ECONOMY

An enlarged EU must prepare for a big hike in aid to poorest

BRUSSELS – An enlarged European Union will have to boost spending on its poorest regions by 50 percent from 2007 if it is to develop new members without stripping the most deprived areas of the old EU of vital aid, a new report says. The economic cohesion study, due to be approved by the European Commission tomorrow, will form the basis for the EU executive’s proposals in November for the bloc’s next seven-year budget plan for the period 2007-2013. The report recommends that spending on so-called structural funds for poor regions rise to 47 billion euros ($50.8 billion) a year from 2007 in a 25-member EU from 33 billion euros at present in the 15-nation bloc. That would, for the first time, put regional spending at the same level as EU agricultural support, which is due to rise to 48.5 billion euros a year by 2013 from about 45 billion euros today. «It is unthinkable that with the social divide introduced by enlargement, we could keep the same spending level,» a senior Commission official said, while acknowledging that the EU’s richer members were looking to reduce their contributions. The report’s key recommendation seems likely to spark fierce opposition from EU paymasters Germany, Britain, France and the Netherlands, which won a commitment on «budget discipline» after 2006 at a summit on enlargement funding last October. The increased regional spending could only be achieved if they agreed to increase their EU contributions. It may also meet resistance from the current main recipients of EU regional aid – Spain, Portugal, Ireland and Greece. Ten mostly poor East European countries are due to join the bloc in May 2004 and the EU hopes to admit even poorer Bulgaria and Romania in 2007. Enlargement will greatly increase the wealth gap in the EU. The spread between the 10 percent of the population living in the richest regions and the 10 percent in the poorest areas will double next year. In a 25-member EU, 116 million citizens, or a quarter of the total population, will live in regions where output per capita is less than 75 percent of the community average, entitling them to the highest level of regional aid. The report divides an enlarged EU into three groups. The poorest eight new members – Poland, Hungary, the Czech Republic, Slovakia, Lithuania, Latvia, Estonia and Malta – will have a fifth of the EU population but on average only 42 percent of the gross domestic product per capita. Latvia has the lowest with just 37 percent. The second group – old members Spain, Portugal and Greece, and new members Slovenia and Cyprus – will have on average 71 percent of GDP per capita. The largest group of countries, with two-thirds of the EU population, covers the remaining 12 existing member states, with 115 percent of the EU average GDP per capita. The Commission proposes concentrating most EU funds on the first group. Two-thirds of structural funds would go to regions below 75 percent of the community average GDP. While several regions of Spain, Portugal and Greece, as well as France’s four overseas departments, would continue to receive aid, several east German states and most of Ireland would cease to qualify because of the changed criteria. To avoid a sudden shock, the Commission proposes a gradual phasing out of that aid up to 2013. It also suggests continuing to spend one-third of structural funds on aid to regions in the throes of economic restructuring.