. The Concept has been the basis for a fairly large numbers (seven) and somewhat unbalanced set of regional development programmes, which benefit large parts of the country. The European Commission’s view has been that there is a need for a more differentiated policy addressing regional disparities (CEC 1997). Estonia is currently finalising the preparations for an EU-based national regional development strategy, which will indeed be more targeted and focused than before. It will be a basis for three multi-annual regional development programmes, for less developed rural areas, industrial and military reconversion areas and other peripheral areas (Phare 1998). At this stage, it is not clear whether government will indeed approve all elements of this EU-based strategy, while the national political context makes a quick approval by Parliament unlikely.

Although institutional responsibilities have been clarified as part of the strategy process, several weaknesses remain in place. Inter-ministerial co-operation between the co-ordinating Ministry of Interior, the Minister for Regional Affairs and a range of sector Ministries is relatively weak, and the effectiveness of the National Regional Policy Council is limited. At the regional level, 15 counties operate quite effectively, but they are unlikely to be a sound basis for decentralisation: their size is relatively small and their autonomy as decentralised state bodies is limited.

The funds for Estonia’s regional development policy have so far been quite limited and fragmented, and the annual budget procedure prevents stability and continuity. The administrative and budgetary structures to manage the integrated EC structural actions are not yet in place, and Estonia’s co-financing capacity cannot yet be evaluated (CEC 1997).


4. Common Concerns and Dilemmas

Analysis of the current issues in EU accession in regional development point to a number of common concerns and dilemmas, that are relevant to both Hungary and the Czech Republic as well as to Estonia. These concerns and dilemmas, not unfamiliar to other countries in the region either, deserve a somewhat deeper treatment. The selected concerns and dilemmas are:

• Efficiency versus equality (Chapter 4.1)
• Programming (Chapter 4.2)
• Institutional aspects (Chapter 4.3)
• Financing regional development (Chapter 4.4)

Central and Eastern European countries are facing a fundamental dilemma. As pointed out by Kuklinski (1995), long-term strategic thinking would support the preference for efficiency, while short-term populist pressures support the preferences for equality, promoting policies to favour weaker persons, institutions, enterprises, localities and regions.

The reviewed Central and Eastern European countries have indeed GDP levels which are substantially lower than the EU average, leaving much room for catching up and for achieving economic and social cohesion in an enlarged European Union. In 1995, the GDP per capita stood at 57% of the EU average in the Czech Republic, 37% in Hungary and 22% in Estonia (Eurostat 1997). In the light of these challenges, the primary task of national governments is to allocate resources in the most efficient way, and to support only those activities, which are of the highest national interest. This goal leads more often than not to an emphasis on central and capital regions (Budapest, Prague, Tallinn), where relatively large amounts of wealth and prosperity are created, where foreign investment and tourism are concentrated, and where the return on investment tends to be highest. From an economic viewpoint, national development strategies should therefore focus on the promotion of macro-economic efficiency, and the overall improvement of competitiveness and prosperity wherever it offers the best chances.

Although it is commonly known that regional differentiation is characteristic of market economies, the emergence of extensive underdeveloped areas also constitutes a social problem for the society, primarily for the following reasons:

• the existence of underdeveloped areas creates social costs primarily due to an extensive need for social assistance
• increasing poverty, social marginalisation, black economy and crime in the underdeveloped areas destabilise the entire society
• the disappearance of settlements creates difficulties in the preservation of valuable cultural heritage and cultivated landscapes (Phare 1998)
• social problems easily lead to reduced political support, putting pressure on politicians to launch programmes and actions that aim to remediate severe unemployment and income problems, often at the cost of long-term adjustment (Kuklinski 1995).

The recent experiences from the Czech Republic, Hungary and Estonia show indeed that social arguments play an important role in the tendency of regional development policies to promote equality, in an attempt to balance differences in income and unemployment. All selected micro-regions in the Czech Republic are considered problem regions; low levels of regional GDP make Hungarian counties eligible for support; new Estonian regional development programmes focus on lagging rural, reconversion and other peripheral areas.

In striking a balance between efficiency and equality, Central and Eastern European countries receive only little guidance from the European Union. As a matter of fact, the Commission seems to promote two different notions at the same time, which appear to be contrary to each other and which often lead to confusion among the candidate Member countries. These notions apply to two different levels, namely the European and the national level:

1. Economic and social cohesion at the European level: in order to obtain economic and social cohesion, all areas with an average income under 75% of the Community average remain and will remain eligible for Objective 1 support, the most generous of all EU target regions. In Objective 1 areas, the European Commission extends its support beyond the usual infrastructure, business support and human resource measures into the fields of health care and education, by financing up to 75% of all public costs. In the case of Central and Eastern Europe, this implies that whole nations will qualify for Objective 1 status, including the capital regions, with the possible exception of Prague. This prospect requires that the preparations for Structural Funds be extended to virtually all sectors of public policy, far beyond the traditional domain of regional policy. Governments are required to prepare national development plans, in which macro-economic elements play an important role, demonstrated by the co-ordinating role of Ministries of Finance and to a less extent Economic Affairs. Such institutional set-ups are likely to lead to national development plans which emphasise economic efficiency rather than equality.
2. Targeting at the national level. The European Commission puts a strong emphasis on the concentration principle by restricting EU support to the real problem regions (those scoring worst on various indicators of regional welfare). This approach is not always compatible with national regional development policies, and has created difficulties in the recent past, both for new Member states (e.g. Austria, see Schicker 1998) and for existing one’s (e.g. the Netherlands and Denmark). Currently, and as mentioned in Chapter 2.2, the European Commission proposes to reduce the size and scope of eligible regions, from 51 percent to 35-40 percent of the EU population, and to focus on the most serious problem areas. The concentration principle is applied to the candidate Member states as well, by requesting a differentiated regional development policy addressing regional disparities (CEC 1997). The implementation of this concentration principle will foster equality rather than efficiency.

In the end, the tension between efficiency and equality within EU policies themselves tends to be resolved by launching national development plans (Community Support Frameworks), in which domestic regional development policy is included through one ore more regionalised Operational Programmes. This means that preparation for the Union’s Structural and Cohesion Policies implies the establishment of a domestic regional policy and a national economic development plan, together with the administrative and budgetary structures required to translate both plans into realities (Shotton 1998).


Table 2. The importance of regional programmes in Objective 1 Member countries *)

	Total EU support	Total regionalised EU support	Total regionalised EU support (as % of total EU support)
Ireland	ECU 5 620 mln.	ECU 257 mln.	4.6%
Portugal	ECU 13 980 mln.	ECU 3 144 mln.	22.4%
Greece	ECU 13 980 mln.	ECU 4 474 mln.	32.1%

*) Total EU support to Ireland, Portugal, and Greece in the period 1994-1999 in ECUs, excluding the Cohesion Fund
Sources: CSF Ireland 1994-1999, CSF Portugal 1994-1999, CSF Greece 1994-1999

Recent experience from Objective 1 countries shows that national governments have considerable scope for putting their own priorities within a national development plan (and Community Support Framework). The limited attention to regional development policy in Ireland is reflected in relatively small resources for an Operational Programme for Local urban and rural development. In Portugal and Greece, however, regional programmes play a key role within the national development strategy, channelling almost one fourth to one third of the total Structural Funds for these countries.

In the final analysis, the candidate Member countries of Central and Eastern Europe will need to strike their own balance in preparing a national development strategy, a balance between efficiency and equality.


4.2 Programming

The reviewed candidate Member countries (Hungary, the Czech Republic and Estonia) appear to have considerable difficulties in adopting the programming approach; implementing regional development policies on the basis of adopted strategies and multi-annual programming documents. At the national level, Hungary has its National Concept of Regional Development, but its implementation creates considerable problems. Estonia is preparing a national regional development strategy, which aims to be a broad and general plan with a horizon to the year 2010. In the Czech Republic, no such documents exist or are in preparation. At the regional level, programmes exist or are in preparation, but only in some regions.

Programming turns out to be a difficult process, not only in the candidate Member countries, but also in existing Member states. A Europe-wide assessment of the regional development planning in Objective 1 regions concluded that experiences vary considerably between countries and regions. Yet, there appears to be a consensus about the fact that the process of plan formulation is a lengthy, complex and labour-intensive exercise. Among the most common problems can be mentioned:

• Regional economic analysis of designated areas does not always correspond with statistical areas;
• Strategy formulation is difficult in areas which are very diverse;
• Ex ante impact assessments are very difficult from a methodological point of view
• Partnership is difficult to achieve in the absence of a regional level of government (Bachtler 1997).

These problems are likely to occur in the Central and Eastern European countries as well. Besides, the following problems are likely to hinder the programming approach even more:

• Limited reliable data at the regional level; as a legacy of the socialist period, register-based systems tends to be rather unreliable across this part of Europe. Sample-based systems tend to be more reliable, but samples are often too limited for drawing regionalised conclusions. As a consequence, socio-economic analysis at the regional level still poses many problems, providing a weak basis for regional policies and strategies
• Limited tradition in policy analysis. EU-based regional development policies emphasise a close link between socio-economic analysis and regional strategies, which requires sound policy analysis, including ex ante impact analysis. Although Central and Eastern European countries tend to have a strong academic tradition, the link between analysis and policy making is still limited. Government officials often see themselves as executors and administrators, and not as policy makers.
• Limited long-term perspective. By definition, the countries of Central and Eastern Europe are in a stage of transition, characterised by rapid economic and political changes. Within this context, it is difficult to draw up long-term strategies which are required for fitting the EU programming periods. These programming periods tend to become even longer over time (5 years for 1989-1993, 6 years for 1994-1999 and 7 years for the next period, from 2000 to 2006).
• Limited priority-setting; recent experiences in policy preparation in the region have shown that the establishment of priorities is still very difficult for governments in Central and Eastern Europe. In the absence of a tradition which promotes pro-active policy choices, risks lie in the dispersion of resources among many sectors and regions.
• Political clientism versus professionalism. EU programmes tend to be most effective and efficient in countries with a high professional working culture, where integrated sets of goals and measures achieve a high degree of synergy and cohesion. But the effects of professionalism can be easily countered when political clientism appears to be a stronger force. One reason why the first Greek Community Support Framework (1989-1993) turned out be a failure was because simple lists of unlinked projects had been selected mainly for their contribution to the reproduction of the clientist relations, which are claimed to be the essence of Greek policy and administration (Economou 1997). Time will need to show whether the administrations of Central and Eastern Europe will develop towards professionalism or towards political clientism.

This conclusion leads to another common issue which will influence the future success of EU-based regional development policies in Central and Eastern Europe: the establishment of sound institutions at national, regional and local levels.

The design, implementation and monitoring of Structural Funds programmes require a skilled and experienced administration. But the recent experiences of the Nordic countries and Austria have shown that even an advanced and experienced administration in a wealthy country has its problems in coping with EU-wide regulations (Schicker 1998), while EU pre-accession has proved to be a learning process (Tienari 1998). Within this context, the overview of Hungary, the Czech Republic and Estonia points to several institutional weaknesses that are likely to hold true for most Central and Eastern European countries:

• levels of competence; public sector officials across Central and Eastern Europe tend to be underpaid, which induces skilled and experienced personnel to depart and to join the private sector, where salaries have become higher
• intra-ministerial co-operation; working with Structural Funds in the form of integrated programmes requires intensive co-operation between sectoral and regional Ministries. Such co-operation is still in its childhood in most countries, and intra-ministerial relations are often characterised by animosity and feelings of competition
• intra-regional co-operation; at the regional level, the partnership principle requires that all public actors be involved in the formulation, implementation and monitoring of EU Structural Policies. Although the need for co-operation is increasingly perceived, the interaction between regions and counties (if existent) and municipalities is far from optimal
• national-regional co-operation; all stages of EU Structural Policies require intensive co-operation between national Ministries and regional actors. The co-ordination mechanisms between these levels appear to be not fully in place (Rave 1998). In Estonia, for instance, it is not entirely clear how the recently prepared county development plans should be treated at the national level.
• public-private co-operation; the partnership principle also implies that representatives of the private sector be involved in the formulation, implementation and monitoring of Structural Funds interventions. However, representatives of the private sector are not fully in place yet in the region, and a tradition of public-private co-operation is generally missing.

Overall, it is doubtful whether the various administrations within the region will be able to develop in such a way that they will be in a position to successfully prepare, implement and monitor the complex and extensive Structural Funds programmes. In the absence of a strong regional self-government, the conditions for decentralisation of management responsibilities in Structural Funds appear not to be in place, possibly with the exception of Poland and perhaps Hungary. As a result, more centralised approaches are likely to dominate, removed from the subsidiarity principle.


4.4 Financing regional development

The overview of current issues in Hungary, the Czech Republic and Estonia has shown that governments in Central and Eastern Europe have so far not been in a position to spend large amounts of money on regional development policies, at least not within the EU context. The overview has also indicated that the administrative and budgetary procedures for co-financing Structural Funds are not yet in place. In fact, the European Commission does not have an overview yet of the co-financing possibilities of the candidate Member countries.

Co-finance is a keyword in preparations for Structural Funds, which have in the early stages often been characterised as a ‘ship of gold’ or something alike. Mistakenly, because Structural Funds can only be used if national or other public authorities contribute as well. The policy implication of the co-finance requirement is that governments will be forced to organise national co-financing, one of the most important questions in the process (Tienari 1998), even in a relatively well-off country such as Finland. This supports the use of Structural Funds for fulfilling national and regional goals, and not for carrying out programmes and projects which have less than a top-priority.

Central and Eastern European countries are likely to face several challenges in funding and finance. The lack of resources is the most important one. For areas qualifying for Objective 1-status, which will be most of Central and Eastern Europe, the European Commission is prepared to contribute up to 75% of all public investment costs. This implies that an amount of 25% will need to be found elsewhere, which is an enormous challenge for governments with relatively small budgets. In the case of Estonia, for example, a total Structural Funds support equalling 4% of GDP could theoretically result in an annual Structural Funds support of ECU 400 mln., assuming a continuing economic growth over the years. This would require the Estonian public authorities to come up with a co-finance amount of ECU 133 mln, an amount which is higher than the current budget for all public investments, including many expenses that would not qualify for Structural Funds support (De Vet, 1998).

In addition to the expected lack of co-finance resources from national governments, several other common concerns are at play:

• Additionality is the principle of the European Union which states that Structural Funds spending should not replace, but be additional to the spending of national and other public authorities. This requirement, which is likely to be reinforced as part of the revision of the Structural Funds regulations, implies that large parts of the current government budgets could not be earmarked for co-finance, which makes these requirements even harder to meet.
• Governments in the region are working according to an annual budget system. Indicative multi-annual budgeting, required for earmarking Structural Funds, is not yet a common practice
• Regions are unlikely to play an important co-finance role. Several European countries, such as Germany, Spain and Italy, but even centralised France, have regional self-governments which have their own economic policies, instruments and funding sources. These regional funds are virtually inexistant in Central and Eastern Europe, which reduces the co-financing possibilities.

All in all, the co-financing requirements are a daunting challenge for the Central and Eastern European candidate countries. They could well turn into the most important bottleneck in the preparations for EU Membership in the field of regional development.


Conclusions and proposals

The preparations of the Central and Eastern European countries for EU Membership have started and negotiations with the European Commission have begun. This paper has attempted to give an overview of some issues in regional development which play a role in the pre-accession process. Some other, equally challenging issues, such as monitoring and evaluation, have not even been addressed.

So far, the history of Structural Funds shows that every round of enlargement coincides with changes in their functioning, allowing to suit the needs and interests of new Members. Even the Nordic countries, less influential because of their small populations and their relative prosperity, have succeeded in adjusting the Structural Funds to a considerable extent.

If there has ever been a need to adjust the functioning of the Structural Funds, then this is the moment. However, changes as proposed by the European Commission are not necessarily suitable or sufficient for the candidate Members, which have experienced a development trajectory which is so different from Western Europe. Clearly, the candidate Members are already making large efforts to comply with the Structural Funds mechanisms. In doing so, they sometimes overlook their own position, and the limits to the adjustment capacities within the region are within sight. A delay in the accession process would be a possible outcome of these tensions, but this is not necessarily in the interest of economic and social cohesion in Europe. A somewhat larger and different revision of the Structural Funds mechanism itself could help the accession process of the candidate states. Such an adjustment would not be unusual in a historic context. On the basis of the above analysis, changes could be proposed in the following areas of the Structural Funds:

As a conclusion, it is useful to repeat one point which was made during the International Conference on EU Accession and Regional Development, held only a few months ago in the city of Tartu, also in Estonia: “Cohesion policies, and the Structural Funds in particular, are potentially a great opportunity if wisely used. But the key words are wisely used” (Shotton, 1998, p.1). Perhaps it can be added that they should first be wisely revised.


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