PLANNING FOR A SUSTAINABLE EUROPE? - TU Berlin

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Resources for regional policies from the EU increased almost tenfold from 3.7
billion ECU in 1985 to 33 billion in 1999, amounting to 0.45% of the EU’s total GDP (P.
Martin 1999:11). Although many beneficiary member states nevertheless continue to
argue in this vein, investment-for-cohesion arguments have not been backed this up with
credible results. None of the member states demanded to see these credible numbers,
however, since cohesion funding was not really based on economic development
rationales but on political reasoning. Since deepening integration, i.e. a progressive
implementation of the Single Market, provides an economic threat to the less competitive
regions in the EU, political intuition demanded that subsidies and other economic
incentives be provided for them in order to “sweeten” the deal. Given this political
nature of structural funding at the EU, cohesion policy was therefore never based on any
precise estimations of the true costs for poorer regions of accepting the EMU or further
enlargement (cf. Allen 2000:263). The accession of several lower income countries into
the EU in the 1980s simply made it politically necessary to institute a system of regional
transfers.
Despite this enormous financial commitment, the actual economic justification
behind cohesion policy remains deeply contested. Neo-classical theorists, for example,
since they assume perfect competition, argue that policy interventions in favor of lagging
regions are not necessary because 1) the process of integration itself will sufficiently
accelerate convergence between regions, and 2) even regions with lower levels of
productivity will still gain from trade based on comparative advantage.
This argument is contradicted by new theories of economic geography stressing
endogenous growth (see especially Krugman 1991). These theories emphasize the